Corporate social responsibility on supply chains

Corporate social responsibility reporting has become a necessity to large firms. From 2007 to 2011, the number of companies that do CSR reporting almost tripled from around 2000 to 6000 (Chi, 2011). Manufacturing companies have been especially prompt to adopt social responsibility reporting. For some, this habit is adopted just to keep the consumers happy and motivated to buy. For others, it is to inform customers about the progress that these companies are making in sustainability initiatives.

On top of that, many companies have embraced auditors and consultants to advise them on the various efforts the manufactures can put in place. Virtually every sector of the industry also has a green initiative, such as LEED, Fairtrade, conflict-free minerals, and free range (Macdonald & Marshall, 2010). Firms are expected to track their carbon footprint and as well as that of their procurement, distribution, and transportation. They are also to monitor the behavior of their extended supply chains. There is also an expectation that companies adhere to inclusion and diversity in their hiring processes.

CSR reports however differ between corporations. This is especially so when it comes to the exact way the reporting process is done (Brown, 2007). The CSR mechanism is also widely known as the three P approach (people, planet and profit). Companies that perform well in the profit bottom line however seem to be rewarded better in the stock exchange even when they do not do as well in the people and planet bottom lines. Even then, even the largest corporations are being found at fault by their shareholders for incomplete reporting.

Stakeholders strive to ensure that their companies adopt those mechanisms that are safer even in cases where they are slightly less profitable (Majumdar & Nishant, 2008). One company that has found itself in trouble with regard to CSR reporting is Apple Inc. The company has shown reluctance in reporting how it measures its levels of carbon emissions. It has also been found wanting in the reporting of how it monitors its supply chains. The failure of Apple to join the Carbon Disclosure Project (CDP), an independent organization that facilitates the measurement, disclosure, management and sharing of climate change and water information has put the company on the spotlight. Apple has become the largest IT company that does not participate in the CDP, an initiative that has been adopted by over 3700 companies (Cruz, 2009; Majumdar & Nishant, 2008). This failure to disclose was recently complemented by the company’s involvement with Foxconn, a company in Taiwan that disregards the labor regulations. The Taiwan based supplier manufactures a majority of the company’s hi-tech products including iPads, iPods and iPhones.

The 2012 progress report by Apple also revealed a discrepancy in its operations. First, the organization reported that most of its suppliers do not meet the company’s limits of work hours. Others were found not to comply with the company’s workplace safety regulations or its hazmat management practices. To ease the pressure, the company became the first high-end company that to join the Fair Labor Association (FLA) by becoming associate member (Gattorna, 2009). This company would bear the sole and independent responsibility of reporting the company’s supply chain activities. This implies that major firms have slowly adopted the CSR reporting in their mechanisms. This paper reviews the implementation of CSR in company mechanisms, its impacts and benefits and how it can be improved.

Literature review

Pressure has been intensifying on global brands to ensure that their entire supply chains adhere to Corporate Social Responsibility regulations. According to Amaeshi, Osuji and Nnodim (2008), Brands like McDonalds, Adidas and Nike undergo intense pressure from groups that work for responsible supply chain management (Dargusch & Ward, 2010). Much of the pressure is directed to the companies but through their supply chains because the groups that assert pressure sometimes meet difficulty attempting to reach the global brands. They therefore adopt indirect methods like targeting the sourcing activities of the company and their tendency to exploit cheap labor conditions in certain countries.

Recently, the attacks have been very successful by hacking on the reputation of the companies. A good example is the pressure that has been often mounted on Apple over its exploitation of cheap labor by outsourcing from companies that are able to supply high quality products at very low rates (Spence & Bourlakis, 2011). These groups engender resentments against the global brands pursuing irresponsible ventures in their supply chains. The negative perceptions continue to exist irrespective of the position of the guilty supplier in the supply chain.

The pressure is immense in and firms are put under pressure to account for the actions of indefinite supply chains (Tripathi & Petro, 2011). In their attempt to protect their brands, the companies are faced with an even bigger challenge of controlling the irresponsible activities of their suppliers.

