Socially Responsible Organizational Buying - Case Study Example

PROBLEM BACKGROUND: SOCIAL RESPONSIBILITY AND SOCIAL RESPONSIBLE PURCHASING Focusing on socially responsibility especially in international channel relationships, Littrell and Dickson (1999) stated that social responsibility involves a system-wide range of practices for conducting business in which manufacturers, retailers, and consumers make decisions, and consider whether their business actions affect others within the marketplace system (p.3). In other words, every constituent in the marketplace system needs to consider the impacts of its decisions, ranging from product sourcing, employee treatment, and working conditions to product distribution and consumption. Their definition of social responsibility suggests that even though, companies whose stores carry consumer goods, such, as apparel, are not involved in production, they should consider the impact of the production on consumers during their product sourcing and distribution practices. It would be important to select socially responsible suppliers and to purchase socially responsible products as these represent common day-to-day activities. The literature on business ethics (Subhabrata, 2007; Littrell and Dickson, 1999) suggests that organizational factors affect ethical judgments of decision-makers. It has been found that organizational factors influencing ethical decision-making include reference groups, rewards and sanctions, codes of conduct, type of ethical conflict/decision, organisation effects, industry, business competitiveness, peer group influence, top management influence, and the existence of opportunities for socially responsible/ irresponsible or ethical/unethical action (Subhabrata, 2007). Such factors determine individuals’ perceptions regarding the ethical content of the problems to be solved and the consequences and, thus, influence ethical judgments that are presumably positively-related to the actual behaviors. Similarly, such influential organisational factors can be effective to improve their employee's ethical and socially responsible buying, and it is companies' role to implement them strategically and systematically in the organisation. As such, socially responsible buying decisions are likely influenced by factors related to the organisational variables as well as individual variables. Though many researchers have addressed the issues of social responsibility in business organizations and offered conceptual propositions and suggestions, there are few academic studies that empirically support the propositions. Fundamentally, profit-making company’ primary goal is to serve its customers with products and services, and that is achieved by selective purchasing from multiple suppliers of product alternatives. However, socially responsible purchasing may become an essential practice in profit-making organisations as a response to socially responsible trends. Even though, many modern companies are not very involved in the initial production, implicit in their social contract with society is the responsibility to account for not only the quality and price of the products but also any issues surrounding their production and use (Jamison, 1996). Drumwright (1994) stated that the socially responsible purchasing concept has “a broad, evolving, and ever more rigorous meaning”, because socially responsible buying considers a broad range of buying criteria involving a broad view of social welfare (p. 6). However, she also noted that socially responsible purchasing (e.g., selecting socially responsible suppliers) is difficult due to the limited number of socially responsible suppliers. This situation may lead to the buying firms’ loss of competitiveness in the short term, but their promise of proactive support for and participation in the suppliers’ efforts can be considered a long-term investment toward social responsibility. In this respect, Drumwright (1994) found that there were substantial risk perceptions among employees in using a socially responsible buying concept. She suggested that creating a climate conductive to risk practicing and moving toward further socially responsible purchasing is an essential requirement of top-management to encourage socially responsible purchasing in the organisation. That is, organisational culture may reduce perceived risks by providing an organisational commitment to facilitate social responsibility and create a risk-taking environment in an organisation. Even though there is a large body of literature on business ethics and social responsibility, a relatively small amount of research is related to purchasing ethics. However, one comprehensive exploratory study on the function of socially responsible purchasing provides a clue that socially responsible purchasing has emerged in the buying function in some firms (e.g., Drumwright, 1994). Focusing on environmentally responsible buying, Drumwright (1994) formulated a classification of companies with socially responsible purchasing habits in an industrial buying