The Strategic Role of Purchasing in Promoting Sustainability on Lower-Tier Suppliers

The Strategic Role of Purchasing in Promoting Sustainability on Lower-Tier Suppliers

ABSTRACT

Althoughmultinationalcompanies(MNCs)haveincreasinglyembracedasustainabilitystrategyfor theirownoperations,fewerhavemadeeffortstoengagetheirdirect(tier-one)suppliersintheir sustainabilityinitiatives.ItisevenrarerthatMNCsengagetheirsuppliers’suppliers(i.e.,lower-tier suppliers),despitethesesuppliershavingahigherincidenceofviolationswithmoreacute environmental and social impacts that can severely damage the MNCs’ reputation. The following quote from one of our interviewed directors illustrates this:

“Thedemoninthisplaceisthe[lower-tier] suppliersthatIknowtheleastabout,theonesthatwehavetheleastrelationshipwith,and...theones that pose the highest risk are in regions that don’t care and in businesses that don’t care. I don’thave controlovertheonesthatposethehighestrisks,soI’mlosingsleepoverthem.”

To engage lower-tier suppliers, some MNCs set specific environmental and social requirements to their (direct) suppliers and request that these suppliers “cascade” the same requirements to their own suppliers. In fact, several sustainability and corporate social responsibility reports of MNCsdescribe their sustainability requirementsto their (direct) suppliers and their expectations of such “cascading effects.”However, we don’t know how effective this type of requirements are to date.

The literature about how companies should manage their lower-tier suppliersisvirtuallysilent; although, there isaresearchstreaminthesupplychainmanagementliteraturethataddresseshoworganizationsshould engagetheirdirectsuppliersindeveloping“green,”“responsible,”and“ethical”productsandprocesses (Guo,Lee,Swinney,2014;Linton,Klassen,Jayaraman,2007). Thislackofscholarlyattentionrepresentsan important research gaps, especially in anera when a wide array of stakeholders (e.g., activists and investors ) are demanding sustainability and when customers blame the MNC,whether the damage was done by a tier-one, tier-two, or tier-three supplier (Hartmann & Moeller, 2014).

Given the nascent state of knowledge about managing sustainability in lower-tier suppliers,I conductedan inductivequalitativestudy(Eisenhardt, 1989;Gioia,Corley, and Hamilton, 2013)toinvestigate why MNCs have failed to engage lower-tier suppliers in their sustainability agenda. ThreeMNCs,10direct(tier-one)suppliers,and22lower-tiersuppliersin theautomotive,electronics,andconsumerproduct/pharmaceuticalindustries participated in this study.These companies have global operations in China, Mexico, United States, Taiwan, among others.

Icontributetothesustainabilityliteratureintwo ways. First, I explain why existing practices used by MNCs fail to engage lower-tier suppliers. I found that most direct suppliers do not cascade sustainability requirements imposed by MNCs for several reasons: lack of resources, unsustainable growth, and little trust. More importantly, I found that the MNC’s purchasing department has the capability to cascade sustainability requirements to lower-tier suppliers. However, it has to be reinvented. For instance, the inclusion of sustainability key performance indicators that include lower-tier suppliers and the training of purchasing managers is vital to promote the “cascading” effect.” Second, to be effective in such cascading effect, purchasing needs to foster relationships with other functions (e.g., EH&S and R&D), companies (e.g., firms that are likely to share suppliers through industry organizations), and stakeholders (e.g., NGOs). By doing so, purchasing plays an important role to achieve sustainable supply chains.

References

Eisenhardt, K. M. 1989. Building theories from case study research. Academy of Management Review, 14(4): 532–550.

Guo, R., Lee, H. L., & Swinney, R. 2014. Responsible sourcing in supply chains: Working Paper. Stanford University.

Linton, J. D., Klassen, R., & Jayaraman, V. 2007. Sustainable supply chains: an introduction. Journal of Operations Management, 25(6): 1075–1082.

Hartmann, J. & Moeller, S. 2014. Chain liability in multitier supply chains? responsibility attributions for unsustainable supplier behavior. Journal of Operations Management, 32(5): 281–294.