All stakeholders agree on some level of social responsibility. The global brands have therefore engaged in one form or the other of a social responsibility venture. One issue that has become extremely attractive especially to multinational companies (MNCs) is that of paying some rates to a company to watch over the suppliers for the company to protect its reputation (Dargusch & Ward, 2010). With the onset of such corporations, the pressure has been increasing significantly on supplies on all levels of the supply chains to be more socially responsible.

Organizations have found them in the position of having to integrate CSR into their entire supply chain management network. This has been done through a variety of ways and has been found to show a variety of impacts on the productivity and level of influence of companies.

Primarily, sustainable CSR has only been adopted in the past 20 years (Salam, 2009). In the early phases of its adoption, it mainly focused on the role of supply and purchasing management in improving environmental performance. It was then referred to as environmental purchasing. According to Gimenez and Sierra (2013), supplier assessment enables a company to avoid getting involved in unethical and illegal activities.

Gimenez & Sierra (2013), state that one of the primary challenges faced by firms is managing the sustainability of their supply chains. The article analyzes the efficacy of supplier assessment along with collaboration with suppliers towards enhancing environmental sustainability performance. The study found that supplier assessment along with collaboration with suppliers possesses a direct and synergistic impact on environmental sustainability performance. Companies have reacted to the environmental challenge through the development of strategies which extend their customary processes of corporate governance adopting the involvement of their supply partners. The authors find that the mainly visible extension is the execution of sustainable practices for instance codes of conduct for suppliers.

Gimenez & Sierra (2013), observed beyond 90 percent of globe’s largest 250 firms have implemented a code of conduct to monitor their supply chain. This study offers an empirical support sating that supplier assessment permits companies to examine a suppliers’ performance: this decrease the risk the supplier conducting themselves in an unethical or illegal manner. The study indicates that teaming up with suppliers, through training supplier workforce performed by the purchasing firm, plays a positive and crucial role in attaining environmental performance improvements. Thus by the purchasing firm training the suppliers workforce they contribute to the growth of supplier’s environmental sustainability capabilities and skills. Secondly, the purchasing the firm acquires greatly environmentally friendly services or goods. The study finds the Resource Based View as an excellent explanation and measure reasons why collaboration results into an improved environmental performance. Gimenez & Sierra (2013) observes that evaluation is a precondition for effectual knowledge transfer from purchasers to suppliers to enhance operational performance. Supplier sustainability risk evaluation allows execution of supplier management initiatives or instance training.

Though this study makes essential contributions towards sustainable supply chain research it carries some limitations. Firstly, the actuality that collaboration with suppliers assessment of suppliers along with environmental performance are evaluated generally and not towards a particular purchaser-supplier relations forms an essential limitation. Additionally, performance is only measured by use of self-reported data by purchasers and only from the viewpoint of the firm itself not a standard or universal measure.

Gilbert & Wisner (2010), study featured the unethical conduct by the globe’s biggest producer (Mattel Inc.) of toy products. Within a 19 months period Mattel Inc. between 2006 and 2007 recalled 14 million toys. This was due to two issues excessive lead levels on many toy surfaces and the existence of a small detachable magnet on some toys. The unethical issues concerned the firm’s product design and the production practices of the contractors along with subcontractors. The article observes that the company was facing a problem with regards to its worldwide supply chains. The toys were either spayed using unsafe lead paint or possessed potentially hazardous lead levels from the manufacturing materials (Jørgensen, 2003). The unsafe materials had delivered by suppliers who disregarded the supply chain ethics and the ultimate effect of the supplied product to the consumer.

Gilbert & Wisner (2010) observes that collaboration between Mattel Inc and its suppliers was missing since extensive investigations indicated the specifications given to the manufacturing subcontractors by Mattel were never followed necessitating suppler assessment and evaluation.  This was a serious issue since kids were extremely vulnerable to poisoning caused by the levels of lead amounts within the US. The article states that lead poisoning badly impacts and individual’s nervous system along with other bodily systems, moreover at sufficiently elevated levels it could cause death (McBarnet, Voiculescu & Campbell, 2007).  Though Mattel had testing procedures failed to detect the elevated lead contents resulting to the distribution of harmful toys. Since many of the firm’s subcontractors are Chinese and the actuality that elevated-lead-containing paint is very inexpensive in China, the subcontractors opted to using it in order to utilize less cost. Ultimately Mattel was involved in numerous legal issues and regulatory actions damaging its reputation.

