Global Supply-Chains

Global supply-chain CSR requirements changing Asian businesses

15 October 2014

Shanghai Container Terminal

Somsak Jaitrong, Human Capital Alliance Senior Adviser looks at the growing demand for socially responsible global supply chains.

The past decade’s growing socially-responsible supply-chain requirements have dramatically changed how Asian companies and economies conduct business.

The tragic 2013 Bangladesh garment factory collapse that killed more than 1,120 people created an expanded impetus for developed-economy companies to manage their supply-chains’ social responsibility performance and most importantly to protect their own brands and long-term reputations.

Corporate social responsibility

Corporate social responsibility reflects a firm’s obligations to society and stakeholders for actions undertaken. They may include obligations to protect and improve society’s welfare along with advancing their own interests.
In general, all socially responsible firms must do no harm and should pro-actively provide benefits to society.

Development of fully-integrated supply chain networks

Initially in their drive to access Asia’s massive low-cost labor, developed economies began transferring labor-intensive activities to Asia.

Eventually, fully integrated supply chains business networks were developed to manage the production and distribution of products to end-users.

By concentrating on their marketing core-competency activities, global brands depended on their suppliers to provide low–cost products and high manufacturing flexibility.

Today, many supply-chains compete against each other to create extremely responsive supply-chains and deliver lower prices to developed economies’ store shelves and manufacturers.

For instance, the time to design and deliver new garments to the market has now been reduced by global brands such as Zara, H&M , Gap and The Limited from more than one year to a few weeks.

Linking technology and trust

These extended internet-based enterprise networks, linking members and their activities required high degrees of trust.

To ensure more efficient and effective networks, members exchange sensitive information and data-linking processes that help them achieve competitive gains that could not be achieved if they acted independently.

Individual supply-chain members shared the networks’ common goals and duly performed their tasks.

Lower production and transaction costs

The integrated supply-chains improved each member firms’ competitive capabilities by lowering production and transaction costs, accelerating product-development and providing access to needed resources and knowledge.

To add further specialization, many firms began outsourcing component assemblies to local and foreign companies who in turn also sub-contracted their work.

More efficient processes, cheaper products and happier consumers appeared to be a winning combination. However, something gradually became wrong with this picture.

Disaster highlighted problems

The Bangladesh factory disaster made many ”best practice” supply-chains aware they were overlooking or turning a blind-eye to many partners’ social responsibilities.

These included labor issues such as collective bargaining, minimum wage rates, maximum work hours and enforcement of workers’ rights as well as manufacturing environmental conservation issues.

Greater sense of balance

Subsequently, buyers realized they had to balance supply-chain advantages with loss of control over possible costs that may far outweigh any strategic advantage gained.

To achieve this balance many buyers have become supply-chain corporate social responsibility managing partners.

Two basic strategies

Two basic strategies are now being used to monitor supply-chain members’ social responsibility.

A most obvious method is developing and implementing supply-chain-wide codes-of-conduct that must be adhered to by all partner companies. These codes of conduct are tailored for the firm’s individual global partners.

In other cases, buyers outsource the corporate social responsibility monitoring to third-party agencies such as the Fair Labor Association and the Ethical Trading Initiative that have developed generic codes that are applied to different supply chains.

To ensure they remain integral parts of global supply chains, Asian companies and economies have adapted their operations and policies to comply with these new demands.

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