Many leading organizations and industry associations have adopted supplier codes of conduct (SCCs) for many good reasons.  SCCs communicate an expectation in terms of corporate responsibility from the supplier community and express organizational values.  At a minimum, these standards of performance address working conditions such as health, safety, and social inclusivity along with sustainable business practices within a voluntary framework.

Business organizations and associations want to know that companies within its supply chain are not contributing to social problems – either domestic or foreign.  More importantly, they want to know how their supplier partners are contributing to sustainable development. However, there is growing evidence that codes of conduct although they are well intentioned may default to protecting profits over the concerns for people or the planet.

A review of the sourcing for a raw material used in the high tech industry reveals a great deal about what SCCs imply and how companies respond.  Columbite-tantalite or coltan as it is commonly known is a metallic ore which finds it way into the supply chains of manufacturers of capacitors for cell phones, DVD players, laptops, pagers, computers, hearing aids, digital cameras and many other electronic devices. Commercially coltan is converted to a heat resistant powder called tantalum used in circuit boards.

One of the key geopolitical areas where coltan is mined is the Democratic Republic of the Congo (DRC). The international Union for Conservation of Nature (IUCN) has condemned the sourcing of coltan from the DRC as well as the internationally recognized Organization for Economic Co-Operation and Development (OECD).  The Canadian government participates in over 20 committees of the OECD with representation by Canadian Parks and Wilderness Society, Toronto Zoo, and the Canadian Institute of Resource Law, to name a few and has a Permanent Delegation of Canada through Ambassador Paul-Henri Lapointe.

The OECD published its 2008, 65-page OECD Guidelines for Multinational Enterprises. Under the section Concepts and Principles it clearly states that “observance of the Guidelines by enterprises is voluntary and not legally enforceable.” It asks that multinational corporations meet the softer expectations of society while promoting commercial interests.

Coltan may be to the electronic industry as ‘blood diamonds’ were to the jewellery industry. Over 70% of the global supply of coltan is said to be from the DRC.  The DRC has been at war with its neighbours Uganda, Burundi, and Rwanda with illegal trading in coltan being one of the contributing factors.  The United Nations has been on record as saying that the DRC coltan supply is subject to “highly organized and systematic exploitation.”  The BBC News reported “coltan is one of the driving forces behind the war in the DRC, and the presence of rival militias in the country.”

To its credit, U.S.-based KEMET Corporation, an electronics component manufacturer, reiterated in July 2008 that “all suppliers of tantalum material to provide a Letter of Certification that they do not or will not, (a) illegally mine any tantalum material from the Congolese mines, (b) purchase any illegal material containing tantalum, including coltan, from the Congolese mines and (c) sell any illegal material to KEMET from such mines. All of our tantalum material suppliers have complied and issued signed Letters of Certification that KEMET Corporation will not receive illegal tantalum mined in the Democratic Republic of Congo.”

Good on them for making such a strong commitment towards corporate social responsibility in their SCC.  There are likely many more companies in this sector that are acting responsibly and still protecting their bottom line.  As too, there are likely many more which have chosen other sourcing options – not all of which are in line with sustainable business practices.

Thousands of kilograms of coltan are leaving the Congo area each year.  It is going into our consumer products creating the consumer paradox – “I like the product but I don’t want to know how the stuff got inside.”  Coltan will continue to be mined under exploitive and illegal conditions until consumers are made more aware of ‘what’s inside’ and choose to buy more responsible products; or until more sources are available which comply with the expectations of a global society; or until the material is designed out of the product.

In September 2009 the Electronics Industry Citizenship Coalition (EICC) met with industry representatives to discuss responsible tantalum sourcing.  The reasons for the meetings may be due to the increased awareness by customers and communities with the mounting problems related to current sourcing practices. The EICC has had an electronic industry code of conduct in place since October 2004. Membership in the EICC includes HP, Apple, KEMET, Microsoft, Sony, Dell, and other leading brands.

If society and business supports organizations such as the OECD and EICC, we should have confidence that they will be assertive and progressive in their demands that MNCs meet the expectations of a global society.  As reported by the NGO OECD Watch, the OECD Guidelines do not have the teeth to ensure compliance and allow for a lot of discretion by the parties to address the issues being reported.  It would also appear that the EICC has found its code to be comprehensive but difficult to monitor the compliance in practice.

Consumers changed the tide for the diamond and clothing industry and for many other retail items by challenging the integrity of the brand supply chain policies and practices.  Consumers may be able to do the same for the coltan industry.  However, the list of toxic or inimical materials is so long it would take years to expunge them on a case-by-case review.  This in part is why governments acknowledge the importance of the work done by the OECD, the EICC, other industry review committees and business leaders.  Each has a role to play and compliance is the key. Consumers rely on codes of conduct as being bona fide. The Forest Stewardship Council (FSC) and Marine Stewardship Council (MSC) certifications are building credibility with consumer preference.  Supply professionals expect that responsible companies and industries will act responsibly and stand behind their voluntary codes. Where they fail, they expect that sanctions will be appropriate and effective. Thinking globally means acting responsibly.

Supplier codes of conduct with the ability to meet compliance expectations are what we need.  What’s inside your SCC?

Larry Berglund

March 2010

Sustainable Supply Chain Management Practices:   What In The World Is Going On?

Larry Berglund, CPP, MBA

Executive Summary

There has been resurgence in corporate social responsibility (CSR) for a wide variety of reasons.  These range from strategic differentiation by adopting “do good practices” to preserving the eco-system in remote geographical areas to introducing environmentally friendly alternative products to the training of indigenous people in the supply chain.

Much of the literature on the subject maintains the view of the advocates who see corporate social responsibility as the mantra for business in this millennium.  The arguments against business taking on social responsibility as a part of their corporate agenda is lesser publicized or even referenced.  Public interest, non-governmental organizations (NGOs) are active and vocal in their charges against “corporations taking over the world.”  There are examples of good science and junk science to influence the perceptions of non-believers that CSR is a must.

Many high profile organizations such as Hewlett Packard, Shell, Dell, Placer Dome, and BHP Billiton have included CSR statements within their annual reports or have adopted CSR or sustainability policies.  Publicly traded, multinational corporations (MNCs) are often the target of the NGOs for not acting fast enough or doing enough, according to the NGOs.  MNCs are easy targets to identify, recognizable through the brands or products they represent or their corporate affiliations.

Our collective history has included slave labour, forced labour, child labour, and other exploitive business practices in all countries or markets in the world in the name of profits or access to resources.  Retailers such as Nike, The GAP, and Mattel have taken positions and introduced policies designed to mitigate or prevent these practices.  For most retailers, they went from defence of their status quo industry practices to developing progressive policies across their supply chain.

There is no industry or sector which is not affected by the issues which relate to CSR and sustainability.  The purpose of this paper is to provide a background on how the market has evolved and to put forth a balance of the issues which surround the controversial and complex subject of corporate social responsibility or its corollary, sustainability.  There is also a need to present pragmatic ideas which can affect social changes through the actions of supply chain professionals or add to the awareness of how their decisions have a ripple effect across a culture, community, or country.

Table of Contents

-Background

-The Role of Business

-What is Sustainability?

-Principles and Standards of CSR and Sustainability

-Affect of Economics on the Development of CSR and Sustainability

-Reasons Against Sustainability Strategies

-Reasons For Sustainability Strategies

-Supply Chain Management Practices

-Summary

Background

It’s a good idea to assess where we are and where we are going, by understanding where we were.

As described by Thomas Palley in his book, Plenty of Nothing, the period from 1945 – 1973 was a steady run of economic prosperity in the American economy, which certainly affected the economic development of the Canadian market.  Post World War II was the Golden Age.  This was a world devoid of personal computers, cellular telephones, the Internet, containerized goods, lean thinking, or 24 hour newscasts.  Business was largely driven by growing market share and driving profits through the ability to capitalize on the unfettered access to global material resources and labour.

During this period, the Keynesian economic theory led to consumer credit, higher disposable incomes, along with increased borrowing to support increased demand and fuelled the market growth.  One of the key factors to arrest the Golden Age was the 1973 oil price stop sign.  Subsequently, inflation appeared, soon followed by a period of recession in the early 80s.  For one of the first times in decades, there was a tightening of wages to stem the loss of profits and social dissention was created as individuals sought their share of the redistribution of income in relation to executive pay and shareholder returns.

As the oil crisis challenged the accepted business economic models, there was a growing concern for the environment by various NGOs and consumer groups.  North American consumer appetites for automobiles began to be satiated by cheaper imported vehicles.   Not only did the consumer save on financing, imports got more miles per gallon which appealed to environmentally conscious customers, and opened the door for increased entry of commercial and industrial goods from foreign manufacturers into a relatively complacent and vulnerable market.

This had a significant effect on the previously stable employment record enjoyed in Canada and the United States.  We witnessed the decline of domestic suppliers as buyers started looking at foreign sources of industrial goods in such commodities as steel, bearings, electronics and consumer goods resulting in a rise in unemployment.  This began the transition in North America to the service-based economy from one of manufacturing.  In 1994, as a response to creating a more competitive market, the North America Free Trade Agreement was initiated between Mexico, Canada and the U.S.  This provided access to lower cost Mexican labour for Canadian and U.S. manufacturers as they tried to compete with lower cost regions across the Pacific Rim.

The Maquiladora zone in Northern Mexico became the economic benefactor with a rush by U.S. and Canadian manufacturers relocating production, packaging, and assembly operations to reduce costs.

The environmental NGOs appeared in the late 60s and established themselves as a formidable presence over the next decade, such as the Greenpeace organization.  However, consumers of goods for personal and commercial use, were largely unaware of any significant social problems related to the production of goods or access to mineral resources within the global community.  This attitude and awareness is slowly changing in European and North American communities by corporations and their customers.  Traditionally, commercial and industrial buyers are primarily rewarded through their ability to achieve cost reductions – which is the way their performance is measured.

In the mid-90s the revised ISO 9000 standards were gaining greater acceptance as a means of providing a benchmark for international suppliers and customers to agree on quality definitions.  The ISO 14001 environmental standards were introduced in 1996 to further raise the bar and ensure minimum protection of natural resources by manufacturers on a global scale.

Today, in 2005, we are immersed in a market where Brazil, Russia, India, and China are positioning themselves to be leading global suppliers with a commanding economic presence.  They are taking the place of the Asian tigers – Hong Kong, Korea, Malaysia, and Indonesia, which enjoyed rapid growth in the early 90s.  In 1997 the Thai government could no longer peg the baht to the U.S. dollar and this triggered a free fall in the neighbouring country currencies. This regional deflation allowed for a price deflation with goods imported to North America and spurred on the spending for low cost goods to meet shareholder expectations and the consumers delight in cheaper products.

