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Click to edit Master subtitle style 11/13/10 INFORMS ANNUAL MEETING- AUSTIN, TEXAS 2010 Mitigating G lobal S upply C hain R is ks through C orporate S ocial R es pons ibility (C S R ) Jose M. Cruz University of Connecticut, Storrs, USA INFORMS ANNUAL MEETING A u stin , Texas November 10-14, 2010
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Click to edit Master subtitle style
11/13/10 INFORMS ANNUAL MEETING-AUSTIN, TEXAS 2010
Mitigating Global S upply Chain R isks through Corporate S ocial Responsibility
(CS R )
Jose M. CruzUniversity of Connecticut, S torrs, USA
I N FOR MS A N N UA L MEETI N GA ustin, Texas
N ovember 10-14, 2010
11/13/10 INFORMS ANNUAL MEETING-AUSTIN, TEXAS 2010
Outline of Presentation
CS R - Definitions and Terminology Core CS R Issues Globalization and CS R CS R as R isk Management Tool CS R-Multi-S takeholder Global S upply Chain Model Results Managerial Insights
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CSR - D efinitions and Terminology
Business in the Community defines CSR as: ‘‘a company’s positive impact on society and the environment,
through its operations, products or services and through its interaction with key stakeholders such as employees, customers, investors, communities and suppliers.’’
Many terms used interchangeably Corporate social responsibility Corporate citizenship Social programs / social investments Community outreach / social outreach
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CSR S takeholders
Current drivers• Consumers• NGOs• Trade unions• Media• Shareholders• Risk reduction• Brand• Reputation
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Core CSR I ssues
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W hy is CSR R ising Globally?
Rapid globalization of businessesHuman right abuses, misconduct, ecological damages
etc. Continued business scandals and misconduct on
global basisDiversified stakeholders and growing concerns
over corporate behavior and misconduct Proliferation of Internet and increase in media
campaign have accelerated situations
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Newspapers: Nikkei, Nikkei Sangyou, Nikkei Ryuutsuu, Nikkei Kinyuu, Asahi, Yomiuri, Sankei, Nikkan Kogyou
CSR Globally
(Based on Nikkei Telecon21)
No. of CSR related Articles covered byNewspaper in Japan
0
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2000 2001 2002 2003 2004 2005
Year
No.
of A
rticl
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Corp. EthicsCSR
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CSR Pressure…
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Leadership, Market Positioning or just more Greenwashing?
We understand that our responsibilitiesgo beyond regulation. This is why we have a multi-functional approach to environmental issues throughout the company.
- From Chevron Canada WebsiteBeyond Petroleum
Striving to buy, sell and use environmentally friendly products.
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W hat are I mpacts on Companies?
Growing discussions, government actions, legislation and CSR standards/codes and etc.Expanding assessment and monitoring on
CSRSocially Responsible Investment (SRI)
Growing stakeholder activism (NGOs as watchdogs for companies)
Integrated into supply chain management CSR has become a global business issue
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CSR -Expanded R isk Management
GeopoliticalRegulatoryCurrencyMisc.
Environment SocialGovernance
Terrorism
Poverty
Disease
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CSR & Supply Chain
Factors:Legal requirements Pressure from consumersChanging consumer preferences
Results:Attempt to minimize their emissionsProduce more environmentally friendly productsEstablish sound recycling network systems Managing the corporate social responsibilities
of their partners within the supply chain
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CSR & Supply Chain
Operational benefits realized by improving environmental and working conditions performance Lower energy cost Less wasteIncreased productivity Improved safety Decreased turnover and training costBrand risk management
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CSR R esearch Themes
From 1953 to 1970: Responsibility of the businessman (Bowen, 1953).
From 1970 to 1980: Characteristics of socially responsible behavior ( Davis,
1973; Carroll, 1979)In the 1980s:
Stakeholder theory (Freeman, 1984) Business ethics (Frederick, 1986 Corporate social performance (Drucker, 1984)
In the 1990s: Empirical studies attempted to correlate CSR with financial
performance (Clarkson, 1991; Waddock and Graves, 1997; Berman et al., 1999; Roman et al., 1999)
Today CSR is: A prominent research theme Found in corporate missions and value statements
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CSR as R isk Management ToolGlobal Supply Risk Model
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Global Supply Chain N etwork Model
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Establishing levels of social responsibility activities incurs some costs.
Higher levels of social responsibility activitiesReduce transaction costsReduce demand side riskReduce supply side riskSocial Risk
Multicriteria decision-makersManufacturers and retailers try to:
Maximize net revenue Minimize risk
A ssumptions of the Model
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Features of the Model
Captures multi-tiersManufacturers Retailers
Captures interactions among individual decision-makersCompetition at the same tierCoordination among different tiers
The model captures :Supply-side risks Demand side risksSocial risksExchange rate risks
DeterminesProduction quantities, shipments, price levels of CSR
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Manufacturer’s Problem
The expect social risk function
The expect production cost function
The maximization ProblemMaxim
ize:
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R etailer’s Problem
•Random demand with Probability distribution
News vendor model:Excess supply
(inventory)Excess demand (shortage)Expected Value
Total expected penalty
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R etailer’s Problem
The expected social risk function
The maximization problem
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The Market S tochastic Economic Equilibrium Conditions
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The Equilibrium State
Definition: The equilibrium state of the network is one where the flows between the tiers of the network coincide and the product transactions, levels of social responsibility activities, and prices satisfy the sum of the optimality conditions and the equilibrium conditions.
The equilibrium state is equivalent to a VI of the form:
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Qualitative Properties
I have established
Existence of a solution to the VI
Uniqueness of a solution to the VI
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Computational S tudies
The effects of CSR cost on levels of CSRThe effects of levels of CSR on:
transaction costssupply side risksdemand side riskssocial risks
The effects of levels of CSR on:product pricesproduct transactions
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R esults
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The Perceived Benefits of Good CSR
Risk managementStaff recruitment and retentionCost reductionsEnhanced reputation and imageMarket accessRelationships with government, other
businesses, stakeholders
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Managerial I nsights
CSR in supply chain should be viewed holistically.CSR improvements can lead to economic benefits
for companies.CSR can potentially reduce production
inefficiencies, reduce cost and risk and at the same time allow companies to increase sales, increase access to capital, new markets, and brand recognition.
Managing CSR in a global market is more demanding and requires that it is adapted to and contextualized for specific individual country.
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Thank You!
Questions?
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