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Although multinational companies (MNCs) have increasingly embraced a sustainability strategy for their own operations, fewer have tried to engage their (tier-one) suppliers in their sustainability initiatives. It is even rarer that MNCs engage their suppliers' suppliers (lower-tier suppliers), despite the latter having a higher incidence of violations with more acute environmental and social impacts that can jeopardize the MNCs' operations and reputation. We conducted inductive research on three supply networks in the automotive, electronics, and consumer product/pharmaceutical industries. We collected data on three leading sustainable MNCs and a subset of 9 tier-one suppliers and 22 lower-tier suppliers and complemented that information with data on several NGOs and industry organizations. This study (1) reveals that many lower-tier suppliers address their environmental and labor issues passively and constitute the riskiest suppliers in a supply network; (2) provides a grounded theoretical framework for managing a sustainable supply network that accounts for multiple network members as well as three sustainability dimensions (the 3Ps: profit, people, and planet); and (3) shows how processes MNCs use to manage their suppliers differ from processes these suppliers use with their own (lower-tier) suppliers. The study reveals the practices that leading sustainable MNCs use to manage their supply networks and provides important future research directions.
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Journal of Operations Management
journal homepage: www.elsevier.com/locate/jom
On the riskiness of lower-tier suppliers: Managing sustainability in supply
networks
Verónica H. Villena
a,
, Dennis A. Gioia
b
a
The Pennsylvania State University, Smeal College of Business, Department of Supply Chain & Information Systems, 412 Business Building, University Park, PA, 16802,
USA
b
The Pennsylvania State University, Smeal College of Business, Department of Management & Organization, 428 Business Building, University Park, PA, 16802, USA
ARTICLE INFO
Accepted by: S. de Treville
Keywords:
Sustainability
Supply networks
Lower-tier suppliers
Inductive research
ABSTRACT
Although multinational companies (MNCs) have increasingly embraced a sustainability strategy for their own
operations, fewer have tried to engage their (tier-one) suppliers in their sustainability initiatives. It is even rarer
that MNCs engage their suppliers' suppliers (lower-tier suppliers), despite the latter having a higher incidence of
violations with more acute environmental and social impacts that can jeopardize the MNCs’ operations and
reputation. We conducted inductive research on three supply networks in the automotive, electronics, and
consumer product/pharmaceutical industries. We collected data on three leading sustainable MNCs and a subset
of 9 tier-one suppliers and 22 lower-tier suppliers and complemented that information with data on several
NGOs and industry organizations. This study (1) reveals that many lower-tier suppliers address their environ-
mental and labor issues passively and constitute the riskiest suppliers in a supply network; (2) provides a
grounded theoretical framework for managing a sustainable supply network that accounts for multiple network
members as well as three sustainability dimensions (the 3Ps: profit, people, and planet); and (3) shows how
processes MNCs use to manage their suppliers differ from processes these suppliers use with their own (lower-
tier) suppliers. The study reveals the practices that leading sustainable MNCs use to manage their supply net-
works and provides important future research directions.
“My lower-tier suppliers are the ones who keep my director up all night.
My team's goal is to avoid my company being the next one to appear in
the news.”
—Supply chain manager for environmental compliance and social
responsibility
1. Introduction
The sustainable supply chain management literature has reported
how firms consider profit, people, and the planet (the 3Ps) in their
decisions and how they engage their suppliers in developing “green,”
“responsible,” and “ethical” products and processes (e.g., Carter, 2004;
Huq et al., 2016;Klassen and Vereecke, 2012;Linton et al., 2007). This
literature also proposes how stakeholders can create accountability for
firms regarding their suppliers' behavior (Parmigiani et al., 2011) and
how they can help firms develop evaluation and verification cap-
abilities (Gualandris et al., 2015). More recently, scholars have taken a
multi-tier approach to investigate: strategies that firms can use to
manage lower-tier suppliers (Meinlschmidt et al., 2018;Mena et al.,
2013;Tachizawa and Wong, 2014); critical factors for managing lower-
tier suppliers (Grimm et al., 2014); and the important role tier-one
suppliers play—fulfilling their MNC's requirements and imposing these
requirements on their own suppliers (Wilhelm et al., 2016a,2016b).
Despite notable progress, scholars know relatively little about how
firms actually manage their lower-tier suppliers and how risky these
suppliers are.
1
Without adequate attention to both tier-one and lower-
tier suppliers, large firms can, perhaps unwittingly, externalize their
sustainability costs to their suppliers, thus creating a weak link in
supply chain sustainability.
In an era when stakeholders are demanding sustainability, mis-
managing tier-one and/or lower-tier suppliers can damage a firm's
operations and reputation. For instance, Apple has recently faced in-
tense scrutiny because of the poor labor standards and unsafe working
conditions of one of its largest suppliers, Foxconn. Nike and Adidas
https://doi.org/10.1016/j.jom.2018.09.004
Received 9 December 2017; Received in revised form 13 September 2018; Accepted 23 September 2018
Corresponding author.
E-mail addresses: vhvillena@psu.edu (V.H. Villena), dag4@psu.edu (D.A. Gioia).
1
Lower-tier suppliers are a firm's tier-two and tier-three suppliers. A tier-two supplier is a supplier's supplier (e.g., a tier-two supplier could be a leather wholesaler
that supplies leather to a firm that builds leather seats for an automaker). A tier-three supplier is a tier-two supplier's supplier (e.g., a leather tannery).
Journal of Operations Management 64 (2018) 65–87
Available online 08 October 2018
0272-6963/ Published by Elsevier B.V.
T
have also been criticized for doing business with a large Chinese textile
supplier found to be discharging toxins into a river. And these are only
the tier-one suppliers; another set of lower-tier suppliers has a higher
incidence of violations with even more severe environmental and social
impacts. We observed, for instance, lower-tier suppliers in China,
Taiwan, and Mexico that have chronic overtime issues, precarious
working conditions, turnover rates up to 100 percent, open cases with
local NGOs on job/sexual harassment, and/or highly polluted manu-
facturing processes, among others. These examples illustrate supplier
sustainability risks—the adverse impact on a buyer from a supplier's
social and environmental misconduct (Hajmohammad and Vachon,
2016).
Accounting for lower-tier suppliers brings a range of challenges,
however. Such suppliers are arguably less controllable, riskier to deal
with, and often even invisible. First, lower-tier suppliers are less gov-
ernable. There is often no direct contractual relationship, and the
business that a multinational company (MNC) represents might be a
small fraction of a lower-tier supplier's total business (Tachizawa and
Wong, 2014). Second, lower-tier suppliers often are more prone to
violating labor standards and contaminating the environment because
they lack awareness of sustainability-related practices; receive little
pressure from media, NGOs and other external stakeholders; and are
located in countries where environmental and social regulations are
relatively undemanding (Grimm et al., 2016;Tachizawa and Wong,
2014). Third, firms lack information about their lower-tier suppliers:
e.g., who they are, what capabilities they do (and do not) have, and
where they are located. In a study of 525 companies in 71 countries,
73.5% of the respondents reported they do not know who their tier-two
and tier-three suppliers are (Supply Chain Resilience Survey, 2015).
Limited data are available on these suppliers, particularly about their
environmental and labor practices. In fact, empirical studies that in-
clude data on MNCs; tier-one suppliers; and, particularly, second-tier
suppliers are rare.
Although MNCs monitor their tier-one suppliers' compliance with
the MNCs' sustainability standards, these suppliers do not often demand
similar compliance from their own suppliers. The difficulties worsen for
MNCs because lower-tier suppliers are further removed from their di-
rect supervision. Nonetheless, customers and society often blame the
MNC when a tier-one, tier-two, or tier-three supplier causes environ-
mental or social damage (Hartmann and Moeller, 2014). Customers feel
duped when a company they trust deviates from their expectations
(McDonnell and King, 2014), and they might even boycott. For these
reasons, tier-one and lower-tier suppliers’ violations can have acute
consequences for MNCs, with considerable financial, environmental,
and human costs. Some of the practical challenges that MNCs and tier-
one suppliers face when implementing sustainable practices have been
investigated. However, the challenges and risks that lower-tier sup-
pliers face/bring are inadequately understood. Such lack of information
raises our research questions: (1) Do lower-tier suppliers constitute the
riskiest members of the supply network? If so, why? (2) How do MNCs
manage sustainability concerning both their tier-one and lower-tier
suppliers? (3) Are there differences between practices MNCs adopt with
their tier-one suppliers and those that tier-one suppliers use with their
lower-tier suppliers?
Given the nascent knowledge about managing sustainability in
lower-tier suppliers, we adopted an inductive, grounded research ap-
proach (Glaser and Strauss, 1967) to address these research questions.
We investigated how sustainability practices have been managed (or
disseminated) in three supply networks in the automotive, electronics,
and consumer-product/pharmaceutical industries. We define a supply
network as the dynamic inter-organizational relationships among a focal
organization and its tier-one and lower-tier suppliers (see Choi et al.,
2001). In this study, a supply network consisted of an MNC recognized
for its industry-leading sustainability efforts and a subset of its tier-one
and lower-tier suppliers. Three MNCs, 9 tier-one suppliers, and 22
lower-tier suppliers participated. We conducted 165 interviews with
key informants from all participating firms. Thus, our research design
allowed us to compare the perspectives of each member within a given
supply network (e.g., the MNC's perspective vs. a tier-two supplier's)
and to discern patterns of sustainability practices across these three
industries. We followed the tenets of systematic inductive research from
Gioia et al. (2013) to ensure rigor in our research design and execution.
This approach enhanced our understanding of a complex pro-
blem—how to manage a sustainable supply network.
Our research contributes to the sustainable supply chain manage-
ment literature in three ways. First, we present empirical evidence that
not only demonstrates that lower-tier suppliers are likely to be the
supply network's riskiest members, but also identifies reasons why they
do not adopt sustainability practices. We discovered that these suppliers
address their environmental and labor issues passively, at best, because
they perceive minimal consequences for non-compliance. These sup-
pliers are often small firms with limited resources and lack sustain-
ability expertise, operate in countries with less stringent labor and en-
vironmental laws, and receive little attention from external
stakeholders (e.g., media), all contributing to their passivity. Second,
we develop an empirically grounded framework for managing a sus-
tainable supply network that includes the perspective of multiple
supply network members and addresses all 3Ps. This more compre-
hensive perspective is particularly important when MNCs have a ma-
ture sustainability program, but their suppliers, especially lower-tier
ones, do not. In fact, directors recognize that a barrier to advancing
sustainability is lower-tier-suppliers’ inadequate sustainability perfor-
mance (Global Corporate Sustainability Report, 2013). Thus, we extend
supply network studies (e.g., Choi et al., 2001;Choi and Hong, 2002;
Kim et al., 2011) that have focused mainly on the economic (profit)
pillar of sustainability to include the social (people) and environmental
(planet) pillars, as well. Third, we identify both proactive and reactive
processes that MNCs have developed for managing sustainability
among their tier-one suppliers, which, in a few instances, cascade to
their lower-tier suppliers. We also reveal how the processes that MNCs
use to manage their tier-one suppliers differ from those they use with
their lower-tier suppliers.
Several scholars have called on researchers to address larger societal
issues (e.g., George et al., 2016;Montabon et al., 2016). To answer their
call, we adopted a practice-driven approach to constructing a theore-
tical framework for managing sustainable supply networks. If the field's
focus on sustainability remains only at the firm or the firm/first-tier-
supplier level, we as scholars will remain blind to the firms that argu-
ably pose the highest sustainability risks (i.e., lower-tier suppliers). Our
data show that lower-tier suppliers pose significant environmental and
social risks and, thus, have a greater need to embrace sustainability.
Ironically, however, these are the least monitored, least equipped, and
least regulated companies. In the absence of a framework for under-
standing these suppliers, the unfortunate consequence would be that we
will mainly handle sustainability issues reactively (responding to en-
vironmental crises or scandals), rather than proactively (planning for
and implementing sustainable practices across a supply network).
2. Literature review
Sustainability is a major research domain, but scholars suggest that
this important domain is not only “atheoretical” (Corley and Gioia,
2011, p.24) but also “highly fragmented” (Aguinis and Glavas, 2012, p.
933). They also suggest shifting the main research focus from under-
standing “what” (defining sustainability) and “why” (reasons for en-
gagement) to a greater concern with “how” companies can implement
sustainable practices (Basu and Palazzo, 2008;Gardberg and Fombrun,
2006). Porter and Kramer (2006) echo this call, criticizing existing
studies as having unclear practical relevance. The consensus seems to
be that economic, social, and environmental performance—the
3Ps—are all necessary for corporate sustainability (Bansal, 2005;
Elkington, 1998;WCED, 1987). To manage sustainability in lower-tier
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
66
suppliers, we review two relevant research streams: supply networks
and sustainable supply chains.
2.1. Supply networks
Choi and his colleagues were the first to bring attention to supply
networks, proposing that such networks should be characterized as
complex adaptive systems that “emerge,” rather than resulting from
purposeful design (e.g., Choi et al., 2001;Choi and Hong, 2002;Kim
et al., 2011). They challenged a widespread belief that supply chain
management's ultimate goal is to control an entire supply networ-
k—arguing instead that the more workable goal should be to develop a
strategy about how much of the supply network to control and how
much of it to allow to emerge. For instance, Honda controls its supply
network through several tiers deep for a limited number of critical
items; but for most other items, it empowers its top-tier suppliers to
manage their suppliers, thus letting the supply network emerge. These
researchers noted that a firm's priorities regarding cost reduction and
consistent quality can determine how much control the MNC imposes
on its supply network (e.g., by directing tier-one suppliers to source
from a pre-selected group of lower-tier suppliers). Too much control,
however, detracts from supplier flexibility and innovation. They also
unveiled the structural characteristics (i.e., formalization, centraliza-
tion, and complexity) of supply networks in the automotive industry. In
adopting a social network perspective, Bellamy et al. (2014) found that
an electronics firm's supply network structure can improve innovation
output, especially if the firm has high levels of absorptive capacity and
works with innovative partners. Wang et al. (2015) showed the pre-
valence of overlapping tier-two suppliers and their impact on financial
performance for buying firms in the high-tech sector. Yan et al. (2015)
proposed three types of “nexus suppliers” based on the supplier's po-
sition within the broader network and how each type distinctively in-
fluences a buyer's operational performance. All these studies call at-
tention to reasons why firms must manage suppliers beyond the tier-one
level.
