THE BUSINESS CASE FOR SUSTAINABLE SOURCING: A Corporate Social Opportunity
HENRIK CHRISTENSSON BJÖRN HOLMDAHL
Master thesis in Industrial Engineering and Management The School of Business, Society and Engineering, Mälardalen University
Västerås June 8th 2020
ACKNOWLEDGEMENTS
This report is the degree project of our education, Industrial Engineering and Management at Mälardalen University. The study encompasses 30 ECTS and has been conducted in collaboration with Volvo Construction Equipment.
First of all, we would like to express our gratitude to Martin Oldaeus, our manager at Volvo, for providing us with this opportunity. Throughout our thesis he has provided us with guidance, assistance and opportunities to meet and learn from the professionals at Volvo. Additionally, we would like to express a special thanks to William Rydell, our mentor at Volvo. He has made us feel as a part of the Volvo team in Eskilstuna and has always been there to answer questions, or simply a laugh. We would also like to thank all of the employees at Volvo who have provided us with input or have been a part of our study in any way.
We would also like to thank our tutor Roland Hellberg as well as our collogues at Mälardalen University. Last but not least, we would like to extend our deepest gratitude to our families and friends, who have provided us with inspiration and encouragement. Not only in this project but throughout our entire education. All of you have been of great importance and without you, the project would not be the same.
Thank You!
Henrik Christensson Björn Holmdahl June 2020, Västerås June 2020, Västerås
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The Business Case for Sustainable Sourcing: A Corporate Social Opportunity
Date: June 8th, 2020
Level: Master Thesis in Industrial Engineering and Management, 30 ECTS
Title: The Business Case for Sustainable Sourcing: A Corporate Social Opportunity (Affärsfallet för Hållbar Leverantörsutvärdering: En Social Affärsmöjlighet) Authors: Henrik Christensson Björn Holmdahl April 24th, 1993 April 7th, 1992
School: Mälardalen University
Institution: The School of Business, Society and Engineering
Tutor: Roland Hellberg
Examiner: Pär Blomkvist
Principal: Volvo Construction Equipment
Manager: Martin Oldaeus
Mentor: William Rydell
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ABSTRACT
Sustainability has become a prevalent societal value and is ubiquitous in public discourse. Securing sustainable economic growth on increasingly globalized markets is perceived by many as one of the greatest challenges of our time. Supply chains have become globally dispersed and are increasingly complex to manage. Companies are experiencing higher expectations from their stakeholders in terms of their sustainability performance. They can no longer renounce responsibility for the actions of their suppliers and need to manage their sourcing activities so as to ensure sustainable supply chains. This poses a challenge but can at the same time present a business opportunity. There have been attempts to identify a business justification and rational for pursuing sustainability in sourcing. However, previous research has been primarily theoretical and has lacked practical applicability. The current study seeks to investigate the key features of the business case for sustainability. It also seeks to identify how the business case can be realized in sourcing activities. The current study has an exploratory design and revolves around a single case company. It utilizes both primary- and secondary data as well as a rigorous literature review. The primary data consist of a pre-study as well as interviews whereas the secondary data consist of a review of the current sustainability- and sourcing processes of the case company. The study culminates in a thematic analysis of the empirical data as well as a subsequent discussion. The empirical data indicates that the market is exhibiting an increasing demand for products with a strong sustainability profile. Additionally, it indicates that sustainable sourcing will become increasingly important for complying with regulations, attracting employees and reducing risk throughout the supply chain. Currently, suppliers’ sustainability performance is predominantly managed through the screening process and there is no functional metric available for practitioners to quantitively evaluate it. Rather than relying solely on sustainability requirements, the empirical data indicates that it is through cooperation and joint initiatives the greatest results can be achieved. We conclude that there is business case for pursuing sustainability as it: reduces risk and costs; increases companies’ ability to retain and recruit employees; cost efficiently comply with regulations; retain and attract customers and increase overall competitiveness. In order to realize the business case, it is imperative for companies to formulate clearly defined goals and subsidiary objectives to follow up on established trajectories. Since there is no metric suitable for measuring sustainability performance it is advisable to adopt a reductionist approach. The screening process should be devoted to binary variables while the evaluations process should be concerned with those who can be quantifiably evaluated. Companies should work closely with suppliers by identifying opportunities for synergistic value creation and engage in joint initiatives. Finally, companies need to communicate their efforts and achievements to all concerned stakeholders.
Keywords: Sustainability, Purchasing, Sourcing, Screening & Evaluation
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SAMMANFATTNING
Hållbarhet har kommit att utvecklas till ett framträdande socialt värde och tar stort utrymme i samhällsdebatten. Många menar att en av vår tids stora utmaningar är att säkerställa hållbar ekonomisk utveckling på allt mer globaliserade marknader. Försörjningskedjor har blivit allt mer globalt spridda och svåra att hantera. Företag möter högre förväntningar gällande deras hållbarhetsarbete. De har inte längre en möjlighet att avsäga sig ansvar för sina leverantörers handlingar utan måste aktivt jobba för att säkerställa ett hållbart värdeskapande i sina försörjningskedjor. Detta innebär nya utmaningar men också nya möjligheter. Det har gjorts tidigare försök att identifiera ekonomiska motiv för hållbar leverantörsutvärdering. Tidigare studier har dock varit teoretiska och saknat praktisk applicerbarhet. Den här studien ämnar att undersöks huruvida hållbar leverantörsutvärdering erbjuder en affärsmöjlighet. Vidare ämnar studie att undersöka hur en sådan affärsmöjlighet kan realiseras i praktiken. Den aktuella studien har en explorativ utformning och fokuserar på ett enskilt fallföretag. Studien använder sig av både primär- och sekundärdata samt en gedigen granskning av relevant litteratur. Primärdatan består av en förstudie samt intervjuer medans sekundärdatan består av en redogörelse för fallföretagets hållbarhetsarbete samt för deras leverantörsutvärdering. Studien kulminerar i en tematisk analys och en efterföljande diskussion. Empirin visar att det finns en ökad efterfrågan för produkter med en stark hållbarhetsprofil. Den indikerar även att hållbar leverantörsutvärdering kommer att bli allt mer betydelsefullt för att uppfylla regulatoriska krav, attrahera personal samt att minska risker i försörjningskedjorna. För närvarande hanteras leverantörers hållbarhetsarbete genom screening-processer och det finns i dagsläget inget funktionellt mätetal som kan användas kvantitativ utvärdering. Snarare än att ställa krav, visar empirin att det är genom samarbete och gemensamma initiativ som man uppnår de bästa resultaten. Vi konkluderar att det finns en affärsmöjlighet i att jobba med hållbar leverantörsutvärdering då man kan: reducera risker och kostnader; öka företagets möjlighet att behålla och rekrytera personal; möta nya lagar och regler på ett kostnadseffektivt sätt; behålla och attrahera nya kunder samt öka företagets konkurrenskraft. För att realisera affärsmöjligheterna som finns måste företag etablera konkreta mål. I och med att det inte finns något mätetal som lämpar sig för att mäta hållbarhet borde företag använda sig av ett reduktionistiskt tillvägagångssätt. Screening-processen borde hantera binära variabler medans utvärderingsprocessen borde vara ägnad till de som kan kvantifieras. Företag borde jobba för att identifiera möjligheter att skapa ett gemensamt värde tillsammans med leverantörer och engagera sig i samarbeten. Slutligen är det viktigt att företag kommunicerar sina initiativ och resultat till samtliga berörda parter.
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TABLE OF CONTENT
1 INTRODUCTION ...... 3 1.1 Problem Statement ...... 4 1.2 Purpose ...... 5 1.3 Research Questions ...... 5 1.4 Scientific Contribution ...... 5 1.5 Scope & Delimitations ...... 5 2 METHODOLOGY ...... 6 2.1 Research Design ...... 6 2.2 Primary Data Collection ...... 7 2.2.1 Pre-Study ...... 7 2.2.2 Interviews ...... 7 2.2.2.1. Identification and Selection of Interviewees ...... 8 2.3 Secondary Data Collection ...... 9 2.4 Literature Review ...... 9 2.5 Data Analysis ...... 11 2.6 Evaluation of Methodological Approach ...... 11 2.6.1 Validity ...... 11 2.6.2 Reliability ...... 12 2.6.3 Generalizability ...... 12 2.7 Research Ethics ...... 13 3 THEORETICAL FRAMEWORK ...... 14 3.1 Corporate Social Responsibility ...... 14 3.2 Sustainability ...... 14 3.3 Stakeholder Theory ...... 15 3.4 Supply Chain Management ...... 17 3.5 Sustainable Supply Chain Management ...... 17 3.6 Sourcing ...... 19 3.7 Defining Concepts ...... 21 4 LITERATURE REVIEW ...... 22 4.1 The Business Case for Sustainability ...... 22 4.1.1 Cost and Risk ...... 23 4.1.2 Gaining Competitive Advantage ...... 24 4.1.3 Reputation and Legitimacy ...... 25 4.1.4 Synergistic Value Creation ...... 26 4.2 Sustainable Sourcing ...... 26 4.2.1 Criteria ...... 27 4.2.2 Screening ...... 29 4.2.2.1. Product Content Requirements ...... 29
1 4.2.2.2. Environmental Management Systems ...... 30 4.2.2.3. Self-Assessments & Audits ...... 30 4.2.3 Evaluation ...... 30 5 ANALYSIS OF EMPIRICAL DATA ...... 32 5.1 The Business Case for Sustainability ...... 32 5.1.1 Reputation & Brand Image ...... 32 5.1.2 Regulations & Risk ...... 35 5.1.3 Joint Sustainability Initiatives ...... 36 5.2 Sustainable Sourcing ...... 37 5.2.1 Screening ...... 37 5.2.2 Evaluation ...... 39 6 DISCUSSION ...... 41 6.1 The Business Case for Sustainability ...... 41 6.1.1 Cost & Risk ...... 41 6.1.2 Gaining Competitive Advantage ...... 42 6.1.3 Reputation & Legitimacy ...... 43 6.1.4 Synergistic Value Creation ...... 43 6.2 Sustainable Sourcing ...... 44 6.2.1 Screening ...... 44 6.2.2 Evaluation ...... 46 7 CONCLUSION ...... 48 REFERENCE LIST ...... 50 APPENDIX 1: CASE COMPANY ...... 65 APPENDIX 2: INTERVIEWEES ...... 72 APPENDIX 3: INTERVIEW QUESTIONS - SUSTAINABILITY ...... 73 APPENDIX 3: INTERVIEW QUESTIONS – SOURCING ...... 74 APPENDIX 4: INTERVIEW QUESTIONS - SUPPLIERS ...... 75
DECLARATION OF FIGURES & TABLES
Figure 1. Research Design 6 Figure 2. Internal & External Supply Chain Stakeholders 19 Figure 3. Conceptualization of Sourcing 20 Figure 4. UN Sustainable Development Goals 66 Figure 5. Enterprise Risk Management – Sustainability Factors 67 Figure 6. Sustainable Purchasing Program 68 Figure 7. Volvo Group Global Sourcing Process 70
Table 1. Access Point Articles 10 Table 2. Definitions of Concepts 21 Table 3. Sustainability Criteria 28 Table 4. Interviewees – Sourcing 72 Table 5. Interviewees – Sustainability & Public Affairs 72 Table 6. Interviewees – Suppliers 72
2 1 INTRODUCTION
In the last decades sustainability has undergone a transformation from a societal concept to an integral component of corporate management and strategy (A. Lee et al., 2009). Through continuous transformation the concept is portraying an increased complexity and interdependence of other global challenges (Reuter et al., 2012). Sprung from an increased public interest in sustainability, there has been a demand for companies not only to report their financial performance but also their social- and environmental performance (Hubbard, 2009). Companies are expected to contribute to collectively beneficial outcomes, and their role in ensuring a sustainable future are fundamental (Windolph et al., 2014). The evolving business climate is compelling companies to re-evaluate corporate strategy and to redefine current methods of measuring performance (Hubbard, 2009). Given the imperative profit-seeking in competitive markets, the question arises whether companies should contribute to the public good at the expense of profit (Reuter et al., 2012). This has been intensely debated and is shrouded in controversy. The traditional perception of sustainability as being a zero-sum game imposes an expectation to quantify and balance trade-offs between sustainability and profit (Burke & Logsdon, 1996). However, there has been an alteration in how sustainability is perceived and many now argue for the possibility of a win-win situation, where profit and sustainability are not mutually exclusive (Byggeth & Hochschorner, 2006). This prompts the question: how does corporate financial performance relate to the normative expectations of sustainability? Research on the relationship have shown mostly a positive correlation, however the empirical evidence is not conclusive (Barnett, 2007).
Companies are experiencing increased global competition and their value chains are becoming more geographically dispersed (Bozarth et al., 1998). To increase competitiveness, organizations are becoming leaner, focusing on their core competencies by outsourcing and leveraging supplier competence and technology (Kannan & Tan, 2002). These changes brought with them an increased complexity in business networks and magnified the importance of coordinating ones supplier base (Omurca, 2013). Once viewed merely as a support function for production (Carr & Smeltzer, 1997) upstream activities have evolved. They are now considered as some of the most important processes in terms of financial success (Sjoerdsma & van Weele, 2015). The perception of purchasing as fundamentally operational changed as companies realized its strategic importance (Carr & Smeltzer, 1997). Managers started to acknowledge purchasing costs’ impact on profitability (Scannell et al., 2000) and realized the strategic value of taking advantage of external competence (Tatikonda & Stock, 2003). In today’s business climate managers are faced with a number of difficult decisions and the intrinsic ad hoc nature of strategic purchasing implies constant revaluation, analyzation and a case by case approach (Tatikonda & Stock, 2003). Sourcing was conceived due to a growing dependence on suppliers, which made strategical selection critical (Sarkis & Dhavale, 2015). Identifying and selecting superior suppliers is a very complex process, requiring comparison and evaluation of several desirable dimensions (Omurca, 2013). Criteria used in supplier evaluation are most commonly those which are quantifiable, such as quality, delivery and cost. Their relative importance depends on the specific purchase (Omurca, 2013).
In the pursuit of corporate sustainability, the upstream activities play a particularly pivotal role (Carter & Easton, 2011). Cautionary tales where suppliers have transgressed established ethical standards and compromised the reputation, legitimacy and financial performance of the customer, amplifies the importance of managing suppliers’ sustainability compliance (Reuter
3 et al., 2012). Even so, in everyday business the reputational- and litigation risk of not managing suppliers’ sustainability compliance is frequently neglected in the pursuit of cutting cost and increasing profit (Reuter et al., 2012). Effective management of a company’s sustainability policies can arguably be obtained by integrating them in the process of screening and evaluating suppliers (Sarkis & Dhavale, 2015). The process of sourcing is already complex and integrating additional conflicting criteria add yet another dimension of complexity (Sarkis & Dhavale, 2015). There are some obstacles to integrating sustainability as a criterion (e.g. the difficulties of quantifying it; the tradeoff with the traditional criteria; the lack of supplier transparency and the difficulties of obtaining validated data of sustainability performance) (Genovese et al., 2013). In an attempt to simplify these complexities, some analytical tools have been developed for integrating sustainability in sourcing (Sarkis & Dhavale, 2015). However, according to Baskaran et al. (2012) mathematical models are perceived to be too complex for practical use, exposed to subjectivity and are dependent on qualitative indicators. Research on how sustainability can be integrated as a criterion for strategic supplier selection are limited (Winter & Lasch, 2016) and the corporate benefits of pursuing it is still ambiguous.
1.1 Problem Statement To survive in the global business climate, companies have to be agile in order to cope with continuous evolvement. They experience increased complexity in their business networks and value chains which are becoming vastly dispersed (Omurca, 2013). They are no longer solely valued based on their financial performance as environmental and social performance per se have become a source of competitiveness (Winter & Lasch, 2016). The perceived importance of sustainability has been altered and many now argue for the possibility of financial benefits. (Carroll & Shabana, 2010). Krause et al. (2009) argue that “companies are only as sustainable as the suppliers that compose their supply chain” (p. 21), which would emphasize the importance of upstream activities in sustainability efforts (Carter & Easton, 2011). Companies are becoming leaner, focusing more on their core competence and the strategic significance of outsourcing and leveraging supplier competence is intensifying (Sarkis & Dhavale, 2015). The process of sourcing is complex and the traditional dimensions of selection criteria are often considered as insufficient (Omurca, 2013). Some argue for including sustainability as a criterion in screening and evaluation which may influence suppliers to improve their overall sustainability performance. Even so, this introduces another dimension of complexity to the process (Gualandris et al., 2014). In both practice and academia, the integration of sustainability as a criterion are becoming more common. However, there is seldom an evident business rationale or justification. The lack thereof impedes the use amongst practitioners and stresses the importance of further research to establish more applicable methods. Practitioners refer to a business case as “a pitch for investment in a project or initiative that promises to yield a suitably significant return to justify the expenditure” (Carroll & Shabana, 2010, p. 92). For the purpose of this report, a business case is conceptualized as the business justification and rationale for pursuing an investment. In the business case for sustainable sourcing, sustainability should be utilized as a means to ensure long term profitability rather than being the ultimate goal.
4 1.2 Purpose The purpose of this study is to investigate which are the key features of the business case for sustainability. It aspires to present a business case which is substantiated by rigorous research consisting of a comprehensive literature review as well as empirical data. In order to fully capitalize on a potential business case, the study seeks to identify methods for realizing sustainability which are applicable to common sourcing operations.
1.3 Research Questions RQ1: Which are the key features of the business case for sustainability? RQ2: How can the business case be realized in sourcing activities?
1.4 Scientific Contribution This study combines different aspects of sustainability research with empirical observations in order to produce results which are practically applicable. Where previous research has been confined to the theoretical realm, the current study seeks to be of great importance to researchers and practitioners alike. There is an ambition to create clear incentives for businesses to adopt the presented ideas by emphasizing business rationale and justification. Even though a business case for sustainable sourcing has been investigated and discussed before, there is an apparent tendency to omit how practitioners can capitalize on the opportunity to create profits. Combining empirical research, in the form of interviews with salient stakeholders, and a comprehensive literature review, the study complements existing knowledge by bridging the gap between academia and business practices. Furthermore, the lack of clarity in regard to key terms and concepts are ubiquitous in prior research. The analysis, discussion and subsequent results presented in this report rests on a well-defined terminology provided by a robust theoretical framework.
1.5 Scope & Delimitations The current study seeks to develop a business case for sustainability in terms of a general description of a business opportunity, rather than quantified estimations of net profit. Sourcing activities were limited to screening and evaluation of suppliers; excluding commonly associated activities such as managing relationships with suppliers and up-stream supply chain strategy development. This was deemed necessary in order for the study to be manageable and executed within the given time frame. A large variety of methods for implementing sustainability in sourcing were investigated, to provide an account of available approaches. Therefore, it was neither appropriate nor feasible to do any in-depth research on any individual method. Even though the current study includes all aspects of sustainability, the financial dimension of the concept is to no great extent referred to explicitly. Nonetheless, it permeates the study which puts an emphasis on applicability and business rationale. The study revolves around a single case company (i.e. Volvo CE) which is a manufacturer of heavy construction equipment. The case company was carefully selected so as the results would be indicative for the entire industry. Alas, extending the study to multiple cases could possibly provide more nuance. The scope encompasses the heavy construction equipment industry, but the researchers believe that the study can be of great benefit for parties operating in other sectors.
