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1
Session 2: Governance of Supply
Chains I: From Compliance to
Voluntary Standards.
2
Approach to Sustainable Supply Chain
Management (SSCM): Overarching Framework
Framing the Issues
Preparing for
Implementation
Assessing Impact
Session 1: From Sustainable
Development to Sustainable
Supply Chains
Session 2: Governance of
Supply Chains I: From
Compliance to Voluntary
Standards
Session 4: Sustainable Supply
Chains as a Lever of
Competitive Advantage
Session 5: Integrating
Sustainability into the Supply
Chain
Session 6: Managing
Stakeholder Relations
Session 7: Building Supply
Chain Partnerships
Session 8: Measuring and
Communicating on
Sustainable Supply
Chain Performance
Session 3: Governance of
Supply Chains II: Introducing
International Labour
Standards
3
Session Objectives
 Consider the impact of globalisation on industrial
organization
 Explore common definitions, typologies and
importance “governance” in the context of global
value/supply chains
 Highlight the variables that influence how supply
chains are governed and the roles of internal and
external actors in parameter setting and enforcement.
 Outline emerging trends and implications for buyers,
suppliers, and policy-makers.
4
Session Outline
Unit 2.1: Introduction: Globalization and Industrial
Organization.
Unit 2.2: Defining Supply Chain Governance
Unit 2.3: Basis of SC Governance (market-based;
regulatory-based and voluntary).
Unit 2.4: Parameter Setting and Enforcement:
Actors and Instruments
Unit 2.5: Conclusion
5
Unit 2.1: Introduction
Who is responsible
for ensuring sustainability in global
supply chains, and why?
6
Globalisation and SCs
 Trade liberalisation and improvements in information
and communication technologies.
 An era of hyper-optimization of supply chains.
 Sourcing and outsourcing of non-core activities span
across national and continental boundaries.
 Complex global networks of suppliers, plants and
distribution channels (suppliers’ suppliers and
customers’ customers).
 Quest for cost reduction and profit maximisation
7
Globalisation and Supply Chain
Governance
 Governance Gaps: Lack of government regulation or
weak controls
 Limitations of National government regulation on
complex, geographically fragmented supply chain
transactions
 Global assessment of SCs by various stakeholders.
 Pressure for businesses to construct sustainable SCs.
8
Unit 2.2: Defining SC Governance
What does the term
‘governance’ mean?
9
Defining Governance
Governance
The formalization of the relationships among the members and
their collective accountability to those outside of the network or
partnership (IISD).
Multistakeholder Governance (UN Commission on Global
Goverannce)
The sum of many ways individuals and institutions, public and
private, manage their common affairs. It is a continuing process
through which conflicting or diverse interests may be
accommodated and co-operative action taken. It includes formal
institutions and regimes empowered to enforce compliance, as
well as informal arrangements that people and institutions either
have agreed to or perceive to be in their interest.
10
Defining Supply Chain Governance
“Mechanisms used by different actors from within the supply
chain to influence and control the actions of other supply
chain partners” (Crisan, et al, 2011)
“The functional integration and coordination of internationally
dispersed chains” (Gereffi, 1999)
“The inter-firm relationships & institutional mechanisms
through which non-market coordination of activities in the
chain takes place”. (Humphrey & Schmitz, 2001)
“Some kind of steering of activities take place”
(Humphrey & Schmitz, 2000)
11
Key parameters of Traditional
Supply Chain Governance
 What is to be produced? i.e. product
definition.
 How is it to be produced? i.e. process
definition.
 When is it to be produced?
 How much is to be produced?
(Humphrey & Schmitz, 2001)
12
Importance of SC Governance
 Buyer has better understanding of market demands.
 Risk management: performance, conformance,
reputation loss, social and environmental risks.
 Market access for developing country producers.
 Channel for technical assistance.
 Distribution of gains.
 Acquisition of production capabilities.
 Leverage point for policy initiatives.
(Humphrey & Schmitz, 2001)
13
Evolution of Supply Chain
Governance
 Until mid 1970s: Regulatory approaches common.
