Int. J.

Production Economics 140 (2012) 103–115

Contents lists available at SciVerse ScienceDirect

Int. J. Production Economics

journal homepage: www.elsevier.com/locate/ijpe

Social issues in supply chains: Capabilities link responsibility, risk

(opportunity), and performance
Robert D. Klassen a,n, Ann Vereecke b
a
Ivey Business School, University of Western Ontario, London, Ontario, Canada N6A 3K7
b
Vlerick Leuven Gent Management School and Ghent University, Ghent, Belgium

a r t i c l e i n f o abstract

Article history: Social issues in the supply chain are defined as product- or process-related aspects of operations that
Received 30 October 2010 affect human safety, welfare and community development. Drawing from related literatures, basic
Accepted 20 January 2012 constructs related to capabilities and risk are defined and used to underpin case research in five
Available online 4 February 2012
multinational firms. This data extended our understanding of three key social management capabil-
Keywords: ities: monitoring, collaboration, and innovation. Moreover, the field research revealed four key linkages
Supply chain management that detail how managers actively can work toward mitigating social risks, creating new opportunities,
Corporate social responsibility and improving firm performance. Collectively, these capabilities and linkages establish the basis for an
Sustainability integrative framework and five research propositions.
Triple bottom line
& 2012 Elsevier B.V. All rights reserved.
Innovation

1. Introduction
A growing number of customers, investors, regulators, and the
public are actively investigating aspects of a firm’s supply chain
that extend far beyond traditional aspects such as cost, quality
and financial performance. Over the last decade, social and
environmental issues have attracted increased scrutiny and
debate. To their credit, many managers have moved forward in
their efforts to develop relatively sophisticated products, pro-
cesses and systems that respond to and plan for environmental
issues. For example, widely accepted international certifications,
such as ISO 14001, have helped to standardize management
systems linked to operations (González-Benito and González-
Benito, 2008), and climate change concerns have fostered initia-
tives to evaluate and label carbon footprints on products, parti-
cularly in the U.K. Moreover, researchers have documented
evidence that environmental management is linked to perfor-
mance for both supplier management (Yang et al., 2010) and the
broader supply chain (Seuring and Müller, 2008). In parallel,
governments also are increasingly implementing regulations that
require standardized reporting by firms of pollutants (e.g., Toxic
Release Inventory in the U.S.).
Unfortunately, management of social issues in the supply
chain lags far behind. Many innovative and sophisticated firms
located throughout the world continue to struggle with how to
n
Corresponding author. Tel.: þ1 519 61 3336; fax: þ1 519 661 3959.
E-mail addresses: rklassen@ivey.uwo.ca (R.D. Klassen),
ann.vereecke@vlerick.com (A. Vereecke).
define, understand and plan for social issues, not to mention
realize competitive benefits. For example, inadequate testing of
materials or components by a supplier may flow downstream to
customers in the form of dangerous or harmful products, result-
ing in product recalls, a tarnished reputation, and ultimately,
significantly higher costs and lower revenue (Roth et al., 2008).
Multi-national firms such as Apple, Nike, and The Gap are
beginning to actively monitor their suppliers’ labor practices,
Wal-Mart is seeking to improve product safety, and Home Depot
is working to develop stronger ties to local communities attempt-
ing to reduce negative social impacts related to lumber sourcing
(Grow, 2005; Hesseldahl, 2006; Zimmerman and Fong, 2008).
Other aspects, such as workforce practices used by suppliers in
distant countries, do not escape the attention of non-govern-
mental organizations (NGOs) and are now relevant to many firms
or their customers (Leipziger, 2009). Recently, new regulations for
the Registration, Evaluation and Authorization of Chemicals
(REACH) in the European Union are another indicator of a strong
trend toward simultaneously attempting to protect human health
and the environment (European Commission, 2007). First coined
by Elkington (1997), the combination of economic, social, and
environmental performance can be thought of as a ‘triple bottom
line’. These concerns and challenges are not unique to one region,
one industry, or one type of firm. Instead, these issues cut across
the entire supply chain, which must be viewed broadly to
encompass internal operations, multiple tiers of suppliers, and
both direct customers and final consumers.
In short, for operations and supply chain management, social
issues can be narrowed to product or process aspects that affect
human safety and welfare, community development, and protection