The acknowledgment of the influence on social values in relation to the provision and consumption of goods and services was taking place.

The Role of Business

In Mintzberg’s co-authored paper, Beyond Selfishness, he talks about the fabrication of a corporation’s raison d’être.  What once started out as a purpose to serve society through a revocable charter has now evolved into an entity which only serves its master – the shareholders.

The defining moment came when the transition from social responsibility to shareholder responsibility occurred in September 1997.  It was a result of the pronouncement to that effect by the Business Roundtable, an American executive group.  They stated, “The notion that the board must somehow balance the interests of stockholders against the interests of other stakeholders fundamentally misconstrues the role of directors.  It is, moreover, an unworkable notion because it would leave the board with no criterion for resolving conflicts between interest of stockholders and of other stakeholders or among different groups of stakeholders.”

This has led to a myopic focus on quarterly returns which are justified by cost savings even if long-term benefits are not attainable.  There are incidents of booking sales for goods which have not been delivered.  The worst cases lead to illegal practices for the sake of satisfying the shareholders.  Even though the shareholder may be a day trader with no inherent interest in the corporation or its employees other than the short-term gratification of the instant wealth they can provide.  The CEO must deliver returns for the impersonal investor community which may be realized through sacrifices in quality, safety or concern as to how those products were produced.  The epitome of this in a CEO could be seen in the character of Al “Chainsaw” Dunlap.  He held an infamous role as the leader of Scott Paper through to his unceremonious expulsion from Sunbeam for providing shareholders with returns through an unsustainable business model.

Of even greater notoriety were the actions by former corporate shareholder darlings in the likes of Enron’s Fastow, WorldCom’s Ebbers, and Tyco’s Kozlowski.  Even as these corporate fiefdoms were being plundered by their senior executives, in Canada, the Gomery inquiry revealed that Groupaction Marketing Inc. was involved in fraud related to government contracts.  The fact that the public is chagrined by corporate behaviour is well founded, given these examples.  The Sarbanes-Oxley Act will address corporate governance issues to a certain degree – to protect the stockholders.

Despite these problems, businesses are the engine of a capitalist market.  Business has a strong influence on the cost and standards of living.  The role of government is to provide the checks and balances that society wants to see in corporate behaviour.  Businesses are amoral.  Business executives have morals.  Executives often obey based on the cost of compliance:  cheaper to obey or disobey – and what is the probability of being detected?  There is a shift in the expectations that society needs businesses to be successful and make profits BUT they also want to know how those same profits are made.

What is Sustainability?

The widely accepted definition comes from the 1987 Bruntland Commission study which states: “Meeting the needs of the present without compromising the ability of future generations to meet their own needs.”  We can also credit the Bruntland Commission for defining sustainable development which states – “The management of the human use of the biosphere so that it may yield the greatest sustainable benefit to present generations while maintaining the potential to meet the needs and aspirations of future generations.”  This early research can be seen as the catalyst for the increased interest in corporate social responsibility.

The definition for corporate social responsibility goes further into the topic.  The Centre for Corporate Social Responsibility and Sustainability at the University of Zurich, December 2004, addressed CSR as “A company’s commitment to explore and seize opportunities to enhance its overall contribution to society while it pursues its core objective of value maximization.”  Added to this is the investment community perspective through the Dow Jones Sustainability Index, 2003, which stated:  “A business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic and social developments.”

The World Business Council for Sustainable Development offers the definition of a “business commitment to contribute to sustainable economic development, working with employees, their families, the local community, and society at large to improve their quality of life.”

The resonating theme in these definitions is the attention to social concerns or values along with the recognition that profits are necessary and enable our advancement.  An equation to express this model could be: Economic return + Environmental return + Socially acceptable benefits = Sustainability.  The values can be variable but where there is a zero or less for any of the variables or outcomes, this would indicate an unsustainable business case.

In their new book co-authored by Philip Kotler and Nancy Lee, Corporate Social Responsibility, written from a marketing perspective, they have defined CSR as “Corporate social responsibility is a commitment to improve community well-being through discretionary business practices and contributions of corporate resources.”  They see CSR as an optional strategy for corporations to profit by strategically managing CSR and going beyond the cheque writing exercises associated with the narrower scope of corporate philanthropy.  They endorse an approach of cause-related marketing and recommend only applying this where a business has operations.

They reference an example by American Express.  Not to take the action by American Express out of context, for their Campaign to Reopen the Statue of Liberty, but it was certainly self-serving to promote their contribution of one cent for every purchase made on an American Express card up to $2.5 Million over a two month year-end period in 2003, to refurbishing the ultimate American icon and claiming this was a significant element of their CSR. This American Express sponsorship program fits the definition put forth by Kotler and Lee.

In 1991, the World Bank economist Herman Daly contributed the following definition for a sustainable society. “A sustainable society needs to meet three conditions: its rate of use of renewable resources should not exceed their rates of regeneration; its rate of use of non-renewable resources should not exceed the rate at which sustainable renewable substitutes are developed; and its rate of pollution emissions should not exceed the assimilative capacity of the environment.”

Principles and Standards of CSR and Sustainability

1.  The Ceres Principles

The Ceres Principles are widely referenced as guiding principles in many articles and are used by corporations such as Interface.

The ten Ceres Principles are:

2.  The Hanover Principles

The nine Hanover Principles or maxims were developed for the EXPO 2000 World’s Fair in Hanover, Germany.  They are aimed at urban planners, designers and architects to consider in the choice of materials, functionality, and human experience in an ecological system.  They are:

3.  The Equator Principles

The Equator Principles are used by the international investment community sponsored by the World Bank.  The principles are structured to screen projects for inclusivity of environmental, social and economic risks, generally within emerging economies.  Among the organizations which have adopted the Equator Principles are: Bank of America, CIBC, Credit Suisse Group, HSBC, ING Group, JPMorgan Chase, Manulife, Royal Bank of Canada, and Scotia Bank.

The Equator Principles address:

a) assessment of the baseline environmental and social conditions

b) requirements under host country laws and regulations, applicable international treaties and agreements

c) sustainable development and use of renewable natural resources

d) protection of human health, cultural properties, and biodiversity, including endangered species and sensitive ecosystems

e) use of dangerous substances

f) major hazards

g) occupational health and safety

h) fire prevention and life safety

i) socioeconomic impacts

j) land acquisition and land use

k) involuntary resettlement

l) impacts on indigenous peoples and communities

m) cumulative impacts of existing projects, the proposed project, and anticipated future projects

n) participation of affected parties in the design, review and implementation of the project

o) consideration of feasible environmentally and socially preferable alternatives

p) efficient production, delivery and use of energy

q) pollution prevention and waste minimization, pollution controls (liquid effluents and air emissions) and solid and chemical waste management

4.  The Global Sullivan Principles

The Global Sullivan Principles were founded by Reverend Leon H. Sullivan and are focused on economic, social, and political justice of corporations wherever they operate.  The Sullivan Principles are endorsed by ~200 corporations internationally.  Among their list of endorsers are British Airways, Chevron Texaco, Coca Cola, General Motors Corporation, HSBC Holdings plc, Kentucky Fried Chicken Corp, PepsiCo Beverages and Foods, Procter & Gamble Company, Rio Tinto plc, Sodexho, Inc., and Tyco International, Ltd.   A synopsis of the eight principles is:

There are many other generally referenced principles or programs being promoted such as The Natural Step for Communities.  They all tend to follow variations of the above mentioned principles.

Given the corporate names which subscribe to the aforementioned principles, corporate behaviour or individual executive ethics does not meet the expectations of the said principles, based on the publicly reported issues in recent years.

5.  Leadership in Energy and Environmental Design (LEED)

The purpose of LEED was to define “green building” by establishing a common standard of measurement; promote integrated, whole-building design practices; recognize environmental leadership in the building industry; stimulate green competition;

raise consumer awareness of green building benefits; transform the building market.  This initiative is aimed at preventing problems at the drawing board stage.  LEED programs are involved with retro-fitting building to be more sustainable but the retro-fit is more costly than doing it right at the outset of construction by design and material use.

LEED materials typically have zero emissions, are deconstructable, renewable, recyclable, contain recycled content, and can be reused.  For supply chain professionals within the construction industry, these guidelines are the most influential and cost sensitive.  Despite potentially higher construction costs, there are many benefits for sustainable development – human health, minimize environmental impact, reduce energy consumption.

Green building designs have been incorporated in building designs in Canada, the U.S., Europe, and Malaysia.  Benefits range from human comfort to ecosystem compatibility.

Mountain Equipment Co-op’s (MEC) new Ottawa store may well be the most environmentally friendly retail building in Canada. By recycling and using highly efficient building materials – such as straw bales – the Ottawa location will consume about half the energy than a conventional store of comparable size. Although the cost was about 10 percent more than that of traditional construction, MEC expects to recover the premium it paid in 10 to 12 years through energy savings.

MEC’s Ottawa outlet is the first retail store in Canada that complies with  HYPERLINK “http://www.buildingsgroup.nrcan.gc.ca/” \t “_blank” Canada’s C-2000 Green Building Standard. That means the new store was designed and built to have the least possible impact on the environment. For example, of the original, 40-year-old building that was renovated to house the new store, fully 75 percent (by weight) of the original materials were retained. Timber was reclaimed from the St. Lawrence River and used for new construction in the building – and about 80 percent of all the materials used in construction were obtained within a 500-km radius of the site, to minimize the upstream environmental impacts from transportation.

Overall, more than 55 percent of the materials (by weight) in the new building were recycled, cleaned up and reused – including steel beams, cellulose insulation, rock wool from recycled material, wood from other dismantled buildings and bricks from the old building on the site.

6. International Labour Organization (ILO)

The International Labour Organization, founded in 1919, is the UN specialized agency which promotes social justice and internationally recognized human and labour rights.  Most of the leading global companies that have endorsed CSR or sustainability have included the four basic areas of the 1998 ILO labour Declaration which are:

Freedom of association and the right to collective bargaining

The elimination of forced and compulsory labour

The abolition of child labour

The elimination of discrimination in the workplace

7.  Ethical Purchasing Policies (EPPs) and Supplier Codes of Conduct

In the past few years there has been increased pressure from NGOs in Canada, Europe and the U.S. to require private and public sector organizations to adopt EPPs along with supplier codes of conduct.  These policies are generally directed at the elimination of sweat shops related to the garment and textiles industry.

