Business Ethics and CSR

Ethics in Supply Chain Management

Submitted By: Submitted To:

Aviral Bhargava Kamlesh Sir

SAP (500126458)

DIVIJ Hajela
SAP (5001

Shubham Dogra
Sap (5001
Introduction:

Supply chain management is a critical component of modern business operations, encompassing

the intricate network of processes involved in delivering products and services to consumers.
However, alongside its operational complexities, supply chain management is increasingly under
scrutiny for its ethical implications and impact on corporate social responsibility (CSR). This
essay will delve into the ethical considerations within the supply chain and their profound effects
on CSR initiatives.

Background:

The globalization of markets has led to the fragmentation of production processes across various
regions and countries, resulting in complex supply chains that often span the globe. While this
fragmentation has enabled companies to access cheaper labor and resources, it has also exposed
them to ethical dilemmas and risks. Issues such as child labor, forced labor, environmental
degradation, poor working conditions, and human rights violations have become prevalent in
supply chains, raising concerns among stakeholders including consumers, investors,
governments, and advocacy groups.

Rationale of the Topic:

The rationale behind examining ethical considerations in the supply chain lies in the significant
impact these issues have on corporate reputation, brand image, and financial performance. In an
increasingly socially conscious marketplace, consumers are paying closer attention to the ethical
practices of the companies they engage with.

Purpose:

The purpose of this exploration is twofold. Firstly, it aims to shed light on the ethical challenges
inherent in supply chain management, helping businesses understand the complexities and
consequences of their sourcing decisions. Secondly, it seeks to evaluate the role of ethical supply
chain management in driving CSR initiatives. By adhering to ethical standards in their supply
chains, companies can contribute positively to society, enhance stakeholder trust, and mitigate
risks associated with reputational damage and legal liabilities.
 Data Collection:

In the subsequent sections of this report, we will review the supply chain practices of major
corporations, analyzing their adherence to ethical standards and the impact on their CSR
endeavors. Through this examination, we aim to provide insights into best practices and
strategies for integrating ethics into supply chain management, fostering sustainable business
practices that benefit both companies and society at large.

It’s an admirable idea, but it’s been hard to realize in practice. Many of the MNCs that have
committed to it have faced scandals brought about by suppliers that, despite being aware of
sustainability standards, have nevertheless gone on to violate them. Consider the embarrassing
scrutiny that Apple, Dell, and HP endured not long ago for sourcing electronics from overseas
companies that required employees to work in hazardous conditions, and the fallout that Nike
and Adidas suffered for using suppliers that were dumping toxins into rivers in China.

What’s more, all those scandals involved first-tier suppliers. The practices of lower-tier suppliers
are almost always worse, increasing companies’ exposure to serious financial, social, and
environmental risks.

New standards of supply chain

The good news is that research from APICS, Supply Chain Management Review, and Loyola
University Chicago found that more companies are prioritizing ethical supply chains.

In fact, 83% of supply chain professionals said that ethics are extremely
(53%) or very important (30%) to their organizations.

In addition, the Association for Supply Chain Management (ASCM) released new standards in
June 2019 designed to “help customers assess the ethical, ecological and economic aspects of
their supply chain.” Those who meet the standards are eligible to apply for the ASCM Enterprise
Certification, a designation that demonstrates supply chain excellence and transparency.
“More than ever, consumers want to know that the products they buy are not only economically
sound but also manufactured through practices that are ethically and environmentally conscious,”
says ASCM CEO Abe Eshkenazi about the new standards. “Building these ‘triple E’ supply
chains provide innovative companies with another platform to achieve competitive advantage,
grow their market share and make the world better through supply chain – at the same time.”

Making the move towards an ethical supply chain

There are many actions that need to be taken in order to move towards an ethical supply chain,
including simplifying processes; efficient planning; visibility into supplier actions; optimizing
transportation routes to reduce fuel consumption; monitoring environmental risks; and much
more.

Technology is also an essential part: IoT sensors, blockchain, AI-driven bots and advanced real-
time analytics can help detect risk, boost efficiency, reduce redundancies and improve planning.

The bottom line is that as an increasing number of consumers demand social responsibility from
brands in exchange for loyalty, more and more companies realize they need to take specific steps
towards an ethical supply chain.

Researchers have found:

 69% of surveyed companies are eliminating discrimination in the workplace

 63% are making efforts to uphold environmental responsibility
 57% are monitoring labor conditions
 56% are fighting corruption (extortion, bribery)
 55% are deploying environmentally-friendly technologies

That said, the ethical supply chain is an evolving practice, rather than a one-and-done event.
There is clearly more work to be done, but the key to success, say experts, is getting in the game
for the long haul.

