The influencing role of the focal firm for the development of social sustainable supply chains

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The influencing role of the focal firm for the

development of social sustainable supply

chains

Master’s thesis:

Supply Chain Management at the University of Groningen

Faculty of Economics and Business

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Abstract

The purpose of this research is to find out if internal social sustainability of the focal firm helps towards creating more sustainable supply chains by focusing on sustainable supplier management. In research, social sustainability receives less attention than environmental- and economic sustainability. This is problematic, since social sustainability is vital for completing the Triple Bottom Line of sustainability. The central topic of this research is social sustainability and its relation to supply chain management. Next to the direct relationship of internal social sustainability and sustainable supplier management, the study tests the moderated effect of the involvement of local communities. Data for this research is collected by desk-research and is based on secondary data provided by the non-profit organization B Lab. For the analyses, multiple regression analyses have been conducted using SPSS. The outcomes show interesting results; higher levels of internal social sustainability do have a positive effect on sustainable supplier management. Furthermore, the study proves that organizations that are deeply involved in local communities are facilitated in expanding their social code of conduct towards their supplier, leading to increased levels of sustainable supplier management. Supply chain visibility is not only important for organizations to become more sustainable. Nowadays, stakeholders demand more supply chain visibility to ensure sustainable operations. The conclusion of this study can help managers guide in shaping corporate strategies that lead towards more sustainable supply chains and the opportunities for future research are enormous for researchers that can help in expanding existing literature on social sustainability.

Keywords: Social sustainability, Sustainable Supplier Management, Local involvement, Focal firms, Reshoring

Acknowledgements:

First of all, I would like to thank my supervisor Mr. Bortolotti for guiding me through the process of writing a thesis, the collaborative meetings that gave me more insights in research topics, and helping to interpret the outcomes of the analyses.

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Sustainability is a concept that has received increased attention in the past two decades and is defined by Elkington (1998) as: “the principle of ensuring that our actions today do not limit the range of economic, social and environmental options open to future generations”. To operate sustainably, organizations have to take into account the three aspects that form the principle of sustainability: economic, environmental, and social (Henriques & Richardson, 2004). Miemczyk & Luzzini (2019) describe that sustainability is also known as the ‘Triple Bottom Line’ (TBL). To raise awareness of sustainability issues, the United Nations has set goals starting from 2015 that must be reached by 2030 in order to ensure sustainability across the globe. These are known as the Sustainable Development Goals (SDGs) (Griggs et al., 2013). These goals are programs set to increase sustainability in every nation and its community, as the SDGs encompass all three aspects of the TBL. The SDGs in relation to the aspects of the TBL are explained in further detail in the literature review.

Karana et al. (2014) argue that businesses focus mainly on economic- and environmental sustainability but neglect social sustainability. This is backed by Panigrahi et al. (2019) adding that there is “a lack of systemic sustainability research”. If the social aspect is not considered, sustainability cannot be achieved. In supply chain management, it is important to incorporate all supply chain partners in order to create commitment within the supply chain to become more sustainable (Vachon & Mao, 2008). Organizations nowadays must not only focus on its own operations but have to take (shared) responsibility as well, since organizations are not individual entities anymore, but one of the many links that form a supply chain (Vachon & Mao, 2008). According to Linton et al. (2007), supply chain management and sustainability are interlinked to each other. Therefore, if organizations want to be sustainable, one must broaden their scope and take a whole socio-economic system into account, from suppliers all the way through to the end consumer. However, social sustainability is less tangible and measurable than environmental-, and economic sustainability (Surroca et al., 2010), hence making it an interesting research topic.

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the rules and regulations that are stated by law but take it one step further which leads to a higher focus on social sustainability. Carter & Jennings (2004) and Dai & Blackburst (2012) argue that focal firms are held accountable more often for irresponsible behavior of their supply chain partners, especially upstream. It is suggested by Frostenson & Prenkert (2015) that the focal firm should have a leading role in the improvement of social sustainable supply chains.

