When companies expand their business overseas, it creates job opportunities in that industry and develops the economic health in the new region (Sethi et al., 2011). Expansion faces challenges as well, some of which impact sourcing sustainability. These challenges include: human rights abuses, mistreatment of local employees, and how to monitor supplier environmental compliance with the buyer’s policy. The mining and petroleum refinement industry face these challenges in a way that many other industries do not (Monczha et al., 2020).
A large number of mineral reserves are located in developing countries. Developing countries may have bribery issues, weak or corrupt governments, and a poorly developed regulatory framework providing no effective oversight over the industry (Sethi et al., 2011). Therefore, it’s hard to implement international human rights policies and fair labor guidance with many developing nation suppliers.
A purchasing company can develop supplier code of conduct policies and utilize audits to monitor an international supplier’s labor, human rights and environmental management compliance. To effectively monitor suppliers, the policy should set clear expectations for suppliers so they can effectively meet the purchaser’s objectives. This helps protect the purchasing company’s brand by preventing human rights or labor incidents at the supplier’s site (Ecovadis, n.d.). This is especially important when sourcing material from companies where the government does not enforce these labor and environmental policies. When developing codes of conduct, a purchaser can use existing environmental standards such as the ISO 14001 certification metric to assess the supplier’s environmental management compliance.
Buyer-supplier relationships have many intricacies, but they can be distilled into two elements. The relationships have advantages and obstacles. To build a strong buyer-supplier relationship, first and foremost, trust should be built between the buyer and seller. When trust is built, sellers can then share cost data with buyers (without fear of profit pressure) (Monczha et al., 2020). This way, the relationship incorporates customer needs directly into sourcing strategies and practices. (Monczha et al., 2020). Another benefit is that sellers could be asked to contribute innovative ideas for new products throughout the development phase. The buyer can also ask a supplier to submit cost reduction ideas early in a new product design, while the buyer is still modeling and budgeting costs (Monczha et al., 2020). All this works to mitigate cost and risk while achieving sourcing sustainability and strengthening the relationship.
Early supplier involvement can be divided into three different levels: white box design, gray box design, and black box design (Monczha et al., 2020). In white box design the supplier is given blueprints and told to make the product. At a more involved level, during gray box design the supplier’s engineers work cooperatively with the buying company’s engineers to jointly design the product. At the highest level of supplier involvement, during black box design suppliers are provided with functional specifications and are asked to complete all technical specifications. This includes the materials to be used, blueprint design, and other requirements (Monczha et al., 2020).
However, early supplier involvement also poses risks to the buyer’s intellectual property. Suppliers could spill confidential information such as design, materials, and process information to the buyer’s competitor. The supplier could also, one day, become a competitor using that information. This is especially true when dealing with foreign suppliers from countries where IP theft is a concern (Monczha et al., 2020). Before involving a supplier in product development, a buyer’s company should evaluate the seller’s credit and reputation in the marketplace.
In conclusion, supply integration is an important process for managing external suppliers and internal groups, who work together to create the desired outcome.
References
Ecovadis (n.d.). Supplier Code of Conduct. Ecovadis. https://ecovadis.com/glossary/supplier-code-conduct/
Monczka, R., Hanfield, L., Giunipero, L. Patterson, J., (2020). Purchasing and Supply Chain Management, 7th Edition. Cengage
Sethi, S.P., Lowry, D.B., Veral, E.A. et al. Freeport-McMoRan Copper & Gold, Inc.: An Innovative Voluntary Code of Conduct to Protect Human Rights, Create Employment Opportunities, and Economic Development of the Indigenous People. J Bus Ethics 103, 1–30 (2011). https://doi-org.ezproxy.libproxy.db.erau.edu/10.1007/s10551-011-0847-4
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