 Late 1970s – emergence of alternative SC governance
models (e.g. “Fair Trade”, Max Havelaar)
 Late 1980s: shift towards joint governance.
 1990s: Voluntary standards completing/ complementing
compliance approach.
 Emergence of non-traditional Supply Chain actors
 Corporations taking up more active role in Supply Chain:
Notion of shared Responsibility
 Changing relationship between business, government &
society. (Vermeulen & Seuring, 2009; Moon & Vogel, 2008; Moon, 2002)
14
The Supply Chain for Chocolate
15
Video and Class Discussion
“The Outsourcing Report – Sweatshop Warrior” from
LinkTV, USA available on youtube:
http://www.youtube.com/watch?v=ZPmXiQKjRpw&fe
ature=related
Pay attention to the key actors and process
definition issues raised.
16
Unit 2.3: Modes of SC Governance
Market-based interactions.
Government regulations.
Voluntary initiatives.
17
Rationales for Market-based
SC Governance:
Produce in-house or source from suppliers:
1.Complexity of transactions e.g. concerns about IP and
competent suppliers (e.g. airline, nuclear energy)
2.Ability to codify information – lead firms decrease
complexity through the development of technical and process
standards; certify product quality; labour and environmental
processes, etc.
3.Capability of suppliers: where supplier competence is
high, lead firm will outsource (e.g. in garment, computing)
(Gereffi et al, 2005)
18
Market-based SC governance
(Gereffi et al, 2005)
19
Government Regulation
 Government standards are compulsory e.g. UK Food
Safety Act.
 Product bans e.g. EECA ban on ozone depleting
refrigerators.
 Compulsory information instruments e.g. EU energy
rating labels and CO2 emissions for new cars.
 Economic incentives (taxes, subsidies, and public
procurement) to drive change e.g. renewable energies.
 National Eco-label schemes e.g Blue Angel in Germany.
 Government backing voluntary standards e.g Fairtrade,
Sustainable Forest Management Standards.
20
Voluntary Initiatives
Collaborative and fills ‘regulation vacuum’
1) Single firm approaches: 1st generation (e.g. Marks &
Spencer; Boots UK, Patagonia)
2) Joint product/ sector approaches: 2nd generation (e.g. the
Forest Stewardship Council (FSC); Marine Stewardship
Council (MSC); Roundtable on Sustainable Palm Oil
(RSPO)).
3) Cross sectorial approaches: 3rd generation (e.g.
GlobalGAP)
(Vermeulen and Seuring, 2009; Hoskins, 2008)
21
Forms of Voluntary Standards:
Guidelines (e.g. UNGC, ILO MNE Declaration, OECD
Guidelines, ISO26000)
Certifications (e.g. ISO14000, SA8000, etc ).
22
Guidelines versus Certifications
 Guidelines are sets of best practices (e.g. OECD
Guidelines, ISO 26000).
 Certifications accredit and monitor suppliers, evaluate
respect of standards, audit, report and sanction
violations (e.g. Fairtrade, FSC, ISO14000, SA8000)
 Pros and Cons of Private Voluntary Initiatives, Codes,
and Certification Schemes
23
Governance Actors and Instruments
Level Major Actors Examples of Instruments
Global UN and its agencies, OECD,
Multinationals
UN Global Compact, ILO Core Labour
Principles, ILO MNE Declaration, OECD
Guidelines,.
Regional European Union Sustainable Forest Management Guidelines;
Extractive Industries Transparency Initiative
Cross-
sector
ISO, GlobalGAP, NGOs (Fair
Trade, ETI, etc)
ISO14000, ISO26000, SA8000, Fair Trade;
Ethical Trading Initiative
Sector Industry associations,
corporations, NGOs, etc
Guidelines in Forestry, Fishing, Agriculture,
Mining and Metals, etc.
National Governments, NGOs,
corporations, Trade unions, etc
Government and expert guidelines, NGO
concerns, etc.
Local NGOs, consumer groups,
government, etc
Standards based on local concerns and
priorities.
