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Sustainable Sourcing
The new buzzword for global supply chain management. A new tool for corporate social responsibility

A cornerstone of corporate social responsibility strategies for global companies presented by Elliot J. Schrage, author of the most important Report on the matter to the US Department of State, based in a research by the University of Iowa Centre for Human Rights. Sustainable sourcing is a fundamental change in the relationship with suppliers, cultivating and rewarding socially and environmentally best practices and codes of conduct on the ground.

Elliot Schrage interviewed by Jorge Nascimento Rodrigues, editor of, July 2004

«Sustainable sourcing, particularly along the lines of the Starbucks' initiative, offers the promise of directly linking business performance to CSR objectives, not by anecdotes but by statistics.», say Elliot J. Schrage.

The Report was presented this year (2004) to the US Department of State and advocates a synergy between official foreign policy and private corporate voluntary initiatives on sustainable sourcing, particularly regarding outsourcing and off-shoring in third-world and emergent countries. Elliot Schrage, a lawyer and policy analyst, is considered one of the world's most important researcher and policy specialist in the intersection of economic globalization and international human rights affairs.

Mr. Schrage is a fellow at the Council on Foreign Relations, based in New York and Washington DC, that published Foreign Affairs magazine.

The Report "Promoting International Worker Rights Through Private Voluntary Initiatives: Public Relations or Public Policy?" can be downloaded here.

Who is Elliot

Elliot Schrage is a lawyer and business advisor with extensive experience working at the intersection of global business strategy and public policy. He most recently served as senior vice president of Global Affairs for Gap Inc., the largest specialty retailer in the United States, directing the company's government affairs initiatives and managing its Global Compliance organization, a team of over 80 professionals in 20 countries charged with inspecting factory working conditions that manufacture Gap, Old Navy, and Banana Republic products. Since 1990, he has served as Adjunct Professor at Columbia University Business School and Columbia Law School teaching a seminar that explores the social consequences of economic globalization. He began his professional career as an associate with Sullivan & Cromwell in New York and Paris and has served as a member of the Advisory Committee on International Child Labor Enforcement of U.S. Department of Treasury (1999-2001), and on the Committee on Scientific Freedom and Human Rights of the American Association for the Advancement of Science (1998-2000).
Bio info at CFR.

Sustainable sourcing and Fair Trade are different approaches. Can you clarify the relationship and the differences, and how can they interact in corporate strategies?

Sustainable sourcing and fair trade have objectives that are distinct but overlap. The focus of sustainable sourcing is to ensure that supply is economic, environmentally and socially sustainable - that it can continue without depleting economic, environmental or social capital. Fair Trade Certification focuses on the social dimension and seeks to promote social and economic development through trade and marketing- by providing market signals to consumers that products have met certain social criteria in their production. Sourcing strategies that are sustainable need not meet the criteria imposed by the Fair Trade trademarked certification program, even though they may advance social or community development objectives.

«In industries as diverse as apparel and agriculture, the impact of corporate practices in the developing world is tremendous - often more powerful than local governments.»

How sustainable sourcing relates with the recent trend for corporate social responsibility (CSR)? In the scorecard of CSR, sustainable sourcing is a key factor?

The impact of global supply chains on economic, social and environmental conditions in sourcing markets has become a battleground in the debate over corporate responsibility and corporate accountability. In industries as diverse as apparel and agriculture, the impact of corporate practices in the developing world is tremendous - often more powerful than local governments. It's impossible to separate sustainable sourcing, responsible sourcing, from CSR.

Metrics is something fundamental for evaluation of best practices and guidelines. How we can "measure" sustainable sourcing?

