Sustainability Report > Sustainability Report2007 > Highlights > Highlight 2
Ethical sourcing is becoming essential for global supply chain management, but there is no one
single formula for ethical sourcing. Fuji Xerox's process of trial and error to introduce ethical
sourcing, over a period of two years, is described here.
Products pass through a complex route, which starts with the procurement of raw materials and
ends with recycling or disposal of end-of-life products. This entire route is called the "supply
chain."
Multinational corporations that conduct business in the global market are increasingly engaged in
management that takes into consideration and improves the environment, human rights and
labor, as well as business ethics. In conjunction with this development, multinational corporations
are asking their suppliers to take these factors into considerations and make improvements. This
is referred to as "ethical sourcing."
Fuji Xerox established Green Procurement Guidelines in 1999 and has requested its domestic
and overseas business partners to limit the use of hazardous chemical substances and create
environmental management systems. In addition to these initiatives, a committee chaired by the
company president in September 2005 confirmed that Fuji Xerox would introduce ethical
sourcing.
The Corporate Social Responsibility Department and the Centralized Materials Management
Department of the Manufacturing Group jointly established an ethical sourcing project team.
Consultants familiar with CSR and international NGOs also participated. Fuji Xerox decided to
adopt, as its basic code of conduct, the Electronic Industry Code of Conduct (EICC) issued by
Dell, Hewlett- Packard, and IBM in 2004. The project team members visited several Japanese
companies that are pioneers in this fi eld to obtain guidance for implementation and operational
practices. Initially, the project team anticipated completing the project in the short-term. They
expected to formulate a supplier code of conduct, hold briefings for suppliers, and develop an
audit structure.
However, things changed completely in April 2006 when the team explained the plan to introduce
ethical sourcing to Tadahito Yamamoto, then executive vice president in charge of development
and production (currently company president). Yamamoto instructed the project team to make
drastic changes to the plan. He ordered the incorporation of ethical sourcing only after readjusting
the requirements on quality improvement, cost reduction, and delivery improvement that have
already been imposed on suppliers as well as promote overall improvements in cooperation with
business partners. Yamamoto worried that if ethical sourcing was added on top of such
requirements, the pressures on business partners would exceed their capacity to respond, and
the suppliers would implement ethical sourcing just as a formality.
Yamamoto's directions were clear, but at that time only a few other companies had incorporated
CSR in their procurement processes on a full scale. The front lines of materials procurement were
struggling to respond to the European Unions RoHS Directive, which prohibits the use of
hazardous substances. The project team had lost confidence, believing that it was not the right
time to introduce ethical sourcing. Hiroaki Yoshizawa, then general manager of the Corporate
Social Responsibility Department (currently president of Sales & Marketing, Kansai Region), said
that introducing ethical sourcing "involved a complete review of related operational procedures so
it was difficult to gain the understanding and cooperation of the various departments involved," but
that, "this was important to the future of Fuji Xerox." So the company pressed on without
becoming discouraged. Ultimately, he proposed ethical sourcing to the Committee four times.
The project team faced a dilemma. Using other company's
schemes would not work well, but there was no guarantee of
success if Fuji Xerox introduced its original scheme.
Considering this, the team requested the cooperation of the
nine managing member companies of the Global CoProsperity Society, which is made up of Fuji Xerox's key
business partners. The first meeting of the CSR study group
was held in June 2006.
At that meeting, Global Co-Prosperity Societ y Chairman Toshiaki Ota (representative director of
Kinjo Rubber Co., Ltd.), called on other managing member companies to participate when he
heard about the concept of ethical sourcing.
"This concept is something that is definitely necessary for our survival even if Fuji Xerox hadn't
approached us," Ota said. "I appreciate the fact that Fuji Xerox gave us the opportunity to think
about this together. We will need to make an all-out effort regarding quality, cost, and the CSR
activities that we have learned here today. That is the type of business environment in which we
find ourselves today. The managing member companies of the Society must take the initiative
and expand these activities to include other member companies."
Ota's statement deeply moved the members of the Fuji Xerox project team and prompted them to
reconsider their stance of unilaterally forcing member companies to adopt their plan. Even though
they may not call it CSR, each company was engaged in noteworthy activities for their everyday
management efforts. Ethical sourcing would become a meaningful activity only if these companies
could learn from each other and develop their strengths. Once the project team members became
aware of this, Fuji Xerox's ethical sourcing got off to a start.
Following repeated study group meetings, member companies became increasingly concerned
about production and shipment stoppages as a result of labor disputes at overseas sites.
