PuSm - Lecture 15 - Chapter 15 - Slides - Online

Graz University of Technology
1 Institute of Business Economics and Industrial Sociology

Industrial Marketing, Purchasing and Supply Management (IMPS)
Assoc. Prof. Priv.-Doz. Dipl.-Ing. Dipl.-Ing. Dr.techn. Bernd M. Zunk
Purchasing and Supply Management

Lecture 15.
Purchasing, Corporate Social Responsibility and
Integrity
Prof. Dr. Bernd M. Zunk
Course no. 373.551, 4.5 ECTS, Lecture
Winter Semester 2020/21 (Online)
TU Graz I Institute of Business Economics and Industrial Sociology I Industrial Marketing, Purchasing and Supply Management I Prof. Dr. Bernd M. Zunk
www.bwl.tugraz.at
For use with Purchasing and Supply Chain Management 7 th Edition
373.551 Purchasing and Supply Management by Arjan J. van Weele (9781473749443) © 2018
2 Learning objectives
After this lecture you should understand the following:

• The importance of corporate social responsibility.
• Purchasing and supply’s contribution to “people, planet,
profit”.
• How corporate responsible purchasing can be embedded
in a company’s culture.
• How circular sourcing relates to sustainable purchasing.
• The importance of integrity codes within purchasing.
• How companies can act responsibly in their
relationships with their suppliers.
TU Graz I Institute of Business Economics and Industrial Sociology I Industrial Marketing, Purchasing and Supply Management I Prof. Dr. Bernd M. Zunk For use with Purchasing and Supply Chain Management 7 th Edition
3 Introduction: Case Study – Mattel’s reputation at stake through
sourcing in China
*Note:
The full text of this case study you may find in the primary literature for this
course, the textbook “Purchasing and Supply Management“ written by Arjan
van Weele (2018), 7th edition, p. 357.
4 Introduction: Case Study – Mattel’s reputation at stake through sourcing
in China (remarks)
The introductory case illustrates that …
• … due to violation of environmental and social
laws in total, 19 million toys needed to be
recalled from the market.
• … since then, Mattel like many Western manufacturers (e.g. Apple,
H&M), has become much more critical with respect to the way in
which purchases are made.
• … today, most Far Eastern suppliers (so-called contract
manufacturers) are thoroughly screened on sustainability issues and
labour conditions.
• … production orders are monitored and supervised accurately by
quality inspectors on site.
• … unethical sourcing practices can do major harm to the reputation
of companies in Western markets and may result in major financial
damage and losses.
The remarks on the introductory case study refer to: van Weele, A. (2018), Purchasing and Supply Management, 7th edition, pp. 356-358.
5 Business principles and procurement
Looking at the current situation on international markets:

• Global sourcing is broadly developed.
• Regulation regarding labor and environment often limited.
• Consumers do not accept atrocities in the production.
How can purchasers contribute to a “more sustainable business world”

and to corporate social responsibility?
– Companies draw up principles that form a context for doing
business.
– Some principles are: → Corporate social
• Respecting international law responsibility is about how to
• Fair competing contribute to a better world, a
better environment and
• Integrity
better labour conditions.
6 Business principles and procurement: Shell general business principles
Imagine: You are a project buyer employed by Shell in Brunei, and assigned
with the important task of buying the materials and equipment for one of Shell’s
exploration projects conducted in the Indonesian archipelago. Now problems
with the local port’s customs arise… “Customs are busy”… But: … things may
be speeded up if … → What would you do in such a situation?
7 Towards a sustainable environment: “People, Planet, Profit”
• Sustainability seems to be used as a general, container concept,

without highlighting the different aspects it comprises.
• Most of the time it is referred to as corporate social responsibility
(CSR), and sometimes it is referred to as sustainability.
→ However, the “CSR idea” is to develop business solutions in such
a way that requirements of the current world population are met
without doing harm to the needs of future generations.
• Focus shifts from shareholders to stakeholders:
– People: Labor circumstances → Business decisions
have to be tested
– Planet: Usage of natural resources
continuously against
– Profit: Financial development these three principles!
→ Sustainable profitability can only be achieved if a company is able

to serve the needs of “people, planet, profit”.
8 Towards a sustainable environment: The pyramid of corporate
social responsibility
Sustainable profitability can only be reached if a company is able to
balance the interests of customers, employees, society, the environment
and its shareholders; this situation is schematically represented in the
sustainability pyramid (“CSR pyramid”).
Source: Carroll (1991)

