Assignment 2 Trip Trap

Case Study #2: Trip Trap Hanna Eliasson, Junyan Guo, Patrick Thorpe, Bunntip Chanchumrat, Trisith Kittisriswai GI605 Logistics & Operations Management for Decision Making Asst. Prof. Dr. Suntichai Kotcharin Thammasat Business School IMBA - October 16, 2015

1. (Junyan Guo #5802060011) What do you think: was Trip Trap so committed to doing ethical business because it thought it would gain more profit that way or was it more of a philanthropic ideology for the company? Also why the profit of the company has been reduced in 2012 although the company has implemented the code-of-conduct? Is it valuable to track every supplier performance? Discuss. There is no doubt that the purpose of any business is to make profit. As a consequence, there is no doubt that Trip Trap’s strategy is definitely to make more profit. However, the way that a business makes profits matters a lot. With a short view, putting so much effort on CSR might not be a good choice in terms of making quick profits. However, by doing business with a long term view, a sustainable business will always be the one who shares the profit with society, instead of the vampires who just suck the blood from society. As a consequence, it is a very good strategy for Trip Trap to invest in CSR. By showing concern to the society, Trip Trap will be accepted and admired by society. The governments at suppliers will appreciate Trip Trap for the effort of helping the country take care of the citizens. The staff at suppliers will appreciate Trip Trap for protecting their rights and offering better work conditions. The suppliers will even benefit from Trip Trap’s initiative since Trip Trap brought a very advanced operation system to them, which is helpful for a long term development. In the end, Trip Trap’s customers will realize how much effort Trip Trap put into CSR, and they will be very impressed. Trip Trap started introducing code-of-conduct audit to the supply system in 2011 when they hired Lindekilde. Based on the article, Trip Trap spent much capital on doing the audit. Thus, this may have contributed to the fact that the profit of 2011 and 2012 was not high. It is very ethical and responsible to track suppliers’ performance. However, it is not a costefficient way of doing business. Also, it is not effective to inspect and control the production since Trip Trap’s bargaining power is small. It would be a more effective and efficient method for Trip Trap to build up a league with other business. Then, the power of the league would be much stronger and the cost of inspection would be much lower for each member as well. 2. (Bunntip Chanchumrat #5702043133) How would you describe the relationship between the buyer, Trip Trap, and the supplier in this case? Is Trip Trap in a powerful position vis-à-vis its Thai suppliers? Do buyer and suppliers have a cooperative relationship? Also what tools and incentives that the benefits the company itself, the suppliers and the other society should be employed in order to motivate the suppliers to obey the regulations and the code of conduct? In this particular case study, the relationship between the buyer and Trip Trap had common values and belief systems in regards to what they considered to be ethical business practices. Both these firms (buyer and Trip Trap) viewed “social responsibility” as the core element of their business models, aligned with the United Nations (UN) Global Compact’s ten principles in areas: labor, human rights, environment, and anti-corruption along with joining in the commitment of utilizing the annual Communication on Progress (COP) –a statement to public stakeholders regarding progress to uphold these ten key principles. Even though the UN Global Compact was not considered as a performance tool, but the COP was made available for stakeholders’ comments as well as providing peer review insights. Yet a penalty was instilled by the “Initiative”; if for two years, COP submissions were not submitted to the Global Compact then the firms would face expulsion. This particular clause was interjected in 1    