A research conducted by Miemczyk & Luzzini (2019) concluded that mainly audits and compliance by suppliers to sustainable standards of the focal firm are the main drivers for achieving sustainability. Achieving sustainability is a process of supply chain learning. However, the way sustainability levels improve is dependent on how fast supply chains learn, according to Gong et al. (2018). Supply chain learning influences corporate strategies, as a corporate strategy is based on exploitation or exploration. Silvestre et al. (2020) conclude that supply chain sustainability initiatives that focus on exploitation competencies are more likely to succeed on short-term sustainable results, whereas explorations competencies are more likely to succeed on long-term operations. Exploration competencies are focusing on continually searching for new opportunities in the supply chain (Ojha et al., 2018). However, practical results on how organizations can expand social sustainability to the supply base are still lacking. Due to the technological advancements in the beginning of the twenty-first century (Dicken, 2003), organizations gained quick access to other continents and made use of outsourcing and offshoring, creating global supply chains. Globalized supply chains gave organizations the opportunity to source materials cheaper, and offshoring gave organizations the opportunities to produce products in low-wage countries performed by other organizations, which resulted in higher levels of efficiency and increased levels of competitiveness of a focal firm (Oshri et al., 2009). However, it has also led to inequal living standards, and increased carbon footprints, which in has resulted in higher global temperatures (Parameswaran, 2008). Moreover, globalization has led to longer and more complex supply chains (Varma et al., 2006; Lorentz et al., 2012). This could affect supply chain operations and possibly lead to supplier sustainability risk (Busse et al., 2017). Hence, reshoring is becoming a more viable strategic option, as supply chains are shortened, resulting in more visible supply chains (Sequeira et al., 2020; Ashby, 2016). However, can localized supply chains contribute towards creating more socially sustainable supply chains? This leads to the following research question:

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To answer the research question, quantitative data analyses have been conducted based on a dataset provided by the non-profit organization B lab. This dataset is considered as secondary data, which is based on surveys. For this research, sustainable supplier management is used as the dependent variable, and internal social sustainability as the independent variable. Next, the involvement of local communities is tested for its moderating effect on the relationship between the dependent and independent variable. The variables are compared to the GRI standards to find commonalities on social sustainability (Dumay et al, 2010). The results of the analyses will give answer to the research question, whether the moderator helps influencing supply chain partners in order to improve social sustainability in the supply chain. In the end, the goal is to find a connection between theory and practice to make the outcomes of this research generalizable for other organizations (Holmström et al., 2009).

There are three reasons that substantiate the importance of a study with the variables of social sustainability in the field of supply chain management. Firstly, social sustainability is neglected often by businesses, which is vital for creating sustainability. Panigrahi et al. (2019) claim that this is a result of empirical research on social sustainability that is missing. Secondly, higher levels of integration in supply chain management require focal firms to look beyond their own organization and consider social sustainable shortcomings in the whole supply chain (Vachon & Mao, 2008). Lastly, higher levels of stakeholder pressure result in more transparent organizations. Therefore, organizations are forced to operate more sustainably (Maon et al., 2009; Schleper et al., 2017; Hughes 2001; Büyüközkan, 2012). This study contributes to existing literature by presenting empirical evidence on the hypothesized moderation effect of the involvement of local communities on the relationship of internal social sustainability and sustainable supplier management. This conclusion could help managers in shaping CSR strategies.

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2. Literature review

2.1 Sustainability

As mentioned by Elkington (1998) and Blowfield (1999), corporate sustainability can be achieved by taking into account the three aspects of sustainability, which are economic-, environmental-, and social aspects. (Corporate) Sustainability or sustainable development takes into account all three aspects and are treated equally (Ebner & Baumgartner, 2006), as these are interlinked and therefore influence each other (Henriques & Richardson, 2004). Miemczyk & Luzzini (2019) refer to the Triple Bottom Line (TBL) when talking about sustainability. The TBL is an abstract concept and is therefore more clearly explained in the Sustainable Development Goals (SDGs). These SDGs are set by the United Nations in 2015 for the world to be reached by 2030 (Griggs et al., 2013). The SDGs incorporate all three aspects of the TBL and focus on equally improving any of these aspects. In table 2.1 every SDG is linked to the aspects of the TBL it focuses on.

Table 2.1; Sustainable Development Goals and their link to the TBL (Katila et al., 2019)

# Sustainable Development Goal Link to Triple Bottom Line

1. No Poverty Social

2. Zero Hunger + sustainable production Environment + Social 3. Good health and well-being Social

4. Quality and education Social

5. Gender equality Social

6. Clean water and sanitation Environment + Social 7. Affordable and clean energy Economic + Environment 8. Decent work and economic growth Economic + Social

9. Industry, innovation and infrastructure Economic + Environment + Social 10. Reduced inequalities Social

11. Sustainable cities and communities Economic + Environmental + Social 12. Responsible consumption and production Environment

13. Climate action Economic + Environment 14. Life below water Environment

15. Life on land Environment

16. Peace, justice, and strong institutions Social

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When analyzing table 2.1, it shows that in approximately 70% of the SDG’s, the social aspect of the TBL is a subject (Katila et al. 2019). Simultaneously, the social aspect of the TBL is often ignored by organizations, which leads to organizations not operating sustainably (Panigrahi et al., 2019; Karana et al., 2014). Because organizations are focusing less on the social aspect of sustainability and studies on social sustainability are missing, a gap in the literature surfaces. Due to the increase of global supply chains, the number of multinationals has increased (Othman, 2018). Therefore, Elbaz & Iddik (2020) argue that sustainability initiatives from different stakeholders in a cross-cultural setting need to be considered.