5 2 METHODOLOGY The methodology section provides a detailed description and justification as for how the research was designed. This is done to improve the reliability and generalizability of the study. Furthermore, the interconnection between the different sources of data collection and a more detailed account of their individual structure is provided. Subsequently, an account is given for the method of analysis as well as a comprehensive evaluation of the overall methodology. The objective of the section is to offer transparency and to invite scrutiny.
2.1 Research Design In the design of the study, the research problem served as the foundation and decisions were made to ensure validity and reliability. Previous research has to the most part been confined to the theoretical realm. Therefore, the researchers argue that the study encompasses a previously unexplored field of research. The aforementioned tendency to omit practical applicability incentivized a research design that would ensure results that could be utilized in business practices. The exploratory nature of the research problem and the absence of a hypothesis supported the use of a research design with intrinsic flexibility. An exploratory design was deemed suitable because it would allow adaptation to information and problems ad hoc. To obtain in-depth insight, qualitative methods of data collection were chosen. Furthermore, the composition of them was aimed at enhancing practical applicability and validity. The research was designed to consist of both primary- and secondary sources of data, a literature review, a thematic analysis and subsequently a discussion. This is illustrated in figure 1. Quantitative methods of data collection were not deemed appropriate since the objective was to investigate a complex cause and effect relationship with difficulties of quantification.
Figure 1. Research Design
Note. This figure is an illustration of how the research was designed. The solid lines represent the primary flow of information whereas the dashed lines represent the secondary flow of information. Own illustration.
The primary data consists of a pre-study and interviews. The pre-study was used to establish a frame of reference and to explore and develop the relevance of the preliminary research problem. It was additionally the primary source for identifying salient stakeholders as interviewees. Through an iterative process, information gathered in the pre-study was used to
6 determine the scope of the literature review and interviews. In the literature review a theoretical frame of reference was established and a comprehensive account of prior research was compiled. The exploratory nature of the study called for a thorough review of literature to determine the scope of the current study. The interviews constituted the primary source of empirical evidence. They were used to extract information and to gain insights, which were only deemed obtainable from experts within the field. The secondary data consist of a review of the sustainability and sourcing processes of the case company. It did not provide answers to the research questions, rather it provided background to the analysis and complemented the information gathered in the interviews. The combination of a theoretical and practical perspective was used to ensure the relevance and adequacy of the interview questions. In the analysis, the interviews were analyzed thematically and was collated with the secondary data, to provide more substance. The study culminated in an extensive discussion based on the perspectives of the literature review and analysis.
2.2 Primary Data Collection
As previously mentioned, primary data was collected in both the pre-study and the interviews. The former consisted of unstructured interviews whereas the latter consisted of semi- structured interviews. An extensive account of their individual structure is provided in the subsequent section. The primary data collected through interviews and was considered the most relevant; therefore, it was treated accordingly.
2.2.1 Pre-Study
Investigating how sustainability can be realized in sourcing activities for enhancing, rather than impairing business performance, is complex and involves combining many different streams of knowledge. It was deemed necessary to devote great effort to find an appropriate approach and to identify relevant fields of knowledge to be further investigated. This process was crucial as many preexisting notions would be proven wrong. By conducting a pre-study, certain initial ideas could be discarded allowing new ones to take form. This resulted in narrowing down the scope of the study so as to be manageable. The pre-study consisted of a number of unstructured interviews with employees of the case company, who possessed insight, competence and expertise in the field of research. The interviewees consisted of sourcing practitioners, but company-internal experts on sustainability were also consulted. The pre- study was not executed in isolation, rather a constant exchange of input with the secondary data and literature review contributed to refining the purpose of the study.
2.2.2 Interviews
The interviews constitute the foundation of primary data. Even though the pre-study also provided information from first-hand sources, its purpose was to support and increase the relevance of the current study rather than directly contributing to existing knowledge. The interviews were conducted in a semi-structured fashion which allowed certain degrees of flexibility whilst being based on a framework of questions formulated ex ante. The interviews were conducted with the use of digital video meeting technology (i.e. Skype for Business). The interviews were conducted so as to feel less formal and more like a casual conversation in order to make the interviewees feel comfortable and encourage them to speak freely. All interviews were audio recorded so they could be re-visited and the risk of information loss due to real- time transliteration was eliminated. Audio recording also allowed the interviewers to focus on
7 the conversations rather than taking notes, further fostering a relaxed environment for open, honest and productive interviews.
The study’s exploratory nature and purpose was allowed to dictate the development of the interview questions. Formulating open-ended questions impeded the interviewees propensity to give short answers whilst encouraging comprehensive accounts of their subjective opinion. Thus, each interview could be taken full advantage of in terms of extracting relevant information. There was a conscious decision to avoid asking multiple questions at once so to ensure clarity as to what question the interviewee actually responded to. When conducting interviews, there is always an inherent risk of the results being contaminated by the researchers’ personal bias as they seek specific answers by asking leading questions (Kothari, 2004). This was taken into consideration when developing the interview questions, which was screened by a third party in order to strengthen the integrity of the data collection. Furthermore, all pre-formulated questions are included in the appendix with full transparency, to invite scrutiny. The interviews were conducted in Swedish with the exception of a few which were conducted in English. It was considered appropriate, when possible, to let the interviewees speak their native language as it allowed them to express themselves more freely. Interviews conducted in Swedish were subsequently transcribed to Swedish, but all data published in the report has been translated to English. Since the interviews were semi- structured there was room for opportunism as certain responses called for follow-up questions which increased the extraction of relevant information. In regards to bias and subjective interpretation, follow-up questions can be problematic (Rubin & Rubin, 2011). Formulating such questions using the interviewees’ own words safeguarded, to some degree, against such problems. It could have been fully avoided by conducting fully structured interviews, but such a method was deemed inferior due to the lack of freedom to capitalize on opportunities in real- time. The choice of interview structure was also related to the rigidity of the preparatory work as it made the interviewers (i.e. the researchers) knowledgeable within the field and able to ask relevant follow-up questions. The purpose and theoretical framework of the current study called for a heterogenic group of interviewees (i.e. stakeholders), each of which selected based on their ability to provide information from a specific point of view. In order to extract relevant information, the questionnaire was differentiated to some degree, in terms of order and formulations. This inevitably impairs comparability but strengthens the results without infringing on replicability (Kothari, 2004).
2.2.2.1. Identification and Selection of Interviewees
Considering how the study is structured, with stakeholder theory constituting the theoretical lens, the sample size was confined to the stakeholders of the focal firm. There was neither enough time nor resources available for all of these stakeholders to be interviewed which meant there had to be a strategic selection of those deemed most important. Their importance was judged based on their saliency as stakeholders which in the context of the current study is equivalent to their respective ability to impact financial performance. This in turn was determined based on information gathered from the literature review and the pre-study. It is important to note the difficulties of making such judgments with great accuracy. Fortunately, the analysis of empirical data did not necessitate an explicit ranking of stakeholders based on saliency. Due to the aforementioned constraints in time and resources, interviews could not be conducted with all stakeholder groups which had been deemed as salient. Rather, some stakeholder groups were strategically chosen to represent those which were not available to
8 be interviewed. A total of 11 interviews were conducted with stakeholders who had all been deemed as salient. Since the study puts an emphasis on applicability there was an apparent need to interview sourcing practitioners. Tapping into their knowledge and expertise provided crucial information in regard to how sustainability can be integrated in sourcing practices. Furthermore, internal experts in Sustainability & Public Affairs were interviewed. These interviewees all work in close collaboration with both customers, governments and Non- Governmental Organizations (NGOs). Therefore, they could arguably be representative and convey the demands of those stakeholder groups. Finally, since the study seeks to investigate sustainable sourcing practices, a supplier of the focal firm was interviewed. The interview method required a selection of interviewees which were not just relevant in terms of saliency as stakeholder but also possessed the right type of expertise and knowledge. Therefore, the selection process included screening of experience and specific position within each respective organization. For example, if a potential interviewee had only been in their current position for a short period of time or their professional duties was not directly connected to the relevant study, or at least appropriately adjacent to it, they were not included. VCE connected the researchers to potential interviewees but were to no capacity involved in the selection process, as that would make the study biased.
2.3 Secondary Data Collection
One of the most important aspects of the current study is that it aims at producing results which are applicable for real life practices. This permeates the entire research design and without investigating how companies incorporate sustainability in sourcing practices the study would lose relevance and run a risk of being stuck in the realm of academia. Investigating a large sample size of companies was deemed too time consuming so an alternative feasible method which did not compromise the final results had to be found. Therefore, a single case company was strategically selected and chosen based on the following set of criteria. It needed to: Be large enough to have well established procedures and processes; have a purchasing function with a global sourcing strategy; be purchasing a wide variety of products and have some pronounced sustainability ambitions. Volvo Construction Equipment (VCE) met all of these criteria and had the advantage of being easily accessible as one of their sourcing divisions was located in proximity to where the researchers were based.
As a part of the Volvo Group, VCE is intrinsically affected by the groups overarching goals and efforts. Much of the secondary data is therefore not exclusive for VCE, but rather concerns the entire group. It consists of consolidated information found on the Volvo Group and VCE’s websites. The information gathered consist of current sustainability initiatives as well as purchasing- and sourcing procedures. Confidential information which would have had to be omitted from the report was not used in any capacity, in order to provide full transparency and ensure replicability. Since it is not a primary source of data but rather complimentary information, it can be found in Appendix 1.
2.4 Literature Review The theoretical foundation of the study is composed of two distinctive parts: a theoretical framework and a literature review. They fill different purposes, the former provides an account of key concepts and theory on which the study stands, while the latter contains a review of literature directly related to the research problem. By separating the two, the information
9 which is conveyed in the report becomes more accessible to the reader as semantic and theoretical discussions are contained within the theoretical framework. Following the same logic, it could be argued that the section is redundant. Even so, there is a large number of terms and concepts which, albeit ubiquitous in public discourse, are vague and lack definitions which are commonly known and recognized. By establishing a theoretical framework, the report seeks to bring clarity, mitigate unambiguousness and minimize the risk of misinterpretation. As stakeholder theory and supply chain management stands as the two main pillars of theory on which the study rests there is a relatively thorough review of them. Furthermore, concepts such as corporate social responsibility, sustainability and sourcing are discussed and defined. The literature review contains literature which covers the business case for sustainability and sustainable sourcing. These two combined forms a solid literary foundation for the current study and provides a review of current research within the field. There might be an apparent lack of focus due to the duality of the section, but the purpose of the research demands incorporation of different streams of knowledge.
Relevant literature was identified by using the snowball method in which a limited number of articles deemed relevant to the study acted as access points from which further research was identified. By reviewing the aforementioned articles’ sources, as well as articles which had cited them, more relevant information could be found. The “access point articles” were found using Google Scholar, complimented by PRIMO (a search tool provided by Mälardalen University). Search words used were: “sustainable sourcing, sustainable procurement, sustainability benefits and business case for sustainability”. Since they are crucial for the literature review the access point articles was not solely judged by the relevance of their respective topics but also by the number of citations and publication year. As illustrated in table 1. Lecy and Beatty (2012) discusses the snowball method in terms of levels where level one is the access point articles, level two articles which are cited in those articles and level three articles which are cited in level two articles. The method requires selectivity as the number of articles increases exponentially and in general, all relevant information has been mapped by going to level three (Lecy & Beatty, 2012). The current study went to level three in the mapping of relevant literature but to improve the coverage, additional searches were made using variations of aforementioned search words.
Table 1. Access Point Articles
Note. This table displays the access point articles used in the literature review, the number of citations and the publishing year was the primary indicators of their relevance. Own illustration.
10 2.5 Data Analysis
The study was deemed to require a sophisticated and systematic method of data analysis. The objective of the analysis was to convert data into clear, credible and transparent results. A thematic analysis was considered appropriate as it is a method used for identifying, interpreting and presenting themes in the dataset. However, a thematic analysis was solely applied to the primary data, the secondary data was not analyzed per se but rather served as a complement. According to Liamputtong (2009) there are a few main steps which a researcher should take when performing a thematic analysis. The steps are the following: familiarization with the data; initial coding; revising the tentative themes as well as structuring, defining and naming the themes. In the process of a thematic analysis, the steps mentioned by Liamputtong (2009) served as a foundation. Once data had been collected through the interviews, the researchers transcribed the data. In the process of transcribing, notes of initial thoughts were taken and sentences or paragraphs with high perceived significance was highlighted. Secondly, the transcribed information was screened for tentative themes and suitable codes were assigned to words and phrases. The codes were chosen so that they would comprise the essence of meaning and the codes were assigned to themes which encompassed them. The themes were then revisited and evaluated based on their perceived correlation to the codes across the dataset. A thematic map was then structured where the themes were defined and named. Each theme was assigned a number of codes and the themes was separated into two main categories, based on which research question they served as a basis for answering. Finally, the thematic map was used for analyzing the meaning of the themes and their correlation to the underlying research problem. The direct answers provided in the interviews, combined with the thematic analysis of underlying patterns and meaning was deemed a source of credible results. By incorporating these sources of empirical evidence to the information gathered in the case study, the analysis could provide holistic results. Thus, the aforementioned issues with practical applicability was addressed, yet providing results with validity, reliability and generalizability.
2.6 Evaluation of Methodological Approach
The exploratory research design and qualitative method of data collection have both its strengths and weaknesses. An exploratory design’s intrinsic flexibility was the most significant benefit, because it would allow the study to adapt to new information and obstacles ad hoc. The most prominent disadvantage of the methodological approach was limited generalizability due to the sample size. However, this was considered to be outweighed by the increased validity which the design provided. Consistency in the data collection process was the most significant measure of increasing reliability. However, some may argue that the use semi- structured interviews could impair it. A major obstacle which would come to impair the study was the outbreak of the COVID19 pandemic. It obstructed the interview process by limiting the sample size of interviewees and forced most interviews to be conducted through Skype rather than as personal interviews, which would have been preferred.
2.6.1 Validity
Several measures were taken to increase validity. The research was designed through a rigorous process, where several different design choices were evaluated. With a tripartite method of data collection, the researchers could validate the primary data obtained through the
11 interviews with the secondary data collected through the literature review and case study. The qualitative method chosen was deemed to significantly increase validity, by providing a deep insight to the research problem. The use of quantitative method could have infringed it, whilst it would have improved reliability. By adopting an exploratory design, the researchers could adapt to information ad hoc and the interview questions could be more accurately phrased. However, the exploratory design could be argued to increase the risk of researchers’ bias affecting the study. In an attempt to minimize this risk, the interview questions were carefully and precisely worded. The sampling process was deemed the most important measure. According to the theoretical lens of the study (i.e. stakeholder theory), all interviewees were chosen through a rigorous process. Through the pre-study and the literature review, salient stakeholders were identified and chosen as interviewees. The process was considered an important measure, since the selected interviewees was not only considered experts in their field but also due to their saliency as stakeholders to the focal company. Extending the study to include more interviewees and to potentially observe several case companies could have increased the validity, albeit, due to the time constraint this was not deemed feasible.
2.6.2 Reliability
By providing a detailed account of the research design and the reasoning for the choices made, the researchers sought to provide full transparency. In the case study no confidential information was used, which was a measure for increasing the reliability. Although confidential information could have provided further valuable information, it was perceived as damaging to the reliability. The most important measure for increasing reliability was to apply the methods used consistently. Therefore, the researchers sought to ask the questions in the same order and phrase the questions in the same way in each interview. The semi-structured nature of the interviews could be argued to infringe with reliability, since follow-up questions may differ from interview to interview. Yet, this was deemed to be compensated by the positive effects on validity. The opportunity to ask follow-up questions, allowed more in-depth insight and provided an ability to probe interviewees further in their specific areas of expertise. Furthermore, the use of a thematic analysis sought to provide further transparency, by providing insight to how the collected data was analyzed.
2.6.3 Generalizability
In terms of generalizability, the sample selection process was identified as a primary obstacle. The selection of a single case company may be argued to impair with how representative the results are for other sectors of industry. This was taken into consideration when designing the study, since the purpose was to provide business justification and rationale for pursuing sustainability in sourcing. However, it was deemed more important to provide valid results than to ensure generalizability. An alternative research design could have encompassed several case companies. Even so, by studying a single case a wider spectrum of salient stakeholders could be included in the study. Thus, substantiating a more accurate business case for sustainability.
12 2.7 Research Ethics This study was conducted ethically in accordance with principles and guidelines provided by the Swedish Council of Research (SCoR). There are two main issues regarding ethical research: the nature of the research itself and the researchers personal conduct (Swedish Research Council, 2019). As for the former, the researchers hope that the results produced in the study can be used to increase sustainability in business practices and thus contribute to assuring sustainability on a societal level. There is a desire that the results presented in the study will provide incitement for businesses to be more sustainable in their sourcing practices. The researchers dispute any potential claims that the study encourages “green washing” or any other maleficent business practice. Any and all ideas brought forth in this report is aimed at creating a gain, not only for the focal firm, but for society as a whole. If you see to the personal conduct of the researchers, SCoR refers to four guiding principles presented by All European Academies (ALLEA). These principles guided the study and dictated how it was conducted. The four principles are listed below and are direct citations from the report The European Code of Conduct for Research Integrity published by ALLEA (2017):
- “Reliability in ensuring the quality of research, reflected in the design, the methodology, the analysis and the use of resources.” - “Honesty in developing, undertaking, reviewing, reporting and communicating research in a transparent, fair, full and unbiased way.” - “Respect for colleagues, research participants, society, ecosystems, cultural heritage and the environment.” - “Accountability for the research from idea to publication, for its management and organization, for training, supervision and mentoring, and for its wider impacts.”
The study has since its infancy been open to scrutiny and has welcomed input and constructive criticism. All information presented in this report which pertains previous research on the subject is heavily cited as to assure reliability. Furthermore, all definitive statements, which are not presented as conclusions drawn from observation done in the current study, are cited and based on previous research. In the case of direct citations, it is made clear that they are direct citation and there is no ambiguousness as to who the originator of the statement is. The interviewees were fully informed of the context for which the interviews were to be used and got a briefing of the current research ex ante. No information was kept from the interviewees and all questions directed at the nature, purpose and confidentiality of the research, was answered truthfully by the researchers. All interviewees were informed and fully aware that the interviews were being recorded and given the opportunity to go through the recordings after the interviews were concluded so as to assure their opinions were not being misrepresented. Some information regarding the interviewees were deemed necessary to include in the report as it strengthens the integrity of the research. The information includes; current position, which organization they represent and how they relate to the focal company. All interviewees were informed and made aware of this and was given the opportunity to be anonymous to the extent that aforementioned information was not being excluded.