context. She conducted in-depth interviews with 63 industrial buyers from 10 organisations, which produce industrial and consumer products and services, and the data gathered were qualitatively analysed. Type I companies, called the “founder’s ideals” type, are driven by the founder’s entrepreneurial ideals (Drumwright, 1994). Policy entrepreneurship is encouraged, and altruism and innovation are intricately woven into the corporate culture. Type II companies, the “symbolism” type, are more resistant to socially responsible behaviour but are implementing it because of the potential for adverse public perception (Drumwright, 1994). Type II companies usually become aware of issues in public relations through a middle manager in some external relations function. Type III companies, the “opportune” type, have already been the target of consumer activism and are behaving reactively. In this type, a “policy entrepreneur” is not easily observable (Drumwright, 1994). Type IV companies, the “restraint” type, usually are not very proactive, and are not likely to be involved in socially responsible buying unless they are awakened to the negative results caused by their suppliers. Drumwright (1994) believed that type IV companies have the potential to become type I, and some type III can become type I. However, since the economic benefits of social responsibility remain a competitive struggle, companies are not quickly moving toward an improved stance. Drumwighfs (1994) study provides some understanding about the concept of socially responsible purchasing and how buyers process contextual information and apply in buying decisions. RECOGNISING BARRIERS TO SOCIALLY RESPONSIBLE PURCHASING In 1996, the International Council for Local Environmental Initiatives (ICLEI) distributed an eco-procurement' questionnaire to over 4,000 local authorities throughout Western Europe (Jackson and Nelson, 2004). The responses indicated a full spectrum of barriers against socially responsible and environment friendly purchasing (Jackson and Nelson, 2004): (1) 51% of respondents believed that environment friendly products were too expensive; (2) 36% said that acceptance for environment friendly products was generally too low in their institutions; (3) 29% asserted that green products were more difficult to identify and obtain; (4) 27% believed they were of inferior quality; (5) 24% claimed that the difficulty in orchestrating a transition to environmentally sound products would be overwhelming; On a brighter note, investigators have often observed that the best driver for organisational socially responsible purchasing is the effort of employees who are personally committed to social responsible stewardship (Drumwright, 1994; Carter et al, 1998). Success in socially responsible purchasing has been particularly linked to middle management positions, where a ‘champion’ has an organisational position from which change can be affected. A more modest role, but still important, is played by the socially responsible ‘campaigner’; those people in an organisation who have an interest in stimulating change but lack the position and status to do so easily (Green and Morton, 2000). Simultaneously, 1996 study by Canada’s NRTEE stressed that an indispensable driver for effective socially responsible purchasing is clear, public commitment from senior managers, supported by adequate time and financial resources and implementation strategies (Delphi Group, 1996). From the analytical perspective, economic barriers for socially responsible purchasing include the following (Jackson and Nelson, 2004): (1) Environment friendly products are often more expensive, and are widely thought to be more expensive in general. It is expected that these products will gradually become less expensive as markets for the products expand. (2) New products can require new operating procedures so productive time is needed to adjust. (3) Social or environmental costs are not easily determined and are not directly relevant to the financial bottom line of the purchasing department. The NRTEE also reported that beyond the barriers listed above, when life-cycle costs and benefits are considered, many of the expenses that follow the initial purchase are not charged against the budget of the purchaser (e.g. electricity and waste disposal costs), and this reduces the incentive for a TCO approach to purchasing (Delphi Group, 1996). ICLEI study evidenced that most procurement officers find that the increasing decentralisation of the purchasing function hampers socially responsible purchasing efforts. With a decentralised approach to purchasing it becomes an increasingly complex task to achieve and monitor green purchasing practices (Erdmenger et al, 2001). In addition, there is a danger of incoherent and uncoordinated development of socially responsible purchasing practices (Erdmengerg et al, 2001). Furthermore, the introduction of any socially responsible policy requires more effort and training to involve all relevant personnel (Erdmenger et al, 2001). The NRTEE’s 