This study shows just how much things may go wrong within the global supply chains if the company and individuals fail to behave in a morally ethical manner. Mattel was faced with issues of unsafe product design for failing to control its production processes (McBarnet, Voiculescu & Campbell, 2007). This document calls for vigilance for companies and its production entities towards responsible production processes and ethical supply chain management.

Wolf (2001) identifies that companies are progressively more incorporating sustainability within the supply chain management or SCM practices. Through this incorporation the objective is to attain sustainable flow with regard to products, services, capital and information with an aim of offering maximum value to every stakeholder. The article’s objective was to identify the factors that allow and hinder the incorporation of sustainability within SCM.   This study emphasizes that incorporation for sustainability harmonizes customary SCM incorporation through several ways (Manning, 2013). The capability of developing a greatly sustainable supply chain was associated to a fine-grained comprehension of expectations of numerous stakeholders as compared to a mere comprehension of just consumer expectations.  

Wolf (2001) emphasizes stakeholder incorporation as essential for a supply chain management that is sustainable. This calls for leadership towards successful sustainability strategies through provision of goals or objectives. Additionally, employees require being motivated to fully utilize their potential towards ensuring the sustainability.  Further, appropriate performance measures required to be initiated to ensure sustenance of the sustainable SCM integration. The article suggests that a firm require investing in training its human resource personnel to enhance know-how (Lindgreen, Maon & Swaen, 2009). Further, a close supplier association supports every level of SCM integration. The study observed that firms are reluctant to integrate SCM since they consider it to be expensive: the firms indicated that this process was cost intensive thus requiring a lot of finances for technology, training and time (Manning, 2013). Decision makers within SCM require incorporating outside upstream along with downstream supply chain associates also internal processes to ensure greater sustainable chains of supply.

Responsibility for sustainability ought to be shared throughout every function so as to attain better results. Additionally, it is right to incorporate sustainability objectives within performance assessment schemes. On the contrary, information technology incorporation all through the functions never plays much of a role in ensuring sustainability as compared to its impacts towards other internal integration. Firms require vetting suppliers prior to doing business with them: for instance, a firm should ask for suppliers performance conduct on sustainability which can be substantiated through verified certificates or site visits. This assessment criterion will give the firm an insight of the supplier’s ethicality and responsibility when it comes to supply management sustainability.

Rottig, Koufteros & Umphress (2011) states that organizational official ethical infrastructure could be linked to person’s moral awareness with regard to ethical situations, moral intention and judgment. The study asserts that a sturdy positive impact of moral awareness towards moral judgment possesses a direct effect on moral intention. Thus, the supply chain management unethical conduct can pertain to unethical choices motivated by personal benefits or company’s temporal gain. The supply chain management is among the mostly vulnerable line of work regarding unethical choices since there are numerous opportunities for abuse of decisions. Rottig, Koufteros & Umphress (2011) observes that considering the ever rising outsourcing tendency of goods and services, the amount of total cost associate with supply management has overtime been growing steadily.   Thus the pressure upon the supply management is huge because of global competition along with deteriorating economic setting. Ultimately, faced with the supply management pressure escalates the chances of making unethical decisions as supply management workforce: this is for the reason that the personnel succumbs to company’s demands for attaining otherwise unachievable objectives.

Rottig, Koufteros & Umphress (2011) states that supply chain management companies may be faced with many ethical challenges which may comprise: supplier preferential handling, revealing of clandestine bids, situational exaggerations to acquire better deals and so on. The study offers an additional dimension to supply management unethical issues namely: deceitful and subtle. For deceitful practices, a firm develops an alternative source to acquire competitive advantage, utilizes obscure conduct to acquire advantage over suppliers or exaggerates the critical nature of a certain issue to acquire concessions and intentionally luring a salesperson into negotiations. On the other hand for subtle conduct, a company awards preferential handling to a particular supplier, permit individuals to effect decisions or initiates specifications which favor a certain supplier. The supply management is also susceptible to unscrupulous staff conduct seek to serve their own individual interests within the workplaces.