24
Reading and Brainstorming
Read Clarke’s (2005) “Manufacturing the Evidence” and
answer the following questions
1. Should developed country consumers be concerned
about labour standards in developing countries? Justify
your answer.
2. In addition to proposed solutions in Clarke (2005), what
other measures could improve labour standards in supply
chains?
26
Conclusion
 Globalization and new modes of industrial organization, coupled with
the proliferation of NGOs and business initiatives, call for new
collaborative arrangements and governance
 Supply chain governance is the mechanism used by different
actors from within the supply chain to influence and control the
actions of other supply chain partners.
 In SSC governance, collaborative approach is critical to
successfully introducing sustainability
 Transparency, responsibility and accountability are key for
effective governance.
 Effective SC governance is the responsibility of all
stakeholders.
27
Economic issues covered
in voluntary standards
 Decent jobs.
 Bribery and corruption.
 Taxation.
 Building long-term shareholder/ stakeholder
value.
 Prices paid to developing country producers.
28
Social issues in Voluntary Standards
 Human rights and labour rights; (UNDHR and ILO).
 Marketplace and consumer concerns.
 Social development – Millennium Development Goals
(poverty, hunger, education, health care).
 Unfair business practices (bribery/ corruption and anti-
competition).
 Stakeholder involvement (communities, NGOs, Trade
Unions, etc); Mediation and Social Dialogue
29
Environmental issues covered in
voluntary standards
 Resource depletion: Energy, forest, mineral and
metal resources.
 Environmental impacts: greenhouse gas
emissions (global warming), ozone depletion,
nitrification and acidification of soil, pollution, eco
toxicity
 Environmental standards focus on encouraging a
cleaner, safer and healthier environment for all.
30
Additional References
• Clarke, E. (2005), “Manufacturing the Evidence”, Supply Management, Vol.
10, Iss. 11, pp. 28-29.
• Gereffi, G. (1999), “International Trade and Industrial Upgrading in the Apparel
Commodity Chain”, Journal of International Economics, 48: 37–70.
• Hoskins, T. (2008), “The ICSA Corporate Social Responsibility Handbook:
CSR and Non-financial Reporting for Business”, 2nd Edition, London, ICSA
Publishing, pp. 194-200.
• Humphrey, J. and Schmitz, H. (2000), “Governance and Upgrading: Linking
Industrial Cluster and Global Value Chain Research”, IDS Working Paper 120,
Brighton: IDS. Available at:
http://www.ntd.co.uk/idsbookshop/details.asp?id=591
• Moon, J. (2002), “The Social Responsibility of Business and New
Governance”, Government and Opposition, Vol. 37, Iss. 4, pp. 385-408.

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Governance in SC

  • 1. 1 Session 2: Governance of Supply Chains I: From Compliance to Voluntary Standards.
  • 2. 2 Approach to Sustainable Supply Chain Management (SSCM): Overarching Framework Framing the Issues Preparing for Implementation Assessing Impact Session 1: From Sustainable Development to Sustainable Supply Chains Session 2: Governance of Supply Chains I: From Compliance to Voluntary Standards Session 4: Sustainable Supply Chains as a Lever of Competitive Advantage Session 5: Integrating Sustainability into the Supply Chain Session 6: Managing Stakeholder Relations Session 7: Building Supply Chain Partnerships Session 8: Measuring and Communicating on Sustainable Supply Chain Performance Session 3: Governance of Supply Chains II: Introducing International Labour Standards
  • 3. 3 Session Objectives  Consider the impact of globalisation on industrial organization  Explore common definitions, typologies and importance “governance” in the context of global value/supply chains  Highlight the variables that influence how supply chains are governed and the roles of internal and external actors in parameter setting and enforcement.  Outline emerging trends and implications for buyers, suppliers, and policy-makers.
  • 4. 4 Session Outline Unit 2.1: Introduction: Globalization and Industrial Organization. Unit 2.2: Defining Supply Chain Governance Unit 2.3: Basis of SC Governance (market-based; regulatory-based and voluntary). Unit 2.4: Parameter Setting and Enforcement: Actors and Instruments Unit 2.5: Conclusion
  • 5. 5 Unit 2.1: Introduction Who is responsible for ensuring sustainability in global supply chains, and why?
