Socially Responsible Procurement Program - Essay Example

TABLE OF CONTENTS CONTENTS PAGE NO Introduction 2 Corporate social responsibility and procurement programmes 2 3 Socially responsible procurement programme requirements 4 a) Objectives 5 b) Framework for the programme 5 c) Few flaws in the programme 6 4 Levels of socially responsible procurement 6 5 Examples 7 a) IAG 8 b) National wood flooring association 8 c) Bank Group 9 d) University of Michigan 10 e) British petroleum BP 10 6 Conclusion 11 SOCIALLY RESPONSIBLE PROCUREMENT PROGRAMME 1) Introduction In today's era the businesses have started participating actively in both corporate and social affairs regarding work and employee selection. Socially responsible procurement programme is a framework of measurable corporate policies and procedures and resulting behavior designed to benefit the workplace and the individual, the organisation, and the community. The procurement managers are struggling hard to do right things for the society like protecting the environment, conserving resources, treating people fairly etc. as they are struggling hard to do right thing for their business like improving performance, increasing efficiency and lowering cost. The companies in order to be successful need to cope up with the situation maintaining profitable performance and showing ethical conduct towards investors, business partners, vendors, employees, governments and communities, and the most important customers. The companies are routinely being rewarded and punished on the basis of their performance of balanced act. Thus procurement plays a major role in the outcome. 1. The six key attributes of performance which could show supplier relationship to the company are; (CIPS Professional procurement awards, fig 3) These all factors have to be taken into account when designing a socially responsible procurement programme. 2) Corporate social responsibility and procurement programmes Corporate social responsibility (CSR) can be split into four distinct classifications based on a theorist's approach and view of society. The role of business in society and its related theories fall into the following foundational areas: instrumental, political, integrative or ethical (Garriga & Mele, 2004). From the instumental perspective, participation in CSR activities is endorsed only if it is in concert with wealth generation, and therefore CSR is seen as an instrument in which greater profits can be achieved, a means to an end. In political setting, business is considered as a "citizen" or part of society as a whole with responsibilities assigned thereto (Davis, 1973). The resultant power of a corporation from its operation must be used for the benefit of society and, just as importantly, harnessed as not to have negative influence on the marketplace. Further, as a member of society, a business has a responsibility to use its power effectively. Integrative approach to CSR indicates that business and society are interdependent, where one party cannot exist without the other; and, as such, each relies on the other for validity, status and survival. According to ethical perspective, businesses through their activities must treat the individuals that compose that society fairly, must contribute to the sustainable development of the environment in which they function and forever keep in mind the "common good" in business planning. If a business can be seen as a group of individuals seeking fulfillment in society to meet its personal goals, then there is a strong relationship between the corporate sector and the "common good." For business, the "common good" would be defined as the strategic actions taken by the corporation that would help the members of that entity realize their individual goals. When action such as this is taken, the collective personal interests of the employees, when combined with the shareholders of the corporation, meld; and company success is virtually guaranteed. As Carter & Jennings (2000) postulate that procurement social responsibility (PSR) consists of a wide array of managerial behaviours that fall into the categories of environmental management, safety, diversity, human rights and quality of life, ethics, and community and philanthropic activities (p.8). Simultaneously, the Institute of Supply Management (2004) defines PSR as "a framework of measurable corporate policies, procedures and resulting behaviour designed to benefit the workplace and, by extension, the individual, the organisation, and the community in the following areas: community, diversity, environment, ethics, human rights, safety and financial responsibility" (p.1). The graph below shows the amount of company expenditure with minority owned suppliers over the past 5 years by the corporate executive board involved in Corporate Social Responsibility (CSR). (Procurement strategy council, 2004) As the CSR programmes are growing procurement is identifying the opportunities to involve the department in socially responsible enterprise wide initiatives. The CSR has imposed labor standards for global suppliers and established green procurement policies to support the diverse suppliers. Environmentally and socially conscious consumers relate CSR practices into brand recognition and reputation. In order to develop socially responsible procurement programmes the CSR has defined the following steps; Establish effective labor standards for global suppliers Develop and implement green procurement policies Create an internal supplier diversity team to identify and support minority Suppliers The four steps to successfully plan the socially responsible procurement are; Step 1: Suppliers pledge to adhere and companies conduct initial evaluation Step 2: Companies monitor and evaluate supplier on an ongoing basis Step 3: Companies notify of breach in code Step 4: Companies take necessary action to effect change or terminates contract 3) Socially responsible procurement programme requirements a) Objectives To design a successful socially responsible procurement programme the six dimensions kept into consideration are; i. Community involvement ii. Diversity and inclusion iii. Environmental protection