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The Eastern Today

Innovation CSR application in the Supply Chain Business

December 13, 2016 04:42PM

Pranjal Kumar Phukan

Executive Summary

In general, the known four traditional arguments are the moral argument, the license-to-operate argument, the sustainability argument, and finally the reputation argument. While acknowledging that these are solid arguments in support of CSR, the article further argues that another solid reason for pursuing a strategic CSR program is that it could lead to innovation in an industry. The article highlights the value chain analysis that we have developed to tackle the suppliers’ issues, risk to society, business risk and risk to economic development showing how it has led to innovations that are not only helping the company, but also addressing the societal issue at a regional and national level, while also making our business safer and more profitable in the medium to long term. In conclusion, the article argues that CSR should not just be considered an expense, but rather an investment for the benefit of the society.

Introduction

According to the Merriam Webster Online Dictionary (2007), innovation means “the introduction of something new” or “a new idea, method, or device: novelty.” Therefore, perhaps the most interesting – and difficult – part of integrating CSR initiatives to achieve innovation is the very nature of the enterprise itself. After all, innovation implies discovery and history has shown that many of the most important contributions to science and medicine have been accidental.

Therefore, an innovation that could satisfy the needs of the local community represents such an opportunity for using CSR to a company’s advantage, again providing that the otherwise strictly altruistic nature of the enterprise is not lost on the company’s consumers and potential consumers. Communication is the key here.

Innovative companies are thinking and acting in terms of a ‘triple-bottom-line’ ethic, which goes well beyond the drive to maximize shareholder value by incorporating environmental quality and social justice considerations into their business decisions. To refuse the challenge implied by the triple-bottom-line is to risk extinction”.

Companies that have sustainable policies tend to be technological leaders, as they seek imaginative new methods for reducing pollution and increasing efficiency. In many cases, these companies are able to come out with new, innovative products that out-pace most of their competitors. In order to better understand how major companies have been able to successfully innovate as a result of their commitment to sustainable development and corporate responsibility let us look at the case of the Polymer industry located in the remotest location of India.

Innovation and Supply Chain business

BCPL, a highly sophisticated Petrochemical with a global reach, was commissioned in February 2016 for producing High Density Polyethylene (HDPE), Linear Low Density Polyethylene (LLDPE) and Poly-Propylene (PP). The company bases its business model on innovation driven by science and technology and because of this the company’s response to latest methods in manufacturing and operations and the direction that its innovation is taking is instructive. According to our website, company’s “vision is to emerge as a dominant petrochemical player in the northeast region, providing value to stakeholders, offering best-in class products & services, contributing to economic growth while remaining environmentally conscious”.

Myself as head of supply chain and member of CSR team have started realizing new commercial opportunities through factoring in market change considerations throughout its business – what the company calls its “operations and the value chain” work. With energy prices continuing to rise, and market competition change routinely at the top of the business agenda, we have recognized the growing market for technology that reduces costs and quality impacts.

Other risks are strategic such as supply chain strategy doesn’t account for the scarcity of resources that are essential to the operations — like hydrocarbons — then the organization actually undermining the company’s long-term success. Therefore, we have taken care of another strategic risk area by taking up CSR efforts which are essential to attracting millennials to the company and to supply chain roles. This action is based on research which shows that institutional investors — the firms that may be the organization’s biggest shareholders — know that companies are running complex, global supply chains in a volatile, resource-constrained world. They want assurance from us that we are making choices in supply chain that account for ESG risks and position those companies for long-term success.

At BCPL, we describe supply chain transformation and maturity journeys as opportunities to gain an “outside-in” perspective and get closer to the customer. The goals are to gain insight and add supply chain capabilities that enable us to create shared value. Although CSR conversations may start with focus on concerns about risks, they lead to really innovative ideas for new products, new differentiating processes and new market opportunities.

 

Segmenting the Supply Chain

Segmentation allows companies to focus on the most critical elements of the supply chain. Good segmentation is a balance between acknowledging that some risk will always exist but that specific risks need to be addressed to avoid negative impacts to the business and to society.

I along with my team effectively segmented its supply chain with translation of risks to types of suppliers. Being a chemical company we have found that many of its highest risks are focused on the raw minerals that are used in manufacturing the products. Therefore we have focused on our supply chain sustainability programme at the base of its supply chain programme. Other highest risks occur during transportation of hazardous chemicals when the integrity of its quality, safety and storage might be at risk. We therefore make it mandatory for its logistics suppliers to address potential business ethics, labour and business continuity concerns. Some risks, such as greenhouse gas emissions, packaging waste and environmental management in logistics and transportation are common to our industry, and depending on the scale of activity, requires innovative interventions.