Sweat shop awareness gained notoriety in the mid-90s when high profile branding companies such as the GAP and Kathie Lee Gifford’s clothing line, were revealed to be sourcing their production in conditions which contravened ILO conventions and other human rights issues.  Further revelations were found with Disney and Mattel, to be followed by investigations in the supply chains of Nike, Adidas, Reebok, Umbro, Mire, and Brine.

The City of Vancouver, B.C. and Los Angeles, California were among the first North American municipalities to adopt EPPs.  The Canadian university book stores have been active in ensuring their branded clothing and novelty items are meeting ILO standards and their respective supplier codes of conduct.  This is being coordinated with limited success through the Canadian Association of University Business Officers (CAUBO).  The issue of monitoring supplier performance for compliance is a key part of these programs.

Most of the brand management companies adopted various forms of EPPs along with supplier codes of conduct.  Supplier codes of conduct generally reference the ILO standards at a minimum, along with other corporate values.  By way of example, in 1997 Mattel developed a set of Global Manufacturing Principles which sets the human rights, health and safety, environmental, cultural and ethnic, and philosophical standards which must be complied to by suppliers, sub-contractors and licensees and others that do business with Mattel.

Mattel have the independent monitoring organization, International Center for Corporate Accountability, report out on their progress regularly.  Monitoring production conditions across the supply chain is a very challenging commitment, given the distance and diversity of issues to be faced.  Case in point, as reported by Elisabeth Malkin in the New York Times International, June 12, 2005:

Mattel’s Barbie Label Licensee, Rubies Costume Company, based in Richmond Hill, Queens, operating in Tepeji del Rio, near Mexico City.  Rubies is one of the largest costume companies in the world.

“Child labour is a zero tolerance issue,” according to Mattel. In spite of Mattel’s eight year’s of experience there were allegations of verbal abuse, forced over time, making workers buy special tool belts, child labour, and  restricting freedom of association.  Special tool belts cost $45 – workers make $5 day.

China is being used as a pretext to diminish labour conditions in order to keep the workers reporting to work (and maintain their productivity).

Mexican law allows 14-15 year olds to work a reduced day.  Mattel requires employees to be at least 16 years old.  Rubies acknowledged an audit by Mattel turned up one 15 year old.

Rubies, as a result of the Mattel audit, have promised to hire employees older than 16 years old and to correctly pay over time.

One employee claims the Rubies’ plant manager altered her birth certificate and hired her at 14 years of age.

Once these allegations are reported it is difficult for organizations to respond effectively without inviting further criticism.  To Mattel’s credit, they would appear to be doing as much as possible to stem problems within their supply chain to meet their corporate commitments, yet still are facing the issues with a major supplier for Barbie® attire.  This example serves as a means of showing the degree of constant vigilance brand managers must go to ensure a sweat free, in this instance, supply chain.

The NGOs monitoring the garment and textile industry include the Maquiladora Solidarity Network (MSN).  MSN are supported by international union and human rights organizations, including Oxfam.  MSN is a labour advocacy group focused on workers rights in Mexico, Central America and Asia and works in Canada with other NGOs to promote EPPs.

There are many not-for-profit garment industry third party, auditing organizations including SA8000, the FLA, the WRC and Verité.  These four organizations are widely used and referenced.

8.  Reporting

There are also globally recognized guidelines or principles for reporting of corporate activities which is inclusive of economic and social indicators and sustainable practices. The Global Reporting Initiative (GRI) is widely disseminated and referenced for their comprehensive reporting requirements.  The GRI reporting elements are analogous to the ISO compliance or the Malcolm Baldrige quality program requirements.  A need for a standard was identified in order to benchmark progress for organizations and stakeholders which advocated sustainability.  GRI published their guide in 2000.

The (11) reporting principles are:

Affect of Economics on the Development of CSR and Sustainability

The context for business in a capitalist system connects two dynamic factors:  the economy within which the all competitors must play; and governmental economic policies.

Capitalism provides the best and worst means of distribution of wealth.  The motivation for profits requires a constant search for new products and increased efficiency to lower production costs.  This results in a shorter shelf life for best practices and products.  Schumpeter referred to this as “creative destruction.”  The result of this is the different groups within society fighting for their share of the income – the fight between wages and wealth.  Palley sees this conflict as the catalyst which determines the ability of the consumer to increase the demand which must be met by industry through the consumption of goods.  There is continuum of insatiable consumers for new products, which encourages innovative manufacturers, while concurrently reducing production costs through technical advancement or locating plants where labour costs are lower without being offset by increased transportation rates.

Successful periods of Keynesian theory of demand management were identified as having the equilibrium of government monetary polices (interest rates) and fiscal policies (spending/taxes).   However, the Keynesian theory also recognizes the propensity of periods of deficiency in demand for goods and services – recessions, depressions and/or significant unemployment.  In spite of this, arguably capitalism is the most productive form of a social system.  Capitalist economics generate the largest amount of goods available and a higher standard of living than other economic models.

Palley has commented that from early 1970s onward there has been a series of economic peaks and valleys, followed by increased government debt, which indicates that the pure demand management theory has not been effective.  He sees several cracks in the Keynesian model’s ability to sustain values without unintended consequences as follows:

1. There is an inequity of mass workers wages in relation to those of the wealth of a few capitalists during the same period – an exploitation of labour with a weakening economic well-being.

2. A myth of the capitalist market is that it is a free market.  There is an excess of government regulations on property rights, individual and contractual obligations, corporate and personal incomes taxes, to name a few.  Business interest groups lobby for changes to government or industry practices to maximize profits.

3. Investors want stock values to increase even if it means reducing wages of the workers – as long as it isn’t my wage!  However, if we all adopt this attitude, all of our wages decrease greater than the rate of increased share value.  The largest shareholders win.

4. Most individual employees are working longer, harder to be number one; less family time, less community involvement, even personal health may be sacrificed to achieve the financial dream.  As observed by Jensen and Meckling, “Like it or not, individuals are willing to sacrifice a little of almost anything we care to name, even reputation or morality, for a sufficiently large quantity of other desired things…”

5. A deconstruction of retailing from smaller, entrepreneurial motivation to Big-Box service-wages which challenges accepted cultural values.  A recent event in Quebec serves as an example of the backlash which can take place by social interest groups.

Religious investors want to put moral pressure on Wal-Mart and not boycott the stores, as the boycott hurts the workers.  Quebec milk producers would not reimburse employees for incidental expenses if those products were purchased from Wal-Mart.  This is reaction to the closing of the Wal-Mart outlet in Saguenay, Quebec following union certification of its employees.

The Canadian Conference of Catholic Bishops (CCCB) said it will examine Wal-Mart’s anti-union policies and its corporate social responsibility to the communities in which it operates.  The issue is one of the rights of workers to join a union, if they choose to do so.  Interestingly, the CCCB are saying that this policy could hurt profits and shareholders’ interests.  The CCCB along with the US-based Interfaith Centre on Corporate Social Responsibility (ICCR) wants Wal-Mart to adopt its report on sustainability.

6. We feel safe in larger cars as drivers of small cars are at risk; drivers of small cars, in turn, buy larger, less fuel efficient cars; the collective self-interests increase risk to all. To not presume self-interests makes one worse off in a cyclical manner.

7. The current system encourages governments to attract business with lower business taxes, offset by higher property taxes or household tax increases. Countries compete against each other by keeping interest rates higher than others on a marginal basis, therefore, global neighbours respond by raising their rates, and so on.

The East Asian economies referred to earlier, functioned with their government policies of low inflation and fiscal restraint, while fostering foreign investment supplied by hungry shareholders seeking higher returns.  With lower productions costs, combined with effective monetary policies, their success should have been assured.  Contributing to their downfall was the absence of ethical behaviour and conduct by government leaders who acted in a self-serving manner at the expense of their business community and populous.  North American consumers benefited while their Asian counterparts adapted to the changing dynamics in the economy.

This brief look at global economic issues provides further context as to what leads to the global social concern for the role of business and its relationship to society.Reasons Against Sustainability Strategies

A stinging rebuke of the concept of CSR was written by David Henderson, the former Head of the Economics and Statistics Department of the Organization for Economic Cooperation and Development (the OECD) in Paris.

Synopses of his views suggest that the idea of sustainable development is not well-defined and therefore should not be embraced by any corporation.  Society’s expectations of business are strongly influenced by NGOs that do not understand the relationship between a market economy and need for profits.  CSR advocates are actually alarmists blaming business-related activities for the either-or-decision scenarios they spin to support their cause.  The adoption of CSR will lead to higher costs to be borne by the business or its customers.  For those corporations that do adopt CSR standards, they will want the other players in the market to compete using the same standards which may not be doable or equitable.  The standards could be driven by response to public pressure or governmental legislation.  The imposition of well-intended standards could suppress the employment opportunities in poor countries due to circumstances beyond the control of the market such as political indifference by foreign leaders.

Milton Friedman, the renowned economist, articulated the role of business in his book, Capitalism and Freedom forty years ago.  He referred to CSR as being a “fundamentally subversive doctrine.”  Friedman saw it as the role of the market to distribute wealth as opposed to that of the socialist politicians.

Friedman is steadfast that corporations spend stockholder’s money – not the corporation’s money.  Corporations are legal entities that only exist in the interests of their stockholders.  Therefore, a corporation should only commit resources for purposes it regards as being socially responsible if it can connect this activity to the corporation’s bottom line.  He contends that it is not clear who is defining social responsibility.  Where corporations set up departments which manage social relations, these departments typically are adverse to the interests of the stockholders and are a waste of money.

Along with Friedman are the comments from Gilbert Burck in 1973. “…business serves society best when it minds its business well, and that it should take part in social activities only to the extent that these are necessary to its own well-being.”  Burck implied that business profits were a good measure of social welfare.

Melvin Anshen expanded on Burck’s ideas with further insights against CSR.  Social advocates have not realized that by imposing standards on all businesses is inequitable as they are not all in the same financial position to afford equal contributions, such as employee day care services.  CSR could be achieved but only by favouring government controls as opposed to free enterprise.

Focusing on CSR would require executives to take their eye off the ball.  It would lead to compromising with NGOs and their specific take on how a business should conduct itself and this would lead to inefficiency and ultimately higher costs.  Executives and management must devise new accounting records to measure sustainability and they are not trained to do so.  Higher costs would lead to lower profits and dissatisfied stockholders.