Sustainable sourcing has become an important part of efforts to "professionalize" the CSR movement by promoting the development of performance metrics for CSR programs. Too often, the effectiveness of CSR programs is measured in terms of publicity or marketing. Sustainable sourcing, particularly along the lines of the Starbucks' initiative, offers the promise of directly linking business performance to CSR objectives, not by anecdotes but by statistics. Development of metrics is still in its infancy, but will clearly include process measures and output measures. Process measures examine the steps companies are taking to extend sustainable practices throughout a global supply chain: For example, what percentage of revenue comes from sustainable sources? How often is remediation required by supply chain partners to satisfy sustainability criteria? Output measures examine performance: Does sourcing meet environmental, economic or social criteria? Have supply chain partners taken the steps to correct poor performance?

It seems that the Starbucks case study with 10 years life (since the first step in 1994) was the best example of the new private movement. Why?

As my report to the US Department of State suggests, there have been many initiatives undertaken to address social conditions in global supply chains. Several of them have achieved success in the areas that they targeted. What is unique about Starbucks' approach is that the company has made such a strong commitment to integrate sustainable sourcing in such a significant way throughout the supply chain for its key business product. Starbucks' ability to take such a leadership position is a function of the unique place it holds in its business market (specialty coffee), its ownership structure (a public company with significant ownership by key executives) and the strong personal commitment of its senior management to values-based management.

Can you refer other case studies that impressed you more? And why?

Each of the other cases developed in my report to the State Department impressed me on different ways. The Project to Eliminate Child Labour in Soccer Balls in Pakistan was an unprecedented collaboration of global sporting goods companies to address an abusive labour practice in their supply chain. The initiative of the global toy brands (regarding China) to elevate a range of labour conditions in toy production is impressive in its ambition and scope. And the industry/NGO partnership to address forced child labour in cocoa production (regarding Côte d'Ivoire) is a remarkable effort to address systemic practices in an agricultural supply chain engaging brands, processors, exporters and farmers.

Do we also need sustainable sourcing for higher skill labour situations? For medium and high skill competences in emergent countries targeted by off-shoring strategies, what steps do we must follow?

This is certainly true, and my work offers some direction for further inquiry. Industrial structure will shape the direction of private voluntary initiatives. Government intervention can help establish the "business case" for sustainable practices and government policy can create additional incentives to align public and private interests in global sourcing - to encourage companies to internalise the social costs of their actions in their business decisions.

Near-shoring like the "maquilladoras" in Mexico or the outsourcing at textile and shoes industries in North of Portugal and in Eastern Europe are also sectors needing actions from multinationals?

The same principles apply for near-shoring as traditional offshore production.

«To be sure the private sector must play a role regarding China, but this role must be complemented by actions from Chinese government authorities at the provincial and national level. Foreign governments of China's key trading partners in the EU and North America, must also become more directly involved and supportive.»

China will be the emergent economic power this first half of the XXIst. century. In 2040 it will be the first in GDP (US second). It's the main target today for outsourcing and off-shoring strategies. What kind of actions for a culture of sustainable sourcing do we need?

China creates tremendous challenges for sustainable sourcing and leading multinational corporations and global industries that rely on China as a pivotal sourcing market. They are grappling to determine how far they can push to encourage sustainable practices while remaining competitive in production. It is clear that the private sector, acting along, will not be able to encourage more sustainable financial, environmental or social production practices in Chinese industry. To be sure the private sector must play a role, but this role must be complemented by actions from Chinese government authorities at the provincial and national level. Foreign governments of China's key trading partners in the EU and North America, must also become more directly involved and supportive. Ultimately, the steps will require greater clarity of sustainable standards for business practices, better training of management and workers to respect those standards, and better mechanisms for enforcing them.

How can we integrate these private actions with the official economic and political State Diplomacy?

As my answer above suggests, we need new mechanisms to promote better coordination between government and private action. In my report to the Department of State, I identify several models of public-private partnership for collaboration. I also suggest specific approaches that the U.S. Government might take to help support private initiatives. These certainly are approaches that other governments in consumer markets might wish to consider as well. These include, among others, (i) helping to identify appropriate standards for sustainable business practices; (ii) funding research on the business case identifying which elements of sustainable sourcing practices generate greater returns than traditional sourcing practices; (ii) and creating new incentives for companies to implement standards where the business case is not clear.

©, 2004

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