iv. Ethics and financial stewardship v. Human rights and respect vi. Health and safety The procurement managers, in order to properly allocate the limited resources have to set up priorities and make tradeoffs between these six dimensions. They also have to keep in consideration the company strategies and whether their decision to act would make a difference in the market place. The company's policies shape the socially responsible procurement strategy which in turn shapes the tactical decisions of procurement practitioners. For e.g. a chemical manufacturer may focus on environmental practices within its own operations along with the procedures of its vendors and shape the company's response to those risks. b) Framework for the programme The views for an ideal framework are; Socially responsible procurement programme can be a real competitive advantage for the company The aims and objectives should be set up high as the customers and the investors are always expecting higher, and Start now. The procurement people have to meet regulatory compliance challenges on daily basis and the misshaped ethical issues in the past may affect the company's stock prices, customer loyalty, and supplier trust and in its worst the survival of the company, thus these people have to be very careful. c) Few flaws in the programme Good environmental and socially responsible practices have positive results on investment. If the business case is not properly constructed the environmental initiative will be either short-lived or unpopular with management and the staff. Apart from this the programmes also fail because they are too broad or too remote to be meaningful to the staff and impossible to review and validate. A socially responsible procurement programme requires maintenance of rigorous policies and compliance procedures, training, audits, and communications and these all require a cost. Thus companies not willing to make these investments do not come up with good procurement programmes. 4) Levels for socially responsible procurement IBM has indicated three levels of strategic commitment to socially responsible procurement; these are, i. Business protection level a. The company's objectives are to meet all legal and regulatory requirements. Today this has become challenging for the companies as the government has imposed strict regulations for all the issues from environmental impact to product safety to labor practices. Meeting with these challenges earns the company a name. ii. Proactive level a. The market shares of the company are protected and earnings are enhanced by justifying unfavorable social risks such as environmental violations which can become problem and affect brand and reputation of the business. iii. Business enhancement level a. This is an advanced level where issues such as business opportunity to become more efficient and economical, and differentiate itself competitively through the creation of innovative socially responsible procurement commitments and actions are focused by creating innovative procurement plans. For example, a company might risk a leadership position on reducing energy use and lowering environmental impact throughout its entire supply chain. This can help the company lower costs while also setting an example for its industry and attracting key stakeholders, such as consumers, potential employees and investors. At this level the senior managers will be involved in skill building, investment in innovation, and championing socially responsible procurement programmes with employees, investors, communities, customers and other key stakeholders and their roles may be limited. 5) Examples a) IAG IAG is an insurance company of Australia; it is one of the first companies to be impacted by the effect of climate change during extreme weathers. IAG has adopted a proactive approach to environmental responsibility for itself and its supply chain. It is publicly committed to the reporting and reduction of its carbon footprint and has resolved to become carbon neutral by 2012. As a result of this stance it was awarded Ethical Investor Magazine's 2006 Sustainable Company of the Year and was nominated as a Global 100 Sustainable Company at the World Economic Forum (CIPS Australia team category award). The company has designed localized procurement programmes, small charities are organized and the scope of direct audit is limited to the first and immediate link in the supply chain. IAG's scorecard metrics for corporate responsibility is simple to measure limited in number and easy to complete on the ongoing basis. The Supplier Performance reporting tool has key performance data of 60 strategic suppliers. IAG uses the data to hold an annual Supplier of the Year Award event where the suppliers are recognized and rewarded for their contributions to the success of IAG's business and corporate responsibility goals. Another step which AIG took was to use 100% recycled office paper. Thus the company leads ahead in planning for socially responsible procurement programmes. b) National Wood Flooring Association (NWFA) NWFA has developed a responsible procurement programme which provides a stepwise approach for hardwood manufacturers and distributors to increase the level of environmentally and socially responsibly-sourced timber products. The illegal import of timber is a great challenge for the company to face, the chart below shows the illegal imports of timber in 2005; (http://hmamembers.org/uploads/File/2009-Finkell.pdf) Firstly the company identifies all sources of wood entering their production system and then eliminates wood products coming from unknown and unacceptable sources. Then it sets and meets the objectives for increasing production and sales of certified products over the defined time period. Audits are conducted annually to ensure conformance. The wood products should also qualify for recycled content, indoor advantage and indoor air quality. c) Bank Group The Bank Group, being a socially responsible organisation through its corporate procurement processes integrates socially responsible suppliers into its supply chain. The Bank Group's procurement policies address supplier activities under the