Ray Anderson, CEO of Interface, and an outspoken businessman in support of CSR and sustainability, could be an example of a leader that has sacrificed profits for the sake of his personal mission of CSR.  In a recent article, National Post writer Peter Foster summarized Anderson’s journey towards CSR and the performance of Interface over the past decade.  The results are less than spectacular.  To attribute its weak performance due to its focus on CSR would be unfair and to claim that Interface’s reduction in waste and emissions and improved efficiency was a result of its commitment to CSR would be equally unfair.  Interface and Anderson have raised the awareness of sustainability significantly but have not shown that CSR makes for a better business model.

University of Guelph professor, Ross McKitrick stated that there could well be a 5% annual decrease in per capita economic growth by 2010 – if Canada cuts 25% of its carbon output.  Although Canada signed on to the Kyoto Accord, other countries which we compete against economically – U.S., China, Brazil, and India did not.  This puts Canadian companies at a disadvantage.  The Canadian government recently budgeted $5B to support its climate change strategy. It is a very debatable program within Canada by industry and economists.

The idea of carbon credits to be traded by Canadian companies as an offset to Kyoto Accord investments is a questionable practice at present.  There is not an established clearing house, to date, for an equitable exchange of credits.

Organic foods are widely reported as being a sustainable product although, admittedly cost more.  There are few standards in Canada for certifying organic products.  There is an implied leap of faith by consumers that certified organic foods actually are organic.  This invites a lot of skepticism as to how beneficial the products are and whether the Canadian organic food industry is a sustainable economic venture.  TransFair Canada, which is sponsored by the Federal government, provides certification of agricultural products which are traded internationally.

Is the attention on CSR more of a challenge to the capitalist market model?  Many of the arguments put forth by public interest NGOs are taken out of context as to their views being correct and business views being completely incorrect but more to the point; business is seen as being the cause for the global problems.  Is there room to move between the polar views?

Reasons Against Sustainability Strategies

A stinging rebuke of the concept of CSR was written by David Henderson, the former Head of the Economics and Statistics Department of the Organization for Economic Cooperation and Development (the OECD) in Paris.

Synopses of his views suggest that the idea of sustainable development is not well-defined and therefore should not be embraced by any corporation.  Society’s expectations of business are strongly influenced by NGOs that do not understand the relationship between a market economy and need for profits.  CSR advocates are actually alarmists blaming business-related activities for the either-or-decision scenarios they spin to support their cause.  The adoption of CSR will lead to higher costs to be borne by the business or its customers.  For those corporations that do adopt CSR standards, they will want the other players in the market to compete using the same standards which may not be doable or equitable.  The standards could be driven by response to public pressure or governmental legislation.  The imposition of well-intended standards could suppress the employment opportunities in poor countries due to circumstances beyond the control of the market such as political indifference by foreign leaders.

Milton Friedman, the renowned economist, articulated the role of business in his book, Capitalism and Freedom forty years ago.  He referred to CSR as being a “fundamentally subversive doctrine.”  Friedman saw it as the role of the market to distribute wealth as opposed to that of the socialist politicians.

Friedman is steadfast that corporations spend stockholder’s money – not the corporation’s money.  Corporations are legal entities that only exist in the interests of their stockholders.  Therefore, a corporation should only commit resources for purposes it regards as being socially responsible if it can connect this activity to the corporation’s bottom line.  He contends that it is not clear who is defining social responsibility.  Where corporations set up departments which manage social relations, these departments typically are adverse to the interests of the stockholders and are a waste of money.

Along with Friedman are the comments from Gilbert Burck in 1973. “…business serves society best when it minds its business well, and that it should take part in social activities only to the extent that these are necessary to its own well-being.”  Burck implied that business profits were a good measure of social welfare.

Melvin Anshen expanded on Burck’s ideas with further insights against CSR.  Social advocates have not realized that by imposing standards on all businesses is inequitable as they are not all in the same financial position to afford equal contributions, such as employee day care services.  CSR could be achieved but only by favouring government controls as opposed to free enterprise.

Focusing on CSR would require executives to take their eye off the ball.  It would lead to compromising with NGOs and their specific take on how a business should conduct itself and this would lead to inefficiency and ultimately higher costs.  Executives and management must devise new accounting records to measure sustainability and they are not trained to do so.  Higher costs would lead to lower profits and dissatisfied stockholders.

Ray Anderson, CEO of Interface, and an outspoken businessman in support of CSR and sustainability, could be an example of a leader that has sacrificed profits for the sake of his personal mission of CSR.  In a recent article, National Post writer Peter Foster summarized Anderson’s journey towards CSR and the performance of Interface over the past decade.  The results are less than spectacular.  To attribute its weak performance due to its focus on CSR would be unfair and to claim that Interface’s reduction in waste and emissions and improved efficiency was a result of its commitment to CSR would be equally unfair.  Interface and Anderson have raised the awareness of sustainability significantly but have not shown that CSR makes for a better business model.

University of Guelph professor, Ross McKitrick stated that there could well be a 5% annual decrease in per capita economic growth by 2010 – if Canada cuts 25% of its carbon output.  Although Canada signed on to the Kyoto Accord, other countries which we compete against economically – U.S., China, Brazil, and India did not.  This puts Canadian companies at a disadvantage.  The Canadian government recently budgeted $5B to support its climate change strategy. It is a very debatable program within Canada by industry and economists.

The idea of carbon credits to be traded by Canadian companies as an offset to Kyoto Accord investments is a questionable practice at present.  There is not an established clearing house, to date, for an equitable exchange of credits.

Organic foods are widely reported as being a sustainable product although, admittedly cost more.  There are few standards in Canada for certifying organic products.  There is an implied leap of faith by consumers that certified organic foods actually are organic.  This invites a lot of skepticism as to how beneficial the products are and whether the Canadian organic food industry is a sustainable economic venture.  TransFair Canada, which is sponsored by the Federal government, provides certification of agricultural products which are traded internationally.

Is the attention on CSR more of a challenge to the capitalist market model?  Many of the arguments put forth by public interest NGOs are taken out of context as to their views being correct and business views being completely incorrect but more to the point; business is seen as being the cause for the global problems.  Is there room to move between the polar views?

Reasons For Sustainability Strategies

Anshen also offered ideas which support CSR.  Organizations should define CSR in specific terms for their respective operations.  Generalizations related to sustainability detract from an organization’s ability to action such efforts.  Transferring costs such as air or water pollution onto society should not be seen by business as a means of economic efficiency.  Where industries accept environmental standards, the costs are shared equitably by the market players and their customers, which contribute to social benefits while mitigating individual financial harm.

If organizations do not voluntarily direct their efforts towards sustainable practices, in all likelihood, governments will impose regulations or sanctions to do so.  The Kyoto Accord is an example of governmental policy directed at reducing the green house gas emissions.

There are many examples of social legislation imposed on corporations in North America – pension plans, health and safety programs, effluent discharge and allowable rates for the discharge of emissions, with the requisite inspection, testing and assessing of fines where necessary.  These have evolved over the past decades as society has exacted greater contributions from business than only employment and shareholder returns.

Paul Hawken’s book, The Ecology of Commerce, states paradoxically, that although businesses of the industrial age contributed to the current state of affairs, business is the only means to implement the changes required in a “restorative economy.”  Hawken sees sustainability as a must, as we are exceeding the resource capacity of the planet.

From a marketing perspective, there are boundless opportunities to include social responsibility and be financially successful.  The Canadian Business for Social Responsibility includes bottom-line benefits having:

Reduced operating costs

Enhanced brand and image reputation

Increased sales and customer loyalty

Increased ability to attract and retain employees

Publicity and increased public image from good works

Business practices which are based on exploitive practices in foreign countries for the purpose of increasing investor returns is not being tolerated – especially in retail goods.  Consumers are better informed and can make choices.

Management guru and Professor Michael Porter with Claas van der Linde argue that a shift to resource productivity will be found between environmental protection and competitiveness.  Eco-efficiency will be an outcome of constrained resources.

They point to the flower industry in the Netherlands.   Sixty-five percent of world exports of cut flowers on a minimal land base.  This required innovation to develop a year round greenhouse capability to support the value chain.  Their message – don’t fight legislation but focus on strategic shifts to sustainable resource models.

Continually depleting the natural resources at the current rates of consumption can be averted through investments in alternative energy sources and products.  Hydrogen powered vehicles, hybrid energy vehicles, solar power, tidal generation, and thermal energy, are examples which are less dependent on fossil fuels, which are not renewable. Placer Dome, in its Sustainability Charter states, “We must pursue new technology to reduce the impact of mining’s activities.”

Supply Chain Management Practices

The role of a purchasing agent or officer within a corporation requires that this individual act in the interests of the corporation – in Canada, this is referred to as the law of agency.  The agent must exhibit fiduciary trust at all times.  Therefore, agents cannot act in any way, with good intentions or not, to contravene policies or where corporate policies are absent, to do what they think is good for society.  In other words, if they choose to pay more for locally produced goods, rather than bring these goods in from another locale, without a direct financial benefit, they are exceeding their limits of authority – unless there are express or implicit instructions which support these actions.  Therefore, one of the main roles for agents is to bring the attention of options which can affect environmental or social values to the executive of their respective companies.

Industrial and commercial buyers and suppliers have and continue to do a good job to address environmental criteria in decisions since the early 80s in response to customer expectations.  Green procurement policies to complement corporate strategies are well accepted and are not seen as being more costly with sustainable benefits.

Public sector managers may have an additional dilemma to balance between being an advocate for social programs and the responsibility for administering those programs.  This will tempered by the scope of the policy and public support for specific social issues.

The area of social responsibility, whether there is a corporate policy or not, is a whole new area for supply chain professionals to be aware of and to include in their decision criterion where appropriate.  Examples of practices to consider are:

1.  Work with local social agencies which provide meaningful opportunities to those less able to represent themselves such as:

2. Work with aboriginal entrepreneurs and other small-medium enterprises to identify opportunities which can directly provide good value for services and goods.  The newly formed Canadian Aboriginal and Minority Supplier Council (CAMSC) was created to reduce barriers and enable these groups to compete for procurement opportunities in a sustainable effort.  CAMSC is supported by the Federal government.  CAMSC’s corporate memberships include:  Canadian Pacific Railway, DaimlerChrysler, RBC Financial Group, Bell Canada, Cisco Systems and other MNCs.

CAMSC: operates as a private sector-led, non profit membership organization governed by a board of Directors; composed of major multinational corporations operating in Canada. The organization aims to boost economic development efforts and employment. The council is now accepting new corporate memberships from across Canada.

