Whether Ethical Sourcing A Source Of Competitive Advantage - Dissertation Example

? Whether Ethical Sourcing A Source Of Competitive Advantage Task: Whether Ethical Sourcing A Source Of Competitive AdvantageExecutive summary Ethical sourcing is a term that is created and defined by an individual organization's principles and practices. It is a perfect merge of sustainability, values imbibed in a business practice and social duty built into an organizations supply chain process. Adopting the means of ethical manufacturing sourcing generally relates to a wider market audience and conformance with predefined ethical standards and principles that facilitate an organization to create a brand image and adhere to the corporate social responsibility. Ethical sourcing, however, is a hindrance that suppliers face in their normal course of business. For instance, organizations find it expensive to adopt ethical supply chain and distribution networks thus generally face lack of coalition among business and individual objectives. UK ethics law is essential in guiding principles for ethical sourcing since it conducts activities under the permissible range of the European law. Supply chain is a condition that enables an organization to operate in a more defined manner than the companies it competes with. It gains competitive advantage, which results in profits increase to that company in terms of margin enhancement, especially in the modern dynamic business world. It also serves as a valuable strategy as it involves all critical features that a strategy entails like conceptual and analytical decision making in terms of products, their time of delivery and the market to be targeted. Introduction Ethical sourcing is making sure that workers who are treated well and paid fair wages to work legal hours create the products being sourced in safe facilities. It also means that the supplier of the product is regarding the environment for the period of the production and manufacture of the product. Many companies may have various reasons as to why they use ethical sourcing. Others may claim to embrace ethical sourcing, but not completely and may not be practicing it in all their companies globally. Sourcing ethically is ensuring that honest values are met for the period of the manufacturing of products, as well as sourcing equipment. It is ensuring the participation of everyone in their products' development is paid a fair wage and working in safe and hygienic conditions. It also means that employees work at reasonable hours, is not subject to unfairness and is of civilized working age. In this project, it will be found out whether Ethical sourcing is a source of competitive advantage to various companies owing to customers and consumers’ interest. Analysis of the strategies that different organizations like M&S and Co-op use to realize effective ethical sourcing is going to be done to show whether these ethical sourcing is beneficial or disadvantageous to them. Some of the United Kingdom Ethic laws that regulate functionalities of these companies will be discussed (Report Linker 2011). What supply chain is will be disclosed and whether it has any advantage as a competitive source (Kate & Anna 2004). Literature review This literature review explains ethical sourcing and develops arguments for and against its adoption by major retailing organizations. It is acknowledged that different countries have different rules, regulations and laws governing sourcing (Lynn 2007). This dissertation, however, focuses on how major retailers source products for selling in the developed economies of the UK, EU and US. Whilst the overall objective of this review is to, critically, examine ethical sourcing and its adoption by some firms (but not by others), it will help develop a model that can be used to see how “ethical” organizations actually are. Sourcing ethically, in a scholarly capacity, means the upholding of at most moral and decent values during the process of developing commodities. It is a perfect blend of sustainability, values imbibed in a business practice and social responsibility that is built into an organizations supply chain process (Kate & Anna 2004). It aims to ensure that the products and services that are developed by the manufacturers are developed in safe surroundings and an environment, which is congenial to the health and growth of workers. Ethical sourcing also refers to reasonable wages that must be paid to the workers for legal numbers of working hours. Environmental friendliness and its protection are also considered an essential element of ethical sourcing of goods and services. Ethical sourcing is all about making right decisions at the right time. In fact, it is regarded as an fundamental component of CSR in the modern business regime. Ethical sourcing has been identified as one of the major factors that lead a business to a successful track. Ethical sourcing is both “strategic” and “operational” (Peter & Roxene 2008, pp. 479-480). Organizations may choose to adopt an ethical sourcing strategy in order to gain competitive advantage and once adopted, it becomes operational in that supply chain managers will have to deliver this element of the strategy. Advantages of Ethical Sourcing Various aspects of implementing ethical sourcing in a range of organization such as Starbucks, Nike and others were analyzed. The common benefits that one can attain from adopting the means of ethical manufacturing sourcing generally relate to a wider market audience and conformance with predefined ethical standards and principles that facilitate an organization to create a brand image and adhere to the corporate social responsibility (Linda & Victoria 2004). Risk management