The focus of this research stream, however, has been mainly on only
one sustainability pillar: profits. In fact, Choi and Hong (2002) sug-
gested that “cost consideration appears to be the overarching force that
shapes the supply network structure” (p. 469), whereas Bellamy et al.
(2014) noted that an important factor is “how a firm can accrue
knowledge and information flow benefits from its supply network to
enhance its innovation output” (p. 370). Based on these studies, the
reward for managing lower-tier suppliers is solely economic. More re-
cently, focusing on the planet dimension, Nair et al. (2016) suggested
that “the effectiveness of green initiatives depends in part on knowing
how much control is possible, and how to nurture those processes that
lie beyond the direct control of the buyer firm” (p.84). However, all
three pillars have not yet been studied together; thus, we do not know
how the interplay among them could affect the management of lower-
tier suppliers. In fact, focusing solely on the profit dimension when
managing lower-tier suppliers could compromise the people and/or
planet dimension.
2.2. Sustainable supply chains
Supply chain scholars have documented how organizations engage
their suppliers in their environmental (e.g., Jira and Toffel, 2013;
Linton et al., 2007;Wu and Pagell, 2011) and labor and ethical prac-
tices (e.g., Huq et al., 2016;Jacobs and Singhal, 2017), including co-
development of environment-friendly products, ISO 14001 certification
of supplier plants, compliance with supplier codes of conduct, and
audits. They have also suggested that organizations collaborate with
stakeholders to promote supplier sustainability (e.g., Gualandris et al.,
2015;Huq et al., 2016;Klassen and Vereecke, 2012;Pagell and Wu,
2009). Most of these studies have, however, focused on (1) the buyer's
perspective, without accounting adequately for the supplier's view
(Zorzini et al., 2015); (2) reactive monitoring of sustainability com-
pliance, without sufficient attention to proactive capacity building
(Awaysheh and Klassen, 2010); and (3) a rather narrow set of activities,
without providing a comprehensive view of how firms manage sus-
tainable processes throughout their supply networks.
Some progress has been made in extending these buyer-supplier
studies recently. For example, using three case studies in the food in-
dustry, Mena et al. (2013) proposed an approach to multi-tier supply
chain management.
2
They found that a buyer engages the supplier's
supplier if it wants to ensure compliance with social and environmental
standards within its supply chain. Wilhelm et al. (2016a) studied sus-
tainability in three multi-tier supply chains and suggest that tier-one
suppliers can play a double-agency role—fulfilling their MNC's re-
quirements and imposing these requirements on their own suppliers.
Tachizawa and Wong (2014) proposed four strategies to manage sus-
tainability in multi-tier supply chains—direct, indirect, work with third
parties, and don't bother. Meinlschmidt et al. (2018) provided evidence
for three of these strategies and suggested that buyers use each one
depending on the strengths of contextual factors (e.g., stakeholder
salience), whereas Wilhelm et al. (2016b) identified three factors—-
supply chain complexity, tier-one suppliers' sustainability capability,
and sustainability dimension—that determine when and how buyers
use such strategies on their sub-tier suppliers. Grimm et al. (2014)
identified 14 critical factors that influence the success of sub-suppliers’
compliance with sustainability standards, whereas Hofmann et al.
(2018) revealed key enablers and barriers to implementing supply
chain due diligence. Brockhaus et al. (2013) noted the consequences of
mandated implementation of sustainability requirements from powerful
to weaker supply chain members. Despite this progress, however, there
is limited empirical evidence to ascertain whether a supply chain is
truly sustainable (Montabon et al., 2016).
Building on these two research streams, we adopted the supply
network as our unit of analysis, considered multiple perspectives of each
network member (the MNC, tier-one supplier, and lower-tier supplier),
and employed all three sustainability dimensions to study how sus-
tainability leaders manage supplier relationships, particularly those
with lower-tier suppliers. The latter is a challenge and a danger for
sustainability directors, as illustrated in our introductory epigram.
Scholars are under-informed and lack an adequate framework for un-
derstanding lower-tier suppliers. As Kim and Davis (2016) warned, “the
dispersion of supply chains makes corporate accountability beyond the
boundaries of the firm one of the defining grand challenges of our era.
Yet, there has been surprisingly little organizational research on ac-
countability in supply chains” (p. 1897). Little research bears directly
on our research questions. Rather than presuming that what we know
from firm-level and firm/tier-one supplier-level studies of sustainability
applies directly to the supply-network level, we instead adopted an
inductive, grounded-theoretical approach that enabled us to learn from
each supply network member (especially the lower-tier suppliers).
3. Methodology
To study how sustainability practices are deployed throughout the
supply network, we enlisted three MNCs that are sustainability leaders
in their industries (automotive, electronics, and pharmaceutical/con-
sumer product). Each one actively participates in industry-wide supply
chain sustainability efforts; has a large percentage of plants certified in
quality (ISO 9001), environmental (ISO 14001), and safety (OSHAS,
18001) management systems; is a member of the Billion Dollar
Roundtable
3
; has been included in the Dow Jones Sustainability Index;
2
A multi-tier supply chain is composed of one MNC, one tier-one supplier,
and one tier-two supplier. The three firms can be interlinked vertically.
3
The Billion Dollar Roundtable, created in 2001, recognizes corporations
that spend at least $1 billion with minority and woman-owned suppliers.
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
67
and is either a Carbon Disclosure Project (CDP) member or a United
Nations Global Compact signatory. Also, each is often cited in the media
as a sustainability leader. Furthermore, each has nurtured a sustain-
ability strategy for many years and has extended its own standards to
first-tier suppliers and, more recently, to some lower-tier suppliers. By
studying these three sustainability leaders and a subset of their tier-one
and lower-tier suppliers, we not only learned the best practices they are
using to manage sustainable supply networks (Pagell and Wu, 2009)
but also captured each supply network member's perspectives.
3.1. Data collection
We collected data from January 2013 to November 2015. We
conducted face-to-face interviews with the MNC's sustainability
team, purchasing director, and several purchasing managers. Then
we selected a set of tier-one suppliers that supplied critical compo-
nents and were considered most relevant by MNCs. No restrictions
were imposed on suppliers' location, size, or type (private vs. public).
After a tier-one supplier agreed to participate, each supplier identi-
fied the most knowledgeable informants (usually three to four) and
coordinated the interviews. We used the same procedure for MNCs to
interview the comparable sustainability manager,
4
purchasing di-
rector, and several purchasing managers. Most of these suppliers did
not have a formal supplier risk-assessment tool, so we selected their
(tier-two) suppliers according to their criticality (measured either by
the amount spent or their components' criticality in the final pro-
duct), sustainability risk (i.e., whether manufacturing their products
is prone to environmental and labor violations), and location in
countries with a history of environmental and social problems. We
repeated the approach to identify a set of tier-three suppliers.
5
Of the
suppliers contacted, 31 (78%) agreed to participate; most of the
nonparticipants declined because they did not have a sustainability
program, were experiencing a production peak, or did not regard the
customer involved as critical.
We collected data on the three MNCs, 9 tier-one suppliers, and 22
lower-tier suppliers. To encourage open discussion of sensitive in-
formation, we offered anonymity to each company and signed nondi-
sclosure agreements. We also certified to all participants that we did not
receive funding from any customer or governmental institution, and
assured participants that information would not be shared with custo-
mers or NGOs. Fig. 1 shows the three supply networks. In one case, a
tier-one supplier (Ench) for our electronics MNC is a tier-two supplier
for our automotive MNC. Also, one supplier (Tronics) is common across
the three supply networks but is located in different tiers. These two
cases are highlighted in Fig. 1.Table 1 summarizes the profile of all
participating companies by size, industry, country, and certifications.
To increase rigor in our qualitative research (Gioia et al., 2013), we
collected data from three different sources: (1) semi-structured inter-
views as the prime source of information about the sustainability in-
itiatives within each firm, between each firm and its suppliers, and
between each firm and NGOs; (2) structured observations of how cor-
porate initiatives are implemented within plants; and (3) archival data
collected during each visit, along with industry reports, newspapers,
public databases, among others, when available. These multiple sources
allowed us to triangulate information about sustainability initiatives
within and across firms.
3.1.1. Semi-structured interviews
We conducted 165 interviews. From each firm, we interviewed at
least 2 and as many as 12 informants (see Table 1). We used the in-
terview protocol shown in Appendix 1 and conducted several follow-
ups with informants to corroborate information we gathered from other
sources and to fill in missing data. To be consistent in gathering data,
we conducted each interview in the interviewee's native language.
Some of the tier-one suppliers and the majority of lower-tier suppliers
are located in China, Mexico, and Taiwan. Although their sales per-
sonnel speak English, their counterparts in EH&S, HR, purchasing,
quality, and operations do not; thus, we used a translator. We recorded
all interviews with the informants' permission. Three research assistants
whose native languages are Mandarin, English, and Spanish then
transcribed the interviews. To complement these data, we interviewed
representatives of a set of NGOs (e.g., CDP, CEREAL and IDH), who
discussed their relationship with MNCs and suppliers and who gave us
reports of open cases regarding health, safety, and labor violations.
3.1.2. Structured observations
Ninety-five percent of the participating suppliers allowed us to visit
their plants. We clarified that our visit was not an audit, but a way for
us to better understand how they implemented corporate sustainability
initiatives in their plants, as well as to learn about their manufacturing
processes, labor practices and environmental challenges. Before each
visit, we arranged conversations with the plant manager and/or EH&S
representative. At all sites, we first did job shadowing to understand the
manufacturing processes and to identify potential labor and environ-
mental issues. We then conducted ethnographic interviews with 45
randomly chosen plant workers at their work sites. Because recording
interviews was not permitted, we took field notes, capturing key
phrases and direct quotations. We used a 24-h rule to construct detailed
memoranda of these meetings. These data allowed us to cross-validate
responses from directors with the practices that factory workers either
participate in (e.g., EH&S training) or observe (e.g., retaliation policy)
in a given firm. Finally, we attended annual conferences of three in-
dustry associations—the Electronics Industry Citizenship Coalition
(EICC), the Automotive Industry Action Group (AIAG), and the
International Pharmaceutical Supply Chain Consortium (RX 360)—be-
cause MNCs and some suppliers noted that such associations play a
fundamental role in their sustainability agendas.
3.1.3. Archival data
We collected several kinds of information in house: supplier sus-
tainability scorecards, supplier sustainability self-assessments, EH&S
training programs, purchasing terms and conditions, and sustainability
training certificates. We also collected external documents such as in-
dustry reports, NGO reports, and archival databases. The three MNCs
and a few tier-one suppliers are public companies, so much information
was available from open sources (e.g., ASSET4). More limited in-
formation is available for lower-tier suppliers because they are mostly
small, private firms. Thus, we spent more time gathering their in-
formation during our visits. In some cases, we gathered EH&S audit
reports from third-party organizations (e.g., EICC and local govern-
ment).
These data allowed us to triangulate information gathered from
interviews and observations. For instance, interviewees shared several
internal (and sometimes confidential) reports supporting their state-
ments. The archival data also helped us focus our interviews on specific
themes. For instance, if an MNC provided supplier EH&S audit reports
or supplier sustainability scorecards, we could question its tier-one
suppliers more thoroughly and could choose to visit a supplier plant
where there were nonconformities. When visiting such a plant, we
devoted more interview time to determining how the supplier had dealt
with nonconformities, whether improvements were implemented, and
how the MNC helped these suppliers overcome such nonconformities.
4
A major difference between MNCs and suppliers was that all three MNCs
had a sustainability director, whereas suppliers assigned responsibility for
sustainability to various functions such as human resources (HR); environment,
health, and safety (EH&S); quality; or operations. In many cases, no single in-
dividual or function was formally responsible for sustainability.
5
For simplicity, in this paper we use the label lower-tier suppliers to refer to
both tier-two and tier-three suppliers.
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
68
3.2. Data analysis
To address our first research question (Do lower-tier suppliers con-
stitute the riskiest members of the supply network? If so, why?), we
employed archival data (displayed in Table 1), field notes and interview
data. To address the second (How do MNCs manage sustainability con-
cerning both their tier-one and lower-tier suppliers?) and third (Are there
differences between practices MNCs adopt with their tier-one suppliers and
Fig. 1. The three studied supply networks.
*** This supplier participate in our three supply networks but is located in different tiers.
** This suplier is a tier-one supplier for our electronics MNC and a tier-two supplier for our automotive MNC.
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
69
Table 1
APharmaceutical/consumer product supply network
a
.B. Automotive supply networka. C. Electronics supply networka.
