Socially Responsible Procurement Concept

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Introduction

Such a concept as socially responsible procurement (SRP) is relatively new; it emerged approximately fifteen years ago when it became clear that many international companies were conducting their business operations in an unethical way. SRP is a part of a broader set of regulations, which is called corporate social responsibility (CSR). According to it, the enterprise should take into account the interests of multiple stakeholders, namely, investors, customers, employees, and community; otherwise, its profitability may diminish (Russo & Perrini, 2010; Amaeshi et al 2008). This paper aims to single out and discuss the major components of socially responsible procurement. Furthermore, it is necessary to illustrate the practices, adopted by various businesses operating in different industries. On the whole, it is possible to argue that supply chain management is one of the core business processes, which is supposed to be sustainable and cost-effective, but this is not always compatible with the principles of socially responsible procurement. Therefore, we need to ascertain how this controversy is being solved by modern corporations. Yet, even despite this limitation, the benefits of SRP outweigh the expenses, associated with it.

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Socially responsible procurement: overview

This issue has been thoroughly discussed in many scholarly works. Many types of research analyze socially responsible procurement within the context of a particular industry, for example, food industry (Maloni & Brown, 2006), pharmacy (Watson et al, 2003), the manufacture of sports equipment (Hussain-Khaliq, 2004). This question is relevant to different areas of business. Yet, there has to be a general pattern that would apply to each of these industries.

In their article Craig Carter and Marianne Jennings (2002) mark out the following elements of SRP:

  1. protection of the environment;
  2. promotion of human rights and diversity;
  3. safety;
  4. philanthropy;
  5. fair trade.

Other researchers are more specific in their discussion, some of them focus their attention on the abolition of child labor and sweatshops (Hussain-Khaliq, 2004), while the others emphasize the importance of ecological safety of raw materials and health of the population (Maloni & Brown, 2004). It seems that each of these issues is an indispensable component of ethical supply chain management. However, the approach, suggested by Craig Carter and Marianne Jennings is more comprehensive as it encompasses all of these tasks. In the next section, we need to discuss each of them more minutely. Moreover, we need to explain why businesses should embrace the main tenets of this philosophy.

The components of socially responsible procurement

Promotion of human rights and diversity

One of the reasons why supply chain management attracted so much public ire was the violation of human rights, in particular the use of sweatshops and child labor (Carter & Jennings,2002, p 153). According to the principles of SRP, one of the companys main commitments is to ensure that its suppliers provide adequate working conditions and wages to the employees. At least, they should ensure that the vendors do not violate the labor laws of the state. This task is most vital for international corporations that operate in developing countries such as Vietnam, Malaysia, Bangladesh, and so forth. Several leading American companies such as Nike or Reebok were once involved in such activities (Cray, 2001). One of the reasons they had to curtail them was the increased criticism of the public organizations, boycotting of their products, and change in labor legislation in these countries. It should be borne in mind that in recent years, people, living in advanced countries attach importance to such notions as ethical consumerism, which means that they may refuse to buy products that have been manufactured in sweatshops or involved the use of child labor.

SRP should not be regarded as a protest against outsourcing or off-shoring. Neither government nor society can prohibit it but even if the company outsources some of its business processes to African or Asian regions, it does not mean the local workers may be reduced to inhumane conditions and this is one of the core requirements.

One may argue that the vast majority of consumers do not discriminate between ethical and unethical companies and that their primary concern is the price-quality ratio, yet according to the recent market research, SRP is an inseparable part of the brand, and most importantly this affects their purchasing decisions (Grande, 2007, unpaged). For instance, such corporations as Coca-Cola, Nestle, or Adidas enjoy considerable demand partly due to their fair logistics policies. Although, at the moment, socially responsible procurement is regarded mostly as a luxury it may soon become a standard for large and small businesses.

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Another issue, which is also significant for contemporary companies, is the promotion of diversity. This word has recently grown very popular among UK or U.S.-based companies. Usually, it is more applicable to HR management rather than logistics. Yet, Craig Carter and Marianne Jennings maintain that the firm, for example, a warehouse, can address diversity issues by recruiting minority employees, hiring women, or purchasing from minority business enterprises (2002). Still, it has to be admitted that it is not always compulsory or economically grounded. First, the firm does not necessarily have to purchase from a supplier, solely on the reason that he/she belongs to a minority group. Secondly, its primary objective is cost-efficiency rather than diversity. At this point, we do not take a stance against diversity in the workplace but this concept more and more reminds a buzzword that has lost its meaning. Furthermore, it is applied virtually to every business process though it is not always necessary or feasible.

