Session 2: Governance of Supply

Chains I: From Compliance to

Voluntary Standards.

1
 Approach to Sustainable Supply Chain
Management (SSCM): Overarching Framework

Preparing for
Framing the Issues Assessing Impact
Implementation

Session 4: Sustainable Supply

Session 1: From Sustainable Chains as a Lever of
Development to Sustainable Competitive Advantage
Supply Chains
Session 5: Integrating
Sustainability into the Supply Session 8: Measuring and
Chain Communicating on
Session 2: Governance of Sustainable Supply
Supply Chains I: From Chain Performance
Compliance to Voluntary Session 6: Managing
Standards Stakeholder Relations

Session 3: Governance of Session 7: Building Supply

Supply Chains II: Introducing Chain Partnerships
International Labour
Standards 2
 Session Objectives

 Consider the impact of globalisation on industrial

organization
 Explore common definitions, typologies and
importance “governance” in the context of global
value/supply chains
 Highlight the variables that influence how supply
chains are governed and the roles of internal and
external actors in parameter setting and enforcement.
 Outline emerging trends and implications for buyers,
suppliers, and policy-makers.
3
 Session Outline
Unit 2.1: Introduction: Globalization and Industrial
Organization.

Unit 2.2: Defining Supply Chain Governance

Unit 2.3: Basis of SC Governance (market-based;

regulatory-based and voluntary).

Unit 2.4: Parameter Setting and Enforcement:

Actors and Instruments

Unit 2.5: Conclusion 4

 Unit 2.1: Introduction

Who is responsible
for ensuring sustainability in global
supply chains, and why?

5
 Globalisation and SCs

 Trade liberalisation and improvements in information

and communication technologies.
 An era of hyper-optimization of supply chains.
 Sourcing and outsourcing of non-core activities span
across national and continental boundaries.
 Complex global networks of suppliers, plants and
distribution channels (suppliers’ suppliers and
customers’ customers).
 Quest for cost reduction and profit maximisation

6
 Globalisation and Supply Chain
Governance
 Governance Gaps: Lack of government regulation or
weak controls
 Limitations of National government regulation on
complex, geographically fragmented supply chain
transactions
 Global assessment of SCs by various stakeholders.
 Pressure for businesses to construct sustainable SCs.

7
Unit 2.2: Defining SC Governance

What does the term

‘governance’ mean?

8
 Defining Governance

Governance
The formalization of the relationships among the members and
their collective accountability to those outside of the network or
partnership (IISD).

Multistakeholder Governance (UN Commission on Global

Goverannce)
The sum of many ways individuals and institutions, public and
private, manage their common affairs. It is a continuing process
through which conflicting or diverse interests may be
accommodated and co-operative action taken. It includes formal
institutions and regimes empowered to enforce compliance, as
well as informal arrangements that people and institutions either
have agreed to or perceive to be in their interest. 9
Defining Supply Chain Governance

“Mechanisms used by different actors from within the supply

chain to influence and control the actions of other supply
chain partners” (Crisan, et al, 2011)

“The functional integration and coordination of internationally

dispersed chains” (Gereffi, 1999)
“The inter-firm relationships & institutional mechanisms
through which non-market coordination of activities in the
chain takes place”. (Humphrey & Schmitz, 2001)

“Some kind of steering of activities take place”

(Humphrey & Schmitz, 2000)
10
 Key parameters of Traditional
Supply Chain Governance

 What is to be produced? i.e. product

definition.
 How is it to be produced? i.e. process
definition.
 When is it to be produced?
 How much is to be produced?
(Humphrey & Schmitz, 2001)

11
 Importance of SC Governance

 Buyer has better understanding of market demands.

 Risk management: performance, conformance,
reputation loss, social and environmental risks.

 Market access for developing country producers.

 Channel for technical assistance.
 Distribution of gains.
 Acquisition of production capabilities.
 Leverage point for policy initiatives.
(Humphrey & Schmitz, 2001)
12
 Evolution of Supply Chain
Governance
 Until mid 1970s: Regulatory approaches common.
 Late 1970s – emergence of alternative SC governance
models (e.g. “Fair Trade”, Max Havelaar)
 Late 1980s: shift towards joint governance.
 1990s: Voluntary standards completing/ complementing
compliance approach.
 Emergence of non-traditional Supply Chain actors
 Corporations taking up more active role in Supply Chain:
Notion of shared Responsibility
 Changing relationship between business, government &
society. (Vermeulen & Seuring, 2009; Moon & Vogel, 2008; Moon, 2002) 13
The Supply Chain for Chocolate

14
 Video and Class Discussion

“The Outsourcing Report – Sweatshop Warrior” from

LinkTV, USA available on youtube:
http://www.youtube.com/watch?v=ZPmXiQKjRpw&fe
ature=related

Pay attention to the key actors and process

definition issues raised.

15
Unit 2.3: Modes of SC Governance

 Market-based interactions.

 Government regulations.

 Voluntary initiatives.

16
 Rationales for Market-based
SC Governance:
Produce in-house or source from suppliers:

1.Complexity of transactions e.g. concerns about IP and

competent suppliers (e.g. airline, nuclear energy)

2.Ability to codify information – lead firms decrease

complexity through the development of technical and process
standards; certify product quality; labour and environmental
processes, etc.