means to re-enforcing the importance of the ten principles and to ensure the levels of commitment from each of the firms who have voluntarily joined the Initiative. While, the suppliers’ relationship with the buyers and SMEs often posed certain challenges. At times, the three firms would come into conflicts regarding compliance regulations and corporate social responsibilities. Adaptation and restructuration were frequently instilled in order to reach a resolution. In their eyes, the suppliers were seen as having different value systems apart with regards to conducting their local businesses practices and didn’t seem to view “social and environmental responsibilities” as a high importance except for the end goal of making a profit. In addition, certain local suppliers were known to conduct unethical business practices (corruptive) that were view “questionable” by SMEs and buyers alike. So in order for all three (buyers, SMEs and suppliers) to reach a common goal, private regulation was developed to address certain aspects such as poor working conditions in global supply chain factories in countries having inadequate government regulations. So, in terms of questioning: Whether Trip Trap has a powerful positioning in regards to vis-àvis towards the local Thai suppliers or not? Yes, absolutely Trip Trap has a very powerful position in this matter. Trip Trap believed they could somehow persuade their suppliers in improving the social and environmental performances by aligning themselves with NEPCon (an NGO knowledgeable with FSC certifications). With the assistance of this collaboration (Trip Trap and NEPCon), Trip Trap’s own code of conduct including international principles, and diplomacy; the firm was able to reach cooperative measures with their local suppliers. Due to the fact, TripTrap knew they could not force their suppliers to make improvements, but were able to make significant progresses through implementation of dialogue engagement in which seemed to be more effective instead of using aggressive tactics to generate persuasion. In addition, creating a strong mutual trust between them were important elements as well. It was achieved through frequent visits, patience, and making adjustments along the way to help facilitate further improvements. With that thought in mind, suggestive tools and incentives could be deployed to generate motivational factors by suggestive measures of benchmarking- showing people that there are other ways of functioning and sharing best practices (within and between firms). Utilizing mapping processes (process charts, service maps, videoing, and flowcharts: person, information and material) to generate comprehension of a particular process prior to identifying areas for improvement. Other useful analytical approach tools: generate improvement ideas (preparation, generation, incubation, insights, and evaluation), reengineering the business practices (map the process, identity value-added activities/wastes, reduce waste, make the value, and repeat the cycle) and executing the four phases of changing attitudes of suppliers (threat and fear, reward, collaborate, and integrate & synchronize). Furthermore, with these aspects, business performances involving the three firms (buyers, SME, and suppliers) could perhaps greatly reap the “corporate social responsibility” benefits by reducing (risks, costs, and government interventions), and increasing their market access, brand reputation, and employee engagement (recruit/retain good employee). Thus, even though “no code of conduct” would ever be “perfect”, compliance failures and supplier mistakes perhaps be remedied with lessened frustrations and possible mutual goals could be met in turn.

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3. (Hanna Eliasson #5802060128) In what ways can SMEs overcome the various challenges (limited economic resources, lack of political vis-à-vis and supply chain scattered inefficiencies) regarding their own suppliers in less developed countries? Which steps can Trip Trap take to ensure a more sustainable and socially responsible manufacturing process of its products? And how can Trip Trap make their employees accept their new code of conduct and change the operation process? The primary obstacle preventing SMEs from improving their supplier relations is their lack of bargaining power vis-à-vis their suppliers. SMEs are per definition smaller and often only one among many customers. They are increasingly being excluded from global supply chains as MNCs are working towards consolidating their supply chains, which further decreases the bargaining power of SMEs. In addition, they have little economic resources to ensure proper documentation and follow up suppliers. What SMEs can do in order to overcome this is to try to partner with other firms and through that increase their bargaining power. If SMEs sourcing from the same supplier or the same region could create a partnership with common objectives and standards in terms of sustainability, this would give them a stronger voice and be able to put pressure on suppliers to comply with their sustainability goals. If such a partnership was to act as one voice, the suppliers are more likely to listen. Other alternatives could be to increase the collaboration with third party inspection companies such as NEPCon or to join other initiatives similar to the UN Global Impact, which could help SMEs to push their sustainability agenda. Leveraging bargaining power may be efficient, but the most preferable way to achieve better sustainability compliance is not to force suppliers into this but rather to collaborate with them and together work towards the same goal. This may though be difficult, as suppliers in less developed countries tend to prioritize sustainability to a lower extent and rather focus on profit-making. I believe that firms can no longer ignore social and environmental concerns and that in the long run, a sustainable business will also be a profitable business. Increasingly, Western firms are realizing this, which is why sustainability is a key concern for most companies but it is also very important to make suppliers in less developed countries view sustainability in a longer perspective and make them realize the profit opportunities this approach presents. A sustainable supplier will attract more customers, will be rewarded and encouraged by society, will improve their brand equity and will require less natural resources. Hence, knowledge sharing about sustainability is key in order to shift the attitude towards the issue from being a costly necessity to become a responsible act, which also generates profit in the long turn. Trip Trap does indeed have strong, long-lasting relationships with their suppliers in Thailand and they should value those very highly. They should build on this dialogue and continue with audits and evaluation of suppliers and work towards strengthening the mutual trust between the parties. Information is key in this respect, as the supplier must understand the requirements and why they are important. In order to ensure that the whole manufacturing process is sustainable, Trip Trap could provide incentives to suppliers who conform and who makes sure that their suppliers in turn conform to the sustainability objectives. The saying “What gets measured, gets done” is also quite applicable in this case, as sustainability can be a rather fuzzy subject and it is important to develop methods to measure the improvement. If it cannot be measured, then suppliers will make little effort into improving their processes. As mentioned previously, Trip Trap could try to identify and partner with other SMEs in the same situation and set up common standards and processes for how to engage suppliers. This common scheme could also engage in research, it could facilitate discussions and highlight 3    

