The Missing Link? The Strategic Role of Procurement in Building Sustainable Supply Networks

Abstract

T he increasing number of scandals about supplier violations of environmental and social regulations has put multinational companies' (MNCs) reputations at risk. Customers make MNCs accountable for such violations, regardless of whether the violations involve tier-one or lower-tier suppliers. To address this pressure, some MNCs require their tierone suppliers to comply with their sustainability requirements and ask them to "cascade" such requirements to their (lower-tier) suppliers. This research investigates why this cascading effect often fails. I used inductive research to study three supply networks in the automotive, electronics, and pharmaceutical/consumer product industries. Three MNCs, 9 tier-one suppliers, 22 lower-tier suppliers, and 3 industry associations participated. This research (a) reveals that to cascade a buyer's sustainability requirements, the buyer's procurement unit needs to directly engage the supplier's procurement unit; (b) identifies three key interlinked procurement processes-assessing, training, and incentivizing-involving both suppliers and procurement personnel who are instrumental in building sustainable supply networks; and (c) shows how the lack of collaboration between procurement and internal (i.e., sustainability and R&D) and external stakeholders (i.e., industry associations) limits an MNC's effort to promote sustainability throughout the supply network. Thus, this study highlights procurement's strategic role in building sustainable supply networks and suggests important research directions for how to achieve sustainability throughout the supply networks.

The Role of Supply Chains in the Global Business of Forced Labour

“…Sourcing practices and contractual arrangements (e.g., Foerstl et al, 2015; Pagell et al, 2010; Villena, 2019; Walker et al, 2012)…”

Diffusion of labor standards through supplier–subcontractor networks: An agent‐based model

“…Beyond the assumption of power to assure the compliance of suppliers with regard to labor standards, however, the diffusion of sustainability practices requires accompanying commitment‐oriented means such as joint problem‐solving or information exchange to reach the full potential of private (voluntary) regulation (Locke, Amengual, & Mangla, 2009). To promote diffusion of sustainability through supply networks, Villena (2019) as well as Villena and Gioia (2020) highlighted the strategic role of the buyer's procurement function that has to engage with internal and external stakeholders as well as directly with the supplier's procurement unit.…”

Examining the Role of Top Management in Corporate Sustainability: Does Supply Chain Position Matter?

“…The need to include this supply chain classification in the analysis of the effect of TMT characteristics on sustainability is prompted by recent findings about the differences between multinational consumer-facing or consumer goods companies and their first and second tier suppliers in the context of managing sustainability [11,41]. In particular, this stream of studies shows that as one moves up the supply chain toward the raw material supplier, i.e., away from the end-customer, the less active the corporate approach to sustainability becomes.…”

“…Recent studies identify supply chain position as an important factor in explaining these uneven outcomes, a term that distinguishes between upstream business-to-business (B2B) companies, and downstream consumer-facing businesses (B2C) [9]. In particular, upstream B2B suppliers have been found to experience less stakeholder pressure for sustainability due to their lack of proximity to consumers and other key stakeholders, and to gain less from sustainability initiatives in terms of both reputation and performance than their consumer-facing counterparts [10,11]. The theory of chain liability has been used to explain the complex relationship regarding sustainability between supply chain partners on one hand and supply chain partners and stakeholders on the other [12].…”

“…Specifically, chain liability builds on attribution theory to show that in contrast to B2B companies, B2C firms stand to experience both greater performance gains from sustainability efforts and higher risk of reputational damage because of increased stakeholder visibility and pressure [12]. Suppliers are thus faced with a double bind, experiencing increased demand for sustainability from their B2C partners seeking to guard themselves against having to take the blame for a supplier's misstep, and having to reconcile with the prospect of little to no performance gains [11].…”