is better managed through ethical sourcing right at the source or the grass root level that creates a sense of responsibility among the suppliers in terms of organizational commitment towards ethical challenges and future goals. Ethical sourcing saves an organization from the anguish of its customers and negative image that it can create in the future. For instance, Nike hires child to saw the football, because they simply have no consideration for social ethics but only profit (Patrick, Liesbeth & Glenn 2005, pp. 20-31). Such kind of attitude certainly has a negative impact on customers. Adopting ethical norms and protocols can save the organization of such embarrassment. Ethics prove to be a facilitator in reducing exorbitant costs by adopting supply chain sources that focus on developing supplier relationship management and attain benefits of compliance management. Moreover, organizations are self-motivated to monitor their actions and carry on regular self-assessment. Ethical sourcing is an effective medium to reward positive and constructive suppler behavior that consistently drives for growing business and at the same time a means to penalize negative and unpleasant conduct as well (William, Kumju, Seonaidh & Caroline 2010, pp. 20-31). By adopting this strategy, it will avoid unnecessary cost; efficient cost effectiveness will assist originations have higher profit margins and being able to charge premium prices, just like what M&S does. Although knowing where the products come from is important in this ethical sourcing aspect, but those are just “external factors”, a good management with suppliers’ relationship will also provide a transparency view that knowing where everything comes from in detail, how they made, what kind of people have been involved in the processing. Many authors have given varied viewpoint regarding ethical sourcing. For instance, Cathy Mejia said that it is highly important for an organization to adopt ethical sourcing as it helps in communicating the strong ethical values an organization upholds for its stakeholders. Fair trade policies of an organization can actually help to shape up the organization structure to achieve long-term goals and positive company image (Duncan 2008). It was found that child slavery exists in the Cocoa industry where children are made to work for long hours and parents avoid sending them for education. Almost 90 million bunnies, 27 million slaves are a part of such unethical work process. Even worse, the schoolteachers even cancel the classes to make children work in the fields. People prefer Nestle and Cadbury products, yet have apprehensions when the sourcing strategies and policies are checked; hence, people tend to appeal such organizations that they must work in collaboration with EU to make proper sourcing plans. Big names like Hershey’s are few who do not have effective sourcing policies in place. On people’s recommendations and voice, products like Kit Kat etc have now been transformed into purely ethically sourced product. On the other hand, eminent economist, Milton Friedman sternly, believed that the main aim for any business is to increase the organizational profit rather than concentrating on social issues. However, simultaneously, he also stated that any firm must ensure that fair business practices are followed to avoid fraud or misleading practices without focusing on ethics more. Disadvantages of Ethical Sourcing Ethical sourcing, however, is a hindrance that suppliers face in their normal course of business for instance organizations hold varied perception issues that suppliers hold in terms of the tools and equipments that might need for ethical sourcing, thus they prefer to avoid it. Organizations find it expensive to adopt ethical supply chain and distribution networks thus generally face lack of coalition among business and individual objectives. Furthermore, in the competency of organizations to design an effectual assessment process that undermines the real essence of the ethical sourcing. According to OECD (2002) that different resources may differentiate prices, anyone can be ethical but expensive. UK Ethic Laws Ethics is one term that has varied meanings in various countries worldwide (Geoff, M 2010). Every country has its personal code of conduct when it comes of business ethics hdh. For instance, in UK a common TfL is used to refer to sourcing ethics that comply more on human and labor fair trade practices within the supply chain of a firm. ETI Base Code defines the operational functioning that suppliers of an organization are required to meet. SEDEX code is used to engage suppliers in ethical sourcing. Tfl in UK aims to work upon five main guiding principles for ethical sourcing. They include the following: appropriate applications, considered for ethical sourcing, improvement of labor conditions in supply chain management, consistent monitoring of labor conditions, suppliers’ active participation and conducting activities under the permissible range of the European Law. Most of the organizations in the current times want to adhere to ethical practices, as they believe that organizations are respected for the consideration they give to human rights, ethical trading and environmental protection such as Nike and Marks & Spencer. Sanctus Mundo strongly believes in ethical sourcing and strictly stands against sourcing goods from countries like China where child labor is quite prominent. Moreover, sourcing also raises issues such as environmental, labor and human rights degradation. Companies are able to create a positive image by presenting themselves ethically towards their customers, consumers, the suppliers and all other stakeholders of the firm in all responsible