Corporate Social Responsibility in Procurement

In a new global environment, the firms have become more responsible of their actions. Before 1980’s the task for procurement executives were to reduce and minimize the cost. This has changed significantly since then. In recent years executives have realized that procurement has significant influence to business performance. (Ciliberti et al., 2008) Managers from operations, purchasing and supply chain have noticed the integration of environmental and social issues and the issues are considered as daily tasks. (Seuring & Müller, 2008) For organizations there is a lot of external pressure that is related to corporate social responsibility. The pressure comes from various external interest groups such as consumers, local communities, civic organizations and legislators (Govindan et al., 2013)

Responsible procurement is considered to be an important issue for practitioners.

Socially and environmentally responsible procurement has potential to influence in organization’s reputation in negative way because interest group’s demands and expectations are higher when it comes to CSR- related actions, but on the other hand it also has an ability to improve competitive performance. Socially and environmentally responsible procurement is fundamental because of globalization, broken supply chain and stakeholder pressure. Implementing responsible procurement strategies is vital not only because of organization’s brand and corporate image but also because the implementation gains attention from responsible investors. Responsible procurement helps organizations to create financial incentives and understand the blurred lines that are caused by globalization of companies. (Hoejmose & Adrien-Kirby, 2012)

Corporate sustainability efforts have traditionally focused on direct impacts of organization’s waste or emissions connected with its operations (Smith, 2013).

Maignan et al. (2002) imply that responsible procurement is a way to manage risks related to interest groups’ expectations and demands. In the context of responsible procurement socially responsible buying is mentioned often. In socially responsible buying all aspects of triple bottom line are included in purchasing process. (Maignan et al., 2002) According to the study of Roehrich et al. (2014) factors behind

implementation of responsible procurement strategy are often related to reputational risk.

When the responsibility used to be on a single employer or on government, now multinational corporations are demanded to take more action on employee rights.

Even though corporate social responsibility has been known for a long time in business related literature, its implementation to procurement happened only a decade ago (Ciliberti et al., 2008). Procurement has developed to be a more responsible function. Customs and practices that organizations practices have influence for every company in a supply chain and hereby the actions create a foundation for social and environmental framework (Govindan et al., 2013).

According to Tiwari et al. (2014) there are five positive outcomes of responsible procurement:

• Positive influence on company reputation and employee motivation

• Retention and recruitment

• Cost savings

• Increased revenue

• CSR- related risk reduction

This development has lead to many positive outcomes, including risk mitigations and bettered corporate reputation. Still it exposes organizations to a risk in case of non-compliance with expected norms and principles. (Tiwari et al., 2014)

To fully implement and benefit from responsible procurement strategy it requires proactive management and decision-making. A change in consumer’s awareness has lead to organizations’ acceptance of CSR, which leads to better competitive advantage within the field of business. Responsible procurement takes wider aspect in consideration when it is compared with traditional procurement. The reach of responsible procurement goes beyond financial and legal concerns into social and ethical considerations including community involving, diversity, health and safety, labor right issues and the environment. This increases the accountability of an

organization within its interest groups but also leads previously mentioned positive effects of socially responsible actions. (Tiwari et al., 2014)

Lately there have been discussions about Green Procurement. Srivastava (2007) describes that Green Procurement is a mix of environmentally friendly thinking, product planning, raw material purchasing and selection, manufacturing process, providing end product for an end user and controlling products’ life cycle. Supply chain management in green procurement is based on a philosophy that describes how organizations take an advantage of their suppliers’ processes, abilities and technologies to integrate environmental concerns in to their own benefits. (Vachon &

Klassen, 2008) The amount of green products has grown rapidly in recent years and this had raised the importance of green procurement and made it more significant for companies. On the other hand the continuous growth in importance of green procurement has raised questions about green washing. Green washing misleads consumers regarding the environmental practices of a company or the environmental welfares of a product or service. In case of green procurement organizations have to pay extra attention to its interest groups and interest- group related risks. (Philips, 2009)

Companies’ interest groups have become more demanding and this has had a drastic influence for the change in corporate thinking. Interest groups have forced organizations to take non- financial factors in consideration in procurement. (Maignan et al., 2002) Hoejmose and Adrien-Kirby (2012) suggest that in previous studies responsible procurement is considered to be a reactive response to external pressure. Responsible procurement works in both external and internal environment.

External drivers usually consist from organization’s stakeholders and interest groups, which are for example customers, governments, NGOs, and investors. In past years responsible procurement’s role has matured into a holistic and strategic business function (Tiwari, et al., 2014) According to Hoejmose and Adrien-Kirby (2012) governmental regulatory pressure and customer pressure are the main external pressures that organizations face. The significance of pressure is more important especially when organization ethically committed to its procurement process.

Internal drivers for responsible procurement are organization related. One of the most significant factors is top management support, employees’ commitment and organizational values. The managerial point of view to an issue is significant because top management’s responsibilities cover decision-making, which is related to organization’s practices and organization’s culture. (Hoejmose & Adrien-Kirby, 2012) Employees also influence to responsible procurement but executives have also responsibilities related to firm’s employees. Implementing supporting organizational culture creates an environment where employees support executives’ decision-making. (Hoejmose & Adrien-Kirby, 2012)

Philipps (2010) talks about implementation of responsible procurement and states that it is hard on the wide scale. There are many things that have to be taken into consideration before implementing the responsible procurement strategy and organizations find that challenging. The reach of risks related to responsible procurement and especially to supply chain is way longer than traditional risks that are related to financial and operational performance. For organizations it is challenging to prevent risk exposures, which might be caused by second or third tier supplier (Philipps, 2010) There is dilemma in responsible procurement that has been controversial between short-term and long-term orientation. Usually in procurement the traditional way is to reduce cost, which is considered to be an option for short-term. CSR strategies are usually long-term and this creates the dilemma between savings and responsible actions.

Bounded rationality is often present when responsible procurement is considered and implemented. This means that organizations tend to be responsible on one area without notifying other aspects of responsible procurement. Previously mentioned failures are an example of engagement of bounded rationality when responsible procurement is taken into consideration. Some companies tend to obey the laws and neglect their own social and environmental initiatives, which are more valuable when the aspect of CSR and sustainable development are considered. (Roehrich, et al., 2014)

Based on Liao’s and Kao’s (2011) findings, they state that in the most of the literature the conclusions are that price, quality and efficiency of performance are the key

factors in supplier selection. Both environmental and social factors should be in major role when procurement is considered. Environmental durability and ecological efficiency are factors that can only be measured and observed through suppliers and their actions. (Kuo et al., 2010) Nevertheless Tiwari et al. (2014) suggest that implementing responsible procurement strategy leads to various benefits. Adapting the strategy to be a part of an organization has a positive influence on the performance, trust and cooperation of the suppliers place. Parties involved, parent company and supplier organization would understand the positive influence of responsible procurement. (Tiwari, et al., 2014)