A
Name Sales ($) # Workers Industry Headqua-
rter
Facilities Certification CDP GRI UNGC DJSI Informant Title (Interview length
in min)
MNC Pharma 74.33
Billion
126,500 Pharmaceutical/
Consumer
Product
United
States
Worldwide ISO 9001
ISO 14001
OHSA-
S18001
Yes Yes Yes Yes Senior Director Sustainable
Procurement (240)
Global Energy Director (60)
2Category Leaders (API &
Electronics) (90 each)
Relationship Manager (API) (90)
EHS&S Senior Manager (110)
EHS&S Auditor (60)
Risk Management Manager (60)
Risk Management Director (60)
TIER-ONE
SUPPLIERS
Tronics*** 25 Billion 150,000 Electronics
contract
manufacturing
United
States
America:37
Brazil: 6
EMEA:33
Asia: 52
ISO 9001
ISO 14001
OHSAS
18001
Yes Yes No No 2 Commodity Managers (80
each)
Supplier Sustainability Program
Manager (120)
CS&E Responsibility Manager
(100)
Director of RRHH (90)
General Manager (60)
3 Senior EH&S Auditors (90)
Capi 42.90
Million
800 Pharmaceutical
manufacturing
United
States
USA: 2
Europe: 1
ISO 14001 No No No Yes Global Supply Chain Director
(60)
Supply Chain Manager (90)
Corporate Responsibility Director
(95)
Director (86)
Ampaca
(private)
74 Million 250 Pharmaceutical
manufacturing
United
States
USA: 2 OHSAS
18001
No No No Na Procurement Director (100)
VP of Contracts & Commercial
Products (60)
VP Regulatory Affairs (60)
Senior Director of Supply Chain
(90)
Sustainability Director (110)
LOWER-TIER
SUPPLIERS
Far (private) 7.17
Million
25 Pharmaceutical
manufacturing
United
States
USA: 1 ISO 9001 No No No Na Purchasing Manager (60)
Safety, Security and Regulatory
Manager (90)
Director (80)
Allsino
(private)
25 Million 200 Chemical China China: 1 No No No No Na Purchasing Director (95)
EH&S Manager (80)
Capot
(private)
30 Million 600 Chemical China China: 1 ISO 9001 No No No Na Purchasing Director (60)
HR Manager (95)
EH&S Manager (100)
Quality Manager (60)
JWW
(private)
2.62
Million
30 Chemical United
States
USA: 1
China: 1
No No No No Na Executive Director (110)
Purchasing Manager (60)
President (90)
Lacamas
(private)
17.5
Million
46 Chemical United
States
USA: 1 No No No No Na Chief Financial Officer (90)
Buyer (75)
Synthetics
(private)
No data No data Chemical China China: 3 ISO 9001 No No No Na President (90)
Vice General Manager (60)
EH&S Responsible (110)
Quality Manager (60)
Yiyi (private) 59 Million 1500 Electronic
components
Taiwan Taiwan: 1
China: 2
USA: 1
ISO 9001
ISO 14001
OHSAS
18001
No No No Na EH&S Manager (80)
Quality Manager (60)
General Manager (90)
Yantat 110
Million
1027 Printed circuit
board
China China: 3 ISO 9001
ISO 14001
Yes No No No General Manager (80)
Quality Manager (60)
Calientes
(private)
7.0 Million 112 Packaging Mexico Mexico: 5 ISO 9001 No No No Na EH&S Manager (100)
Quality Manager (95)
General Manager (60)
DBC
(private)
0.24
Million
10 Metal mecanic Mexico Mexico: 1 No No No No Na Sourcing Manager (60)
Quality Manager (90)
San Marcos
(private)
0.83
Million
41 Packaging Mexico Mexico:1 No No No No Na General Manager (80)
Operations Manager (100)
(continued on next page)
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
70
Table 1 (continued)
B
Name Sales($) # Workers Industry Headqua-
rter
Plants Certification CDP GRI UNGC DJSI Informant Title (Interview length
in min)
MNC Automotive 96.09
Billion
228,690 Automotive United
States
America: 75
Europe: 77
Asia:13
ISO 9001
ISO 14001
OHSA-
S18001
Yes Yes No Yes Commodity Specialist
Transmissions (90)
Head of Drive Systems
Purchasing (60)
3 Senior Buyers (seat, electrical,
& metal) (70 each)
Sustainability Director (150)
Sustainability Manager (130)
Supplier Relationship Manager
(90)
TIER-ONE
SUPPLIERS
Metallic
(private)
1.2 Billlion 2000 Fastener
manufacturing
United
States
USA: 10
Mexico: 1
ISO 9001
ISO 14001
No No No Na Supply Chain Director (90)
Purchasing Director (80)
EH&S Manager (120)
EH&S Supervisor (60)
Internal Auditor (60)
Powertrain 23.2
Billion
71,100 Auto parts
Manufacturing
Germany 230 plants
in 40
countries
ISO 9001
ISO 14001
OHSA-
S18001
No Yes Yes No Head of Sustainability (70)
Head of Materials Management
(80)
VP of Marketing (65)
Seat 42.83
Billion
168,000 Auto parts
Manufacturing
United
States
USA: 338
Mexico:19
Brazil: 10
ISO 9001
ISO 14001
Yes Yes Yes Yes 3 Commodity Managers (90
each)
Chair of Sustainability (70)
Plant Manager (90)
EH&S Supervisor (90)
EH&S Manager (90)
General Manager (100)
Electrical 39.7
Billion
142,171 Auto parts
Manufacturing
Japan Japan: 74
Europe: 39
Asia: 70
ISO 9001
ISO 14001
OHSA-
S18001
Yes Yes No No Director of Purchasing (60)
Director of EH&S (70)
Buyer Specialist (80)
LOWER-TIER
SUPPLIERS
Coating
service
(private)
No data No data Metal coating,
engraving &
heat treating
United
States
USA: 3 ISO 9001 No No No Na Vice President of Purchasing (90)
General Manager (60)
Quality Liaison (120)
Steel
(private)
No data No data Steel United
States
USA: 3 ISO 9001
ISO 14001
No No No Na Vice President of Supply Chain
(90)
EH&S Manager (100)
Quality Specialist (60)
Chemical
adhesives
26.7
Million
328 Fastener
manufacturing
United
States
America: 4
LATAM: 2
Europe: 13
Asia: 13
ISO 9001 No No No No HR Director (60)
Purchasing Manager (60)
Operations Manager (80)
Sales Manager (60)
Machinery 141.4
Million
1300 Auto parts
manufacturing
United
States
USA: 6
Europe: 3
China: 1
ISO 9001
ISO 14001
No No No No Supply Chain Manager (60)
Senior Buyer (80)
HR Manager (60)
Seat designer
(private)
148.7
Million
1600 Auto parts
manufacturing
United
States
Mexico: 3 ISO 14001 No No No No Director of Purchasing (90)
Procurement Manager (100)
EH&S Manager (90)
Human Resources Manager (90)
Vice President (60)
Tronics*** 25 Billion 150,000 Electronics
contract
manufacturing
United
States
America: 37
Brazil: 6
EMEA: 33
ASIA: 52
ISO 9001
ISO 14001
OHSA-
S18001
Yes Yes No No 2 Commodity Managers (80
each)
Supplier Sustainability Program
Manager (120)
CS&E Responsibility Manager
(100)
Director of RRHH (90)
General Manager (60)
3 Senior EH&S Auditors (90)
Ench** 2.80
Billion
10,940 Electronics
contract
manufacturing
United
States
USA: 9
Mexico: 3
Europe: 2
Asia: 5
ISO 9001
ISO 14001
OHSA-
S18001
Yes No No No Director of Supply Chain (80)
Global Compliance Manager (70)
EH&S Manager (90)
EH&S Trainer (60)
Procurement Manager (110)
HR Manager (80)
(continued on next page)
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
71
those that tier-one suppliers use with their lower-tier suppliers?) research
questions, we analyzed the interview data and supplemented it with
archival and field-note data. To build our grounded theoretical model,
we followed Gioia et al.’s (2013) systematic, three-step approach to
grounded theory building. We began by identifying 1
st
-order categories
in the data (at the informant's level of meaning). These categories
emerged when consistent patterns in the data constituted enough evi-
dence to note a distinctive sustainability practice. All 1
st
-order practices
were labeled based on each informant's language (Strauss and Corbin,
1990). We then grouped these 1
st
-order categories into 2
nd
-order
Table 1 (continued)
C
Name Sales ($) # Workers Industry Headqua-
rter
Plants Certification CDP GRI UNGC DJSI Informant Title (Interview length
in min)
MNC Electronics 92.79
Billion
379,592 Information
Technology
Services
United
States
Worldwide ISO 9001
ISO 14001
OHSA-
S18001
Yes Yes No Yes 3 Global Commodity Managers
(60 each)
Head of Production Procurement
(90)
Procurement Operations
Manager (90)
Director of Coporate
Environmental Affairs (60)
VP Corporate Environmental
Affairs (60)
Product Environmental
Compliance & SCSR (90)
Supply Chain Senior Manager
(80)
SCSR Manager (90)
SCSR/Supplier Communication
(80)
EICC Coordinator (70)
TIER-ONE
SUPPLIERS
Belca 30 Billion 96,015 Electronic
components
manufacturing
Taiwan Taiwan: 1
China: 3
Phillipine-
s:1
ISO 9001
ISO 14001
OHSA-
S18001
Yes Yes No Yes Purchasing Director (90)
2 Purchasing Managers (80 each)
EH&S Director (110)
EH&S Manager (120)
Ench** 2.80
Billion
10,940 Electronics
contract
manufacturing
United
States
USA: 9
Mexico: 3
Europe: 2
Asia: 5
ISO 9001
ISO 14001
OHSA-
S18001
Yes No No No Director of Supply Chain (80)
Global Compliance Manager (70)
EH&S Manager (90)
EH&S Trainer (60)
Procurement Manager (110)
HR Manager (80)
Adel 6.2 Billion 5421 Electronic
component
manufacturing
Taiwan EMEA: 21
Asia: 31
America: 14
ISO 9001
ISO 14001
OHSA-
S18001
Yes Yes No Yes 2 Senior Account Managers (80
each)
EH&S Manager (60)
Tronics*** 25 Billion 150,000 Electronics
contract
manufacturing
United
States
America: 37
Brazil: 6
EMEA: 33
Asia: 52
ISO 9001
ISO 14001
OHSA-
S18001
Yes Yes No No 2 Commodity Managers (80
each)
Supplier Sustainability Program
Manager (120)
CS&E Responsibility Manager
(100)
Director of RRHH (90)
General Manager (60)
3 Senior EH&S Auditors (90)
LOWER-TIER
SUPPLIERS
Inalways
(private)
8.64
Million
57 Electronic parts
and equipment
Taiwan Taiwan
China
ISO 9001
ISO 14001
No No No No General Manager (90)
Operation Manager (110)
PCB (private) No data No data Electronic parts
and equipment
Hong
Kong
China ISO 9001
ISO 14001
No No No No VP of Operations (100)
VP of Human Resources (90)
AVS 665.8
Million
415 Computer
Manufacturing
Taiwan Taiwan: 2 ISO 9001
ISO 14001
OHSA-
S18001
Yes Yes No No 2 Commodity Managers (60
each)
Human Resources Manager (80)
Quality Manager (70)
Internal Auditor (60)
Yiyo 52 Million 1400 Electronics parts Taiwan China: 2
Taiwan:1
USA:1
ISO 9001 No No No No Quality Manager Purchasing
Manager
Central
(private)
No data 50 Packaging United
States
USA:1 No No No No Na Purchasing Manager (90)
VP of Marketing (70)
VP of Operations (90)
Kete 838.2
Million
9625 Semiconductor United
States
No data ISO 9001
ISO 14001
OHSA-
S18001
Yes No No No CSE Manager (90)
2 Supplier Managers (60 each)
Quality Manager (100)
Health and Safety Manager (120)
*** This supplier participated in our three supply networks but was located in different tiers. ** This suplier was a tier-one supplier for our electronics MNC and a tier-
two supplier for our automotive MNC.
a
Notes: Data reported as of December 31, 2014. CDP: Carbon Disclosure Program. GRI: Global Reporting Initiative. UNGC: United Nation Global Compact. DJSI:
Dow Jones Sustainability Index—this index applies to those publicly-traded companies. For private companies, this index does not apply (na).
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
72
themes and distilled these themes into four dimensions (expressed in
theoretical terms). This step led to the generation of a data structure,
which served as the basis for a general framework for managing a
sustainable supply network. In both analyses, we used constant com-
parison of data (Glaser and Strauss, 1967) across informants (two em-
ployees within the same firm), international boundaries (a manager in
Mexico and a corporate director), data sources (an informant and
company reports), and firms (a MNC and its supplier).
To ensure the credibility of the findings, we independently coded
the interview data. Once each of us had a set of 1
st
-order codes, we
discussed discrepancies in coding and labeling until we reached con-
sensus. We applied a similar procedure for determining and labeling
2
nd
-order themes and dimensions. The purpose of these discussions was
to ensure that the findings did not rely solely on a single analyst's in-
terpretations; instead, the findings represent a consensus from two
analysts. This approach enabled us to identify practice-based building
blocks to generate a theory of managing a sustainable supply network.
Therefore, the resulting framework addresses Thomas and Tymon's
(1982) call for theory that is useful for both practice and con-
ceptualization because its essential elements are practices shown to
work and its emergent dimensions are theoretically anchored. We next
present our findings in two related sub-sections—the empirical assess-
ment of lower-tier supplier risk and the comprehensive grounded re-
search model.
4. Findings 1: assessment of lower-tier supplier risk
The lack of empirical studies focusing on lower-tier suppliers leaves
us under-informed about those suppliers—especially concerning their
capabilities, how vulnerable they are, and where they operate.
Significantly, none of the 22 lower-tier suppliers had ever participated
in academic research. Seventeen (77.3%) of them are private firms,
relatively unknown with little pressure from customers, NGOs, and the
media. As a result, most do not disclose their social and environmental
challenges on their websites or in their annual reports nor do they adopt
any standard for sustainability reporting (e.g., GRI). The majority are
much smaller than the MNCs and tier-one suppliers and, thus, have
more limited resources and lack of sustainability expertise. Their plants
are located worldwide; and our visits to their plants located in China,
Taiwan, Mexico and the United States revealed distinct issues in each
country. Table 1 shows the profile of these suppliers.
If we assess their sustainability capabilities according to the widely
accepted 3Ps, we would expect strong emphasis on the profit dimension
(as an existential matter for any firm); furthermore, given the now
widespread attention to social and environmental issues, we might also
expect some attention to both the people and planet dimensions.
However, based on our sample of 22 lower-tier suppliers, such ex-
pectations concerning these latter two dimensions are optimistic. If we
assume, for instance, that being ISO 14001-certified and participating
in the CDP program are proxies for being environmentally mature
(Corbett and Kirsch, 2001;Jira and Toffel, 2013), then lower-tier sup-
pliers are markedly worse compared to MNCs and tier-one suppliers
(see the column labeled Certification and CDP in Tables 1a, 1b and 1c).
During our visits, we observed that these suppliers have manufacturing
processes that pollute and rarely offer eco-friendly products, with the
exception of those plants that manufacture components included in
products sold to the European Union (EU).
