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2016 | OriginalPaper | Buchkapitel

8. Supply Chain Sustainability Risk

verfasst von : Ki-Hoon Lee, Stephan Vachon

Erschienen in: Business Value and Sustainability

Verlag: Palgrave Macmillan UK

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Abstract

In recent years several multinational organizations were affected by poor management practices upstream in the supply chain. For example, brands like Joe Fresh, Primark and Bonmarché were all in the hot seat after the collapse of Rana Plaza in Bangladesh in 2013 (Lu 2013; Wieland and Handfield 2013). Increasingly, the general population (the ultimate consumers of products and services) as well as different non-governmental organizations (NGOs) and activist groups are calling for a greater contribution from large corporations to address sustainability issues upstream in their supply chains. When large corporations fail to adequately address (i) environmental damages caused by their first- or second-tier suppliers, (ii) poor working conditions in their contract manufacturers, or (iii) child labour in the extraction or harvest of raw material, they are pitched as bad corporate citizens generating a reputational loss. Such a reputational loss translates into a reduction of goodwill from both market and non-market stakeholders. This chapter focuses on the reputational loss emerging from questionable practices—from a sustainability perspective—in the supply network (‘poor management practices’ hereafter). In fact, a study suggests that the potential negative impact from a supplier with poor management practices is on average a loss of 12% in market capitalization (Lefevre et al. 2010). Therefore, it is important for large organizations with reputational capital to establish proper management systems to minimize their exposure to poor management practices in the supply network.

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Vorheriges Kapitel Workplace Safety

Nächstes Kapitel Concluding Remarks

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This chapter is about reputational risk associated with poor management practices (from a sustainability perspective) in the supply chain. As such, the development and the content is not about traditional disruption and coordination risks, which can impact an organization’s reputation with late deliveries or poor product quality. In other words, only the potential negative impact on an organization’s image streaming from questionable sustainability practices (social or environmental) in the supply network is considred here.

Some might argue that suppliers’ poor management practices might translate into lower cost, leading an organization to turn a blind eye to their suppliers’ operations. In other words, they suggest that reputational risk, with the premise of lower production costs related to increased pollution or the violation of labour rights (e.g., forced labour, poor working conditions or child labour), is in fact a speculative risk. That would be erroneous as reputational risk as presented in the chapter includes not just the existence of the poor practices but also the likelihood of be exposed and linked to such practices—hence only a negative outcome is associated with this risk (an organization’s reputation can only take a negative hit from the poor practices that are ‘publicly’ exposed).

Resource as described in Barney (1991). That is, a reputation would be unique, socially complex, and difficult to replicate along with providing value to the organization.

An organization’s accountability in the supply chain can also be downstream (Wieland and Handfield 2013). For example, electronics OEM (computer, printers, cell phones, etc.) are often accused of the toxic waste generated in developing countries as obsolete electronics products are shipped to these countries as waste, with children often exposed to toxic material in order to recover valuable material.

The ILAB is a division of the United States Department of Labor. The list can be consulted online at http://www.dol.gov/ilab/reports/child-labor/list-of-goods/. A 2014 detailed report “List of Goods Produced by Child Labor and Forced Labor” is also available from the site and contains summary information from the lists and short stories.

‘OECD Complaint against Bayer because of Child Labour in India’, (http://germanwatch.org/presse/2004-10-11e.htm, accessed on December 21st, 2015); and ‘Bayer, Monsanto still profit from bonded child labour on cottonseed farms in India’, (http://www.cbgnetwork.org/295.html, accessed on December 21st, 2015).

Originally, the industry joint action plan (i.e. Monsanto and Bayer) included a penalty of 10% on the procurement price if the no child labour clause was violated (after a pre-established warning procedure) and a 5% bonus on the procurement price was awarded if the no child labor clause was respected (Venkateswarlu 2007).

In fact, S.R. Joshi (Head of the CCP, Bayer CropScience India) would say that ‘Monitoring alone is not enough. An integrated approach is required to prevent child labour on a lasting basis.’ This quote can be found in a short report provided by Bayer on their website (http://www.cropscience.bayer.com/en/Commitment/Rural-development.aspx) describing the CCP and titled Investing in the Future of Our Children.

The Target 400 initiative aims to get the farmers to achieve a yield of 400 ‘packages’ of cotton seeds per acre. On average the farmers are achieving about 280 packages (information from Investing in the future of our Children, see note 8 above).

The report titled ‘Turning a Blind Eye: Hazardous Child Labor in El Salvador’s Sugarcane Cultivation’ published in 2004 is available online at: https://www.hrw.org/report/2004/06/09/turning-blind-eye/hazardous-child-labor-el-salvadors-sugarcane-cultivation (accessed December 21st, 2015).

From an online article: ‘Life After Labor: New Struggles for El Salvadoran Children’, published in March 2007 on the website Satyamag.com (http://www.satyamag.com/mar07/bochenek.html, accessed on December 21st, 2015).

‘Taking Child Workers Out of El Salvador’s Sugar Cane Fields’, posted on April 6th, 2015 on the Inter Press Service News Agency website (http://www.ipsnews.net/2015/04/taking-child-workers-out-of-el-salvadors-sugar-cane-fields/, accessed on December 21st, 2015).

‘Bittersweet: Combatting Child Labour on the Sugarcane Plantations in the Philippines’, posted on July 22nd 2015 on the website: https://europa.eu/eyd2015/en/european-union/stories/week-30-bittersweet-combatting-child-labour-sugarcane-plantations-philippines, accessed on December 21st, 2015.

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Several other aspects can be included under the umbrella of labour rights such as women rights, forced labour, the right for association (i.e. unionization). Poor management by suppliers or contractors in the supply chain can lead to aggressive actions by nonmarket stakeholders leading to crisis and reputational loss for the buying organization. Women’s rights are often violated in the textile and apparel industries (a sector with a high proportion of women workers) – abuses included sexual harassment and pregnancy testing during the hiring process (source: ‘Honduras Workers win Union at 3 Plants, Get Pact at 4th’ found at: http://www.solidaritycenter.org/honduran-workers-win-unions-at-3-plants-get-pact-at-4th/, accessed on December 31, 2015).

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For the purpose of this chapter, this industry loosely includes garments, sportswear, fashion clothing and the production of the fabrics but excludes non-clothing textiles like carpets and rugs.

The labour rights movement in the textile and apparel industry often refers to multinational companies as ‘brands’.

‘Work Til You Faint’, Sport Executive International (http://sportexecutive.dk/work-til-faint/, accessed on January 1st, 2016).

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According to the ILO, a normal workload for a week is 48 hours based on the fact that one day should not exceed 8 hours (i.e. 6 days @ 8 hours/day). Not paying overtime is a violation of the Universal Declaration of Human Rights (Björnsson 2015).

This unawareness is confirmed by one of the tour operators, Apollo, who admit the organization can do more to ensure that the hotels are in line with the organization’s policy in regards to workers’ rights. (source: http://sverigesradio.se/sida/artikel.aspx?programid=2054&artikel=6277400, accessed on December 30, 2015).

Social Accountability International is an organization headquartered in New York that aims to advance human rights for the workers around the world. The organization has developed a management system inspired by the ISO standards that is labeled SA8000.

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Titel: Supply Chain Sustainability Risk
verfasst von: Ki-Hoon Lee
Stephan Vachon
Verlag: Palgrave Macmillan UK
Buch: Business Value and Sustainability
Print ISBN: 978-1-137-43574-3

Electronic ISBN: 978-1-137-43576-7

Copyright-Jahr: 2016
DOI: https://doi.org/10.1057/978-1-137-43576-7_8

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