3.  Look for best practices and adopt wherever possible. Kotler and Lee recommend several best practices for selecting, developing, and evaluating good corporate initiatives, including:

Select a few manageable social issues to support

Identify and engage community partners

Work where your organization has direct current or future interests

Select programs which complement corporate values or goals

Select programs which identify with key stakeholders – internal and external

Programs should be a long-term commitment not a “flavour-of-the-month”

Programs should support the cause and the company

Monitor, evaluate results, and report out

Best practices in the supply chain can enable organizations to differentiate themselves from a marketing perspective.

4.  Investigate alternative materials to substitute for oil-based materials

Cargill has developed and markets NatureWorks® PLA, which is a polymer derivative of natural plant sugars.  It has many of the benefits of plastic while being renewable. PLA can be used in rigid packaging and films for bakeries, dairies, meat products, disposable cutlery, drink cups, bottles and can be spun into fibres for mattresses and blankets.

Biodiesel fuel assists to reduce CO2 emissions.  The City of Brampton has been running their municipal fleet for ~ two-years on biodiesel.  In the lower mainland of B.C., several municipalities are moving to use premixed biodiesel fuel for their fleets.  Biodiesel is a renewable alternative which can be made from vegetable oils or animal by-products.  It can also include used cooking oils collected from restaurants.

5.  Investigate ways to reduce the consumption of water

Cleaning equipment using saturated steam technology uses only 3-4 tablespoons of water-per-minute as opposed to 5-6 gallons of water-per-minute when compared with conventional pressure washers.  Metering water through municipal or commercial hydrants reduces consumption and provides a revenue source with increased accountability.

Consider filtering and recycling of rain water for watering green spaces rather than drawing from fresh water reservoirs.  Ensure discharges of effluent in waterways meet the highest standards to preserve rivers and streams.

6.  Investigate ways to reduce energy consumption

Starting with office equipment and electronics, move on to electric motors, HVAC equipment, windows and doors, appliances, lighting and signage, boilers, elevators, to ensure they are energy efficient.  At a minimum, consider ENERGY STAR® rated equipment in addition to Canadian Standards Association or other technical certifications.

Review your distribution network and look at where more efficient shipments can be made and their mode of transport.   Consider local sourcing to reduce travel time and distance, saving in fuel.

7.  Investigate LEED certification on new projects and renovations

When buying furniture, fixtures, furnishings and other construction related projects, ensure the material specifications are meeting LEED guidelines.  In the long-term, operating costs can be reduced.  Green buildings and roofs offer sustainable options without increasing capital costs.  They are aesthetic, functional, and environmentally friendly.  It’s good for our health.

8.  Expand the inclusion of environmental standards

ISO 14001 can be applied to the decision criterion for courier and cartage services, as well as commercial and industrial goods.  This promotes the idea of alternative fuels and innovative manufacturing methods by suppliers locally and internationally.

Continue to investigate the use of substitute materials which meet or exceed status quo environmental standards – the options are limitless.

9.  Get involved with business schools

Local universities and colleges need to be kept current with business practices.  Working with their program directors or deans to refresh their course outlines or share best practices, is a means of shaping the next generation of entrepreneurs and managers.

Teaching part time in business diploma or undergraduate programs can be done while working for other organizations.  Bringing students into your organization to work on projects is of great mutual benefit.

10.  Outsourcing Caveats

Where goods or production facilities are being off-shored or where there is the extraction or harvesting of raw materials, look at the policies and monitor the performance of tier one suppliers and their sub-contractors.  Using ILO and other guidelines be proactive to ensure exploitive practices are avoided or mitigated wherever possible, or there is a means in place to improve conditions for workers or their communities.  Business reputations are at stake as well as profits.  NGOs are looking at their radar screens to identify bad actors on the international stage.

11.  Share information

CSR and sustainability are relatively new concepts.  Networking with other groups and researching information is a must.  Keep stakeholders informed of barriers and enablers.  What works in one organization may not work well in another.  Adapting is likely better than adopting.  Ensure there is a fit with your corporate values and mission statement when considering which nuances of CSR or sustainability to support or commit to.

12.  Be Diligent

CSR and sustainability is emerging and will likely not be a fad that goes away.  It also requires evidenced-based information to ensure that programs are effective.  Reviewing how products are made and introduced into the supply chain is an important step and requires resources to do so.  Monitoring and compliance is a key component and may require additional staffing and/r external service organizations to assist – which will add incremental costs.

This will necessitate training and changing business practices.  It will take informing and working closer with suppliers if CSR and sustainability are to be a successful corporate strategy and philosophy.  It demands the commitment and support of the senior executive group and is a long-term initiative.

Summary

Corporate social responsibility can be contentious – especially for early adopters.  There are believers and non-believers inside and outside of your organization.  Supply chain professionals are in a position to influence internal decisions which affect materials and design and to encourage suppliers to do likewise for mutual benefits.  Be pragmatic and carefully target which products or services could be investigated to ensure sustainable business practices are a viable option.  Report out to the business community on practices which are working that do not compromise competitive positions.

Where CSR activities are being introduced into decision-criterion, be sure that the suppliers can get up to speed without unintended consequences, such as not being able to meet specifications or not being able to do so in a cost conscious manner.  They will need to have reasonable time frames to develop compatible standards and likely adapt many of their business practices.  Monitoring of their performance with constructive feedback will be healthy for industry sectors.

Building a business case and checking on the progress of the implementation or maintenance of the CSR program should assess the relationships between the costs, environmental impacts, and social benefits.  Introducing and managing CSR is not that different from other change management practices.  Unfreezing, changing, and refreezing.

Above all, remember, good planets are hard to buy!

Larry Berglund, CPP, MBA

August 2005

Larry Berglund, CPP, MBA

Executive Summary

If the market meltdown of 2008 followed by the low level of business activity didn’t convince you that the previous economic model was flawed, don’t read any further.  The subject paper is addressed at supply professionals and business people that need to recalculate the value proposition in their future strategies.

The impetus for reevaluating the value proposition being the cost of energy (oil) and the pending carbon cap and trade system and or carbon emission tax which is being proposed in multiple jurisdictions.  The global economy was spurred on by European trade blocs, NAFTA, globalization, low cost oil that ran for 20+ years, and deregulation in the financial markets.

The industrial infrastructure was dismantled in North America when NAFTA created the lower cost source in Mexico, which led to the off shoring strategy of sourcing from India, Malaysia, and China.  When NAFTA came into effect, the price of a bbl of oil was ~$20.00.  The price escalated to $140 per bbl in late 2008.  Emissions were not a part of the true cost structure of most products or services – nor are they yet.

The paper looks at local sourcing from two perspectives:  First, what if off shoring does not prove to be sustainable over the next decade and secondly, how do economic stimulus packages affect local procurement policies and practices?  Both may end up at the same point in the future, with local or regional solutions.

The high cost of oil in early 2009 subsided and caused the panic to abate.  In actual fact, there is a small window of opportunity in the recessionary period to stop and look at the probability that oil will cost even more than the previous high mark.  This is the time for business to project how they will be able to operate should oil prices return to catastrophic levels; resources such as water become much more costly; energy alternatives are not able to wean us off of fossil fuels fast enough; the cost of emissions is internalized; and for supply professionals, off shoring turns out to be an uneconomic option.  Where might the domestic production or supply come from?  The economic stimulus packages require expedient disbursement.  How will this be managed within current procurement policies and practices?

While the paper does not provide all of the answers, it’s intended to get supply professionals to consider strategizing as to how their decisions will be measured over longer time periods.  Outsourcing and off shoring were primarily weighted on the cost advantages found in foreign locations as compared with domestic goods and services.  Stimulus packages are aimed at the domestic good of society.

Are public supply professionals using the right tools for the job?

Issues around local sourcing

Local sourcing – you have to be looking for it to find it! The economic maxim of trade is the efficient producer becomes the market leader, to paraphrase Adam Smith and David Ricardo from the 19th century.  Efficiency requires a company to continuously focus on productivity gains using technology, labour and capital investment to convert materials into their final configuration for their customer. Specialization is a part of the key to productivity. Location of the operations is another important aspect of the cost of efficiency.

Competition in the market leads to innovation in productivity to reduce costs. However, some means to lower costs can be exploitive: poor working conditions being imposed on a disenfranchised work force; extraction of materials with inadequate environmental protection; consumption of water or renewable resources at rates that exceed their ability to replenish their levels; and the use of energy where the cost of emissions is not factored into the finished goods.  It is the latter point that will generate increased debate in the future. If we, as consumers or supply chain managers, base our decisions on the lowest price available for our goods, we will win the race to the bottom!  A fate similar to that of the Newfoundland cod or the Atlantic giant blue fin tuna or mahogany from Brazil or Peru – sources being depleted to the point of no return: the classic ‘death by a thousand cuts.’ Corporate social responsibility seeks to find an acceptable level of economic benefits, ensuring environmental stewardship while meeting the expectations of society.

The current economic crisis is being used as an excuse for buying “local” in order to protect self-serving interests of those within a target jurisdiction.  This is short-term thinking at its worst – Buy-Canadian or Buy-American or Buy-British.  This knee-jerk spend mentality can lead to the increase of tariffs on imports to protect inefficient domestic producers.  Long-term economic weakness is the result of protectionism. For instance, Canadian shoe manufacturers can supply less than 1% of the retail market yet all Canadian shoe customers pay 3-5% duty on all other shoes which must be imported.  This protects a handful of Eastern Canadian shoe manufacturers. In another example, a Toronto-based company, IPEX Inc., has been exporting pipe to the United States market for decades and recently landed a contract to supply plastic piping for a new health-care centre at the Camp Pendleton Marine base in California. But the piping is now being ripped out of the ground because the pipes are branded with the words Made in Canada. This decision literally wastes resources already consumed to make the first order, and the political pressure outweighs the business sense or environmental considerations.

The cost of emissions is generally not included in many manufactured products because it doesn’t have to be under existing legislation.  Emissions are externalized and borne by society.  As long as a product or service is legally sold there are only moral arguments that suggest consumers or producers should accept more responsibility.  When someone else is paying for the cleanup, disposal or recycling, we will vote with our money and not our conscience.  There are exceptions certainly – but in a smaller portion of the population.

A long-standing aversion to having a preference for local sourcing has served supply management quite well in the public sector. Where there was a bias for local sourcing with suppliers having an address within a select area, the end was seldom justified. Goods and services tended to be of a higher cost for the quality and services provided.  This type of preferential treatment did not always create an incentive for local sources to be more competitive.  For the seller, they had a captive audience.  For the buyer, it was a rationalized choice.  For non-local sellers it was an unfair competitive situation – although they may have enjoyed a similar reciprocal advantage in their locale.

