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Ethical and Sustainable Sourcing

This document discusses strategic sourcing and ethical/sustainable sourcing strategies. It defines strategic sourcing as managing external resources to support long-term goals. Drivers include reducing costs and improving quality. Ethical sourcing attempts to consider public consequences of buying and create positive social change. Sustainable sourcing aims to meet needs without hindering future needs. Early supplier involvement techniques like vendor managed inventory and electronic data interchange help integrate suppliers. Developing strategic alliances with suppliers can provide benefits like access to new technologies. Negotiating agreements requires collaborative discussions to create win-win outcomes.

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87 views

Ethical and Sustainable Sourcing

This document discusses strategic sourcing and ethical/sustainable sourcing strategies. It defines strategic sourcing as managing external resources to support long-term goals. Drivers include reducing costs and improving quality. Ethical sourcing attempts to consider public consequences of buying and create positive social change. Sustainable sourcing aims to meet needs without hindering future needs. Early supplier involvement techniques like vendor managed inventory and electronic data interchange help integrate suppliers. Developing strategic alliances with suppliers can provide benefits like access to new technologies. Negotiating agreements requires collaborative discussions to create win-win outcomes.

Uploaded by

ADNAN
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Chapter 4

Ethical and Sustainable


Sourcing
Introduction

Sourcing - all of firm’s activities used to manage


external resources.
Strategic sourcing - managing the firm’s external
resources to support firm’s long term goals.
Drivers of Strategic Sourcing
 Reduce costs & delivery cycle times
 Improve quality & long-term financial performance
 Increase number of global competitors
 Increase customer focus
 Reduce high costs of globalization & materials,
 Deliver more innovative products more frequently &
cheaply than competitors
Ethical and Sustainable Sourcing
Strategies
 Business Ethics is the application of ethical
principles to business
 Corporate Social Responsibility is the practice
of business ethics
 Ethical Sourcing is that which attempts to take into
account the public consequences of organizational
buying or bring about positive social change through
organizational buying behavior
Ethical and Sustainable Sourcing
Strategies (Continued)

Ethical Policies should include –


 Determining where all purchased goods originated
and the manner in which they were made
 Knowledge of the suppliers’ workplace principles
 Inclusion of ethics as a performance rating
 Independent verification of vendor compliance
 Report of supplier compliance to stakeholders
 Provision of detailed ethical sourcing expectations to
suppliers
Ethical and Sustainable Sourcing
Strategies (Continued)

Sustainable Sourcing
 Green purchasing is aimed at ensuring products or
materials meet environmental objectives e.g. waste
reduction, reuse and recycling
 Sustainability is the ability to meet current needs of
the supply chain without hindering the ability to meet
future needs in terms of economic, environmental,
and social challenges
 Considers worker safety, wages, working conditions, human
rights
Ethical and Sustainable Supplier
Certification Programs
Supplier certification programs are used to
identify strategic supplier alliance candidates

Firms use in-house formal certification programs,


& most require ISO 9000 / 14000 or similar
certifications as part of the certification process

Buyers can monitor quality assurance methods &


specify the type of acceptance sampling &
statistical process control methods used
Outsourcing Products and
Services
Outsourcing allows a firm to –
 Concentrate on core capabilities
 Reduce staffing levels
 Accelerate reengineering efforts
 Reduce management problems
 Improve manufacturing flexibility.

Risks associated with outsourcing, include –


 Loss of control
 Production decisions & intellectual property
 Increased reliance on suppliers
 Increased need for supplier management
Outsourcing Products and
Services (Continued)

In-sourcing (backsourcing) –
Reverting to in-house production when quality, delivery,
and services do not meet expectations

Co-sourcing (selective sourcing) –


The sharing of a process or function between internal
staff and an external provider & provides flexibility to
decide what areas to outsource, when, and for how
long.
Early Supplier Involvement

Early supplier involvement (ESI) highly effective


supply chain integrative techniques
- Key suppliers become more involved in the internal
operations of the firm, particularly with respect to
new product & process design, concurrent
engineering & design for manufacturability
techniques
Value engineering activities help the firm to reduce
cost, improve quality & reduce new product development
time
Early Supplier Involvement (Continued)

Vendor managed inventory (VMI) –


Suppliers manage buyer inventories to reduce inventory
carrying costs & avoid stockouts for buyer

From the buyer-firm’s perspective –


 Supplier tracks inventories
 Determines delivery schedules and order quantities
 Buyer can take ownership at stocking location
From the supplier’s perspective –
 Avoids ill-advised customer orders
 Supplier decides inventory set up & shipments
 Opportunity for supplier to educate customers about other
products
Early Supplier Involvement (Continued)

Electronic data interchange (EDI)


 Allows a supplier to profile demand & determine accurate
forecasts
 EDI also provides reorder point data to permit timely
deliveries
Supplier co-location or JIT
 Supplier’s employee is embedded in buyer’s purchasing
department to forecast demand, monitor inventory & place
orders with access to sensitive files & records
Strategic Alliance Development

Alliance development, an extension of supplier


development refers to increasing a key or
strategic supplier’s capabilities.
 

Supplier alliances result in better market


penetration access to new technologies &
knowledge, & higher return on investment
 

Alliance development eventually extends to a


firm’s second-tier suppliers, as the firm’s key
suppliers begin to form their own alliances.
Negotiating Win-Win Strategic
Alliance Agreements
Collaborative negotiations (aka integrative
negotiations) –
Both sides work together to maximize the outcome
or create a win-win result
 Requires open discussions and a free-flow of
information between parties

Distributive negotiations –
Refers to a process that leads to self-interested,
one-sided outcome
Negotiating Win-Win Strategic
Alliance Agreements (Continued)

Steps Description

Gain an understanding of both parties’ interests;


1. Build preparation
brainstorm value-maximizing solutions; identify objective
process
criteria to evaluate fairness of agreement.

2. Develop Review previous negotiations to catalogue standards,


negotiation practices, precedents, metrics, creative solutions used,
database and lessons learned.

3. Design Create an environment to work together to create a


negotiation shared vocabulary, build working relationships, and map
launch process out a shared decision-making process.

4. Institute feedback Create process to provide feedback to negotiating teams


mechanism and capture lessons learned.

(Table 4.4)

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