2.2 Sustainable supply chain management

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Corporate Social Responsibility (CSR) is a terminology that has received increased attention since the beginning of the twenty-first century. It helps organizations in determining their ethical and social responsibilities (Lichtenstein et al., 2004). The definition of CSR given by Amaeshi et al. (2008) is: “a broad term for an organization’s commitment to operate in an economically and environmentally responsible manner while recognizing the interests of its stakeholders.” Nowadays, due to higher levels of stakeholder pressure on social improvements such as ethics and CSR, a higher level of awareness has entered the world and higher levels of attention have been focusing on large multinationals for operating unsustainably (Maon et al., 2009; Schleper et al., 2017; Hughes 2001; Büyüközkan, 2012).

Furthermore, supply chain ethics is often interpreted as the deed of dodging unethical practices (Eltantawy et al., 2009; Brun et al., 2020). An example would be eradicating irresponsible supplier behavior that can be linked to the focal firm. These particular links could affect organizational reputation and lead to possible costly legal obligations (Carter and Jennings, 2004; Dai & Blackhurst, 2012). As supply chains grow larger, organizations need to take into account interests of stakeholders that are spread globally, as well as the interests of supply chain partners. (Baumgartner & Ebner, 2010; Varma et al., 2006; Lorentz et al., 2012).

2.3 Supply chain collaboration

Unethical supply chain management comes forth from different practices, such as unethical purchasing practices, unethical bargaining practices, fraud, and misusing power to receive lower priced products (Saini, 2010; Olekalns & Smith, 2009; Fassin, 2005). Schleper et al. (2017) claim that organizations need to identify these issues as ‘unethical’ in order to control these (Schleper et al., 2017). Due to higher levels of stakeholder involvement, it is expected that organizations must take their responsibility for their whole supply chain(s) (Yusuf et al., 2014). In the focal firm, the internal operations could be well controlled, but it happens that over external stakeholders less power can be exerted (Welford, 2005). Nevertheless, both internal and external operations have a strong affection to the organization’s socially responsible activities (Carter and Jennings, 2004). Though, it has been noted that there has been little research dedicated to the subject of ethics within supply chains, with only some isolated aspects of supply chains being addressed from this perspective, which is claimed by Svensson & Baath (2008).

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to a maximum of separated aspects of the supply chain (Svensson & Baath, 2008). This also means that many organizations still focus solely on their own business as an independent entity, and must focus on the bigger picture, namely as their organization being part of a supply chain (Vachon & Mao, 2008) Organizations that are unable to control their supply chains, could be heavily affected by social scandals of their supply chain partners, according to Orzes & Sarkis (2019). Kang et al. (2018) identified that organizations that realize this should reach higher levels of sustainability due to supply chain integration, and also the supply chain responsibility is managed more effectively. Still, in sustainable supply chains, social sustainability is often disregarded. Yu et al. (2019) express the importance of supply chain involvement, where strategic collaborations are created to ensure that the focal firm and its supply chain partners have joint interpretation of goals, which in turn reduces ambiguity in the supply chain.

Sustainable supplier management is an important aspect of sustainable supply chain management. The advantage of sustainable supplier management is that organizations must integrate their upstream supply chain partners (Zimmer et al., 2016), since organizations are not single entities anymore, but are now part of a supply chain (Vachon & Mao, 2008). Herewith, Handfield et al. (2012) claim that supply chains and suppliers have become progressively important for the success of organizations. Sustainable supplier management refers to the level of extent where suppliers comply to the focal firm’s level of sustainability that it wants to achieve. This could be achieved by taking on-site audits, compliance to the focal firm’s code of conducts, and the level of compliance to governmental regulations (McCarthy & Jayarathne, 2012; Klassen & Vereecke, 2012). At the same time, focal firms are required to proactively collaborate with their suppliers to enhance sustainable supplier management. Especially long-term relationships will lead to higher levels of social sustainability at both parties, as proven by the research of Croom et al. (2018), since this requires higher levels of dedication from both parties.

2.4 Supply chain trends

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operating, the focus is mainly on firm- and supply chain levels, and not on employee- and operational levels. Therefore, it is important to take into account employees as well, as these are the players who implement sustainable practices on a daily basis (El Baz & Laguir, 2017). Supply chain transparency is reflected on the external environment. For the internal environment, this is referred to as supply chain visibility. Supply chain visibility is of great importance to reduce supply chain risk, according to Christopher & Lee (2004). Supply chain visibility is of great importance to reduce supply chain risk. Brandon-Jones et al. (2014) claim that visibility helps in tracking products and helps identifying potential disruptions, whereas a lack of visibility can create risks. Especially in supply chain management, coordination is of extreme importance, which could be managed better by supply chain visibility. According to Jeffers (2010), in supply chain relationships, information contains great strategic information, which is vital for organizations.

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3. Hypotheses development

For this research, there are two hypotheses created that will help in finding an answer to the research question. The idea behind every hypothesis is defined in this chapter, concluded with a conceptual model that shows how these hypotheses are related.

