2008 apics conference_stanly_thelen_ sep 14

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Presentation at the 2008 International APICS Conference in Kansas City, by Michael Stanly and Bruce Thelen.

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2008 apics conference_stanly_thelen_ sep 14

  1. 1. The Dollars and Sense ofSocially Responsible Purchasing Assessment, Strategic Prioritization, and Case Study
  2. 2. SummaryAs procurement managers we often struggle to “do the right thing” while at the same time “do the rightthing” to reduce costs. But, through socially-responsible procurement (SRP) we are afforded that veryopportunity. Furthermore, our customers, investors, and the communities in which we work aredemanding it. The Institute for Supply Management defines socially responsible procurement (SRP) as "aframework of measurable corporate policies and procedures and resulting behavior designed to benefitthe workplace and, by extensions, the individual, the organization, and the community."This is a hot-button issue with investor activists, communities, employees, and special interest groups thatmust not be ignored. More importantly, its the right thing to do. Besides, effective application of SRP willsave a company money through their procurement efforts.Pursuing this objective requires focused efforts along the dimensions of community involvement; diversityand inclusion; environmental protection; ethics and financial stewardship; human rights respect; and,health and safety.Among our basic beliefs of socially responsible procurement are that it can confer a very real competitiveadvantage to your company; aspirations must be set high because customers and investors expectationsare high; and, the time to get started is now, as your customers and investors are expecting it.Importantly, to demonstrate that it’s the right thing to do financially, some consideration of cost, benefit,and risk relationships must be taken into account. Doing so will definitely make SRP “the right thing to do”from everyone’s perspective.Research materials from the Committee on Social Responsibility of the Institute for Supply Management—whose 2007-08 Chairis from IBM—played a key role in the supporting content of this assessment guide.
  3. 3. The Dollars and Sense of SRP Getting Started Questions Issues to Avoid Principles Getting Started Constructs Cost : Benefit Risks Diagnostic Strategic Options Prioritization Assessment Plan Infrastructure Organization and Roles Case Study: The IBM story
  4. 4. What are CPO’s asking about socially- responsible procurement (SRP)? Getting StartedMost CPO’s have a common set of questions and desire a common set of deliverables around socially-responsible procurement Core questions Diagnostic deliverables  Just what are SRP practices?  Compilation of management’s SRP  How do we know what’s right for our objectives business on socially-responsible procurement (SRP) initiatives?  Catalog of SRP options  What are credible strategic objectives in  Map of SRP initiatives to overall SRP for a company such as ours, and what strategy are the elements of such an infrastructure?  Preliminary workplan for  What are the cost : benefit considerations for implementation phase our business?  Decision on implementation of rapid  How do we manage individual SRP efforts? assessment recommendations
  5. 5. What are stakeholders’ views of SRP?Many companies lack true agreement as to SRP’s role Getting Started in the business CONCEPTUALThere are typically many perceptions . . . Improve the Increase community safety . . . and an opportunity In f lu ll Include may exist to eth ence dwi de ica new ideas clarify and set Goo cis l ion s an SRP ect Market strategy suited Prot ment t to the ro n advantage Cos - envi ain cont t company’s men needs Prevent abuses Pr ghts ot ri ec t
  6. 6. Do we have problems we are trying to cure, or at least avoid? Getting Started There are six dimensions of SRP  Prior infractions  Lack of trust by community stakeholders and key  Need for sustainability publics  Lack of environmental responsibility  Pressure from advocacy groups or the mediaEnvironment  Inattention to opportunities for disassembly, reuse or Community  Trade union issues recycling  Compliance with OSHA or other legal or regulatory  Prior human rights abuses requirements  Lack of provisions for the instrumental value of  People hurt or killed creating the necessary conditions of human well-being  Dangerous conditions  Potential exposure of human rights compromises Safety andHuman Rights  Health  High insurance and medical costs Boycotts due to sourcing activities  Past unethical actions  Lack of diversity in supplier base  Potential exposure of unethical actions  Lack of diversity within organization  Compliance with Sarbanes-Oxley (SOX) or other  Lack of diversity throughout the supply chain Ethics and Financial legal or regulatory requirements Diversity  Past discriminatory practices with suppliers, Stewardship  Substandard financial responsibility employees or others