0925-5273/$ - see front matter & 2012 Elsevier B.V. All rights reserved.
doi:10.1016/j.ijpe.2012.01.021
104 R.D. Klassen, A. Vereecke / Int. J. Production Economics 140 (2012) 103–115
from harm. Within this domain, this paper explores the relation-
ships between the supply chain context and actions that tie different
management practices to social issues and outcomes. Because firm
boundaries tend to be somewhat fluid over time as outsourcing,
increased vertical integration or off-shoring occurs, it is important to
recognize that social issues in the supply chain must encompass
suppliers, downstream distributors, customers, end-users, and in-
house operations. And the scope of social responsibility evolves over
time based on society norms and expectations. Thus, as observed by
a senior manager in one of our cases, it is difficult to hold suppliers
accountable for social issues if your firm is unwilling to lead by
example.
This research seeks to understand which social management
capabilities contribute to competitiveness, and more specifically,
how they might be linked to social responsibility, risk, opportunity,
and performance in the supply chain. Thus, this paper makes three
contributions. First, drawing on prior literature, three constructs
related to the management of social issues in operations are
identified, defined, and delineated: capabilities, responsibility,
and risk. Second, field-based case research was employed to
develop a more detailed understanding of how firms have trans-
lated capabilities into specific social management practices that
can be adopted within other firms. As such, this paper takes a step
toward addressing the demand for more research addressing social
issues within sustainable supply chains (Seuring and Müller, 2008).
Our case data then is combined with earlier literature to construct
an integrative framework that depicts how these constructs
collectively form management’s approach to social issues in the
supply chain. Four critical linkages are proposed that connect
multiple capabilities for managing social issues to both inputs,
such as responsibility, and outputs, such as risk, opportunity and
performance. Finally, a set of research propositions derived from
the case data is presented to guide future research.
2. Literature review
To underpin our research, two broad streams of research
related to social issues in the supply chain are overviewed very
briefly: social issues in the supply chain; and operational risk and
related supply chain capabilities. Recent literature reviews (e.g.,
Carter and Rogers, 2008; Seuring and Müller, 2008) have done an
admirable job of comprehensively covering each stream, and so
the intent here is narrower: highlight several concepts and
constructs that were critical to framing the initial research design,
and then interpreting and synthesizing managerial observations.
2.1. Social issues in supply chain
As noted earlier, social issues focus on human safety and
welfare, community development, and protection from harm.
The danger is that the scope of this definition can become either
so broad as to encompass all of management, or so narrow that
operational risks or opportunities are overlooked. At a minimum,
characterizing social issues in the supply chain requires exploring
three questions: who is being targeted, which issues are being
addressed, and how they are being addressed (Wood, 1991). For
the first question, ‘‘who’’, stakeholder theory (Freeman, 1984)
points toward spanning at least three levels of interested indivi-
duals and groups for social issues. First, the internal level within a
firm’s own operations, under direct control of management,
captures such aspects as workforce diversity and safety manage-
ment. A second inter-firm level captures external interactions
where strong economic ties connect firms, i.e., buying firms,
suppliers, consumers and end-users. Collectively, these two levels
– internal and inter-firm – represent the supply chain. Finally,
other external stakeholders, possibly with weak economic ties,
such as communities, regulators, and NGOs, are a third level.
In terms of ‘‘which issues’’ to address, initial research explored
supplier labor practices (Emmelhainz and Adams, 1999) and
supplier development with minority suppliers (Krause et al.,
1999). Of particular note, Carter and Jennings (2002) proposed a
multi-dimensional index to operationalize purchasing social
responsibility (PSR). Like corporate social responsibility (CSR),
PSR included environment, diversity, safety, human rights, and
philanthropy. However, no evidence was found that this construct
was directly related to financial performance; instead, organiza-
tional learning was a mediating construct (Carter, 2005). In part,
this lack of direct support might have resulted from combining
dimensions for social issues, environmental issues, and discre-
tionary areas (i.e., philanthropy) into a single holistic construct.
Human rights also are becoming increasingly important, possibly
to protect a firm’s markets as supply chains become more
transparent (Awaysheh and Klassen, 2010; New, 2010).
Given the wide range of human health and welfare concerns
that could be labeled a ‘social issue’, managers are well served, at
least initially, to focus on those issues for which their firm bears
responsibility. To be fair, responsibility has been defined in many
ways by the sociological and business literatures, as observed by
Bovens (1998: 22), ‘‘If a word were ever to be described as a
‘container concept,’ then that word is ‘responsibility’. It is a vessel
from which speakers can apparently draw at will; a tub in which
almost all important moral, legal, and political ideas are to be
found if only one rummages about in it long enough.’’ The
widespread use of the term ‘‘corporate social responsibility’’
(CSR), which captures the general duties and obligations of
corporations to society, adds further confusion (Vogel, 2005).
Moreover, CSR typically encompasses environmental and social
issues as components of the triple-bottom line (Elkington, 1997).
Rather than attempt to include all aspects of CSR in this
research, two constraints are imposed: first, emphasize a classical
definition of responsibility, i.e., the authority to act independently
with accountability (Soanes and Stevenson, 2005); second, limit
the scope to supply chain management. Thus, social responsibility
stems from the direct or implied duty that managers have to deal
with particular social issues, business decisions or outcomes in
the supply chain (New, 2004; Klassen, 2009). Quoting a manager
from Reebok (Creelman, 2005)
If a customer calls and complains that the sole got separated
from the shoe, we can’t very well say ‘Oh, that’s not Reebok’s
responsibility, that shoe is made by an independent factory in
Korea.’ We have to take responsibility for the quality of the
product even though we don’t make it ourselves. The same
applies to the working conditions. If a customer calls up about
working conditions at one of our suppliers, we have to take
responsibility for those working conditions.
In a supply chain context, responsibility is conferred when a
firm has authority to make decisions independently, and has the
ability to control, pressure or induce action by suppliers and
customers through such factors as product design or contractual
arrangements (Parmigiani et al., 2011). In essence, the firm has
responsibility because it can influence conditions (either through
action or inaction) that result in specific social outcomes, and
responsibility includes both legal obligations and ethical overtones.
In many respects, the third ‘‘how’’ question pushes researchers
and managers to translate the ‘‘who’’ and ‘‘which issues’’ ques-
tions into tangible management systems and programs. Thus, to
characterize management’s approach to social issues in their
supply chains, an integrative process-oriented framework is
needed to link responsibility for social issues with capabilities.
 R.D. Klassen, A. Vereecke / Int. J. Production Economics 140 (2012) 103–115
Moreover, relatively little attention has been paid to new supply
chain opportunities that might arise from enhanced management
of social issues (e.g., Fombrun et al., 2000). Obvious analogs in
quality and environmental management, e.g., ISO 9001 and ISO
14001, allow risk avoidance, cost reduction, and expanded
customer value.
By way of summary, social issues in the supply chain are
defined as encompassing three levels of stakeholders (who),
focusing on the evolving set of social concerns for which the firm
has influence in the supply chain (which issues), and involving
management capabilities that respond to these concerns by
mitigating risk or enhancing customer value (how). Our field
study, detailed later, makes progress toward exploring the three
dimensions, with the primary emphasis being on the last aspect.
2.2. Social issues and operational risk
The identification, assessment, prevention and mitigation of risk
have received much attention, particularly in the accounting and
financial fields. The conceptual insights and analytical models are
increasingly being applied in operations management under the label
operational risk (Lewis, 2003; Seshadri and Subrahmanyam, 2005). At
a conceptual level, risk can be characterized in at least three ways:
variance from an expected outcome (e.g., financial risk-return mod-
els); value at risk (e.g., downside portfolio risk); or expected loss from
a negative event (e.g., catastrophe). Most research in supply chain
management has focused on unexpected negative events related to
internal or external process failures or disruptions (as detailed in
Kleindorfer and Saad, 2005). Quantitatively, risk usually is expressed
as the product of the probability of an event occurring, multiplied by
the potential financial loss (i.e., severity).
Identifying which dimensions of risk are most relevant for
operations continues to be an important challenge. For example,
at a strategic level, a framework could be derived from structural
and infrastructural dimensions of operations strategy, including
process technology, new product development and supply chain
management (Lewis, 2003). Alternatively, a narrower focus on the
supply chain prompts greater specificity, for example, related to
meeting demand and ensuring consumer safety (Zsidisin, 2003)
or proactive supply management (Smeltzer and Siferd, 1998).
Clearly, a firm that chooses to ignore social issues has some
chance of being held accountable (probability). However, depend-
ing on its size, its visibility in the market place and the impor-
tance of an issue to customers, the firm might be insulated for
some time from financial losses or other negative consequences
(severity). In other situations, consumer boycotts prompted by
NGOs can lead to substantial losses in revenue or costs of
litigation (Zadek, 2004).
Social issues can impose significant operational risks on the
supply chain. Problems related to product safety have received
much attention, with research spanning at least several decades
(Marcus and Goodman, 1991; Maloni and Brown, 2006). Recent
research has explored dangerous children’s toys, faulty automo-
bile design, and food contamination, each of which involves
complex supply chains (Roth et al., 2008). Invariably, firms caught
up in such scandals face consumer backlash, loss of market share
and costs associated with recalls and/or fines. In fact, Fombrun
et al. (2000) argue that reputation capital (or its counterpoint,
reputation risk) is the primary reason for investing in CSR.
However, the negative outcomes are not limited to only the firm
directly linked with the problem, i.e., spill-over effect, as con-
sumers tend to avoid similar food products offered by competi-
tors (e.g., the entire market for lettuce contracts after e-coli
contamination is detected). Thus, it might be possible to identify
an optimal level of CSR (Cruz and Wakolbinger, 2008).
105
In addition, labor practices in developing countries by global
firms (or their suppliers) have received much attention from
NGOs, the media and ultimately, customers. Key points of con-
troversy include worker safety, working conditions, workers’ right
to organize, and child labor, to name several. For example,
controversy over working conditions and suicides at an Apple
supplier in China (Wong et al., 2010) and Nike’s treatment of
workers in its own facilities or those of subcontractors (Rafter,
2005) have forced both firms to respond with supplier audits and
changes to counteract public and customer concerns. Such risks
translate into higher costs or reduced revenues when problems are
detected and publicized (Fombrun et al., 2000). To codify con-
sumer expectations, a variety of stakeholders have developed
certification standards that allow for independent third-party
verification, such as SA8000 for workforce practices (Leipziger,
2009).
2.3. Social management capabilities
Like capabilities in environmental management, which yield
strategic resources (Hart, 1995), social management capabilities
may also offer competitive advantages, i.e., resource-based view
of the firm. Thus, drawing parallels with environmental manage-
ment, two broad sets of capabilities can be developed to manage
social issues: monitoring and collaboration (Klassen and Vachon,
2003). In addition, a third capability, innovation, was identified
for social issues during the course of our fieldwork and case
analysis (detailed in later sections).
Monitoring practices focus on assessing actual performance,
both inside the firm and between supply chain members. For
suppliers, monitoring is generally concerned with assessing pro-
cesses against specific characteristics or measuring outputs against
particular performance criteria. A supplier might be required to
report the safety of all chemicals present in a component, or
provide assurances that labor practices used in its operations meet
SA8000. For customers, a firm might assess product misuse (with
potential health hazards) or fire hazards by either encouraging self-
reporting or conducting on-site inspections. Thus, monitoring
includes gathering and processing of supplier and customer infor-
mation, setting of assessment criteria, and the evaluation of factors
related to social issues for purchased goods.
In contrast, collaborative practices involve better coordination
of the firm with its suppliers, customers, or other stakeholders to
jointly improve social outcomes (de Bakker and Nijhof, 2002).
Different levels of collaboration in customer–supplier relationships
have been identified, ranging from operational, geared towards
improving transaction efficiency and information exchange, to
structural, relying on standardized systems geared toward process
integration, to strategic, involving shared objectives (Vereecke and
Muylle, 2006). Over time, supply chain relationships may expand
to involve integration, partnership, and joint problem-solving
beyond only market-based contracting (Lamming and Hampson,
1996). Collaboration also emphasizes the value of building suppli-
ers’ or customers’ own capabilities rather than a specific short-
term outcome (Vachon and Klassen, 2006). Given the need for
deeper relationships, collaborative initiatives might require a much
longer time horizon to develop, implement and yield performance
benefits than monitoring capabilities.
In summary, these literature streams related to social issues in
the supply chain provide an important foundation, effectively
covering aspects of risk, two capabilities (monitoring and colla-
boration), and social outcomes. The case research, described next,
used this synthesis to explore additional factors that focus
attention on social issues in the supply chain, to assess how
management practices and supply chain processes reduce risks
106 R.D. Klassen, A. Vereecke / Int. J. Production Economics 140 (2012) 103–115