3.1 The direct effect of internal social sustainability on sustainable supplier

management

As researched by Welford (2005), many organizations often have written policies on internal social sustainable aspects, such as non-discrimination, equal opportunities, fair wages, education, and human rights. While on the other hand, written policies on the same sustainable aspects in the external environment are often lacking (Welford, 2005). Due to supply chain progression over the years, supply chain integration has become increasingly relevant. Especially upstream supply chain management has become more important, since this would create or hinder sustainable supplier relations. (Zimmer et al., 2016). Sustainable supplier management is defined as “the management of all activities along the upstream supply chain related to the purchased component to maximize triple bottom line performance”, as stated by Sarkis (2003) & Pagell, et al. (2010) (in Zimmer et al., 2016). Sustainable supplier management requires proactive partnerships from both parties to maintain standards, because it is a two-way interaction (Croom et al., 2018). When referring back to the SDGs, Wiesmann & Dayer (2019) claim that these need to be followed on a national level by governments. When considering the TBL, and its relation to the SDGs, including the concept of CSR at organizations, it could be argued that organizations could deliver a valuable contribution towards fulfilling the SDGs, through supply chain management. SDG number 17 looks promising considering sustainable operations in the supply chain, as it partners up for achieving goals and is executed as a multi-stakeholder approach that combines politics, business, and the society, according to Schwan (2019).

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investigated what happens if the focal firm actively radiates social sustainable behavior, and a close relationship is maintained, if the supplier will comply to this behavior in order to preserve the relationship. This results in the creation of the first hypothesis:

Hypothesis 1: There is a positive direct relationship between a high level of internal social sustainability of the focal firm and sustainable supplier management.

3.2 Local involvement as a moderator

Local involvement is defined as “ways for your business to further engage with the community through local ownership and suppliers” by B Lab (2020). Due to higher levels of social issues, firms more often integrate local communities in their supply chains together with their values and are integrated in the focal firms’ strategies. Currently a transition is taking place from having suppliers all over the globe in global supply chains to incorporating more local suppliers in localized supply chains (Ashby, 2016). The trend of localized supply chains is currently growing (Kinkel, 2012) as the short-term cost savings, that have been generated by offshoring, such as labor costs and the cost of raw materials (Manuj & Mentzer, 2008), are becoming outdated and influence corporate strategies (Sequira et al., 2020; McIvor, 2009). The idea of localized supply chains can also be referred to as “reshoring”. Reshoring makes it easier to incorporate local communities in supply chain operations and makes the supply chain more visible compared to a globalized supply chain. When looking at the supply chain solely as a processor of products and services, advantages of reshoring would be the flexibility, proximity to customers, and higher attention could be paid to quality (Ashby, 2016). However, increased pressure from stakeholders makes organizations care beyond making profits, as the awareness of social operations of organizations and their suppliers has increased, which is argued by Maon et al., (2009), Schleper et al., (2017) Hughes, (2001) and Büyüközkan (2012). Therefore, organizations must look at all three aspects of the TBL.

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supply chain, as production process and its impact on social practices as it enables more visible and more controllable supply chains (Wiesmann et al., 2017). Localized supply chains are connected to SDG 8 and 9, where local work opportunities arise and sustainable infrastructures are created. Where globalized supply chains are linked to longer (and more complex) supply chains, localized supply chains generate shorter are more visible supply chains.

Considering the contributions brought by scholars regarding globalized- and localized supply chains and their impact on social sustainability, the hypothesis will test the moderating effect of involving local communities on the direct relationship between internal social sustainability and sustainable supplier management. The outcomes of the hypothesis will conclude if organizations that have their internal social sustainability in place, and are deeply involved in local communities will be facilitated in expanding their code of conduct towards their supplier. Therefore, the following hypothesis has been created:

Hypothesis 2: Higher levels of local communities involved at the focal firm will positively influence the direct relationship between internal social sustainability and sustainable supplier management.

3.3 Conceptual model

The above mentioned literature and variables have led to the following conceptual model of this research and is displayed figure 3.1. This conceptual model shows two relations: one direct relation and one moderating relation.