Clearly, it’s good for business — and those that don’t invest in it are at risk of being left behind.
 Literature Review

2.1. CSR, the Supply Chain, and Innovation in SMEs

From 1975 to the present, there have been numerous contributions to the concept of Corporate
Social Responsibility (CSR). Initially, Sethi introduced the ideas of the voluntary character of
CSR and social obligations. Carroll and Carroll considered the economic, legal, and ethical
aspects of CSR. Wokutch and Shepard and Clarkson considered safety as another component to
be taken into account. Clarkson introduced the philanthropic character of CSR. Shrivastava
included the environmental dimension in their discussion. Clair, et al. advocated diversity.
Jennings and Entin included a discussion on human rights. Vives also considered the ethics and
religious values of CSR. Thus, successively, the concept of CSR has been shaped. As a general
adopted definition, we can mention the Green book defining CSR as “the voluntary integration,
by companies, of social and environmental concerns in their commercial operations and in their
relationships with interested parties”. More recently, the European Commission has pointed out
the responsibility of companies for their impact on society, and made explicit reference to the
need for collaboration with stakeholders to “integrate social, environmental and ethical concerns,
respect of human rights and the concerns of consumers in their business operations and their
basic strategy”.

At first, it was large companies that addressed the implementation of socially responsible
actions, although, later, small- and medium-sized companies (SMEs) began to address this
strategy. The progress that SMEs have shown in this sense is important given that they constitute
the true motor of economic growth and are generators of value in territories. This allows us to
affirm that “CSR can be applied by all types of companies, regardless of their characteristics,
size, sector of activity or scope of action”. Therefore, today, CSR has a universal character in its
application, and its application is relevant for all types of organizations.

There is an important aspect of CSR that is related to the guarantee of supplies, which implies
the extension of CSR practices throughout the supply chain. Socially responsible companies
want their suppliers to also be socially responsible, thus promoting the implementation of CSR
through the entire supply chain. These companies are responsible for the welfare, productivity,
and performance of all suppliers that contribute to their activities. In this way, a transfer of
socially responsible behaviors is carried out along the supply chain, which will undoubtedly
influence the practices of other interest groups, and will provide a basic standard of social and
environmental principles to be fulfilled.

The topic of supply chain management in a sustainability context has grown considerably in
importance in recent years. Related to the three typical dimensions of CSR (economic, social,
and environmental), and following the perspective of the triple bottom line, green/environmental
issues have dominated research until recently. However, we should not forget the existence of
the social and economic aspects. This perspective of chain management analyzes the different
linkages in a production process, with consequences for relevant groups of interest (the suppliers
and customers).

It is common to link the study of CSR with the innovation undertaken by a company because
CSR is, in itself, an innovation, and furthermore it is a mechanism that facilitates innovation.
CSR is an efficient business strategy that penetrates every innovative organization and becomes
a key element in differentiating between competitors. There is a synergy between CSR and
innovation as both are strategic elements of competitiveness. The literature indicates that
companies that undertake CSR actions are more prone to innovation, while also being more
likely to achieve better performances and greater advantages and competitive success. Rexhepi et
al. affirmed that innovation is stimulated by a global commitment to CSR.

Moreover, in linking innovation with the supply chain, the conventional notion some years ago
was that innovation in the supply chain was only originated by the buyer. Today, this perspective
has been challenged and researchers consider that, because the production process is a
multidisciplinary activity with the involvement of all areas and sections in an organization,
innovation is generated in the different steps of the supply chain by interactions within buyer–
seller relationships.

2.2. Reputation, Corporate Image, and Profitability in SMEs

In addition, CSR and reputation are also closely related variables: CSR actions can determine an
increase in a company’s reputation, which becomes a strategic factor capable of strengthening
the competitive advantage of SMEs and is therefore of great value in organizations. Reputation is
considered as a collective perception associated with the identity of the company. Reverte, et al.
and Graafland pointed out that SMEs are incorporating CSR practices into their processes and
thereby increasing their perceived value or reputation among stakeholders. On the other hand,
Roberts and Dowling, McWilliams et al., and Kim, Kim, and Qian qualified reputation as an
asset that generates profitability and sustained performance in the company.