Suppliers that had invested in lean manufacturing or other efficiencies were not rewarded with contracts due to a price premium allowance for local suppliers.  This goes back before the days of the internet and the hyper-activity of global sourcing we are now participating in.  Local sources would be protected by the umbrella of limited-competition as long as they weren’t too greedy.  The Chinook Aggregates Case was one of the first to expose the problems of hidden local privilege clauses.

The use of local preferences for supply is common with private sector organizations, especially in the resource-based industries.  Extraction industries, in rural or remote locations, require a large percentage of local business for greater assurance of supply and in case of emergencies to avoid unplanned shut downs.  This allows the larger community- or regional-based employer to reduce their inventory investment, provide employment which enhanced the community and afforded social programs such as schools and hospitals and civic services and amenities.

The business case for buying local can be made where conditions are favourable or may be driven by necessity.

Intuitive decisions

Food products

Where possible, buying locally makes sense on a seasonal basis for all of the basics that go along with healthy nutrition through accessibility to fresh products.  This can apply to fruits, vegetables, meat, poultry, and other natural produce.  There is growing interest in local and organic produce and the “100 mile diet” is a popular trend in many cities.

This reverses the more recent trend.  Orchards in Britain have been cleared (outsourced) for American apples from thousands of miles away.  The Vancouver/Richmond area of British Columbia decided to convert farm land to warehouses and car lots 2-3 decades ago. The Okanagan and Fraser Valley fruit orchards have given way to conversion to wineries with import tariffs to protect the investments.

Niche markets such as urban bottled water delivery services are going to need to reconsider their business plans. Although there are campaigns to eliminate the use of plastic bottles for water as recycling fails to keep up with the volume – the cost of fuel and the cost of emissions added to the delivery will add considerably to the delivery cost.  This despite the fact it is available relatively cheaply from a municipal water source (the tap) – where the bottled water usually originates from too!

The golf course industry in semi-arid and desert locations require vast amounts of water to keep the greens green.  Where there is inadequate rainfall, they must draw precious water from aquifers – the same source for drinking water and irrigation of food crops. How many golf courses should an area support?

Local materials, energy, and transportation

Raw materials such as lumber, concrete, mineral aggregates, which are bulk-type shipments benefit from lower shipping costs and where availability enables shorter lead times.  The cost of transportation within this category is where the cost of fuel could start to dictate where the goods will originate from.  While it may be more supportive to a local economy to buy products from within a political jurisdiction it may make more economic and sustainable interest to buy where the travel time is the most direct.

There isn’t a clear answer on this subject.  Should a Vancouver-based health care facility bring in medical supplies from Edmonton or Toronto which are 24–72 hours away or bring them up from Seattle, which is only 3 hours away?  Tariffs or trade agreements tend to be protective of political and economic interests while they may actually be contributing to greater emission problems by where we source.

Hats off to Coca-Cola for its new “PlantBottle” made from sugar cane and molasses.  The beverage industry needs to develop more responsible packaging and containers for its products which are not derivatives of fossil fuels. Renewable sources of materials are a key to managing costs and mitigating environmental degradation.

The traditional industrial and commercial distribution centre logistical networks and manufacturing locations were established when oil prices were $20.00 – 40.00 per barrel – not $140.00+ per barrel.  It is not easy to physically relocate a distribution centre.  It is a relatively easier choice as to which distribution centre to buy from.

A building supply company needs a load of lumber in Vancouver.  The lumber could be delivered from Prince George or from Bellingham.  If oil prices are ~$200 per barrel and emissions must be accounted for, trade offs will need to be made.

A building needs to be demolished.  The more common practice would be to demolish it and the material would end up in a landfill site. A more responsible option is deconstruction.  Salvage existing resources; concrete and bricks can be turned into rubble material for backfill on local projects; lumber can be reused for other construction purposes; steel can be recycled; increase landfill capacity. Deconstruction costs more in time and labour but may be better than wasting previously harvested resources and promotes local employment.

The use of indigenous local materials could be a more responsible decision than importing alternative materials.  The use of wood waste as a biomass source in Ontario and British Columbia where forestry and lumber are strategic economic drivers is a good example of drawing on local materials as opposed to using other fossil fuels. Biomass gasification systems/ using organic solid materials or biosolids as the fuel source can help to solve local municipal waste problems while providing cost effective and sustainable solutions to energy costs.

Biomass gasification systems use local waste products or materials for their fuel source thereby providing flexibility for geographical locations. It also mitigates transportation of fuel and enables cogeneration of energy options. Since 2006, Tolko Industries plywood operation in Kamloops, B.C., has saved 12k tonnes of green house gas emissions and $1.5M on fuel costs per year through their investment in wood gasification technology.  In 2007, The University of British Columbia’s Kelowna campus relied on geothermal energy to replace its natural gas plant, reducing 1900 tonnes of carbon dioxide emissions per year.  These are examples of how organizations are designing their infrastructure needs on local energy sources rather than transporting fossil-based fuels to their locations.

A professional association wants to hold a national conference.  The cost of air travel is escalating and virtual conferencing technology is becoming lower in costs.  Airlines, hotels, educational institutions and conference centres may have to reposition their services in order to have an economic model that is sustainable.  Remote access 65″ HDTV monitors and surround-sound systems enable information sharing in a more robust and interactive format offering a “just like being there” encounter.  This system is used on a regular basis between university researchers globally, the Research Universities’ Council of B.C. and many other organizations – eliminating the need for travel without compromising the quality of the communications.  The investment for the University of British Columbia was $25,000 for their system which uses the internet for connectivity at no additional charge.  The UBC HDTV system is available to external organizations on an hourly basis.

When oil was $140 per bbl in 2008, there was still a 15% price advantage over North American steel suppliers when sourcing from China with a high demand for the product, according to a major Canadian west coast stainless steel distributor.  With oil in July 2009 costing 43% less per bbl there is an increased price advantage but global consumption is way down. The price of stainless steel is ~60% less than July 2008 – not a direct correlation between the cost of oil and the price of steel imports.  If there were a cap and trade strategy or carbon emission tariff on imports that did not meet domestic emission standards – subject to the value that is set, it could negate any price advantage and transportation costs could signal that local or regional sources could be more competitive.  But only if these manufacturing facilities are running efficiently – as they do in China.

However, according to one report, ocean freight transportation costs should remain low even when business resumes as new larger container ships, ordered during the boom, will arrive on the market in late 2010.

Caveats:

To temper the optimism in local or regional energy development is the reality of the economic woes on wind farms.  Texas billionaire T. Boone Pickens, a vociferous supporter of wind energy, is pointing to the difficulties to access additional capital and transmission lines which inhibit his formerly aggressive plan to expand wind turbines in his home state.  Pickens’ plan was also predicated on oil staying above $100 per bbl.  Combined with the lower consumption of electricity due to the recession, alternative energy sources such as wind power do not get the financial support they need – short term thinking.

Global trade

North American trade was spurred on in the early 1990’s by NAFTA which created an outsourcing opportunity in the north of Mexico referred to as the Maquila corridor bordering Texas.  One of the main drivers was lower cost labour relative to the U.S. combined with low cost oil.  The low cost oil made transportation relatively cheap.  The cost of a barrel of oil in 1990 was $20.00 (US).

Over the next decade, lower labour costs were then identified in China and India which led to off shoring.  A price of a barrel of oil in 2000 was only $30.00, making the transportation of shipments from China relatively inexpensive just as China was gearing up its domestic economy.  The loser – a society which absorbs the incremental externality costs of the emissions!

A 2008 Transport Canada study estimated social costs related to all types of transport to be $40B (Cdn) per year.  Rail and marine sector pollutions accounted for $500M per year.  The study was based on statistics from 2000.  This is not to say that we can eliminate transportation but that the costs are not fully loaded into the cost of the goods sold. Automobile accidents, as an example, accounted for $16B of the annualized social costs.

The global trade created a massive shopping place for buyers.  The main motivation was to cut costs because the competition was doing the same.  Outsourcing and off shoring were the mantras.  One of the common denominators was the relatively low cost of oil.  In 2008 this came to an abrupt end when oil hit $140 per barrel.  All of a sudden the economics made little sense. The subsequent collapse of the market was the final straw.

The domestic manufacturing infrastructure which has been systematically deconstructed over the past 20 years will have to be rebuilt at a massive level of investment.  Who will supply the demand when energy prices and the cost of emissions make it too expensive to continue to import?  The very idea that North American suppliers could get back into the domestic supply game could also be a part of the ying and yang of the market’s equilibrium whereby off shore suppliers must temper their costs or they will invite more competition.  Idle capacity is like a vacuum in nature – it must be filled.

Rebuilding a North American manufacturing infrastructure will be a strategic commitment across industries and sectors in terms of investment and human capital.  Reversing the 1990’s trends will be very difficult.  As a small example reported in the July-August 2009 Harvard Business Review, by Pisan and Shih, Amazon’s Kindle electronic tablet couldn’t be manufactured in the US as the technology and capabilities are no longer available.  Outsourcing started with the low value goods and skill sets and has morphed into high value research-intensive manufacturing being lost.

Looking at relatively recent business history, rebuilding infrastructure was done in Europe and Japan after the Second World War required massive capital investments.  Newly industrialized countries such as Brazil, China, Malaysia, South Korea, and India have emerged over the relatively short span of the past 15-20 years. Meanwhile, other than a handful of companies such as Research in Motion, Canada stays its course in moribund fashion as the hewer of wood and drawer of water.

The paradigm shift for buyers

Given the probability of some form of legislation for a cap and trade policy or carbon tax in the U.S. and Canada, buying strategies may need to focus on local or regional sources of supply.  Longer term we may see a repatriation of domestic manufacturing, reversing the off shoring strategies which would address employment and competition issues.  The other side of this coin is increased costs of emissions could hurt exports of domestic products for similar reasons.

For buyers, current long-term contracts where products are being off shored will need to project the costs of emissions and higher fuel prices to ensure a competitive edge is sustainable.  Concurrently, there needs to be a strategic scope of possible domestic or regional suppliers that have the capacity to replace off shore production.  Keeping in mind, this will be done within market sectors so there will be a great volume of activity as major buying organizations look for new sources.  Consider Wal-Mart’s formidable challenge if it planned on sourcing from North America what has been moved to China and other locales in recent years. By the same token, W-M will be a bellwether company because if it makes strategic sourcing changes of this nature, the market will hear about it.