6
Like other scholars (Koh
et al., 2012;Lee et al., 2014), we found that MNCs collaborate closely
with their tier-one and lower-tier suppliers so their final products meet
EU environmental regulatory standards. If the products are sold to other
markets, however, this effect disappears. In fact, in three cases, the
same plants have dual production lines—one for EU and another for
other markets. One manager explained, “To achieve ROHS compliance
is costly. Even though adopting ROHS for my full production is the right
thing to do, we have to keep our costs down to survive in this market.”
Interestingly, only one lower-tier supplier, Central, provided examples
of environmentally-friendly processes (e.g., 99% of a zero-waste landfill
goal) and product design (e.g., using high percentage of recycled con-
tent), indicating that environmental innovations can emerge from the
supply network rather than be mandated by MNCs (Nair et al., 2016);
however, this scenario was the exception rather than the norm in our
sample.
Our fieldwork also revealed patterns showing that most lower-tier
suppliers in our sample lack training in safety, working conditions, and
human rights; have large percentages of temporary workers and em-
ployee turnover; and have open cases with NGOs that protect human
rights. During our visits to their plants in China (7), Taiwan (3), Mexico
(5), and the United States (6), we found some common patterns per
country. All Chinese and Taiwanese lower-tier suppliers recognize their
chronic problems of overtime and unsafe working conditions, which the
audit reports confirmed. In fact, the 2013 EICC annual report states that
81% of EICC audits conducted from April 2013 to February 2014 found
that plants required workers to work > 60 h a week (thus violating the
EICC code of conduct). As shown in the audit reports, most of these
plants lack training in health and safety for their factory workers and in
working conditions/human rights for their general managers. For plants
in Mexico, overtime and unsafe working conditions were also present,
but to a lesser extent. As a manager said, “Let's say that in Mexico I have
an employee working 70 h including overtime. In China, I would have
an employee working 85 h or more.” Other human-treatment problems
were more severe. In three Mexican plants we visited, the percentage of
temporary workers was up to 50% and turnover rates were up to 100%,
making it hard for any sustainability program to succeed (Pagell et al.,
2014). Also, in addition to discriminatory hiring practices and unfair
dismissal of workers found in past research (Distelhorst et al., 2015),
these plants lacked procedures for de-escalating a problem (e.g., job or
sexual harassment), abusive supervisor behavior (e.g., retaliation), and
irregularities (e.g., delays in overtime payments). Our interviews with
factory workers and CEREAL representatives confirmed these defi-
ciencies. One of these suppliers' managers, said, “We lack a proper
management system for human resources.” Another manager said, “Yes,
we still have such problems [referring to job and sexual harassments],
but it was much worse before.” We found no social innovation in these
suppliers.
Our visits to the plants located in the United States revealed a few
health and safety problems. In particular, the concentration of chemi-
cals in the air was notably high in three plants, whereas the reporting of
health and safety accidents was not systematic (for more information
about safety issues in the U.S. and Canadian manufacturing firms, see
Pagell et al. (2015)). Also, one of our tier-one suppliers reported a fire
in the facility of one of its plating (second-tier) suppliers and noted the
supply disruption and reputational damage to his company and major
customers. This manager also said, “After this fire, we visited other four
plating suppliers and decided not to send our products to two of them
due to their precarious safety conditions.” Accidents in lower-tier sup-
pliers are not covered by the media unless they result in severe supply
disruptions—as in the case of Ericsson and its sub-tier supplier's fire
accident (Norrman and Jansson, 2004), or have high human costs—as
did the fire in the plant of a sub-tier automotive supplier, Zhongrong
Metal Products, in which 97 factory workers were killed and 163 were
seriously injured (Shirouzu and Li, 2014).
Although our research supports the warning of Kim and Davis
(2016) that, “the most questionable practices happen among distant
suppliers multiple tiers away” (p. 111) and of Tachizawa and Wong
(2014): “the most serious environmental and social issues in the supply
chain are often generated by suppliers located in the second tier or
6
EU enforces environmental regulatory standards such as Waste Electrical
and Electronic Equipment (WEEE); Restriction of the use of certain Hazardous
Substances (RoHS); and Registration, Evaluation, Authorization and Restriction
of Chemicals (REACH).
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
73
further upstream” (p. 643), it also reveals that labor issues vary from
country to country and that even in highly regulated countries (e.g., the
U.S.), some health and safety deficiencies exist in lower-tier suppliers.
Therefore, our research shows that lower-tier suppliers, particularly
those that are small, private firms operating in countries with less
stringent regulations, exhibit consistently low performance on both the
social and environmental dimensions. These are the least-equipped and
the least-monitored members of the supply network and, consequently,
carry the highest risks.
Compared to tier-one suppliers that are in the spotlight and ex-
pected to meet sustainability standards because the three MNCs
monitor them, lower-tier suppliers are usually passive about addressing
their environmental and labor issues. Passivity, in this context, means
that a supplier could or would not respond to, or initiate, an action to
address sustainability problems. We found that lower-tier suppliers
perceive a very low risk of being penalized for not addressing labor or
environmental issues unless these issues become so big that MNCs get
involved. For instance, there were several open cases of sexual and job
harassment, as well as payment irregularities on 2 s-tier suppliers ac-
cording to CEREAL reports. CEREAL representatives noted that they
contacted their general managers, who did not respond for long per-
iods. CEREAL then reported these allegations publicly and informed the
major downstream customers (i.e., MNCs). As a tier-one supplier's EH&
S manager noted, “Our customer called me and pointed out the latest
CEREAL report: ‘Are you aware of what is going on with [supplier]?’ I
flew to Mexico and met with the general manager and CEREAL. I sadly
admitted that, after investigation, this allegation was true; but my plant
manager didn't take any initiative to tackle it.” These suppliers adopted
a “wait and see” approach because there were no immediate con-
sequences for not addressing the issues. The suppliers are unknown
firms with no or little pressure from the media and even when such
suppliers were on NGOs' radar, they perceived the risk of being pena-
lized as very low. Also, these suppliers are in countries where social and
environmental regulations are less demanding. Their top managers
focus exclusively on the profit dimension of sustainability and feel no
pressure to address their environmental and labor issues. This is be-
cause they were not penalized by their direct customers (i.e., tier-one
suppliers). In our sample, many of such customers struggle themselves
to comply with the MNCs' sustainability requirements (and therefore
monitoring supplier sustainability was not a priority), whereas those
that are more sustainability mature (3 out of 9 firms in our sample
conduct a type of supplier sustainability assessment), they have started
to offer some supplier support for projects to improve social and en-
vironmental performance, but have not yet considered penalizing sup-
pliers for non-compliance. Thus.
Proposition 1. Compared to tier-one suppliers,lower-tier suppliers exhibit
passivity in addressing labor and environmental issues because they perceive
very low risk of being penalized for not doing so.
Interestingly, we identified only one lower-tier supplier, Tronics,
that has a relatively mature sustainability strategy. This supplier
(marked with three asterisks in Fig. 1) serves all three supply networks
although it is located in different tiers. According to Yan et al. (2015), it
is an “informational nexus supplier” with diverse downstream ties
across multiple industries and, thus, has access to diverse markets and
technological information. This advantageous position, coupled with
the fact that this supplier has good downstream visibility (i.e., it
identifies its downstream customers, many being sustainability leaders
that advocate supplier sustainability, including our three MNCs), which
is instrumental for this supplier's sustainability maturity. Its greater
visibility and exposure to these customers motivates this supplier to
mimic their sustainability initiatives and actively participate in their
industry organizations. One of its directors noted, “We operate in many
industries. We know that our final customers eventually push for high
sustainability standards. So, we need to be better prepared.” In contrast,
we observed another supplier (marked with two asterisks in Fig. 1),
Bench, with characteristics similar to those of Tronics (e.g., it serves two
of the three supply networks, operates in the same industry, is a public
company smaller than Tronics) but most of its customers focused mainly
on profits, as its global compliance manager explained, “Our customers
are mainly driven by cost. This makes my job very difficult when I ask
for a larger budget for my environmental program. My top managers do
not perceive pressure from customers to do so.” Thus, the diverse in-
itiatives of our three MNCs affect not only their own supply networks
but also a broader population of upstream suppliers in other industries,
suggesting that there can be a “virtuous circle” in fostering sustain-
ability among lower-tier suppliers that operate in multiple supply net-
works. Thus.
Proposition 2. Lower-tier suppliers that operate in multiple supply
networks and serve downstream customers that are sustainability leaders
are more likely to adopt 3P sustainability practices.
During our research, we observed consolidation of supply bases
across the three studied industries, in that 7 (out of 9) tier-one suppliers
either merged or were acquired. Consistent with a grounded research
approach, we then investigated an emergent research question: How
does consolidation affect suppliers' adoption of sustainability? The
number of mergers and acquisitions (M&As) across industries has in-
creased; in particular, the consolidation of suppliers for electronics,
7
automotive,
8
and chemicals is rising. Consolidation could result in a
stronger supply base because, for instance, a struggling manufacturer
might be purchased by a financially healthier company that continues
to manufacture the acquired manufacturer's products. However, we do
not know how this consolidation could affect suppliers' labor and en-
vironmental practices.
Five tier-one suppliers we studied that experienced high growth
rates have more difficulty addressing their labor and environmental
issues for two reasons. First, their EH&S team must manage many more
plants, but with the same amount of human resources. As a result, their
attention was diffused and enforcement worsened (Huq et al., 2016). As
one corporate manager noted, “You are only as good as the resources
you dedicate to your program. And you have to prioritize things for the
resources you have, for the people you have ….” Another manager said,
“We recently acquired three plants in China. Even if we don't train all
40,000 new factory workers, we need to train at least some. It will take
a lot of our effort to have these plants up to our standards, especially if
my team remains the same.” Second, the idiosyncrasies of acquired
plants add more complexity. If the acquired plant is located in a country
where the firm has no operations or has unrelated operations to the
firm's, the EH&S corporate team has more to learn (e.g., new labor and
environmental regulations). Or, if the acquired plant is located in a
country where the firm has related operations, the plant does not ne-
cessarily have the same EH&S standards and reporting systems. As an
EH&S manager noted,
The manufacturing processes of the new two acquired plants are
very similar to our core business; however, my visit revealed that
their EH&S standards are very different from us and their reporting
system is so deficient [compared to the corporate standards]. On top
of that, their managers seem to have different labor, safety, and
human rights expectations. It will take us years to get them fully
embedded in our own standards.
For the two tier-one suppliers that were acquired, the concern was
whether their EH&S teams would remain because M&As often have
high top-management turnover (Walsh, 1989). In fact, the sustain-
ability director of one of these suppliers was removed after the M&A, so
7
http://www.electronics-sourcing.com/2017/08/31/pace-of-electronics-
supply-base-consolidation-slows/ Retrieved on May 7, 2018.
8
https://www.strategyand.pwc.com/reports/consolidation-global-
automotive-supply/ Retrieved on May 7, 2018.
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
74
the corporate EH&S team that assumed this responsibility faces these
same challenges. The resources for some of its sustainability initiatives
were frozen, whereas its sustainable procurement program that in-
cluded lower-tier suppliers was suspended. This scenario coupled with
strong cost-reduction pressures, has resulted in suppliers’ cutting more
resources from EH&S areas than from production and quality areas.
Thus, the consolidation of supply bases generates economic efficiencies,
but also creates difficulties for suppliers because resources assigned to
social and environmental compliance typically remain the same for
managing a larger number of plants and because the acquired plants
have distinct manufacturing processes and are exposed to different
national regulations that create yet more complexities. Thus.
Proposition 3. Tier-one suppliers with higher growth rates will have greater
difficulty allocating resources to their social and environmental initiatives
and to those initiatives involving their own suppliers.
5. Findings 2: developing a grounded theoretical model of
managing a sustainable supply network
In this section we provide evidence supporting each theme con-
stituting the four emergent theoretical dimensions of the grounded
model. Our analysis showed that the participating firms’ responses to
their sustainability issues can be classified as passive (most of partici-
pating lower-tier suppliers), reactive (most of participating tier-one
suppliers), or proactive (the MNCs)–a classification characterized by two
factors—temporal focus (from short-term and long-term orientations)
and resource commitment (from low to high commitment) (see Fig. 2).
Passive firms do not address their social and environmental issues un-
less there is customer intervention—if so, they determine the level of
temporal and resource commitment. Reactive firms have a short-term
view and dedicate limited resources to sustainability, displaying prac-
tices that serve mainly to comply with regulations and customer de-
mands and to mitigate consequences. Proactive firms have a long-term,
anticipatory or preventive perspective and devote substantial resources
to sustainability practices. The three MNCs in this study could be
viewed as “ambidextrous” in that their practices encompass both
proactive and reactive orientations. Fig. 2 shows the placement of each
participating firm based on its temporal focus and commitment of re-
sources to sustainability.
Fig. 3 displays the data structure, showing the emergent 1
st
-order
categories (left) that generated the 2
nd
-order themes (center), which we
distilled into four overarching dimensions (right). Appendix 2 shows
additional 1
st
-order evidence from informants for each 2
nd
-order theme
and the aggregate dimension whereas Fig. 4 shows the corresponding
grounded model. We next report our findings by each theoretical di-
mension in the grounded model. We describe the findings for each
supply network member by first reporting the practices used by MNCs,
then tier-one suppliers’ practices, followed by the practices used (or not
used) by lower-tier suppliers.
5.1. Committing to sustainable supply network [dimension 1 in Fig. 3]
5.1.1. Having a supportive organizational structure
Each MNC has an organizational structure with a top executive re-
sponsible for sustainability and a steering committee with a sustain-
ability representative. Most notably, each MNC assigns a full-time
person (with titles such as supply chain social responsibility manager or
sustainability procurement director) to extend the MNC's sustainability
agenda and expectations to suppliers. This person serves as a liaison
Fig. 2. Supply network members' responses: Passive, reactive, and proactive.
*Lower-tier suppliers do not address their environmental and social issues unless MNCs intervene. Depending on the type of issue and stakeholders involved (e.g., the
MNC, tier-one supplier, or NGO), the lower-tier supplier decides the time horizon and level of resources to commit to tackle the problem.
**The three MNCs and a few tier-one suppliers (i.e., Powertrain and Seat) are ambidextrous—they show proactive and reactive orientations for their sustainability
practices and, thus, are depicted between reactive and proactive categories.