13 3 THEORETICAL FRAMEWORK In the current field of research there is seemingly little to no conceptual consistency, clarifying terms and concepts is of utmost importance for improving clarity. The theoretical framework provides background and a semantic discussion of some core concepts. Furthermore, reoccurring and particularly ambiguous concepts is discussed and subsequently definitions are provided. This is done with the ambition of reducing the risk of misinterpretation and to increase clarity. Stakeholder theory is the theoretical lens being used in the study; therefore, it is also encompassed in the theoretical framework to serve as a basis for the identification of salient stakeholders.
3.1 Corporate Social Responsibility Corporate Social Responsibility (CSR) is a continuously evolving concept and remains relevant in both practice and research (Lindgreen & Swaen, 2010). The concept emerged out of concern that corporations enjoyed too much power without responsibilities or repercussions (D. J. Wood, 1991). Arguably, the concept was conceived in 1953 when Howard R. Bowen published his seminal work: Social Responsibilities of the Businessman (Carroll, 1999). In his book Bowen (1953) described the social responsibilities of businessmen as: “the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society” (p. 6). One of the fundamental ideas of CSR is that business and society are interconnected and that society holds companies accountable for their actions (D. J. Wood, 1991). To take social responsibility is not merely to be compliant with minimum requirements, it requires taking an additional step, undertaking a social responsibility which goes beyond those of the law (Davis, 1973). The term was coined by researchers and there is lack of clarity which has made it difficult for businesses to embrace (Clarkson, 1995). With the intent of addressing and quantifying the social and environmental impact of corporate actions, the concept of corporate social performance was coined (Husted, 2000). Clarkson (1995) argue for the importance of measuring performance, which unlike responsibility is quantifiable. When assessing corporate social performance what should be considered is: to which degree social responsibility motivate corporate actions; the social responsiveness of corporate processes and the impact of corporate actions, programs and policies (D. J. Wood, 1991).
3.2 Sustainability Sustainability is a frequently conceptualized to reflect socially desirable attributes (Holden et al., 2014). The concept is particularly ambiguous and difficult to define (Vos, 2007). Arguably the definition most frequently referred to originates from the report ‘Our Common Future’ (the Brundtland Report) published in 1987 by the UN World Commission on Environment and Development (Ameer & Othman, 2012; Holden et al., 2014; Meadowcroft, 2007; Vos, 2007). The report is often accredited with popularizing sustainable development (Meadowcroft, 2007; Purvis et al., 2018) where it is defined as: “it meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED, 1987, p. 16). Sustainability has ever since its conception been prominent within research, in public discourse and in corporate strategy (Meadowcroft, 2007). Although being both very complex and contested, it is no longer solely viewed as an ideology but rather as a political concept or principle (Lindgreen & Swaen, 2010). Not unlike other political concepts, such as ‘democracy’, ‘justice’ and ‘liberty’ it has the power to concentrate and guide public discourse. However, it
14 remains exposed to re-interpretation and examination (Gladwin et al., 1995; Meadowcroft, 2007). Sustainability is often thought of as being socially just and ethically correct (Hansmann et al., 2012) and is often conceptualized to have three dimensions or ‘pillars’: environmental, social and financial. These illustrate the difficulties of balancing trade-offs between three equally desirable dimensions (Purvis et al., 2018). Albeit very similar and often used interchangeably, there is a slight difference between the terms ‘sustainability’ and ‘sustainable development’. An advantage of the former is the required context-specificity for exactly what is being sustained (Sneddon, 2000), which the latter does not. An issue associated with the term ‘sustainable development’ is that the notion of development is often equated with growth (Purvis et al., 2018). The vagueness and ambiguousness of the term ‘sustainable development’ solicitates the exclusive use of the term ‘sustainability’ in this report.
Ever since the concept emerged, a multitude of definitions and vastly diverse interpretations has been generated (Vos, 2007). Unfortunately, the original definition of the Brundtland commission, not unlike many subsequent ones, are ambiguous and far-reaching. Thus providing limited guidance for organizations (e.g. how to distinguish the needs of the present from the needs of the future) (Carter & Rogers, 2008; Gimenez et al., 2012). In ‘Caring for the Earth’ 1991, the World Conservation Union, United Nations Environment Program and the Worldwide Fund for Nature defined sustainability as “improving the quality of human life while living within the carrying capacity of supporting ecosystems” (IUCN et al., 1991.). This definition focuses primarily on the ecological limits and not unlike its predecessor this definition is far- reaching and vague. Pezzey (1992) defines sustainability as “non-declining utility of a representative member of society for millennia into the future” (p. 323). This definition can be interpreted to suggest an equity constraint rather than considering sustainability simply as desirable goal. Furthermore, it addresses the indefinite time horizon of sustainability. None of the aforementioned definitions are sufficiently conclusive or explicit for the purpose of this report. Vos (2007) argue that you have to consider ‘what’ is actually being sustained for future generations when defining sustainability (e.g. key values of society, quality of life or our ecological system). In an article by Sikdar (2003) sustainability is described as “a wise balance among economic development, environmental stewardship and social equity” (p. 1928). This arguably encompasses ‘what’ is being sustained and unless otherwise stated, sustainability will be defined accordingly throughout this report.
3.3 Stakeholder Theory The normative stakeholder theory can be considered as an extension of CSR, declaring the role and obligation of corporations (Buysse & Verbeke, 2003; Laplume et al., 2008). Managers and executives ought to make the “right” decision and the theory can be seen as a code of business ethics for them to act accordingly (H. Smith, 2003). Stakeholder theory asserts that managers have the obligation to act in accordance with shareholders but also any other individual or constituent which does in any way contribute to the wealth creation of the company (Jensen, 2010; Wagner Mainardes et al., 2011). What constitutes a stakeholder is anyone who may act as a potential benefit or risk to the corporation (Donaldson & Preston, 1995; H. Smith, 2003). Stakeholders may include but are not limited to: customers, suppliers, financiers, owners, internal personnel or external pressure groups (Donaldson & Preston, 1995; Freeman, 1984; Schilling, 2000; Wreder et al., 2009). Stakeholder theory state that corporate managers have two main responsibilities: to ensure that the ethical right of no stakeholder is breached (Laplume et al., 2008) and to balance the interest of all stakeholders’ in decision-making
15 (Donaldson & Preston, 1995; Wagner Mainardes et al., 2011). In essence stakeholder theory state that it is of utmost importance for a company to adhere to the interest of its stakeholders even if the consequence is a reduced profitability of the company (Laplume et al., 2008). Stakeholder theory differs significantly from the traditional management theories, where profit is the sole reason for companies existence, and the shareholders are the one and only stakeholders of the company (Donaldson & Preston, 1995). Friedman (1962) argued that there is one sole social responsibility of business, to increase its profits under free competition, practicing neither deception nor fraud. In his seminal book Strategic Management: A Stakeholder Approach, Freeman (1984) challenged the traditional shareholders’ theory by introducing the notion of stakeholders, hence he is often accredited to be the founder of stakeholders’ theory (Donaldson & Preston, 1995; Garvare & Johansson, 2010; Laplume et al., 2008; Wagner Mainardes et al., 2011). In the book he argue that companies should strive to create value not only for shareholders but rather to any party with a stake in the consequences of its actions. (Laplume et al., 2008; Wagner Mainardes et al., 2011) He also asserted that corporate management was not ready for the upcoming changes in the business environment (Laplume et al., 2008). Freemans work spurred great interest in the academic world. Such an interest that according to Jones and Wicks (Jones & Wicks, 1999) there had been over a hundred articles and a dozen books published which covered stakeholder theory by the year of 1995, a mere 11 years after the book’s publication. Corporate activities, not aimed at creating profit, was a growing practice during the time and companies soon realized they needed a system to account for those efforts (Jones & Wicks, 1999).
Sprung from the surge of stakeholder theory and a growing public interest in corporate responsibility the concept of triple bottom line accounting emerged (Hubbard, 2009). It is an accounting framework, based on the three pillars of sustainability (Gutowski, 2011). According to the researcher who coined the expression, John Elkington, he started to use triple bottom line publicly in 1994 (Henriques & Richardson, 2013). Elkington published an article that year in which he argued for the benefits of a three dimensional accounting framework (Elkington, 1994) but the term did not appear explicitly in the literature until the year 1998 (Elkington, 1998). Since its conception it has become common in for-profit, nonprofit and government sectors performance reports (Gutowski, 2011). Even though it has been able to accumulate a vast number of advocates, triple bottom line has also had a lot of criticism aimed towards it. With the tools available today it is hard to quantify social and environmental efforts (Gutowski, 2011). Hence, there is an undeniable arbitrariness to what is accounted for (Norman & MacDonald, 2004). Independent of the criticism, corporations and other organizations are undeniably under a lot of pressure to monitor and account for more than just their financial performance (Hubbard, 2009).
There is no clear definition of what constitutes a stakeholder and practitioners seldom define the concept themselves (Donaldson & Preston, 1995). In research however the definitions are numerous, but none is conclusive and widely accepted. In his original work, Freeman (1984) defined a stakeholder as “all of those groups and individuals that can affect, or are affected by, the accomplishment of organizational purpose” (p. 25). Other researchers follow the same premise and reflect a similar principle, such as (Wagner Mainardes et al., 2011) who stated that “the company should take into consideration the needs, interests and influences of people and groups who either impact on or may be impacted by its policies and operations” (p. 228). Evan & Freeman (1988) consider stakeholders as “those groups who are vital for the survival and success of the corporation” (pp. 100-101), unless otherwise stated this definition will be
16 adopted also in this report, to emphasize the impact of stakeholders on business, rather than the contrary.
3.4 Supply Chain Management In today´s business-performance discourse the term Supply Chain Management (SCM) is ubiquitous and has become a primary competitive tool of modern corporations (Hult et al., 2007; Re, 2004). This has not always been the case (Hult et al., 2007), rather a multitude of macroeconomic and managerial trends have paved the way for it to become an integral part of modern business practices (Seuring et al., 2008; Zhu et al., 2008). There was a clear shift in the end of the 20th century where previous ambitions of vertical integration as a means to become self-sufficient was pushed aside for a more streamlined approach (Mullin, 1996; Prahalad & Hamel, 2006). During the 1970’s, managers started to realize that there was a business opportunity in divesting, externalizing support activities and focusing on core competencies (Kakabadse & Kakabadse, 2005). Even though companies saw the advantages of outsourcing early on (Harland et al., 1999) it was not until the 1990’s corporate supply chains were truly globalized. During this time, practitioners and researchers started to realize the importance of a holistic approach to corporate management, encompassing both internal and external operations (Sweeney et al., 2015).
The term supply chain management is commonly believed to have been coined by a consultancy firm in the early 1980’s (Sweeney et al., 2015) but was only used sporadically until a decade later when it started to make a significant presence in the academic literature (Alfalla- Luque & Medina-López, 2009). Even though the concept has been widely investigated and researched the definition of it is still ambiguous (Mentzer et al., 2001). It has been pointed out that the vagueness of the term might to some extent complicate its practical use (Janvier- James, 2011) and that consensus regarding a single definition would improve work within the field (Mentzer et al., 2001). Even so, there are numerous definition available which can provide understanding and insight. (Mentzer et al., 2001). As to bring clarity and reduce confusion regarding the term Stock and Boyer (2009) performed a qualitive analysis which included 166 definitions and resulted in a proposed definition which encompasses all aspects of the concept:
“The management of a network of relationships within a firm and between interdependent organizations and business units consisting of material suppliers, purchasing, production facilities, logistics, marketing, and related systems that facilitate the forward and reverse flow of materials, services, finances and information from the original producer to final customer with the benefits of adding value, maximizing profitability through efficiencies, and achieving customer satisfaction”. (Stock & Boyer, 2009, p. 706) Arguably the most simplistic and common illustration of the supply chain is that which depicts the relationship of three actors: supplier, focal firm and customer. This is illustrated in figure 2 as it represents an easily accessible depiction of the concept. For the remainder of this report, the term supply chain refers to what is depicted in figure 2.
3.5 Sustainable Supply Chain Management SCM rose in prominence during the last decade of the 20th century and it did not take long before corporate responsibility got attached to it (Touboulic & Walker, 2015). Even though the concept of a sustainable supply chain was conceived in the 1990’s (Seuring et al., 2008) it was
17 not until the following decade it really got a foothold in the academic community (Gold et al., 2010; Millington, 2008; Seuring & Müller, 2008). In its infancy, research on Sustainable Supply Chain Management (SSCM) was primarily concerned with issues such as bribery (Pitman & Sanford, 1994) and ethical purchasing (G. Wood, 1995). The first published definition can be found in an article from 1996 (Touboulic & Walker, 2015) by Green et al. (1996) which states that: “Green supply refers to the way in which innovations in supply chain management and industrial purchasing may be considered in the context of the environment” (p. 188). The definition does neither include nor allude to SSCM explicitly, rather it refers to a term called Green Supply. There is a general problem related to the apparent arbitrariness of the terminology which has resulted in a lack of a concept base (Carter, 2011). This might impair research within the field as well as corporate application (Chen & Paulraj, 2004). There is a lack of consistency which is evident by the number of different terms used in the literature (Schneider & Wallenburg, 2012). These include, but are not limited to: Green supply (Green et al., 1996); Environmental Supply Chain Dynamics (Hall, 2000); Green purchasing (Zhu & Geng, 2001); Supply Management Ethical Responsibility (Eltantawy et al., 2009) and Sustainable Supply Chain Management (Pagell & Wu, 2009; Spence & Bourlakis, 2009; Tate et al., 2010). The purchasing function of a company is one the most influential on its sustainability performance (Tate et al., 2010; Windolph et al., 2014) since organizations are only as sustainable its upstream supply chain (Handfield et al., 2005; Krause et al., 2009). Companies are now functioning on a supply chain level and according to Seuring et al. (2008) they are increasingly being held responsible for the sustainability performance of upstream activities. Hoejmose and Adrien-Kirby (2012) present three key “drivers” of what they choose to call Socially and Environmentally Responsible Procurement (SERP): Globalization, fragmented supply chain and stakeholder pressure. Stakeholder theory is prominent within the field of SSCM and is only second to Resource Based View the theoretical lens most commonly used by researchers (Touboulic & Walker, 2015).
Even though there is a large body of literature which has investigated SSCM in terms of stakeholders’ theory (e.g. Buysse & Verbeke, 2003; Delmas, 2001; Park-Poaps & Rees, 2010; Wolf, 2014), there are few who does so with the intent of valuating the opportunity to increase competitiveness. The available literature is concerned with exploring the drivers of implementation (Hoejmose & Adrien-Kirby, 2012; Sajjad et al., 2015) and to some extent the identification of stakeholders’ concerns (Schneider & Wallenburg, 2012). Even though these studies provide an important account of salient stakeholders and how these relate to sustainability they fail to provide an explicit connection to competitiveness. In sustainability management, stakeholders have often been divided into those who are either external or internal to the firm (Hoejmose & Adrien-Kirby, 2012). The former includes, among others: customers, governments, investors and suppliers as the latter refers to for example: managers and employees. Looking beyond the field of sustainability, Harrison et al. (2010) proposes a framework for the management of stakeholders and value creation where the primary stakeholders are listed as: Owners, Customers, Organizational members and Suppliers. Research has shown how crucial the identification process of stakeholders is (Buysse & Verbeke, 2003). Even so, due to the purpose and scope of this report a thorough investigation will not be conducted. Instead, the consolidation of relevant research (e.g. Hoejmose & Adrien- Kirby, 2012; Schneider & Wallenburg, 2012; Walker et al., 2012) reveals that the following are most important to include: investors, governments, NGOs, communities, customers, suppliers and employees. These are illustrated in figure 2.
18 Figure 2. Internal & External Supply Chain Stakeholders
Note. In this figure, internal and external supply chain stakeholders are illustrated. The stakeholders which are included in the figure are those that have been identified as the most salient. N.B. company internal stakeholders are not included in the figure. Own illustration.
3.6 Sourcing Within the field of upstream supply chain management there is a flurry of different terms being used with seemingly little consistency. Procurement, purchasing and sourcing are just a few examples and even though there seems to be some clarity among practitioners, the academic community is yet to come to a consensus regarding the terminology. The current study is concerned with mainly two terms related to upstream activities: Strategic purchasing and Sourcing. There has been several proposed definitions of the former, like Carr and Smeltzer (1997) who formulated a definition based on empirical observations and certain characteristics (e.g. alignment with corporate strategy). Still, there does not seem to exist a generally accepted definition which can be infringed on by proposing yet another. Thus, henceforth strategic purchasing will be defined as all upstream activities aimed at obtaining input so as to enable the synergetic activities within the focal company.
There is no modus operandi which has been recognized as generally applicable when it comes to purchasing. Rather, different researchers has offered different systems which they deem suitable as to ensure a strong competitive profile (Pimenta & Ball, 2015). Walton et al. (1998) presents a categorization of processes throughout the supply chain, three of which are related to upstream activities: supplier evaluation, supplier selection and supplier management. Researching the automotive industry, Scannell et al. (2000) identified supplier development, supplier partnering and Just In Time (JIT) purchasing to be the fundamental upstream managerial practices. There are several other researchers who have provided accounts of the upstream supply chain, many with distinctive features and in unique contexts. For example, Van der Valk and Rozemeijer (2009) describes a purchasing process specifically concerned with the purchasing of services and Zeng (2003) provides a generalized process description for outsourcing. Then there are those who describe upstream activities in the context of implementing sustainability measures in the supply chain (Hollos et al., 2012; Salam et al., 2018; Sarkis, 2012). In this report strategic purchasing will be discussed in terms of a three part
19 system, resembling that proposed by Pimenta and Ball (2015). Those include supplier requirements and criteria definition, supplier selection process and supplier monitoring. In the current report the three processes are denoted: Screening, evaluation and monitoring. In the Cambridge dictionary, sourcing is defined as: “the act of getting something, especially products or materials, from a particular place”(Cambridge Business English Dictionary, n.d.). It is often discussed in terms of global sourcing or strategic sourcing. The former can simply be defined as buying an input abroad (Antràs & Helpman, 2004) and the latter has been defined by Narasimhan and Das (1999) as “Establishing relationships with suppliers with fast response capabilities to schedule or design changes; formal incorporation of supplier technological capabilities in design, engineering and manufacturing strategies” (p. 692). In this report, sourcing is defined based on the aforementioned activities of the upstream supply chain and is thus a part of strategic purchasing. Specifically, it will be defined as the two-step process of screening and evaluating suppliers. The definition was determined as to be unambiguous and exclude certain upstream concerns facing companies. Furthermore, the definitions carry with it a clear distinction from purchasing, as it is defined in this report. Based on a simple supply chain, the conceptualization of strategic purchasing and sourcing are illustrated in figure 3.
Figure 3. Conceptualization of Sourcing
Note. This figure illustrate how sourcing is conceptualized in the report, based on a simple supply chain as well as the definitions of strategic purchasing and sourcing. Own illustration.
20 3.7 Defining Concepts To increase clarity to the reader, the following section will provide a conclusion of the definitions which will be used throughout the report. The concepts have been defined as to encompass a broad meaning which has been deemed appropriate and suitable to the current research. The definitions are presented in table 2.