best practices in sustainability and perhaps even establishing a foundation what supports social or environmental improvements in order to raise awareness and to awaken the interest among suppliers for this topic. To engage employees and make them understand and accept the new code of conduct, information and communication is essential. Employees must understand why sustainability is important and not just view it as a must. Trip Trap should build an organizational culture that supports sustainability and make this aspect visible in every step of their business. It is also helpful if employees understand what they themselves can do to support sustainability. They could provide incentives, support new ideas and suggestions from employees, make the employees feel engaged and as they are taking responsibility. In addition, Trip Trap could enforce some sort of punishment in case of non-compliance so that employees understand that the code-of-conduct is not only talk but vital to the business. 4. (Hanna Eliasson #5802060128) Trip Trap seems to value and elaborate a lot on their social and environmental responsibilities. A lot of companies exaggerate this and use it as a competitive advantage. What is the situation for Trip Trap and how much do they do what they say apart from being in the UN Global Compact? What are strengths and weaknesses of Trip Trap’s sustainability approach in Thailand? In my opinion, it seems as if there is a lot of talking and not so much action in the case of Trip Trap’s sustainability approach. They identify themselves very clearly with social responsibility and environmental protection but in reality, not many initiatives are taken. A lot of effort is put into an FSC-certification scheme but this certification is actually a commonly adopted CSR-tool used by most companies in the forestry business. It only certifies the source of the wood but says nothing about the manufacturing process. It is true that the furniture produced is of high quality, durable and with a long life, which in itself reduces consumption and the strain on the environment. Meanwhile, this is the case for most high-quality furniture producers and simply a way for Trip Trap to exaggerate their responsibility and to win goodwill. In addition, the UN Global Compact initiative is not very ambitious, as it does not set any specific level of responsibility or minimum standard in order to be certified. It is enough to simply report progress on how the principles are being implemented. Thus, it says very little about the actual social and environmental responsibility of the participating companies. Apart from the UN Global Compact, Trip Trap made efforts to ensure that their Thai suppliers complied with legal requirements in Thailand. Complying with the legal requirements should however be regarded as a minimum level and not something to promote as good CSR-work. Again, we come back to the importance of measuring sustainability improvement in order to make lasting changes. It is certainly good that Trip Trap has the objective of creating a responsible sustainability approach in Thailand but its current reach can definitely be extended. Strengths include the good dialogue Trip Trap has with its suppliers and the relationship is has developed over the years. This gives Trip Trap a good base for improving their approach even though they are a small player on the market. They work continuously with its suppliers and support, audit and evaluate them in a long-term perspective and they have created processes to help improve their suppliers. This is important as it encourages suppliers to change their working process not only to comply with the next upcoming audit but also to implement lasting changes. The collaboration with NEPCon helps to support Trip Trap’s CSR-policy and as they are a small firm, this collaboration could be taken even further. It should also be remembered that Trip Trap is the only customer to their largest supplier in Thailand, which gives them considerable bargaining power over this supplier to implement sustainability improvements. 4    