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
75
across internal functions (e.g., risk management, purchasing, and sus-
tainability) and has primarily a boundary-spanning role (e.g., working
with tier-one suppliers to engage lower-tier suppliers). In that way, the
main sustainability initiatives such as supplier training, supplier as-
sessments, and supplier risk-management programs are orchestrated.
For instance, the pharmaceutical MNC's sustainability procurement
director was promoted to senior director. With more resources (i.e., a
new budget) and power (i.e., same hierarchical level as the sustain-
ability director), this director organized supplier sessions in which long-
term sustainability goals were communicated, enlisted a consulting
company to map the firm's supply network, and worked closely with his
EH&S counterpart to implement an EH&S training plan for tier-one
Fig. 3. Data structure.
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
76
suppliers.
For tier-one and lower-tier suppliers, however, the picture is very
different. For instance, we found that most tier-one suppliers have an
EH&S director responsible for their EH&S program and an HR director
who supervises labor and human resources practices. For tier-one
suppliers that have ISO 14001 and/or OSHAS 18001 certified plants,
full-time employees are designated to deploy and monitor EH&S in-
itiatives. In smaller tier-one suppliers, EH&S and HR are often one of-
fice. However, all these professionals have an inward-looking or-
ientation—they are dedicated to complying with sustainability
standards within the firm. Their procurement counterpart is expected to
communicate the MNC's requirements to lower-tier suppliers (which
happens rarely). We found a similar situation for lower-tier suppliers.
The EH&S responsibilities are often divided between operations and
human resources. Again, however, their orientation is only inward
looking. Having supplier sustainability practices is not a priority for
most tier-one and lower-tier suppliers.
5.1.2. Setting long-term goals for the firm and its (tier-one and lower-tier)
suppliers
Each MNC has set long-term goals for itself and for its tier-one
suppliers. These goals seek to facilitate both MNCs and tier-one sup-
pliers in developing a long-term orientation to address their major
sustainability concerns (Flammer and Bansal, 2017). Without worrying
about short-term outcomes, these goals encourage firms to invest in
sustainability training, buy environment-friendly equipment, among
others. One MNC has a five-year program that includes sustainability
goals, and some objectives for its tier-one suppliers. Its purchasing di-
rector noted, “We expect our strategic suppliers to do a materiality
assessment; and depending on this result, they pick two areas [e.g.,
energy and recycling] that are more relevant to their own business.
They then have to commit to two long-term goals that must be disclosed
publicly.” Another MNC's sustainability director said, “There are 62
long-term objectives that cover diverse areas. Two of them are that all
strategic suppliers disclose their CO
2
emissions through CDP and that
all suppliers complete a sustainability self-assessment [including a few
questions on lower-tier supplier sustainability].” Because these goals
are annually reviewed and their progress is publicly reported, MNCs
and tier-one suppliers strive for accountability to achieve their sus-
tainability agendas (New, 2010;Parmigiani et al., 2011).
In one exceptional case, an MNC has a minority supplier program
that includes its tier-two suppliers. This MNC not only specifies how
much of its own purchasing should be from minority suppliers, but also
demands that seven percent of its tier-one suppliers' procurement come
from certified minority (tier-two) suppliers. Its tier-one suppliers noted
that this MNC's minority supplier program has been very successful,
owing to the MNC's hands-on approach. The other two MNCs, however,
have difficulty setting goals involving tier-two suppliers because of
other priorities and lack of resources. As an executive noted, “We rea-
lize the importance of engaging tier-two suppliers, but also have a
supply base with more than 10,000 suppliers. We just don't have the
capacity.”
Our sample also included two automotive suppliers and one elec-
tronics tier-one supplier that have set long-term goals to reduce energy
and water use and gas emissions; develop green technologies and pro-
ducts; and provide a safe, healthy workplace for employees. However,
these goals do not include their own (tier-two) suppliers—again be-
cause of limited resources and other priorities. As a manager noted,
“The sustainability of our supply chain is not on the list of priorities that
our C-level executives feel they need to tackle.” Only one lower-tier
supplier, Tronics, exhibits a long-term orientation encompassing the
3Ps. Most lower-tier suppliers focus on delivering short-term results
and, thus, ignore the interests of many stakeholders, especially those
with disparate perspectives (Slawinski and Bansal, 2015). Thus, they do
not address environmental and social issues.
5.1.3. Incentivizing sustainability commitment to suppliers
The three MNCs have systems to recognize and reward their tier-one
suppliers that contribute to their sustainability efforts (Porteous et al.,
2015). These incentives not only align MNC goals with those of their
suppliers but also promote a healthy competition among suppliers.
MNCs provide incentives to suppliers with high scores in their sus-
tainability key performance indicators (KPIs) as well as sustainability
awards for those with high performance in environmental programs
and who make important contributions to the MNC's sustainability
goals. For instance, the automotive MNC monitors two sustainability
KPIs for its suppliers. When quality, cost, and delivery are equal, sup-
pliers may be rewarded (e.g., with more business) if they outperform
competitors on these two KPIs. The pharmaceutical MNC has recently
implemented incentives (e.g., longer-term contracts) for suppliers that
cascade the MNC's sustainability requirements to their own suppliers.
One of its plastic suppliers indicated, “We received the Ecovadis sup-
plier award [for sustainability performance]. We are very proud of this
recognition … We now report two sustainability goals publicly and are
evaluating to use the Ecovadis program with our own suppliers.”
Clearly, these MNCs incentivize suppliers to meet their sustainability
requirements and agenda.
Two tier-one suppliers, Powertrain and Seat, have also recently in-
stituted their own supplier sustainability awards. These suppliers’
managers recognize that the awards have fostered sustainability
awareness among their suppliers. One of them said, “There is an in-
creasing interest among our suppliers to know the selection criteria for
this award. In fact, a few have proactively evidenced sustainability
projects that they conducted in their plants to be considered as award
candidates.” For lower-tier suppliers, we found no evidence of in-
centives for supplier sustainability accomplishment, indicating that a
strategy oriented toward network sustainability is not a priority.
5.2. Building sustainability capability [dimension 2 in Fig. 3]
5.2.1. Collaborating with key stakeholders
As studies have shown (e.g., Gualandris et al., 2015;Huq et al.,
2016;Parmigiani et al., 2011), the three MNCs collaborate with ex-
ternal stakeholders to gain access to valuable expertise, standardize
sustainability requirements, and legitimize their sustainability pro-
grams. They also partner with these stakeholders to cascade their sus-
tainability initiatives throughout their supply networks. They are sig-
natories of international efforts to address climate change (CDP) and
human rights (UN Global Compact) and invite their strategic suppliers
to participate in these efforts. The latter are critical to cascading their
initiatives to these suppliers. For instance, six tier-one suppliers parti-
cipate in CDP's supply chain program; thus, they must collect, analyze
and report GHG emission data—a learning experience, especially for
less-environmentally mature suppliers. Also, MNCs collaborate with
multiple NGOs with positive outcomes. However, collaborations with a
few NGOs have been less successful. For instance, IDH (an NGO that
seeks to improve responsibility among electronics suppliers in China by
helping them improve their production efficiencies and worker-man-
ager communication) has unsuccessfully tried to develop links with the
electronics MNC and its major suppliers.
The three MNCs are founder members of their industry organiza-
tions (i.e., EICC, AIAG, and RX-360). Through these organizations,
MNCs have developed a standardized supplier EH&S self-assessment/
audit and have organized industry-wide sustainability training sessions
for suppliers. These initiatives increase efficiencies for suppliers (by
avoiding audit duplication because one supplier can use the standar-
dized self-assessment or audit for multiple customers), involve more
suppliers (because suppliers that have multiple customers with the
same requirement are more willing to participate), and make sustain-
ability initiatives doable (because supplier training conducted by only
one MNC could be prohibitively expensive). These initiatives also help
MNCs cascade their sustainability requirements to second- and third-
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
77
tier suppliers, especially if MNCs help their tier-one suppliers become
members. For instance, seven tier-one suppliers are members of the
same industry organizations and, thus, need to adopt the same industry
standards with their own suppliers. One supplier requires a small group
of its suppliers to pass an EICC audit, whereas another does the same
with the AIAG self-assessment. Notably, the automotive MNC has
convinced several of its top suppliers to become AIAG members and to
participate in AIAG's sustainability working groups to increase such
initiatives' credibility and effectiveness (rather than simply to impose
such initiatives, see Brockhaus et al. (2013)). As a result, its tier-two
and tier-three suppliers attend AIAG's annual meetings; 4 of the 22
lower-tier suppliers confirmed participation.
5.2.2. Offering sustainability training for (tier-one and lower-tier) suppliers
Each MNC offers sustainability training as part of its efforts to build
sustainability capability in its supply network, using three methods.
First, MNCs use their own sustainability team to exchange best practices
during supplier visits (e.g., EH&S supplier audit) or events (e.g., sup-
plier training week) (Klassen and Vachon, 2003). One chemical sup-
plier's sustainability director reported, “I was invited by [the MNC] to
attend an EH&S training session, but actually learnt that it is EHS&Sfor
them. That was my first time where I learnt what that second “S
[sustainability] stood for. My customer has helped us set our own
sustainability program.” Second, MNCs promote supplier peer learning
on sustainability. The automotive MNC created a supplier sustainability
panel comprised of tier-one suppliers that are sustainability leaders.
This panel facilitates supplier-to-supplier learning as its members dis-
cuss their environmental and social challenges and what they are doing
to address them. The same MNC also publicizes the projects of supplier
sustainability award winners in its supplier portal with the goal of
fostering other suppliers' adoption of similar projects. The pharma-
ceutical MNC created a preferred supplier program composed of its
strategic suppliers. Beyond cost considerations, the reason for engaging
these suppliers is to treat them as incubators of ideas, to learn what
problems they encounter in trying to comply with MNC's sustainability
requirements, and to use that learning to engage the other suppliers.
This program not only allows the MNC to roll over its sustainability
initiatives to its tier-one suppliers but also cultivates a collaborative
environment in which both MNCs and preferred suppliers exchange
ideas on the best approaches to engage lower-tier suppliers. Third,
through their industry organizations, the three MNCs provide training
to their tier-one and lower-tier suppliers. Each encourages its suppliers
to attend industry organization conferences and participate in industry-
wide sustainability training. For instance, the 2014 AIAG Sustainability
Summit attendees were representatives of several global automakers
and suppliers that belong to tier-one; tier-two; and, to a lesser extent,
tier-three. These suppliers benefit from exchanging best practices with
peers and learning about industry-wide initiatives.
Most tier-one suppliers provide health and safety training to factory
workers. The workers we interviewed in Mexico, China, Taiwan, and
the United States confirmed their participation in this training, espe-
cially new workers or those who had undergone a major job change. For
almost all tier-one suppliers, there was no evidence of training for
general managers
9
on issues such as labor rights, human trafficking,
and employing migrant or student workers, even though these issues
recur in social audits. Because seven tier-one suppliers are members of
the industry organizations, they and their own (tier-two) suppliers
could benefit from these organizations’ sustainability training. Five
lower-tier suppliers provide health and safety training to their factory
workers, and a few confirmed their participation in industry-wide
sustainability training.
5.2.3. Setting and enforcing sustainability expectations in contracts
Our MNCs set clear expectations for their tier-one suppliers re-
garding respect for human and employment rights, compliance with
regulations, promotion of safety and well-being for employees, and
ethical behavior. Two MNCs have recently modified their terms; thus,
suppliers are contractually bound to these expectations, although this
modification has been difficult even for these sustainability leaders.
One sustainability director noted, “Our purchasing team likes the idea,
but the pushback is from our legal group.” We found that MNCs include
ROSS and REACH compliance in their contracts, indicating that non-
compliant suppliers will be removed. As a result, MNCs and their tier-
one and lower-tier suppliers work together to have the final product
meet these regulations. However, supplier compliance with labor re-
quirements is more difficult. After a first offense, the MNC assesses its
causes and works with the guilty supplier to rectify the situation. If the
offense is repeated, the MNC will impose some penalties or end business
with the supplier. As a supply chain social responsibility manager
stated, “We first aim to work out the issue with a supplier. In many
cases, we visit the supplier, train its personnel, and provide suggestions.
But suppliers are ultimately responsible for executing the needed
changes. Otherwise, we cancel their contracts.” For tier-one and lower-
tier suppliers, we found no evidence that their contracts include a
clause or stipulation regarding sustainability, mainly because of lack of
legal expertise, absence of control over contractual changes, and sus-
tainability not being a top priority.
5.2.4. Collaborating to deal with surprises
If their suppliers violate sustainability stipulations, MNCs contact
other affected, like-minded companies. One sustainability manager
said, “My counterpart at one of my competitors called me to ask whe-
ther I knew about the increasing number of accidents at one of our
common suppliers. I did my own investigation, and he was right! Later,
our companies united forces to press the supplier to improve its EH&S
management system.” The MNC and its supplier may also collaborate
when both are faced with an imminent threat. For instance, an elec-
tronics supplier received a major order that would have caused it to
violate the 60-h overtime limit. Its sustainability manager explained,
We didn't want to tell our customer that we can't produce its pro-
ducts, because otherwise it's going to try to find someone else that
can. But our customer didn't give us enough notice to hire enough
skilled people to do the job. At the end, we presented different al-
ternatives of our production schedule. . . . They understood that we
[could] not work [within] the 60-h limit given the short-time notice.
5.3. Assessing sustainability practices [dimension 3 in Fig. 3]
5.3.1. Conducting supplier sustainability assessments
Like others (e.g., Klassen and Vereecke, 2012;Porteous et al., 2015),
we found that the three MNCs survey their tier-one suppliers to assess
whether they comply with EH&S and labor standards. MNCs use either
an on-site audit or a self-assessment questionnaire developed by their
own sustainability team, industry organization, or a third party (e.g.,
Ecovadis). However, their assessments have two distinct features: (1)
they contain a few questions regarding sub-tier supplier sustainability
and (2) they are included in the MNC's supplier risk assessment and/or
supplier scorecard. A procurement director noted, “We believe the
[Ecovadis] self-assessment is solid. We make sure that somebody is
using the results from that score. The focus for future improvement is
coming out of the [Ecovadis] report.” This was confirmed by some tier-
one suppliers that agreed with the following statement: “In our Ecov-
adis report, our lowest score was on the sustainable purchasing section,
which has questions about our sustainability standards on our own
suppliers. We know that Ecovadis will assess our company again in a
9
General managers (GMs) have ultimate responsibility for plant workers'
health and safety. GMs do not always embrace sustainability. Thus, sustain-
ability professionals' priority is to provide sustainability training to their GMs
and work closely with them and their directors to drive changes.