Table 2. Definitions of Concepts
Note: This table includes all of the definitions which have been provided in the previous section. Own illustration.
21 4 LITERATURE REVIEW The Literature Review presents the business case for sustainability as well as current research on sustainable sourcing. The former serves as an argument and a justification for pursuing sustainability in sourcing. The latter is presented to determine the pros and cons of the respective approaches. The entire section provides input to the discussion as well as a basis for evaluating the practical applicability and effectiveness.
4.1 The Business Case for Sustainability Large corporations in modern society serve an undeniable role as powerhouses (Blindheim & Langhelle, 2010) and their actions have an explicable impact on both economy, society and environment (Azapagic, 2003). The emergence of sustainability as a concept prompted an alteration in global thinking, inducing corporations to re-evaluate corporate strategy and how to measure performance (Hubbard, 2009). Corporations play pivotal role in the global pursuit of sustainability which cannot be achieved without their involvement (Windolph et al., 2014). Large corporations are being pressured to report more than their financial performance as their impact on society and the environment has gained public interest. (Hubbard, 2009). Ever since sustainability appeared in public discourse there has been disagreements on whether or not pursuing it have a potential payoff in the long run (Weber, 2008). Historically the integration of sustainability in corporate strategy was viewed as a zero-sum game, in which there was a tradeoff between sustainability and profit (Burke & Logsdon, 1996). However, the public discourse has in the last decades started to sway (Beckmann et al., 2014). Companies are starting to realize that sustainability and financial performance are not mutually exclusive (Byggeth & Hochschorner, 2006).
The business case for sustainability have been developing over the last decades and there has been a search for a link between sustainability activities and financial flows (Carroll & Shabana, 2010). In a broad sense, the business case requires financial justification, i.e. a positive correlation between Corporate Social Performance (CSP) and Corporate Financial Performance (CFP). However, the complexity of the relationship between the two has to be recognized. A direct comparison is a simplistic approach, due to the multifaceted nature of the two. (Carroll & Shabana, 2010) Pivato et al. (2008) argue that the individual variables should be studied rather than the overall social performance, and that performance measures (e.g. customer satisfaction) should be used as proof for a positive correlation. A company’s ability to turn sustainability activities into financial gain are according to Barnett (2007) dependent on “the ability of a firm to identify, act on and profit from opportunities to improve stakeholder relationships” (p. 803). In the last decades numerous researchers have tried to find empirical evidence for how CSP are correlated to CFP. However, they have come with no conclusive evidence (Weber, 2008). The research has resulted in studies who have found a positive correlation (Ameer & Othman, 2012; Kraft & Hage, 1990; McGuire et al., 1988; Pava & Krausz, 1996; Preston & O’Bannon, 1997; Stanwick & Stanwick, 1998), no correlation (Aupperle et al., 1985) and negative correlation (Boyle et al., 1997; Ogden & Watson, 1999). Inconclusive results of research have left some in doubt of whether pursuing corporate sustainability actually is financially beneficial (Salzmann et al., 2005). Nevertheless, most findings in research have actually found a positive correlation (Rost & Ehrmann, 2017).
The extent to which companies will commit to sustainability is based on their motivations for why to pursue it (Burke & Logsdon, 1996). Windolph (2014) identify three different motives for
22 pursuing sustainability: legitimacy, market success and internal improvement. The pursuit of corporate legitimacy is often a reaction to pressure from societal stakeholders and sustainability-regulations (Fatma et al., 2019). The allure of legitimacy stems from the increased importance of gaining trust and commitment from stakeholders (Campbell, 2007). Market success refers to the fact that customers and investors may remunerate the investments and actions of corporate sustainability. Whereas internal improvement refers to the associated cost savings of improving internal processes (Windolph et al., 2014). Stakeholders’ demands are of great significance in the business case for sustainability as they may affect short-term profit and overall long-term performance of the company (Epstein & Roy, 2001). Pursuing value creation through stakeholders has been recognized as intrinsic in strategic success, thus a stakeholder approach is often adopted in the business case for sustainability. In an article, Kurucz et al., (2008) presented a framework which describes four different categories of business cases for sustainability which are particularly interesting, and these will be described and discussed in the following section. The four categories of business cases described by Kurucz et al., (2008) are: cost and risk reduction; competitive advantage; reputation and legitimacy; and synergistic value creation.
4.1.1 Cost and Risk This business case focuses on the potential benefits to be gained from corporate sustainability in terms of corporate cost and risk reduction. The perspective primarily recognizes the demands of stakeholders’ as potential threats to both the viability and economic interest of the company (Kurucz et al., 2008). Attending to stakeholders’ concerns can prevent decisions which induce them to oppose the governance and goals of the company (Berman et al., 1999). Building trusting and goal congruent relationships with stakeholders may reduce both cost and risk (Ambec & Lanoie, 2008). To adopt sustainability compliance to a certain threshold level can considered a safeguarding measure (Kurucz et al., 2008). Stakeholders’ demands have to be managed, but there is a trade-off between the interest of the different stakeholders when maximizing long-run corporate performance (Jensen, 2002).
Numerous researchers have argued for the potential benefit of sustainability as a tool for reducing corporate risk (Ambec & Lanoie, 2008; Heal, 2005; Schaltegger & Lüdeke-Freund, 2012; Simons et al., 2003). Adopting sustainability measures may reduce different kinds of risk, such as regulatory risk which is derived from stricter regulations (Simons et al., 2003). Proactively pursuing sustainability may safeguard against future regulations and thus reduce corporate risk (Ambec & Lanoie, 2008). Companies who have not anticipated new and impactful regulation may be exposed to major disadvantages, which stresses the importance of proactivity (Hockerts, 2015). Sustainability measures may also mitigate so called litigation risk, which encompass the risks of prosecutions for violations of laws and regulations (Hockerts, 2015). Pursuing compliance with regulations may furthermore reduce the risk of incurring fines and penalties, by gaining the trust of regulatory authorities (Plaza-Úbeda et al., 2009). Another risk which sustainability efforts may reduce is reputational risk. When a company is affected by an incident or social campaign, it risks damage to its corporate brand. More sustainable products are less likely to be targeted by boycott campaigns and negative press (Ambec & Lanoie, 2008; N. C. Smith, 2003). Another potential benefit is the reduction of risk concerning employees (e.g. by adopting inclusive policies). This may reduce employee turnover rate and improve morale (Carroll & Shabana, 2010). Risk and cost reduction are interconnected, thus by reducing the former you reduce the latter. Cost savings are one of the foremost reasons for
23 why companies pursue sustainability since it has distinctive bottom-line benefit (Carroll & Shabana, 2010). Investments in sustainability has been shown to foster both know-how and a productive corporate culture. The improved internal efficiencies that arise therefrom may translate into cost savings (Epstein & Roy, 2001). More efficient use of resources and more efficient processes should reduce the operational cost of the company in the long run (Ambec & Lanoie, 2008). A corporate culture which stimulates productivity and knowledge increases output but also help to retain, motivate and attract new employees (Branco & Rodrigues, 2006; N. C. Smith, 2003). Furthermore, sustainability may also reduce the cost of capital. The proliferation of green and ethical funds is implicating that companies pursuing sustainability also benefit from being a more attractive investment on capital markets. As an effect funds are easier to obtain and the cost of those funds are lower (Ambec & Lanoie, 2008). Additionally, sustainable companies have easier access to funds from banks, who are persuaded by their stakeholders, to finance projects which are socially responsible (Sharfman & Fernando, 2008).
4.1.2 Gaining Competitive Advantage In this business case the focus is on the potential benefits to be gained in terms of competitive advantage. This perspective characterizes value creation to occur by adapting to the external environment. Adaptive approaches create competitive advantage by strategic orientation and direction of resources to meet the perceived demand (Kurucz et al., 2008). Stakeholders’ demands are considered opportunities that can be leveraged by the company rather than constraints. According to Carroll & Shabana (2010) business executives consider a competitive advantage as one of the main reasons for pursuing corporate sustainability. In the context of this business case, a competitive advantage is considered differentiation strategy (i.e. how companies might use sustainability to distinguish themselves from competitors). Developing the strategy require a thorough understanding of how the business and the core processes differ from those of its competition (N. C. Smith, 2003). A unique and thorough sustainability strategy can serve as a basis for differentiating the company and provide opportunities to outperform competitors (Branco & Rodrigues, 2006).
Corporate sustainability is vital for improving reputation, which intrinsically is a source of differentiation. The perceived importance of corporate reputation is increasing in terms of a company´s propensity to generate and sustain competitiveness (J. Lee & Kwon, 2019). There are several more ways in which a company can differentiate itself through sustainability initiatives. A company may enjoy a competitive advantage by improving customer relationships (Pivato et al., 2008), becoming a more attractive employer (Carroll & Shabana, 2010) or by improving their brand image (Porter & Kramer, 2002). Customers are a particularly susceptible stakeholder group to sustainability incentives, which can strengthen existing customer relationships but also by attract new customers (Bhattacharya & Sen, 2004). Sustainability can enhance the brand loyalty of customers (Pivato et al., 2008) and the correlation to brand patronage is also incentivizing companies to devote more effort to sustainability efforts (Bhattacharya & Sen, 2004). Studies of energy markets (Hartmann & Apaolaza, 2007) and the food sector (Pivato et al., 2008; Wettstein et al., 2011) have shown that a sustainable product image lead to higher consumer loyalty in the face of a growing competition. Companies associated with sustainability are typically a more attractive employer (N. C. Smith, 2003) and sustainability efforts may differentiate the company from its competitors. Pursuing corporate sustainability can improve the company’s capability to recruit more competent employees, retain them once hired and to motivate them (Carroll & Shabana, 2010). An employee’s
24 perception of the corporate image can affect their workplace attitude and a superior sustainability performance can create value as an intangible asset, which subsequently increases company performance (Branco & Rodrigues, 2006).
4.1.3 Reputation and Legitimacy This business case focuses on the potential benefits to be gained from reputation and legitimacy. It is characterized by a focus on the exploitation of sustainability to create value through improved corporate reputation and legitimacy, aligning the interests of the company with those of the stakeholders (Kurucz et al., 2008). The reputation of a company is how the relevant stakeholders perceive it (Martínez García de Leaniz & Rodríguez del Bosque, 2013) and contrary to corporate image, reputation is the product of continuous performance and communication (Weber, 2008). Reputation has been identified as an intangible asset with a significant impact on the competitiveness of a company. However, it is difficult to create, trade or imitate (Branco & Rodrigues, 2006). Reputation have a prevalent link to the sustainability incentives of a company as it demonstrates the awareness to manage corporate responsibilities (Martínez García de Leaniz & Rodríguez del Bosque, 2013). Legitimacy is for the purpose of this report defined according to Deephouse and Carter (2005) as “the generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate” (p. 331). The concepts of corporate reputation and legitimacy both encompass the assessment of a company by the social system in which it exists (Martínez & Rodríguez del Bosque, 2014). Corporate reputation can be conceptualized as the social status for which companies compete on an imperfect market characterized by information asymmetry. It is determined by the actions of the company, but the media and stock markets also have a significant influence (Branco & Rodrigues, 2006). It is an elusive yet strategic and critical asset which has a significant impact on the competitive power of companies. Corporate reputation has the potential not only to promote value creation, but also to differentiate the company from its competitors. (J. Lee & Kwon, 2019) Superior corporate reputation based on sustainability performance form a bond with the community and integrate the company as a part of society. This allows the company to negotiate more beneficial deals with both suppliers and government (Fombrun et al., 2000). The corporate legitimacy of a company is interconnected with the so called ‘license to operate’ (Demuijnck & Fasterling, 2016). License to operate is essentially society’s acceptance of corporate activities and its approval for it to operate, and it can be defined as:
“outside of the government or legally-granted right to operate a business, a company can only gain a Social License to Operate through the broad acceptance of its activities by society or the local community. Without this approval, a business may not be able to carry on its activities without incurring serious delays and costs” (Wilburn & Wilburn, 2011, p. 4)
Kurucz et al. (2008) argue that ‘license to operate’ concepts are connected to the ‘iron law of responsibility’. These encompass the idea that companies ought to exercise their power responsibly or jeopardize their control and have their power revoked. Corporate reputation allows firms to benefit from many cost advantages. An intangible asset of corporate reputation is the aforementioned ability to retain good quality personnel (J. Lee & Kwon, 2019). Furthermore, there is also an benefit to be had in terms of sustainability branding, differentiating products along sustainability lines (Peattie & Belz, 2010; Pedersen & Neergaard, 2006). The benefits of corporate reputation may allow companies to reduce marketing and operational cost alike, which subsequently will enable better corporate performance (J. Lee & Kwon, 2019). Another important benefit of corporate reputation is product branding, such as
25 premium pricing ( i.e. customers willingness to pay premium prices for products which solely are superior in terms of sustainability) (Allsopp, 2005). Research show that customers are indeed willing to pay a premium for sustainable products. Even though there is seemingly a discrepancy in actual consumption behavior (De Pelsmacker et al., 2005). In terms of branding, a sustainable brand and a good corporate reputation may improve both customer acquisition and retention (Sheth & Sinha, 2015).
4.1.4 Synergistic Value Creation In this business case, sustainability practices are thought to create synergistic value through win-win outcomes by connecting and aligning the different stakeholders’ interests (Kurucz et al., 2008). With an underlying holistic approach, the business case seeks to capitalize on opportunities which creates value for external stakeholders whilst simultaneously enable the firm to pursue its operational goals. By consulting with stakeholders and complying with their demands, the firm can consequently pursue profitability interest with their approval (Carroll & Shabana, 2010). The core argument is that the firm’s ability to successfully create value can solely be realized in collaboration with the relevant stakeholders which requires them to consider the firm as a trustworthy business partner (Beckmann et al., 2014). A firm can only reach a certain growth rate by itself. However, by involving stakeholders in decision making the effect can be multiplied (Pucci et al., 2018). Proactive and voluntary sustainability commitments need to be efficiently managed by selecting activities that meet the demand of salient stakeholders at least cost (Plaza-Úbeda et al., 2009). Corporations are altering their business models due to an increased insight to the importance of sustainability to stakeholders. By creating value through sustainability for stakeholders, companies can create synergistic value for themselves, often in the form of intangible factors (e.g. customers’ perception, social image and reputation). (J. Lee & Kwon, 2019) Furthermore, a record of good corporate sustainability can ensure better cooperation with stakeholders. This can in turn enhance productivity, competitiveness and substantially reduce the firm’s transaction costs (Plaza-Úbeda et al., 2009). Per se, this business case does not provide a particular justification or rationale for pursuing sustainability. Rather it emphasizes a more holistic approach to managing one’s stakeholders through sustainability efforts. By integrating it into the previous business cases, the benefits therefrom can be amplified.
4.2 Sustainable Sourcing There are two main concerns for companies who wishes to pursue sustainability in their sourcing activities: which sustainability criteria should be applied and which method should be used (Zhang et al., 2012). Furthermore, Akhavan and Beckmann (2017) points to the importance of reviewing sustainable sourcing strategies in terms of internal and external operational management. In regards to internal operational management, research such as that of Andersson et al. (2005) indicate that overarching sustainability goals and ambitions enhances sustainability measures in sourcing activities. When top management of an organization declares sustainability to be a strategic goal it tends to have a trickle-down effect, influencing all aspects of supply chain management (Sinclair et al., 2009; White & Noble, 2013). Operational external management refers mainly to cooperation with external parties such as government bodies and NGOs, which has been an increasingly common practice (Foerstl et al., 2010; Peters et al., 2011). Cooperation with suppliers in order to enhance sustainability has also been increasingly common as many firms include them more and more in the process of
26 product development and improvement (Yoo & Cheong, 2018). Studies have shown that close relationships with suppliers do tend to enable improvements of sustainability performance (Ağan et al., 2016; Xie, 2016).
As for the issue of identifying and selecting a suitable method for realizing sustainability in sourcing; managers are faced with a number of difficult decisions and the sheer number of possible approaches might be daunting. There is a rich plethora of different methods which have been investigated by researchers and practiced by companies which in general can be distinguished by which sourcing process they are associated with (Akhavan & Beckmann, 2017). Sourcing, as stated in the theoretical framework, is for the purpose of the current study defined as a two-step process (i.e. screening and evaluation) and sustainable sourcing methods can quite easily be categorized based on whether their applied to the former or the latter. The screening process is concerned with narrowing down the list of possible suppliers and are sometimes referred to as pre-qualification (Lasch & Janker, 2005). Suppliers are screened for compliance with a set of minimal requirements which contributes to minimizing the risk of non- performance (Wan & Beil, 2009). When a short-list of possible suppliers has been compiled the remaining possible candidates can be compared and evaluated so that the most suitable one can be identified. How rigorous the screening process is depends on the company where an extreme example would be a complete screening and short-listed suppliers are only evaluated based on price (Wan & Beil, 2009). Which criteria that is being used in which process differs but there is a significant distinction; screening criteria are binary while evaluation criteria are compared with one another. This distinction is important when discussing different sustainability methods, the reason for which is thoroughly described in the following sections. In general, companies have tended to aim their sustainability efforts on the screening process and used different sets of “knock-out” criteria to ensure that suppliers are compliant (Winter & Lasch, 2016). There is, as mentioned, a lot of different methods but before describing some of the most important ones, associated with each respective process it is appropriate to discuss the choice sustainability criteria.
4.2.1 Criteria There has been a lot of research aimed at finding appropriate evaluation criteria of suppliers where some of the most common ones have been quality, delivery and cost (Humphreys et al., 2003). There has traditionally been a large emphasis on economic factors but sustainability criteria are seemingly being increasingly recognized and taken into consideration in sourcing decisions (Khan et al., 2018). There is no clear division of criteria in terms of which process they are associated to. Even so, some lend themselves to binomial evaluation and has such been commonly used in the screening process. Some of those have been listed by (Beil, 2011): A history of good delivery performance; sound financial statement and an ownership structure with low potential risks; the capacity to scale up or down capacity depending on demand; certificates which ensure a certain level of quality (e.g. ISO 9000); technical and competence capabilities which ensures that the supplier can meet technical demands on products. Seen from the suppliers point of view these screening criteria are often referred to as order-qualifiers (Majed Zighan et al., 2018) a term coined by Hill (1995) who describes it as: “… those criteria that a company must meet for a customer even to consider it as a possible supplier” (p. 46). Khan et al. (2018) did a comprehensive consolidation of sustainability criteria mentioned in literature and subsequently screened them by consulting experts to refine them. This resulted in a set of criteria, listed in Table 3.
27 Table 3. Sustainability Criteria
Note. This table display sustainability criteria which may be used in supplier evaluation and selection, as well as potential indicators of each. Adapted from “Supplier sustainability performance evaluation and selection: A framework and methodology”, by S.N. Khan et al., 2018, Journal of Cleaner Production, 205(1), 964-979.