If emission costs are expected to be the responsibility of a domestic company, then in order to have a fair trade policy imports would also need to be assessed to ensure that any emissions associated with the imported goods have included those costs.  Otherwise, there is a cost advantage for importers to buy from wherever emission controls are lax.

We are entering a period of increased uncertainty as to where goods will be produced and therefore, how the goods should get to market.  The current model was built on the trade maxim of finding the lowest producing country and did not include the cost of emissions or predict the 4-5 fold increase in fuel costs.  The model is not sustainable.

Strategic sourcing strategies are going to become even more important for organizations to try and predict in the future.  Given the volatility of oil prices the pending emissions costs being levied, the uncertainty of a stable labour force, and concerns over climate change and corporate social responsibility, this will be an important role for supply professionals.

Trade offs required for buying local:

Just in time (JIT) manufacturing/delivery:

Where the competitive advantages of JIT were realized through frequent small deliveries, based on smaller lot sizes to ensure flexible manufacturing, there may be a return to larger shipment sizes requiring inventories.  That implies trade offs will need to be made for the transportation costs versus the holding costs.  Where goods could be flown in, increased jet fuel costs could change the value proposition on this cost management strategy.  Air freight requires 40 times the fuel consumption of more conventional transportation.

Because communications and transportation services have improved, the assurance of supply from off shore suppliers has not been a problem.  ISO and other standards have made the consistent quality of products less of an issue.  Lean manufacturing has improved profitability. However, the JIT theories will be challenged by energy and emission costs. Buying direct has reduced unit prices while inventory management may offset many of the savings.

Employment

Where job losses were incurred by relocating facilities outside of the US/Cda over the past 20 years, this could be reversed as transportation costs outweigh the labour advantage.  Local employment may rise as it becomes more affordable to do business within a closer region as emerging economies in China and India have also increased their labour, so has this competitive advantage.  So the question of which jobs should be done locally and which type of work should remain in lower labour cost regions will not be as obvious as it has been.

If employment increases, so will wages.  Labour negotiations are going to be critical in cost structures.  If local or regional labour costs increase as a result of a greater demand for production, there could be a corresponding reduction in off shore regions to offset or mitigate fuel or emission costs.

Regional markets will rationalize which goods or services will be provided domestically or globally.  With North American demographics indicating large segments of the boomer population retiring, labour issues will become much more strategic in decisions.

“Guest worker programs” will increase in profile as companies look for skilled and unskilled labour to rebuild domestic enterprises.  Given the large populations in Latin America and the Caribbean, these locales could become major sources of labour in the near future.  Based on the European discussion paper by Klaus F. Zimmerman from the University of Bonn, this is not without the social controversy that will link to business interests across North America.  Supply professionals will need to work closely with human resource strategists within their own organization and look closely at how suppliers will meet potential employment requirements.

In the 2007 The War for Talent, McKinsey & Co. predicted that the demand for talented employees would rise by 33% over the next 15 years along with a 15% drop in supply. Options such as telework will become a more attractive option for positions that lend themselves to adopting this type of working relationship.  Telecommuting is growing in popularity, not only for environmental reasons but for lifestyle benefits as well. At the University of British Columbia, its supply management staff began a telecommuting program in early 2009 for its staff.  Surveys and discussions with current staff and potential employees indicated a need to provide alternatives to personal vehicles and public transit. Telecommuting provides a low cost, flexible option.

Seasonal products

Strawberries as an example were only available in May/June in Canada due to local growing conditions.  Over the past decade not only have strawberries, blueberries, and most other fruits been available year round, imports of fruit have replaced most of the capacity of domestic supply.  Low cost fuel has enabled this to happen.  The players in the grocery industry are going to have to look at their product mix and determine what is acceptable or what is responsible for them to carry.  A portion of consumers can always pay whatever the costs will be – but is the “green positioning” going to fit with the brand and image of the sellers trying to demonstrate responsible and healthy lifestyles?

Greenhouse agricultural operations in Canada have been very successful at providing local produce on a year round basis.  At a certain level of energy and fuel costs, those economic models may evaporate.

Kenya flowers are an interesting study into the complexity of local sourcing versus imports.  While working conditions have been slowly improving over the past 5 years, increased fuel costs or emission levies could seriously challenge the ability of Kenyan flower growers to continue to export their flowers to Holland, the UK and elsewhere in Europe. The Kenyan growers are facing protests from green interest groups domestically for issues from depletion of Kenya’s water supply to those protesting the increase of air pollution by requiring air freight to get the flowers to market.  Without this low cost of air freight for shipping fresh cut flowers the Kenyan industry is seriously threatened.

The Kenyan flower example recaps the cycle of off shoring production due to the lower operating costs of cheap labour and the potential loss of this source due to increased transportation costs at worst or at best substantially increasing the costs of continuing to import.  The potential loss of employment and revenues to Kenyan is substantial and a very serious threat which often results in increased pressure to reduce labour costs through a variety of means.  Kenya supplies about 1/3 of Europe’s cut flowers.

This is similar to the Fiji Water Company (FWC) shipping bottled water to Europe from Fiji.  Increased fuel costs, levies on emissions, and the concern for Fiji’s aquifer could make the FWC business model unsustainable and a serious employment problem for the people of Fiji.

Juxtaposing an economic stimulus on public buying practices

The reason for economic stimulus packages is to increase the economic activity.  Stimulus strategies are designed to create employment; replace loss of wealth in retirement benefits or pension plans; mitigate a climate of market uncertainty; stimulate demand for goods and services; and ensure credit is accessible for business investment.  The fiscal policies of government need to be responsive to the short-term situation and be careful to not create long-term subsidies where market forces may drive some businesses out due to poor products or inefficient operations.

Productivity

Where domestic or local buyers continue to encourage increased productivity and performance from local sources, this in turns drives innovation and competition in local supply.  The more viable and robust the local economy is, there is generally a higher standard of living in terms of health care and education for its citizens.  Most developed industrialized economies have seen this occur along with a more equitable distribution of wealth.

Geographical proximity lends itself to the advantage of indigenous sources.  It is easier for suppliers to access information in response to the needs of buyers.  The buyers in turn, contribute to localized economic value which is reflected in increased employment and quality of products and services.

Tangible services, (auto repairs, landscaping) to a large degree are not as easily transferable outside of the buyer’s jurisdiction.  Travel time typically makes the supplier the furthest away less competitive than a local supplier – which works in the interests of all tangible service providers.

Professional supply managers should pressure suppliers to meet higher standards over time.  Where sustainability factors such as reduced emissions or environmental standards are adopted, compliance becomes an increasingly important decision criterion.

Industrial innovations are driven by many different factors.  The Canadian oil sands mega-projects have to take harsh operating conditions into account.  The weather alone has resulted in research and development out of necessity to bring the product to market.  This results in a domestic oil industry that is more sustainable economically while it concurrently tries to mitigate the environmental externality costs.

The emergence of Italian mini-mills in the steel industry was driven by high cost associated with the logistics of getting product to shipping ports.  The mini-mills were designed to consume less energy, be less capital-intensive, and rely on scrap metals as a main source of materials.  It was essentially a more sustainable and competitive industry.

Japanese automakers did not have the luxury of vacant land mass to expand their production facilities.  This in turn contributed to their development of the just-in-time manufacturing model which made their vehicles more competitive and substantially reduced inventory investments.

Public sector organizations in Canada are slowly integrating more sustainability issues and are developing more responsible procurement strategies.  This began in 2005 with the City of Vancouver.   Economic stimulus investments by senior levels of government are most effective where sustainable procurement policies and standards are factored into the total cost of goods or services from non-local or non-domestic sources.  This theoretically, evens the playing field.  Without a true comparison of apples-to-apples costs, economic rewards could go to lower cost foreign producers that are able to offload their externality costs where domestic sources are not able to, due to local regulations.  Examples would be work place safety practices or effluent discharge practices.

Where the services are intangible (telemarketing, finance) the local sources may have had a marginal advantage due to the ease of building personal relationships.  However, the digital world requires less human intervention and outsourcing of intangible services favours the lowest cost service provider – regardless of locale. The latter examples are well-covered in Thomas Freidman’s book, The World is Flat.

Tools for the buyer during an economic crisis

The Agreement on Internal Trade which has largely been ignored or been granted perfunctory attention in public sectors, may have a greater value in terms of an economic stimulus strategy.  With specific reference to Article 508: Regional and Economic Development, Exceptional Circumstances there is creative room to ensure local suppliers enjoy benefits resulting from Federal funding.

This Article, conditionally and temporarily, gives the public buying organization the prerogative to waive the usual procurement practices.  It is not intended to put the organization in the position of abusing this power to circumvent accepted trade practices.  The buying organization must still operate with a sense of fairness and transparency.

Article 508 encourages public buyers to respond quickly to use the economically ear-marked funds to mitigate recessionary problems such as layoffs and encourages employment.  The turn around time on drafting documents should be as expeditious as is possible. Where many public organizations due to internal legal reviews take an inordinate amount of time to get documents out to market, these processes should be streamlined to meet expectations of the public without compromising good business ethics and accountability.

Other global economies are taking similar economic strategies involving procurement – at a faster pace than Canada.  In December 2008, the European Council announced its support for reducing the length of tendering processes under accelerated procedures.  To reiterate their position the EC felt it would be “impractical for reasons of urgency” to follow the usual lengthier time periods.  The targeted time for tenders can be shortened to 30 days – down from the limit of 87 days.

A large part of the economic stimulus funds in Canada are directed at infrastructure upgrades. $12B is for new infrastructure funding over two-years.  In addition, Bill C-10 which passed in March 2009 focused on “support for businesses and communities to protect jobs and support sectoral adjustment during this extraordinary crisis.”  It could certainly be interpreted that an extraordinary crisis would be synonymous with exceptional circumstances – as Article 508 refers to it.

Ironically, the lower cost of oil in late 2008 through 2009 may have done more to stimulate the economy than governmental subsidies.  The Bank of America commodity strategist, Francisco Blanch, says the lack of oil was the bigger factor as opposed to additional liquidity being injected by government spending.

Need for change under exceptional circumstances

The public buying strategies and tactics in place prior to the October 2008 financial crisis should not be the same as they are in 2009.  Unless public buyers have developed appropriate criterion, they may inadvertently stimulate non-domestic economies where weighting on financial savings overrides other considerations.

Case in point: A major Canadian municipality recently sourced basalt rock materials from a foreign country for a project that was aimed at a downtown street project involving an infrastructure upgrade.  While the low bid did save the taxpayers $400,000, the rationale for the municipality was they had no choice but to award to the low bid.