ways that they can. People actually value organizations that are truly ethical for instance leading organizations such IBM, Petagoni, Levi’s etc all have succeeded only due to a strong public image that they have created for themselves based on firm ethical practices. Supply Chain Gains Competitive Advantage Ethical sourcing is a means to gain a competitive edge in terms of margin enhancement especially in the modern and dynamic business world where amidst the tough economic issues and turbulences, sales of the company are getting stagnant (Jowit 2009). It gives a chance to the organizations to outshine the competitors and have a more strong long lasting impact on consumers. Competitive advantage is the benefit that an organization derives when compared with its nearest rivals in terms of technology, efficiency, operational skills, economies of scale or any other distinct variable. Most organizations in the modern supply chain management, for instance, Toyota is inclining towards being more ‘lean’ in nature that is a reduction in waste and obstruction free flow processes. Firms can enjoy a competitive edge only when there cost is low when compared to that of their immediate competitors, hence the two key variables that can help a firm attain a competitive edge is the cost leadership and differentiation in the product line (Porter 1990). Roberts in his study mentioned that firms compete in the market in terms of cost reduction and appreciation, product distinctness and especially on corporate reputation that they build. These most of the firms are competing on the sustainability issue, which comprises of the environmental safeguard and the social influences that organizations have on their supply chain networks. Hence, it can be well said that the basis of competition in the modern business is based on CSR, company image and supply network scenario. Global supply chain is becoming highly important as flow of products one from location to another involves heavy costs to the firm, which can be reduced if the supply chain is managed effectively. The supply chain comprises of many different trading people right from supplying raw material to delivery of finished goods. This process consists of exorbitant costs that can render effectual returns to the organization. Supply Chain as an Effective Strategy Ethical supply chain is considered as an effective strategy as it involves all critical features that a strategy entails. For instance, the supply chain includes leveraging the main competencies of the firm, which is an integral part of any organizational strategy (Mentzer 2001). It also includes conceptual and analytical decision making in terms of products, the time of delivery, the market to be targeted and along with it a detailed competitive strategy, as well. However, it can be said that, in the modern times, companies are actually promoting their existence based on ethical image that is created due to a public outcry aggravated by use of a child or grounded on some published reports or due to the inner consciousness among organizations for exhibiting corporate social responsibility. This enhances core values of a company such as Levi, which has taken a better cotton initiative, Dell, Starbucks for coffee and farmer’s equity, IBM, Marks & Spencer, Green and Black (John 2005). Customers are getting more aware about the soaring issues related to environment degradation, child exploitation especially in Chinese organizations, low standards of living, economic growth, thus slowly but gradually the attitude of a common person is also changing. Organizations are sternly opposed who adopt unfair trade practices and unwanted production and supply means. Findings In the research, to know more about the ethical sourcing, very many results were realized. One of them is that ethical sourcing reduces inconsistencies, costs and duplicates efforts of undergoing multiple audits by combining efforts with current and upcoming audits. It also satisfies the needs of global buyers for ethically sourced products on their shelves (The Market Oracle 2009). It was also found that ethical sourcing increases the health of a business and its brand, employees and culture. These two companies, M & S and Co-op, have all that makes them greener. The Co-op has a standout policy in its fish sourcing strategy, which they have put in line with the marine stewardship council. On the other hand, M & S is on a higher rank, owing to its use of biofuels derived from non-crops, which they use in a fleet for its vehicles, (Acre Resourcing Limited 2010). Using Ethical sourcing, these two organizations offer an excellent and manageable working condition for its workforce. A voluntary standard provides a number of guidelines that assists M & S and Co-op in the numerous activities within ethical sourcing practices. Affirmation we get is in Stapes Soul mission statement, which states, “We empower and hold accountable every individual in the company by setting clear standards, educating associates about the right way to do business, and making sure that the company responds appropriately when ethical questions or concerns arise” (Stapes Soul). Data analysis Sourcing ethically means that, upon the provision of sourcing materials, decent standards are met in the processing of products. Sanctus Mundo presents its view on the same matter. They say that it is ensuring that the sourced products are formed in harmless amenities by employees who are rewarded fair income to work lawful hours and are treated well. Many companies have chosen to use ethical sourcing for a variety of reasons, but the main idea in research is whether they use it as a foundation of building a competitive edge. Some of these