For the evaluations process, criteria which are tangible are more commonly used. Conventionally, great emphasis has been put on price, which stems from transaction cost theory where profit maximization is the main focus (Baskaran et al., 2012). By adding sustainability criteria, the sourcing process becomes increasingly complex as practitioners need to consider further aspects in a decision process which is already multi-faceted (A. Lee et al., 2009). In order to alleviate the task of assessing the sustainability of suppliers the criteria needs to be clearly defined and there needs to be support systems which provides information regarding the criteria’s relative influence on current and past decisions (Bai & Sarkis, 2010). There has been a lot of research devoted to identifying important sustainability criteria which should be used in sourcing activities (Khan et al., 2018) where many have chosen to focus on specific dimensions of sustainability (Akhavan & Beckmann, 2017). Early considerable work with an environmental perspective include that of Enarsson (1998) which presents criteria in a fishbone diagram categorized in four groups: Transportation, supplier process, product and supplier as a company. Another example is Noci (1997) who in a similar fashion, proposed a system of four criteria categories for what he called a “pro-active green strategy” which were: Green competencies, current environmental efficiency, supplier’s green image and net lifecycle cost. There are also more current studies which take a more holistic sustainability approach (i.e. not only environmental) including that of Winter & Lasch (2016) who mentions social aspects such as: No forced labor, no child labor, no discrimination, freedom of association, working hours, housing conditions and many more. Bai & Sarkis (2010) also includes environmental and social aspects. They segment sustainability criteria into: Environmental performance; environmental practices adopted by the organization as well as internal and external social criteria.
28 4.2.2 Screening It is very popular among western companies to use a so-called Supplier Code of Conduct (SCoC) (Jiang, 2009) which is a compilation of different rules and restrictions suppliers are expected to adhere to. There is no standardized SCoC used by companies but rather each company formulates their own (Schleper & Busse, 2013). Even though they have been proven to sometimes be effective, their success depends on how they are formulated and implemented (Yu, 2008). Petersen and Krings (2009) came to the conclusion that SCoCs can enable improvement of sustainability performance throughout the supply chain, but it requires enforced sanctions when needed and an integration into everyday business practices. Enforcing sanctions can be very problematic due to geographical, legal, political and cultural differences (Pedersen & Andersen, 2006). Suppliers can feel forced to claim that they comply with the SCoC, even if they do not, out of fear of being replaced (Jiang, 2009). Improvements in sustainability performance due to the use of SCoC have been observed (Egels-Zandén, 2014) but the strategy undeniably has some inherent problems. There are other methods deployed by companies aimed at ensuring a minimum level of sustainability performance of their suppliers. Hamner (2006) published a compiled a list of different methods used by companies which include: Product content requirements, product content restrictions, product content disclosure, supplier environmental management system, supplier questionnaires and supplier auditing.
4.2.2.1. Product Content Requirements There has been an increase in global demand for products which are recyclable and do not contain materials which damage the environment (Przekop & Kerr, 2004). Companies can meet this demand by putting requirements on their suppliers in regard to what the products contain. When developing new products companies should make sure that there is cooperation between developers and sourcing personal so that relevant screening criteria regarding content can be determined (Hallstedt et al., 2013). Schöggl et al. (2017) developed a checklist for sustainable product development which empathizes the importance of screening suppliers for “use of low-impact materials”. The importance of ensuring that suppliers use recycled materials is partly a matter of cost-reduction but also stems from a change of customers’ expectations and new regulations regarding end-of-life product management (Pagell et al., 2007). Putting requirements on product content in terms of recyclability enables a so-called closed-loop supply chain (Huang et al., 2013) which means a circular flow of materials where final products are being re-used as input in production.
The second important aspect of material content requirements is ensuring that suppliers do not use certain materials. This can include materials which result in a large carbon footprint, which subsequently may result in increased cost due to potential regulations (K. H. Lee, 2011). Another example are so called conflict minerals, the extraction of which are associated with systematic infringement of human rights (Hofmann et al., 2018). Furthermore, companies need to be aware of regulated substances to avoid legal violations. These regulations are governed by political agencies such as the EPA (Environmental Protection Agency) in the US and REACH (Registration, Evaluation, Authorization and restriction of Chemicals) which is an EU environmental legislation. Product content disclosure refers to the practice of requiring potential suppliers to declare environmental and safety attributes of products (Hamner, 2006). These declarations often come with a requirement of being certified in compliance with an
29 established system provided by commercial organizations (Eltayeb & Zailani, 2009) such as Velocity VHS, Green Seal or C2C (Cradle to cradle).
4.2.2.2. Environmental Management Systems An Environmental Management System (EMS) refers to a number of policies implemented by a company with the purpose of assessing current sustainability performance and strive for continuous improvement (Bosso, 2002). Companies may choose to certify their EMS according to a standard such as ISO 14001, EMAS or BS 7750 (Darnall et al., 2008). Standards are often used as templates when designing EMS systems, even though they are not always certified (Hamner, 2006). The most popular environmental standard used today is ISO 14001 (Sartor et al., 2019). It was first released in 1996 by the International Standardization Organization, but has since been revised and updated continuously, the latest version was published in 2015 (ISO, 2015). By requiring ISO 14001 the focal firm should be able to expect suppliers to be more sustainable (Nawrocka et al., 2009). In reality, it provides no guaranties of improvement (González et al., 2008). There is also a risk of suppliers being untruthful, claiming to have certifications even if they do not (Hedderich, 2006).
4.2.2.3. Self-Assessments & Audits Some companies demand suppliers to perform self-assessments and to fill out questionnaires with the purpose of evaluating compliance with sustainability requirements (Reuter et al., 2010). For suppliers who have an established sustainability management system in place, complying with such a requirement is quite effortless. If there are no previous routines for collecting sustainability data, the supplier will incur costs which can cause managerial complications. Simply requesting the supplier to produce information will have little effect if unsatisfactory results does not come with further requirements of improvement (Hamner, 2006). Supplier auditing has in the last two decades been an increasingly common practice and is being advocated by government and social society actors (LeBaron et al., 2017). Even though some companies perform audits during evaluation it is commonly part of the screening process (Reuter et al., 2010). They tend to be effective in the regard that suppliers often comply with requirements but necessitates trained personal, either from the focal firm or brought in externally (Hamner, 2006). This is especially the case for social sustainability auditing where differences in legal requirements and culture necessitates highly trained auditors (Kortelainen, 2008). It have been proven that audits are ineffective in detecting non-compliance with sustainability requirements (LeBaron et al., 2017). When performing audits, companies tend to be negligent of cultural differences and should consider dialog rather than forcing their cultural norms on suppliers (Anisul Huq et al., 2014).
4.2.3 Evaluation Incorporating sustainability measures in the evaluation process involves balancing tradeoffs between a variety of factors and can thus be classified as a multi-criteria decision problem (Agarwal et al., 2011). Even though it is still most common to deploy sustainability measures in the screening process there has been a clear development in theoretical research where multi- criteria formulized methods have gotten increased attention (Genovese et al., 2013). The evaluation process involves both tangible and intangible factors (Sarkis & Talluri, 2002). Managers responsible for the evaluation of suppliers need to convert these factors into concise measures (Bai & Sarkis, 2010). Companies use traditional evaluation systems to deal with associated complexities of the evaluation process such as categorical systems, weighted-point
30 systems, or cost-based systems (Winter & Lasch, 2016). It has been recognized that more advanced models can assist in the evaluation process of suppliers (Sarkis & Talluri, 2002). Earlier models were merely concerned with conventional criteria such as total cost and consisted of different forms of mathematical programming (Baskaran et al., 2012). Ho et al (2010) conducted a literature review with the aim of identifying multi-criteria decision making approaches to sourcing in which they categorized methods in individual and integrated approaches. The most common individual approach is Data Envelopment Analysis (DEA) where as the most common integrated approach is Analytic Hierarchy Process (AHP) (Ho et al., 2010). DEA utilizes mathematical programming to compare so called decision making units (Baskaran et al., 2012). They can be confusing for practitioners to use due to vagueness regarding defining input and output and requires the user to make subjective assessments of the value of outputs (Ho et al., 2010). AHP programing is considered to be a robust method for evaluating suppliers but does not handle vagueness which causes problems since many evaluation criteria is just that (Fallahpour et al., 2017). In order to handle vague and ambiguous information some researcher have applied a so called Fuzzy-based approach (Awasthi et al., 2018; Büyüközkan & Çifçi, 2011; Govindan et al., 2013).
Besides those already mentioned, other models for evaluating supplier in terms of sustainability have been developed for example: AI methods, mixed integer programming, non-linear programming and others (Baskaran et al., 2012). Even though the evaluation process have been heavily researched there is a lack of applicability as they have not, to any great extent, been tested in real life practices (Genovese et al., 2013). There is an apparent need for research within the field aimed at the practical use of the models in order to asses actually usefulness (Taticchi et al., 2015). In those cases where practitioners have been allowed to use the models they have found them to be to complex (Baskaran et al., 2012). Bai and Sarkis (2010) also pointed to the fact that almost all models which have been proposed are sensitive to input, producing vastly different results depending on how criteria is being defined and valuated. In terms of practicability, Winter and Lasch (2016) asserts that modification of current purchasing practices is the most effective approach. Even though they are currently flawed, multi-criteria decision models can in the future enhance sustainability performance greatly and enable a proactive approach which is many times lacking in screening strategies (A. Lee et al., 2009).
31 5 ANALYSIS OF EMPIRICAL DATA In this section the analysis of empirical data is presented, it consists of the results from the thematic analysis. The section is divided in two distinctive sub-sections with the ambition of providing answers to the respective research questions. The analysis provides the collated response of the interviewees, based on the researchers’ interpretation of themes and specific answers to questions. The section seeks to provide insights to the business case for sustainable sourcing and for how it can be realized, without disclosing confidential information.
The two sub-sections are the Business Case for Sustainability and Sustainable Sourcing. The former is based on themes and specific answers to the interview questions on Sustainability (appendix 3) and Suppliers’ Perspective (appendix 5). The latter is based on themes and specific answers to the interview questions on Sustainable Sourcing (appendix 4).
5.1 the Business Case for Sustainability – Seeks to provide insights and answers to the research question “Which are the key features of the business case for sustainability?”.
5.2 Sustainable Sourcing – Seeks to provide insights and answers to the research question “How can the business case be realized in sourcing activities?”.
The interviewees are divided into three different categories: Sourcing, Sustainability & Public Affairs and Suppliers. All of the interviewees are presented in appendix 2. To ensure anonymity, the interviewees were each assigned a designation: CBXX represents interviewees in the Sourcing category, SPXX represents interviewees in the Sustainability & Public Affairs category and ESXX represents the interviewees in the Supplier category (Note. XX denote their individual number, e.g. CB01). Interviewees in the Sourcing category answered questions regarding both Sustainability and Sustainable Sourcing. The interviewees in the Sustainability & Public Affairs category solely answered questions regarding sustainability. Finally, the interviewees in the Supplier category answered the questions directed at suppliers.
5.1 The Business Case for Sustainability There is a consensus in the interviews that sustainability, to some capacity, plays an important role for any company operating in the construction equipment industry. Even though conventional aspects, such as general performance and Total Cost of Ownership (TCO) are the primary order winners. Sustainability is becoming a more prominent aspect and hold a distinct value. The perception of sustainability seems to be altering to become an important, if not crucial, aspect of the products. Early adopters are putting increasingly stringent sustainability requirements on products and mediate a willingness to pay a premium for it. Nevertheless, the sustainability demand from most of the actors are still quite low. The interviewees exhibit a strong belief that the development will not be confined to those who currently demand sustainability but rather spread and become part of a new global paradigm.
5.1.1 Reputation & Brand Image Looking at the industry as a whole, it is quite clear that VCE has a unique position in terms of a sustainable reputation. This originates from the fact that the company was early, in relation to other companies, to work explicitly with sustainability issues. When asked about how VCE is
32 perceived, in terms of sustainability performance, the interviewees were all quick to mention the company’s long history of acknowledging its responsibility towards society and the environment. Interviewee SP01 stated that “We have had our core values: quality, environment and safety as a foundation for a very long time. We had an environmental policy in place as early as 1972”. This has given the company a “head start” but as for how current operations differ from that of other companies, some interviewees were quite frank in that many of the competitors are close to catching up. VCE seeks to integrate sustainability throughout all its operations, albeit some interviewees pointed out that they have been spoiled with being an early adopter. SP03 stated that “We have been spoiled in a sense; companies want to be associated with Volvo by working with joint sustainability initiatives”. Even though many businesses are working towards creating a sustainable reputation on par with that of Volvo there is no apparent “race to the top”. According to interviewee SP01, when developing new sustainability guidelines and rules of operations no consideration is taken to competitors in terms of creating a unique position. In accordance with this, interviewee ES01 stated that there are not any additional sustainability requirements which are exclusive for VCE. Interviewee SP03 stated that, Volvo is regarded as an actor with a reputation of being sustainable, albeit confirming that there is no significant difference between different actors in terms of the requirements they put on their suppliers. In addition, interviewee SP02 stated that there is a general perception that Volvo is a driver of innovation in regard to sustainability. The interviewee continued by stating that one of Volvo’s strengths is that they actually do what they communicate to the public. From the perspective of suppliers, VCE seemingly have a more prominent reputation in terms of sustainability. Interviewee ES01 stated that “My perception based on customers that I have dealt with in the past, I would say that Volvo has a much higher position in terms of sustainability compared to most others”.
There was a consensus amongst interviewees that sustainability performance, reputation and image is important for acquiring and retaining personnel. As an employer it is important to be able to showcase good business practices. Interviewee CB03 stated that companies who cannot answer questions regarding sustainability and ethics will have a hard time recruiting in the future. The construction equipment business is easily associated with or thought of as damaging to the environment (e.g. the mining industry). Both interviewee CB02 and SP03 stated that companies who display ethical and sustainable corporate values are more competitive as employers. Furthermore, interviewee CB04 pointed to the fact that a sustainable profile may also improve employee engagement and productivity.
“Over the last years people have started to brand themselves through social media. It is becoming more important for employees and business partners alike, to be associated with the correct brands.” (SP03)
“If you work for a company and believe in what they are doing you have that engagement. If you are doing it just for the paycheck, then there will be low engagement and the performance level goes suffering.” (CB04)
In terms of what customers demand, the interviewees expressed that conventional requirements, such as performance and Total Cost of Ownership (TCO), hold a clear precedence over sustainability criteria. Disregarding that fact, low amounts of emissions are still in high demand from customers. As pointed out by interviewee CB03, this can partly be explained by the correlation with fuel consumption, implying lower costs for the consumer. Interviewee CB01 spoke on the importance of lowering costs and stated that commercial interest is the
33 main driver of customers’ demand. Seemingly, the market is to no degree homogeneous when it comes to sustainability requirements. Rather customers’ demands vary depending on the company and which country the customer operates in. There are those who can be categorized as early adopters, which put more stringent requirements and there is a clear market development towards higher demand on sustainability. Early adopters are often large companies, or smaller businesses which are part of larger corporation. According to interviewee SP01 this type of actor have higher requirements and see a value in a strong sustainability profile. Certain markets and regions have special demands, partly due to local regulations. For example, some customers request machines which does not emit too much noise, whilst other might have certain content requirements. Fundamental for customers’ demands are their ambition to acquire a sustainable image, by using products produced in a sustainable way. Interviewee SP03 stated that a sustainable image of the seller transfers to some degree to the customer which interviewee SP01 also alluded to when speaking on the topic. The strong sustainability profile of Volvo is thus often attractive to customers who has the ambition to create a strong sustainability image for themselves. This is true not only in the context of a buyer-seller relationship but also when it comes to partnerships and cooperation. From a supplier’s perspective, the perception is that global customers are further ahead and have more stringent sustainability requirements.
“Some global customers are more enlightened, like Volvo, and I think that’s partly the Volvo history embedded in the culture. For some other customers its more of a tic box exercise, to say yes, we have a sustainability report, but they don’t necessarily live by and believe it.” (ES01)
In general, there does not seem to be any specific sustainability requirement or aspect which is more prominent than others, rather a more general sustainable perception is of value for the customers. In terms of upstream requirements, interviewee SP03 stated that many customers assume that the producers have high standards regarding working conditions and environmental concerns in their own production. Therefore, the interest is shifting to the sustainability of the upstream activities. Interviewee SP03 referred to conflict minerals as an especially prominent commodity which customers ask about, but that general systematic sustainability efforts in sourcing practices are also of interest. This is confirmed by interviewee SP01 who stated that there definitely is an interest in what happens upstream in the supply chain. However, this is mostly in the context of large procurements and that requirements often comes in the form of a “tick in the box”. In most cases, the buyer wants to make sure certain policies and guidelines are in place. According to the interviewees there are seldom any non- binary sustainability requirements. In terms of customers’ willingness to pay a premium for more sustainable products the interviewees are in general positive. Most agreed that there are certain types of customers who are willing to do so but they stress that it has to provide additional value. Interviewee CB01 stated that “Some are prepared to pay a premium, but not unless they see a value”. Enhancing one’s image and profile seems to be a strong driver for customers willingness to pay. Those with an ambition to be perceived as sustainable might be willing to pay a premium. Interviewee SP02 pointed to electrification, some early adopters are willing to pay a premium to get the first electric construction equipment, in order to strengthen their sustainability image. However, since perception, image and profile are intangible assets it is difficult to quantify the value of sustainability. In certain cases, a higher price can be motived by that fact that it minimizes risk for a customer. Interviewee CB01 gave an example of oil leakage and stated that customers sometimes are willing to pay for an additional safety
34 valve to minimize the risk of leakage. Additionally, interviewee CB04 acknowledged that there is a challenge in not over specifying products. Certain requirements may be appropriate in mature markets, albeit in developing countries they may lead to over specification, thus reducing competitiveness.
5.1.2 Regulations & Risk Most interviewees recognized that VCE work proactively to identify upcoming sustainability regulations. Even though those who do not work directly with those questions merely answered that they were aware of some sort of proactive mapping. However, they did not know exactly in what capacity or to what extent. The interviewees who work explicitly with sustainability issues described a rigorous process which not only consists of identification but also collaboration with legislative branches. VCE takes part in discussions and forums consisting of governmental representatives and other large private actors, providing input and expressing their opinion about proposed restrictions and legislations.