or capitalize on opportunities, and develop a set of propositions to
guide future theory development.
3. Methodology
Case studies have been used widely in developing new insight
and understanding in complex areas of management practice
(Yin, 1984). Interviews with managers at a small number of sites
and firms frequently are instrumental in developing a deep
understanding of the dynamics and relationships between differ-
ent constructs (e.g., Tate et al., 2009). A multi-case approach
improves the potential generalizability of any findings
(Eisenhardt, 1989); to that end, five general methodological
phases were employed, as is typical in operations management
research (Stuart et al., 2002; for a summary, see also Seuring,
2009). First, research questions are identified (discussed below);
then, a basic instrument is developed; third, field and archival
data are gathered; fourth, interviews are transcribed and analysis
performed using a coding scheme and comparing data between
cases; and finally, findings are disseminated after ensuring
validity. Preliminary conceptualizations also are tested, elabo-
rated and refined as the sequence of case studies proceeds.
Determining the ideal number of firms to target for case study
research is not an exact science. Ideally, information gathering
continues until the incremental gains become small, given the
initial research objectives and availability of resources (Miles and
Huberman, 1994). In many studies, depending on the research
objectives, four to six firms are reasonable (e.g., Vries, 2009), and
five firms were targeted here. To identify individual firms, four
criteria were applied to encompass a rich set of factors. First, the
focus was on international supply chains that extend into develop-
ing countries, which in turn present evolving and challenging
supplier-, customer-, and community-related social issues. Second,
a range of firms serving consumer and business markets was
targeted to ensure capturing a broad range of stakeholder pressures.
Third, the length of the supply chain from upstream materials to
downstream markets was viewed as important, as this factor might
amplify or attenuate the development of management practices
related to social issues. Finally, a diverse set of industries (with no
direct competitors) was sought to allow the assessment of nuanced
linkages between capabilities, risk, and outcomes.
Overall, the most critical questions being addressed are ‘‘how’’
and ‘‘what’’, as well as the process by which factors influence
specific management approaches toward social issues in the
supply chain. A critical source of firm-specific data was interviews
with managers to take in multiple perspectives; the interviews
were structured to gather information about firms’ experiences in
several critical areas:
 What external or internal factors have created the need to
focus attention on particular social issues in the supply chain?
[responsibility].
 How have management practices and supply chain processes
been used to reduce risks or to capitalize on new opportunities
presented by social issues? [capabilities].
 What new approaches are starting to emerge, which might
prompt or guide future theory development?
Depending on the availability of managers and the complexity of
the issues being addressed, the professional title and number of
managers interviewed varied somewhat from firm to firm. Interviews
targeted senior managers in supply chain management, operations/
manufacturing, marketing, product development, and environment,
health and safety (EH&S).
3.1. Sample selection
To facilitate access to firms and to later bring together a focus
group of managers, contact was made with multiple firms
through a leading European management school, as well as a
not-for-profit, public sector organization. In total, eight firms with
a strong operational presence in Europe were contacted over a
period of eight months (2008–09). Three declined to participate
because of economic pressures, strategic changes, and the new-
ness of key managers in their positions. For the remaining five
multinational firms, a total of 19 interviews were conducted in
Europe in 2008–09. From a half-day to two days were spent on-
site at each firm, and from two to six managers were interviewed
at each. Of particular note, the firms have their corporate head-
quarters in Europe, Asia, and North America, which helps to bring
a range of cultural perspectives to this study. Descriptive infor-
mation is summarized in Table 1; each firm is identified by a
letter to maintain confidentiality.

Table 1
Characteristics of case study firms.