3.Capability of suppliers: where supplier competence is high,

lead firm will outsource (e.g. in garment, computing)
(Gereffi et al, 2005)
17
Market-based SC governance
(Gereffi et al, 2005)

18
 Government Regulation

 Government standards are compulsory e.g. UK Food

Safety Act.
 Product bans e.g. EECA ban on ozone depleting
refrigerators.
 Compulsory information instruments e.g. EU energy
rating labels and CO2 emissions for new cars.
 Economic incentives (taxes, subsidies, and public
procurement) to drive change e.g. renewable energies.
 National Eco-label schemes e.g Blue Angel in Germany.
 Government backing voluntary standards e.g Fairtrade,
Sustainable Forest Management Standards.
19
 Voluntary Initiatives

Collaborative and fills ‘regulation vacuum’

1) Single firm approaches: 1st generation (e.g. Marks &

Spencer; Boots UK, Patagonia)

2) Joint product/ sector approaches: 2nd generation (e.g. the

Forest Stewardship Council (FSC); Marine Stewardship
Council (MSC); Roundtable on Sustainable Palm Oil
(RSPO)).

3) Cross sectorial approaches: 3rd generation (e.g.

GlobalGAP)

(Vermeulen and Seuring, 2009; Hoskins, 2008) 20

 Forms of Voluntary Standards:

Guidelines (e.g. UNGC, ILO MNE Declaration, OECD

Guidelines, ISO26000)
Certifications (e.g. ISO14000, SA8000, etc ).

21
 Guidelines versus Certifications

 Guidelines are sets of best practices (e.g. OECD

Guidelines, ISO 26000).

 Certifications accredit and monitor suppliers, evaluate

respect of standards, audit, report and sanction
violations (e.g. Fairtrade, FSC, ISO14000, SA8000)

 Pros and Cons of Private Voluntary Initiatives, Codes,

and Certification Schemes

22
 Governance Actors and Instruments
Level Major Actors Examples of Instruments
Global UN and its agencies, OECD, UN Global Compact, ILO Core Labour
Multinationals Principles, ILO MNE Declaration, OECD
Guidelines,.
Regional European Union Sustainable Forest Management Guidelines;
Extractive Industries Transparency Initiative

Cross- ISO, GlobalGAP, NGOs (Fair ISO14000, ISO26000, SA8000, Fair Trade;
sector Trade, ETI, etc) Ethical Trading Initiative

Sector Industry associations, Guidelines in Forestry, Fishing, Agriculture,

corporations, NGOs, etc Mining and Metals, etc.

National Governments, NGOs, corporations, Government and expert guidelines, NGO

Trade unions, etc concerns, etc.

Local NGOs, consumer groups, Standards based on local concerns and

government, etc priorities. 23
 Reading and Brainstorming

Read Clarke’s (2005) “Manufacturing the Evidence” and

answer the following questions

1. Should developed country consumers be concerned about

labour standards in developing countries? Justify your answer.

2. In addition to proposed solutions in Clarke (2005), what other

measures could improve labour standards in supply chains?

24
 Conclusion
 Globalization and new modes of industrial organization, coupled with
the proliferation of NGOs and business initiatives, call for new
collaborative arrangements and governance

 Supply chain governance is the mechanism used by different

actors from within the supply chain to influence and control the
actions of other supply chain partners.
 In SSC governance, collaborative approach is critical to
successfully introducing sustainability
 Transparency, responsibility and accountability are key for
effective governance.
 Effective SC governance is the responsibility of all stakeholders.
26
 Economic issues covered
in voluntary standards

 Decent jobs.
 Bribery and corruption.
 Taxation.
 Building long-term shareholder/ stakeholder
value.
 Prices paid to developing country producers.

27
Social issues in Voluntary Standards

 Human rights and labour rights; (UNDHR and ILO).

 Marketplace and consumer concerns.
 Social development – Millennium Development Goals
(poverty, hunger, education, health care).

 Unfair business practices (bribery/ corruption and anti-

competition).

 Stakeholder involvement (communities, NGOs, Trade

Unions, etc); Mediation and Social Dialogue
28
 Environmental issues covered in
voluntary standards

 Resource depletion: Energy, forest, mineral and

metal resources.
 Environmental impacts: greenhouse gas
emissions (global warming), ozone depletion,
nitrification and acidification of soil, pollution, eco
toxicity
 Environmental standards focus on encouraging a
cleaner, safer and healthier environment for all.

29
 Additional References
• Clarke, E. (2005), “Manufacturing the Evidence”, Supply Management, Vol.
10, Iss. 11, pp. 28-29.

• Gereffi, G. (1999), “International Trade and Industrial Upgrading in the

Apparel Commodity Chain”, Journal of International Economics, 48: 37–70.

• Hoskins, T. (2008), “The ICSA Corporate Social Responsibility Handbook:

CSR and Non-financial Reporting for Business”, 2nd Edition, London, ICSA
Publishing, pp. 194-200.\

• Humphrey, J. and Schmitz, H. (2000), “Governance and Upgrading: Linking

Industrial Cluster and Global Value Chain Research”, IDS Working Paper 120,
Brighton: IDS. Available at:
http://www.ntd.co.uk/idsbookshop/details.asp?id=591

• Moon, J. (2002), “The Social Responsibility of Business and New

Governance”, Government and Opposition, Vol. 37, Iss. 4, pp. 385-408.
30