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4. Methodology

4.1 Research design

The purpose of this study was to test whether organizations that perform well on social sustainability internally, can exert influence on its upstream supply chain, which should result in more sustainable supplier management. This would indicate more socially sustainable operations in the supply chain. Additionally, this research aimed to find out if organizations that focus on internal social sustainability and have close collaborations with local communities, are facilitated in expanding their social code of conduct towards their suppliers. Furthermore, a secondary purpose is to complement existing literature on social sustainability and supplier involvement in supply chain management. For the scope of this research, social supply chain sustainability is studied, with the focus on internal social sustainability of the focal firm, the sustainability of its suppliers, and the involvement of local communities. For this study, a cross-sectional, explanatory survey research is designed for answering the research question. This type of research has been chosen over a qualitative research, since quantitative researches are used to test hypothesis, and qualitative researches are used for understanding deeper thoughts or experiences. This relation between the dependent-, independent variable, and moderator are statistically analyzed, which encompasses the idea of quantitative research. As identified in previous studies of Johnson et al. (2014) and Manuj & Mentzer (2008); organizations could operate socially sustainable, however it is not sure if higher levels of socially sustainable practices in the focal firm transfer this to its suppliers in the supply chain as well. If this occurs, it will result in a more sustainable supply chain. This would indicate that there is a gap in the literature. Therefore, this study focuses on internal social sustainability and how this can be integrated in the supply chain to create more (socially) sustainable supply chains. Adding to the direct relationship, moderation in the form of involving local communities is tested to see if this involvement has an extra positive effect on sustainable supplier management. The research has an inductive approach, since the investigated topics are new phenomena and are not tested before, which encompasses the idea of induction (Karlsson, 2016).

4.2 Research setting & data collection

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retrieved by desk research1_{. The dataset contains data, dating back to 2007 and has had its most} recent update on the 10th_{of September 2020. The dataset consists of 7005 data points, covering} organizations spreading across 82 countries, divided over 6 continents. However, not all data points can be used for this research. This will be further explained in the section data analysis (4.4).

The data is based on a survey that is created by B lab. Every question that is answered in the questionnaire belongs to a subject in the data set. All questions are worth points, and the scores are added up to calculate how every organization scores on each subject. All subjects belong to one of the following five impact areas: community, customers, environment, governance, and workers. These five impact areas are made up by sub-areas. So, the survey of B lab also takes social aspects into account for the assessment of organizations and could be valuable for future research that focus on social sustainability. Not every aspect of the B Lab questionnaire is relevant for this research. This research contains three variables, and only these will be used for the data analysis. However, before the data analysis is explained in more depth, the research will be operationalized in the next paragraph to give more insight in every subject that is tested.

4.3 Research operationalization

To operationalize this study, all variables are considered on how their outcomes can be quantified in order to be analyzed. Therefore, the variables are compared to the GRI standards. The GRI standards are a great way to see how supply chains can operate more sustainably and this is done based on ethical codes, since ethics are known as one of the steppingstones to improve organizations’ social impacts (Berinde & Andreescu, 2015; Hall & Matos, 2010).

4.3.1 Dependent variable; Sustainable supplier management

The dependent variable of this research focuses on sustainable supplier management. Here, social sustainable operations by the investigated organizations towards their suppliers, but also social sustainable operations by the supplier itself are rewarded with higher scores. Sustainable supplier management takes into account many aspects of supplier management as the intention of this variable is defined as: “supplier monitoring and evaluation, certifications and tenure, labelling standards, and supplier code of conduct” (B Lab, 2020). This is in line with GRI standard 414: ‘Supplier Social Assessment” (GSSB, 2020). In this GRI standard,

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attention needs to be paid to; negative social impacts in the supply chain, how to mitigate these, reward systems for mitigating these, and auditing suppliers on their social performance.

The score for this variable is based on the answers that are given on the questionnaire in Appendix II. The questions relate to sustainable supplier management, as these cover; supplier code of conducts, screening and monitoring services, social or environmental screening of suppliers and social or environmental purchases. In order to provide the social sustainable performance of the suppliers, the variable is computed as an interval variable. Variables that have an interval scale level of measurement in SPSS can be compared to each other based on their values. It is important that the values of this variable are measurable, since this is required in order to make conclusive statements. For the dependent variable, higher values indicate higher levels of sustainable supplier management. Lower values mean the opposite. However, these scores are compared not solely within all data points in the dependent variable, but also in relation to the independent variable.

4.3.2 Independent variable; Internal social sustainability

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social practices it is rewarded with higher scores than organizations that do not comply to operating socially.

4.3.3 External moderator; Local involvement

Local involvement is the last variable used in this study and will measure a moderating effect on the direct relationship of the independent variable and the dependent variable. This moderator is going to find out if organizations that have implemented higher levels of internal social sustainability and are more involved in local communities also experience higher levels of sustainable supplier management. With regard to local involvement, it is stated in the questionnaire as: “This section explores ways for your business to further engage with the community through local ownership and suppliers” (B Lab, 2020). Therefore, it relates to GRI 413, which argues that the involvement of local communities focuses on aspects such as impact assessment, development programs, and the engagement into local communities (GSSB, 2020). Questions that are stated in the questionnaire, that is shown in Appendix IV, relate to local ownership, national sourcing, and spending on local suppliers. Also, these outcomes are placed in an interval scale type of measurement. Values that have higher outcomes relate to organizations that focus more on local communities than the organizations that have lower scores. Table 4.1 displays the basic descriptive analysis outcomes of all variables used in this research.