Characteristic Firm A Firm B Firm C Firm D Firm E

Global revenue 45.000 410.000 4 1.000 4500 41.000

(h millions)
Industry Machinery Food and beverage Food and beverage Electronic equipment Specialty chemicals
Corporate office Japan Belgium U.S. Belgium U.S.
Type of customers Consumer and business Consumer Consumer Public sector and Business
business
Geographic focus of Developed economies Developed and Developed economies Developed economies Developed economies
customers emerging economies
Basis of competition Quality and flexibility. Market segmentation: Premium, fresh Innovation and Service and quality
Focus on mid- to high- good value to high products advanced products
end markets quality
Innovation focus Unique components New product Greater convenience, Leading-edge products Cost reduction, new
drive in-house process formulations and high nutrition products for very demanding product formulations
technology packaging applications
Length of supply Long Short Short Long Medium
chain
Type of Mid- to high-volume High volume batch Labor intensive, Mixed, small volume Automated, capital
manufacturing assembly process; process; automation agricultural production batch processes with intensive, continuous
moderately automated ranges from modest little or no automation, production lines
assembly lines (developing countries) to automated cell-based
to high in developed production
countries
 R.D. Klassen, A. Vereecke / Int. J. Production Economics 140 (2012) 103–115
It must be stressed that these five case studies do not
represent a random sample, and thus are not meant to capture
the entire domain of social practices, to characterize all linkages
between capabilities and risk, or to represent typical performance
outcomes. Instead, these firms provide a rigorous examination
of potential capabilities, and linkages between responsibility,
capabilities, risk, and performance outcomes. In doing so, this
study establishes the conceptual groundwork for larger-scale
empirical research, such as a survey, that can examine the
prevalence and strength of the identified linkages between the
key constructs.
Validation was carried out in a manner similar to that reported
by others (e.g., Tate et al., 2009). The use of multiple sources of
evidence, including interviews, websites, and published reports
provided different perspectives. With a few exceptions, all inter-
views were recorded and transcribed for later analysis. Generally,
there was good agreement and consistency between managers
within each firm about how their specific firm was addressing
social issues. However, each manager added insights specific to
their area, e.g., operations might focus on health and safety in
their plant or joint venture partners, whereas supply chain
managers tended to look outside the firm at supplier performance
or product traceability. In retrospect, as the case research pro-
gressed, it became clear that interviewing three to four managers
yielded a good level of saturation. For example, at two firms,
where five and six managers were interviewed, very little new
information emerged from the final few interviews.
Data was coded using a theoretic frame (i.e., risks related
to social issues, product- and process-based social issue practices,
type of capabilities, and stakeholders involved), and later,
cross-case comparison was undertaken to explore the linkages
between constructs. Finally, key informants reviewed a detailed
report and were invited to a de-briefing presentation and
discussion to elicit feedback. Managers from four of the firms
attended.
4.3
Social
responsibility exposure
link
audit
4.4
link
audit
4.4
4.1
Monitoring
practices
mitigation
4.1
Collaborative
practices
4.2
Social
innovation
Social management
capabilities
Fig. 1. Integrative framework for social issues management in the supply chain. Note: Dotted lines specifically denote relationships that were explored and detailed during
fieldwork. Numbered constructs and relationships correspond to subsections in text. Solid lines refer to relationships that, while supported by prior research, were not
specifically studied.
107
4. Results: moving toward an integrative framework
Drawing from related literatures in operational risk, corporate
social responsibility and supply chain management, the basic
constructs defined earlier were used to underpin and guide our
case research. This section summarizing the results is divided into
six parts. The initial two subsections report the case findings for the
multi-dimensional set of social management capabilities, including
the two described previously (Section 4.1), and a new capability
that emerged during the case research, namely innovation (Section
4.2). Together, these three form the central construct of social
management capabilities. Then, based on case data, field observa-
tion and managerial quotes, the following four subsections
(Sections 4.3–4.6) identify and detail the relationships between
the constructs. To summarize, managerial decisions in such areas as
sourcing arrangements create social responsibilities, which in turn,
expose the supply chain to operational risk. Capabilities enable the
firm to audit performance against expectations, to mitigate potential
risks, and finally, to develop new opportunities.
Overall, the case data enabled us to build an integrative
conceptual framework that links supply chain responsibility, social
management capabilities, risk and performance (Fig. 1). The dotted
lines specifically denote relationships that were explored and
detailed during our fieldwork, where findings fueled the develop-
ment of research propositions (Section 5). Each numbered con-
struct or pathway corresponds to a subsection that follows. In
contrast, the solid lines refer to relationships that, while supported
by prior research, were not specifically studied here.
4.1. Basic social management capabilities: monitoring and
collaboration
As expected, managers confirmed during interviews the
importance of both monitoring and collaboration capabilities.
Operational
(social) risk
uncertain
negative
outcomes
link Market expansion,
Performance market preservation,
and supply chain costs.
4.5
link uncertain
positive
outcomes
4.6
development
link
(opportunities)
108 R.D. Klassen, A. Vereecke / Int. J. Production Economics 140 (2012) 103–115
The relative importance of monitoring varied by the structure of
the firm’s supply chain, with critical factors being supplier
location, size and ownership. For example, if local regulatory
agencies in developing countries actively enforced standards for
labor conditions (Firm C), or the supplier was owned by a
reputable third-party (Firm A), senior management’s monitoring
of suppliers could be reduced or even eliminated. In contrast,
managers were forced to undertake more monitoring where
limited enforcement existed or local managers exhibited little
concern. As a result, Firm C now required SA8000 for all suppliers
in developing countries with long-term contracts, and favoured
particular suppliers based on their ownership. Firm D also
reported that having a global customer base encouraged stricter
design and product safety specifications to flow through to
suppliers in developing countries.
Firm A, with its corporate parent in Japan, went so far as to
explicitly separate national and organizational culture. In regions
of Asia where concerns with suppliers had occurred in the past,
management now looked for suppliers with Japanese corporate
ownership, based on the belief that these suppliers would have a
similar organizational culture. Having the same organization
culture was viewed as requiring less monitoring (and more
accurate reporting), which implicitly reduces transaction costs
associated with monitoring. To date, management reported posi-
tive results.
Collaboration with suppliers was fostered when the larger
buying firm could offer its own operations as a role model. For
example, senior managers at both Firms A and C encouraged
suppliers to visit their facilities to promote emulation and reduce
resistance to change, i.e., we can do it and show that it is not cost
prohibitive, so you (suppliers) can do it too. Concurrently, training
and development of suppliers upgraded their processes and
performance. Given limited resources in many smaller suppliers,
Firm C also found that providing a modest, but meaningful
financial incentive to suppliers signaled strong buyer commit-
ment to seeing standards in place, encouraged speedier improve-
ment by suppliers, and offset some of the supplier’s hesitation to
obtain third-party certification.
4.2. Social management capabilities: supply chain innovation
Quite unexpectedly, as the field interviews and analysis
progressed, a third capability emerged in at least three of the
five cases: innovation was important to better manage social
aspects of the supply chain. While innovation has long been
regarded as critical for other operational performance dimen-
sions, such as cost and quality, we can hypothesize (based on our
case data) that innovation also might become a valuable cap-
ability for social issues in operations. Of course, the economic
value of social innovation is only apparent when translated into
market gains and costs savings over the longer term. Moreover, it
is important to stress a key distinction between collaboration and
innovation for social issues in the supply chain. The former
focuses on coordinating and executing previously established
products, systems and performance standards; whereas, the latter
is more akin to the architectural and radical innovation charac-
terized by Henderson and Clark (1990) with significantly new
markets, management systems, and performance outcomes.
For example, over the last five years, Firm C had developed
deep relationships with two retail chains and a European govern-
ment agency (for some funding) to jointly develop several
projects in Latin America focused on social development, local
education and rainforest protection. For each project, the partner-
ships in the developing countries extended to local communities
and landowners neighboring the targeted rainforest areas. As a
result, specific corridors of rainforest were set aside to conserve
biodiversity, new work skills were developed in Latin American
communities, new housing was created to enable workers to
become home-owners, and retail partners in Europe were able to
generate positive co-branding. In doing so, Firm C expanded its
value proposition for all stakeholders. To facilitate these innova-
tive partnerships, Firm C had to establish clear roles, timing and
measurable deliverables between the firm, local and funding
governmental agencies, and retail partners. But none of this
happened quickly; the groundwork was established over the
preceding ten years as monitoring and collaborative capabilities
