The Role & Importance of Outsourcing in Supply Chain Environmental Management

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Outsourcing is the act were the process/activity owner transfers internal the process/activity to external organization, along with the responsibility of making decisions, but also transfers or shares the risks related to the activity and the end result/product. Responsibilities and rights of the parties in this exchange are established in a contract (Jacobs and Chase,2014).

In a highly competitive global environment, organizations incorporate activities’ outsourcing in their strategies, in an attempt to mitigate supply risks and achieve the highest levels of cost efficiency and quality. At the same time, social and statutory pressure is imposed on organizations to perform their operations with the minimum impact on the environment (Jacobs and Chase,2014). Literature reveals that organizations choose to outsource, usually supportive and non-core capabilities, aiming at some benefits as categorized below (MoosaviRad et al,2013; Jacobs and Chase, 2014; Brown,2008):

• Financially-Driven – Improve financial indicators such as Return on Assets, reduce fixed and operational costs, enter new markets, less capital investment.

• Improvement-Driven – Reduce risks, obtain specialty skills and technologies from third party superior suppliers (opportunity of innovation), improve productivity and product quality.

• Organizationally-Driven – Obtain greater flexibility to meet demand changes, improve product and/or service value, increase effectiveness by focusing on core-capabilities, improve reputation.

• Statutory/Regulatory-Driven – Compliance with environmental law.

Outsourcing has also disadvantages for the outsourcer: dependence on supplier’s skills, might generate new risks and loss of control over critical functions and suppliers, failure in realizing the supposed cost savings (MoosaviRad et al, 2013).

Selecting suppliers with “green” credentials that operate using energy efficient systems can return benefits of compliance, cost efficiency and serve as a competitive differentiator. Several international organizations implement environmental sustainability programs not only for internal products and activities, but also for their suppliers’ operations and products (Brown, 2008).

NIKE is a good example of an environmentally responsible supply chain management when it comes to outsourcing: They have established a Water Program Suppliers Performance and are investing in innovative practices and technologies to save water supplies, like ColorDry – a game-changing technology that dyes fabric without water, instead uses recycled CO2, resulting in brilliant and consistent colours. This practice resulted in saving 20 million litres of water for 600,000 yards of dyeing fabric (NIKE, 2015,p.43). NIKE also assess the sustainability of their contracted factories and current and future suppliers through their Sustainable Manufacturing and Sourcing Index (SMSI), proposing remediation plans when there is incompliance with NIKE’s standards (p. 52-53). Keeping all their Supply Chain in compliance with their SMSI, results in minimizing risks related to performance, quality and statutory compliance – after all they have a reputation to protect!

It is becoming a mandate for business entities to incorporate environmental sustainability in their outsourcing decision-making process. Transferring environmental impact from developed to developing countries is not considered sustainable outsourcing, though it may comes with reduced costs (MosaviRad et al,2013; Laosirihongthong et al.,2013). Developing effective decision-making models, policies and codes to assess outsourcing suppliers can lead to successful outsourcing realizing significant benefits for a business and the supply chain partners.

References

Brown, D. (2008) "It is good to be green: Environmentally friendly credentials are influencing business outsourcing decisions", Strategic Outsourcing: An International Journal, 1(1), pp.87-95 Available from: http://www.emeraldinsight.com.liverpool.idm.oclc.org/doi/pdfplus/10.1108/17538290810857501 (Accessed 2 September 2017)

Jacobs, F.R. & Chase, R. (2014) Operations and Supply Chain Management. 14th global ed. New York: McGraw-Hill.

Laosirihongthong, T., Adebanjo, D. and Tan, K.C.(2013) "Green supply chain management practices and performance", Industrial Management & Data Systems, 113(8), pp.1088-1109 Available from: http://www.emeraldinsight.com.liverpool.idm.oclc.org/doi/pdfplus/10.1108/IMDS-04-2013-0164 (Accessed 2 September 2017)

MoosaviRad, S.H., Kara, S. and Ibbotson, S. (2011) Outsourcing decisions and environmental sustainability. IEEE International Conference on Industrial Technology, Conference. Available from: http://ieeexplore.ieee.org.liverpool.idm.oclc.org/stamp/stamp.jsp?tp=&arnumber=6505893 (Accessed 2 September 2017)

NIKE (2015) Sustainable Business Report. [Online] Available from: https://about.nike.com/pages/sustainable-innovation (Accessed 2 September 2017)