organizations like the Co-op and Marks & Spencer use ethical sourcing as a means to account for their products to lure their customers and have as many of them as possible. This is their ground for developing a competitive advantage. Both Marks & Spencer and Co-op use ethical sourcing, and here the question is what differentiate them in terms of use. Co-op and M & S, today, is known to be the UK's "greenest" supermarkets. This was done through survey, which rates retailers' progress in different areas, our concern being ethical sourcing (Cook 2007). Marks & Spencer had once become a victim of substandard factory because the several high profile allegations cases that organizations and business enterprises did not do their best to provide humane and fair conditions of work for employees. In 1996, the “World in Action” television program ran miniseries in the UK on Marks &Spencer in which it alleged that underage girls were working in a Moroccan clothing factory that produced M&S goods. These allegations affected the M & S Company directly. Even though, they won the case in court, in the minds of their customers, were the overseas sourcing practices and human rights standing at a very low standard. This facilitated their way towards best-practice responsible sourcing. It is because their customers continually asked their take on various issues including economic, social and environmental that promote ethical sourcing and fair-trading. Responsible sourcing, therefore, is significant for M&S, for it gives an opportunity to enhance their profile globally and to, majorly, gain competitive advantage (Abraham 2008). This could only be achieved through initiating a proactive responsible sourcing and so in 1999 M&S implemented ethical global sourcing strategies structured around within certain key initiatives that include designing and implementing criteria and processes. They have also built capabilities amongst third parties, within their suppliers and themselves, to help them monitor, audit and verify suppliers' compliance in the range of the acceptable standards of practices and workplace situations. M & S attempted to deliver sustainability through their chain of supply and to achieve this they used practical approach that they still use up to date (Geoff 2010). Their approaches included “Plan A” objectives that link to sustainable procurement, in which determination of fair living wage is fundamental. The wages were to be agreed upon before implementing a process so that the suppliers of the clothes pay wages to the people who work in clothing industries in Bangladesh, India and Sri Lanka. On the other hand, the Co-operative uses Ethical Policies as their real commitment. This is to improve their environmental performance, as well as their ethical food business, concerning the requirements of their members (Whalen, Khin-Maung-Gyi & Smithwick 2004). Being a founding member of Ethical Trading Initiative (ETI), they had to come out with their own Sound Sourcing Code of Conduct of which they developed in 1999. This commits them to ensure no use of child whatsoever, not even forced labor itself. Again, they ensure that their workers are not subjected to long time of working hours. They ensure their employees good health and safety. To these they made sure that all their suppliers’ sites adhered to them. Co-op group wanted to meet working conditions in accordance with their objectives and aims. In the chain of supply, the ultimate users of products are the consumers of it. It means that they have to buy the products that suit their desires. They demand fair products that have been ethically sourced, and therefore, they should be in a position to pay an extra cost for the standardized goods. This is the reason why many companies tend to apply ethical sourcing to win many customers. The question that follows along is whether it is possible for the same companies that apply ethical sourcing codes of conduct to the latter to sell cheap products and to be considered ethical. Employees need a wage that they can afford to live on. Their employers who only get money from retailers who pay a price give this to them. Therefore, low prices will negatively affect the employees. While Ethical trade deals with protecting employees' rights throughout the chain of supply, the Fair-trade mark dwells a lot in assisting employees and producers who are disadvantaged in the world. Co-op is considered greener than M & S. This is due to their policies that are highly praised in their street chain supply. Their fish policy, for example, has an ultimate goal is to perform its Sourcing of fish policy in accordance with the objectives and aims of the Marine Stewardship Council. In addition, Co-op is in more than 5,500 sites in UK, sources 98% of renewable electricity. These eventually makes them Greener than M & S. There are still allegations that Co-op's prices of products are relatively cheaper than M & S. Different products from different shops may vary in their prices because of being sourced differently. Checking on the prices of the most common products in these shops, M & S stand at a relatively higher price than Co-op and others like Tesco. For instance, organic milk goes at ?1.03 in M & S. Co-op sells it at 99p. Tesco, on the other hand, sells it at 86p. This shows that Co-op is still selling its products cheaper than the M & S even though Co-op is still greener than them. As illustrated in the speculum below, Co-op is ethically higher than M & S whereas in terms of cost, M & S is more expensive. They sell their products more expensively than the Co-op. In this analysis, the price of the most common product is used, that is the organic milk. The table bellow shows their