In order to address environmental, health and safety impacts throughout the company’s supply chain, we have started a programme to enable knowledge and best practice sharing with suppliers. A detailed questionnaire was sent to all suppliers. This provided the basis for understanding the current processes in the supply chain and the level of the environmental challenges, such as effects of irresponsible waste disposal. Suppliers were then categorized as follows:

  • Supplier with hazardous process and dangerous operations with no EMS/OHSAS certification
  • Supplier with hazardous process or/and dangerous operations with EMS/OHSAS certification
  • Supplier with non-hazardous process or/and non-dangerous operations with no EMS/OHSAS certification
  • Supplier with non-process or/and non-dangerous operations with EMS/OHSAS certification

Suppliers in categories A & B were determined to be top priorities for the company’s continuous improvement programme.

We have organized our suppliers by control level. Suppliers are categorized into five levels depending on their impact on the company’s CSR initiatives and ability to sustain production.

Expanding market access

By engaging in community-support programs, we are able to connect with our target consumer and establish relationships with key business partners in the local market. These CSR programs help guide business decision-making processes by acquainting us with cultural norms in the host community and enabling better assessment of public expectations. The insight gained helps ensure that we gets recognized as a good corporate citizen within the community. We have also found that community involvement reduces local regulatory obstacles, provides access to the local political process, generates positive media coverage, and increases access to markets for their products and services.

Intermediate producers are becoming more sensitive to and aware of CSR. If they choose not to adopt and implement basic CSR policies, they may lose markets. By embracing CSR, on the other hand, supply chain contractors can differentiate themselves and possibly attract new clients. Suppliers can reduce obsolete inventory, cut delivery time and streamline management systems, but adjusting supply chains to implement CSR policies is trickier. The concept of supply-chain innovation can be extended to include CSR. Supply chains are constantly being reviewed/updated to optimize costs and performance. Therefore implementation of CSR policies have been given consideration at the stage of our supply chain planning. Most studies only address implementation of CSR practices at the level of first-tier suppliers in global supply chains. But we have taken the challenge to enable more suppliers to implement CSR standards more easily and to monitor compliance beyond the first level of intermediaries.

By making CSR products competitively priced and available at our local outlets Pan India, We are addressing some of the constraints that have made consumers reluctant to shift on a larger scale to “green” products, while at the same time capturing attention and consumer loyalty.

Many suppliers operate on thin margins and short-term business horizons. Compounded by low barriers to entry in labor-intensive industries leading to overcapacity in the supply chain, and the high costs involved in adopting different codes of conduct for different clients, they are often wary of CSR. While some supply chain partners are beginning to appreciate the opportunities for greater market access provided by CSR, most are sellers of intermediate or generic final goods (where CSR compliance is not a visible attribute associated with their own brand) and hence are less likely to feel threatened by challenges to their reputation for non-compliance with codes.

One way we have addressed the potentially high costs to small producers of participation in CSR initiatives is for industry associations by assuming some of those costs on behalf of their members. Progressive industry participants have shown an interest in such schemes to the extent that they can limit the risk of negative publicity spillovers from less responsible industry participants. Our industry has developed an industry-wide program aimed to prevent child labour and exploitation of weaker sections of the society.

Monitoring Supply Chain CSR

The outsourcing trend has stretched supply chains around the globe. The different players in the supply chain are at different tiers in the process, and each has different capabilities and incentives to implement a given MNC’s CSR program, making management of the supply chain increasingly intricate. Management aside, the issue becomes complex due to the pressure from multiple stakeholders requiring the corporation to be more responsible through the lifecycle of the product. The pressure from some quarters is to ensure a sustainable product lifecycle, from environmental and social impacts arising from material extraction and manufacturing, to product use and disposal. This is a challenging task that requires additional company investment. Monitoring suppliers from around the world requires significant financial and human resources. Partly as a response to CSR pressures, but partly also for competitiveness reasons, the overall trend is to collapse the supply chain and develop longer-term relations with a smaller number of suppliers.

We are monitoring our supply chain by using a self-assessment questionnaire. We then works collaboratively with suppliers to achieve the required standard in areas identified as per the requirements. Where control of CSR initiatives cost is a priority, on-site monitoring is made by external independent monitoring firms which reduces costs by streamlining the travel and maintenance of large internal departments of company auditors.

Indeed, we have successful in implementing externally imposed codes of conduct. We made sure of zero child and forced labour, and gave priority to fulfilling an order according to the requirements of time, cost and quality with adequate amount of patience for CSR policies regarding standard working hours, overtime facilities, and support to workers who aims to form unions in spite of intense competition and time pressures.

