1. SUPPLY CHAIN
MANAGEMENT
ETHICAL AND SUSTAINABLE
SOURCING

2. INTRODUCTION
Purchasing departments contributes in product design,
quality, cost of goods sold, manufacturing cycle time.
Ethical and Sustainable sourcing practices have become
area of concern over the past five to ten years.
Global population growth, increasing environmental
awareness, consumers desires for better corporate
responsibility, and declining worldwide levels of natural
resources has pressured companies to effectively implement
these practices.

3. INTRODUCTION
Creating and implementing strategies to support ethical and
green purchasing can benefits firms.
It may fail because of misaligned strategies, lack of
commitment, unrealized goals, and loss of trust in buyer–
supplier relationships.
Purchasing managers managing their firms’ supply chains
must understand that some sourcing strategies are better
suited to some supply chains than to others.
Some of these supply chains may be driven by a low-cost
overall strategy, while others may have the environment,
quality, or service as the principal objective.

4. ETHICAL SOURCING
Ethical sourcing can be defined as
“That which attempts to take into account the public consequences of
organizational buying or bring about positive social change through
organizational buying behavior.”
Ethical sourcing supports diversity by intentionally buying from
• Small firms.
• Ethnic minority businesses.
• Women-owned enterprises.
• Sourcing from firms with good labor treatment.
• Environmental protection credentials.
And discontinue purchases from firms that use
child labor or other unacceptable labor practices.

5. ETHICAL SOURCING
Purchasing goods from suppliers in developing
countries can be risky due to problems like human
rights, animal rights, safety or environmental
abuses.
Associated with these suppliers could lead to
negative publicity for the buyer, along with product
boycotts, a tarnished company image, brand
degradation, lower employee morale, and ultimately
lower sales, profits and stock prices.

6. This very thing happened to running gear
manufacturer Nike in the mid-’90s when they
contracted with Pakistani factories to make footballs.
Ultimately, the work was subcontracted to local
villagers, where children as young as ten were drawn
into the production processes. Similar problems for
Nike also cropped up in Cambodia and Malaysia. In
1998 CEO Phil Knight acknowledged that, “Nike
product has become synonymous with slave wages,
forced overtime, and arbitrary abuse.” Since then,
Nike has pledged to reform this image.
In Malaysia, for example, they admitted serious
breaches in conduct, reimbursed workers, paid to
relocate them and then met with representatives of
its thirty contract Malaysian factories for a
conversation about enforcing labor standards.
ETHICAL SOURCING

7. ETHICAL SOURCING
The Ethical Trading
Initiative (ETI) is an
alliance of organizations
seeking to take
responsibility for
improving working
conditions and agreeing
to implement the ETI
Base Code, a standard
for ethical practices for
the firm and its
suppliers.

8. Ethical Issues You May Encounter In E-Commerce
1. Inadequate Social Media Management
2. Incomplete Products Information
3. Selling via Social Media Groups
4. Unmanaged Customer Support
5. Delayed Shipments
6. Exaggerated Marketing
ETHICAL SOURCING

9. Protecting earth’s environment has been a subject of concern for many
years, it has more recently become a popular topic of debate as politicians
and voters have made global warming an election issue.
Growing out of this environmental awareness was the idea of green
purchasing.
Green purchasing is a practice that ensure that purchased products or
materials meet environmental objectives of the organization such as waste
reduction, hazardous material elimination, recycling, remanufacturing
and material reuse.
Green purchasing is defined as
“making environmentally conscious decisions throughout the purchasing
process, beginning with product and process design, and through product
disposal”
SUSTAINABLE SOURCING

10. Protecting earth’s environment has been a subject of concern for many
years, it has more recently become a popular topic of debate as politicians
and voters have made global warming an election issue.
Growing out of this environmental awareness was the idea of green
purchasing.
Green purchasing is a practice that ensure that purchased products or
materials meet environmental objectives of the organization such as waste
reduction, hazardous material elimination, recycling, remanufacturing
and material reuse.
Green purchasing is defined as
“making environmentally conscious decisions throughout the purchasing
process, beginning with product and process design, and through product
disposal”
SUSTAINABLE SOURCING

11. Sustainable Sourcing is defined as
“the ability to meet the needs of current supply chain members without
hindering the ability to meet the needs of future generations in terms of
economic, environmental and social challenges”
The objectives then are not only to sustain the world we live in, but to
sustain the organization as well.
Customers today are calling for higher-quality goods, greater varieties,
reasonable prices, lower lead times, and evidence of environmental and
social responsibility.
All of these issues are placing new burdens on supply chain managers
SUSTAINABLE SOURCING