  7. 7. Why are such remedial actions important? Getting StartedChecklist Helps ensure that actions are lawful  Ensures that all individuals are treated with dignity and Reduces risk respect Lowers total cost of operations  Avoids complicity in human or employment rights abuses Facilitates strong public relations Helps recruit and retain customers  Allows for equal opportunity and non-discriminatory treatment Guides managerial actions and commitments; Guides  Prohibits the existence of child labor and forced labor employee actions; Guides supplier actions Improves supplier competitiveness  Fulfills legal responsibilities to ensure the health and safety of employees, customers, suppliers and Improves trust in both internal and external (suppliers, communicates in which we work  customers, and others) relationships Ensures requirements to protect the environment
  8. 8. What is the single most important issue to your company? Environment and being ‘green’ Human rights around the world Diversity and minority business development Community involvement Health and safety of workers and customers Ethics and financial stewardship
  9. 9. Principles of socially-responsible procurement (SRP) Getting Started Environment Ethics and Financial Stewardship Encourage your own organization and others to be proactive in Be aware of ISMs Principles and Standards of Ethical Supply Management Conduct. examining opportunities to be environmentally responsible within Abide by your organizations code of conduct. their supply chains either "upstream" or "downstream." Become knowledgeable of, and follow, applicable financial standards and Encourage the environmental responsibility of your suppliers. requirements. Encourage the development and diffusion of environmentally Apply sound financial practices and ensure transparency in financial dealings. friendly practices and products throughout your organization. Actively promote and practice responsible financial behavior throughout the supply chain. EnvironmentCommunity DiversityProvide support and add value to your communities and those Proactively promote procurement from, and theof your supply chain. development of, socially diverse suppliers. Human RightsEncourage members of your supply chain to add value in their Encourage diversity within your own organization.communities. Community Proactively promote diverse employment practices throughout the supply chain.Health and SafetyPromote a safe environment for each employee in yourorganization and supply chain. (Each organization is responsiblefor defining "safe" within its organization.) Human RightsSupport the continuous development and diffusion of safety Treat people with dignity and respect.practices throughout your organization and the supply chain. Support and respect the protection of international human rights within the organizations sphere of influence. Encourage your organization and its supply chains to avoid complicity in human or employment rights abuses. Source: Committee on Social Responsibility of the Institute for Supply Management; IBM
  10. 10. The Dollars and Sense of SRP Getting Started Questions Issues to Avoid Principles Constructs Cost : Benefit Risks Constructs Diagnostic Strategic Options Prioritization Assessment Plan Infrastructure Organization and Roles Case Study: The IBM story
  11. 11. What is the business case for SRP? In economic and socio-economic terms, benefits outweigh the costs and risks Constructs Costs Benefits RisksInternal Benefits External Benefits Innovation from new sources of supply such as new minority  Trust and support of community groups and key public figures suppliers or new origin countries (facilitating physical plant expansion or local tax benefits) Increased opportunities for disassembly, reuse, and recycling  Enhanced reputation with suppliers and customers Consistent treatment of suppliers and customers  Improve union relationships Improved fiscal management  Positively influence the community Allow for equal opportunity and non-discriminatory treatment  Earn respect from suppliers, customers, employees and Reduce insurance costs  other stakeholders Prevention of injuries  Improve public image Enhance market share, business volume and revenue  Counteract negative press Become a favored supplier  Reduce legal costs Improve morale of employees  Reduce risk uncertainties Improve reputation to attract and retain customers and  Lead supply chain partners by example; Influence supplier employees actions Strengthen the organization’s culture of trust
