2008 apics conference_stanly_thelen_ sep 14
DESCRIPTION
Presentation at the 2008 International APICS Conference in Kansas City, by Michael Stanly and Bruce Thelen.TRANSCRIPT
The Dollars and Sense ofSocially Responsible Purchasing
Assessment, Strategic Prioritization, and Case Study
SummaryAs procurement managers we often struggle to “do the right thing” while at the same time “do the right thing” to reduce costs. But, through socially-responsible procurement (SRP) we are afforded that very opportunity. Furthermore, our customers, investors, and the communities in which we work are demanding it. The Institute for Supply Management defines socially responsible procurement (SRP) as "a framework of measurable corporate policies and procedures and resulting behavior designed to benefit the workplace and, by extensions, the individual, the organization, and the community."
This is a hot-button issue with investor activists, communities, employees, and special interest groups that must not be ignored. More importantly, it's the right thing to do. Besides, effective application of SRP will save a company money through their procurement efforts.
Pursuing this objective requires focused efforts along the dimensions of community involvement; diversity and inclusion; environmental protection; ethics and financial stewardship; human rights respect; and, health and safety.
Among our basic beliefs of socially responsible procurement are that it can confer a very real competitive advantage to your company; aspirations must be set high because customers and investors expectations are high; and, the time to get started is now, as your customers and investors are expecting it. Importantly, to demonstrate that it’s the right thing to do financially, some consideration of cost, benefit, and risk relationships must be taken into account. Doing so will definitely make SRP “the right thing to do” from everyone’s perspective.
Research materials from the Committee on Social Responsibility of the Institute for Supply Management—whose 2007-08 Chair is from IBM—played a key role in the supporting content of this assessment guide.
The Dollars and Sense of SRPGetting Started
Questions
Issues to Avoid
Principles
Constructs
Cost : Benefit
Risks
Diagnostic
Strategic Options
Prioritization
Assessment Plan
Infrastructure
Organization and Roles
Case Study: The IBM story
Getting Started
What are CPO’s asking about socially-responsible procurement (SRP)?
Most CPO’s have a common set of questions and desire a common set of deliverables around socially-responsible
procurement
Compilation of management’s SRP objectives
Catalog of SRP options Map of SRP initiatives to overall
strategy Preliminary workplan for
implementation phase Decision on implementation of rapid
assessment recommendations
Compilation of management’s SRP objectives
Catalog of SRP options Map of SRP initiatives to overall
strategy Preliminary workplan for
implementation phase Decision on implementation of rapid
assessment recommendations
Core questions Diagnostic deliverables
Just what are SRP practices? How do we know what’s right for our business on socially-responsible procurement (SRP) initiatives? What are credible strategic objectives in SRP for a company such as ours, and what are the elements of such an infrastructure? What are the cost : benefit considerations for our business? How do we manage individual SRP efforts?
Getting Started
There are typically many perceptions . . .
What are stakeholders’ views of SRP?Many companies lack true agreement as to SRP’s role
in the business
. . . and an opportunity may exist to
clarify and set an SRP
strategy suited to the
company’s needs
. . . and an opportunity may exist to
clarify and set an SRP
strategy suited to the
company’s needs
Improve thecommunity
Increasesafety
Includenew ideas
Goo
dwill
Marketadvantage
Protect
rights
Cost
contain-
ment
Influenceethicaldecisions
Prevent
abuses
CONCEPTUAL
Protect
environment
Getting Started
Do we have problems we are trying to cure, or at least avoid?
There are six dimensions of SRP Prior infractions
Need for sustainability
Lack of environmental responsibility
Inattention to opportunities for disassembly, reuse or recycling
Prior human rights abuses
Lack of provisions for the instrumental value of creating the necessary conditions of human well-being
Potential exposure of human rights compromises
Boycotts due to sourcing activities
Lack of diversity in supplier base
Lack of diversity within organization
Lack of diversity throughout the supply chain
Past discriminatory practices with suppliers, employees or others
Lack of trust by community stakeholders and key publics
Pressure from advocacy groups or the media
Trade union issues
Compliance with OSHA or other legal or regulatory requirements
People hurt or killed
Dangerous conditions
High insurance and medical costs
Past unethical actions
Potential exposure of unethical actions
Compliance with Sarbanes-Oxley (SOX) or other legal or regulatory requirements
Substandard financial responsibility
Environment
Human Rights
Diversity
Community
Safety and Health
Ethics and FinancialStewardship
Getting Started
Why are such remedial actions important?