  • 6. 6 Globalisation and SCs  Trade liberalisation and improvements in information and communication technologies.  An era of hyper-optimization of supply chains.  Sourcing and outsourcing of non-core activities span across national and continental boundaries.  Complex global networks of suppliers, plants and distribution channels (suppliers’ suppliers and customers’ customers).  Quest for cost reduction and profit maximisation
  • 7. 7 Globalisation and Supply Chain Governance  Governance Gaps: Lack of government regulation or weak controls  Limitations of National government regulation on complex, geographically fragmented supply chain transactions  Global assessment of SCs by various stakeholders.  Pressure for businesses to construct sustainable SCs.
  • 8. 8 Unit 2.2: Defining SC Governance What does the term ‘governance’ mean?
  • 9. 9 Defining Governance Governance The formalization of the relationships among the members and their collective accountability to those outside of the network or partnership (IISD). Multistakeholder Governance (UN Commission on Global Goverannce) The sum of many ways individuals and institutions, public and private, manage their common affairs. It is a continuing process through which conflicting or diverse interests may be accommodated and co-operative action taken. It includes formal institutions and regimes empowered to enforce compliance, as well as informal arrangements that people and institutions either have agreed to or perceive to be in their interest.
  • 10. 10 Defining Supply Chain Governance “Mechanisms used by different actors from within the supply chain to influence and control the actions of other supply chain partners” (Crisan, et al, 2011) “The functional integration and coordination of internationally dispersed chains” (Gereffi, 1999) “The inter-firm relationships & institutional mechanisms through which non-market coordination of activities in the chain takes place”. (Humphrey & Schmitz, 2001) “Some kind of steering of activities take place” (Humphrey & Schmitz, 2000)
  • 11. 11 Key parameters of Traditional Supply Chain Governance  What is to be produced? i.e. product definition.  How is it to be produced? i.e. process definition.  When is it to be produced?  How much is to be produced? (Humphrey & Schmitz, 2001)
  • 12. 12 Importance of SC Governance  Buyer has better understanding of market demands.  Risk management: performance, conformance, reputation loss, social and environmental risks.  Market access for developing country producers.  Channel for technical assistance.  Distribution of gains.  Acquisition of production capabilities.  Leverage point for policy initiatives. (Humphrey & Schmitz, 2001)
  • 13. 13 Evolution of Supply Chain Governance  Until mid 1970s: Regulatory approaches common.  Late 1970s – emergence of alternative SC governance models (e.g. “Fair Trade”, Max Havelaar)  Late 1980s: shift towards joint governance.  1990s: Voluntary standards completing/ complementing compliance approach.  Emergence of non-traditional Supply Chain actors  Corporations taking up more active role in Supply Chain: Notion of shared Responsibility  Changing relationship between business, government & society. (Vermeulen & Seuring, 2009; Moon & Vogel, 2008; Moon, 2002)
  • 14. 14 The Supply Chain for Chocolate
  • 15. 15 Video and Class Discussion “The Outsourcing Report – Sweatshop Warrior” from LinkTV, USA available on youtube: http://www.youtube.com/watch?v=ZPmXiQKjRpw&fe ature=related Pay attention to the key actors and process definition issues raised.
  • 16. 16 Unit 2.3: Modes of SC Governance Market-based interactions. Government regulations. Voluntary initiatives.
  • 17. 17 Rationales for Market-based SC Governance: Produce in-house or source from suppliers: 1.Complexity of transactions e.g. concerns about IP and competent suppliers (e.g. airline, nuclear energy) 2.Ability to codify information – lead firms decrease complexity through the development of technical and process standards; certify product quality; labour and environmental processes, etc. 3.Capability of suppliers: where supplier competence is high, lead firm will outsource (e.g. in garment, computing) (Gereffi et al, 2005)
  • 19. 19 Government Regulation  Government standards are compulsory e.g. UK Food Safety Act.  Product bans e.g. EECA ban on ozone depleting refrigerators.  Compulsory information instruments e.g. EU energy rating labels and CO2 emissions for new cars.  Economic incentives (taxes, subsidies, and public procurement) to drive change e.g. renewable energies.  National Eco-label schemes e.g Blue Angel in Germany.  Government backing voluntary standards e.g Fairtrade, Sustainable Forest Management Standards.