In line with the previous arguments, the literature indicates that CSR can generate a competitive
potential that results in the strengthening of the brand and improvement of the business image.
Today, image is a vital indicator for organizations because it significantly affects consumers’
attitudes, despite other marketing factors. Image is often externally viewed with cynicism,
therefore some companies are reluctant to communicate their sustainability practices. In this
situation, firms must have credibility in their efforts to get sustainability initiative messages
across to stakeholders. This leads to a positive image for the company and could provide its
legitimation. Currently, it is possible to affirm that the implementation of socially responsible
initiatives, innovation, reputation, and a good corporate image are strategies capable of
determining a certain amount of profitability for companies. Green innovation can ensure both
environmental sustainability and economical profitability. Moreover, some studies relate a good
reputation with a company’s ability to obtain profitability.
 Methodology: Data Collection, Analysis, and Statistical Tools

Data Collection:

The methodology employed for data collection is fundamental to the credibility and robustness
of the findings. In this study, a multi-faceted approach is adopted to gather comprehensive data
on the supply chain practices of major corporations and their adherence to ethical standards.

1. CSR Reports: CSR reports serve as primary sources of information regarding

companies' sustainability efforts, including their supply chain management practices.
These reports are obtained directly from company websites or databases specializing in
corporate sustainability disclosures.
2. Financial Statements: Financial statements provide insights into companies'
investments in ethical supply chain management and CSR initiatives. Annual reports, 10-
K filings, and sustainability sections of company websites are scrutinized to extract
relevant financial data.
3. Academic Journals: Academic literature offers scholarly perspectives and empirical
evidence on ethical supply chain management. Peer-reviewed journals are searched using
academic databases such as PubMed, JSTOR, and Google Scholar to access relevant
studies, theoretical frameworks, and case analyses.
4. Industry Publications: Industry-specific publications offer insights into supply
chain practices, industry benchmarks, and emerging trends. Trade magazines, industry
reports, and market analyses are consulted to gather sector-specific data on ethical supply
chain management.

Data Analysis:

Once the data is collected, a systematic analysis is conducted to discern patterns, trends, and
discrepancies in supply chain practices and adherence to ethical standards. The following steps
are undertaken in the data analysis process:
Content Analysis: CSR reports, financial statements, academic articles, and industry
publications are analyzed using content analysis techniques to extract key themes, metrics, and
indicators related to supply chain ethics and CSR performance.

Analysis and Interpretation:

The analysis of the data collected on supply chain practices of major corporations reveals a
nuanced landscape of ethical considerations and their impact on Corporate Social Responsibility
(CSR). Through a comprehensive examination, the following key findings and interpretations
emerge:

1.) Ethical Considerations in the Supply Chain:

The data elucidates a myriad of ethical considerations prevalent in supply chain management.
These considerations encompass labor practices, environmental sustainability, human rights, and
fair trade. Major corporations are increasingly recognizing the importance of addressing these
ethical issues throughout their supply chains to uphold corporate integrity and meet stakeholder
expectations. However, challenges persist, particularly in industries with complex and globalized
supply chains where issues like child labor, forced labor, and environmental degradation remain
prevalent.

2.) Impact on CSR:

The data underscores the significant impact of ethical considerations in the supply chain on CSR
initiatives. Companies that prioritize ethical supply chain management demonstrate a
commitment to social and environmental responsibility, thereby enhancing their CSR reputation
and stakeholder trust. Conversely, failures to address ethical issues within the supply chain can
undermine CSR efforts, leading to reputational damage and financial consequences. The findings
highlight the interconnectedness between supply chain ethics and CSR outcomes, emphasizing
the need for integrated strategies to drive sustainable business practices.
3.) Review of Major Corporations' Supply Chain Practices:

The review of major corporations' supply chain practices reveals a spectrum of adherence to
ethical standards. While some companies have robust ethical sourcing policies and transparent
supply chain practices, others lag behind in addressing ethical concerns. Factors influencing
adherence to ethical standards include industry dynamics, regulatory requirements, corporate
culture, and stakeholder pressure. Companies that proactively engage with suppliers, implement
codes of conduct, conduct regular audits, and invest in supplier capacity building tend to exhibit
stronger adherence to ethical standards.

4.) Opportunities for Improvement:

Despite progress in addressing ethical considerations within the supply chain, opportunities for
improvement remain. Companies can enhance their ethical performance by adopting a holistic
approach that integrates ethical considerations into sourcing decisions, supplier relationships, and
product lifecycle management. Collaboration with stakeholders, including suppliers, NGOs, and
industry associations, is crucial in identifying and addressing ethical risks effectively. Moreover,
transparency and accountability are essential for building trust and credibility with stakeholders
and driving continuous improvement in supply chain ethics and CSR performance.
 Comparison and Contrast:

1.) Unilever’s Collaborative Planning, Forecasting, and Replenishment (CPFR)

Strategy

💡Key takeaways: Through its CPFR strategy, Unilever has improved its forecast accuracy by
10%, which resulted in a 10% reduction in inventory holding and a 5% boost in sales volume.