Helps ensure that actions are lawful
Reduces risk
Lowers total cost of operations
Facilitates strong public relations
Helps recruit and retain customers
Guides managerial actions and commitments; Guides
employee actions; Guides supplier actions
Improves supplier competitiveness
Improves trust in both internal and external (suppliers,
customers, and others) relationships
ChecklistChecklist
Ensures that all individuals are treated with dignity and
respect
Avoids complicity in human or employment rights
abuses
Allows for equal opportunity and non-discriminatory
treatment
Prohibits the existence of child labor and forced labor
Fulfills legal responsibilities to ensure the health and
safety of employees, customers, suppliers and
communicates in which we work
Ensures requirements to protect the environment
Getting Started
What is the single most important issue to your company?
Environment and being ‘green’ Human rights around the world Diversity and minority business
development Community involvement Health and safety of workers and
customers Ethics and financial stewardship
Principles of socially-responsible procurement (SRP)
Health and Safety
Promote a safe environment for each employee in your organization and supply chain. (Each organization is responsible for defining "safe" within its organization.)
Support the continuous development and diffusion of safety practices throughout your organization and the supply chain.
Community
Provide support and add value to your communities and those of your supply chain.
Encourage members of your supply chain to add value in their communities.
Diversity
Proactively promote procurement from, and the development of, socially diverse suppliers.
Encourage diversity within your own organization.
Proactively promote diverse employment practices throughout the supply chain.
Environment
Encourage your own organization and others to be proactive in examining opportunities to be environmentally responsible within their supply chains either "upstream" or "downstream."
Encourage the environmental responsibility of your suppliers.
Encourage the development and diffusion of environmentally friendly practices and products throughout your organization.
Ethics and Financial Stewardship
Be aware of ISM's Principles and Standards of Ethical Supply Management Conduct.
Abide by your organization's code of conduct.
Become knowledgeable of, and follow, applicable financial standards and requirements.
Apply sound financial practices and ensure transparency in financial dealings.
Actively promote and practice responsible financial behavior throughout the supply chain.
Human Rights
Treat people with dignity and respect.
Support and respect the protection of international human rights within the organization's sphere of influence.
Encourage your organization and its supply chains to avoid complicity in human or employment rights abuses.
Environment
Human Rights
Community
Source: Committee on Social Responsibility of the Institute for Supply Management; IBM
Getting Started
The Dollars and Sense of SRP
Getting Started
Questions
Issues to Avoid
Principles
Constructs
Cost : Benefit
Risks
Diagnostic
Strategic Options
Prioritization
Assessment Plan
Infrastructure
Organization and Roles
Case Study: The IBM story
Constructs
What is the business case for SRP?In economic and socio-economic terms, benefits
outweigh the costs and risks
BenefitsCosts Risks
Internal Benefits
Innovation from new sources of supply such as new minority suppliers or new origin countries
Increased opportunities for disassembly, reuse, and recycling
Consistent treatment of suppliers and customers
Improved fiscal management
Allow for equal opportunity and non-discriminatory treatment
Reduce insurance costs
Prevention of injuries
Enhance market share, business volume and revenue
Become a favored supplier
Improve morale of employees
Improve reputation to attract and retain customers and
employees
Strengthen the organization’s culture of trust
External Benefits
Trust and support of community groups and key public figures (facilitating physical plant expansion or local tax benefits)
Enhanced reputation with suppliers and customers
Improve union relationships
Positively influence the community
Earn respect from suppliers, customers, employees and
other stakeholders
Improve public image
Counteract negative press
Reduce legal costs
Reduce risk uncertainties
Lead supply chain partners by example; Influence supplier actions
Constructs
What is the business case for SRP?In economic and socio-economic terms, benefits
outweigh the costs and risks
BenefitsCosts Risks
Cost of Action
Maintenance and updates of policy, codes, benchmarking, and other documentation
Program manager
Legal counsel
Membership fees
Training and certification
Communications
Hotline or help line
Evaluations and audits
Donations and matching donations programs
Sponsorship funding for events
Salary of staff when providing voluntary support to external groups or causes
Travel and expenses for site visits, conferences, and trade events
Cost of Inaction
Lost market share
Loss of suppliers, customers, and investors
Negative publicity
Compromised employee and community morale
Increased legal, insurance or other costs
Boycott of business
Lost opportunity to pursue governmental or certain other new business
Negative attention by advocacy groups
Negative coverage in the media
Negative public relations events
Regulatory penalties
Constructs
What is the business case for SRP?In economic and socio-economic terms, benefits
outweigh the costs and risks
BenefitsCosts Risks
Risks of Action
Negative reaction from some shareholders, customers, or community members to specific SRP initiatives
Recipient communities or organization may suffer if a change in support or support level is made
Socio-political disfavor by some interest groups
Complacency with current suppliers or sources resulting in lack of competition, compromised quality and/or increased costs
Lack of sustainability
Substandard level of financial compliance or fiscal management
Potential exposure to human rights compromises
Risks of Inaction
Unsafe conditions or situations
Injury or death
Damage to environment
Inconsistent treatment of suppliers, customers, or communities
Constructs
What do most companies today think of SRP?