  12. 12. What is the business case for SRP? In economic and socio-economic terms, benefits outweigh the costs and risks Constructs Costs Benefits RisksCost of Action Cost of Inaction Maintenance and updates of policy, codes, benchmarking, and  Lost market share other documentation  Loss of suppliers, customers, and investors Program manager  Negative publicity Legal counsel  Compromised employee and community morale Membership fees  Increased legal, insurance or other costs Training and certification  Boycott of business Communications  Lost opportunity to pursue governmental or certain other Hotline or help line new business Evaluations and audits  Negative attention by advocacy groups Donations and matching donations programs  Negative coverage in the media Sponsorship funding for events  Negative public relations events Salary of staff when providing voluntary support to external groups  Regulatory penalties or causes Travel and expenses for site visits, conferences, and trade events
  13. 13. What is the business case for SRP? In economic and socio-economic terms, benefits outweigh the costs and risks Constructs Costs Benefits RisksRisks of Action Risks of Inaction Negative reaction from some shareholders, customers,  Unsafe conditions or situations or community members to specific SRP initiatives  Injury or death Recipient communities or organization may suffer if a  Damage to environment change in support or support level is made  Inconsistent treatment of suppliers, customers, or Socio-political disfavor by some interest groups communities Complacency with current suppliers or sources resulting in lack of competition, compromised quality and/or increased costs Lack of sustainability Substandard level of financial compliance or fiscal management Potential exposure to human rights compromises
  14. 14. What do most companies today think of SRP? It’s too costly an activity to undertake Benefits do far outweigh costs and risks There’s too much risk associated with these activities Companies don’t know what to make of SRP
  15. 15. The Dollars and Sense of SRP Getting Started Questions Issues to Avoid Principles Constructs Cost : Benefit Risks Diagnostic Strategic Options Prioritization Diagnostic Assessment Plan Infrastructure Organization and Roles Case Study: The IBM story
  16. 16. What are our strategic choices in SRP? Diagnostic There are 3 ‘levels’ of SRP strategy with different objectives and CONCEPTUAL necessary underlying commitment Business Business leadership Business protection enhancementObjective Protect financial objectives by Enhance earnings by mitigating Differentiate the company meeting all legal and regulatory risk exposures and contributing competitively and create a market requirements to society advantage via innovative commitments and activitiesKey elements  Minimize costs and risk  Balance SRP commitments with desired  Create and promote new SRP initiatives exposures, even if foregoing some returns from SRP initiatives which address specific needs of employees, SRP opportunities  Invest in programs that reduce risks suppliers, communities, origin countries for  Limit SRP activity to what is while garnering benefits and favorables materials, et al required to operate the business for the company  Manage risks and costs associated with new, innovative programs and initiatives  Set expectations and risk limits  Fund initiatives  Build appropriate organization andSenior  Review performance and  Review programs and risk exposures capabilities to administer the SRP initiativesmanagement compliance reports regularly frequently  Create and champion SRP within companyrole  Actively participate in ongoing decision and among investors making  Develop altogether new SRP programs as a  Ensure integration of SRP programs means of competitive differentiation with company strategy
  17. 17. Rapid assessment workplan* for SRP strategic direction Diagnostic Collect Synthesize findings findings Conduct Prepare Diagnose over two over one workshop weeks weekTiming 3 days 5 to 7 days 3 to 5 days 2 to 4 days 1 dayActivities  Draft and submit  Conduct interviews  Map SRP initiatives  Syndicate initial  Review and discuss data and document  Review strategy, source to overall strategy recommendations with findings with procurement requests documents, and data  Seek-out industry key members of client [and senior management]  Prepare interview  Research annual reports peers and procurement team team schedule and benchmarking organizations for  Prepare workshop  Tailor question materials to establish thought-partnering materials series to individual SRP leading practices in  Assess client stakeholders industry sector aspirations  Update SRP  Define client-specific compared to standard and leading costs, benefits, and key stakeholder practice criteria vis- risk exposures for the expectations à-vis the client’s company in light of industry sector emerging SRP objectivesEnd  Interview plan  Compilation of  Map of SRP  Preliminary workplan for  Decision onproducts  Final data request management’s SRP initiatives to overall implementation phase implementation of rapid objectives strategy assessment  Catalog of SRP options recommendationsResources Full-time work for 1 to 2 persons for 14 to 20 days, plus 3-4 hours of others’ time each day * The assessment may require 14 to 20 days of work spread over 3 or even 4 weeks