  • 20. 20 Voluntary Initiatives Collaborative and fills ‘regulation vacuum’ 1) Single firm approaches: 1st generation (e.g. Marks & Spencer; Boots UK, Patagonia) 2) Joint product/ sector approaches: 2nd generation (e.g. the Forest Stewardship Council (FSC); Marine Stewardship Council (MSC); Roundtable on Sustainable Palm Oil (RSPO)). 3) Cross sectorial approaches: 3rd generation (e.g. GlobalGAP) (Vermeulen and Seuring, 2009; Hoskins, 2008)
  • 21. 21 Forms of Voluntary Standards: Guidelines (e.g. UNGC, ILO MNE Declaration, OECD Guidelines, ISO26000) Certifications (e.g. ISO14000, SA8000, etc ).
  • 22. 22 Guidelines versus Certifications  Guidelines are sets of best practices (e.g. OECD Guidelines, ISO 26000).  Certifications accredit and monitor suppliers, evaluate respect of standards, audit, report and sanction violations (e.g. Fairtrade, FSC, ISO14000, SA8000)  Pros and Cons of Private Voluntary Initiatives, Codes, and Certification Schemes
  • 23. 23 Governance Actors and Instruments Level Major Actors Examples of Instruments Global UN and its agencies, OECD, Multinationals UN Global Compact, ILO Core Labour Principles, ILO MNE Declaration, OECD Guidelines,. Regional European Union Sustainable Forest Management Guidelines; Extractive Industries Transparency Initiative Cross- sector ISO, GlobalGAP, NGOs (Fair Trade, ETI, etc) ISO14000, ISO26000, SA8000, Fair Trade; Ethical Trading Initiative Sector Industry associations, corporations, NGOs, etc Guidelines in Forestry, Fishing, Agriculture, Mining and Metals, etc. National Governments, NGOs, corporations, Trade unions, etc Government and expert guidelines, NGO concerns, etc. Local NGOs, consumer groups, government, etc Standards based on local concerns and priorities.
  • 24. 24 Reading and Brainstorming Read Clarke’s (2005) “Manufacturing the Evidence” and answer the following questions 1. Should developed country consumers be concerned about labour standards in developing countries? Justify your answer. 2. In addition to proposed solutions in Clarke (2005), what other measures could improve labour standards in supply chains?
  • 25. 26 Conclusion  Globalization and new modes of industrial organization, coupled with the proliferation of NGOs and business initiatives, call for new collaborative arrangements and governance  Supply chain governance is the mechanism used by different actors from within the supply chain to influence and control the actions of other supply chain partners.  In SSC governance, collaborative approach is critical to successfully introducing sustainability  Transparency, responsibility and accountability are key for effective governance.  Effective SC governance is the responsibility of all stakeholders.
  • 26. 27 Economic issues covered in voluntary standards  Decent jobs.  Bribery and corruption.  Taxation.  Building long-term shareholder/ stakeholder value.  Prices paid to developing country producers.
  • 27. 28 Social issues in Voluntary Standards  Human rights and labour rights; (UNDHR and ILO).  Marketplace and consumer concerns.  Social development – Millennium Development Goals (poverty, hunger, education, health care).  Unfair business practices (bribery/ corruption and anti- competition).  Stakeholder involvement (communities, NGOs, Trade Unions, etc); Mediation and Social Dialogue
  • 28. 29 Environmental issues covered in voluntary standards  Resource depletion: Energy, forest, mineral and metal resources.  Environmental impacts: greenhouse gas emissions (global warming), ozone depletion, nitrification and acidification of soil, pollution, eco toxicity  Environmental standards focus on encouraging a cleaner, safer and healthier environment for all.
