These days, there’s so much consumer awareness around the negative implications of businesses choosing the lowest cost sourcing options that companies can no longer risk taking this approach. Making supply chains both financially and socially sustainable may not be an easy task, but it’s an essential one.
Your procurement approach can’t just be about finding products and services at the lowest possible cost. It should include ensuring that the entire supply chain lives up to the same high corporate social responsibility standards as your organisation. Not just because it’s the “right thing to do”, but also because it’s good for business long term.
What is corporate social responsibility?
Gone are the days when a company could merely focus on the bottom line and escape blame by saying “It’s not my problem – it’s my suppliers”. Corporate social responsibility is about companies being accountable – socially, economically, and environmentally.
No longer is it acceptable to select the cheapest sourcing option merely to boost your profit margin, regardless of the effect on society. Low wages, long working hours, and large carbon footprints (to name just a few) are all aspects of a business that will attract the wrong kind of attention.
The notion of corporate social responsibility encourages companies to operate in ways that enhance society and the environment, instead of damaging them.
Let’s look at a couple of examples – one where corporate social responsibility very much continues to be part of the business strategy and one where it most certainly was not.
Starbucks – corporate social responsibility at its best
From the outset, Starbucks has created a positive reputation for itself by making corporate social responsibility a key part of its strategy, committing to sustainability and community welfare. Investopedia explains that the company has attained many significant milestones:
“99 percent ethically sourced coffee; creating a global network of farmers; pioneering green building throughout its stores; contributing millions of hours of community service, and creating a ground-breaking college program for its partner/employees.”
Still striving to build on its already exemplary achievements, Starbucks’ future plans are to hire 10,000 refugees across 75 countries, reduce the environmental impact of its cups, and engage its employees in environmental leadership.
“So what?”, you may ask. It’s nice to “do the right thing”, but how is that good for business? Consider this. Thanks to the connected world we live in everyone in Starbucks’ target market is aware of how traditional business models exploit already impoverished coffee growers in developing countries. Everyone in the company’s target market also likes a good quality cup of coffee. They will pay a premium for the reassurance that their coffee has not come through a supply chain based on exploitation. Starbucks has essentially aligned their values with those of their target market.
Doing so has meant more cups of coffee sold and a soaring share price. On 2 January 2009 you could pick up a Starbucks share on the Nasdaq for USD 4.71 (Open Price). On 2 January 2019 you would have had to pay USD 63.68 (Open Price) for the same share. That’s a 1,252% share price growth over 10 years.
Nike – when corporate social responsibility fails
It’s no secret that Nike has executed more than questionable strategies in the past. Corporate social responsibility was clearly not part of their procurement process, and the sportswear company has been publicly targeted by campaigners and consumer activism due to appalling conditions in the overseas sweatshops of their sub-contractors since the 1970s.
Although conditions have now improved, the early days saw Nike moving its production sites from country to country each time the living conditions and wages improved there. Employing largely women in their late teens or early 20s, Nike allowed 9-13 hour working days and turned a blind eye to a whole host of issues, including health and safety.
The lack of focus on corporate social responsibility in their supply chain cost Nike dearly as anti-sweatshop groups campaigned publicly and strongly against them.
So, why is Nike still one of the largest sportswear brands in the world? Why has Nike’s share price on the New York Stock Exchange increased from USD 12.74 (Open Price) on 2 January 2009 to USD 72.79 (Open Price) on 2 January 2019? If corporate social responsibility is good for business long term, how can Nike’s 471.35% share price growth over the 10-year period be explained?
Firstly, it’s a lot less than Starbuck’s 1,252% share price growth. Secondly, Nike dramatically changed the errors of their ways. Nike no longer denies responsibility for wrongdoings in their supply chain. Instead, they have embraced transparency and swift action.
How does Business Focused Procurement help?
A Business Focused Procurement approach is a catalyst for ensuring high corporate social responsibility standards throughout the supply chain. It looks at much more than costs. Like in the Starbucks example, it ensures that the entire supply chain reflects the same high corporate social responsibility values as the brand portrays. Putting out an ethically sounding message to the market, while sourcing from sweatshop factories guilty of human right abuses, simply erodes consumer confidence and trust.
Making corporate social responsibility an integral part of how you manage your supply chain and showing publicly that your corporation cares as much about the good of society as the bottom line, can immediately put you head and shoulders above your competition. Buying a cup of coffee at Starbucks is not exactly cheap. It shows that people are now willing to pay more for products and services that they know have been sourced through an ethical and environmentally friendly supply chain. Ultimately, the positive attention created strengthens the brand and increases profits. In addition, it creates a stronger bond between employer and employee, boosting morale among a workforce that knows they are giving back to society.
In 2010, the International Organization for Standardization (ISO) released ISO 26000 – a set of voluntary standards that encourage companies to keep social responsibility at the front of their minds. Guidelines rather than requirements, these standards clarify what social responsibility is and demonstrate how these principles can be translated into effective actions.
Corporate social responsibility is key to our Business Focused Procurement approach, giving your company a competitive edge, as well as peace of mind that what you do enhances society as a whole. Get in touch with us today to discuss your procurement needs further.
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