1996 study pointed to the absence of ‘drive’ from upper-level management, as another organisational barrier to successful socially responsible purchasing (Delphi Group, 1996). In addition, environmentally preferable products often carry a stigma of poor performance. The limited availability of resources for environmental staff also curbs the development of socially responsible purchasing practices. A risk management approach is typically used to prioritise the direction of environmental management and social responsibility funds. Issues of health, safety, and legal compliance are given greatest priority, which leaves scant resources for environmental friendly purchasing initiatives (Jackson and Nelson, 2004). DEVELOPING SOCIALLY RESPONSIBLE PURCHASING PROGRAMME PROGRAMME PROCEDURAL ELEMENTS The OECD has identified six phases of the purchasing process (OECD, 2000). Organisations commonly employ the following solicitation methods when alerting suppliers of their purchasing needs: (1) Request for information (RFI) (2) Request for quotations (RFQ) (3) Request for proposals (RFP) An RFI can be issued to suppliers in order to seek out knowledge that could be useful in a bidding process. Such a request is informal and non-competitive. In the area of socially responsible purchasing, for instance, where prior knowledge on the part of the purchasing team may be lacking, an RFI could summons information, for instance, on recycling, re-manufacturing, or packaging return systems or other attributes testifying for supplier’s social responsibility policies. With this information in hand, it may be easier to craft new contracts that stipulate particular environmental requirements (Lyons, 2000). RFIs are used in the earliest phase of the purchasing process. An RFQ invites vendors to name their best price for a specific product or service. This is the process most commonly used to seek out the best vendor with whom to devise a contract. An RFQ is issued when all necessary knowledge has been gathered about the product or service that is needed. Bidders return RFQ packages, and typically the vendor who offers the lowest price, while meeting all the supply criteria, is awarded the contract (Lyons, 2000). The RFQ stage is where environmental and other socially responsible requirements could become a formal component of the purchasing process. Following is a small illustration of environmental specifications that could be included formally in solicitation documents in socially responsible purchasing: Vendors should use environmentally preferable packaging. Products should contain post-consumer material. Products should be suitable for recycling. Products should be free of ozone depleting materials. Products should meet or exceed the ecological and environment friendly standards (Lyons, 2000). RFP process is used when not enough information is known about a product or service to formulate a comprehensive specification, but enough is known to issue a competitive bid that will be evaluated by a committee using a predetermined system. An RFP needs to list all deliverables that are expected, and vendors reply by describing how they can best meet each requirement (Lyons, 2000). Each proposal receives a score, and the contract is awarded to the vendor who receives the best score. The RFP then evolves to become a contract between the customer and the vendor. Emphasis on social responsibility can slip easily into RFP documents in the same manner described above for RFQs. Both RFQs and RFPs are issued in the second phase of the purchasing process. TRAINING PROGRAMMES FOR SOCIAL RESPONSIBLE PURCHASING In most organisations, social responsible purchasing efforts are initiated and driven by individuals who are personally committed to social and community care. In general, however, in order to motivate purchasing staff to accept social responsibility options, “social responsibility literacy” needs to be pursued and practical tools for finding appropriate socially responsible products and services need to be explained and demonstrated. Ideally, training would extend to end-users of goods and services to ensure that socially responsible purchases are understood and welcomed widely throughout an organisation. From legislative perspective, government s must too recognise the importance of training by making a commitment to promote social responsible procurement and purchasing by offering training to their purchasing officials. The City of Goteborg, Sweden, is a vivid illustration of municipal organisations being at the leading edge of social responsible procurement training. This organisation includes all staff members in twice-yearly half-day seminars on broad environmental issues. In addition, two to three times per year, all staff members are involved in seminars where particular areas of socially responsible procurement, such as cleaning chemicals and office equipment, are discussed (Otto-Zimmerman and Lefevre, 2000). Bristol-Myers Squibb, a pharmaceutical and health-care products company, conducts quarterly “Cost