Session 2: Governance of Supply Chains I: From Compliance to Voluntary Standards.

1. Session 2: Governance of Supply Chains I: From Compliance to Voluntary Standards.

2. Approach to Sustainable Supply Chain Management (SSCM): Overarching Framework Framing the Issues Preparing for Implementation Assessing Impact Session 4: Sustainable Supply Chains as a Lever of Competitive Advantage Session 1: From Sustainable Development to Sustainable Supply Chains Session 5: Integrating Sustainability into the Supply Chain Session 8: Measuring and Communicating on Sustainable Supply Chain Performance Session 2: Governance of Supply Chains I: From Compliance to Voluntary Standards Session 6: Managing Stakeholder Relations Session 7: Building Supply Chain Partnerships Session 3: Governance of Supply Chains II: Introducing International Labour Standards

3. Session Objectives • Consider the impact of globalisation on industrial organization • Explore common definitions, typologies and importance “governance” in the context of global value/supply chains • Highlight the variables that influence how supply chains are governed and the roles of internal and external actors in parameter setting and enforcement. • Outline emerging trends and implications for buyers, suppliers, and policy-makers.

4. Session Outline Unit 2.1: Introduction: Globalization and Industrial Organization. Unit 2.2: Defining Supply Chain Governance Unit 2.3: Basis of SC Governance (market-based; regulatory-based and voluntary). Unit 2.4: Parameter Setting and Enforcement: Actors and Instruments Unit 2.5: Conclusion

5. Unit 2.1: Introduction Who is responsible for ensuring sustainability in global supply chains, andwhy?

6. Globalisation and SCs • Trade liberalisation and improvements in information and communication technologies. • An era of hyper-optimization of supply chains. • Sourcing and outsourcing of non-core activities span across national and continental boundaries. • Complex global networks of suppliers, plants and distribution channels (suppliers’ suppliers and customers’ customers). • Quest for cost reduction and profit maximisation

7. Globalisation and Supply Chain Governance • Governance Gaps: Lack of government regulation or weak controls • Limitations of National government regulation on complex, geographically fragmented supply chain transactions • Global assessment of SCs by various stakeholders. • Pressure for businesses to construct sustainable SCs.

8. Unit 2.2: Defining SC Governance What does the term ‘governance’ mean?

9. Defining Governance Governance The formalization of the relationships among the members and their collective accountability to those outside of the network or partnership (IISD). Multistakeholder Governance (UN Commission on Global Goverannce) The sum of many ways individuals and institutions, public and private, manage their common affairs. It is a continuing process through which conflicting or diverse interests may be accommodated and co-operative action taken. It includes formal institutions and regimes empowered to enforce compliance, as well as informal arrangements that people and institutions either have agreed to or perceive to be in their interest.

10. Defining Supply Chain Governance “Mechanisms used by different actors from within the supply chain to influence and control the actions of other supply chain partners” (Crisan, et al, 2011) “The functional integration and coordination of internationally dispersed chains” (Gereffi, 1999) “The inter-firm relationships & institutional mechanisms through which non-market coordination of activities in the chain takes place”. (Humphrey & Schmitz, 2001) “Some kind of steering of activities take place” (Humphrey & Schmitz, 2000)

11. Key parameters of Traditional Supply Chain Governance • What is to be produced? i.e. product definition. • How is it to be produced? i.e. process definition. • When is it to be produced? • How much is to be produced? (Humphrey & Schmitz, 2001)

12. Importance of SC Governance • Buyer has better understanding of market demands. • Risk management: performance, conformance,reputation loss, social and environmental risks. • Market access for developing country producers. • Channel for technical assistance. • Distribution of gains. • Acquisition of production capabilities. • Leverage point for policy initiatives.(Humphrey & Schmitz, 2001)

13. Evolution of Supply Chain Governance • Until mid 1970s: Regulatory approaches common. • Late 1970s – emergence of alternative SC governance models (e.g. “Fair Trade”, Max Havelaar) • Late 1980s: shift towards joint governance. • 1990s: Voluntary standards completing/ complementing compliance approach. • Emergence of non-traditional Supply Chain actors • Corporations taking up more active role in Supply Chain: Notion of shared Responsibility • Changing relationship between business, government & society. (Vermeulen & Seuring, 2009; Moon & Vogel, 2008; Moon, 2002)

14. The Supply Chain for Chocolate

15. Video and Class Discussion “The Outsourcing Report – Sweatshop Warrior” from LinkTV, USA available on youtube: http://www.youtube.com/watch?v=ZPmXiQKjRpw&feature=related Pay attention to the key actorsand process definition issues raised.