“There is more interest from the authorities to interact with the industry. This is good because it helps them to grasp the prerequisites of companies within the industry. Consequently, legislation can then be adapted to be more efficient.” (SP02)
There was a consensus amongst the interviewees that it is greatly beneficial to work proactively with sustainability regulations. Besides the structured and formalized operations which aims at identifying regulations interviewee CB01 emphasized the importance of collaborating with suppliers. To use them for acquiring insight and knowledge regarding laws and regulations in their respective countries and regions. Interviewee CB01 continued by stating that there is a global community in which a lot of crucial information is exchanged. According to interviewee SP03 those instances within VCE which works explicitly with sustainability regulations concentrate their efforts mainly to Europe and North America. Interviewee SP03 furthermore claimed that, by adhering to those laws and regulations which are the most stringent the company covers most of the remaining regions as well. According to interviewee SP03, there has been no cases of unexpected regulation in the last 15 years which has caused any financial or operational damage. Many regulations require structural changes, resource allocation and alteration of the composition or performance of current products. This requires an extensive timeframe in order to align efforts throughout the entire supply chain. This is one of the main reasons why identification of new regulations and being part of the process of developing them are crucial and necessary according to interviewee CB02. Most of the interviewees concluded that proactive identification of regulations is very beneficial. Furthermore, interviewee CB03 stated that “Anything which you can proactively work with and plan for, can be done more efficiently at a reduced cost”. Regarding specific regulations, the data gives a more scattered picture. There seemed to be a consensus that there will be more stringent regulation on total emissions and carbon footprint of products. Interviewee CB06 stated that “In order to be able to supply certain customers or regions, it is a requirement to be able to declare the carbon footprint of the product”. Interviewee CB05 also pointed to the importance of being able to report for one’s carbon footprint. Both interviewee SP01 and CB02 pointed to the social dimension of sustainability, specifically in terms of human rights and working conditions. They both pointed out that such regulations most likely will be introduced and enforced in regions which today are less economically developed. Other interviewees mentioned more specific factors. Interviewee SP03 and CB03 thought that water will be a resource which will be increasingly recognized and regulated in the future. Conflict minerals was brought forth by
35 interviewee SP01 and recycling by interviewee CB01 who also stressed the significance of future regulations related to electrification in general. Interviewee SP03 stated that, large OEMs will most likely be held more accountable for their entire supply chain and be forced to take more responsibility.
In terms of sustainability scandals within the industry the general response was that there have not been any major ones which has caused severe damage to either VCE or any other competitor. There has been some media attention aimed at the use of the final products (i.e. the construction equipment has been used by customers which have been unethical in their business practices). There are some apparent risks associated with the conduct of suppliers. Interviewee CB01 and CB02 pointed to the fact that it is hard to manage and regulate the actions of suppliers further up in the supply chain. Interviewee SP03 stated that sustainable sourcing practices within the construction equipment industry is especially complex because some suppliers further up the supply are also customer (e.g. mining companies). The data shows clearly that VCE is at no significant risk of litigation due to the actions of its suppliers. Interviewee CB03 stated that, even though contracts to a large degree protect them, anyone has the right to sue the company which means such a risk cannot be completely discarded. Interviewee CB01 stated that, even though VCE is not directly exposed to a risk in terms of litigation, if a supplier is engaged in unethical business practices it can cause severe damage to the brand. Such a risk cannot simply be managed by contracts which disclaims the company’s judicial responsibility but requires robust and solid sourcing practices which aims at ensuring ethical and sustainable business practices throughout the supply chain.
5.1.3 Joint Sustainability Initiatives There is a consensus amongst the interviewees that Volvo is good at cooperating and building relationships with external actors. According to interviewee CB03, this is one of the reasons why Volvo has such a strong sustainability profile. Many of the joint sustainability initiatives of Volvo are in collaboration with NGOs. There is a reciprocity in those relationships, as stated by interviewee CB01. NGOs existence rely on their members and the companies they are partners with. In terms of finding synergetic value creation with suppliers there is no formalized procedure or praxis within the company. Some of the interviewees who deal directly with suppliers stated that Volvo work actively with joint development projects related to sustainability while others stated that it mostly comes down to telling the suppliers what to do. Interviewee CB03 pointed out that, if suppliers have good working conditions for the people working in their factories, it not only achieves sustainability, but most likely increase productivity. There is also an opportunity to create value for the end customer by striving for synergetic value creation. Interviewee CB01 stated that a major concern and demand from customers are total carbon footprint and emission throughout the supply chain. If there is a possibility to collectively reduce that, it will be beneficial for Volvo, suppliers and end customers. Even though it is clear that cooperation and joint value creation is important, there are certain aspects which might complicate such relationships. Interviewee SP03 stated that partnerships can be problematic due to language barriers, cultural difference and diverging goals. Even so, interviewee SP03 made sure to point out that partnerships are crucial for economic growth and systematic changes.
36 5.2 Sustainable Sourcing In current sourcing processes at Volvo, sustainability is a prominent factor. Nevertheless, it is primarily a part of the screening process, even though the results are passed through to evaluation. The interviewees expressed that it would be beneficial to integrate sustainability more rigorously throughout the sourcing process. They also allude to the difficulties of quantifying sustainability and the importance of aligning corporate values with those of suppliers. There is a consensus that, although suppliers are not explicitly evaluated based on their sustainability performance, it will most likely be done in the future.
5.2.1 Screening VCE’s screening process involves a number of sub-processes in which the presumptive supplier is screened according to a set of criteria. These includes agreement with the SCoC, on-site audits, self-assessments and more. All of these are extensively explained in the case study (appendix 1). According to interviewee CB06, standardized requirements are determined through industry collaborations. Subsequently, internal experts are consulted, and the requirements are adjusted to suit the vison and ambitions of Volvo. According to interviewee ES02, Volvo is one of the actors with the most stringent and rigorous requirements, which has required the supplier to allocate resources. VCE has according to interviewee SP01 the ambition to eliminate any disconnect between different departments within the company and that sustainability should permeate all processes. In conclusion, sustainability strategies are developed centrally but there is an exchange of information between those deciding on supplier requirements and other functions within the company. One of the ways in which VCE gather information is through supplier self-assessments. They are used for benchmarking the sustainability performance in the management of the upstream supply chain. They are additionally used to compare and gain insight to the requirements on different markets. Interviewee CB03 stated that self-assessments to give insight to suppliers’ performance as well as a guidance for measures that might be required.
” We have made much use of self-assessments, partly to gain an understanding of appropriate requirements. However, there will never be one answer for all kinds of suppliers, then it becomes to general”. (Interviewee CB01)
The interviewees which work directly with suppliers perceive them to be understanding and engaged in the requirements and ambitions of VCE. Even so they clearly stated that it differs depending on the supplier. According to interviewee CB03 some suppliers are more adamant in showing their own initiatives and uses it as an argument for why they should be awarded business. However, others are more reactive and will only perform in accordance with the requirements. Interviewee CB01 stated that some suppliers may be inclined to question some of the requirements, especially when they differ from the market standards. When it comes to the sustainability ambitions of VCE, interviewee CB01 stated that the engagement of suppliers come down to the potential business value. The interviewee continued by stating that in order to motivate suppliers to strive towards constant improvements, you need to ensure that they realize the business value of doing so.
Most of the interviewees acknowledged that there is a risk of untruthful reporting, albeit not particularly great or pressing. VCE has a lot of systems in place to control whether or not the supplier lives up to their expected responsibilities. Several interviewees stated that it mitigates the risk of suppliers passing the screening process without actually fulfilling all the
37 requirements. Even so, interviewee CB03 stated that there is always a risk that some things are missed and only a finite amount of resources can be dedicated to follow up supplier compliance. Additionally, interviewee CB03 stated that “we cannot find ourselves in a situation where we are purchasing from a supplier who do not have ethical and sustainable business practices”. There was a consensus that risk varies depending on the type of supplier and in what region they operate out of. Interviewee CB03 stated that some may be more opportunistic and inclined to cut corners in order to remain as a possible candidate for an order. It is important to mediate why VCE have certain requirements and according to interviewee CB03 it is the sourcing practitioner’s responsibility to make sure suppliers understands that it is more than just “checkbox”.
“Checkboxes are nice to have, but if we start taking it for granted, then it can create a false sense of security. What I think is important is that you have a set time for reviews and audits to validate”. (CB04)
Interview CB01 underlined the importance of how requirements are presented to suppliers. According to interviewee CB05 the risk is greater for smaller suppliers who may not have as much to lose as larger ones. There seemed to be a consensus that the risk primarily exists further upstream in the supply chain where it is more difficult to follow up. Interviewee CB04 stated that “Where we can potentially see a risk is for the tier 2- and tier 3 suppliers. […] The visibility significantly reduces there, and it is hard to follow that through”. The interviewee continued by stating that Volvo does not have the time or resources to manage the second- and third-tier suppliers. Interviewee CB04 pointed to the importance of transparency. It is important to avoid different interpretations; you need to mediate what you want to achieve and how you want to do.
“It is important that you align your vision with the suppliers and what you actually audit them on is how they measure their suppliers. […] When you develop common goals and initiatives, signed on by top management, that is how you will drive it through.” (CB04)
Most of the interviewees were of the opinion that there is a risk of relying too much on the screening process and that it can create a false sense of security. Environmental certificates were a reoccurring example where interviewee CB03 amongst others stated that some certifications can be obtained even though there are violations. The interviewees pointed out the importance of audits and further screening as crucial to ensure suppliers compliance with sustainability requirements. Simply relying on a screening process can cause problems related to the overall sustainability performance of suppliers. Interviewee CB01 stated that even though a supplier complies with all of the requirements they might be performing sub- standardly from an aggregated point of view.
Depending on the product segment there are different aspects of sustainability which are especially pressing. It was evident from the interviews that responsible parties for the respective segment was well aware of this and to some capacity used it in their assessments of suppliers. The screening process is to some degree customized, albeit not due to product differences but rather due to maturity level and geographical region. An example of customization provided by interviewee CB01 was requirements on workers’ right to join or organize unions. In a country like Sweden it is not a big risk that workers are denied the right whilst in other countries it might be a more pressing issue. The screening process is additionally adapted based on the stringency of the laws and regulations in a particular region. Even though
38 there might be slight adaptations, the process is sort of “one size fits all” as expressed by interviewee CB02. The interviewee continued by stating that there might be benefits to altering the requirements depending on the specific product. According to interviewee CB03, there are apparent risks with tailoring the process, since it might make the process unfair. The interviewee stated that it might lead to some suppliers being excluded although they were doing a good job.
Interviewee CB01 perceived some suppliers to be very engaged in the sustainability ambitions of VCE. This lends the SCoC discussion with some suppliers to be more extensive. The interviewees furthermore expressed that there is a significant difference in suppliers’ interest in sustainability. According to most of the interviewees, the SCoC is sporadically discussed with suppliers, although how often and to what extent depends on the supplier. Some suppliers are merely referred to the “supplier portal” of the Volvo Group which is a forum where relevant information is made available. If suppliers are neither interested nor engaged in the sustainability issues which VCE has deemed important or pressing, interviewee CB01 stated that it is important to convince them by putting an emphasis on the business value. All suppliers are expected to adhere to the principles of the SCoC which is structured to have formal requirements as well as aspirations. The aspirations are sustainability goals the suppliers are expected to work towards. Suppliers are encouraged to pursue these during so called business review meetings. These are meetings in which the current status of the business relationships is discussed and there is also a review of the development of the suppliers and the planning of further development. Even though the aspirations are to some extent discussed and the suppliers are encouraged to better their sustainability work, some aspects are hard to quantify. An example is the right to organize labor unions, which was brought up by interviewee CB02 who stated that it hard to see how well a supplier develops in such areas. If a supplier does not adhere to the SCoC or fail to meet the requirements, a business review meeting is scheduled with the supplier including their executive management team. They then review the relationship with the supplier and communicate their concerns. Additionally, they review the corporate values of the supplier to see whether they are actually aligned with those of Volvo. If the supplier is not prepared to take corrective action, a plan for phasing out the supplier is established; if corrective action is taken, then the concerns are revisited once again in three to six months.
5.2.2 Evaluation Sourcing personnel at Volvo does not have any tools which are directly aimed at evaluating suppliers based on their sustainability performance. However, they have a number of tools available to them which classify suppliers based on sourcing strategies, alignment of corporate values and long-term goals. Additionally, the screening process provides input for the classification. It is a ranking of suppliers, which states which supplier should be preferred in a purchasing decision. They are classified as either a business partner, preferred or back-up suppliers. Subsequently, the sourcing personnel engages in an evaluation process mainly concerned with conventional evaluation parameters such as quality, cost and delivery. Even though sustainability performance to some extent affect the ranking of suppliers, it is not clearly a part of the evaluation process.
“In more general business case decisions, we do not really have sustainability criteria. Although, if sustainability criteria could be translated into some sort of economic value, it should be included in our decision-support systems”. (Interviewee CB03)
39 Most of the interviewees were positive to integrating sustainability in the evaluation process, even though they alluded to the intrinsic complexity. There is a general strong belief that sustainability in some capacity will be added as an evaluation parameter, rather than solely being used in screening. As pointed out by interviewee CB02, it is simplistic to rely on a binomial screening process of sustainability criteria where there is no need to quantify and valuate different aspects of the concept in relationship to one another. Interviewee CB02 gave an example of the complications of quantifying working conditions and stated “how do you put a price on working conditions? It is not feasible to say that X amount of compliance to working conditions would be worth Y amount of money”. There are additional complications in implementing sustainability in the evaluation process, not related to the concept’s intangibility, namely the availability of data. From the interviews it was clear that it is much easier to evaluate current suppliers than new ones. With current suppliers there is a record of past performance in terms of delivery, quality and flexibility. For new suppliers there is hardly any information except for that which has been gathered throughout the screening process. Although it is easier to evaluate current suppliers, it is difficult to impose new requirements or demands on a supplier that has already been awarded business. There was a consensus amongst the interviewees that during the negotiation phase higher expectations can be expressed with a greater likelihood of being accepted.
There is organizational support within VCE to award a supplier business based on a superior sustainability performance. Even so, supplier selection has to be in line with sourcing strategies and corporate values. The decision needs to be substantiated by a clear motivation as for how it is superior. As stated by interviewee CB03 there are no decision-support systems that can assist such a decision. Individual purchasing decisions are not governed centrally but rather takes place far out in the organization. Interviewee CB02 recollected working more directly with individual purchasing decisions and stated that there were no strict guidelines regarding the choice of supplier as long as the decisions could be motivated.
“If we see that a supplier is investing in sustainability. Then we are ok to pay for that because then it helps us to show that we are working through the supply chain, really supporting Volvos directives, vison and ambitions when it comes to sustainability”. (CB04)
There seemed to be a consensus amongst the interviewees that including sustainability in decision-support systems would be beneficial. Additionally, several interviewees pointed out that it would be more effective to integrate sustainability in the existing tools rather than developing new ones. Interviewee CB03 stated that the inclusion of sustainability in the evaluation process would clarify and emphasize sustainability as a corporate value of Volvo.
40 6 DISCUSSION In this section the discussion is presented. It consists of input from the empirical data and literature review; therefore, it encompasses the perspective of business and academia alike. It is divided into two sections, based on the respective research questions. Nevertheless, neither of the sections are discussed in isolation. Rather, they are interwoven to provide a more fruitful discussion and also to provide a more holistic basis for answering the research questions.
6.1 The Business Case for Sustainability When reviewing literature and empirical data, it is clear that there are benefits to adhere to and allocate resources to meet the demands of stakeholders. Most of the potential benefits which stems from pursuing sustainability in sourcing are intangible and difficult if not impossible to quantify. Therefore, it is difficult to provide any conclusive evidence for a positive correlation between social-, environmental- and financial performance. Yet, it cannot be denied that there is a business case for pursuing sustainability in sourcing as both the literature and empirical data indicates a net gain from engaging in such activities.
6.1.1 Cost & Risk It is undeniable that some proactive measure for identifying future regulations is vital to survive and stay competitive on today’s market. There have been numerous laws and regulations implemented in the past which have greatly affected the case company. The empirical data reveals that these large regulatory changes take a long time to adapt to and require systematic changes. It is evident that there are large benefits to have a well-structured system in place explicitly dedicated to work proactively with current and future regulations. Thus, the findings in this study are congruent with former studies such as Heal (2005) and Schaltegger & Lüdeke- Freund (2012) which asserts that there is a great benefit to work proactively with sustainability regulations. It is suggested by Ambec & Lanoie (2008) that pursuing sustainability acts as a safeguarding measure. The case company does not work with sustainability in its sourcing activities explicitly to proactively adjust to future regulations. They rather engage in selective monitoring of the markets which are deemed the most important and which have the most stringent sustainability regulations. This selective monitoring of regulations is justified by a simple logic: by adhering to those regulations which are the most stringent there is no risk of violation on other markets. The empirical data indicates that this is seemingly an effective measure. Even so, a global presence arguably implies a risk since there might be regulations which are only enforced on specific markets. As suggested by Ambec & Lanoie (2008), by working closely with suppliers there is a possibility to mitigate this risk as it provides insight and knowledge about specific markets. This might be an effective strategy since close relationships with suppliers are desirable, not only in this context but for overall supply chain management. However, relying on external actors for input in a risk assessment might be questionable. The empirical data suggests that the case company does not have any formalized procedures for acquiring information from suppliers in terms of future regulations. Adhering to the most stringent regulations might not be optimal, or even possible in all cases. For example, working conditions can differ between markets and regions (e.g. working hours, amount of vacation days and sick leave). Applying a certain set of standards to all markets is simply not feasible. It is important not to rely too heavily on a strategy which, even though in most cases effective, exposes companies to a non-negligible risk of incurring unexpected costs.
41 Litigation is according to Hockerts (2015) a potential risk which can be averted by pursuing sustainability. None of the interviewees considered litigation or legal penalties caused by the actions of a supplier as a great risk. This due to legal contracts safeguarding against it. Even so, one of the interviewees stated that contracts cannot completely protect the company against lawsuits as it is anyone’s right to sue them if they wish to do so. This implies that there is always a risk of incurring costs or a damaged reputation even though there are contracts in place. Rather than litigation, the empirical data indicates that suppliers expose the case company to reputational risk. There have not been any large sustainability scandals within the industry. Nonetheless there have been incidents where suppliers and customers have gotten negative media exposure. In regard to suppliers, the empirical data indicates that risk does not primarily exist in the first tier but rather further upstream. First tier suppliers are relatively easy to monitor but when it comes to the second, third or fourth tier, it becomes increasingly difficult. If companies are subjected to negative press or boycott campaigns, having sustainable products might mitigate the negative impact as suggested by Ambec & Lanoie (2008) and Smith (2003). Even though the empirical data does not disclaim such an assertion it rather highlights robust and solid sourcing activities as crucial for ensuring sustainability and mitigating risk exposure from higher tier suppliers.
6.1.2 Gaining Competitive Advantage It was suggested by Bhattacharya & Sen (2004) that customers are especially susceptible to sustainability initiatives and that companies can attract new and retain current customers by pursuing sustainability. The empirical data confirms this to a large degree as many of the interviewees expressed a strong belief in sustainability’s current and future appeal to customers. To successfully differentiate oneself, Smith (2003) stated that it is important to have a clear understanding of how your processes and products differ from those of competitors. Arguably, sustainability initiatives should be developed strategically to secure a position as a market leader. The empirical data indicates that there is no clear difference in how market actors operate today. This consequently provides an opportunity to capitalize on sustainability as a competitive tool. Additionally, the empirical data concurs with Carroll & Shabana (2010) in that sustainability initiatives helps recruiting competent employees which subsequently increases competitiveness.