Variable N Minimum Maximum Mean Std. Deviation Skewness Kurtosis

Internal Social Sustainability 598 6,6 44,5 25,996 6,4027 -,111 -,203

Sustainable Supplier Management 598 ,3 9,1 3,904 1,9519 ,610 -,206

Local Involvement 598 ,1 14 5,497 2,9179 ,443 -,432

4.3.4 Control variables

In this research control variables have been used. Control variables are variables that are not taken into account in the hypotheses and the conceptual model, since these are used to remove the variation that is caused by the control variables, and therefore increase the validity of the study (Helmuth et al., 2015). Adding control variables is also

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known as the ‘purification principle’ (Spector & Brannick, 2011). For this research, two types of control variables are used, these are explained below.

Firm size

According to González-Benito (2010), firm size is often put in perspective to financial performance, but it has not proven yet if firm size has an effect on the internal social sustainability. Larger organizations however can exert more power over their suppliers in reaching economies of scale. Still, this has to do with financial performance and not with internal sustainability. At the same time, developing sustainable strategies require resources. These resources are often limited for smaller firms when comparing to bigger firms, and are therefore harder to achieve (Wang et al., 2018). Firm size is expressed in number of employees. For this study, there are four different possible options for deciding on the firm size of the researched organizations. These four possible options are assessed in an ordinal way of measurement as the options are categorized from smallest option to largest option. However, these groups are not used for measuring them mathematically, solely to be assigned as labels for options.

Industries

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groups, which have no quantitative value or order. The frequencies of both firm size and industry are given in table 4.2.

Table 4.2; Frequencies of control variables

Sector Frequency Company size Frequency

Manufacturing ₈₈ _1-9 ₂₉₀ Agriculture & Growers ₉ _10-49 ₂₂₃ Service with minor environmental footprint ₃₄₁ _50-249 ₆₄ Service with significant environmental footprint 42 250+ 21 Wholesale & Retail ₁₁₈

4.4 Data analysis

The first step that has to be executed to perform data analysis is to sort the dataset. The data file is a .CSV (Comma Separated Values) file (Hoffman 2018), which can only be opened in specific computer programs and not in Excel or SPSS. Therefore, the file must be converted first in order to open the data set with Microsoft Excel and SPSS.

Next, the data needs to be filtered. As mentioned in the data collection, not all organizations can be used for this research. Since the research starts from the perspective of the dependent variable, it is important that all data for this variable is available, assuring that there are no empty data points. This has led to 860 data points for the dependent variable. However, this is not the ultimate number of data points that are used. Organizations that have been measured for over more than one year, and therefore have multiple data points, are filtered out. The multiple measurement points are taken out as these are not relevant for a cross-sectional research. These would be useful for longitudinal research, and therefore the data can be set aside for potential follow-up research. If there are any missing data points for any of the other variables, the data of an organization cannot be used for this research and is taken out. Lastly, extreme outliers are taken out as well, otherwise these could influence the outcome of the analysis, without knowing the origins of these scores. Extreme outliers are marked by SPSS with an asterisk. This leaves the research with 598 usable organizations.

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relationship is still executed manually through the regression option of SPSS. In addition, if the outcome of the regression analysis proves that the moderator is significantly related to the direct relationship, the Johnson-Neyman output option is applied as well. The Johnson-Neyman output shows at what scores of the moderator, the moderator facilitates or hampers the independent variable’s relation to the dependent variable. In total 2 regression analyses are performed to find the relationships between the independent variable and the dependent variable, and the moderation effect on this direct relationship.

In table 4.3 a correlation matrix has been created. The correlation matrix is used to find any variables that have high correlation to each other. Correlation between variables is the highest when the outcomes are either -1 or 1. The closer the Pearson r-coefficient to zero, the less correlation two variables have to one another. A problem that could arise with high levels of correlation is that it makes it hard to find what variable influences the relationship that is tested. According to Sabilla et al. (2019), a Pearson r-coefficient greater than 0.90 indicates a near perfect correlation. This is also referred to as ‘common source bias’ or ‘multicollinearity’. Ratner (2009) adds that correlation scores below (-)0.70 are not problematic. Table 4.3 shows a correlation score of -,571 that is the closest to (-)1, of all scores. The correlation scores are double checked by analyzing the variables in SPSS and cross-check these on collinearity diagnostics. The scores on tolerance of all variables remain above 0.10 and have a VIF score between 1 and 5, which indicates no collinearity problems (Daoud, 2017).