were put in place.
In Firm A, new product-service offerings were developed to
mitigate potential operational risks, while generating revenue and
encouraging customer loyalty. The firm established a new service
for its customers who were replacing old equipment (either its
own or competitors’) to enable them to comply with new
regulations. Firm A arranged for a ‘‘one-stop solution’’ that
encompassed the safe transport, decommissioning, recycling
and scrapping of end-of-life equipment for a modest fee.
Firm D developed several initiatives aimed at improving
women’s healthcare, including research funding and education.
Yet, this firm did not sell directly to consumers, and did not have a
widely recognized brand name. So, at first glance, one might
question why a firm was performing education or services that
arguably should be done by public or governmental organiza-
tions. Managers reported that such close involvement with
women’s healthcare research and education yielded helpful field
test information to enhance products, and seeded further market
development—even for its sophisticated technological products
sold only to businesses and hospitals.
4.3. Exposure linkage: social responsibility-operational risk
The following four subsections now shift to consider the
relationships between principal constructs. The exposure linkage,
between a firm’s supply chain-derived responsibility and social
risk, can be actively managed using multiple approaches. As noted
earlier, responsibility is inherited from having influence and
control over internal operations and supply chain partners,
among other factors (New, 2004).
The link between risk and responsibility was most apparent in
Firm C. In an effort by managers to understand responsibility for
each of its suppliers, the senior director of CSR had proposed a
basic categorization to classify suppliers using influence and risk
(Fig. 2). Influence was assessed using a three-point scale. High
influence occurred with long-term relationships (i.e., at least one
year), binding contracts with clearly specified supply conditions,
and a high proportion of supplier’s product purchased by Firm C
(more than 30%). In contrast, low influence occurred with spot
purchases, indirect purchases through an intermediary, or
Fig. 2. Categorizing influence and risk for the supply chain.
Source: Firm C internal documents. Descriptive terms in each cell were provided
by the firm.
 R.D. Klassen, A. Vereecke / Int. J. Production Economics 140 (2012) 103–115
relatively small volume purchases. Risk also was to be assessed
using a three-point scale. Indicators of low risk were a combina-
tion of geographical location (i.e., developed countries with
effective law enforcement, presence of effective local industry
standards), being certified for standards that employ third-party
auditors, and having strong evidence of their own management
systems to reduce risk. Conversely, as each factor decreased,
supplier risk increased.
4.3.1. Centralized control
To reduce risk derived from responsibility, several of the case
companies were pushing toward greater centralization, and thus,
enforcing greater direct accountability of suppliers. Greater con-
trol was achieved through vertical integration, supplier contracts
that required third-party audits, and greater transparency of
information. For example, increased vertical integration was
being implemented with Firm A’s distributors in Europe. Over
the last decade, 90% of its independent distributors had been
purchased to better align business objectives and performance.
This change also allowed for more direct control over safety in
warehouses, auditing, and support during installation, which in
turn, had implications for product safety.
Firm D had recently restructured operations and R&D into a
single division. Historically, having different plants report to four
separate divisions (aligned to markets) had resulted in jumble of
policies, supply chain practices, reporting and follow up on social
issues. The new centralized organizational structure was helping
to foster improved cooperation on safety and environmental
practices across three plants scattered in Belgium and India.
Standardization across all manufacturing facilities was expected
to take two to three years. Moreover, the newly appointed
Corporate Environment, Health and Safety and Facilities Manager
reported jointly to senior managers in human resources and
supply chain management.
However, responsibility for worker safety increased further as
firms designed their own proprietary process equipment. Firm D
pushed for a risk assessment of any new equipment and new
chemicals used in their processes, although that proved more difficult
to enforce in R&D facilities than manufacturing plants. Firm A
stressed ergonomics in all aspects of equipment design, despite
having a young manufacturing workforce (average age was 32). Firm
D also was moving in this direction, as limited historical attention to
ergonomics and lifting had resulted in lost time accidents.
While greater vertical integration, centralization, and control
in these firms were driven by a variety of competitive objectives,
such as improved quality, it is important to recognize that clear
benefits also emerged for managing social issues. Increased
vertical integration tends to run counter to conventional thinking
that decentralized operations and outsourcing provide critical
operational flexibility and lower costs. However, the high costs of
monitoring and managing both operational and social outcomes,
along with the increased risk, have been greatly underestimated
as stakeholder and regulatory demands have increased dramati-
cally during the last decade. Thus, it is quite possible that these
more centralized organizations also offer lower total cost, when
monitoring and risks related to social issues are fully captured.
4.3.2. Aligning culture around social practices
Firm culture, defined as shared values and beliefs, greatly
affected responsibility and the perception of risk, even in such
basic areas as worker safety. For example, Firm B had grown by
acquisition over a number of years. Risk audits included onsite
inspections, and corporate auditors were surprised to see workers
in an acquired plant not wearing safety harnesses, even when
working at heights of 10 meters or more. When asked why
109
corporate safe-work practices were not enforced, local managers
and employees at the acquired plant generally dismissed the
auditors’ concerns because they perceived risk quite differently
and they were working based on local habits. Firm D reported
similar observations; as noted by this manager, ‘‘yaccidents
really happen because people are not aware of the risk, and they
are used to working in a particular way.’’ Thus, managers
discovered that it was critical to define exactly what was meant
by ‘‘risk’’, and present photos to ensure full understanding. Local
behaviors had to be shaped and influenced through targeted
education.
Firm A had adopted another approach to reduce cultural
differences between itself and its suppliers in social issues. Where
possible, parts and components were sourced from suppliers with
a similar corporate culture. The key indicator for Firm A was
having the corporate offices of suppliers located in the same home
country, even if the supplier plant was located elsewhere in Asia.
The result was much less complexity for managing social issues,
and management time needed for monitoring social outcomes
was reduced accordingly.
The EH&S manager at Firm D also viewed the adoption of firm-
wide standardized safety policies as instrumental for shaping and
influencing responsibility and culture around social issues. While
this approach worked well for high volume products and produc-
tion lines, standardizing policies for plant employees and field
installation crews proved difficult to implement if volumes were
very low. Low volume yielded limited experience, which in turn
fostered more variation in work practice throughout its supply
chain, and hampered the identification of risky behaviors. How-
ever, as volumes grew, problems were clearly identified, and both
products and processes were redesigned to be safer, more
modular and more ergonomic.
Finally, one might reasonably ask if a firm should be bothered
to actively manage areas of the supply chain over which it is has
strong influence, but customers appear not to be particularly
concerned. One rationale was offered by the supply chain man-
ager at Firm C, ‘‘Weak governments are not an excuse. Most of the
governments in the developing world want and need foreign
investment, and are willing to turn a blind eye to sweatshop
conditions, official corruption or environmental exploitation.’’
Thus, if a firm chooses to ignore areas of responsibility because
they are not yet salient to customers (de Bakker and Nijhof, 2002),
managers effectively create latent liabilities and operational risks.
Moreover, societal expectations for social performance tend to
ratchet upwards over time (Martin, 2002).
4.4. Audit linkages: responsibility and social performance-
monitoring capability
Auditing encompasses both a task of examination, and an
appraisal of performance against some standard. Thus, the audit
linkages considered both how and where monitoring should
occur within the supply chain, as well as for what purpose.
4.4.1. Drivers of auditing
The managers in the case studies reported being pushed to
expand monitoring practices in response to three forces: new
regulation, new customer demands, and new NGO/community
interest. In many respects, more detailed auditing was prompted
by increased accountability to stakeholders, and compared actual
social performance with regulatory, customer, and community
expectations.
Managers frequently reported new regulation as a key driver.
Regulation defined increased responsibility, whether for worker
safety or for human exposure to chemicals along the supply chain.
110 R.D. Klassen, A. Vereecke / Int. J. Production Economics 140 (2012) 103–115
Not surprisingly, monitoring was most highly developed for
worker safety within their own operations for all five case
companies. More recently, the European Union’s REACH regula-
tion has brought together human health and environmental
issues under a new reporting regime. Firms A and D described
compliance as a huge undertaking, requiring 1.5 to two years in
start-up time. Yet, even a month before reporting requirements
legally took effect, significant ambiguity remained. By one man-
ager’s estimate, only about 90% of the chemicals subject to
mandatory reporting were clearly identified, which forced firms
to develop complex contingency plans. In the future, as pressures
increase for politicians to introduce new social and environmental