Not Price” workshops for the company’s buyers and purchasing managers. Case studies are explored, including dollars saved or wasted by actual purchasing decisions. Essentially, this training highlights the TCO approach and seeks to draw attention to the link between purchasing decisions and social responsibility consequences (Global Environmental Management Initiative, 2001). PROGRESS ANALYSIS While evidently there is an imperative to keep the tasks of social responsible purchasing to a minimum, it is also essential to test for progress, so that social responsible purchasing successes can be duly promoted, and to reconfigure strategies that do not appear to be working. For instance, in Canada, one of the major criticisms of the 1997 Sustainable Development Strategies was that they did not adequately indicate progress (Jackson and Nelson, 2004). The Federal Government has since issued guidelines for indicating progress. The OECD has pointed out that challenging and measurable targets should be approved, and rewarded, from the executive level, so that purchasing staff can easily justify taking the time to organise these (OECD, 2000). For instance, the Danish Municipality of Copenhagen principles on environmental responsible buying indicate that all purchased printers are required to perform double-sided printing and all photocopiers are required to use 100% recycled paper (Otto-Zimmerman and Lefevre, 2000). The following list shows key indicators of environment responsible purchasing success that were suggested by the Environmental Policy Committee of the OECD (2000): (1) The number of purchasing contracts with environmental clauses (Unit: % of total contracts; Unit: % of total value); (2) The number of service contracts with environmental clauses (Unit: % of total contracts; Unit: % of total value); (3) Total Paper Consumption (Unit: tonnes/person); (4) Recycled content in purchased paper (Unit: % of total paper stock); (5) Number of alternative fuel or energy efficient vehicles (Unit: total number). CONCLUSION In contemporary business context, social responsibility became the “vogue” for organisations looking to be thought of as leading the way for improving society, community and the environment in general. Simultaneously, socially responsible purchasing programmes have become an integral part of companies’ social responsibility strategies. Carter and Jennings(2000) provided a broad definition for socially responsible purchasing programme, which included “involvement of purchasing managers in the socially responsible management of the supply chain…behaviors that broadly fall into the categories of environmental management, safety, diversity, human rights and quality of life, ethics, and community and philanthropic activities” (p.8). This paper examined the most important parts of typical socially responsible purchasing programme, including development of programme’s procedural elements, training of purchasing managers and progress analysis. REFERENCES Drumwright, M. E. (1994). Socially responsible organizational buying: Environmental concern as a noneconomic buying criterion. Journal of Marketing. 58 (July), 1-19. Carter, C.R., Ellram, L.M. and Ready, KJ. 1998. Environmental purchasing: Benchmarking our German counterparts. International Journal of Purchasing and Materials Management. 34(4): 28-39. Carter, C. R., & Jennings, M. M. (2000). Purchasing’s contribution to the socially responsible management of the supply chain. Tempe, AZ: Center for Advanced Purchasing Studies, Arizona State University. Green, K. and Morton, B. 2000. Greening Organizations: Purchasing, Consumption, and Innovation. Organization and Environment. 13(2): 206-225 Erdmenger, C., Eri, V., Fuhr, V., Lackner, B., Schmidt, A., van der Grijp, N. 2001. The World Buys Green – International Survey on National Green Practices. : International Council for Local Environmental Initiatives, Freiburg, Germany. Retrieved Cot 18, 2010 from Jamison, L. (1996). Environmental purchasing-makmg it mainstream. Management Services. 40 (4), 24-25. Jackson, I. A., & Nelson, J. (2004). Profits with principles: Seven strategies for delivering value with values. New York: Currency Doubleday. Littrell, M. A., & Dickson, M. A. (1999). Social responsibility in the global market: Fair trade of cultural products. Thousand Oaks, CA: Sage Lyons, K. 2000. Buying for the Future: Contract Management and the Environmental Challenge. London: Pluto Press. Organisation for Economic Cooperation and Development. 2000. Greener Public Purchasing: Issues and Practical Solutions. Paris: OECD Otto-Zimmerman, K. and Lefevre, P. eds. 2000. Green Purchasing Good Practice Guide: How Local Authorities Spend Their Budgets Responsibly. Freiburg: International Council for Local Environmental Initiatives (ICLEI) Subhabrata, B.B. 2007. Corporate Social Responsibility: the Good, the Bad and the Ugly. Edward Elgar Publishing The Delphi Group. 1996. Development of Criteria for Green Procurement. Ottawa: National Round Table on the Environment and the Economy. Read More