Are Asian firms finding more supply chain value?

Recent story on the Guardian Sustainable Business site – the closest I’ve seen to tackling head on the issue of creating shared value through supply chains – really great to see!

Are Asian firms finding more supply chain value?

Their shared value approach shifts the business driver for sustainability toward mutual growth concepts

Until recently, the received wisdom was that European companies led the way in sustainability. Not anymore. Now some of the best examples of responsible supply chain development are to be found in Asian companies. Sustainability is no longer merely a box-ticking exercise required by large western companies; it is a shared-value practice whereby the Asian manufacturer has clear business incentives to be more sustainable.

Controls and risk management? Or sharing value with business partners? We saw these two different approaches in supply chain management while looking at the wider value chain in the course of our research for the 2011 Tomorrow’s Value Rating (TVR).

The last decade saw enormous effort put into command and control structures. This stemmed from the primary business driver for responsible supply chain development: risk mitigation and protecting the brand reputation. The results were control mechanisms like third party audit systems; contract language requiring adherence to regulations and international standards; supplier training on environment, safety, human rights; and draconian measures to drop suppliers if they violated terms.

By contrast the shared value approach that we have seen most commonly in Asian companies shifts the business driver for sustainability in the supply chain away from risk management toward mutual growth concepts. The result is that management mechanisms with suppliers are also shifting. Now we see leaders pushing on shared business models and revenue-sharing models, collaborative efforts to streamline production and logistics for cost savings, and providing strong incentives for good performance in sustainability.

The likes of Toyota, Hyundai Motor Company (HMC) and Samsung clearly demonstrate their attempt to find a sustainable solution in their supply chain management.

The concept of mutual growth is well discussed in HMC’sWin-Win supplier support programme. The interesting point is that HMC developed a support programme to increase suppliers’ economic stability through various financial programmes. For example, under the mutually beneficial cooperation strategy, its cash payment policy aims to guarantee payment to increase the financial stability of suppliers. Various loans including credit loans for operation funds, the Mutually-Beneficial Cooperation Fund and the Bridge Loan for Green Production Facilities are available to support suppliers. Also, through a joint purchasing programme, HMC aims to assist suppliers with cost cutting.

Another example of mutual trust can be found from Samsung. Samsung set up the Partner Collaboration Centre directly under the CEO, and their vice-president is the head of the centre. Seven key programmes for mutual growth are introduced including a Win-Win fund for partner companies, timely reflection of raw material price changes in parts purchasing prices and expanding support to indirect suppliers.

Critics might argue that these cases are mainly driven by local government pressure rather than sustainability enlightenment. They may also argue that specific, and measurable, benefits to suppliers are unclear and sometimes regarded as another way of keeping business benefits within a group of interlinked companies ??? so called “blue-washing”. The TVR clearly shows that there is plenty of room for improvement in many of these companies’ overall sustainability approaches. Nevertheless we see encouraging signs of a new approach to value chain management alongside the traditional controls/risk management approach ??? and believe this is one to watch.

MinGu Jun is divisional director, Two Tomorrows Asia. Full details of the 2011 Tomorrow’s Value Rating can be found here.

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via guardian.co.uk