  • 29. 30 Additional References • Clarke, E. (2005), “Manufacturing the Evidence”, Supply Management, Vol. 10, Iss. 11, pp. 28-29. • Gereffi, G. (1999), “International Trade and Industrial Upgrading in the Apparel Commodity Chain”, Journal of International Economics, 48: 37–70. • Hoskins, T. (2008), “The ICSA Corporate Social Responsibility Handbook: CSR and Non-financial Reporting for Business”, 2nd Edition, London, ICSA Publishing, pp. 194-200. • Humphrey, J. and Schmitz, H. (2000), “Governance and Upgrading: Linking Industrial Cluster and Global Value Chain Research”, IDS Working Paper 120, Brighton: IDS. Available at: http://www.ntd.co.uk/idsbookshop/details.asp?id=591 • Moon, J. (2002), “The Social Responsibility of Business and New Governance”, Government and Opposition, Vol. 37, Iss. 4, pp. 385-408.

Editor's Notes

  1. Multinational corporations, national/ regional governments, NGOs, or supply chain partners.
  2. The slide highlights periods during which milestone changes took place in supply chain governance. Social criteria are increasingly evident in decisions to purchase goods and services. Major shifts began in the late 1970s with the emergence of the Dutch non-profit initiative Max Havelaar (which later developed to become Fair Trade) developing a charity-based arrangement to purchase goods from developing country producers and sell to European consumers. As time went on, major shifts took place towards the latter part of the 1980s and early 1990s with companies adopting new governance approaches as sustainability concerns gained prominence among consumers. Retailers in developed countries began signalling the sustainability impacts of their products (e.g. Marine Stewardship Council, Rainforest Alliance), whether in anticipation of consumers valuing this information and behaviour, or, in response to activist campaigns to mobilize consumers against particular brands and products. These alternative governance arrangements were meant to complement existing regulations with new actors sharing supply chain responsibilities with corporations. The concept of “joint governance” emerges in the 1980s, the Conservative Secreatary of State for the Environment, Michael Heseltine, encouraged greater business social responsibility asking business leaders to address the issues of unemployment and urban decay in the early 1980s. This was also in a period when a number of countries began actively privatizing industry and services (particularly in Australia, New Zealand, and the UK), blurring the traditional balance between responsibilities of State and the private sector. Governments, in part due to limitations imposed on them to curb regulations seen as possibly impeding national competitiveness (or imposed on them by WTO restrictions), have in a number of large developed countries encouraged more voluntary initiatives undertaken by corporations. Examples include international codes of conduct inspired by the US government under the Clinton Administration, which encouraged representatives of the apparel industry, labour unions, and NGOs to join the Apparel Industry Partnership (which later developed into the Fair Labour Association) in order to improve overseas working conditions. The UK governments encouragement of the Ethical Trade Initiative which brought together a coalition of companies, NGOs, and trade unions to promote labour standards for supply chains from developing countries. A number of European countries, including Denmark, Italy, and Germany sponsor corporate roundtables and similar initiatives promoting corporate codes of conduct. These initiatives are mirrored at a regional (European Union) and inter-governmental level, including the UN and its agencies, the World Bank, and the OECD – Session Three focuses more closely on these initiatives. Whereas the role of business in society emotes a wide range of diverse opinion, there has been a change in the relationships between business, government and civil society: the trend has not been seen as a wholesale shift of responsibility from public sector to private sector, but rather a move towards partnerships (“shared responsibility”), and “soft law”, such as reporting initiatives, to complement government policies and regulation.
  3. The five global value chain governance types.
  4. The 10 UN Global compact Principles Social auditing and monitoring Plus other sector voluntary sustainability initiatives: 4C Association (Common Code for the Coffee Community Association) Fairtrade Labelling Organization International (FLO) Forest Stewardship Council (FSC) GLOBALGAP (Global Partnership for Good Agricultural Practice) INFOAM (International Feferation of Organic Agriculture Movements) PEFC (Programme for the Endorsement of Forest Certification Schemes) UTZ Certified. ….