Chapter Four: Companies Behaving Badly

Overview

Efficiency and overhead reduction was the rationale for the dramatic shift of production and logistics responsibility to third parties, and measured by these standards, outsourcing to thirdparty vendors in developing economies has worked remarkably well. Consumer prices have dropped dramatically, while productivity and profits have soared. But in the last five years , particularly, many companies have gone through a painful learning process that has moved from early denial, through half-baked methods intended to force better behavior among their suppliers, to fully developed supplier management programs.

Initially, relocating and outsourcing production in order to take advantage of low labor costs and loose environmental and safety regulations seemed to be a perfect solution for everyone concerned ” corporations, consumers, investors, and those employed in developing economies (although U.S. unions weren t too pleased). In fact, it made such perfect operational sense that it took some time for companies to realize that there might be a down side to this supply chain revolution. Even as late as 1995, mentioning social responsibility issues in a company s annual report, emerging Web sites, or in advertising or marketing campaigns ” particularly those involving labor or environmental activities of a supplier in a developing country ” was practically unheard of. Even in 1997, despite stiffer EPA rules and penalties for violations, only 32 percent of procurement departments surveyed admitted to having questioned their suppliers during the strategic sourcing process about their environmental activities. ^{[1 ]}

It therefore came as a surprise to analysts and business leaders that the same parties that benefited from these lower costs ” the consumers and investors ” would actually come to join sides with human rights and environmentalist pressure groups to demand that buying corporations continue to assume responsibility over employment and environmental actions of their suppliers. In short, what was never considered as this supply chain revolution was taking place was that shifting responsibilities for production to third parties did not fully abrogate the parent companies from ethical and social responsibilities that came with that production.

^{[1 ]} Ram Narasimhan and Joseph Carter, Environmental Supply Chain Management, Center for Advanced Purchasing Studies, 1998, p. 12.