It’s too costly an activity to undertake Benefits do far outweigh costs and risks There’s too much risk associated with
these activities Companies don’t know what to make of
SRP
The Dollars and Sense of SRP
Getting Started
Questions
Issues to Avoid
Principles
Constructs
Cost : Benefit
Risks
Diagnostic
Strategic Options
Prioritization
Assessment Plan
Infrastructure
Organization and Roles
Case Study: The IBM story
Diagnostic
Business protection
Business enhancement
Business leadership
What are our strategic choices in SRP?There are 3 ‘levels’ of SRP strategy with different objectives and
necessary underlying commitment
Objective Protect financial objectives by meeting all legal and regulatory requirements
Enhance earnings by mitigating risk exposures and contributing to society
Differentiate the company competitively and create a market advantage via innovative commitments and activities
Key elements Minimize costs and risk exposures, even if foregoing some SRP opportunities
Limit SRP activity to what is required to operate the business
Balance SRP commitments with desired returns from SRP initiatives
Invest in programs that reduce risks while garnering benefits and favorables for the company
Create and promote new SRP initiatives which address specific needs of employees, suppliers, communities, origin countries for materials, et al
Manage risks and costs associated with new, innovative programs and initiatives
Senior management role
Set expectations and risk limits Review performance and
compliance reports regularly
Fund initiatives Review programs and risk exposures
frequently Actively participate in ongoing decision
making Ensure integration of SRP programs
with company strategy
Build appropriate organization and capabilities to administer the SRP initiatives
Create and champion SRP within company and among investors
Develop altogether new SRP programs as a means of competitive differentiation
CONCEPTUAL
Diagnostic
Rapid assessment workplan* for SRP strategic direction
Full-time work for 1 to 2 persons for 14 to 20 days, plus 3-4 hours of others’ time each day
Timing
Activities
3 days
Draft and submit data and document requests
Prepare interview schedule
Tailor question series to individual stakeholders
Update SRP standard and leading practice criteria vis-à-vis the client’s industry sector
Interview plan Final data request
End products
Resources
* The assessment may require 14 to 20 days of work spread over 3 or even 4 weeks
Collect findings over two weeks
Synthesize findings over one week
DiagnoseConduct workshop
Prepare
5 to 7 days
Conduct interviews Review strategy, source
documents, and data Research annual reports
and benchmarking materials to establish SRP leading practices in industry sector
Define client-specific costs, benefits, and key risk exposures for the company in light of emerging SRP objectives
Compilation of management’s SRP objectives
Catalog of SRP options
3 to 5 days
Map SRP initiatives to overall strategy
Seek-out industry peers and organizations for thought-partnering
Assess client aspirations compared to stakeholder expectations
Map of SRP initiatives to overall strategy
1 day
Review and discuss findings with procurement [and senior management] team
Decision on implementation of rapid assessment recommendations
Diagnostic
2 to 4 days
Syndicate initial recommendations with key members of client procurement team
Prepare workshop materials
Preliminary workplan for implementation phase
How should we allocate our resources for SRP initiatives? Diagnostic
Environment
Human Rights
Diversity
Community
Safety and Health
Ethics and FinancialStewardship
Our ability to make a difference
Rel
eva
nce
to
our
str
ate
gy
LO
HI
HIOur ability to make a difference
Rel
eva
nce
to
our
str
ate
gy
LO
HI
HI
Our ability to make a difference
Rel
eva
nce
to
our
str
ate
gy
LO
HI
HIOur ability to make a difference
Rel
eva
nce
to
our
str
ate
gy
LO
HI
HIOur ability to make a difference
Rel
eva
nce
to
our
str
ate
gy
LO
HI
HI
x x
x
xxxxx
x
xxx
xx
x
xxx
x x
Our ability to make a difference
Rel
eva
nce
to
our
str
ate
gy
LO
HI
HI
xxx x
Emphasis are
a
Emphasis are
a
x’s = Stakeholder groups
EXAMPLE
The Dollars and Sense of SRP
Getting Started
Questions
Issues to Avoid
Principles
Constructs
Cost : Benefit
Risks
Diagnostic
Strategic Options
Prioritization
Assessment Plan