According to Kurucz et al. (2008) companies can create a competitive advantage by directing resources to meet customers’ demands. In order to be successful in doing so it is imperative to identify what those demands are. The empirical data suggest that there is a heterogeneity in terms of customers’ sustainability demand. Certain customers see a value in a strong sustainability profile and are prone to have more stringent sustainability requirements. In terms of what customers explicitly demand, the interviewees provided a rather scattered picture, even though brand image and sustainability aspects affecting Total Cost of Ownership (TCO) were commonly mentioned. TCO can for example be reduced by increasing product longevity and reducing fuel consumption. These are sustainability aspects which indirectly relate to sourcing activities but require efforts from multiple functions within the company. As for customers’ demands directly related to companies’ pursuit for sustainability in sourcing activities, the empirical data indicates that customers often use order qualifiers for assuring up- stream sustainability performance. Even though it is not a prominent feature of what customers demand, some of the interviewees stated that there is a growing interest as for how companies manage their suppliers in terms of sustainability. In large procurements, requirements on sustainable sourcing practices are often used as order qualifiers. Brand image
42 has, as mentioned, an appeal to certain customers which according Porter & Kramer (2002) is one of the ways in which companies can differentiate themselves from competitors. One of the interviewees who works with developing sustainability strategies for the case company stated that they do not really take consideration to competitors when doing so. There is therefore an apparent opportunity to develop strategies with the ambition to secure a unique market position and subsequently increase competitiveness.
In order to justify an allocation of resources for meeting certain customer demands there needs to be an expected increase in revenue. This is either generated by an increased sales volume or higher pricing. The empirical data indicates that there is a large discrepancy in customers willingness to pay a premium for more sustainable products. This is in accordance with the literature, which implies that there are difficulties in determining customers actual willingness to pay a premium for more sustainable products. This discrepancy arguably poses a problem for the case company since they run a risk of losing customers who are not willing to accept a higher price. There is an apparent tradeoff in pursuing sustainability in sourcing activities as some customers might perceive products as over-specified. Even so, it can still be argued to be beneficial as the empirical data indicates that there will be an increased demand in the future whereof it can be seen as a proactive measure.
6.1.3 Reputation & Legitimacy There was a clear consensus amongst the interviewees that the case company has a good reputation in terms of sustainability and stands out because of it. Many of the interviewees alluded to the case company’s early recognition of its responsibility as an important part of the communities in which it operates. The empirical data also indicates that competitors to a certain degree are catching up in terms of sustainability performance. The literature provides numerous advantages stemming from a good reputation such as attracting both customers and employees. Weber (2008) stated that reputation is not the same as corporate image and requires continuous performance and communication. Even though the case company continuously work with its sustainability performance, the empirical data alludes to that the current good reputation is somewhat taken for granted. Krause et al. (2009) argued that it is in the management of up-stream activities that companies have the greatest possibility to improve their sustainability performance. Accordingly, it can be advisable to concentrate efforts towards sourcing activities and manage suppliers in accordance with an ambition to maintain a good reputation. A good is reputation is an intangible asset but nonetheless it provides companies with numerous advantages. It is evident from the empirical data that the case company engages in discussions with regulators and policy makers where they have a opportunity to influence future regulations. Fombrun et al. (2000) asserted that pursuing sustainability provides legitimacy which enables companies to have a more productive relationship with those responsible for rules and regulations. Both the empirical data and literature therefore provides substantiated arguments for legitimacy being an important asset.
6.1.4 Synergistic Value Creation Sustainability is not achieved in a vacuum; it requires coordination of efforts and cooperation with all stakeholders. The literature and empirical data conforms that building relationships with external actors is crucial in order to, not only achieve sustainability, but to ensure economic growth. Kurucz et al. (2008) argue that stakeholders should not merely be seen as threats but as opportunities. The empirical data concurs, indicating that identifying common goals and aligning interests holds synergistic value. There is a clear value in identifying and
43 mediating the value sustainability holds for suppliers. By doing so, there is a possibility to reduce costs, avoid risk and align one’s own interest with those of all actors in the upstream supply chain. According to Pucci et al. (2018) companies can only reach a certain growth level by themselves but they can multiply the benefits of sustainability by working together with stakeholders. Most of the interviewees emphasized collaboration as crucial for succeeding in the pursuit of sustainability.
The case company currently engages in many productive collaborations. By working closely with NGOs, regulators, suppliers and competitors, they have achieved great success. One interviewee stated that the strength and influence of NGOs depends on their ability attain members, gain public support and establish relationships with other influential parties. The same can be said for legislators who have to consolidate with concerned parties in order to determine appropriate regulations and judicial guidelines. If they would enforce regulations which are too stringent, companies could go bankrupt or feel forced to resort to illegal business practices in order to survive. Such consequences benefits neither party as it is in the legislator’s interest to ensure a strong labor market and tax revenues from private actors. According to Carroll & Shabana (2010) companies can work together with stakeholders in order to pursue commercial interest with their approval. This is relevant in the context of collaborating with regulators as they might be more lenient if there is a history of mutually beneficial collaborations.
6.2 Sustainable Sourcing The case company has adopted procedures for ensuring a desired level of sustainability performance from its suppliers which are rigorous and comprehensive but relies heavily on the screening process. The interviewees recognized that there are some inherent problems with simply screening suppliers binomially. They also stated that it would be beneficial to have a tool for evaluating suppliers quantifiably. The case company’s current procedures are in accordance with what has been observed by Winter & Lasch (2016) who stated that companies tend to use so called “knock-out” criteria when pursuing upstream sustainability in their supply chains. The case company does not solely ensure sustainability with the screening process, some acquired information carries over for further evaluation. Thus, they arguably do not use a ‘complete screening’ as described by Wan & Beil (2009).
6.2.1 Screening As part of the Volvo Group, sustainability criteria are to a large degree determined centrally. There are business functions specifically dedicated to work with sustainability, which gathers information and input from other departments, including purchasing. The empirical data indicates that the case company has an ambition for sustainability to permeate all business functions. This is in line with the findings of Petersen & Krings (2009) who stated that sustainability should be integrated in every business practice. Some of the interviewees expressed that the sustainability requirements are to some extent ‘one size fits all’ and that there might be some advantages to adapting them according to specific product segments or markets. The interviewees recognized that there are certain sustainability aspects which are more or less pressing, for their respective product segments. The case company do alter the screening process to some degree in order to accommodate specific requirements under certain circumstances but does not do so based on the product and market. By doing so, they could arguably allocate resources more efficiently and concentrate efforts on specific
44 sustainability aspects that are particularly pressing. One of the interviewees stated that such an approach could possible render the screening process unfair. The literature provides little guidance on the matter as there have been few studies which have explored the possible benefits of adapting the screening process. Even so, there seems to be benefits with identifying product- and market specific sustainability issues.
Previous research, such as that of Hamner (2006), has criticized the use of self-assessments as they might force some suppliers to allocate resources to establish routines for gathering the information. According to Hamner (2006), for self-assessments to be effective, there have to be repercussions for insufficient performance. The empirical data concurs in that there ought to be repercussions for unsatisfactory performance. Nonetheless, the empirical data rather suggests that the self-assessments are a measure which is used to gain information and insights to measures that might be required and as for how suppliers are performing in terms of sustainability.
According to the empirical data, the case company requires suppliers to possess certain third- party sustainability certifications. According to Nawrocka et al. (2009) these certifications should assure companies that suppliers strive for sustainable business practices. Seemingly, it is beneficial to require third-party certifications. Even so, both the empirical data and previous research points to the fact that they provide limited proof of a good sustainability performance. Some of interviewees stated that the certifications are easily obtainable and that suppliers can be certified despite having relatively severe violations. This is concurrent with González et al. (2008) who stated that they provide no real guaranties. There are also problems with suppliers who falsely claim to possess certifications, as observed by (Hedderich, 2006). Even though third-party certifications are flawed and provide limited proof of an acceptable sustainability performance, there are no associated costs with requiring them. They should therefore not necessarily be discarded but should to no extent be expected to provide a significant assurance.
The case company has stipulated many of its requirements and expectations in a SCoC. According to Jiang (2009), they are commonly used, and suppliers can therefore be assumed to be familiar with them. There are researchers, such as Petersen & Krings (2009), who advocate the use of a SCoC and claim that they can be an effective tool for assuring compliance with sustainability requirements. There are no inherent problems with using a SCoC, but they need to be presented to suppliers in a way which reflects the importance of pursuing sustainability. One of the interviewees stated that it is important to make sure that suppliers understand that the case company’s requirements and expectations are more than checkboxes. The empirical data indicates that there is a large discrepancy in suppliers’ engagement and commitment to the case company’s sustainability ambitions. Some suppliers have realized that pursuing sustainability holds a great business value. According to some of the interviewees, these suppliers often meet and even exceed expectations. The importance of communication and mediating the business value of pursing sustainability is a reoccurring theme in the empirical data. Seemingly, there is a lack of commitment from those suppliers who do not see a value in complying with sustainability requirement. A lack of commitment arguably exposes the case company to risk and undeniably hampers its ability to improve the sustainability performance of its upstream supply chain. Even though the interviewees stressed the importance of communication, they also admitted that sustainability are only sporadically discussed with suppliers. Furthermore, discussions regarding sustainability performance seems primarily to be conducted with suppliers who show an interest. Those who do not, are many times just referred to the documents which stipulates requirements and expectations. It could
45 be advisable to aim efforts at suppliers who lack commitment since they might be opportunistic and cut corners in order to pass the screening process. The interviewees did generally not perceive it as a risk that suppliers would provide false information to meet the requirements. Instead, they referred to the fact that the case company performs audits in order to ensure that suppliers actually meet the requirements.
Sustainability audits have become common practice for many companies and as stated by LeBaron et al. (2017) they are advocated by governmental- and societal actors. Undeniably they fill a purpose, although both the literature and empirical data indicates that they should not be relied on too much. Audits are relatively resource intensive as they require personal with the right knowledge and training. According to Kortelainen (2008) social sustainability auditing is especially demanding as the auditors need to possess knowledge about local laws and regulations. Additionally, the auditors need to consider cultural differences since social issues might vary. Audits are an important safeguarding measure and will undeniably continue to be a necessary element of sourcing activities. They might be effective in detecting sustainability violations of first tier suppliers, but they are not an appropriate tool for doing so further up the supply chain. The interviewees made it evident that one of the greatest challenges in terms of sustainability that the case company currently faces is regulation of higher tier suppliers. Since the number of suppliers increases exponentially in the upstream supply chain it is not feasible to audit all of them. In many cases it might not even be possible since the visibility significantly reduces. The empirical data provides some indications that, rather than relying on audits, efforts should be aimed at aligning goals with suppliers and strive for mutually beneficial outcomes. This does arguably not only have the possibility to increase suppliers’ sustainability performance but may also reduce costs.
The empirical data indicates that there is a risk of relying too much on the screening process and that it might create a false sense of security. The case company utilizes a number of safeguarding measures which seeks to ensure that suppliers live up to the expectations. The interviewees expressed that if suppliers fail to meet the requirements, it is seen as a serious offence. There are repercussions for this, such as not being awarded business or being phased out if the errors are not corrected. Even so, the literature and empirical data both indicate that these measures will never be able to ensure that suppliers conduct business in an ethical and sustainable way. Even if they could, suppliers might still perform sub-standardly from an aggregated point of view, as expressed by one of the interviewees. A possible solution might lie in aiming efforts at, what Akhavan & Beckmann (2017) calls, internal and external operational management. The empirical data clearly indicates that it is important to communicate with suppliers and mediate why the pursuit of sustainability is not only a responsibility but beneficial from a business perspective. There needs to be clarity as to what needs to achieved and top management needs to stipulate clearly defined goals. One of the interviewees stated that there is a need to align your values and vision with suppliers, determine what you are measuring and develop common goals and initiatives signed on by top management.
6.2.2 Evaluation The empirical data indicates that practitioners see potential benefits of integrating sustainability in the evaluation process. One interviewee stated that it is simplistic to rely on a binomial screening process and that it would be beneficial to also evaluate suppliers based on sustainability. According to Bai & Sarkis (2010) practitioners need to convert sustainability
46 aspects into a concise measure to make use of it in the supplier evaluation. The criteria need to be clearly defined and there has to be support systems which clearly shows their influence on current and past decisions. As of now, sustainability criteria are not clearly defined and there are no practical decision support systems. Even so, the empirical data indicates that the interviewees are optimistic to the possibility of integrating sustainability in the evaluation process. This optimism is shared by many researcher and according to Agarwal et al. (2011) there has been an increasing amount of research devoted to solving multi-criteria decision problems.
The models which currently exist have some inherent problems and Baskaran et al. (2012) argued that they are too complex for practitioners. According to Sarkis & Talluri (2002) advanced models can assist in supplier evaluation, but there is an apparent need for further research. The literature furthermore indicates that the current models are subjective, sensitive to input and have not been properly tested in practice. The empirical data provides some indication that adopting complex models might not be optimal and that it would be more effective to modify current models. This has support from previous studies such as Winter & Lasch (2016) who argues that it is a more efficient approach. Some of the interviewees stated that a difficulty with evaluating new suppliers is a lack of information. With existing suppliers there is a history of past performance and information gathered from previous interactions. A lack of information can further impede the effectiveness of complex models as there simply is not enough input for producing useful results.
In both literature and the empirical data, it is evident that it is complicated to develop a tool for evaluating suppliers based on sustainability as a single metric. The concept of sustainability is multifaceted and is comprised of numerous different aspects which individually can be difficult to quantify, and even harder to evaluate in relation to one another. According to Lee et al. (2009), multi-criteria decision models might be useful for enhancing sustainability performance, but they are currently not applicable to business practices. There is arguably an opportunity to implement sustainability in the evaluation process, but it might require abandoning the search for a single metric which encompasses the entire concept. Reviewing the set of criteria in Table 3, proposed by Khan et al. (2018), it is evident that some sustainability criteria are more suitable for the evaluation process than others. Some of the environmental aspect such as emissions, water consumption and recycled materials have quantifiable indicators. This implies that they could be used in an evaluation process, be clearly defined and made use of in decision support systems. Such a reductionistic approach does not necessarily imply that certain aspects will be more prioritized whilst other are neglected. It simply suggests that there is a benefit to do separate assessments and that some are more suitable for binomial evaluation.
47 7 CONCLUSION
The purpose of the current study was to investigate which are the key features of a business case for sustainability, and as for how the business case be realized in sourcing activities. It can be concluded that the business case has some compelling arguments as for why companies should pursue sustainability. The key features of the business case are reduced risk exposure, reduced costs, strengthened competitiveness as well as enhanced reputation and legitimacy. In the business case, there are advantages as well as associated costs and risks, yet if it is realized strategically in sourcing activities, it should result in a net gain.
Pursuing sustainability is a proactive measure for ensuring compliance with future regulations and enables companies to minimize the associated costs. Sourcing activities will play a vital role in doing so and need to be managed in a way which enhances sustainability performance. Global multi-tier supply chains expose companies to reputational risk as they are, to a certain degree, held responsible for the actions of its suppliers. The risk predominantly resides with suppliers further up the supply chain. This is due to a lack of accessibility and the amount of resources which would have to be devoted to overseeing the sustainability performance of those suppliers. If a company’s reputation is impaired, it might incur costs due to a loss of employees. Diversely, a good reputation can attract new employees and provide them with a sense of remuneration other than monetary. This reduces costs and strengthens competitiveness. Pursuing sustainability provides a competitive advantage in various ways. Companies have similar approaches for ensuring sustainability in their upstream supply chains, which provides an opportunity for differentiation. By adopting goals and implementing processes which transcends market standards there is a possibility to secure a unique position as a market leader. Such a strategy would be substantiated by a growing demand for products with a sustainable profile. There is a large discrepancy in customers appraisal of sustainability’s value as an intangible asset. By offering products with a high sustainable profile there is a risk of reducing competitiveness due to overspecification. There is therefore an apparent tradeoff in adhering to customer demands. Even so, the current study implies that customers requesting sustainability are early adopters rather than outliers and that there is an imminent increase in demand.
There are some implications that requirements directly associated with the sourcing process will become more prevalent in the future. Predominantly, it is by strengthening their own reputation companies have the opportunity to attract new customers and retain current ones. A good reputation also provides a license to operate and an increased influence on policy making. By collaborating with external actors, companies can enhance the results from all other efforts and strengthens their reputation and image. Identifying synergistic value and mutually beneficial collaborations is crucial for the business case and imperative for it to be realized in sourcing activities. Companies can realize the business case for sustainability and take part in all of the business advantages it offers by increasing their upstream sustainability performance. They need to engage in sourcing activities which: ensures that suppliers meet expectations; provides incentives for suppliers to pursue sustainability; are guided by clearly defined goals and keeps associated costs down by aligning goals with suppliers. The screening process is an important tool for ensuring that suppliers meet expectations and fills a purpose since it allows companies to reduce the number of possible suppliers. Yet, it is a blunt tool which should not be relied on for ensuring a desired level of sustainability performance. Relying too much on the
48 screening process can create a false sense of security and there is a non-negligible risk that some suppliers provides inaccurate information. Sustainability audits regulates this risk to a certain degree but generates costs and provides no real guaranties that suppliers meet expectations.
There is an apparent need for the development of decision support systems which can assist sourcing practitioners in evaluation of suppliers. The tools which are available today are not sufficient and have inherent problems which renders them impractical. Sustainability is an extensive concept and as of now, there is no available metric suitable for practical use. Instead, companies should take a reductionistic approach and develop suitable goals for specific aspects. Some are intrinsically binary and should thus be treated as such, whilst others are quantifiable. No specific sustainability aspects hold president over others but in order to increase overall performance they might require different approaches. Companies need to collaborate with suppliers, align goals and create incentives for them to pursue sustainability on their own. By doing so they can increase their overall sustainability performance whilst minimizing both risk and costs. If the suppliers see a business value, they will be more inclined to absorb any potential costs related to sustainability initiatives. The company will furthermore be less reliant on resource intensive audits for assuring compliance with stipulated requirements. This is crucial for reaching suppliers further up the supply chain, where companies are exposed to a lot of risks. In order to incentivize suppliers, there needs to be a vision and clearly defined goals, substantiated by business justification and rationale. Companies will have to identify metrics for measuring sustainability performance and subsidiary objectives to follow up on trajectories. Companies should not merely rely on suppliers’ willingness to pursue sustainability and there will always be a need for both a screening- and evaluation process. The former can be customized to suit specific products segments and target binary variables such as: workers’ rights to form unions, certifications and exclusions of banned substances etc. The latter can be used for evaluating suppliers based on quantifiable parameters such as: water consumption, energy efficiency, and carbon equivalent emissions. Realizing the business case in sourcing might take some effort and allocation of resources but most of all it requires direction. Companies need to determine what they want to achieve, strive towards clearly defined goals and mediate their efforts to all of their stakeholders. By doing so, sustainability will no longer represent a responsibility but rather a business opportunity.
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64 APPENDIX 1: CASE COMPANY This section provides an overview of Volvo’s organizational structure. Additionally, it provides a detailed account of sustainability initiatives and purchasing- and sourcing processes. As a part of the Volvo Group, Volvo Construction Equipment (VCE) is intrinsically affected by the groups overarching goals and efforts. Much of the information presented is thus not exclusive for VCE, but rather concerns the entire group.