5. (Patrick Thorpe #5702043067) As Trip Trap operates in an environment which may be considered corruption inclined, if that happened, how would they deal with any form of corruption in order to comply with the UN Global Compact? How can Trip Trap ensure that suppliers self test system will provide the real information results needed to meet UN global compact approach? And what is the penalty for suppliers in case they couldn't act accordingly to code of conduct? It is indeed hard to ensure that a third party, e.g. their supplier is not corrupt. Corruption occurs behind the curtain and is thus not visible for the auditor. The only way to possibly examine how corruption-free the company is, would be to see all their financial data, e.g. how much do they pay for the raw material, the wood? Is it too much below market price? For the exports, do they declare the correct CIF Value? The problem is that there is a right for confidentiality of each party and the customer of a supplier does not have the right to request all kinds of such sensitive data. So the only way I see for dealing with the corruption issue under the UN Global Compact Scheme, is to request the supplier to sign a document, that they would never engage in bribery and follow Trip Trap's code of conduct. This shall satisfy the UN Global Compact's committee. Trip Trap can furthermore only ensure that the suppliers self test system will provide real information results, that are needed to meet the UN global compact approach, by making cold visits by themselves, NepCon or a local auditor in Thailand. HSE can be tested by TUV and Trip Trap can request the OHSAS or ISO18001 from their supplier, so they would need to request such audit from TUV. Also ISO9001 for Quality Management or ISO14001 for Environmental Safety Management System can be requested. These 3 Audit Certificates can cover the UN Global Compact requirements mainly. The penalty for a supplier if they don't meet those standards shall be defined clearly. Trip Trap is the supplier's only customer. So they have all the power to set a strict KPI (Key Performance Indicator). They can go the soft approach and say for example that every issue to be found, that does not meet the code of conduct, the UN Global Compact Requirements or any other rules, must be improved within, let's say 3 month and will be followed by a new audit. If the issue would not have been improved by then, a penalty in term of money fine, would follow. The worst scenario then would be the cancellation of collaboration with that supplier. 6. (Trisith Kittisriswai #5702043323) In Thailand, rules and regulations about environmental issues, labour forces or safety, or even other regulations in other aspects, for example, are not very strict and enforceable as everyone knows. What is seems to be hard when we have to implement international code of conduct? And what should Lindekilde propose as a plan of action toward further developing sustainability? There are many causes of hindrances in implementing international code of conduct. I think we still lack of some preparedness as will be outlines in the following list. • Weak law enforcement in Thailand. A wide range of laws in Thailand are known for less effective enforcement when comparing to other countries. • No solid reward and recognition system in Thailand. We can be better at encouraging more people to do this. In my opinion, there are many Thais already contributing to these issues but they have not recognized by society. • Less concern on environmental and social issues. As Thailand is a developing country, the economic concern is the first priority. The need to drive the economy is more important than environmental and social issues. So both government and local business are unfortunately less concerned with these issues. 5    

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Thailand is politically unstable. As there are long political dispute in Thailand, the Thai government has changed frequently. This is interrupting policy development and policy enforcement. This is because policy direction usually change followed to new government direction.

An action plan towards developing of sustainability is divided into 3 parts. Planning, Measuring and Controlling. We propose actions for each part for the government, local business and local organization to take. The target groups of the plan are both local SMEs, corporate and individuals. 1. Plan to encourage local business and individuals to be involved in developing sustainability. Design systems to create incentive and recognition such as • Labour force best take care awards for employer. • Guide business to implemented labour force international standards. • Environmental concern awards for SMEs and MNCs. 2. Set a measurement for sustainability levels in order to keep monitor its status. The example are as following. • Make environmental friendly standard for business and set criteria for SMEs and MNCs to achieve. • Set a feedback channel for locals, especially in environmental danger zone. So the population there can help monitoring by reporting on the current status. • Make labour force standard for business and set criteria for SMEs and corporate to achieve. Also create an action plan for checking safety of locals in dangerous businesses. 3. Implementing controlling system in order to maintain developing sustainability in Thailand. In my opinion, this part is most important and the most difficult part. Because there are many times that society raise awareness on this kind of issues but society will be less concern when the time pass. Hence, not much action is taken. Some examples for controlling the development are following. • Monitoring of international code of conduct and sustainability requirement. Let a responsible governmental agency or organization coordinate with international requirement and align with local business. • Media planning and funding to continue keep the awareness on social issues. • Continuously reward the best practices for sustainable development.  

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