regulations more quickly, contingency planning with suppliers is
expected to become even more critical. Here, specialized depart-
ments that assess environmental and social issues (e.g., Firm A)
offered advantages to both influence rapidly evolving legislation,
as well as support planning across the firm’s widespread opera-
tions and global supply chain.
With recent regulatory changes driving costs higher for
reporting and transportation, concerns were growing that not
all competitors within the EU were complying, resulting in a cost
disadvantage. For example, Firm A reported that it was difficult to
confirm that competitors adhered to new rules for shipping
dangerous goods designed to protect communities. But complain-
ing to regulators was not viewed as a viable approach, as it might
focus more enforcement attention on the complainant in the
future, if perchance some other regulation had inadvertently been
overlooked or misinterpreted. Thus, publicly reported auditing
might provide a means of ensuring a level playing field.
Customers provide a second driver for auditing, as they
demanded that social performance be improved. Some customers
requested a third-party standard, such as SA8000, where regula-
tions do not exist. In the food industry, Firm C reported that major
retailers also were starting to require standards such as Global
Good Agriculture Practices (Global GAP), EurepGAP, Business
Social Compliance Initiative (BSCI), or Global Social Compliance
Program (GSCP). Firm D reported customer requirements for ISO
14385, which requires product traceability as part of the quality
systems to improve customer safety, and for ISO 14001 were
increasingly commonplace. But with many similar, but not
identical standards, overhead costs increase, and flexibility to
shift between suppliers decreases. To lower costs somewhat, Firm
C favoured using local auditors in developing countries, which
allowed adaptation to country-specific language and culture.
Lastly, increasing salience of community groups and NGOs
signaled particular social issues that were beginning to emerge,
and thus, areas where management should increase its monitor-
ing. Firm C offered this example that began 15 years earlier. When
initially approached by a major NGO about its workforce, agri-
cultural, and environmental practices in developing countries,
management was very uncertain about how to respond, and
competitors simply ignored the request. Customers – at the time
– simply were not pushing for major changes. Despite this lack of
customer interest, Firm C chose to explore the implications of
first, third-party auditing, and second, certification, through a
two-year pilot test that allowed it to understand what was
involved, likely costs, and potential competitive outcomes. Sub-
sequently, over the next six-year period, all its corporately owned
operations in developing countries were audited, and then certi-
fied by the NGO. As time progressed and customer sensitivity
increased, this certification program was expanded to its suppli-
ers, and provided a major point of supply chain differentiation in
the marketplace. As summarized by a senior manager (Firm C),
‘‘[Such practices are] a long-term concept, which [includes]
industry leadership, seeking the high ground, and anticipating
what consumers and customers will need in the future.’’
4.4.2. Implementation
Several firms, but not all, audited supply chain members. And
auditing was not limited to suppliers, but increasingly extended
downstream to distributors and customers. For example, Firm A
conducted its own audits of core suppliers using regular onsite
inspections for quality and legal compliance. This firm also
conducted audits of distributors, including warehouses, and
logistics providers, with attention to fire and electrical safety,
and waste handling.
To reduce the requirement for direct auditing of all suppliers,
some firms also required suppliers to obtain globally recognized
certifications, such as ISO 14001 (Firm A) or one provided by an
NGO (Firm C). Managers at Firm C strongly argued that any
certification should follow an externally validated audit protocol,
and employ credible third-party auditors who are based in the
same region as the audited supplier. Moreover, local auditors,
who have a stake in maintaining their own reputations, can
reduce any potential criticism from consumers or NGOs. Ideally,
the need for supplier certification should be codified into con-
tracts, permitting quick corrective action if audits point to
deficiencies.
All suppliers need not be treated identically. Firm A focused on
core suppliers. It also extended accountability upstream through
the supply chain, requiring its suppliers to ensure that second-tier
suppliers were complying with regulations. However, the firm did
not report actually auditing second-tier suppliers. As summarized
in Fig. 3, Firm C was implementing a system that varied the form
of auditing, follow up and skill development as the risk-influence
categorization of the supplier changed (see Fig. 2), thereby
allowing management to target resources where they were most
likely to yield benefits.
Not surprisingly, several firms had very limited auditing in
place, and generally accepted the word of their suppliers at face
value. Somewhere between the extremes of complete auditing
versus no-audit, Firm D reported benefits from a less formal
monitoring process. Historically, a general risk assessment for its
suppliers had been based on a ‘‘hurdle score’’ derived from factors
such as geographic location, availability of multiple sources,
patterns of field returns, and supplier lead times. In one situation,
a first-tier component supplier with quality problems exceeded
the hurdle score, prompting an audit. This audit then expanded to
the second-tier that was producing a critical subcomponent. Here,
a poorly designed and unsafe process was found, which explained
much of the quality problem experienced by Firm D. So safety,
even at the second-tier level, became a key indirect indicator of
the overall level of quality systems in place.
Looking forward, in light of more product-based regulations
such as REACH, managers at Firm D were proposing the develop-
ment of a ‘‘product passport’’ for all of its products (likely
integrated into an ERP system). Such a passport would include
information on all component materials, as well as both supplier
and internal manufacturing processes. As products evolved, so too
would information in the database, although a critical challenge –
and unresolved issue – would be obtaining timely and accurate
information from multiple tiers of suppliers. Such a passport
would simplify auditing, reporting and tracking.
4.5. Mitigation linkage: social management capabilities-
operational risks
Third, the mitigation linkage captured how two capabilities,
namely monitoring and collaboration, can respond to perceived or
real deficiencies in social performance along the supply chain. As
noted in Fig. 1, the critical challenges are to reduce uncertainty,
improve responsiveness in the event of problems, and reduce the
magnitude of any negative consequences. At this time, most
 R.D. Klassen, A. Vereecke / Int. J. Production Economics 140 (2012) 103–115
Monitoring tools
a. New supplier selection
self-assessment
pre-agreement audit
b. Current suppliers
certification as requirement for supply contract
annual reminder / notification of obligations
monitoring
training / capacity building
rewards and penalties
database of supplier history, including
certifications, training, compliance, etc.
Fig. 3. Linking auditing to supplier risk and influence.
Source: Firm C internal documents.
efforts were focused on monitoring; two firms reported colla-
borative initiatives.
4.5.1. Monitoring-based risk mitigation
Several firms reported efforts to build management systems to
gather and analyze trends in public opinion, regulatory develop-
ments, investor sentiments, and customer preferences. Firms with
more advanced systems could reach upstream into their supply
base to reshape their suppliers’ social capabilities too.
Assessing product safety extended in both directions along the
supply chain for all firms, from product traceability (following
defective products backward upstream to production and suppli-
ers) to component tracking (following components downstream).
While traceability tracking are reasonably developed in food
supply chains (Roth et al., 2008), these practices tend to be less
thorough in other industries. Timeliness was a major concern,
with Firm B working toward a four-hour deadline for product
tracing, should the need arise. New investment in IT was required,
and further complicated by distributors and retailers in develop-
ing countries without immediate access to the Internet, which in
turn hampered the maintenance of real-time data. An example of
the benefits for manufactured goods was offered by a plant
manager at Firm A, ‘‘We had one product in our electric circuit
board that showed some use of chrome [which was not
approved]. We could [track] it through the whole supply chain,
and we asked [customers] to send back all these units.’’
At a basic level, Firm D’s customer tracking system offered
clues to improve customer safety when significant numbers of
problems were reported. Firm A had further developed its system
to enable its staff to investigate and act very quickly. After
consumers reported three or four product-related fires, an inter-
nal investigation revealed that incorrect wiring by field installers
was the primary cause. A component was modified to ensure that
product installation was correct, i.e., poka-yoke, the Japanese term
for ‘mistake-proofing’. All similar products in the field could be
traced and checked, and where necessary corrected. As recounted
by the plant manager, ‘‘We respond very quickly, some people go
111
(high influence, high risk)
(high influence, low risk)
(low influence, high risk)
(low influence, low risk)
C. Avoid if possible
D. Handle with care
B. 2nd best
A. Optimal
and visit the site, the product is investigated [and]ywe can trace
through the whole cycle.’’ Thus, timely identification of problems
in the supply chain helped managers to intervene, thereby
mitigating any negative impact of the problem on performance
(Parmigiani et al., 2011).
Lastly in an interesting initiative aimed at surfacing problems
early, Firm A introduced Japanese summer festivals (to reflect its
corporate parent) that allowed an annual meeting with residen-
tial neighborhoods located near its plants. This initiative allowed
operational concerns of neighbors to be caught early, and fostered
an on-going open dialog, thereby reducing resistance by neigh-
bors to operational changes (and associated costs).
4.5.2. Collaborative-based risk mitigation