difference in organic milk price. Company Organic Milk Price in ? Co-op 0.99 M & S 1.03 In the graph below, the two companies, M&S and Co-op are rated ethically and cost wise It is a clear fact that many of the consumers shop in the supermarkets whether it’s through convenience, preference or necessity and there is a clear divide between the best supermarket and the rest. As Dan Welch askS, “can we separate out the green grocers from the green wash?” the answer is yes, and this is evident in the supermarkets rating report from ethical consumer buyer’s guide (Ethical consumers, 2011). The two supermarkets, M &S and the Co-op ware rated in accordance with their overall performance where the Co-op was clearly confirmed a leader scooping a whole 47% while M & S scored 36%, (Ethical Consumers, Jan/Feb, 2011). In this report for ethical consumers, there were seven issues raised to be ranked. They included animal welfare, climate change, health, toxic, waste, water and workers’ rights. The table below gives a clear hint on how they scored. Company Animal welfare% Climate change% Health% Toxic% Waste% Water% Workers’ rights% Integrity% Total% Co-op 47 47 81 46 21 42 62 100 56 M & S 37 70 40 46 13 45 39 13 39 The above rating has clearly shown why Co-op should be regarded to be more ethical than M&S; therefore, it should be considered greener than M & S. To add up to the ratings, Society was considered. Seafood available in the UK’s major supermarkets was being checked, (Marine Conservation Society, 2009). The Co-op took the lead with 80% and M & S had a tie at the third position with Waitrose, both after Sainsbury’s. Their ranking is as tabled below. Co-op 80% Sainsbury’s 77% Waitrose 75% M & S 75% Morrison’s 68% Tesco 62% Iceland 57% ASDA 55% The table showing availability of seafood in UK’s major leading supermarkets. Their food is ethically sourced, but the level of their ethics varies hence the need to see which company is greener than the other. The methodology of ranking these companies has provides a clear signal to supermarkets and store chains that they should apply much effort to attain great standard that the society expects from them, (Ethical Consumer, 2011). There are reports showing that M & S's supply chains in Bangladesh, a clothing industry employ child. M & S amongst others retailers like Nike, GAP, ASDA, Tesco and many others have decided to ban leave their products free from Uzbek cotton. This is because child slavery is not in accordance with the ethical laws of sourcing which these companies do not want to tolerate. M & S and Co-op have stood in the market more than other companies have. They are named the UK's greenest supermarkets because of their ethical sourcing and sustainability. Their business strategies are quite overwhelming because the strategies make them stand in the market more stable than other companies (Lawrence 2010). For instance, M & S has launched new commitments that they believed will make their products change to 'Plan A products'. They also intend to enable their 2,000 suppliers adopt this Plan A in totality so that their customers can live a "greener" life style. M&S tops the list of firms regarding the implementation and ethical sourcing of plan A. Mechanisms of achieving a living wage for employees in their companies across India, Sri Lanka and Bangladesh are promising. M &S still have plans of training half a million employees in their tremendous chain of supply. All these alongside earlier strategies confirm what has always made them stand in the market. Co-op has done all it can to be above all other supermarkets including M & S. What is lucrative and promising to them, is Sound sourcing in their dealings overall and as individual enterprises. Since many critics about business have befallen many supermarkets in the UK, much pressure has been averted on suppliers to boost margin of retailers. Co-op Group being a founder member of ETI and that it has its own code of conduct; it has been able to stand in the market to beat its competitors worldwide like M & S. Implementing their code of conduct is what has made Co-op prioritize their food and non-food products, widening their market range. Conclusion M & S and Co-op are for sure considered the UK’s greener supermarkets according to the research that is done. They both use ethical sourcing as a source of competitive advantage to gain many customers. They have strategies that enable them acquire this competitive advantage. M & S has launched new commitments that they believed would make their products become 'Plan A products'. They also intend to enable their 2,000 suppliers adopt this Plan A in totality so that their customers can live a "greener" life style. Even though, it is alleged that M & S still uses child labor in some of its industries in Bangladesh, India and Sri Lanka, they are doing their best to embrace ethical sourcing to meet the standards that are required by the standard codes. Co-op, on the other hand, has it all that ranks it ahead of other companies in the UK. Co-op Group is a founder member of ETI. It has its own code of conduct that regulates it ethically. Co-op is considered greener than M & S due to their policies that are highly praised in their street chain supply. Their fish policy, for example, has an ultimate goal is to perform its Sourcing of fish policy in accordance with the objectives and aims of the Marine Stewardship Council (Whalen, Khin-Maung-Gyi & Smithwick 2004). In addition, Co-op, in more than 5,500 sites in UK, sources 98% of renewable electricity. Efforts of these two companies to reduce environmental and ethical impact in their mode of operation have been genuine. 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