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
78
year, and we better address this section now if we want to improve our
score.” The electronics MNC uses supplier audits based on EICC code of
conduct, which focuses on labor, EH&S, ethics, and management sys-
tems. This last topic includes mitigating supply chain risks and evalu-
ating processes to cascade MNC requirements to second-tier suppliers.
In all these assessments, MNCs periodically control whether their sup-
pliers comply with sustainability requirements (supplier sustainability
performance has improved over time) and whether these suppliers
monitor their own suppliers' sustainability performance (which has
been consistently rated very low, according to our field notes).
We found that 4 (out of 9) tier-one suppliers have implemented
similar assessments with their own (second-tier) suppliers, and these
four suppliers faced several barriers. One has developed its own sup-
plier self-assessment to ascertain if its suppliers comply with the cus-
tomer's ethics policy, disclose CO
2
emissions to the CDP program, and
have an EH&S program. Its purchasing director noted, “We have 215
from our 2000 suppliers that have completed this questionnaire. The
response rate has increased in the last two years, but we still have a long
way to go.” The other three suppliers use industry-wide standardized
assessments (e.g., EICC supplier audit and AIAG supplier self-assess-
ment) with a small percentage of their suppliers, but these three sup-
pliers also face challenges. Most interviewed lower-tier suppliers de-
clined to participate because they felt the information gathered in these
assessments is too sensitive and they were reluctant to disclose that they
do not comply with most of their customers' sustainability requirements
(field notes). Lower-tier suppliers also know that their customers (i.e.,
tier-one suppliers) do not penalize them because the data gathered is
not being used properly (in contrast with MNCs that include scores in
their supplier risk assessment and scorecard). As a result, only a small
group of lower-tier suppliers are being monitored; and even when they
are monitored, they do not suffer adverse consequences.
5.3.2. Managing supplier sustainability scorecards
The three MNCs have modified their scorecards to include labor and
environmental criteria, so their procurement managers periodically
track these criteria along with traditional outcomes. The advantages of
these scorecards are that suppliers know they are periodically mon-
itored on sustainability KPIs and that given equal quality, price, and
delivery, they can beat a competitor if their sustainability score is
higher. The best example is the automotive MNC's scorecard, which
includes two sustainability KPIs—an expenditure target for purchases
from minority suppliers and the supplier's score on a sustainability self-
assessment. If a supplier scores low on these KPIs, the purchasing
manager uses that information in the supplier review meetings and
follows up regarding corrective action plans. Interviewed suppliers
commented that the MNC closely work with them to develop action
plans, and they provided evidence of diverse projects on which they
embarked to improve KPIs that were in “red” or “orange.” Interestingly,
suppliers recognize that these KPIs are clear and objective and help
guide their efforts. As one manager said, “We serve the three U.S. au-
tomakers, and each has different requirements. However, [the MNC]
makes it easier for us because its expectations [referring two KPIs] are
clear. We now focus on how to improve them, whereas this is not ne-
cessarily true for other automakers.”
Many tier-one suppliers do not have a formal supplier scorecard.
Only 2 (out of 9) tier-one suppliers implemented a sustainability scor-
ecard for their own suppliers. Both are large, public firms and thus
receive pressure from their multiple customers (e.g., our MNCs' com-
petitors), investors, and NGOs. One of these suppliers noted, “We assess
whether our suppliers have contingency plans for earthquake, floods,
etc., whether they report to the CDP project, whether they confirm the
age of their employees. . . . But the human rights questions are a yes-no,
… knock-out criterion. If there is any violation, that's it …. the process
with this supplier stops.” The other supplier said, “Our suppliers take it
very seriously and they take pride in having a score that allows them to
be eligible for the supplier sustainability award. Two [of the 17
questions] are related to whether they monitor their own suppliers on
environmental and social matters.” Except for one lower-tier supplier,
we found no evidence of a supplier scorecard. Lower-tier suppliers'
procurement personnel noted that they monitor cost, quality and de-
livery, but several do not keep records of this monitoring. They ac-
knowledged that their monitoring does not include labor or environ-
mental criteria because they are not priorities for them and because of
lack of resources.
5.3.3. Closing corrective actions plans
After an EH&S and/or social audit/self-assessment, the MNCs and
suppliers need to demonstrate how they address any nonconformities.
In many cases, customers or third parties (e.g., industry organizations)
suggest a timeline for doing so, with contract renewal or membership at
stake. Depending on the violation's severity, a plan's implementation
may take from weeks to years and involve plant managers and senior
executives. For instance, if a plant has exceeded the allowed level of
water pollution, changing a filter may bring it back into compliance
within a few weeks. However, if overtime exceeds the permitted limit,
addressing this long-term problem will require several meetings with
plant representatives and customers. Although our MNCs and most tier-
one suppliers track the number of unresolved violations and their
progress, we observed that most lower-tier suppliers do not.
5.4. Managing sustainability risks and opportunities [dimension 4 in
Fig. 3]
5.4.1. Mapping the firm's supply network
Our three MNCs show a strong commitment to gaining more visibility
in their supply networks with the goal of identifying “potentially risky”
lower-tier suppliers and tailoring their risk-mitigation plans for them.
Two have invested in mapping their supplier networks with the help of
consulting companies and some of their strategic suppliers. Like Norrman
and Jansson (2004), we found that this mapping provides key informa-
tion about lower-tier suppliers: location (e.g., where they manufacture
their products), dependence (e.g., whether a lower-tier supplier has full
control of the flow of specific commodities), and risks (e.g., whether a
key part is manufactured in locations that are poorly regulated or are
prone to natural disasters). Furthermore, MNCs could discover oppor-
tunities based on this information. As a sustainability director said, “This
has been a great exercise for us. We now need to take actions on those
who are potentially risky. Collaboration with our top tier-one suppliers is
a priority; my team is now considering different options that were not in
the table before.” Some tier-one suppliers confirmed their participation
in the MNC's effort to map its supply network, believed that this effort
could increase transparency, and acknowledged the learning process.
One manager noted, “This shows the commitment of [our customer]. By
participating, we learned how they assess supplier sustainability risks
and how our own materiality assessment should look.” However, another
set of tier-one suppliers did not support mapping because they did not
trust the MNC. They echoed the following sentiment: “[The customer]
has asked us to participate on this, but who can assure us that they won't
use this information to transact directly with our own suppliers or share
such sensitive information with our competitors? I simply don't trust
them. In the past, they tried to gather the same information using other
means.” These suppliers consider their own suppliers' identity proprie-
tary information and often resist disclosing it to their customers, as
conflict minerals studies have shown (Hofmann et al., 2018;Kim and
Davis, 2016). We found only one tier-one supplier, Powertrain, that made
a similar effort to map its supply network. In all these cases, the pro-
minent barrier is the lack of trust in those mapping their supply net-
works. Among lower-tier suppliers, we found no evidence of attempting
to create a supplier network map.
5.4.2. Conducting a risk assessment program
Because stakeholders hold MNCs responsible for unfair conditions
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
79
within their supply chains (Hofmann et al., 2014), MNCs assess their
suppliers based on multiple criteria and develop sustainability risk
strategies to minimize reputational consequences (Busse et al., 2016;
Foerstl et al., 2010;Hajmohammad and Vachon, 2016). In our study,
tier-one suppliers are assessed on financial stability, business volume,
commodity type, location, environmental risks, and labor issues. After
suppliers are ranked (from high to low risk) or classified (red versus
green), MNCs choose the type of risk-mitigation strategy—a colla-
boration-based or a control-based approach or both (Hajmohammad
and Vachon, 2016). As a sustainability manager noted, “For those
suppliers at the highest level of our risk assessment, we do a most
rigorous review. After collecting proper information, we determine
where we can help most. After our intervention, the supplier should
overcome its issues. If that doesn't happen, we stop doing business with
them.” In one exceptional case the pharmaceutical MNC extended its
risk assessment to include lower-tier suppliers identified through its
supply network map. Such suppliers are also classified based on risk
potential; and that MNC has developed a few three-way partnerships
(MNC, tier-one supplier, lower-tier supplier) to address the identified
risks.
Only two tier-one suppliers, Powertrain and Seat, have developed a
risk assessment tool. These are companies with global operations that
have experienced major supply disruptions from natural disasters, po-
litical instability, or customer pressure. These suppliers modified their
tools to include more precise measures of their suppliers’ social and
environmental performance as part of their overall risk assessment. In
one exceptional case, a lower-tier supplier, Tronics, has formed a spe-
cific team dedicated to work with its “risky” Chinese suppliers. Our
interviews with three members of this team highlighted how each one
conducts EH&S on-site audits, provides in-situ training, and keeps
monthly progress records. This supplier has cut ties with a few suppliers
that have not redressed their labor and environmental non-con-
formities. This particular case illustrates that this supplier uses multiple
rather than single risk-mitigation strategies (Hajmohammad and
Vachon, 2016).
5.4.3. Managing crisis
All three MNCs have experienced crises such as labor strikes, en-
vironmental scandals, or natural disasters. To mitigate the con-
sequences of such crises, they develop plans with clear goals, nominate
a spokesperson responsible for delivering a consistent message, form a
multifunctional team, and communicate to all affected stakeholders.
Because of their global operations, they also must coordinate efforts
between affected plants and their corporate offices. As a manager
noted, “During the last crisis, we coordinated closely with the affected
plants and delivered a consistent message by my vice-president in the
U.S. and the general manager in China. We also consulted with a group
of advisors. This helped us mitigate the consequences of this crisis.”
Another manager related, “My company and more broadly the auto-
motive industry was greatly impacted by the earthquake in Japan a few
years ago. Competitors and I worked closely with [affected suppliers] to
switch our components to unaffected plants.” Tier-one and lower-tier
suppliers sometimes adopt a similar approach but are less sophisticated.
The type of response depends on supplier size, operations, and the
magnitude of the crisis.
6. Findings 3: comparing sustainability practices across MNCs,
tier-one and lower-tier suppliers
As described in detail above, MNCs display both proactive and re-
active sustainability practices. They not only have long-term sustain-
ability goals that include their upstream suppliers and dedicate con-
siderable resources to achieve them, but also employ practices that
allow them to go on the offensive during a crisis. First, they have a
hands-on approach to manage sustainability in their supply networks
by offering diverse supplier sustainability training, by collaborating
with diverse stakeholders and extending invitation to suppliers to do
likewise, and by enforcing their sustainability requirements con-
tractually. Second, they conduct periodic supplier sustainability as-
sessments, monitor supplier sustainability scorecards, and work with
their supplier to take corrective actions. Third, they have mapped their
supply networks to the best of their capabilities and have built robust
risk management programs in which they assess their suppliers' sus-
tainability risks. These characteristics show MNCs’ commitment to
managing sustainability in their supply networks.
In contrast, tier-one suppliers are primarily reactive. Several have
successfully responded to the MNCs’ sustainability demands whereas
others struggle to comply with such demands. All these suppliers tend
to have an “inward-looking” view of their sustainability goals—in that
the sustainability of their supply chain is not a priority. For instance,
they often offer health and safety training to their factory workers, but
do not make such training available to their suppliers. These suppliers
have more limited resources, so they take advantage of the sustain-
ability training offered by their customers and/or an industry associa-
tion. Only two tier-one suppliers, Powertrain and Seat, show some level
of proactivity, because they have established some long-term sustain-
ability goals, conduct periodic supplier sustainability assessments, and
include their suppliers in their risk monitoring/mapping tools. These
two suppliers include sustainability as part of their corporate strategy;
however, they are also cognizant of the high pressure to deliver profits.
Finally, lower-tier suppliers are overwhelmingly passive in their
orientations toward sustainability. They do not address their labor and
environmental issues because they do not perceive that they will be
penalized for not doing so. They do not monitor the sustainability
practices of their own suppliers because there is no pressure to do so.
Their top managers prioritize mainly the profit dimension and will re-
spond to labor and environmental issues only if MNCs or customers
become involved. Among 22 participating lower-tier suppliers, only
one, Tronics, shows a long-term orientation of its EH&S program; but
again, the high pressure on profits force even this supplier to dedicate
only modest resources. To date, Tronics has monitored sustainability
only in its Chinese suppliers because of limited resources (although
other suppliers have also been ranked as “high risk”). This supplier has
made a few steps in the right direction due to high pressure from sev-
eral downstream customers in different industry sectors that prioritize
sustainability of their supply chains.
7. A grounded theoretical model for managing a sustainable
supply network
The grounded theoretical model for managing a sustainable supply
network appears in Fig. 4. It involves three core processes: assessing
sustainability practices, building sustainability capability, and managing
sustainability risks and opportunities. All three processes are recursively
interrelated as indicated by the reciprocal arrows interconnecting them,
indicating that managing sustainability in a supply network is a com-
plex effort that cannot be adequately depicted in terms of linear, causal
relationships (Senge et al., 2008;Slawinski and Bansal, 2015). Instead,
there is interplay and periodic feedback among the three core processes.
Such reciprocal relationships are common to the three MNCs, which are
all sustainability leaders that have learned not only by trial and error
but also vicariously by benchmarking sustainability practices within
and outside their industries.
The reciprocal arrows between the assessing sustainability practices
and building sustainability capability dimensions indicate that both are
mutually interdependent (e.g., the results of a supplier's social audit
might suggest deficient sustainable procurement processes and, thus,
could be subsequently included in the MNCs' supplier training. Upon
delivering this training, the MNC could re-assess its supplier and ex-
amine whether its sustainable procurement processes have improved).