Had the weighting of the criterion required the prospective bidders to comply with International Labour Organization safe work conditions and terms of employment, or require bidders to ensure environmental criterion met the ISO 14001 management standards, or factored in emissions costs which are recognized globally there could have been a different outcome. Even so far as to split the order between domestic and foreign sources.

In addition, where local sources may have been operating within an oligopolistic market, a request for proposals, rather than a bid process, would have invited a negotiation to ensue which could have created employment instead of resulting in local quarry workers being laid off.  Laid off workers are paid for by the taxpayers.

One of the fundamental prerogatives of a supply professional’s decision authority is to question the specifications as espoused by Leenders/Fearon in their various iterations of Purchasing & Supply Management. A lower cost substitute material may have been available locally which also could have contributed to a lower cost to the taxpayer.

Another more recent example out of Western Canada was where a Canadian steel pole manufacturing company lost an order for a public institution for less than a 5% price difference to a foreign supplier.  The Canadian supplier is meeting its local health, safety, and environmental standards.  The order that went to the foreign source was made on lowest price meeting specifications.  The working conditions and environmental records were not taken into account.  That does not provide a Canadian economic stimulus nor does it recognize an even playing field.

The above stories are examples of where we hold local sources to higher standards than non-local sources.  Without the right tools to make the decisions, we may create more of these unintended financial consequences.  If in fact the local quarry operator or the pole manufacturer was not competitive and the foreign source was compliant with all conditions, then the business should be awarded based on that merit. Otherwise the economic stimulus does not realize its intended objectives.  The expectations of taxpayers are not being met.

Europe’s Competitiveness Council has acknowledged that public buying organizations need to do a better job when engaging with small and medium enterprises (SMEs).  This includes reducing the cost of responding to bids, parceling larger agreements into smaller agreements, and having larger companies subcontract with smaller suppliers.

New Zealand recently self-criticized its government procurement practices as being” overly compliance focused and process-driven”.  This is a comment often made in Canada about its public procurement in the author’s experience.

Finding the new tools

The term for developing a working understanding of sustainability is referred to as building capacity. Supply professionals need to go beyond the nuts and bolts of buying and get immersed in the wider range of issues around corporate social responsibility.  The socio/economic interests may outweigh the actual cost of goods.  The exit strategy of outsourcing is made on assumptions of low cost energy and where carbon emission costs are externalized. It turns out that the issues of economics, environment, and the expectations of society are connected.  These are not binary options where we try for one or two out of three – and say that to get all three is not possible.

Leaders of private and public sector organizations are looking for creative solutions to the problems we are facing. This thinking requires that we acknowledge that our previous strategies were not meeting the mark.  There is significant room for improvement in all areas. As examples, companies such as Wal-Mart, Herman Miller, Marks & Spencer, Whole Foods, and the University of British Columbia, to name but a few, are figuring out how to navigate the unknown waters.  We aren’t sailing into the wild blue yonder.  Others have gone before us and we need to look to them for guidance in order to continue to have a sustainable business and a sustainable planet.

Many of the new tools may be in the hands of our suppliers. Supply professionals can start by dialoguing with the key suppliers in the various market sectors and continue to build relationships.  Get an understanding of where our suppliers’ strategic sourcing initiatives may be going.  Their success or failure will also affect your success and failure.

Learning outcomes:

Supply professionals should try to forecast the long-term effects of increased energy prices on the cost of goods and services

Budget processes should encourage incentives for smart energy

Procurement policies should include sustainability strategies

The total life cycle costs of products should be factored into final decisions

Procurement policies need to be effective and responsive during all economic conditions

Supply professionals need to dialogue with strategic supplier initiatives to “see ahead of the curve”

Outsourcing and off shoring economic models need to include energy and emission costs

Outsourcing and off shoring may have run their course as cost cutting strategies – where will the new regional suppliers be found?

Local sourcing strategies should be revisited to ensure their effectiveness

Local sourcing shouldn’t be an either-or proposition

Larry Berglund, C.P.P., MBA

July 2009

People who talk about being sustainable but don’t act sustainable are stuffed olives:  green on the outside and red on the inside.

December 29, 2009

NEW WORD

An Agreenment - contracts which make the outcome of the transaction more sustainable

Chapter One

Background

First, good planets are hard to buy!  You heard it here first. We will never find another like this – so let’s act responsibly before it’s too late to save this one.

This chapter introduces the idea of the 3Es.  Economics, environment and the connection to the expectations of society.  The similarity between sustainability (public sector) and corporate social responsibility (private) is made.

Chapter Two

Why Now?  The Imperatives

I talk about why now for this emerging interest.  Why now indeed.  This is a big opportunity for supply professionals to take the lead.

This has been driven by political and environmental imperatives along with the philisophical imperatives that drive our behaviours and decisions.

Chapter Three

The Changing Role of Supply Professionals

It’s not good enough to get the lowest price – it is only going to matter if the price represents the best value.  Stakeholders are looking for leadership in supply management to provide competitive advantages through lower long-term costs, or increasing revenues, or improving processes.  Now supply professionals have the opportunity to seize the moment and include sustainability or CSR into their decision-making.

Chapter Four

The Definitions of Sustainability

In this chapter I provide the definitions which have been adopted by leading organizations – globally.  From the Bruntland Commission through to the marketing strategies identified by academics and private sector sales executives.  Along with each definition is the reason why it has been effective and adopted by many organizations.

Chapter Five

Principles and Standards

There are only a handful that business professionals should be aware of.  Although there are many other standards used they are essentially linked to the main principles outlined in this chapter.

Chapter Six

Non-Governmental Organizations

How can you work with them effectively?  In this section I talk about the leading NGOs, their focus, and caveats for organizations when dealing with them.

Chapter Seven

Developing a Supply Management Strategy for Sustainability

There is a taxonomy of the four main types of issues that business and supply professionals should focus on.  There can literally be thousands of product SKUs, hundreds of contracts to manage, along with hundreds of criterion to deal with.  They can all be categorized into these four headings: Green products and services; socio/economic factors; carbon emission management; and resource conservation.

The chapter introduces the concept of externality costs and how supply professionals can mitigate risks under the four headings.

Chapter Eight

Weighting the Criterion in Decisions

The reader can follow a heuristic model and related stories which build on the previous chapter’s discussion.  The weighting of criterion is important as it represents the organizational values in decisions.  This quantitative exercise helps to build the business case which favours long-term interests.

This chapter provides a discussion on evaluating subjective decisions using the expected monetary value method.  This allows input from many perspectives on a decision while enabling the weighting to be calculated for an objective assessment.

The chapter closes with a discourse on the learning outcomes when weighting decisions involving CSR.

Chapter Nine

Supply Management Sustainability Advisor Job Description

What should be included in a JD and what type of a role does this person play? There is an outline based on tacit knowledge of practical support for operational staff and other specialists such as engineers.

Chapter Ten

Supply Management Policies and Supplier Codes of Conduct

What should be included?  What is a prescriptive model and what is a principled model?  How can the buying organization monitor foreign suppliers effectively? What is a complaint-driven process?  This chapter answers these questions and provides examples.

Chapter Eleven

Business Ethics and Corporate Ethical Behaviour

Corporate image and brand may or may not suffer when corporate behaviours exceed the tolerances of society.  The names of the companies and their illegal acts are summarized here.  In addition is a discourse on the subject of greenwashing.

Chapter Twelve

The Role of Government

There is an important role here that requires issues such as externality costs and monitoring of standards to be effective.  There is also the opportunity for all levels of government to lead by example.  Business and government need to find the common ground to encourage trade without sacrificing societal values.  This chapter also talks about some of the paradoxes which are created by governmental policies.

Chapter Thirteen

Reasons for Resistance to Sustainability

A great summary of 12 specific topics that do not support organizations getting involved in sustainability. This builds on Milton Friedman’s famous paper of forty years ago where he described CSR as a “subversive doctrine.”

This chapter discusses weaknesses in the organics market and problems with the Kyoto Accord agenda.

Chapter Fourteen

Barriers to Sustainability Purchasing Policies/Practices

There is a summary of 20 reasons for the failure of many supply professionals to implement effective policies or practices.  It is based on a review of European and North American experiences.

Chapter Fifteen

Reasons for Engaging in Sustainability

Nine strategic reasons why leading organizations have taken a progressive view and adopted sustainability practices.   The summary sets the stage for a discussion on pragmatic steps which can be taken.

Chapter Sixteen

Trends for Supply Professionals

From the need to calculate emission inventories to work with the controversial issue of local sourcing, this chapter deals with important trends for business people to prepare for and engage in. The trend includes escalating food prices, social entities, reducing the use of plastics, choice editing, and 3rd party certification organizations.

Chapter Seventeen

Leading Practices aimed at CSR/Sustainability

With optimism, business people can get a good understanding of 16 specific courses of action that they can take toward more responsible decisions.  From the use of chemicals to telecommuting – it’s in this chapter that the positive actions are described.  They are based on real-life examples that have a pragmatic focus for delivering value!

Chapter Eighteen

Conclusion

There is a challenge to the reader to do their part.  The information has been provided, there are links to other sites, and all that is required is that individuals act.  What have you done for your planet today?

Chapter Nineteen

Value issues – Checklist and Trigger Points

A list of 50 easy reference points that business people should be cognizant of when drafting agreements or initiating sustainability programs.

Chapter Twenty

The Diamond Industry

A paper based on the Canadian diamond industry evolution which addresses many of the issues related to CSR.

Chapter Twenty-One

Related articles

I have written many articles on sustainability and CSR.  Included in this chapter are several articles that relate to the subject matter along with stories.

Food, Finance, and Philosophy closes out with a case study written about my experience with courier contracts involving the first sustainability criterion.

In addition, Appendix I has the Principles of Sustainability for Supply Management which were adopted by The University of British Columbia, which I drafted.  Appendix II contains the Supplier Code of Conduct.  Appendix III has the names and web sites for market resources for sustainability initiatives. Appendix IV has a listing of 65, 3rd party certification organizations.

The book also provides a bibliography of the sources for the carefully researched material.  These books are excellent reads and provide a balance of perspectives on sustainability and CSR.

I sincerely hope you find the book Food, Finance, and Philosophy: A Role for Supply Management in Corporate Social Responsibility to be of good value. What have you done for your planet today?

Please share your thoughts with me on my blog or at prezplus@telus.net

Keep returning to this site as I will have updates going on all the time.

Buy my book  - Food, Finance, and Philosophy: A Role for Supply Management in Corporate Social Responsibility and get ahead!

Larry Berglund, C.P.P., M.B.A.