Searcy & Morali (2013) observes that little research in the past has been conducted to determine the degree to which companies have incorporated sustainability principles within their supply chain management along with supplier performance evaluation. Incorporating the sustainability concept within the fundamental business function which falls under the supply chain management for instance, procurement and logistics has led to the rise of a critical field known as Sustainable Supply Chain Management or SSCM. According to Searcy & Morali (2013) study Canadian firms indicated that sustainability campaigns within the supply chain are usually an operational response for firms towards addressing the concerns of stakeholders. This means that companies place emphasis on SSCM strategies solely on the economic sustainability dimension and not to ensure ethicality, this in turn affects the scope of the firms’ assessment practices.

Searcy & Morali (2013) found that only 13% of the Canadian firms produce reports with regard to supply chain governance and with a majority of reports lacking lucid explanations concerning the governing bodies’ mandates. This manifests the actuality that there exists reduced emphasis towards assessing supplier performance compared to measuring a firm’s own success. Firms majorly focus on eco-efficiency like waste reduction also carbon footprint: this indicates less or no emphasis on assessing the products effects all through their life cycle. Many of the countries lack the regulations that require sustainability reporting: this leaves the extent of reporting and assessment to the stakeholders’ discretion.  Most firms limit their supplier compliance monitoring to codes of conduct along with other standards. Monitoring activities comprise of assessment guides, social impacts assessments, CSR audits and site inspections: clearly these methods show difficulties regarding conducting supplier audits. Firms seem to engage in less intrusive and inexpensive supplier assessment and monitoring activities.

Leppelt, Foerstl & Hartmann (2012) observes that supplier misconducts possess a considerable negative impact towards the company’s reputation along with its image. Further suppliers play a crucial role in guaranteeing responsibility within the supply channel thus their compliance is vital to the firm’s performance and operations. It is real that corporations cannot direct infinite resources towards regulating operations of the upstream suppliers along with sub-suppliers. Consequently, upstream suppliers act as corporations’ CSR gatekeepers: suppliers however shield themselves from direct public harm since they hide behind the corporation.

Leppelt, Foerstl & Hartmann (2013) identifies that recently corporations are becoming increasingly cautious of the suppliers sustainability compliance. This has been motivated the ever progressing number of reported cases regarding suppliers’ societal or environmental misconduct. Buying firms are thus progressively more reexamining and revisiting existing suppliers’ compliance against CSR-based measures. The top-tier suppliers require adopting sustainable supply channel so as to acquire competitive advantage within their respective client markets. The implementation of sustainable compliance extends several advantages to the supplier: firstly, it improves the chances of attracting more prospective buyer-firms who are looking to switch to CSR capable suppliers. Secondly, it could assist retain the current clients (buyer-firms) with regard to their CSR capability compliance. Leppelt, Foerstl & Hartmann (2013) states that in order for a supplier to attract and maintain clients they require to undertake several measures. To start with it ought to guarantee accountable upstream supply chain based on the set CSR-grounded practices of doing business. Secondly, the supplier needs to make the prospective and present clients aware of their CSR-based supply chain capacity via proper marketing along with communication.    Leppelt, Foerstl & Hartmann (2013) observes that most of the supplier companies lack this awareness or disregard the self advertising to clients since they view themselves as publicly inactive players. However, recent cases of their unethical supply channel conducts have transformed this situation making them publicly active players in sustainable products assessments. 

Paulraj & Blome (2013) observes that top administration ethical norms along with codes of conduct adoption affects purchasing social responsibility or PSR directly in addition to its indirect effect via ethical climate. Federal regulations, consumers and additional stakeholder expectations are progressively more applying pressure on companies to function responsibly.  Paulraj & Blome (2013) asserts that firms cannot react to the sustainable operations through solely emphasizing on their internal operations. But rather they require managing the whole supply chain to guarantee responsible and sustainable goods and services provision to satisfy all stakeholders’ demands.

