Building Supplier Social Sustainability: Linking Engagement to Performance

Sourcing materials and products from emerging economies has received considerable and growing scrutiny during the past decade as organizations have been pressured to improve the sustainability performance of their supply chains. Suppliers from emerging economies operate in a context where the regulatory environment and accepted business norms differ, in some cases significantly, from those of western economies. Despite some progress with respect to environmental practices, many organizations continue to struggle with how to manage social issues in their supply chains, and how to link improved social performance with competitive advantages (Huq et al. 2016).

Previous research has identified two multi-dimensional approaches (i.e., constructs) for managing socially responsible behavior in the supply chain: monitoring and supplier development (Ciliberti et al. 2008). However, problems have been identified with each as a means to control and improve supplier social sustainability performance. Difficulties with monitoring include the validity of audit assessments as a result of suppliers concealing abuses, the absence of processes to support continuous improvement and misalignment of buyer-supplier intentions (Jiang, 2009). Supplier development initiatives can be expensive compared to other forms of supplier relationship management practices and tend to be focused on a limited set of key suppliers and commodities, thereby ignoring opportunities in the broader supply chain.

Drawing from stakeholder engagement and buyer-supplier relationship literatures, this research proposes an alternative construct to influence social sustainability for suppliers in emerging economies. We use the term supplier perspicacity to represent a set of practices aimed at influencing supply chain social performance. More formally, the research question addressed in this study is: How can firms influence suppliers operating in emerging economies, to behave in a socially responsible manner? Supplier perspicacity is conceptualized as a set of complementary practices comprising of cultural astuteness, bi-directional communication, operations astuteness, and social cognizance, derived from the supplier relationship management (Chen & Paulraj, 2004) and social sustainability literatures (Zorzini et al., 2015). We further argue that supplier perspicacity reflects an organization’s expertise in deploying resources and routines, usually in combination, to achieve desired social performance as an outcome.

Methodology and Results

The four hypothesized relationships were tested using a combination of large-scale survey and multi-period archival data. Survey data was collected in 2015 from 237 large U.S. manufacturing firms, representing an overall response rate of 32.4%. We applied Menor and Roth’s (2007) two-stage approach for multi-item measurement scale development and the final scales were found to have high composite reliability and exhibiting convergent and discriminant validity. The structural model used the Kinder, Lydenberg, and Domini (KLD) database, a widely cited database that rates environmental, social and governance factors, to measure firm social performance (Tang, Hull, & Rothenberg, 2012), while financial metrics (ROA) from the COMUSTAT database was used to measure operations performance (Azadegan et al., 2013). For prior performance, ROA and KLD figures from the year 2013 were included as firm-level control variables while environmental munificence, environmental dynamism, and environmental complexity were used as industry-level control variables. Further robustness testing was done with alternative performance metrics, including return-on-sales (ROS), gross margin (GM) and social performance based on data envelopment analysis (DEA).

Findings established that supplier perspicacity is a multidimensional construct, with strong evidence for complementarity. Complementarity was tested by relating a performance-based output measure to the set of four underlying dimensions (Malhotra & Mackelprang, 2012). Moreover, after controlling for prior performance, supplier perspicacity was found to be positively associated with social and operations performance. We also found support for a positive and significant association among social and operations performance.

Implications

This research takes a step towards addressing the need for more insights on the relationship between firm social sustainability and performance (Zorzini et al. 2015) and provides managerial insights as to how firms can engage suppliers from emerging economies with the objective of improving social performance. Traditional approaches of monitoring and capability building can be augmented with supplier perspicacity, where firms are able to adjust their approaches to social practices through a better understanding of the complexities and constraints faced by their suppliers in emerging economies.

References

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Huq, F. A., Chowdhury, I. N., & Klassen, R. D. (2016). Social management capabilities of multinational buying firms and their emerging market suppliers: An exploratory study of the clothing industry. Journal of Operations Management, 46, 19-37.

Jiang, B. (2009). The effects of interorganizational governance on supplier’s compliance with SCC: An empirical examination of compliant and non-compliant suppliers. Journal of Operations Management, 27(4), 267–280.

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Zorzini, M., Hendry, L. C., Huq, F. A., & Stevenson, M. (2015). Socially responsible sourcing: reviewing the literature and its use of theory. International Journal of Operations & Production Management, 35(1), 60–109.