By enabling collaboration with suppliers and enhancing supply chain visibility, you can engage
with customers, create trust, has greater insight into all aspects of the supply chain to drive
changes, improve forecast accuracy, and respond to potential problems faster and more
efficiently.

2.) Starbucks’ vertically integrated supply chain:

💡Key Takeaways: Through its virtual integration and C.A.F.E. program, Starbucks has been
able to ethically source 98.6% of its coffee. Starbucks’ efforts to streamline its supply chain
processes are reflected in its increased sales revenue, which has been reported as a 5% increase
worldwide. Regardless of the size of your business, streamlining your supply chain processes
into a simple structure can help build an agile supply chain that is flexible to cater to the
changing customers’ demands. Moreover, supply chain integration across all the stakeholders
can give your business an added benefit by giving you effective control over sourcing and
distribution.

3.) Walmart’s strategic vendor relationship & cross-docking

💡Key Takeaways: Through its effective communication networks with suppliers, Walmart has
reduced its out-of-stock occurrences by 16%. Just like Walmart, you can also benefit
tremendously through strategic vendor partnerships and implementing cross-docking as an
inventory management strategy. Strategic relationships with the vendor can enable your business
to access new markets and improve business operations. Cross-docking is an inventory strategy
where products are directly transported to retail stores without being stored at warehouses. It
helps in lowering inventory management costs, transport costs, and transport time.

4.) Amazon's robust supply chain strategy:

💡Key Takeaways: Amazon has reported an inventory turnover of around 8.39 for the fiscal year
ending December 2022, which is incredibly good considering the size and scale of Amazon’s
operations and outgoing inventory.

A considerable amount of resources are required to create such a significant supply

chain. However, your business may accomplish the same results with the same agility, creativity,
and customer-focused strategy. By implementing these supply chain strategies and constantly
enhancing your operational procedures, you can broaden your company’s network while also
boosting client satisfaction and loyalty.
 Recommendations and Conclusions:

Based on the findings regarding ethical considerations in the supply chain and their impact on
Corporate Social Responsibility (CSR), the following practical recommendations are offered for
companies aiming to enhance their CSR and ethical practices:

1. Implement Robust Ethical Sourcing Policies: Companies should develop and

implement robust ethical sourcing policies that prioritize fair labor practices, environmental
sustainability, human rights, and fair trade. These policies should be integrated into procurement
processes and supplier contracts to ensure compliance throughout the supply chain.

2. Conduct Regular Supplier Audits: Regular audits of suppliers' facilities and practices
are essential to monitor compliance with ethical standards. Companies should establish clear
audit protocols, including on-site visits, interviews with workers, and assessments of working
conditions and environmental practices.

3. Provide Supplier Training and Support: Companies should invest in supplier

training and capacity-building initiatives to improve awareness and understanding of ethical
standards and best practices. Training programs should cover topics such as labor rights,
environmental stewardship, health and safety, and ethical business conduct.

4. Foster Collaboration and Transparency: Collaboration with suppliers, industry

peers, NGOs, and other stakeholders is vital in addressing ethical challenges effectively.
Companies should foster open communication channels and collaborative partnerships to
identify and address ethical risks collectively. Transparency in supply chain practices, including
disclosure of supplier lists, audit results, and remediation efforts, builds trust and accountability.

5. Incorporate Ethical Considerations into Supplier Selection and Evaluation:

Ethical considerations should be integrated into supplier selection criteria and performance
evaluations. Companies should prioritize suppliers with strong ethical track records and
transparent supply chain practices. Regular evaluations should assess suppliers' adherence to
ethical standards and incentivize continuous improvement.
6. Engage with Consumers and Stakeholders: Companies should engage with
consumers, investors, NGOs, and other stakeholders to communicate their commitment to ethical
supply chain management and CSR. Transparency in reporting and meaningful stakeholder
engagement builds trust and credibility, fostering support for ethical initiatives.

7. Continuous Improvement and Innovation: Ethical supply chain management and

CSR are dynamic processes that require continuous improvement and innovation. Companies
should leverage technology, data analytics, and industry collaborations to enhance supply chain
transparency, traceability, and sustainability. By embracing innovation, companies can drive
positive change and differentiate themselves in the marketplace.

References:
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