  18. 18. How should we allocate our resources for SRP initiatives? Diagnostic EXAMPLE x’s = Stakeholder groups Environment Relevance to our strategy Relevance to our strategy Safety and Relevance to our strategy HI Diversity HI HI Health ea x x x ea x x x x ar x ar is si s x x as ha xx ph p Em Em LO HI LO LO HI HI Our ability to make a difference Our ability to make a difference Our ability to make a difference Community Ethics and Financial Relevance to our strategy Relevance to our strategy Relevance to our strategyHuman Rights HI HI Stewardship HI x x xx xx x xx x xx LO HI LO HI LO HI Our ability to make a difference Our ability to make a difference Our ability to make a difference
  19. 19. The Dollars and Sense of SRP Getting Started Questions Issues to Avoid Principles Constructs Cost : Benefit Risks Diagnostic Strategic Options Prioritization Assessment Plan Infrastructure Organization and Roles Infrastructure Case Study: The IBM story
  20. 20. What are the SRP management roles and responsibilities? Infrastructure SRP succeeds when there is leadership and ownership Procurement managers Senior management SRP leadership committee and buyersStrategy  Understand the SRP needs of the  Identify all initiatives undertaken by the  Report on the SRP initiative company company progress of company  Develops clear definitions of  Execute/implement SRP initiatives company expectations for SRP in concert with strategy  Support strategy for SRP initiativesPolicy and  Adopt policies and procedures  Develop policies and procedures to  Implement processes and governing SRP expectations and support SRP tracking systems to ensureProcess processes  Plans and executes internal and adherence to plans and to policy external communications to stakeholders, including employees, investors, suppliers, and activist groups  Approve overall organization  Develop organization capable of  Engage with SRP committee onGovernance resource support and funding addressing the company’s SRP existing and proposed initiativesand  Requires tangible or measurable strategy and expectations  Develop supplier capabilities andorganization benefits to be recognized from SRP  Ensures that training is secured, where sourcing strategies that support efforts needed SRP strategy  Conducts audit of SRP initiatives Approves overall Develops strategy and Implements programs strategy, policy, and performance tracking and reports regularly on resource commitment for initiatives progress
  21. 21. How can SRP initiatives best be managed? Within the supply chain or procurement department By cross-department, cross-company involvement Through the office of the CEO By volunteer committee
  22. 22. How do we manage the priorities among potential SRP initiatives? InfrastructureAn SRP management committee can address this issue Clear definition  Link business strategy with all initiatives along the six dimensions of SRP of mission  Allocate funds to each initiative while monitoring risks  Define success and track performance (i.e. business returns) of the initiatives  CPO and senior procurement staff Leadership  May involve leadership in finance, investor relations, and public relations  Operations may need to be engaged, depending upon the SRP initiative  Quarterly briefing (more often, when needed) Clear guidance  Detailed reporting on all initiatives  Concrete discussion on strategic positions and SRP intent  Detailed definition of objectives  Involvement of all stakeholders in decision-making
  23. 23. The Dollars and Sense of SRP Getting Started Questions Issues to Avoid Principles Constructs Cost : Benefit Risks Diagnostic Strategic Options Prioritization Assessment Plan Infrastructure Organization and Roles Case Study: The IBM story
  24. 24. IBM: Case StudySupply Chain Social Responsibility Chief Procurement Officer Procurement Procurement Procurement Global Supply Global Procurement Policy & Services Operations Sourcing Assurance Logistics Engineering Practices Indirect (General) Direct (Production) Sourcing Councils Sourcing CouncilsSupply Chain SocialResponsibility Suppliers (“SCSR”)  SCSR resides in Global Procurement, but separate from the sourcing and operations groups in order to remain focused and impartial