12. Worldwide leading retailer Wal-Mart, already one of the global leaders in
supply chain management, has recently taken a leading role in terms of
advocating sustainability. One of Wal-Mart’s goals, for example, is to reduce
packaging five percent by 2013. This will not only prevent 667 metric tons
of carbon dioxide from entering the atmosphere each year, but it will also
reduce shipping and fuel costs. Ultimately, Wal-Mart wants to be supplied
100 percent by renewable energy, create zero waste, and sell products that
sustain resources and the environment. Wal-Mart expects all these actions
to reduce their costs considerably.
SUSTAINABLE SOURCING

13. Sustainable sourcing is one activity within the larger umbrella term of
sustainability it includes green purchasing, some form of financial benefit,
as well as aspects of ethical sourcing.
It has been defined as “a process of purchasing goods and services that
takes into account the long-term impact on people, profits, and the planet”.
Leading companies practicing sustainable sourcing seek to:
• Grow revenues by introducing new and differentiated sustainable
products and services.
• Reduce costs by increasing resource efficiencies, avoiding use of
noncompliant suppliers, and rethinking transportation and distribution
designs.
• Manage risk by managing brand and reputation, and developing
approaches for meeting regulations and for capturing socially and
environmentally conscious customers.
• Build intangible assets by further enhancing brand and reputation
through social and environmental responsibility.
SUSTAINABLE SOURCING

14. Strategic alliances is a formalized type of collaborative relationship
involving commitments to long-term cooperation.
Because of these relationships, suppliers are able to invest more of their
resources toward becoming specialized in areas required by the buyer and
invest in better technologies that will ultimately improve supplier
performance.
Ethical and sustainable supplier certifications are one way to identify
strategic alliance candidates or to further develop existing alliances.
Certifications like ISO 9000 quality certification and ISO 14000
environmental.
Other certification requirements might include, for example, the Forest
Stewardship Council (FSC) certification for recycled paper, Energy
Star certification for various environmental standards, or Fair Trade
certifications for social and ethical performance.
ETHICALAND SUSTAINABLE SUPPLIER
CERTIFICATION PROGRAMS

15. Strategic alliances is a formalized type of collaborative relationship
involving commitments to long-term cooperation.
Because of these relationships, suppliers are able to invest more of their
resources toward becoming specialized in areas required by the buyer and
invest in better technologies that will ultimately improve supplier
performance.
Ethical and sustainable supplier certifications are one way to identify
strategic alliance candidates or to further develop existing alliances.
Certifications like ISO 9000 quality certification and ISO 14000
environmental.
Other certification requirements might include, for example, the Forest
Stewardship Council (FSC) certification for recycled paper, Energy
Star certification for various environmental standards, or Fair Trade
certifications for social and ethical performance.
ETHICALAND SUSTAINABLE SUPPLIER
CERTIFICATION PROGRAMS

16. SUPPLY CHAIN
MANAGEMENT
Chapter 4
ETHICAL AND SUSTAINABLE
SOURCING

17. ETHICAL VALUES AT WALMART
https://www.youtube.com/watch?v=yZC4neLax5o&t=98s

18. SUSTAINABILITY AT GENERAL ELECTRIC
https://www.youtube.com/watch?v=6Ga2OwmBsTE&t=786s

19. OUTSOURCING PRODUCTS AND SERVICES
Over the years firms have opted to outsource the production of materials,
parts, services and assembled components to concentrate more resources
and time on the firm’s core business activities.
Outsourcing gives firms the potential to influence larger purchase volumes
to gain quantity discounts, particularly if purchases are concentrated among
fewer suppliers.
Outsourcing can also result in reduced staffing levels or the redeployment
of staff, accelerated reengineering efforts, reduced management problems,
and gains in manufacturing flexibility.
Outsourcing to highly capable and reliable suppliers can lead to improved
product quality and brand reputation in addition to lower prices, particularly
when the outsourced product or service is a core product of the supplier.