Infrastructure
Organization and Roles
Case Study: The IBM storyInfrastructure
SRP leadership committee Senior managementProcurement managersand buyers
Identify all initiatives undertaken by the company
Develop policies and procedures to support SRP
Plans and executes internal and external communications to stakeholders, including employees, investors, suppliers, and activist groups
Develop organization capable of addressing the company’s SRP strategy and expectations
Ensures that training is secured, where needed
Conducts audit of SRP initiatives
Strategy
Policy and Process
Governance and organization
Understand the SRP needs of the company
Develops clear definitions of company expectations for SRP
Support strategy for SRP initiatives
Adopt policies and procedures governing SRP expectations and processes
Approve overall organization resource support and funding
Requires tangible or measurable benefits to be recognized from SRP efforts
Report on the SRP initiative progress of company
Execute/implement SRP initiatives in concert with strategy
Implement processes and tracking systems to ensure adherence to plans and to policy
Engage with SRP committee on existing and proposed initiatives
Develop supplier capabilities and sourcing strategies that support SRP strategy
Approves overall strategy, policy, and resource commitment
What are the SRP management roles and responsibilities?
SRP succeeds when there is leadership and ownership
Infrastructure
Develops strategy and performance tracking for initiatives
Implements programs and reports regularly on progress
How can SRP initiatives best be managed?
Within the supply chain or procurement department
By cross-department, cross-company involvement
Through the office of the CEO By volunteer committee
How do we manage the priorities among potential SRP initiatives?
An SRP management committee can address this issue
Link business strategy with all initiatives along the six dimensions of SRP
Allocate funds to each initiative while monitoring risks
Define success and track performance (i.e. business returns) of the initiatives
CPO and senior procurement staff
May involve leadership in finance, investor relations, and public relations
Operations may need to be engaged, depending upon the SRP initiative
Quarterly briefing (more often, when needed)
Detailed reporting on all initiatives
Concrete discussion on strategic positions and SRP intent
Detailed definition of objectives
Involvement of all stakeholders in decision-making
Clear definition of mission
Leadership
Clear guidance
Infrastructure
The Dollars and Sense of SRP
Getting Started
Questions
Issues to Avoid
Principles
Constructs
Cost : Benefit
Risks
Diagnostic
Strategic Options
Prioritization
Assessment Plan
Infrastructure
Organization and Roles
Case Study: The IBM story
Chief Procurement Officer
Supply Assurance
GlobalLogistics
GlobalSourcing
ProcurementEngineering
Procurement Policy & Practices
ProcurementServices
Procurement Operations
Direct (Production)Sourcing Councils
Suppliers
Indirect (General)Sourcing Councils
SCSR resides in Global Procurement, but separate from the sourcing and operations groups in order to remain focused and impartial
SCSR resides in Global Procurement, but separate from the sourcing and operations groups in order to remain focused and impartial
Supply Chain Social
Responsibility (“SCSR”)
IBM: Case StudySupply Chain Social Responsibility
External drivers of Corporate Citizenship (“CC”) are shifting society’s expectations of companies
Reduced role of government Impact of globalized production and
service delivery Growth of individualism as the
social norm Rise of consumer activism Growth of non-governmental
organizations (NGOs) Loss of trust following corporate scandals
External DriversExternal Drivers
Increased expectation for companies
to fill the void left from a reduced governmental role Economic strategies Establish standards Promote environmental protection
Be accountable and transparent for financial, ethical, social and environmental performance to wider stakeholder groups
Shifting ExpectationsShifting Expectations
Who is pressuring your company toward social responsibility?
Investor groups Senior management Governmental and regulatory bodies Customers Non-governmental organizations (NGOs)
or special interest groups
1.
2.
3.
4.
5.
