Chapter 4

1. Chapter 4 Ethical and Sustainable Sourcing

2. Chapter Outline • Introduction • Ethical and Sustainable Sourcing Defined • Developing Ethical and Sustainable Sourcing Strategies • Ethical and Sustainable Sourcing Initiatives • Early Supplier Involvement • Strategic Alliance Development • Rewarding Supplier Performance • Benchmarking Successful Sourcing Practices • Assessing and Improving the Firm’s Sourcing Function

3. Introduction This learning unit will help you understand the development of successful sourcing strategies, supply base reduction programmes, as well as the evaluation and selection of key suppliers. It will also focus on strategic alliances, supplier certification programmes, outsourcing programmes and early supplier development. Supplier management and alliance development will be addressed in detail and the management and development of second-tier supplier relationships examined. We will again focus on the use of e-procurement systems and rewarding supplier performance.

4. Introduction Strategic sourcing- managing the firm’s external resources to support firm’s long term goals. Drivers of Strategic Sourcing • development of ethical and sustainable sourcing initiatives • managing and improving supplier relationships and capabilities • identification and selection of environmentally and socially conscious supplier • monitoring and rewarding supplier performance

5. Developing Ethical and Sustainable Sourcing Strategies Framework for ethical and sustainable sourcing strategy development – Step 1 – Establish corporate ethical and sustainable sourcing policies Step 2 – Train purchasing staff and implement policies Step 3 – Prioritize items based upon ethical and sustainability opportunities and ease of implementation Step 4 – Develop performance measurement system Step 5 – Monitor progress and make improvements. Increase use of green and fair trade products Step 6 – Expand focus to include other departments

6. Supply Base RationalisationPrograms The fewer suppliers an organisation has, the fewer supplier-relationships there are that need to be managed. Supply base rationalization(AKA supply base reduction or supply base optimization) is often the initial supply chain management effort

7. Outsourcing Products and Services Today, more firms are opting to outsource noncore activities such as maintenance, janitorial and other support services instead of doing these services in-house. Outsourcingallows a firm to: • Concentrate on core business activities • Reach its sustainability goals

8. Early Supplier Involvement Early supplier involvement:(ESI) highly effective supply chain techniques where key suppliers become more involved in the internal operations of their customer, which may include. Vendor managed inventory (VMI): Suppliers manage buyer inventories to reduce inventory carrying costs & avoid stockouts for buyer. Supplier co-location:Supplier’s employee is embedded in buyer’s purchasing department to forecast demand, monitor inventory & place orders with access to sensitive files & records

9. Strategic Alliance Development Basically, supplier management is concerned with persuading suppliers to do what organisations need them to do, while alliance development, which is an extension of supplier development, refers to increasing a key supplier’s capabilities. Strategic supplier alliancesresult in better market penetration access to new technologies and knowledge, and higher return on investment Alliance development eventually extends to a firm’s second-tier suppliers, as the firm’s key suppliers begin to form their own alliances.

10. Rewarding Supplier Performance Rewarding suppliers has many advantages. For example, suppliers who receive rewards will keep improving their service to ensure they stay the top-performing supplier, while poor-performing suppliers might improve their performance to allow their supplier status to be upgraded. Suppliers might be rewarded in several ways, such as: • A share of the cost reductions • More business and/or longer contracts • Access to in-house training seminars and other resources • Company and public recognition

11. Benchmarking Successful Sourcing Practices Benchmarking: Measuringwhat other businesses do best and matching their performance is an effective approach to improving supply chain performance.

12. Activity • Discuss in your Etutor group what some of the ways would be to reward suppliers