Potential Costs

Potential Costs

On the opposite side of the ledger, the team will need to consider the costs associated with dedicating resource and time to the supply chain program, developing education and training programs, monitoring suppliers, and developing a company report. These efforts all cost money. As we have seen, Nike now has a team of 85 working full-time on SEAAR- related monitoring and reporting; Gap has a team of 90. Ford reported in 2001 that it was spending between $27,000 and $ 85,000 per manufacturing plant in order to attain certification in ISO 14001. [14] Baxter International, the healthcare company, reported spending $625,000 over two years on its social reporting exercise. [15 ]

With commercial auditors charging $1,500 a day, it is not uncommon for a buying company to spend $10,000 “ 15,000 each year on inspectors and coaches for each supplier. When dealing with thousands of suppliers, these monitoring and inspection costs can soon add up. [16 ] And, of course, what companies do not want, is to lose their cost savings and the advantages of outsourcing by having to spend enormous sums of money to improve subcontractor operations.

These costs will vary significantly, of course, depending on the effort undertaken, the size and location of the company, and the relative cost sharing formula agreed on between company and supplier. Some companies may limit themselves to paying for the audits and certification process, expecting supplier factories or farms to fund the improvement process itself. In other cases, that arrangement may be reversed , particularly where multiple companies buy from the same factory, competitors and industry groups often collaborate in funding improvements according to their relative percentage of yearly purchase from the supplier.

[14] New Paths to Business Value, the Global Environmental Management Initiative at www.gemi.org/newpath.pdf.

[15 ] Alison Maitland, Social Reporting: Pressures Mount for Greater Disclosure, FT.com, December 10, 2002.

[16 ] Supply Chains and the OECD Guidelines for Multinational Enterprises, BIAC Discussion Paper on Supply Chain Management, OECD, June 19, 2002 at :www.uscib.org/docs/CR-biacscm.pdf_ ethical _ supply _ chain&hl _ en&ie _ UTF-8& .

Tools and Methods for Compiling the Business Case

One of the best ways to begin developing a business case for action is for the CERO and his or her team to use a self-assessment tool that can help them benchmark the company s current state against their stated goals and the performance indicators that they have selected and the stakeholder expectations they have developed. These self-assessment tools help the company understand the gap between stated policy and reality in areas such as:

  • Levels of employee buy-in to high standards of ethical behavior

  • Board and senior management perceptions and degrees of support

  • Stakeholder expectations

  • The information gathering capabilities and general risk awareness of the company

  • Potential areas of concern throughout the extended supply chain, including supplier behavior

There are many good examples of these self-assessment tools, including those from CERES, the Global Environmental Management Initiative (GEMI), the Sustainable Development Commission in the United Kingdom (see Appendix D), or from pioneering companies such as Sustainability Northwest (see Appendix E), which can be used to judge the quality of a company s sustainability or ethical supply chain strategy.

Following this type of self-assessment, a company will be in a better position to develop an implementation plan and to gauge the spending and resource requirements that make up the cost side of the business case.