Legal and ComplianceInitiatives
Strategic PhilanthropyInitiatives
Values-based SelfRegulation Initiatives
Cost SavingsInitiatives
Growth PlatformInitiatives
Consumers
Community
Employees
Business Partners
Investors
IBM research shows that companies pursue a number of incremental and/or new initiatives to stakeholder groups
Corporate Response InitiativesCorporate Response Initiatives Stakeholder GroupsStakeholder Groups
CC
Mat
urity
Corporate Citizenship Working Group
Representatives from each functional area meet monthly to manage IBM’s responsibility
reporting, stakeholder engagement and address cross-company citizenship issues.
Corporate Citizenship Working Group
Representatives from each functional area meet monthly to manage IBM’s responsibility
reporting, stakeholder engagement and address cross-company citizenship issues.
Governanceand
FinancialAccountability
CorporateCommunityRelations
EnvironmentalAffairs and
ProductSafety
Employee Well-Being
GlobalHuman
Resources
GovernmentalPrograms
IBM Corporate Citizenship management system
Supply Chain
IBM Supply Chain Social Responsibility initiative
Industry Collaboration
Industry Collaboration
Dialog with external
stakeholders
Dialog with external
stakeholders
Drive supply chain improvements
Drive supply chain improvements
Perform supplier audits / re-audits
Perform supplier audits / re-audits
Create / deploy IBM Supplier Conduct Principles
Create / deploy IBM Supplier Conduct Principles
IBM Supplier Conduct Principles
Forced or Involuntary Labor
Child Labor
Wages and Benefits
Working Hours
Nondiscrimination
Respect and Dignity
Freedom of Association
Health and Safety
Protection of the Environment
Laws, Including Regulations and Other Legal Requirements
Ethical Dealings
Communications
Record Keeping
IBM SCSR EducationSCSR education developed and deployed since 2004
AudiencePowerPoint
TeleconferenceWeb Based Comments/Observations
Councils and Staff
Covered all councils by Mar 2005; presented grapevine session 2007.
Audited Country Buying Teams
Individual Buyers700 completed the course; available in English, Chinese and Spanish.
SuppliersConducted pre-audit calls in EE. Marginally successful, did not remedy all uncooperative barriers.
Procurement Engineering
Overview with focus on H&S issues that Engineers may observe while conducting quality audits
IBM’s Supplier Audit Process
Engage global and local buyers; Country-
level focus (risk-based)
Engage global and local buyers; Country-
level focus (risk-based)
Assess a cross-section of suppliers; target min 80%
of spend in country
Assess a cross-section of suppliers; target min 80%
of spend in country
Supplier generates action plans; reviewed/
accepted by SCSR team
Supplier generates action plans; reviewed/
accepted by SCSR team
3rd party audit firm contracted
for the assessments
3rd party audit firm contracted
for the assessments
Audit report
provided to IBM
Results to supplier from IBM
Map results to code provisions and local laws Share results with suppliers, provide global / country
comparisons Request supplier improvement plan w/names and dates
of responsible parties Review improvement plans for consistent approach Communicate and enforce the business imperative of
compliance Re-audit to verify sustainability in 12-18 months
Map results to code provisions and local laws Share results with suppliers, provide global / country
comparisons Request supplier improvement plan w/names and dates
of responsible parties Review improvement plans for consistent approach Communicate and enforce the business imperative of
compliance Re-audit to verify sustainability in 12-18 months
Supplier Improvement Plans
Supplier audit drives post-audit improvement plans
Supplier Initial Audit Results – Global Cumulative (2004-2008)Brazil, China, Czech Rep, Hungary, India, Mexico, Philippines, Poland, Romania, Slovakia, Taiwan, and Thailand
(base = 449 suppliers)
0 20 40 60 80 100
Ethical DealingsFreedom Assoc
Forced LaborChild Labor
EnvironmentalNondiscrim
Record KeepingCommunicationsRespect & Dignity
Laws & RegsWages & Benefits
Working HoursHealth & Safety
% Non Compliant to IBM code
Significant Minor
Supplier Audits: Observations / Conclusions A number of issues are seen in most emerging market countries:
Health & Safety (almost universal)
Management systems are weak relating to social responsibility and laws/regulatory compliance
Corporate Citizenship remains a new concept to most emerging markets
Culture can not be overlooked as having a strong influence
Some issues are pervasive and country-specific:
China: working hours/wages/safety Mexico: discrimination/freedom of association India: wages/safety Brazil: safety/respect & dignity
Supplier audit results are similar to those reported by others in the sector
Thank you!
Michael Stanly [email protected] (320) 240-0235
Bruce Thelen [email protected] (312) 330-3225