Protection of the environment

Environmental issues occupy an important role in the process of procurement. The management of the company should cope with the following tasks: 1) to choose the supplier that uses eco-friendly technologies or at least does not violate environment protection laws; 2) to purchase recyclable containers and packaging; 3) to ensure proper documentation and labeling of hazardous materials (Craig & Jennings, 2002, p 153). It is possible to draw several examples, showing how the companies can adopt this policy. While discussing the logistics of the food industry, Michael Meloni and Michael Brown advocate the humane treatment of animals (2006, p 38). Food companies should ensure that their suppliers increase animals’ living spaces and provide access to sunlight and fresh air (Meloni & Brown, 2006, p 39). Currently, several corporations like McDonald’s or Burger King set higher standards for animal welfare protection.

We have to emphasize the idea that currently environmental protection is imposed mostly by governmental institutions and legislation. However, the growing consumers awareness of CSR may even further promote the use of ecologically safe technologies. In this respect, we need to speak about one of the challenges, faced by large and small businesses. As a rule, a supplier is only a partner of the firm; so, the management has virtually no control over its production processes. Apart from that, the company has to make sure that this policy will not hurt its profitability. Thus, socially responsible procurement greatly resembles balancing between ethics and the necessity to raise income level and it is often difficult to find a golden mean between these extremes. Nonetheless, the search for this golden mean should not be abandoned as shortly it can be the key to the survival of many enterprises.

Control over the safety of raw materials

It stands to reason that the safety of the product is one of the most important factors that can shape purchasing decisions of consumers. The role of procurement is essential as the quality of the product is strongly dependent on the raw materials, supplied to the company. This self-evident truth applies almost to every industry. We would like to discuss the examples which eloquently demonstrate this point; these are the pharmaceutical and food industries. The enterprises that operate in these areas are obliged to make their suppliers accountable for the quality of raw materials. Close supervision is a necessary precaution that can safeguard the company against many risks, like legal suits, fines imposed by the state, or/and limited demand.

Over the last decades, the community has grown increasingly concerned about various animal diseases, contagious viruses, etc. So, even a hint at the poor quality of raw materials, (especially meat or milk) can lead to a drastic decline in sales rates. This is why such international giants as Wall-Mart subject their suppliers to thorough supervision (Maloni & Brown, 2006). The same can be said about pharmaceutical companies, which strive to ensure that chemicals or organic substances, supplied to them are of the highest quality.

In this case, we can single out two pressure groups: governmental agencies on the one hand, and customers, on the other. To some extent, each of these groups is capable to inflict heavy losses on the firm, either through legal sanctions against the company or simply by refusing to buy their goods and services. Given the fact, that the modern market is extremely competitive, the enterprise cannot afford to compromise its reputation. Nevertheless, control over safety cannot be reduced to mere avoidance of fines or legal issues. The corporate image of several leading companies is based mostly on their ability to find the most reliable suppliers; one of them is Nestle, which is often viewed as a paragon of excellence in the food industry (Grande, 2007).

Philanthropy

Even though philanthropy is not directly associated with supply chain management, we can argue that it can also contribute to more responsible procurement. We should stress the fact that philanthropy is an act of discretion rather than an obligation (Carter & Jennings, 2002; 2004). No one can force the company to do such a thing. Thus, by conducting philanthropic activities the firm can underline its willingness to assist the local community. This assistance may include participation in local charities and providing help to the suppliers, donating obsolete or excess inventory to non-for-profit organizations, and so forth. Theoretically, this can serve several ends: 1) to establish better relationships with the community and gain the support of the government; 2) to make the partners better fulfill their obligations. Philanthropy is a very good way of gaining the favorable attitude of non-governmental organizations, mass media, and average citizens. All the more, it is one of the least expensive methods to attain this goal. The management of many private businesses postulates that their company genuinely cares about the needs of the community. Philanthropic activities can best prove that these words are not just lip service, paid to appease the government and citizens.

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Fairtrade

In this section, we are going to focus on some unethical techniques that some unscrupulous companies can occasionally employ to gain more profit. Not all of these behaviors are subject to legal persecution but they can significantly spoil the relations between the partners. Unethical conduct may take the following forms: 1) unjustified accusation of the supplier of carelessness in effort to receive indemnity; 2) the usage of vague contract terms which can put the supplier at a disadvantage; 3) creation of a fake competition (very often companies allege that they have received an offer from another supplier, these tactics are usually used to get discounts); 4) overestimation of demand (Carter & Jennings, p 2002, p 153).