In addition to monitoring, a few firms were starting to develop
collaborative approaches to mitigate risks. At Firm A, core
suppliers were required to attend a semi-annual conference at
which managers provided regulatory and policy updates, among
other competitive matters. These conferences fostered active
discussion of emerging trends and saved suppliers the cost of
individually investigating new regulatory requirements in the EU,
which was particularly important to smaller suppliers and those
located in Asia. Also of critical importance to Firm A, regulatory
conformance by suppliers was assured because each was required
to submit an action plan to meet new regulations. Moreover,
suppliers were obliged to pass along information about new
requirements to second-tier suppliers. Firm D also reported that
having a global customer base fostered the flow of strict design
and production specifications for product safety throughout the
firm’s widespread operations, including suppliers in developing
countries.
For Firm C, collaboration took the tangible form of a multi-step
process, effectively with both ‘‘a stick’’ (e.g., contract specifica-
tions) and ‘‘a carrot’’ (e.g., training and financial incentives).
Suppliers were encouraged to visit its facilities and emulate what
they saw, and training of suppliers was provided to upgrade their
management capabilities. Given the limited resources in many
112 R.D. Klassen, A. Vereecke / Int. J. Production Economics 140 (2012) 103–115
smaller suppliers, Firm C’s offer of a modest, but meaningful
financial contribution also offset some of their hesitation to
obtain third-party certification, as noted earlier. For certification
specifically, one manager observed
The reasons why our [suppliers] have reacted very positively
to [certification] is, one, it’s in the contract – if they want to
work with [us], they need to. It’s clearly an obligation. Second
is the contribution that we provide. Third, we have already
done it, so we can provide technical assistance. They just need
to visit our [operations] and speak to our experts and so, we
level the road for them considerably. And after all, at that
point, we have already [certified], so it was clear that it was
good. And increasingly, it’s also become evident that this is
important to customers.
Thus, by collaborating and working jointly with suppliers,
either to enable them to achieve certification or by supporting
them to meet evolving social and environmental requirements,
buying firms can mitigate operational risks that might disrupt
supply lines, increase costs or depress revenues.
4.6. Development linkage: innovation capability-social
performance
Finally, the development link focused on improving social and
economic performance. New economic value is created by captur-
ing new revenues, protecting existing markets, and reducing
costs. Moreover, rather than working with existing stakeholders
in mitigation, including suppliers and customers, the capability
for innovation, leading to development, is often based on working
with new stakeholders or existing stakeholders in creatively
different ways.
Several firms were actively building stronger capabilities as
they developed new product service systems to ensure safe
management of used products (Firm A), developed new retail
partnerships that included NGOs (Firm C), and delivered more
compelling customer education related to health issues (Firm D).
These examples were described in detail in the earlier section on
social innovation capabilities (Section 4.2). Overall, three case
companies reported that designing safer products and increasing
customer education were perceived to offer large returns,
although the positive benefits of the development linkage were
difficult to quantify. These initiatives had relatively little incre-
mental cost, yet significantly increased customer value and
reduced firm risk.
Firm A offered an interesting example of social innovation that
bridged its operations with those of a nearby firm that had
relatively little similarity. Firm A’s business at one plant was
seasonal, experiencing significant peaks and valleys in demand.
Rather than simply reducing headcount as needed, an arrange-
ment was negotiated with another local firm that experienced
counter-cyclical demand. About 120 employees moved back and
forth between the two employers seasonally. Social outcomes
were enhanced by offering employees greater stability and
certainty, thereby fostering employee loyalty. And just as impor-
tant, costs were reduced through lower turnover, less training,
and greater efficiencies during seasonal ramp-up.
5. Developing an agenda for research and practice
In summary, prior research literature identified the basic
constructs related to social issues in the supply chain, including
responsibility, capabilities, and risk. Then, the case studies pro-
vided an empirical basis for detailing each construct within the
context of supply chains, and helped to identify the emerging
capability of social innovation. Finally, and most importantly, the
case studies are instrumental in identifying and elaborating the
four critical linkages that form an integrative framework (Fig. 1).
Carried one step further, four corresponding avenues of research
and theoretical development can be proposed derived from the
preceding Sections 4.3–4.6.
5.1. Exposure and auditing
First, it is important to reiterate that responsibility for social
issues focuses on aspects over which a firm effectively has (or is
perceived to have) control, influence, and accountability (New,
2004; Parmigiani et al., 2011). As such, responsibility is partly an
exogenous construct, driven by industry factors (e.g., labor-
versus capital-intensive industry), available sourcing options
(e.g., all legitimate suppliers have relocated to Asia), and firm
history (e.g., corporate acquisitions), among other factors
(McWilliams and Siegel, 2001). However, responsibility is also
partly an endogenous construct, driven by management policies
related to supplier selection (e.g., large sophisticated versus small
transient suppliers) and product design (e.g., an industry standard
design vs. proprietary design). Moreover, the endogenous factors
increasingly appear to be critical to decision-making at the firm
level. Thus, based on changes reported by managers at our case
study firms, two related propositions are offered.
P1a: As a firm’s responsibility for social issues in the supply
chain increases, managerial efforts to centralize decision-
making related to its supply chain increases.
P1b: As a firm’s responsibility for social issues in the supply
chain increases, the use of supply chain partners that share a
similar culture toward social issues increases.
Auditing by its very nature involves ascertaining the degree to
which regulations, corporate policies, and customer demands are
met. Thus, auditing assesses the alignment of social outcomes
with responsibilities as defined by stakeholders. On the surface, it
appears that management’s task is to simply clarify its responsi-
bilities, and then assess performance against those. Yet, the case
study firms seemingly found this to be a daunting task. While
regulations were a starting point, often these remained ambig-
uous or ill-defined even as implementation deadlines loomed
large (e.g., REACH). As a result, managers hesitated to move too
aggressively into less defined areas of customer and community
stakeholder responsibilities, although it may be necessary from a
strategic perspective (Zadek, 2004)
P2a: Drivers of auditing include, with diminishing degree,
regulation, customer demands and community concern.
An evolving tension between a variety of approaches for
measuring social performance (Christmann and Taylor, 2006),
was evident in our cases, including at one extreme, proprietary
measures, and at the other, third-party validated standards. In
part, this tension was greatest for the firms in consumer-oriented
markets with established brand names (Firms B and C). In
contrast, firms serving business markets (Firms D and E) tended
to emphasize a small set of metrics for measurement and auditing
driven by the specific interests of a few corporate customers.
Finally, Firm A, which served both consumer and business seg-
ments, tended to be swayed by the concerns of consumers.
P2b: Fragmented, consumer-oriented markets favor the devel-
opment of broad, externally validated, audit standards for
social issues. In contrast, business-oriented markets favor the
development of narrow, trait-specific standards.
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Extended one step further, the adoption of standards can be
viewed as a means to protect a firm’s brand image (or equity)
(Fombrun et al., 2000). Appealing to external standards can
buttress their social claims or help to defend against external
criticism by customers and other external stakeholders. However,
once the adoption of a standard becomes increasingly common-
place (along with some reduction in risk), the newly levelled
playing field offers little competitive advantage to either the
supply chain or brand image. Alternatively, as reported by Firm
C, a proliferation of similar standards develops (i.e., competition),
which in turn, increases the costs of serving customers as the firm
must comply with different specifications or documentation for
different customers
P2c: Adopting a social issue standards initially can legitimize
claims of performance, thereby providing differentiation and
reducing risk to brand image. However, any competitive
advantage is only short-term.
Finally, because social issues are so intimately tied to societal
expectations, national culture also matters when developing
managerial practices around social issues. Practices of all firms
were driven to a significant degree by the expectations of both
employees and customers for social performance. For example,
differences were clearly evident between Firm B and the other
four around CSR reporting. Firm B had large customer segments in
both developing and developed economies (along with manufac-
turing operations), and so was working to tailor CSR reporting for
region-specific documents. Management’s rationale was that
different groups of key stakeholders wanted be informed about
issues salient to them; conversely, they ignored generic ‘‘irrele-
vant’’ (as defined by the stakeholder) CSR information.
P2d: Social management capabilities must increasingly be
localized for internal and customer stakeholders to be
effective.
5.2. Mitigating risk versus developing innovation and opportunities
Two important patterns came into view as the interviews were
synthesized. First, there are capabilities that work toward miti-
gating potential negative outcomes, which is very consistent with