  25. 25. External drivers of Corporate Citizenship(“CC”) are shifting society’s expectations ofcompanies External Drivers Shifting Expectations Reduced role of government  Increased expectation for companies Impact of globalized production and to fill the void left from a reduced service delivery governmental role Growth of individualism as the social norm  Economic strategies Rise of consumer activism  Establish standards Growth of non-governmental  Promote environmental protection organizations (NGOs) Loss of trust following corporate scandals  Be accountable and transparent for financial, ethical, social and environmental performance to wider stakeholder groups
  26. 26. Who is pressuring your company toward social responsibility? Investor groups Senior management Governmental and regulatory bodies Customers Non-governmental organizations (NGOs) or special interest groups
  27. 27. IBM research shows that companies pursue anumber of incremental and/or new initiatives tostakeholder groups Corporate Response Initiatives Stakeholder Groups Growth Platform 5. Initiatives Consumers Cost Savings 4. Initiatives Community rity tu Values-based Self Ma 3. Employees Regulation InitiativesCC Strategic Philanthropy Business Partners 2. Initiatives Investors Legal and Compliance 1. Initiatives
  28. 28. IBM Corporate Citizenship management system Corporate Citizenship Working Group Representatives from each functional area meet monthly to manage IBM’s responsibility reporting, stakeholder engagement and address cross-company citizenship issues. Governance Corporate Environmental Employee Global Supply Chain Governmental and Community Affairs and Well-Being Human Programs Financial Relations Product ResourcesAccountability Safety
  29. 29. IBM Supply Chain Social Responsibility initiativeCreate / deploy IBM Perform supplier Drive supply chain Dialog with IndustrySupplier Conduct audits / re-audits improvements external CollaborationPrinciples stakeholders
  30. 30. IBM Supplier Conduct Principles Forced or Involuntary Labor  Health and Safety Child Labor  Protection of the Environment Wages and Benefits  Laws, Including Regulations and Other Legal Requirements Working Hours  Ethical Dealings Nondiscrimination  Communications Respect and Dignity  Record Keeping Freedom of Association
  31. 31. IBM SCSR EducationSCSR education developed and deployed since 2004 PowerPoint Audience Web Based Comments/Observations TeleconferenceCouncils and Covered all councils by Mar 2005;Staff   presented grapevine session 2007.Audited CountryBuying Teams   700 completed the course;Individual Buyers  available in English, Chinese and Spanish. Conducted pre-audit calls in EE.Suppliers  Marginally successful, did not remedy all uncooperative barriers. Overview with focus on H&SProcurementEngineering  issues that Engineers may observe while conducting quality audits
  32. 32. IBM’s Supplier Audit Process Engage global and Assess a cross-section of local buyers; Country- suppliers; target min 80% level focus (risk-based) of spend in country Supplier generates 3rd party audit action plans; reviewed/ firm contracted accepted by SCSR team for theSupplier audit drives assessmentspost-auditimprovement plans Supplier Improvement Plans Results to Map results to code provisions and local laws supplier Audit Share results with suppliers, provide global / country from IBM report comparisons provided Request supplier improvement plan w/names and dates of responsible parties to IBM Review improvement plans for consistent approach Communicate and enforce the business imperative of compliance Re-audit to verify sustainability in 12-18 months
  33. 33. Supplier Initial Audit Results – GlobalCumulative (2004-2008)Brazil, China, Czech Rep, Hungary, India, Mexico, Philippines, Poland, Romania,Slovakia, Taiwan, and Thailand (base = 449 suppliers) Health & Safety Working Hours Wages & Benefits Law s & Regs Respect & Dignity Com m unications Record Keeping Nondiscrim Environm ental Child Labor Forced Labor Freedom Assoc Ethical Dealings 0 20 40 60 80 100 % Non Compliant to IBM code Significant Minor
  34. 34. Supplier Audits: Observations /ConclusionsA number of issues are seen in most emerging market countries:  Health & Safety (almost universal)  Management systems are weak relating to social responsibility and laws/regulatory compliance  Corporate Citizenship remains a new concept to most emerging markets  Culture can not be overlooked as having a strong influenceSome issues are pervasive and country-specific:  China: working hours/wages/safety  Mexico: discrimination/freedom of association  India: wages/safety  Brazil: safety/respect & dignitySupplier audit results are similar to those reported by others in the sector
  35. 35. Thank you! Michael Stanly  mstanly@us.ibm.com  (320) 240-0235 Bruce Thelen  bdthelen@us.ibm.com  (312) 330-3225

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