9 Towards a sustainable environment: Example of Unilever – “Driving
carbon footprint down in the value chain”
*Note:
The full text of this memo you may find in the primary literature for this course,
the textbook “Purchasing and Supply Management“ written by Arjan van Weele
(2018), 7th edition, p. 362.
10 Towards a sustainable environment: Example of Unilever – “Driving
carbon footprint down in the value chain” (results of analysis)
The “Sustainable Living Plan” was based on a thorough analysis of Unilever’s
carbon footprint across its value chain.
The results of this analysis show that…

… Unilever’s supplier network is responsible for 26 %, which represents a major challenge.
… only 3 % of Unilever’s carbon footprint is caused by its factories.
… around 2 % is caused by its distribution and transport network.
... 68 % of its carbon footprint is caused by the consumer at the point of consumption; and
1% for the disposal (after consumption).
→ This analysis explains why Unilever has put great emphasis on new product
development (e.g. new detergents, body care products) and innovation in order
to stimulate sustainable behaviour from their consumers.
11 From the resource-based view to stakeholder theory: Key aspects
• Resource-based view (…was the traditional management practice…)

– Purpose of the resource-based view was to create as much profit as possible for
owners by capitalizing on resources.
– Internally oriented: it only embeds supplier resources and capabilities when
structuring, bundling and leveraging resources in order to obtain competitiveness.
• Resource dependence theory
– Typically looks beyond the boundaries of an individual firm.
– In the resource dependence theory thinking, the firm’s dependence on other
external parties, such as suppliers, is central.
– The resource dependence theory views effective relationships with the most
qualified suppliers as a prerequisite to secure the external resources that are
required to create customer value and, hence, foster the firm’s competitiveness.
• Stakeholder theory
– Stakeholders represent different values that the focal firm should try to realize.
– Stakeholder orientation aims at satisfying a broad array of stakeholder groups
based on their specific demands.
– Stakeholder satisfaction results in greater competitiveness of firms, increases
innovation and is able to deal better with the changing environment.
12 Sustainable Purchasing: Towards sustainable supply chains – the
example of Philips
→ To achieve competitive advantage a firm and its supply chain partners

should create in parallel customer value, societal value and shareholder
value.
Suppliers form an important source of competitive ability as well as risks
considering sustainability.
Example:
Companies like Philips are busy considering these issues by…
o … developing a sustainability standard
o … performing self-assessments and supplier sustainability audits
o … action planning with corrective measures
o … integrating suppliers so that are willing to cooperate
o … continuing this approach from first tier to second tier suppliers:
and it is still a long way to go... step-by-step
13 Sustainable Purchasing: How do firms put principles in place with regard
to “people, planet and profit”?
Philips started with a worldwide sustainability programme and developed a
“Supplier Sustainability Audit Questionnaire” with the following topics:
Implementation:
1. This questionnaire
was filled out by the
→ Today,
suppliers and by
Philips urges
internal experts. its suppliers
2. Variances between to transfer
both audits were their CSR
discussed and policies to
suppliers were asked their 2nd tier
& raw
to come up with
materials
action plans to take suppliers!
corrective measures.
3. These measures
were periodically
followed up by Philips‘
procurement
organizaton.
Source: www.Philips.com
14 How to drive CSR in supply chain relationships
What do large companies do to drive CSR in their supply chain

relationships? What programmes do they have in place? And what
actions are most effective?
→ Here are a few observations from practice… and from literature:
• Most major companies today have CSR integrated in their mission statement and
Practice
business strategies.
• Companies that operate downstream in their value chains, i.e. consumer goods
manufacturers and retailers seem to emphasise product safety and environmental
friendliness in their stakeholder relationships.
o Zadek (2004) has identified five stages organizations typically go through when
developing a sense of corporate responsibility, as they move along the learning
curve: defensive, compliance, managerial, strategic and civil.
Literature
o Van Tulder and Van der Zwart (2006) has distinguished between passive, reactive,
active and proactive approaches of organizations to CSR.
o Nidumolu et al. (2009) presented a multi-staged model.
o Van Weele and Vivanco (2014) propose an evolutionary model on the adoption
process of CSR for organizations.
15 How to drive CSR in supply chain relationships: The “evolutionary model”
*Note:
(2018), 7th edition, pp. 367-368.
16 How to drive CSR in supply chain relationships: CSR tools, techniques
and activities
When driving CSR in their supply chain relationships, some activities,