 The top administrators’ decisions in adopting a climate that that will foster sustainable supplier tendencies is crucial. For instance an employee-based benevolent climate ensures that employees are dedicated and motivated towards ensuring that the supplier company complies with the existing CSR demands and regulations.   Thus instead of solely focusing on codes of conduct in encouraging employee compliance, the employee treatment by superiors could greatly more influence the firms attainment CSR goals and requirements. According to Paulraj & Blome (2013) superiors’ positive ethical conduct towards ensuring sustainable supply chain management additionally encourages staffs in learning proper behavior with regard to sustainability. Within recent times companies have realized that their suppliers are extremely significant not only in attaining cost reduction competitive advantage and innovation but also in accomplishing corporate social responsibility demands

Conclusion

The corporate world has been under intense pressure to implement CSR and its reporting mechanism. Failure to adopt such mechanisms has soiled the reputations of the companies involved like Apple Inc. Entire Industries have opted to create organizations like LEED to help them adopt a uniform mechanism for CSR. Some of these organizations have been charged with the role of monitoring the activities of the companies and their supply chains. Others have been charged with the role of researching on and providing mechanisms for the member companies to improve all their three P’s bottom line.

Adoption of CSR is also beneficial to the company. Adoption of CSR has improved the profit bottom line in various ways. First, companies that do not heed to CSR mechanisms are always in a negative spotlight hence suffering customer erosion. Second, once companies adopt CSR, they impress customers who are interested in supporting similar ventures. This way, these companies are shown to gain a good customer following. Finally organizations that adopt CSR mechanisms often find themselves making savings through environmental oriented activities like recycling and waste management (Lindgreen, Maon & Swaen, 2009).

On the other hand, research shows that lying about the corporate social responsibility of an organization is only profitable in the short-run. On the long-run, it causes detrimental effects that are directly correlated to the length of time it takes for the deception to be discovered.

It is important that companies adopt those mechanisms that are in accordance to their operations. Companies should also be intent to adopt mechanisms simply for the good of the people and the environment. Such organizations have been set-up to aid both in guarding the reputation of the company and in protecting the environment. If such activities are left uncared, there is a lot of likelihood that companies will adopt all mechanisms that are likely to be beneficial to the company while disregarding the community. This way, while the same organizations use the environment for their development and operations, they will not be taking care of it and may be threatening their own existence.

Future Direction

The reports show a variety of things regarding CSR. They however fall short in various ways. First, the reports do not show how subsidiary companies can participate in CSR mechanisms on their own. The reports show that the MNCs are often victimized for the operations of their entire supply chains regardless of the distance of the supply chain company to the MNC. This way, these organizations are almost always exempted from having to adopt any mechanisms themselves. In situations where suppliers have a high bargaining power, it is likely that such organizations will refuse to obey the mechanisms laid out by the MNCs. This way, the MNCs will be victimized for the operations whose activities they have completely no influence.

Another thing that needs to be researched is the relationship between the level of adoption of MNCs and the profitability of organizations. Such research should be in a position to answer: Does an improvement in the CSR mechanisms show a similar improvement in the profitability of an organization? While it may not be possible for certain organizations to adopt the mechanisms throughout their supply chains, some companies can adopt such mechanisms in certain points of their supply chains. There should be research to show if such activities would impact on the bottom line of the company.

References

Amaeshi, K. M., Osuji, O. K., & Nnodim, P. (2008). Corporate Social Responsibility in Supply Chains of Global Brands: A Boundaryless Responsibility? Clarifications, Exceptions and Implications. Journal Of Business Ethics, 81(1), 223-234. doi:10.1007/s10551-007-9490-5

Benchmarking tool for improved corporate social responsibility in purchasing. (2010). Benchmarking: An International Journal, 17(3), 340.

Blome, C., & Paulraj, A. (2013). Ethical Climate and Purchasing Social Responsibility: A Benevolence Focus. Journal Of Business Ethics, 116(3), 567-585. doi:10.1007/s10551-012-1481-5

Brown, G. (2007). Corporate social responsibility: brings limited progress on workplace safety in global supply chain. Occupational Hazards, 69(8), 16–20.

