Procurement Sustainablity

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Executive Summary

Use of mediated power tends to have negative consequences on the quality of the inter- organizational relationship between buyers and suppliers. Power dominance and dependency express less satisfaction, commitment and transparency to the relationship. Samsung uses mediated power to monitor and control its only first-tier supplier - Huayou which source cobalt from artisanal mines in Congo using child labour. Samsung isn’t aware of this issue since Huayou is unwilling to give any information as Samsung seems to exhibit coercive power with them.

Firstly, Samsung should change from using process-based socially responsible procurement practices to market-based practices to improve the quality of the buyer-supplier relationship. Secondly, Samsung should shift from using mediated power to non-mediated power to communicate with its suppliers to have an improved compliance, commitment and performance practices. Finally, Samsung should use Triple-P supplier management practices to align sustainability across supply chain.

Contents

1.     Theory Analysis        3

2.        Industry Analysis        3

3.        Company Analysis        4

4.        Recommendations to Company        4

         Reference        5

Plagiarism Statement

I declare that the material contained in this report is the result of my own work and that due acknowledgment has been given in all the references to all sources, be it printed, electronic or personal.

Vignesh Baskaran

29-Nov-2017

1. Theory Analysis

Power and dependence are the key elements of supply chain, as they enable the more powerful party (buyer or supplier) to gain favourable exchange terms (Hoejmose et. al., 2013). Companies have a choice to demonstrate which type of power (non-mediated and mediated) to use to influence their first-tier suppliers’ adoption of socially responsible procurement practices (process-based and market-based). These practices are moderated by geographical distance between buyers and suppliers (Marshall et. al., 2016). As geographical distance increases and control over suppliers’ decreases, power becomes a necessary tool for instilling socially responsible practices such as monitoring the working practices of lower-tier suppliers within the supply chain (Hoejmose et. al., 2013).

For instilling socially responsible practices, it is recommended that companies use non-mediated power (such as expert and referent) to influence the adoption of market-based practices, and avoid using mediated power (such as coercion, legitimacy, and reward) that has no significant impact (Marshall et. al., 2016). While some companies adopt morally questionable approaches to get their suppliers to adopt socially responsible practices (process-based), other companies adopt a more collaborative approach, engaging with suppliers and helping them to develop products and processes (market-based) (Marshall et. al., 2016). Therefore, use of non-mediated power can influence socially responsible procurement practices to have immediate effects on workers in the supply chain (Marshall et. al., 2016).

1. Industry Analysis

In electronics supply chain, sustainability is gaining importance. Electronics industry uses more of conflict minerals to manufacture gadgets (Jorgensen, 2017). Companies either source directly from mines or procure from suppliers at a very low price using their mediated power. Since suppliers are dependent on major giants for their growth, companies use joint dependency and power to negotiate with suppliers (Hoejmose et. al., 2013). Electronics industry, in general, is usually profit-minded that companies fail to notice any form of human rights abuses in supply chain. They take stringent measure to be green but fail to address if they are socially responsible (Marshall et. al., 2016).

Intense competition and dominance in the use of power reap no benefits to implementing social responsibility. Companies should create non-traditional and transparent supply chain to improve performance, which takes major behavioural and operational changes (Marshall et. al., 2016). For example, Nike and Levi-Strauss use non-mediated power to disclose their supply chain membership data to the public which enabled the companies to reap short-term reputational benefits, as well as, long-term collaborative benefits across the fashion industry (Marshall et. al., 2016).

1. Company Analysis

Samsung’s diverse network has thousands of suppliers. Samsung’s only first-tier supplier is Huayou Cobalt Company located in China that supplies cobalt to Samsung used in making mobile batteries. Amnesty International – an NGO working on ground in Congo, reported that Huayou sources cobalt from artisanal mines involving child labour (Sanderson, 2017). When asked to Samsung about the issue, Samsung said it is very hard to trace the source of the mineral due to the suppliers’ non-disclosure of information and the complexity of supply chain (Amnesty International, 2016). Due to increase in geographical distance between Samsung (South Korea) and Huayou (China), Samsung’s control over Huayou decreased (Marshall et. al., 2016). Therefore, Samsung had to use its buyer power to instill socially responsible practices within its supply chain. But, Huayou is unwilling to provide any information because Samsung seems to exhibit coercive power with them (Hemmert, 2016).