16. Unit 2.3: Modes of SC Governance • Market-based interactions. • Government regulations. • Voluntary initiatives.

17. Rationales for Market-based SC Governance: Produce in-house or source from suppliers: • Complexity of transactions e.g. concerns about IP and competent suppliers (e.g. airline, nuclear energy) • Ability to codify information – lead firms decrease complexity through the development of technical and process standards; certify product quality; labour and environmental processes, etc. • Capability of suppliers: where supplier competence is high, lead firm will outsource (e.g. in garment, computing) (Gereffi et al, 2005)

18. Market-based SC governance (Gereffi et al, 2005)

19. Government Regulation • Government standards are compulsory e.g. UK Food Safety Act. • Product bans e.g. EECA ban on ozone depleting refrigerators. • Compulsory information instruments e.g. EU energy rating labels and CO2 emissions for new cars. • Economic incentives (taxes, subsidies, and public procurement) to drive change e.g. renewable energies. • National Eco-label schemes e.g Blue Angel in Germany. • Government backing voluntary standards e.g Fairtrade, Sustainable Forest Management Standards.

20. Voluntary Initiatives Collaborative and fills ‘regulation vacuum’ 1) Single firm approaches: 1st generation (e.g. Marks & Spencer; Boots UK, Patagonia) 2) Joint product/ sector approaches: 2nd generation (e.g. the Forest Stewardship Council (FSC); Marine Stewardship Council (MSC); Roundtable on Sustainable Palm Oil (RSPO)). 3) Cross sectorial approaches: 3rd generation (e.g. GlobalGAP) (Vermeulen and Seuring, 2009; Hoskins, 2008)

21. Forms of Voluntary Standards:Guidelines (e.g. UNGC, ILO MNE Declaration, OECD Guidelines, ISO26000)Certifications (e.g. ISO14000, SA8000, etc ).

22. Guidelines versus Certifications Guidelines are sets of best practices (e.g. OECD Guidelines, ISO 26000). Certifications accredit and monitor suppliers, evaluate respect of standards, audit, report and sanction violations (e.g. Fairtrade, FSC, ISO14000, SA8000) Pros and Cons of Private Voluntary Initiatives, Codes, and Certification Schemes

23. Governance Actors and Instruments

24. Reading and Brainstorming Read Clarke’s (2005) “Manufacturing the Evidence” and answer the following questions • Should developed country consumers be concerned about labour standards in developing countries? Justify your answer. • In addition to proposed solutions in Clarke (2005), what other measures could improve labour standards in supply chains?

25. Conclusion • Globalization and new modes of industrial organization, coupled with the proliferation of NGOs and business initiatives, call for new collaborative arrangements and governance • Supply chain governance is the mechanism used by different actors from within the supply chain to influence and control the actions of other supply chain partners. • In SSC governance, collaborative approach is critical to successfully introducing sustainability • Transparency, responsibility and accountability are key for effective governance. • Effective SC governance is the responsibility of all stakeholders.

26. Economic issues covered in voluntary standards • Decent jobs. • Bribery and corruption. • Taxation. • Building long-term shareholder/ stakeholder value. • Prices paid to developing country producers.

27. Social issues in Voluntary Standards • Human rights and labour rights; (UNDHR and ILO). • Marketplace and consumer concerns. • Social development – Millennium Development Goals (poverty, hunger, education, health care). • Unfair business practices (bribery/ corruption and anti-competition). • Stakeholder involvement (communities, NGOs, Trade Unions, etc); Mediation and Social Dialogue

28. Environmental issues covered in voluntary standards • Resource depletion: Energy, forest, mineral and metal resources. • Environmental impacts: greenhouse gas emissions (global warming), ozone depletion, nitrification and acidification of soil, pollution, eco toxicity • Environmental standards focus on encouraging a cleaner, safer and healthier environment for all.

29. Additional References • Clarke, E. (2005), “Manufacturing the Evidence”, Supply Management, Vol. 10, Iss. 11, pp. 28-29. • Gereffi, G. (1999), “International Trade and Industrial Upgrading in the Apparel Commodity Chain”, Journal of International Economics, 48: 37–70. • Hoskins, T. (2008), “The ICSA Corporate Social Responsibility Handbook: CSR and Non-financial Reporting for Business”, 2nd Edition, London, ICSA Publishing, pp. 194-200.\ • Humphrey, J. and Schmitz, H. (2000), “Governance and Upgrading: Linking Industrial Cluster and Global Value Chain Research”, IDS Working Paper 120, Brighton: IDS. Available at: http://www.ntd.co.uk/idsbookshop/details.asp?id=591 • Moon, J. (2002), “The Social Responsibility of Business and New Governance”, Government and Opposition, Vol. 37, Iss. 4, pp. 385-408.