groups of diversity, wages and benefits, health and safety, and accessibility (equipment and facilities). Its practices will also provide the access and growth of the minority women and disabled owned enterprises with emphasis on measurable results and continuous improvement. Its procurement unit has an objective of increasing the participation of disabled owned enterprise in Bank Group contract by direct contracting and by working with Bank Group direct contractors to help them expand their subcontracting of Bank Group. d) University of Michigan University of Michigan plans out socially responsible procurement programmes by conducting their businesses in a manner to meet or exceed the ethical, legal, commercial and public expectations which society has of them. Its plans are to encourage and develop socially responsible procurement efforts as a result of concerns from faculty, staff, students, and alumni, as well as our customers, communities, donors and other stakeholders. e) British Petroleum British Petroleum (BP) extends a corporate-wide commitment of green policies to all departments throughout the company, including procurement. The company looks to identify environmentally conscious suppliers with which to conduct business. BP maintains a strong reputation as an environmental leader in all aspects of the company, it uses the following matrix to choose and evaluate its suppliers; Manufacturer/supplier Company 1 Company 2 Company 3 The manufacturer/supplier has a commitment to reduce the environmental and biodiversity impact of both their operations and the products they supply The manufacturer/supplier has measures to track the environmental impact of their products The manufacturer/supplier is willing to work with BP to achieve innovative performance of products and packaging The manufacturer/supplier is a low carbon dioxide emitter Product Product 1 Product 2 Product 3 The product is made from recycled material or renewable resources. The product has minimal effect on the environment whilst being made The product has minimum packaging and what it does have is recyclable and reusable. The materials and products have minimal effect on the environment whilst in use. The materials and products can be reused, recycled, or disposed of in an environmentally friendly way. (Procurement strategy council, 2004) 6) Conclusion To design a good socially responsible procurement programme many elements have to be taken into account; it can best be managed by cross department and cross company involvement. This can be done by setting up a leadership committee which helps by taking actions which company needs to take and properly allocating the resources to the priority plans. This committee should develop policies and procedures to support formal programmes and plan communications to both internal and external stakeholders. It should ensure that the programmes are successful and provide training for those who can influence outcomes and oversee performance audits. The most important element is to create a strong link between socially responsible procurement programme and the company's business strategy. The company should provide funding and staff resources for this committee and clear, concrete reporting. The main slogan should be doing the right thing for both the society and the business. References 1. Case, Scot. (October 2002). Environmentally Preferable Purchasing: Moving Beyond 'Buy Recycled'. Government Procurement. 2. Carter, C. R., & Jennings, M. M. (2000). Purchasing's contribution to the socially responsible management of the supply chain. Tempe, AZ: Center for Advanced Purchasing Studies, Arizona State University. 3. Chris L. Jones (February 2004). Strategic procurement and the supply chain. Best practice strategies for substantial bottom line results. Malaysian institute for purchasing and material management. 4. CIPS Australia team category awards: best example of socially responsible procurement. (2008). Insurance Australia group. 5. Davis, K. (1973). The case for and against business assumption of social responsibilities. Academy of Management Journal, 16, 312-322. 6. Edward. Richard. (April 2010). Corporate social responsibility: Virgin Boss puts money where mouth is. Procurement leaders Magazine. 7. Edward. Richard. (March 2009). Corporate social responsibility: Leahy announcement leaves competitors green with envy. Procurement leaders Magazine. 8. Fredette, Michael. (April 2002). The Benefits of Green Purchasing. Purchasing Today. 9. Garriga, E., & Mele, D. (2004). Corporate social responsibility theories: Mapping the territory. Journal of Business Ethics, 53, 51-71. 10. Green Procurement. (May 2002). Gaining Ground. Nikkei Weekly. 11. Institute of Supply Management. (April 2004). ISM Principles and Standards of Social Responsibility, Available < http://ethics.iit.edu/indexOfCodes-2.phpkey=16_310_787> Retrieved March 7, 2010 12. Mebratu, Desta. (2001). Environmental Competitiveness: Green Purchasing .International Trade Forum. 13. Mebratu, Desta. (2001). Environmental Competitiveness: Green Purchasing. International Trade Forum. 14. Procurement strategy council: Involving procurement in corporate social responsibility initiative. (2004). Corporate executive board. 15. Stanly, Michael & Thelen, Bruce (2009). Socially responsible procurement: Doing the right things for everyone. IBM global business services. 16. The Bank Group. (June 2008). Corporate procurement: Socially responsible procurement. The World Bank Group. 17. Were, Marco, (May 2003). Implementing Corporate Responsibility. Journal of Business Ethics. 18. Business Petroleum. Sustainability report: Procurement strategy council. [Accessed 24th February 2010]. http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/downloads/S/Sustainability_Report_2004.pdf 19. Finkell. Don. (2009). National wood flooring association. Responsible procurement programme. [Accessed 29th February 2010]. http://hmamembers.org/uploads/File/2009-Finkell.pdf 20. NWFA legal. (2008). Responsible Procurement Programme: Serving the wood flooring industry. [Accessed 25th February 2009]. http://www.scscertified.com/docs/Responsible_Procurement_Programme.pdf Read More