Similarly, the recursive relationship between building sustainability
capability and managing sustainability risks and opportunities indicates
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
80
that both dimensions are reciprocally interdependent (e.g., an MNC can
dedicate resources to build supplier sustainability capabilities that in-
clude managing lower-tier suppliers only if it first knows some of the
sustainability risks these suppliers entail; in doing so, the MNC could
then identify new risks not previously considered). The reciprocal ar-
rows between assessing sustainability practices and managing sustainability
risks and opportunities indicate that the results of a MNC's risk man-
agement program can help determine the types of assessment suppliers
should receive and that the results of a supplier assessment showing low
social and/or environmental performance could serve as input to revise
a firm's risk management program. The three MNCs exhibited this
pattern of recursive processes over this research period as they adjusted
and fine-tuned each process in attempting to manage lower-tier sup-
plier sustainability. MNCs engage a group of its tier-one suppliers to
cascade their requirements to lower-tier suppliers, but this engagement
still represents a challenge because these suppliers often struggle to
comply with such requirements and because most lower-tier suppliers
passively address their social and environmental issues.
The model also depicts a fourth dimension, committing to a sustain-
able supply network, as an antecedent to the three core processes.
Perhaps unsurprisingly, the three MNCs exhibit a high degree of
proactivity in pursuing sustainability throughout their supply networks
(because each MNC is an acknowledged sustainability leader in its in-
dustry). They consider the network of suppliers when developing a
sustainability strategy and commit resources to implementing sustain-
able practices; they have long-term sustainability goals; and they pro-
vide incentives to tier-one suppliers that comply with MNCs' sustain-
ability requirements, particularly if they cascade such requirements to
their own suppliers. Even if tier-one suppliers are capable of cascading
MNCs' requirements to lower-tier suppliers, MNCs must reward them
for doing so. The interplay of these four dimensions constitutes a the-
oretical framework rooted in MNCs’ demonstrably effective processes
and, thus, provides a comprehensive approach to managing sustain-
ability throughout a supply network.
8. Discussion and future research directions
This study offers three contributions to the sustainable supply chain
management literature: (1) it provides empirical evidence indicating that
lower-tier suppliers are likely to be a supply network's riskiest members
and reveals that they generally tend to address social and environmental
issues passively; (2) it proposes a comprehensive grounded-theoretical
framework for managing sustainability throughout a supplier network,
based on practices developed by sustainability leaders in their industries;
and (3) it identifies supply network members' three predominant re-
sponses—passive, reactive, and proactive—that influence how each
member manages sustainability within its operations and with its sup-
pliers. Thus, by including the perspectives of MNCs, tier-one suppliers,
and especially lower-tier suppliers, and by accounting for the 3Ps, we
aim to bring more attention to the risks associated with lower-tier sup-
pliers and propose a practice-based theoretical framework for managing
sustainable supply networks, both of which have important future re-
search implications.
8.1. On the precariousness of lower-tier suppliers
In addition to the obstacles MNCs face in engaging lower-tier sup-
pliers, such as lack of information and resources, as well as power and
trust asymmetries (Grimm et al., 2014;Hofmann et al., 2018;Kim and
Davis, 2016), this study reveals a notable passivity that lower-tier
suppliers exhibit regarding social and environmental issues. Our find-
ings show that many tend not to address these issues of their own vo-
lition, mainly because they so far perceive no consequences for not
doing so. They are often unknown firms with no pressure from the
media; and even when they are monitored (e.g., by CEREAL), they tend
to take actions only if MNCs and/or customers intervene. Like other
researchers (Grimm et al., 2014;Tachizawa and Wong, 2014), we also
find that these suppliers are often smaller firms with limited resources,
lack sustainability expertise, and operate in countries with less stringent
labor and environmental laws, all of which constitute reasons con-
tributing to their passivity. Their environmental and social performance
is not well monitored by either MNCs or the MNCs' tier-one suppli-
ers—several of which struggle themselves to comply with the MNCs’
sustainability requirements. Yet, the world is changing. Media and
other social movements suggest increasing concern for people and
planet issues, so the current passivity toward addressing social and
environmental issues is unlikely to be a viable approach in the not-too-
distant future.
Because of this passiveness, existing theories about how suppliers
adopt sustainability may not actually apply well to lower-tier suppliers.
For example, we rarely observed “internal championing for environ-
mental management” (Lee and Klassen, 2008) or “social innovation
capabilities” (Klassen and Vereecke, 2012) among lower-tier suppliers.
Because a supply network is only as strong as its weakest link, it is im-
perative to focus on those that pose more sustainability risks to the
supply network. More research is needed to better account for lower-tier
suppliers to learn more about their behaviors and challenges, as well as
the factors that support or oppose sustainable practices among them. The
key is to collect data on how lower-tier suppliers adopt the MNC's or
industry's sustainability standards. We recognize the daunting effort (in
terms of time, budget, language skills, etc.) of doing so, however.
Our grounded research identified one exception among 22 lower-
tier suppliers. Besides being a large, public firm, Tronics participates in
all three supply networks and, thus, has access to diverse in-
formation—it is a “nexus supplier” (Yan et al., 2015). This situation
coupled with the fact Tronics knows that most of its downstream cus-
tomers are committed to improving their supply chains' social and en-
vironmental performance have contributed to its proactivity regarding
Fig. 4. A grounded theoretical model of managing a sustainable supply network.
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
81
sustainability. Likewise, we observed how the increasingly common
consolidation of supply bases makes it more difficult for suppliers with
higher growth rates to continue their environmental and labor in-
itiatives (because of limited resources, complexity added by the ac-
quisitions, and strong cost-reduction pressures). This finding contrasts
with Klassen and Vereecke's (2012) work, which suggests that vertical
integration of a firm's downstream supply chain partners might have
positive social implications (e.g., improved product safety). This con-
trast could be because upstream suppliers usually have fewer resources,
face stronger cost reduction pressures, and are less exposed to external
stakeholder demands compared to downstream customers. We did not
intentionally study a nexus supplier or the implications of supply base
consolidation. These phenomena surfaced during our research, how-
ever, and revealed some novel insights with implications for future
research. Scholars could investigate, for instance, how supply base
consolidation might affect a buying firm's sustainability performance or
other factors that induce nexus suppliers to be key players in cascading
sustainability throughout a supply network. Finally, our finding that
labor issues differ across countries implies that researchers need to
more deeply investigate the variations of social issues across national
settings among suppliers in emerging countries. Also, the health and
safety deficiencies found in lower-tier suppliers in the United States
challenge the belief that suppliers operating in a more stringent reg-
ulatory environment are likely to have better labor practices. That these
lower-tier suppliers are the least compliant, least monitored, least well-
equipped concerning sustainability suggest that they are indeed a
supply network's riskiest members.
8.2. Toward a theory of sustainable supply networks
Although some empirical work on supply networks has been done
using complex adaptive system theory (e.g., Choi et al., 2001;Choi and
Hong, 2002;Kim et al., 2011), its focus has been mainly on only one
sustainability pillar: profits. In this study, we intended to advance this
research stream by including the other two pillars: people and planet.
Accounting for all 3Ps in managing a supply network requires a dif-
ferent mindset, even for such sustainability-savvy MNCs as those stu-
died here. For instance, if MNCs use a directed sourcing strategy (i.e.,
demanding that top-tier suppliers work with a pre-selected group of
lower-tier suppliers), the operational and technical capabilities of these
suppliers clearly need to be thoroughly assessed. Their social and en-
vironmental capabilities also need to be evaluated, even when MNCs
anticipate that they could end up with a smaller set of compliant lower-
tier suppliers and when MNCs’ sustainability agendas might not pay off
in the short term, especially for the social and environmental initiatives.
Choi et al. (2001) noted that firms that deliberately manage their
supply networks through both control and emergence outperform firms
that try to manage their supply networks by either control or emergence
alone. Our framework for managing a sustainable supply network af-
firms this premise. The three MNCs exercise both control and emer-
gence through their sustainability practices. In particular, the most
proactive practices (e.g., asking suppliers to set up their own long-term
sustainability goals) allow suppliers to have some level of autonomy in
identifying their major sustainability challenges and in developing ap-
propriate capabilities (rather than imposing the same sustainability
standard on all suppliers). This study reveals, however, that many
lower-tier suppliers do not prioritize the social and environmental di-
mensions; thus, such suppliers are less likely to develop breakthroughs
for improving labor conditions or reducing green gas emissions by
themselves (as they can do with breakthroughs in product quality, for
instance). Past studies suggest that environmental innovation can
emerge from a supply network (Nair et al., 2016); in our sample of 22
lower-tier suppliers, however, this type of innovation is the exception
rather than the norm. To see improvements in a supply network's social
and environmental dimensions, buying firms could (1) exercise more
control than emergence (at least until upstream suppliers become more
sustainability-mature) and (2) embrace more complexity because the
addition of people and planet dimensions creates new challenges in
managing supply networks (in addition to horizontal, vertical, and
spatial complexity inherent in the three supply networks we studied
(Choi and Hong, 2002)). Fortunately, some MNCs are already working
toward that end. Researchers are also called to embrace complexity
(e.g., going beyond the buyer-supplier dyads and embracing 3Ps
jointly) in their sustainability research agendas to address the kinds of
conundrums that practitioners face.
We identify four major dimensions that serve as the basis for our
grounded theoretical framework (see Fig. 4). Few of the practices in this
framework are individually revelatory; instead the revelation is in the
constellation of practices that sustainability leaders use to manage their
supply networks, as well as the distinct attributes of the three core di-
mensions. First, each includes how MNCs manage sustainability in both
tier-one and lower-tier suppliers (e.g., managing a sustainability KPI that
has specific spending targets for sub-tier suppliers), suggesting that MNCs
have a hands-on approach to managing their supply networks. Most
proactive practices require collaboration across several functions within
the firm (e.g., risk management and EH&S) and across external stake-
holders (e.g., industry associations); thus, our theoretical framework
adopts a more integrative perspective by going beyond analyzing specific
supply chain functions (Grimm et al., 2016). Second, assessing supplier
sustainability and building supplier sustainability capabilities were es-
sential. Both practices have been suggested in buyer-supplier dyads
(Klassen and Vachon, 2003;Vachon and Klassen, 2006) and supply
chains (Brockhaus et al., 2013). Extending these studies, our research
shows that MNCs use both practices, but they do not do it alone. By
joining efforts with industry associations, MNCs seek to standardize
sustainability assessments and provide sustainability training with effi-
ciencies for both sides—MNCs and suppliers, especially when MNCs help
tier-one suppliers become members of these associations. If so, such
suppliers can use industry-wide sustainability assessments with their own
suppliers and invite them to benefit from industry-wide learning op-
portunities. Third, the recursive relationships among the three core
processes are fundamental to understanding how MNCs account for
feedback loops. Scholars are attempting to understand a very complex
phenomenon (encompassing the 3Ps and multiple supply network
members), which is unlikely to be adequately understood in terms of
simple linear effects. The three MNCs account for reciprocal feedback
loops that they employ to enact sustainability (Weick, 1995). Enactment
implies that actions by one party affect those of related parties and,
therefore, inevitably involve recursive interrelationships. When an MNC
takes an action affecting their suppliers, those suppliers' subsequent ac-
tions are likely to lead the MNCs (and perhaps lower-tier suppliers, as
well) to assess its own actions' consequences and the suppliers' responses.
The MNC and all affected suppliers then re-assess consequences and
decide on further action. These interrelationships imply a context that is
not only complex, but also dynamic, uncertain, and ambiguous. In future
research, supply chain scholars should use not only more longitudinal
research designs capturing these feedback loops but also measures ac-
counting for lower-tier suppliers’ actions. They could also test in a large-
scale survey the effectiveness of our theoretical framework or collaborate
with industry organizations to collect data on suppliers located in dif-
ferent tiers and analyze how industry-wide standards cascade thorough
the supply network.
The theoretical dimension, committing to a sustainable supply net-
work, is characteristic of the three sustainability leaders we studied and
is a probably a necessary hallmark for any firm concerned about sus-
tainability. This commitment serves as the foundation for MNCs to
implement their core sustainability processes. Each has dedicated per-
sonnel to extend its sustainability agenda to suppliers, set long-term
goals for its operations and suppliers, and provided incentives to its
suppliers that help them achieve the MNC's sustainability goals, parti-
cularly if they cascade such requirements to their own suppliers. In fact,
all three MNCs have a long-term approach to sustainability that
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82
contributes to their resilience (Ortiz-de-Mandojana and Bansal, 2016).
They also adjust and fine-tune their sustainability practices, however,
because achieving lower-tier supplier sustainability is a long-term
project for them.
8.3. Passive, reactive and proactive
Our research approach generated a different way of understanding
the sustainability-related actions of supply network members, espe-
cially the (non)actions of lower-tier members. We tend to think about
firms’ actions dichotomously—as either proactive or reactive. This
method of categorizing an important phenomenon, however, does not
account for what we observed for most of our participating lower-tier
suppliers, which could not be described according to a proactive/re-
active scheme concerning social and environmental sustainability.
Rather, their stance toward these issues is much better described as
passive. Because passive does not appear in traditional depictions,
supply-chain researchers should pay even more attention. In other
words, like the postmodern stance that exhorts researchers to focus on
not only what is said, but also what is not said (Rosenau, 1991), supply
chain researchers should focus on both what is evident (reactivity and
proactivity) and what is less so (the passivity of lower-tier suppliers).
Our analysis identified three types of responses—passive, reactive
and proactive, each based on two key factors: temporal focus and re-
source commitment (see Fig. 2). Temporal focus is at the heart of sus-
tainability research because tensions between short-term business in-
terests and long-term societal interests are well-known (Ortiz-de-
Mandojana and Bansal, 2016;Slawinski and Bansal, 2015). Resource
commitment is also important because sustainability initiatives and
practices require important investments of financial and human re-
sources (Sethi, 1979;Sharma and Vredenburg, 1998), not only to
maintain profits, but also to account for people and planet concerns.
Each of these factors has been explored separately in sustainability and
CSR research focusing mainly at the single-firm level. This research
suggests, however, that both temporal focus and resource commitment
are important in combination.