tools and techniques are more popular than others.
The following differentiation can be made:
• Supplier sustainability codes – Support the general codes of conduct and
business values of corporations; most large companies have specific codes.
• Supplier sustainability assessments – Supplier self assessments or
sustainability audits are performed by the buyer or by outside experts.
• Supplier sustainability follow-up – Aims to ensure that suppliers put corrective
actions in place in order to prevent the trend among suppliers (in low-cost
countries) signing the code of conduct without reflections on their processes.
• External sustainability standards – Based on external standards and norms
(e.g. the Global Reporting Initiative as well as the Dow Jones Sustainability
Index are very popular) many firms report using the ISO 15001 or the ISO
20400; beside these general standards, sector specific standards exist, e.g.
FSC (Forest Stewardship Council for sustainable wood).
17 CSR in practice
Examples:
→ Companies such as
Nestle, Mars and
Unilever have invested
heavily in programmes
aimed at helping local
farmers in developing
countries improve their
product quality,
operational efficiency
and crop productivity.
→ Part of these so-
called supplier diversity Supply chain and sourcing
programmes aimed at managers need to report on
promoting businesses the results that were obtained
from their supplier sustainability
owned by ethnical
programmes. Here, a wide
minorities and/or range of KPIs are found in
women. practice.
Taken from: van Weele, A. (2018), Purchasing
and Supply Management, 7th edition, p. 368.
18 Circular sourcing (1/4)
The shift from shareholder focus to stakeholder focus is reflected in what

is often referred to as “circular economy” (note: it was the originally idea
of Ellen McArthur Foundation, www.ellenmacarthurfoundation.org).
Circular economy…
• … assumes that raw materials, components and products are
continually reprocessed to meet the needs of growing world
population.
• … contrasts linear economy where products are destroyed at the end
of their life-cycle.
• … identifies two cycles:
o The biological cycle, where residue materials after use return to nature.
o The technical cycle, where technical components are designed in such
a manner that they can be reused at the end of their life-cycle.
• … follows the idea that economic value of products is sustained as
much and as long as possible.
Taken from: van Weele, A. (2018), Purchasing and Supply Management, 7th edition, p. 370.
As companies buy so many materials and services, circular sourcing

seems necessary to close the value chain.
Circular sourcing assumes that …

• … we only pay for functionality not possession purposes.
• … everything bought from suppliers preferably is to be returned to
those suppliers at the end of the product life-cycle.
• … buying firms purchase products that are designed in such a
manner that when they have reached the end of their life-cycle,
they can be easily taken apart and that those parts can be easily
reprocessed.
21 Circular Sourcing (4/4) - Examples
• Companies using circular sourcing for products that are often

short in supply, which are at the end of their life-cycle and
which can easily be reprocessed.
e.g. “Philips” reprocessed vacuum cleaners by collecting them after
consumers took them to the dump to dispose of them to use the
specialised plastic needed for new ones.
• Circular sourcing has been part of new business models

where the new product is based on the recycled materials.
e.g. “Interface Inc.” uses abandoned fishing nets gathered and sold
to them by poor people in emerging countries to make carpet tiles
which they lease to B2B customers. After the lease period Interface
reprocesses the tiles.
→ Currently in its infancy, circular sourcing will change the nature

of traditional business as well as procurement.
22 Trust, integrity and ethics
Since the late 2000s, there have been many debates over the issue of
integrity and trust in B2B relationships.
→ As companies become more dependent on each other, trust* (trust
“consists of” fairness, reliability, consistency and goodwill) becomes
more important.
– Three types of trust: (i) contractual trust (e.g. delivering the promised
good or service); (ii) competence trust (e.g. the ability of the actor to fulfil
the expectations); and (iii) goodwill trust (the commitment to do more
than formally expected, e.g. contributing with improvement ideas).
– Future competition will occur between integrated supply chains based on
trust.
– In a research project by the Centre of Advanced Purchasing Studies
(CAPS) it was found that “real” partnerships (which are based on trust)
among the over 300 companies that were investigated were less than
1% of the total number of supplier relationships.
* Trust is the confidence a party has that the other party will behave co-operatively, in a consistent, predictable and honest manner.
23 Trust, integrity and ethics: Buildung trust in supplier relationships
Trust is a result of two
factors:
trustworthiness, i.e. the
situation in which trust is
granted to you by other
parties, and
competence. Building
competence is about
developing people’s
skills, experience and
creativity. Companies
that have skilled staff,
great expertise in what
they do, generate more
confidence and trust in
their client relationships
than companies with no
competent staff.
24 Trust, integrity and ethics: Code of conduct
Purchasing is sensitive for ethical issues through contacts with