Table 4.3; Spearman Correlation results

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1. Internal Social Sustainability 1

2. Sustainable Supplier Management -,203** 1

3. Local Involvement ,238** -,246** 1

4. Company size -0,007 -0,003 -,219** 1 5. Manufacturing -,328** ,208** -,294** ,189** 1 6. Agriculture & Growers -0,079 ,135** -,052 -,041 -,051 1 7. Service with minor environmental _footprint ,503** -,461** ,408** -,181** -,478** -,142** 1 8. Service with significant environment _footprint 0 -0,052 ,182** ,059 -,114** -,034 -,317** 1 9 Wholesale & Retail -,310** ,381** -,346** ,032 -,206** -0,061 -,571** -,136** 1 **. Correlation is significant at the 0.01 level (2-tailed)

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5. Results

In this results section, the outcomes of the two analyses are explained that eventually test the two hypotheses. Both hypotheses are tested in multiple steps to show how adding control variables and the moderator influence the standardized ß-score. Model 1, in table 5.1, illustrates the baseline of the study where only the control variables are included. The standardized ß-score show their effect on the dependent variable. In model 2, the effect of the direct relationship between internal social sustainability and sustainable supplier management is measured, including the control variables that show how control variables influence separate variables. In model 3, the last step, the moderator is included. For the control variable ‘industries’, agriculture is not taken into account in the table as it serves as the benchmark for the dummy variables. This means that the score of the other control variables is compared to the agricultural sector. For example, the manufacturing variable scores -,180. If this same manufacturing variable would have been used, the score of agriculture would then have been ,180. The adjusted R² is used to provide an estimate of the strength of the relationship of X and Y, also referred to as ‘explanatory power’. A higher adjusted R² indicates that X has a higher influence on Y than when this number is lower. It is argued by Armstrong (2019), that adding more variables automatically leads to a higher adjusted R². Table 5.1 contains the standardized ß-score of the variables, and between brackets, the P-value of each standardized ß-score is displayed.

Table 5.1 shows in model 2 the outcome of the analysis where the direct relationship between internal social sustainability and sustainable supplier management is tested. In this step, the control variables are included. Here, it shows that the outcome of the analysis ß = ,095 and is significant at a level of P< 0.05. Therefore, H1 is supported as a correlation between higher levels of internal social sustainability and higher levels of sustainable supplier management is found. Next, the second hypothesis is tested, and these outcomes are displayed in model 3 of table 5.1. At step 3 the moderation effect of the moderator on the direct relationship between internal social sustainability and sustainable supplier management gives a standardized ß-score = ,1620 and is significant at a level of P< 0.05. This means that a correlation is found, with a significance level of 95%, that when organizations that focus on internal social sustainability and have close collaborations with local communities, are facilitated in expanding their social code of conduct towards their suppliers. Therefore, H2 is supported.

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SPSS PROCESS v.3.5 macro of Andrew F. Hayes that calculates the relationship between the ‘predictor outcome effect’ and the moderator. This shows the results how the moderator effect has regressed to the direct relationship between the independent and dependent variable (Lin, 2020). The outcome of this analysis is displayed in table 5.2. In the first column, the score of the moderator is given, the second column shows the moderation effect it has on the direct relationship, and in the third column, the P-value is given. In the first row, the moderator has a negative score of ß = -1,7436, which leads to moderation effect of ß = -,1088. However, this score is not significantly tested and therefore, this may not be assumed. When analyzing table 5.2 it could be concluded that a positive slope in moderation effect is present when the ß-score of the moderator increases. However, this can only be claimed when a significant P-value has been derived. The first standardized ß-score of the moderator that has resulted in a significant P-value is at ß = -,1266 with a moderation effect of ß = ,1532. This would mean that above ß = -,1266 of local involvement, the moderator starts to be significantly influencing the relationship of the independent variable on the dependent variable, as marked in bold in table 5.2.

Table 5.1; Regression analysis

Dependent variable: Sustainable supplier management (1) Baseline (2) Baseline + Internal social sustainability (3) Baseline + Internal social sustainability * Local involvement INDEPENDENT VARIABLES

Internal social sustainability 0,095* 0,1737*

(,023) (,0248)

Local involvement -0,0685

(,2282)

Moderation effect 0,162*

(,0392)

Baseline Included Included Included

Company size _-0,078* _-0,087* _-0,001*

(,032) (,017) (,0168)

Manufacturing _-0,188 _-0,18 _-0,5455

(,079) (,091) (,070)

Service minor environmental footprint _-0,732** _-0,782** _-1,5622**

(,000) (,000) (,000)

Service significant environmental footprint _-0,317** _-0,331** _-1,2576**

(,000) (,000) (,000)

Wholesale / retail _-0,116 _-0,116 _-0,3204

(,325) (,327) (,2790)

F Score _44,018 _37,811 _29,0017

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**P<0,01, *P<0,05

Table 5.2; Johnson-Neyman output

Johnson-Neyman significance region(s)