The MNCs we studied are perhaps best described as “ambidextrous,”
in that they use both proactive and reactive processes to manage sus-
tainability with their tier-one suppliers. MNCs employ both processes to
allow them to implement more integrated solutions with long- and
short-term time horizons, as well as to invest resources in their de-
ployment. Several tier-one suppliers use predominantly reactive pro-
cesses to manage their lower-tier suppliers. The few that have some
proactive practices are large, public suppliers whose top executives
support having an EH&S program and collaborate with MNCs to engage
lower-tier suppliers. Most of the 22 lower-tier suppliers we examined do
not use such processes. This finding is revelatory on a conceptual level
and troubling on a practical level. Many first-tier suppliers simply react
to sustainability violations as they arise. In contrast, many lower-tier
suppliers usually do not act without MNC and/or customer interven-
tion. Their passivity makes them vulnerable to penalties, law suits,
contract cancellations, and negative publicity that can threaten their
survival.
8.4. Practical implications
MNCs must devote resources to managing sustainability in lower-
tier suppliers, even if only for risk-control purposes. The sustainability
leaders we studied exhibit the following best practices. First, they have
created a supportive organizational structure to manage sustainable
supply networks. Second, besides their comprehensive supplier assess-
ments, the three MNCs invest in building sustainability capability for
their suppliers. For instance, offering sustainability training (through
MNC–supplier, supplier–supplier, and industry organization–supplier
interactions) is vital. Their suppliers recognize these learning oppor-
tunities as major drivers of their own sustainability agendas. The MNCs
also partner with industry and international organizations to tackle
social and environmental challenges and encourage tier-one suppliers
to do likewise. Third, they have supply-network mapping and risk-
management programs that help them improve their visibility with
lower-tier suppliers. Yet, they must reinforce collaboration with their
tier-one suppliers to cascade their sustainability requirements
throughout their supply networks. Despite their high commitment, they
recognize that there is room for improvement and that their feedback
loops will help them develop more robust processes over time.
This research also suggests actions for suppliers. Although tier-one
suppliers are fully aware of MNC sustainability requirements, many
lower-tier suppliers are not. Several tier-one suppliers are struggling to
fulfill these requirements, and some are still skeptical of whether the
MNC's sustainability effort is genuine. We recommend that suppliers
become more proactive to protect themselves. If they continue relying
mainly on reactive practices, they will soon experience the real sus-
tainability risks to which they are exposed—not just some vaguely
conceived public disfavor, but termination of contracts and even loss of
operating licenses. Their inward perspective also puts them in a vul-
nerable position because their suppliers' misconduct could have severe
consequences. Lower-tier suppliers' passivity in addressing social and
environmental issues is striking, but that worrisome stance could
change if tier-one suppliers become more proactive in their sustain-
ability orientations.
The old bumper-sticker advice “think globally, act locally” sum-
marizes the practical implications of our findings. The three MNCs set
sustainability targets for their tier-one suppliers, monitor them peri-
odically, and provide training and incentives to suppliers so they pass
down such sustainability practices. This strategy is not only econom-
ically feasible (because an MNC cannot monitor tens of thousands of
tier-two suppliers directly) but also efficient (because tier-one suppliers
know their own suppliers’ operations and challenges better than the
MNC does). If this strategy is coupled with key partnerships with in-
dustry and international organizations as well as NGOs, the require-
ments of the MNC can have a global effect on its supply network.
9. Conclusion
Many MNCs take sustainability management seriously and have
experienced some notable successes in managing their first-tier sup-
pliers. The greatest risk is in the lower tiers, however. A supply network
cannot be sustainable if lower-tier suppliers are not addressing their
social and environmental issues. Our main goal was to propose a
grounded framework for managing sustainable supply networks; this
goal is relevant for both theory and practice (Thomas and Tymon,
1982). Yet, this study represents only a first step in reaching this am-
bitious goal. Indeed, our findings based on three sustainability leaders’
supply networks may underestimate the real magnitude of sustain-
ability-related challenges because other MNCs might have less mature
sustainability programs and their suppliers might be even less com-
mitted than those we studied. Nevertheless, we hope to begin a con-
versation about the focus of future sustainability research. It is time for
sustainability researchers to consider lower-tier suppliers in more
depth.
Acknowledgement
We are grateful to the factory workers, managers, directors, and
vice-presidents of all participating companies, as well as representatives
of industry organizations and NGOs for the time they devoted to our
research. We are also grateful to Forrest Briscoe (Penn State
University), Terry Harrison (Penn State University), Mark Barratt
(Marquette University), Lance Ferris (Michigan State University) and
research seminar participants at the Johnson Graduate School's OM
department (Cornell), the Mendoza College of Business's ITAO depart-
ment (Notre Dame) and Saïd Business School's TOM department
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
83
(Oxford) for comments and suggestions on earlier versions of this
manuscript. We would also like to thank the Sustainability Research
Initiative at the Smeal College of Business of the Pennsylvania State
University for financial support in the development of this research.
APPENDIX. 1a. Interview instrument for companies
a) About the company's sustainability program
What is the overall sustainability strategy for your company?
What are the key priorities in your sustainability strategy?
o Environment: (e.g., waste reduction, energy use reduction, etc.)
o Health and safety (e.g., reduction of accidents, well-being of workers, etc.)
o Social: (e.g., human rights, working conditions, diversity, etc.)
How does your company deploy this strategy? What is the infrastructure that your company has to implement its sustainability strategy?
b) About sustainability initiatives with (first-tier) suppliers
Does your company have any specific sustainability practices/processes for your suppliers? What are they? How do you deploy them? Please
explain.
Does your company have a systematic approach to assess the benefits of these practices/processes?
What are the major barriers when deploying these practices/processes?
Does any third party (e.g., industry organizations, NGOs, etc.) play a key role in your sustainability practices/processes with your suppliers?
c) About sustainability initiatives with lower-tier suppliers
What do you know about your second- and third-tier suppliers?
How does your company ensure that such suppliers comply with your sustainability standards?
APPENDIX. 1b. Interview Instrument for NGOs
Which are your major responsibilities in this organization?
What are the major initiatives your organization have to improve environmental/labor conditions of companies? How closely do you work with
these companies?
Please describe the relationship with company [Name]. Do you have any open case(s) with company [name]? If so, please describe them
What are the long-term sustainability plans for your organization?
APPENDIX 2. Representative informant quotes underlying second-order dimensions
Dimension 1: Committing to A Sustainable Supply Network
Having a supportive organizational structure “My executive steering committee and I [Sustainability director] meet quarterly. I
meet with them to make sure that my group continues with their direct support.”
“The biggest challenge I think we face as a company right now is on expanding the
sustainability initiatives farther down in the supply chain than what we have today.
My group [Sustainable procurement] is working to achieve it.”
“My major responsibilities is to have an integrated sustainability strategy for our
supply chain and coordinate with different functions [such as risk management and
EH&S] so this strategy is effectively implemented”
Setting long-term goals for the firm and its (tier-one and
lower-tier) suppliers
“Many of them are 2020 goals, and there are a few that are specific to our suppliers.
With this long-term perspective, we are seen and appreciated as a leader in
sustainability.”
“There were a few key commitments that we agreed upon, but one was on setting
longer term goals. One set of such goals is dedicated to supplier sustainability. Our
company has specific metrics and we conduct an annual review of these metrics.”
“We require that our [strategic tier-one] suppliers conducted a business continuity
assessment. Based on this assessment, they should select two sustainability goals that
are relevant to their business and then publicly report such goals. Last year, we have
more than 75% of such suppliers that accomplish this goal.”
Incentivizing sustainability commitment to suppliers “We have an award ceremony, where all winner suppliers are presented and
recognized in front of the whole industry.”
“Last year, we organized our first council with our strategic suppliers to brainstorm
how we can work together to engage our sub-tier suppliers.”
Dimension 2: Building Sustainability Capability
Collaborating with key stakeholders (e.g., NGOs,
industry and international organizations, etc.)
“One of the industry group that we work with heavily is called AIAG. My team is very
active on the AIAG corporate responsibility group. To date, we use its supplier self-
assessment questionnaire and training.”
“I have a full-time employee dedicated to be our liaison with EICC. Our company was
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
84
one of the founding member of this organization. We are committed to its code of
conduct and participate in its different group. We also promote our suppliers to
become EICC members.”
“We are members of RX 360 and support the activities that they do. For example, we
comply with its standardized member audits. We also work with API. We have
leveraged its supplier training in Asia and India, as suppliers in these two countries are
a big concern for us.”
Offering sustainability training for (tier-one and lower-
tier) suppliers
“We perceived that suppliers in the Asia pacific region are in need of most health and
safety training, and we partnered with industry efforts such as PSCI to do it.”
“Sometimes, we hold supplier sustainability panel here, while at other times, it is
hosted by our suppliers. It works as a two-way channel … companies present
something that they are doing on sustainability. Here is our overall program, or here is
something that we did, and we want you to know about it. This panel is a non-
confrontational platform that was oriented towards sustainability.”
“We use a small group of preferred suppliers to test some of our sustainable purchasing
initiatives. Our resources are limited so we piloted such initiatives with this group and
then rolled out such initiatives to our supply base.”
Setting and enforcing sustainability expectations in
contracts
“Our lawyers are not going to include a stronger message in our contracts unless we
are willing to step up to that.”
“We can't afford to be associated with such misbehavior [referring to precarious
working conditions on suppliers]. This is why our contract explicitly includes
sustainability requirements. If a supplier can't comply with them, there will be
consequences.”
“We removed a group of repeated offenders. They did not show a genuine commitment
to address their problems.”
Collaborating to deal with surprises “We reach out to our suppliers and customers when we face a supply disruption. We all
work together to mitigate its consequences.”
Dimension 3: Assessing Sustainability Practices
Conducting supplier sustainability assessments (e.g., self-
assessments, audits, etc.)
“Our industry has its own supplier self-assessment and my company and a few others
have adopted it. To date, we require that all our suppliers complete this industry-wide
self-assessment.”
“In the Ecovadis assessment there is a section called sustainable procurement so our
expectations can cascade our suppliers' suppliers. It is scored individually along with
the environmental section, labor section, and fair business practice section.”
“If there is a need for an environmental protection or health and safety audit, we will
then complete the audit internally using internal resources. If there is a need for an
audit for labor practices or ethical business practices, we then outsource it through a
couple preferred vendors like Intertek, Bureau Veritas and SGS.”
Managing supplier sustainability scorecard “To incentivize our suppliers, we have a sustainability criterion that makes up 5% of
their scorecard rating along with quality, delivery, and cost.”
“We have a specific KPI for our supplier diversity spend—our (tier-one) suppliers
needs to purchase 7% of their total spent from minority (lower-tier) suppliers. If we
didn't push for this KPI, the success of our supplier diversity program throughout the
supply chain wouldn't happen on its own.”
“Our company issues supplier scorecards quarterly; however, our commodity
managers monitor this more carefully. They keep track of suppliers' performance and
take corrective actions if necessary.”
Closing correcting action plans “If my supplier has non-conformities in our audit, it has to set corrective actions. We
follow-up on those corrective actions in our next visit/meeting.”
“Our category managers will work with the suppliers to ensure that the checklist of
non-conformities is being worked on. Once it is resolved, they will let us [the
sustainability team] know the action plans that were completed.”
Dimension 4: Managing Sustainability Risks and Opportunities
Mapping the firm's supply network “As part of our materiality assessment, we began mapping the supply network for our
critical products. We have not only identified our lower-tier suppliers for such
products are but also learnt about their interdependences.”
“Last summer, we conducted a pilot test for mapping our supply network of one of our
electronics sub-systems. We learnt a lot about our tier-two/three suppliers during this
process. We are now evaluating a consulting company to help us map our supply
network to a large scale.”
“My team [procurement] and our strategic suppliers brainstormed all day long in our
first supplier sustainability conference, and they come up with new good ideas that are
doable in the long-term.”
Conducting a risk assessment program “We have an enterprise risk management process that we do across our organization.
Particularly, there is supply chain risk management process that is specific to how we
decide which suppliers we are more concerned about. This process is based on several
V.H. Villena, D.A. Gioia Journal of Operations Management 64 (2018) 65–87
85
criteria … If there is a supplier who floats to the top, that supplier will get an outside
audit and, then, a risk mitigation plan. Now they are in our territory.”
“Our [purchasing] team along with our business continuity team have developed a
comprehensive risk management program that include our suppliers. We are now
considering how to include those lower-tier suppliers that we know little about.”
“The audit, the onsite type, is reserved for either high-risk or new suppliers. Also, the
most important categories such as external manufacturing and active ingredients will
have the highest priority.”
Managing crisis “We have a few cases of labor scandals, and our team is evaluating their impact on our
company reputation.”
“My company was greatly impacted by the earthquake in Japan a few years ago. We
had several suppliers in that region. A major supply disruption was an eminent treat.
Competitors and I worked closely with these suppliers to switch our components to
unaffected plants in other countries. There was a full-time dedicated team to monitor
it.”
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... Private governance mechanisms such as social auditing, codes, sustainability standards, and certifications have emerged as tools essential to improve working conditions in global value chains (GVCs). However, while these mechanisms have influenced tier-one suppliers, they have failed to affect lower-tier ones (Anner, 2020;Gold et al., 2015;Soundararajan & Brammer, 2018;Villena & Gioia, 2018). As a result, it is common for workers in the lower tiers of GVCs to operate under unsafe and unfair working conditions. ...
... By doing so, they avoid having to engage in any efforts or to divert any resources toward compliance. Research and reports have asserted that hidden supply chains are where the most horrific labor abuses happen (Villena & Gioia, 2018). MNEs do not have the local capabilities needed to track down hidden supply chains, and the local authorities of many developing economies do not scrutinize them. ...
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In this paper, I discuss the dark side of the cascading compliance model predominantly used by multinationals to improve working conditions in global value chains. Further, I discuss the origins of such dark side. Finally, I argue for the move from cascading compliance to a shared responsibility model for the improvement of working conditions in global value chains.
... This section will focus on this question. Following the work of Villena et al. [45], this research adopts the supply network as unit of analysis but considering the different phases that the supply chain of a textile product can have, and the impacts that these products and their associated processes can produce along its life cycle. ...
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