Volvo Construction Equipment
With headquarters in Gothenburg, Sweden, the Volvo Group is one of the world’s leading manufacturers of trucks, busses, construction equipment, as well as marine and industrial engines. It employs approximately 100 thousand people worldwide and have production facilities in 18 countries. As of the fiscal year 2019 the group had a turnover of 432 billion SEK and an adjusted operating income of 48 billion SEK. The Volvo Group operates in ten primary business areas, with VCE constituting one of them. VCE has 14,4 thousand employees and a turnover of 89 billion SEK, contributing with roughly 20 percent of the total revenue of the group. VCE is a manufacturer of heavy construction equipment and offers products within 13 categories, which include: Excavators, haulers, loaders, compactors, demolition equipment, asphalt pavers, pipelayers and forestry equipment (Volvo Group, 2019a). Sustainability initiatives and general purchasing guidelines are more often than not overarching and determined on a group level. Therefore, much of the information presented in the case study are not specific for the activities of VCE yet is considered highly relevant for it is adopted by them. Sustainability
The Volvo Group views sustainability as an important aspect of business performance and the sustainability approach has been divided into three primary areas: Value chain activities, sustainable transport solutions and their role in society. By integrating sustainability in their daily work Volvo seeks to mitigate risk and build resilience. In their business practices Volvo seeks to address global trends and challenges, comply with norms of responsible business practices and to attend their stakeholders’ expectations. The Volvo Group is not only a signatory of the UN Global Compact, a partner in the WWF Climate Savers Program, and a supporter of the UN 2030 Agenda for Sustainable Development but also a driver in several other sustainability programs. Moreover, VCE is active in a number of initiatives and projects which are specific for the construction industry; such as the Construction Climate Challenge and the World Green Building Council. Furthermore, the Volvo Group is engaged in multitude of other projects such as contributing to a project where local dealers and manufacturers in Africa are being offered education and training to become drivers and mechanics (Volvo Group, 2019a).
WWFs Climate Savers Program has the ambition of engaging business and industry in climate and energy issues. Member companies make commitments to reduce greenhouse gas emissions and to influence policy and market development. The objective of the program is to encourage climate solutions and to inspire further progress. The commitment to the Climate Savers Program is reflected in the climate objectives set by Volvo Group (i.e. saving energy as well as reducing emissions from operations and products throughout their life cycles).
65 Objectives which was set has a five-year horizon, from 2015-2020. The objectives are as follows: Improve energy efficiency in production, by implementing energy savings of 150 GWh/year, corresponding to 8 % of the total energy use; Reduce total lifetime CO2 emissions from products, by a cumulative saving of at least 40 million tons; Magnify commitment by acting as advocates and drivers of climate positive solutions in the industry and throughout the value chain and reduce CO2 emissions per produced unit from freight transport by 20 %. Activities undertaken during the first four years have resulted in reduced lifetime CO2 emissions of 34 Mton, 170 GWh/year in energy savings and 18 % lower CO2 emissions in freight transport per produced unit. The construction industry is responsible for a large percentage of the world’s greenhouse gas emissions; therefore, it is vital in ensuring sustainability. The Construction Climate Challenge (CCC) is an initiative which seeks to promote sustainability in the construction industry and is hosted by VCE, as a part of the Climate Savers Program. It aims to promote a dialogue between industry, academia and politicians. Its objective is also to generate funding for new research and to share knowledge within the industry. It includes all stakeholders, from a complete lifecycle perspective and cover the entire value chain; from extraction and production of building materials to demolition and recycling (Volvo Group, 2020a).
The 2030 Agenda for Sustainable Development came to force in January 2016 and is an action plan for people, planet and prosperity. Governments are expected to establish national frameworks and legislation accordingly, however, the agenda are not legally binding. There is a total of 17 Sustainable Development Goals (SDGs), see figure 4. The Volvo Group aspire to contribute to all of those, albeit focusing on those which are deemed to be most impacted by their businesses. There are four SDGs which have been identified as the ones where Volvo has the largest impact are: Good health and wellbeing; industry, innovation and infrastructure; sustainable cities and communities and climate action (Volvo Group, 2019a).
Figure 4. UN Sustainable Development Goals
Note. Illustration of the sustainable development goals of the 2030 agenda. From United Nations Sustainable Knowledge Platform. https://sustainabledevelopment.un.org/sdgs.
DRIVE Sustainability is another initiative where large network of companies within the automotive industry has pledged to work towards ensuring sustainability throughout their supply chains. Within the initiative all three dimensions of sustainability is encompassed. It is stated that social, environmental as well as financial sustainability aspects are to be included in continuous improvements. In order to assure compliance with the principles of the program there is a self-assessment questionnaire which is to be filled out by suppliers to assess their sustainability performance. The program also offers training for suppliers and hosts events with
66 the ambition to stimulate dialog and cooperation between different stakeholders. When working towards improving sustainability performance of entire supply chains, obstacles often appear due to lack of information and transparency. Therefore, DRIVE has established the “Raw Materials Observatory”, with the purpose of identifying risks and enabling collective action (Volvo Group, 2019a).
In the Enterprise Risk Management (ERM) of Volvo Group, sustainability factors are considered a crucial part, both their importance to salient stakeholders and their impact on business is considered. Volvo Group identify their key stakeholders as customers, employees, investors, society, suppliers and other business partners. Certain business critical sustainability factors have been identified through workshops and stakeholder dialogues with global sustainability challenges in mind. There are 17 prioritized factors which have been structured according to figure 5, based on their importance to salient stakeholders and their impact on the business (Volvo Group, 2020b).
Figure 5. Enterprise Risk Management – Sustainability Factors
Note. Sustainability factors identified by Volvo, based on their importance to stakeholders and their impact on business. Adapted from Volvo Group. https://www.volvogroup.com/en-en/about-us/csr-and- sustainability/materiality-analysis.html. Copyright 2020 by AB Volvo. Purchasing
With one of the world’s largest purchasing departments, the Volvo Group purchased goods and services for approximately 300 billion SEK in the fiscal year of 2019. A total of 2.5 billion parts were supplied to over 40 major production facilities around the world. In its first tier, the Volvo Group has approximately 51,000 suppliers. Purchasing within the group is divided into several organizations based on business unit. In VCE, the Purchasing and Supplier Management organization has more than 400 purchasing professionals distributed around the world who are dedicated to sourcing materials and components for construction equipment. This is done through a global supplier base of more than 2,400 suppliers. In their sourcing strategy the Volvo Group seeks to diversify both their supplier base and geographical presence. Multiple sourcing (i.e. using multiple channels in sourcing) has the possibility of meeting demands for locally
67 produced content, but it also reduces impact of trade tariffs and supply chain risks. Reducing the amount of long-distance transports is increasingly being recognized as a means to decrease ones CO2 footprint. Through an active and close collaboration with their suppliers, the Volvo Group seeks to build strong relationships for remaining relevant in the future. With an aspiration to grow together with their suppliers, the Volvo Group places high demands on suppliers and expect them to contribute with real business value, by delivering superior products and services. Through constant monitoring of markets and evaluation of new potential suppliers, the Volvo Group seeks to ensure a superior supplier base. The traditional “three pillars of sustainability” are balanced in all of Volvo´s business practices, through an increased dialogue, transparency and trust with both suppliers and other salient stakeholders. During 2019, Volvo Group Purchasing committed to an even greater focus on both industry collaboration and sustainability. In addition to the more traditional criteria (e.g. quality, delivery, cost, features, technology and risk), sustainability is now also being considered (Volvo Group, 2019a). Sustainable Purchasing Program
Sustainability is considered as a tool for building trust with customers, business partners and society at large. Volvo consider their suppliers to be an integral part of their pursuit of sustainability. Therefore, high standards are put on suppliers in regard to their sustainability commitment. To ensure sustainability throughout their supply chain, Volvo has adopted a sustainable purchasing program which encompass some specific high risks to people and environment. It is illustrated in figure 6 and consists of the following parts: Supplier code of conduct, supplier sustainability assessment program, supply chain mapping, innovation: focusing on people and planet as well as industry collaboration. (Volvo Group, 2019a)
Figure 6. Sustainable Purchasing Program
Note. Illustration of the Volvo Group’s Sustainable Purchasing Model. Adapted from The Volvo Group Annual and Sustainability Report 2019. Copyright 2019 by AB Volvo.
In the Supplier Code of Conduct (SCoC) the expectations of suppliers in terms of sustainability and ethics are outlined. Furthermore, all suppliers are expected to commit to the SCoC contractually. The purpose of the code is to define minimum sustainability requirements and aspirations for all suppliers. There are five main categories which include: human rights and working conditions, health and safety, responsible sourcing of raw materials, environmental
68 performance and business ethics. Within in each category there are areas for which requirements and aspirations are stated. The former constitutes minimal requirements for conducting business with any organization within the Volvo Group and not meeting the requirements is considered a breach of contract. The latter urges suppliers to go beyond the minimal requirements and continuously work with sustainability efforts. Besides the aforementioned categories, the document also contains some general requirements that suppliers are expected to meet. Those include, complying with all the requirements and work towards meeting the aspirations. Suppliers should apply the same standards to their direct supplier as well as encourage their suppliers to make demands further up their supply chain. They are also expected to be transparent and willing to adopt new sustainability measures when deemed necessary. The suppliers are furthermore expected to provide environmental data. There needs to be a senior executive in place, responsible for the compliance of the requirements. Suppliers are expected to have a code of conduct of their own and work proactively with avoiding the risk of violating the requirements. Employees of the supplier should be able to raise concerns and recommend improvements. The objective of the SCoC is not only for the suppliers to contractually commit to sustainability but also to infuse knowledge and the right mindset (Volvo Group, 2019b).
In the Supplier Sustainability Assessment Program, suppliers and supply chain partners are required to perform a sustainability self-assessment questionnaire, which was developed by DRIVE sustainability. The questionnaire evaluates areas such as human rights, business ethics and environmental performance. New suppliers located in high risk countries, are further assessed through an on-site audit ensuring their compliance with a focus on environment and labor conditions. Furthermore, existing suppliers can come to be audited sporadically to ensure their sustainability compliance (Volvo Group, 2019a). In the Supply Chain Mapping, certain areas are especially mapped in terms of human rights due diligence. A part of the Supply Chain Mapping is the Sustainable Minerals Program, in which so-called conflict minerals are mapped with the assistance of the tools and resources provided by the Responsible Minerals Initiative (RMI). The five main minerals which are encompassed by the program are: tin, tantalum, tungsten, gold and cobalt. Close due diligence is required in the supply chains of these minerals because they are prone to have human rights violations and the program seeks to improve the regulatory compliance. Some of the minerals have fueled wars in many African countries, where government militaries and armed rebel groups use violence to maintain control over people and resources in the mining regions. One of the gravest problems with the minerals is the presence of both modern slavery and child labor. Furthermore, there is a lot of artisanal mining with very poor health and safety standards and the mining process is often environmentally destructive (Volvo Group, 2019a). The two final segments of the Sustainable Purchasing Program are People & Planet Initiatives and Industry Collaborations. The former includes a vast number of activities, such as internal training, mindset activities and events for sharing best practices. It aspires to promote and encourage recycling, circular economy and eco-design. Furthermore, it seeks to adopt a value driven approach to human rights by identifying actual and potential impacts on people throughout the value chain. The latter drives broader and more scalable development of sustainability within global supply chains. Two examples of such industry collaborations are the aforementioned DRIVE Sustainability and RMI (Volvo Group, 2019a).
69 Sourcing Process
Awarding business to a supplier is an important decision as it has an explicit impact on the competitiveness of Volvo. In the process of becoming a Volvo supplier, the so-called Volvo Group Global Sourcing Process has to be passed. The process is illustrated in figure 7. It is essentially a combination of a screening and evaluation process, based on Volvo’s supplier requirements. The process consists of eight main steps; quality management system requirements, short supplier evaluation model, confidentiality agreement, request for quotation, supplier evaluation model, index audits, corporate social responsibility audit and the final agreement (Volvo Group, 2019c).
Figure 7. Volvo Group Global Sourcing Process
Note. This figure illustrates the main steps of the Volvo Group Global Sourcing Process. Adapted from the Volvo Group’s Supplier Quality Assurance Manual. Copyright 2020 by AB Volvo.
In the first step of the process, the Quality Management Systems (QMS) are checked to see whether the suppliers are compliant with the requirements. The suppliers need to have a QMS which is compliant with the ISO 9001 standard, furthermore, they are required to have an Environmental Management System (EMS) compliant with ISO 14001. These are common requirements on suppliers and have to be approved by third party registrar. Secondly, the suppliers have to pass a short Supplier Evaluation Model (SEM), in which general information about the company are collected in regard to their products and capabilities. In the short SEM, the suppliers are checked for quality performance, reliability and sustainability performance. These steps include looking at past performance in regard to quality and delivery performance, verification that the products meet the minimum requirements as well as a self-assessment of sustainability performance. Furthermore, Volvo require all suppliers to treat all information related to the business relationship as strictly confidential. Therefore, all suppliers are required to sign an agreement of confidentiality. Subsequently, suppliers are provided a Request for Quotation (RFQ), with the objective of further ensuring that quality requirements are met. The RFQ includes, a preliminary Advanced Product Quality Plan (APQP), Review of Technical Specification (RTS), a statement of work and further documents which support the information of the RFQ. Information provided in the RFQ may be audited by Volvo to ensure compliance and in cases of non-compliance, suppliers are required to develop and provide an action plan (Volvo Group, 2019c).
70 The last three steps are essentially an auditing process, to ensure that suppliers fulfill all of the expectations that Volvo have on suppliers. The SEM has been developed by Volvo based on experience from previous supplier relationships and best practices in the industry. It is an auditing process which generally takes two or three days to complete, depending on the size of the operation. It is the primary tool for Volvo to evaluate and select suppliers and are designed to acquire an overview of their organization (Volvo Group, 2019c). In the SEM a wide spectrum of the supplier’s organization is evaluated (e.g. management, quality, logistics, after market and finance) and it is verified that the supplier complies with the Key Element Procedures (KEP). Each segment is evaluated and scored based on their performance, on a scale from 0 to 3 points. On this scale, zero indicates a poor or non-compliant performance whilst three points equates to an excellent or fully compliant performance. Some evaluation areas are so-called stopping parameters, where suppliers are required to have a minimum of one point to be considered as a potential supplier. Furthermore, suppliers are required to have a minimum overall score of 60 percent (Volvo Group, 2006). The final two steps of the sourcing process are index and sustainability audits. The former are technology-based process audits, with the purpose of evaluating certain production processes which are considered as critical for the functionality of the products. These production processes include, but are not limited to: Casting, metallurgy, surface treatment and cleanliness. Finally, sustainability audits encompass major risks of sustainability. However, it does not cover the full requirements. Essentially it is an on-site evaluation of the supplier’s compliance with the Volvo Group SCoC. It analyzes the risk from the supplier’s activities and the effect on people, planet and profit. Once all of the aforementioned steps of the sourcing process have successfully been passed, the supplier may be awarded business with the Volvo Group (Volvo Group, 2019c).
71 APPENDIX 2: INTERVIEWEES
In this appendix all of the elven interviewees are presented. The three tables represent the different categories of interviewees. The tables include the organization in which the interviewees are employed, their formal role/title as well as their individual designation. In table 4 the internal sourcing personnel is presented; In table 5 personnel in Sustainability & Public Affairs is presented and in table 6 the suppliers which have been interviewed is presented.
Table 4. Interviewees – Sourcing
Table 5. Interviewees – Sustainability & Public Affairs
Table 6. Interviewees – Suppliers
72 APPENDIX 3: INTERVIEW QUESTIONS - SUSTAINABILITY
This appendix presents the interview questions regarding sustainability. The questions seek to answer the research question “Which are the key features of the business case for sustainability?”. The questions are formulized so to provide insights to the corporate benefits of pursuing sustainability.
Sustainability Do you work proactively with identifying upcoming sustainability regulations?
By working proactively, do you believe that you can mitigate the impact of unexpected regulations?
Which aspects of sustainability do you think future regulations will be aimed at?
Has there been any scandals in terms of sustainability in the industry?
Is Volvo at risk of litigation due to the actions of its suppliers?
How does the sustainability work- and image of Volvo differ from that of competitors?
In terms of sustainability, is there anything specific that customers request?
In your experience, are customers willing to pay a premium for more sustainable products?
Do you believe that customers are appealed by Volvo because of a sustainable image?
Do you believe that a sustainable image makes Volvo more attractive as an employer?
Do you work in joint sustainability initiatives with external stakeholders to create reciprocal value?
Are there any specific sustainability aspects which are particularly pressing?
73 APPENDIX 3: INTERVIEW QUESTIONS – SOURCING
This appendix presents the interview questions regarding sourcing. The questions seek to answer the research question “How can the business case be realized in sourcing activities?”. The questions are formulized so to provide insights to how sustainability can be integrated in sourcing activities. They consist of two distinctive sections; Screening and Evaluation.
Screening Is there a risk that sustainability requirements induce suppliers to report untruthfully, out of fear of being denied business?
Do you believe that the screening process may create a false sense of security?
Would it be beneficial to adapt the screening process based on product and country etc.?
Do you perceive suppliers to be understanding of Volvo’s sustainability requirements?
Do you perceive suppliers to be engaged in Volvo’s sustainability ambitions?
How do you make use of the information gathered in the self-assessments?
How do Volvo determine appropriate sustainability requirements on suppliers?
Do you revisit suppliers’ compliance with the Supplier Code of Conduct? - What are the consequences for non-compliance?
Do you ever discuss the SCoC explicitly with suppliers? - Do you continuously encourage them to pursue its aspirations?
Do you together with suppliers go through the content of the General Purchasing Conditions? - How frequently is the General Purchasing Conditions of suppliers renewed?
Evaluation How do you valuate the traditional criteria in supplier selection? - Do you have any decision support systems to alleviate the process?
In your view, is it feasible to valuate sustainability to the traditional criteria? - Do you have organizational support to do so?
Are you aware of any other companies who utilizes tools for valuating sustainability?
74 APPENDIX 4: INTERVIEW QUESTIONS - SUPPLIERS
This appendix presents the interview questions regarding the suppliers’ perspective. The questions seek to provide additional substance to both of the research questions. The questions are formulized so to provide insights to how suppliers´ perceive the benefits of sustainability as well as their perception of sustainability requirements.
Suppliers’ Perspective
Do you work proactively with identifying upcoming sustainability regulations?
By working proactively, do you believe that you can mitigate the impact of unexpected regulations?
Which aspects of sustainability do you think future regulations will be aimed at?
Do you work proactively to meet future sustainability requirements of customers?
Has there been an alteration in what customers demand in terms of sustainability?
In your experience, are customers willing to pay a premium for more sustainable products?
In your product segments, are there any specific sustainability aspects which are particularly pressing?
Do you believe that a sustainable image makes you more attractive as an employer?
Do you work in joint sustainability initiatives with stakeholders to create reciprocal value?
How does the sustainability work- and image of Volvo differ from that of your other customers? - Do Volvo have more/less stringent sustainability requirements?
Has the requirements of Volvo necessitated an allocation of resources in order to meet them?
How do you perceive that sustainability requirements affect internal efficiency?
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