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6. Discussion

The purpose of this study was to understand the influence that focal firms have on their suppliers, by having their own socially sustainable operations in place, and if this is adopted by supplier as well, creating more socially sustainable supply chains. Additionally, a second purpose of this study was to find the influence of involving communities on the direct relationship between internal social sustainability and sustainable supplier management. As studies on social sustainability were lacking, it was a huge opportunity to make steps in this field of research. Linking GRI standards that focus on topics such as occupational health and safety, and training & education, to the variables given by B lab would indicate that higher levels of social sustainability within organizations are being achieved. However, does tackling shortcomings of these topics internally also lead to higher levels of social sustainability upstream in the supply chains? According to Welford (2005), this has become even harder as supply chains are more often globally dispersed, which makes it more difficult to control quality levels, but also sustainable operations in the supply chain. This subject has not been investigated on supply chain level, and for this research internal social sustainability has been linked to sustainable supplier management which is defined as: ““the management of all activities along the upstream supply chain related to the purchased component to maximize triple bottom line performance” (Sarkis, 2003; Pagell, et al., 2010 (in Zimmer et al., 2016)). In order to argue that internal social sustainability indeed does lead to sustainable supplier management, the outcome of the regression analysis has to be significantly positive.

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7. Conclusion

This study is conducted to find an answer to the research question: “To what extent can internal social sustainability be translated to socially sustainable operations upstream in the supply chain and is this relation moderated by involving local communities?” By using the survey data of the organization B lab, the (social) performance of certified B corporations is measured.

For answering this research question, two hypotheses have been developed. The first hypothesis claimed that there would be a positive direct relationship between internal social sustainability and sustainable supplier management. The second hypothesis argued that involving the local community as a moderator would enhance the direct relationship. Both hypotheses were significantly tested and are therefore supported.

To conclude, the outcomes of this quantitative study have shown a correlation between organizations that are operating socially responsible and higher levels of suppliers that operate socially responsible as well, resulting in more socially sustainable supply chains. Moreover, organizations that are socially responsible, rely on local suppliers and are deeply involved in the local community are facilitated in expanding their social code of conduct towards their suppliers due to higher levels of supply chain visibility and control. On the contrary, companies that have a more internationalized supply network and are not involved in the local community tend to have problems in doing so because of more dispersed suppliers and higher chances of supplier sustainability risks, making controlling the supply chain harder, as concluded by Orzes & Sarkis (2019).

7.1 Managerial implications

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economic sustainability (Karana et al., 2014; Panigrahi et al., 2019), and as it has proven that (social) sustainability is an important factor. This is also because social sustainability has received increased pressure from outside the company (Maon et al., 2009; Schleper et al., 2017; Hughes 2001). Therefore, being an organization that has implemented CSR becomes more important. It is crucial for managers to take this into consideration.

As the results of the analyses have shown, including the local communities in the supply chain led to higher levels of sustainable supplier management. Managers should take this into account when the organization strives to become more sustainable and is orienting for new suppliers. In this research it was unknown how long and internationally oriented the supply chains were. As local involvement would indicate ‘reshoring’, it cannot be proven and might not be applicable for every organization. For example, an organization that has a long and international supply chain might be hard to give up in order to improve local involvement and is therefore too difficult for managers to effectuate.

7.2 Limitations and future research

This study presents interesting results, that could be valuable for academia, but also practitioners in business. However, these outcomes need to be interpreted within the limitations of the study. The limitations will be displayed below.

The first limitation of this research has surfaced during the data analysis. When analyzing the data set and the questionnaires provided in the appendices, the data and variables appeared to be aggregated data. Aggregated data is the outcome of individual answers that are combined into larger data points (Garrett, 2003). For this research it applies for example to the independent variable. As mentioned in the operationalization of the research, the independent variable focuses on multiple GRI standards, which in turn cover different aspects of social sustainability. As a result of data aggregation, the outcomes of the variable cannot be separated by questions. Therefore, it cannot be concluded if, for example, higher levels of ‘occupational health & safety’ have a greater impact on sustainable supplier management than ‘training & education’.

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Additionally, the dataset of B lab is based on existing results in empirical data from a business perspective, giving insight in how organizations really do operate, being more valuable for practitioners than the study of Vangen (2017). The study of Vangen’s (2017) unit of analysis were MBA students, which could cause outcomes that are not representative in the field itself. Secondly, this research is limited by its control variables. The control variables are used for deleting variation that is caused by predictable variables (Helmuth, 2015). However, these control variables cannot be used anymore for any other purposes. As noticed by the research of different scholars, such as Kinley & Navidi (2013), Xu et al. (2019), and Arlbjørn et al. (2011), different industries require different types of supply chains. Also, among industries Heikkilä et al. (2018) argue that the level of reshoring varies, which makes the topic ‘industries’ an important factor. For future research, this could be seen as an opportunity. By using industries as separate independent variables, it could be investigated what types of supply chains perform well on social sustainable aspects and which do not. Furthermore, this enables different supply chains to learn from each other.

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The influencing role of the focal firm for the development of social sustainable supply chains