Chi, T. (2011). Building a sustainable supply chain: an analysis of corporate social responsibility (CSR) practices in the Chinese textile and apparel industry. Journal Of The Textile Institute, 102(10), 837–848.

Cruz, J. (2009). The impact of corporate social responsibility in supply chain management: Multicriteria decision-making approach. Decision Support Systems, 48(1), 224–236.

Dargusch, P., & Ward, A. (2010). Understanding corporate social responsibility with the integration of supply chain management in outdoor apparel manufacturers in North America and Australia. International Journal Of Business And Management Science, 3(1), 93.

Gattorna, J. (2009). Dynamic supply chain alignment (1st ed.). Farnham, England: Gower Pub.

Gimenez, C., & Sierra, V. (2013). Sustainable Supply Chains: Governance Mechanisms to Greening Suppliers. Journal Of Business Ethics, 116(1), 189-203. doi:10.1007/s10551-012-1458-4

Hoejmose, S., Brammer, S., & Millington, A. (2013). An empirical examination of the relationship between business strategy and socially responsible supply chain management. International Journal Of Operations & Production Management, 33(5), 589. doi:10.1108/01443571311322733

Jørgensen, H. (2003). Strengthening implementation of corporate social responsibility in global supply chains (1st ed.). Washington, D.C.: World Bank.

Karjalainen, K., & Moxham, C. (2013). Focus on Fairtrade: Propositions for Integrating Fairtrade and Supply Chain Management Research. Journal Of Business Ethics, 116(2), 267-282. doi:10.1007/s10551-012-1469-1

Leppelt, T., Foerstl, K., & Hartmann, E. (2013). Corporate Social Responsibility in Buyer-Supplier Relationships: Is it Beneficial for Top-Tier Suppliers to Market their Capability to Ensure a Responsible Supply Chain?. Business Research, 6(2), 126-152.

Lindgreen, A., Maon, F., & Swaen, V. (2009). Corporate social responsibility in supply chains (1st ed.). [Place of publication not identified]: Emerald.

Macdonald, K., & Marshall, S. (2010). Fair trade, corporate accountability and beyond (1st ed.). Farnham, Surrey, England: Ashgate.

Majumdar, S., & Nishant, R. (2008). Sustainable entrepreneurial support (in supply chain) as corporate social responsibility initiative of large organizations: a conceptual framework. The Icfai University Journal Of Entrepreneurship Development, 5(3).

Manning, L. (2013). Corporate and Consumer Social Responsibility in the food supply chain. British Food Journal, 115(1), 9–29.

McBarnet, D., Voiculescu, A., & Campbell, T. (2007). The new corporate accountability (1st ed.). Cambridge [England]: Cambridge University Press.

Morali, O., & Searcy, C. (2013). A Review of Sustainable Supply Chain Management Practices in Canada. Journal Of Business Ethics, 117(3), 635-658. doi:10.1007/s10551-012-1539-4

Rottig, D., Koufteros, X., & Umphress, E. (2011). Formal Infrastructure and Ethical Decision Making: An Empirical Investigation and Implications for Supply Management. Decision Sciences, 42(1), 163. doi:10.1111/j.1540-5915.2010.00305.x

Salam, M. (2009). RETRACTED ARTICLE: Corporate Social Responsibility in Purchasing and Supply Chain. Journal Of Business Ethics, 85(2), 355–370.

Spence, L., & Bourlakis, M. (2011). 11. Social responsibility in the supply chain: CSR or corporate social watchdogs?. Business Ethics And Corporate Sustainability, 164.

Tripathi, S., & Petro, G. (2011). Evolving Green Procurement and Sustainable Supply Chain Practices in the Organizations: A Framework to Align Functional Strategy Implementation to Organization’s Corporate Social Responsibility (CSR) Objectives. Management Convergence, 1(1), 24–32.

Wolf, J. (2011). Sustainable Supply Chain Management Integration: A Qualitative Analysis of the German Manufacturing Industry. Journal Of Business Ethics, 102(2), 221-235. doi:10.1007/s10551-011-0806-0