suppliers.
– In the international sales arena, lots of activities are undertaken to put
the buyer in the most positive frame of mind about a possible
purchase.
– The main question being raised on the side of the buyer as to how far
one should go in a relationship with a supplier?
• To increase uniformity in behaviour towards the business
community, a number of large companies have become explicit on
their policies with regard to “business integrity” and published a
so-called “code of conduct”.
• Rules of conduct have also been drawn up by the International
Federation of Purchasing and Supply Management (IFPSM) and
some professional purchasing organizations, such as the Dutch
Purchasing Association (NEVI), have translated these guidelines
into local professional codes of conduct.
25 Trust, integrity and ethics in supplier relationships: NEVI guide
*Note:
(2018), 7th edition, pp. 373-374.
26 Work order: Integrative case study 15.1 “Legends Car Company”
Work order for self-reflection in individual work

-> Now stop this presentation at this point and follow the work order below before
continuing with this presentation further.
1. Please take the textbook* and read through this integrative case study.
2. On this basis, try to understand what is going on in this case study and try to
do the assignment at the end of this case study.
3. Time frame: Take approx. 20 minutes to read and 30-45 minutes to work on
the assignment.
*The full text of this integrative case study you will find on pp. 376-378, in: van Weele, A. (2018), Purchasing and Supply Management, 7th ed.
27 Work order: Integrative case study 15.2 “Nespresso”
Work order for self-reflection in individual work

-> Now stop this presentation at this point and follow the work order below before
continuing with this presentation further.
1. Please take the textbook* and read through this integrative case study.
2. On this basis, try to understand what is going on in this case study and try to
do the assignment at the end of this case study.
3. Time frame: Take approx. 35 minutes to read and 75-90 minutes to work on
the assignment.
*The full text of this integrative case study you will find on pp. 378-384, in: van Weele, A. (2018), Purchasing and Supply Management, 7th ed.
28 Brief summary
• Corporate social responsibility (CSR) is a high priority item on the
management agenda.
– One reason for this is the fact that raw materials have become scarcer.
– Another reason is that an environmental or social scandal may quickly
ruin a company’s reputation.
• The idea behind CSR is to meet the needs of current generations
without sacrificing the resources to meet the requirements of
future generations.
• Operational processes of suppliers need to be controlled and
monitored for ethical compliance.
• Large manufacturers require that the first tier suppliers will transfer
their environmental policies to their second tier suppliers.
– This encourages supply chain integration which can only be built upon
constructive, trusting and long-term supplier relationships.
• The International Federation of Purchasing and Supply Management
provides one example of an ethical code for purchasing managers.
29 Lecture 15: Self-assessment (Individual work)
Preliminary remark:
The aim of this exercise is to reflect on the content presented in this
lecture and to prepare for the final exam at an early stage.
Work order:
1. Answer the self-assessment questions given on the following slide(s).
2. Take approx. 15 minutes per question.
Final note: To answer/discuss/reflect on the questions on the following slide(s), please

consult the primary as well as the relevant literature of this course we have listed for you on
the TUGrazTeachCenter learning platform (see: course-detailed view -> further information ->
recommended reading). Of course, you are also welcome to use further sources.
30 Lecture 15: Self-assessment (1/2)
15.1 What are the reasons underlying CSR programmes of

companies these days? What do companies mean by responsible
purchasing?
15.2 What would you consider to be the most important elements of

a socially responsible purchasing programme?
15.3 What is the value of a statement made by a supplier that its

organization is sustainable?
31 Lecture 15: Self-assessment (2/2)
15.4 Under what circumstances would you feel that the following are
allowed in purchasing: (1) accepting gifts from a supplier, (2)
accepting invitations for a dinner, (3) engaging in a personal
friendship with a supplier sales representative, (4) extending the
deadline for a competitive bid to one of your suppliers and (5) giving
the ‘right of first refusal’ to your current supplier?
15.5 Would you feel that integrity codes as used by some