Approximately 80 percent of Fuji Xerox's production is currently associated with manufacturing
sites in China. In addition, many managing member companies of the Global Co-Prosperity
Society conduct production activities in China. Although steady progress was being made with
respect to environmental issues, human rights and labor issues were not well understood. In
response to the situation, the study group held a meeting in Shenzhen, China over five days,
starting on November 1, 2006.
The Shenzhen-based Institute of Contemporary Observation (ICO), which specializes in labor
issues led by Dr. Liu Kaiming, executive director, briefed the study group in detail on social
conditions, current problems, and future challenges regarding China's labor issues. The group
members also interviewed the presidents and COOs of several local companies, learned
advanced practices, and participated in simulated auditing of factories, cafeterias and dormitories.
The participants also engaged in a full-day group discussion.
All of the participants shared the impression that the current labor situation in China is similar to
that of Japan from the late 1950s to the early 1970s, when many people from rural districts were
hired to work in factories. Chinese factories are staffed by assembly workers in their late teens
and line managers in their early twenties. In addition to job training, it is essential for management
to make a steady effort to provide employees with guidance regarding their daily life and support
their self-reliance. The study group also held discussions with a local supplier that had created a
night high school within the company, encouraged employees to participate in community
activities, and made an effort to educate and nurture its young employees. At another company,
many of the participants received valuable suggestions from the way a Chinese corporate
president played three roles: as a corporate president, as a school principal, and as a father, to
nurture his employees in a strict but aff ectionate way. In all cases, the participants felt that
management information should be conveyed to local employees in as much detail as possible
and that an emphasis should be placed on making employees feel a sense of ownership and that
their work is meaningful.
The study group members felt strongly that treating employees according to societal conditions in
China is essential for maintaining product quality. This point, however, is not often pointed out in
Japan. Thus, Fuji Xerox held a special CSR seminar in March 2007 at the United Nations
University in Tokyo, inviting personnel promoting CSR activities at its business partners and other
companies. (See photo at beginning of article). The vivid descriptions by panelists well versed in
actual conditions had a big impact on the more than 400 guests. The project members were
encouraged by the results of the questionnaire filled out by the participants, in which one
participant commented: "I now understand what we need to aim for as a company engaged in
global business."
Fuji Xerox finally introduced ethical sourcing in August 2007.
"We created a voluntary CSR promotion committee within the
Global Co-Prosperity Society, taking a hint from the study
group meetings with Fuji Xerox," said Global Co- Prosperity
Society Chairman Toshiaki Ota. "In the end, CSR involves
nothing more than every individual being considerate to others
and society as a whole. The promotion committee will serve as
a forum to learn about people and management in a way that
goes beyond company boundaries. I believe that we have to
work very hard to make sure that we are not left behind by Fuji
Xerox."
Fuji Xerox, meanwhile, formed the Ethical Sourcing Team
within the Centralized Materials Management Department of
the Manufacturing Group to implement final preparations for the introduction of ethical sourcing.
Fuji Xerox had worked with its business partners to solve problems, including quality
improvements and cost reductions. Ethical sourcing activities were added to these activities, and
the new initiative was called "supplier engagement" to express the idea of Fuji Xerox achieving
growth together with its business partners. There is little doubt that this will be a crucial structure
that supports the corporate quality of Fuji Xerox in the future.
As originally planned, Fuji Xerox prepared a supplier code of conduct on the basis of EICC. There
are approximately 300 questions in the checklist, which is intended to confirm the status of
compliance with the code of conduct.
"We placed a particular emphasis on human rights and labor related issues when preparing the
checklist," said Miki Watanabe, a member of the Corporate Social Responsibility Department,
which took the lead in the practical activities. "I hope that by expanding the circles of management
focused on human resources, our work will take on particular significance for society."
The ethical sourcing Fuji Xerox and its business partners developed and implemented is getting
off to a steady start.
Opinion from a third party
Toshihiko Fujii
Consulting Fellow
Research Institute of Economy, Trade and Industry
Fuji Xerox's ethical sourcing has historical significance. It is
certainly groundbreaking in terms of being more than a mere
formula of "conduct plus audits," but its underlying philosophy
deserves even greater attention. Japanese businesses are said
to place an emphasis on people, which is a strong point of
Japanese-style management. However, this is generally referring
to Japanese employees. I wonder how many companies pay
attention to overseas employees or the employees of plants in
developing countries and at supplier plants? I am impressed by
the efforts that Fuji Xerox has made. If I could make one request,
though, it would be for Fuji Xerox to widely show to the world that
ethical sourcing contributes to the enhancement of global human
capital and ultimately constitutes a competitive strength. This will
likely serve as an opportunity for Japanese businesses to reexamine what global management and CSR are.