Philanthropic giving through CSR to sustain supply chain business

Corporate philanthropy may be characterized as the “soul” of a company, expressing the social and environmental priorities of its founders, executive management and employees, exclusive of any profit or direct benefit to the company. Within privately held companies, the values of the controlling owners often determine the company’s philanthropic priorities, while charitable endeavors for publicly held companies may be influenced by boards of directors and executive management. Within this theatre a business engages in CSR because it is a good thing to do, motivated by the logic that since the corporation is an integral part of society it has an obligation to contribute to community needs. While it may be challenging for corporate leaders to make a coherent argument for how philanthropic activities contribute to a company’s business strategy, in general these activities enhance a firm’s reputation in the local community and provide a degree of insulation from unanticipated risks.

We have contributed $110 million annually to a variety of environmental, educational and humanitarian organizations through company and NGO Foundation. Other examples of in-kind giving includes donations of computers, books and white boards for class rooms through our welfare societies. We also contributed through cash funding, in-kind donations provide important, and often critical, goods and services to nonprofit organizations and needy local populations. Such types of philanthropic giving has reflected our core competencies and business priorities, as illustrated by our regular social obligations.

Focusing on the philanthropic initiatives, we have supported through NGO foundations for early childhood education program and initiatives to train and support women entrepreneurs in downstream plastic industries. Both CSR efforts are a direct expression of the companies’ respective business strategies. With $150 million in funding for over a five-year period, we intend to provide critical school readiness resources to underserved populations of the locality where we operates, in turn creating stronger communities, potential future employees and BCPL brand loyalty. Furthermore, by integrating the child education program into our management training and employee volunteer programs, we have created a broad corporate commitment to the initiative. In keeping with the organization’s global view of economic growth, our internal team honed in on the idea of expanding the benefits of globalization to other under-developed regions of the state. Our company also devotes significant amount of CSR resources to its Women development program to provide business and management skills to underserved women.

Organizing for strategy development of CSR

Ideally, well-managed CSR creates social and environmental value, while supporting a company’s business objectives and reducing operating costs, and enhancing relationships with key stakeholders and customers. It has become imperative of us to establish a CSR unit whose primary responsibility is to coordinate and integrate initiatives in all three areas in which our company is engaged in, even if responsibility for the various initiatives remains dispersed throughout the company. This CSR unit, however, headed by a person who has senior management rank and holds the position as his/her primary responsibility. It is mandatory for our CSR offices which is headed by managers to devote on CSR and no other corporate responsibilities is being assigned to him, such as head of Human Resources or Operations. The remaining professionals devote devotes primarily to their functions, leading supply-chain initiatives, and their remaining hours are spent on supervising and managing CSR initiatives. This highlights our commitment to the strategic aspects of CSR with well-crafted and implemented company-wide CSR vision with our senior manager, and his/her staff, committed to and focused on this priority.

Benefits of CSR in Supply Chain networks

We have got the results due to collaborations resulting in reduced packaging, joint recycling of parts and components, and process changes that reduce the use of hazardous materials. Also the results have shown in past that it has led to reduction in transaction costs and improvements in our to supplier manufacturing performance. Our involvement in CSR collaborative arrangements has also enhanced our competitive urge and profitability. CSR has potentially decreased our production inefficiencies, reduced cost and risks and at the same time allowing us to increase sales as a result of low costs, lower risk and becoming more profitable day by day.

Indicative potential performance gains from CSR activities that we pursued continually have resulted in cost savings, reputation risk mitigation and increased market penetration. In contrary to the notion that companies see CSR as a means for damage control or public relations, we are increasingly realizing that CSR activities offer opportunities to create value to us. Falck and Heblich (2007) as cited by Cruz and Wakolbinger (2008) indicate that the practice of CSR “is an investment in the company’s future, as such, it must be planned specifically, supervised carefully, and evaluated regularly”. Kogg and Mont (2012) also concur when they stated that sustainability issues have resulted in a shift of focus by companies from own operations to improving the performance of the supply chains.

We have found that sustainable supply chains has resulted in productivity improvement and innovation which are achieved by examining processes up and down the supply chain to increase material conversion, to increase energy efficiency, and to look for ways to convert waste into useful by-products. It is to be pointed out that due to the fact that sustainable issues result in integrated supply chains, we are able to mitigate the debilitating effects of supply chain dynamics such as the bullwhip effect by developing efficient flow of information and materials up and down the supply chain.

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