companies have the same relevance for procurement managers as
for sales managers? Discuss.
32 Supplementary literature (Lecture 15) (1/2)
Alvarez, G., Pilbeam, C. and Wilding, R. (2010), Nestle Nespresso AAA

sustainable quality program: An investigation into the governance dynamics in a
multi-stakeholder supply chain network, Supply Chain Management: An
International Journal, 15(2): 165-182.
Carroll, A.B. (1991), The Pyramid of Corporate Social Responsibility: Toward the
moral management of organizational stakeholders, Business Horizons, 34(4): 39-
48.
Kibbeling, M.I. (2010), Creating value in supply chains: suppliers’ impact on value
for customers, society and shareholders, PhD dissertation, BETA Research
School for Operations Management and Logistics, Eindhoven University of
Technology, the Netherlands, p. 187.
Nidumolu, R., Prahalad, C.K. and Rangaswami, M.R. (2009), Why sustainability
is now a key driver of innovation, Harvard Business Review, 87(9): 57-64.
Porter, M.E. and Kramer, M.T. (2011), Creating shared value: How to reinvent
capitalism and unleash a wave of innovation and growth, Harvard Business
Review, 89(1-2): 62-77.
33 Supplementary literature (Lecture 15) (2/2)
Van Tulder, R. and Van der Zwart, A. (2006), International Business-Society

Management: Linking Corporate Responsibility and Globalization, London:
Routledge.
Van Weele, A.J. and Vivanco, L. (2014), Corporate social responsibility: moving
from compliance to value creation in value chain relationships, in: Cordon, C. and
Ferreiro, T. (eds), The Value Chain Shift: Seven Future Challenges Facing Top
Executives, Lausanne, Switzerland: IMD Global Value Chain Center, p. 137.
Zadek, S. (2004), The path to corporate responsibility, Harvard Business Review,
December, pp. 1-8.
Graz University of Technology
34 Institute of Business Economics and Industrial Sociology
Industrial Marketing, Purchasing and Supply Management (IMPS)
Assoc. Prof. Priv.-Doz. Dipl.-Ing. Dipl.-Ing. Dr.techn. Bernd M. Zunk
Purchasing and Supply Management

Lecture 15.
Purchasing, Corporate Social Responsibility and
Integrity
Prof. Dr. Bernd M. Zunk
Course no. 373.551, 4.5 ECTS, Lecture
Winter Semester 2020/21 (Online)
TU Graz I Institute of Business Economics and Industrial Sociology I Industrial Marketing, Purchasing and Supply Management I Prof. Dr. Bernd M. Zunk
www.bwl.tugraz.at
For use with Purchasing and Supply Chain Management 7 th Edition

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Graz University of Technology

1 Institute of Business Economics and Industrial Sociology

Purchasing and Supply Management

Course no. 373.551, 4.5 ECTS, Lecture

Winter Semester 2020/21 (Online)

After this lecture you should understand the following:

Looking at the current situation on international markets:

How can purchasers contribute to a “more sustainable business world”

• Sustainability seems to be used as a general, container concept,

→ Sustainable profitability can only be achieved if a company is able

Source: Carroll (1991)

The results of this analysis show that…

• Resource-based view (…was the traditional management practice…)

→ To achieve competitive advantage a firm and its supply chain partners

What do large companies do to drive CSR in their supply chain

When driving CSR in their supply chain relationships, some activities,

The shift from shareholder focus to stakeholder focus is reflected in what

As companies buy so many materials and services, circular sourcing

Circular sourcing assumes that …

• Companies using circular sourcing for products that are often

• Circular sourcing has been part of new business models

→ Currently in its infancy, circular sourcing will change the nature

Purchasing is sensitive for ethical issues through contacts with

Work order for self-reflection in individual work

Work order for self-reflection in individual work

Final note: To answer/discuss/reflect on the questions on the following slide(s), please

15.1 What are the reasons underlying CSR programmes of

15.2 What would you consider to be the most important elements of

15.3 What is the value of a statement made by a supplier that its

15.5 Would you feel that integrity codes as used by some

Alvarez, G., Pilbeam, C. and Wilding, R. (2010), Nestle Nespresso AAA

Van Tulder, R. and Van der Zwart, A. (2006), International Business-Society

Purchasing and Supply Management

Course no. 373.551, 4.5 ECTS, Lecture

Winter Semester 2020/21 (Online)

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