Page 17-1
CHAPTER 17
BUSINESS AND ITS SUPPLIERS
INTRODUCTION
Corporations have complex relationships with their suppliers, other firms that provide
them with goods and services and in some cases manufacture their products. In today’s
interconnected world, many firms are embedded in complex, global supply chain
networks. Increasingly, managers are responsible for social, ethical, and environmental
issues that arise in supplier firms. A failure to manage these issues proactively can lead
to reputational and financial losses; conversely, success in doing so can yield benefits.
Many companies have adopted supplier codes of conduct, carried out audits, and
remediated failures. A growing trend is for lead firms to work collaboratively with their
suppliers to build capabilities and create shared value.
PREVIEW CASE
The Gap Returns to Burma
General Motors and Tier-2 Supplier Issues in China
Patagonia Commits to Social and Environmental Conservation in Argentina
CHAPTER OUTLINE
I. SUPPLIERS
Teaching Tip: Preview Cases
The opening examples highlight the complexity of the business to
supplier relationship. The Gap case asks to what lengths a company
should go to assure that the rights of workers in supplier factories
halfway around the world are protected. The General Motors example
raises the question: who should be responsible when something goes
wrong in a multi-tiered supply chain several steps removed from the
company? And the Patagonia example probes whether or not firms
should accept responsibility for social and environmental impacts
across their global supply chain.
Teaching Tip: Suppliers
A useful way to introduce this chapter is to select a product students
will be familiar with and display a supply chain map, showing the
complexity of the supply network for even seemingly simple products.
Page 17-2
prior written consent of McGraw-Hill Education.
SUPPLY CHAINS
A. Social Issues
B. Ethical Issues
C. Environmental Issues
D. Supply Chain Risk
III. PRIVATE REGULATION OF THE BUSINESS – SUPPLIER
RELATIONSHIP
A. Supply Chain Auditing
IV. SUPPLIER DEVELOPMENT AND CAPABILITY BUILDING
GETTING STARTED
KEY LEARNING OBJECTIVES
LO 17-1: Understand what suppliers are, the nature of suppliers’ interests and
power, and the scope of the global supply chain.
LO 17-2: Examine the social, ethical, and environmental issues that arise in global
supply chains and how they can affect a company’s reputation and bottom line.
Teaching Tip: Supply Chain Auditing
Students may be prompted to go online to investigate publicly available
supply chain audits of companies that interest them. Examples of
companies that post information about their supply chain audits include
the Gap, Nike, Patagonia, and Apple.
Page 17-3
prior written consent of McGraw-Hill Education.
LO 17-3: Describe contemporary trends in the private regulation of supply chain
practices and analyze the reasons for the emergence of company and
industrywide codes of conduct.
LO 17-4: Understand the various methods businesses and nonprofit organizations
use to audit global supply chains for compliance with codes of conduct and other
standards.
LO 17-5: Analyze the reasons for and benefits of engaging collaboratively with
suppliers to build capability and create shared value and the conditions under
which such initiatives are likely to succeed.
KEY TERMS
capability-building
child labor
Page 17-4
prior written consent of McGraw-Hill Education.
private regulation
root cause analysis
shared value
supplier
INTERNET RESOURCES
DISCUSSION CASE
Page 17-5
prior written consent of McGraw-Hill Education.
APPLE’S SUPPLIER CODE OF CONDUCT AND FOXCONN’S CHINESE
FACTORIES
Discussion Questions
1. What were the interests and sources of power of Foxconn, Apple’s supplier?
The chapter reintroduces the concepts of stakeholder interest, that is, what a
stakeholder wants from its relationship with a firm, and power, a stakeholder’s ability
2. What social, ethical, and environmental risks were present in Apple’s supply
chain?
A number of specific social, ethical, and environmental risks were present in Apple’s
supply chain. The company’s own audits revealed that eight percent of workweeks
Teaching Tip: Apple and Foxconn
A segment of the PBS NewsHour that covers the 2012 audit of
Foxconn conducted at Apple’s request by the Fair Labor Association
may be used in conjunction with this case:
“Apple Supplier Foxconn Pledges Better Working Conditions, But
Will It Deliver?” March 30, 2012
www.youtube.com/watch?v=ZduorbCkSBQ
The video runs about 7 minutes.
Page 17-6
prior written consent of McGraw-Hill Education.
The chapter explains that companies can develop their own supplier codes of conduct
or, alternatively, companies within an industry can agree on a common industry-wide
4. What are the advantages and disadvantages to Apple of relying on its own
internal audits, as contrasted with using an independent auditor like the Fair
Labor Association?
5. What more, if anything, could Apple do now to reduce supply chain risk and
create shared value?