Naturally, this list can be continued and there are other methods to gain an unfair advantage of the contractor. We have enumerated only some of those practices, which blatantly contradict every canon of business ethics. Some of them can go unnoticed but the problem is that these short-term gains do not justify the means. Contractors may even refuse to cooperate with the firm if they learn about such tricks. The thing is that a high-quality supplier is rather hard to find nowadays, and it is not very advisable to lose such a partner. The whole manufacturing process can come to a standstill if the company has an acute shortage of raw materials.

We deliberately do not refer to the moral implications of such practices; no one can deny the fact that they are impermissible. The point is economic aftermaths of unfair trade can be very ruinous to any enterprise. This example demonstrates that ethical and socially responsible procurement is not some necessity, imposed from outside, more likely it is a way to achieve sustainable growth. However, at the moment, a great number of enterprises try to search for easier solutions, forgetting that in this way they may reach a deadlock as every type of falsity may eventually reveal itself and the aftereffects can be disastrous.

The Importance of socially responsible procurement

In this section, we have attempted to analyze various components of socially responsible procurement and we can maintain that none of them can be disregarded. We can also say that the company may adopt this approach due to several causes: 1) the fear of economic decline or legal sanctions; 2) ethical consideration and 3) discretion. At present, the majority of companies adhere to the principles of socially responsible procurement only to the external pressure. Nonetheless, it is rather unlikely that they act of their own volition. The shift toward ethical management of the supply chain took place mostly due to public criticism, a decrease in sales rate, and the threat of fines. However, it should be mentioned that a company could derive other benefits from this policy. One of them is brand differentiation; while choosing any product consumers throughout the world become more and more sensitive of the companys business operations and entrepreneurial integrity is more appreciated nowadays than it was several decades ago.

Secondly, procurement is an important element of value chain management. By ensuring the high quality of raw materials, the company can add extra value to its product and increase its price. Most importantly, the customers will be ready to pay this price. Thirdly, this strategy can contribute to the improvement of business processes and confer the palm of supremacy in the field of new technologies. Still, these objectives can be achieved only if a socially responsible procumbent is voluntarily accepted rather than forced from outside. Finally, social responsibility must not be transformed into another meaningless buzzword that has been stripped of its former meaning. Such an approach neither improves the companys reputation nor boosts profitability. Unfortunately, the management of many enterprises only prefers to make a semblance of ethical procurement instead of putting it into practice.

Conclusion

The concept of socially responsible procurement has become very widespread in corporate circles. This term comprises the following components: 1) compliance with labor standards and promotion of human rights; 2) protection of the environment; 3) control over the safety of raw materials, 4) integrity in relationships with the suppliers and philanthropy. The company can stick to these principles due to external pressure or of its own volition. But the real benefits of socially responsible procurement became tangible only if the management willingly adopts this strategy. Lastly, the components of socially responsible supply chain management still require in-depth examination because each industry has its procurement routes, so the principles of SRT may differ as well.

References

Amaeshi, K., O. Osuji, and P. Nnodim. 2008. Corporate Social Responsibility in Supply Chains of Global Brands: A Boundaryless Responsibility? Clarifications, Exceptions and Implications. Journal of Business Ethics 81, no. 1: 223-234.

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Carter C. & Jennings M. 2002. Logistics social responsibility: An integrative framework. Journal of Business Logistics 23, no. 1, (January 1): 145-180.

Carter C. & Jennings M. 2004. THE ROLE OF PURCHASING IN CORPORATE SOCIAL RESPONSIBILITY: A STRUCTURAL EQUATION ANALYSIS. Journal of Business Logistics, vol.25, pp 145 – 197.

Cray. C 2001. Nike’s sweatshirt sweatshop. Multinational Monitor 22, no. 3: 4.

Grande C. 2007. Ethical consumption makes mark on branding. Financial times. Web.

Hussain-Khaliq S. 2004. Eliminating Child Labour from the Sialkot Soccer Ball Industry: Two Industry-Led Approaches. The Journal of Corporate Citizenship no. 13: 101-107.

Maloni M. & Brown M. 2006 Corporate Social Responsibility in the Supply Chain: An Application in the Food Industry. Journal of Business Ethics 68, no. 1, (September 1): 35-52.

Russo, A., and F. Perrini. 2010. Investigating Stakeholder Theory and Social Capital: CSR in Large Firms and SMEs. Journal of Business Ethics 91, no. 2: 207-221.

Watson S., Brooks R., Arnold T., Mason K., & McEachron C. 2003. VENDOR DIVERSITY IN PUBLIC SECTOR PURCHASING: THE CASE OF THE FLORIDA DEPARTMENT OF HEALTH. Journal of Public Procurement 3, no. 3: 320-337

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