20. OUTSOURCING PRODUCTS AND SERVICES
These benefits must be weighed against the risks associated with
outsourcing, including loss of control, increased need for supplier
management, and an increased reliance on suppliers.
When outsourcing strategically important products or services, these risks
can be very significant.
In the petrochemical industry, for instance, supply chains are
lengthening geographically as basic chemicals and plastics are
transported greater distances from plants such as in the Middle East
to growing markets in China and India.
This is creating a demand for sustainable petrochemical supply
chains through network redesign, elimination of waste, full asset
utilization and greater volumes. Europe is leading the way in the drive
toward sustainable logistics

21. INSOURCING
Some firms experience problems with product quality, late deliveries, or
suppliers not living up to expectations.
In these cases, the outsourcing arrangement is unsuccessful and can result
in insourcing.
Forrester Research reports that 42 percent of buyers were unhappy, for
instance, with the level of innovation provided by their outsourcers.
Global financial giant JPMorgan Chase & Co. cancelled its IT outsourcing
agreement with IBM after only two years of what was expected to be a
seven-year, $5 billion arrangement.
Global energy company Chevron also recently arranged to bring back in-
house activities which were previously outsourced. This created a need in
Chevron to develop a careful long-term strategy for evaluating insourcing
and outsourcing activities.

22. CO-SOURCING
Co-sourcing refers to the sharing of a process or function between internal
staff and an external supplier.
In this arrangement, firms will retain the more strategic activities while
outsourcing the more resource-intensive, non-value-adding activities.
The firm is thus able to retain control over the most vital parts of a product
or service.
This also can be an appealing option for companies that have yet to create
long-term supplier relationships, are in transition because of a merger or
acquisition, or are facing financial problems.
For Example Software Firm and Call Centers

23. EARLY SUPPLIER INVOLVEMENT
A supplier representative input can help the firm to reduce material cost,
improve new product quality, and reduce product development time.
Cost reductions come about through use of more standardized parts, fewer
parts, and less-expensive materials.
Cost, quality, and delivery timing improvements all come about when
suppliers use the information gained through early supplier involvement
to design parts and processes at their own facilities to match the buyer’s
specifications.
Early supplier involvement is perhaps one of the most effective supply
chain integrative techniques.
Use of these value engineering techniques with help from the supplier
allows firms to design better quality and cost savings into the products from
the time a product first hits the shelves.

24. VENDOR MANAGED INVENTORIES
One of value-enhancing activities performed by suppliers when their past
performance allows customers to develop trust in their ability to manage
their inventories, such that inventory carrying costs are minimized and stock
outs are avoided.
From the customer’s perspective, allowing their suppliers to track
inventories and determine delivery schedules and order quantities saves
time, which may be better spent on more strategic sourcing activities.
For the supplier, it means they avoid ill-advised orders from buyers, they
get to decide how inventory is set up, when to ship it, how to ship it, where
it goes, and they have the opportunity to educate their customers about
other products.
Wal-Mart is generally given credit for popularizing the use of VMI in the
mid- 1990s when it initiated a relationship with Procter & Gamble to
manage its diaper inventories.

25. VENDOR MANAGED INVENTORIES
Collaborative form of VMI is termed co-managed inventories.
In this case, the buyer and supplier reach an agreement regarding the
buyer’s periodic demand forecasts, how information is shared, the
order quantity, when an order is generated and the delivery timing and
location.
This type of controlled VMI may be preferable for very high-value, strategic
item purchases, where the customer desires more input into the day-to-day
supply activities.

26. SUPPLIER CO-LOCATION
A more advanced and dedicated extension of the vendor managed
inventory concept is supplier co-location.
The concept refers to a situation where a supplier’s employee is
permanently housed in the buyer’s organization, acting as both buyer and
supplier representative.
This person is given all the rights and duties of an employee for the buyer
organization.
He/she forecasts demand, monitors inventory levels and places purchase
orders, and has access to all of the files and records of the buyer
organization.
This special arrangement requires high levels of trust from both
organizations and occurs only with long-term buyer–supplier relationship.
When Chrysler planned a $1 billion Jeep plant in Ohio, in 2004, they
partnered with three suppliers who would manage body, paint and chassis
operations.

27. SUPPLIER CO-LOCATION
Several advantages exist for both partners using supplier co-location.
1. Customer gets a cost-free employee who understands their problems
and requirements and who can easily communicate these needs to the
supplier.
2. The supplier gets the security of future purchases and the “first mover”
advantage of having someone on-site when new items need to be
purchased.
3. Communication between both firms also improves with this
arrangement.
4. The supplier representative learns very quickly about new products and
design changes occurring at the customer’s firm that are going to
impact the supplier.
5. This person also learns about production problems potentially caused
by the supplier’s products and customer service performance, and can
help to more quickly alleviate these problems.

28. THAT’S ALL