earlier supply chain research on risk mitigation (Kleindorfer and
Van Wassenhove, 2004). Second, an overlapping set of capabilities
focus on developing new market opportunities related to social
performance through innovation. One critical point of differentia-
tion that surfaced in our case studies is the emphasis on existing
stakeholders in risk mitigation versus new stakeholders in
development.
For risk mitigation, much of the research literature points
toward monitoring as the principal means (Souza Monteiro, 2007;
Roth et al., 2008; Leipziger, 2009). That thinking was certainly
echoed by the managers in our case study firms, but was further
sharpened. In fact, other than worker safety within the firm’s own
operations, product safety was the dominant direction in which
firms were expanding their capabilities. Other capabilities target-
ing suppliers were only beginning to surface, and only in a few of
the case study firms.
P3a: Monitoring capabilities focus on risk mitigation with
existing stakeholders, initially emphasizing internal safety,
then shift downstream to customer-oriented issues such as
product-based safety, and finally supplier-oriented issues such
as regulatory compliance and workforce practices.
If one steps back to consider the expansion of a monitoring
capability, it becomes clear from Firm C that an explicit trade-off
(or in the case of other firms, implicit trade-off) can be made
113
between the cost of monitoring, and the likelihood of discovering
problems in social issues. Recall from Figs. 2 and 3 that the scope
of monitoring varied based on an assessment of supplier risk.
Rather simplistically, one might expect a causal pathway whereby
increased risk pushes a firm to increase monitoring (McWilliams
and Siegel, 2001) (as depicted in Fig. 3 when the degree of
influence is held constant).
In parallel, it was very interesting to observe from the manage-
ment interviews that increased influence also was related to
increased monitoring. This is consistent with prior literature on
accountability (Parmigiani et al., 2011), although the causal
pathway is subtler than that for risk. Thus, as influence increases
(e.g., enabled by such factors as geographic proximity, strength of
economic ties, or long-term supplier relationships), stakeholders
hold the firm increasingly accountable for any supplier short-
comings. In turn, greater accountability prompts increased mon-
itoring. This latter causal chain is supported by the observation of
accountability as a driver of increased auditing (Section 4.4.1). In
reality, both the risk and influence based pathways might be
important, to varying degrees in different industries.
P3b: The breadth and depth of monitoring capabilities are
based on a trade-off between operational risk, influence, and
implied accountability. As either risk or influence increases,
the scope and costs of monitoring increase.
Yet, risk mitigation also can be proactive (Smeltzer and Siferd,
1998); here that translated into collaboration with supply chain
partners. This collaboration attenuated potential social hazards
embedded in international supply chains as suppliers are assisted
with certification or gathered for supplier conferences. Like
monitoring, collaborative capabilities can focus internally on
worker safety, as evident in the sharing of best practices across
plants. But from this starting point, emphasis in collaboration
shifted upstream, again with the focus primarily on existing
stakeholders.
P4: Collaborative capabilities focus on risk mitigation with
existing stakeholders, initially emphasizing internal safety,
then shift upstream to supplier-oriented issues, and finally,
downstream to customer-oriented issues.
Finally, innovative capabilities that developed new markets
and identified novel approaches to reducing costs proved the
most elusive. While few examples were evident in our case study
firms, the ones that did emerge were intriguing both for their
originality and for their potential broader application. For exam-
ple, customer partnerships (e.g., retail customers with Firm C) are
more likely with branded products, and offer competitive advan-
tages that can endure over the longer term. Moreover, transfer-
ring employees between neighboring employers (Firm A) requires
an alignment of corporate cultures between two non-competitors,
similarity in skills and work practices, and equivalence in opera-
tional processes. Likely this is difficult to replicate without
specific planning. However, if an analogy is drawn to the benefits
and challenges of industrial symbiosis for environmental perfor-
mance (Bansal and McKnight, 2009), possibly similar network-
based actions (Paquin and Howard-Grenville, 2009) can create
inter-connected firms that collectively improve social outcomes.
P5: Social innovation capabilities focus on developing new
aspects of social and financial performance in the supply chain
by building bridges to new stakeholders, paradoxically outside
the current supply chain.
114 R.D. Klassen, A. Vereecke / Int. J. Production Economics 140 (2012) 103–115
5.3. Implications for managerial practice
This research points to at least three implications for manage-
rial practice. First, given the challenges and ambiguity of social
issues for supply chain managers, managers must be explicitly
prompted to (or rewarded for) expanding their definition of
performance beyond traditional metrics such as cost and quality.
At the simplest level, managers could undertake a review of their
supply base to assess risk versus influence because unrecognized
risks may affect future social and financial performance. Carried
one step further, specific monitoring and collaborative initiatives
can then be implemented and tailored to reduce operational risks
linked to responsibility for social issues.
Second, social issues must be integrated with other supply
chain improvement efforts, ideally under the leadership of a
senior, credible manager. A number of the initiatives reported
by managers were not originally intended to address social issues,
or were undertaken with little hope for gain, yet proved to offer
multi-faceted competitive benefits. Thus, improvement efforts
related to customer responsiveness or supplier quality improve-
ment can be leveraged opportunistically with modest changes.
However, the nature of those efforts might vary, with the initial
focus on integrating marketing, logistics and operations around
product safety. Subsequently, the experiences of our case study
firms indicate that these related efforts can focus on supplier
improvement, initially by developing monitoring capabilities, and
then collaborative capabilities. In contrast, limited consideration
of social issues only within narrowly scoped audits of legal
compliance is unlikely to yield competitive benefits.
Third, at a more general level, standards or certifications, such
as SA8000, might provide a general approach to mitigate risk, and
provide competitive benefits for early adopters. Longer term, if
the standard becomes widespread, little differentiation is possible
for either suppliers or customers. However, the organizational
learning that occurs from adopting such a standard might be
transferable to a range of social and environmental practices, and
might foster more social innovation on emerging social issues.
5.4. Limitations
This study expands prior research on sustainability in supply
chains (Seuring and Müller, 2008) by detailing a series of linkages
underlying the development and implementation of social issues
in the supply chain. However, of necessity, the range of constructs
considered in our case study firms was limited to those identified
as most important from prior literature. An important aspect left
for future research is to expand these, first by considering
additional factors, such as the alignment between stakeholder
expectations and actual performance, and second by explicitly
capturing the evolution of practices over time at the supply chain
level, rather than at the firm level (Zadek, 2004). Doing so will
allow for a richer assessment of the role of particular systems
in advancing social (and operational) performance over the
long term. Moreover, social and environmental practices in the
supply chain are likely to evolve at different, but possibly
complementary rates.
As described in Section 3, the findings and implications are
based on case research. While one of the major advantages of case
research is the depth of the information that can be collected, a
major concern is the extent to which the conclusions can be
broadly generalized. Based on our criteria for selecting case
studies, and involvement of other managers and academics in
de-briefing discussions, we believe that the results are indicative
for firms located in developed countries with supply chains
extending into developing countries.
6. Conclusions
Overall, senior managers agreed that dealing with social issues
has proven difficult. Public expectations evolve, relationships
between practices, costs and innovation are difficult to define
and disentangle, and pathways to competitive benefits remain
fuzzy. And management was able to control only a few of the
many factors that linked social management capabilities, risk and
performance. In some cases, higher costs resulted in the short
term. However, over the longer term, case data pointed to several
significant competitive advantages that were starting to emerge,
albeit in a tentative fashion.
For research and practice, five critical aspects were identified.
First, social management capabilities can be explicitly modeled
and assessed along three dimensions: monitoring; collaboration;
and innovation. Moreover, four linkages explain the relationship
between responsibility, social management capabilities, risk and
performance in the supply chain: exposure; auditing; mitigation;
and development. Managers need to improve their awareness and
execution of each, and further research is needed to identify clear
metrics and assess the strength of relationships between the
constructs. Finally, research is needed to understand whether
improvement in social and environmental performance occurred
simultaneously or alternatively, in sequential waves. Moreover,
exploring the five propositions that were derived from our case
research should provide fruitful new directions for understanding
how managers can better manage social issues in their supply
chains.
Acknowledgments
We would like to thank Flanders District for Creativity (Belgium)
and the Social Sciences and Humanities Research Council (Canada) for
funding this research project. Also, we are deeply appreciative of the
openness of and time given by managers at the five case companies
for recounting their experiences and observations.
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