Working with Suppliers on Responsible Business Issues

February 12th 2015

Lecturer: Tobias Webb

Tobiaswebb.blogspot.com

Why bother?

• For a lot of sectors, that’s where the ethical and environmental liabilities and impacts are.

• So much is outsourced to contract manufacturers and providers today, many brands are just brands, doing R&D, contracts marketing and sales (some outsourced by franchise).

• Suppliers are usually poorer, lower margin and often based in emerging markets or have fewer resources they can apply to sustainability / ethical management issues.

• Suppliers are vulnerable to being squeezed.

So what’s the business case?• Factories with better

management have fewer ethical breaches = less bad headlines

• Fields with better management are more productive: More units…

• Reputation with NGOs and Media stakeholders improves

• Supply security and resilience• Financial efficiency which can

be shared• Innovation and new ideas to

improve process, products and even services

• Employees stick around! (China)

Dole Foods uses SA8000 to improve productivity

Why help suppliers improve?

• Companies under pressure on supply chain ethics

• Audits only have limited value to improve

• Supplier engagement now has much stronger business case due to evidence

What do we mean by ‘improve’?

• Obliquity: Achieving goals by alternate means. For example:

• To stop factory fires, teach managers how to run a better factory

• Brands using “lean” to achieve ethical gains: Better management = less accidents

Innovative factory engagement training

What’s the state of play then?

• Lots of basic engagement in audits: 1000+ companies members of Business Social Compliance Initiative

• Many audits are open to corruption and fraud• Most doubt they do much good when genuine: Likely help

stop the worst abuses at best• Less depth than there should be in helping suppliers

improve their operational efficiency and business models, access to finance

• Mainly it’s the biggest companies / brands who are doing the most, often due to basic reputation concerns and health/safety compliance rather than real innovation

• Good list of more progressive firms found at ETI website.

So why is this?

• Old, profitable models die hard

• Companies are under-resourced in engaging suppliers – and don’t spend the money they could on supplier engagement beyond audits

• Procurement teams are ‘old school’ focused and incentivised on the best deal around

• The business model of some companies can be anti-sustainability, based on playing suppliers off each other and shopping around every five minutes

So who is doing interesting work?

Coca-Cola Enterprises * Marks and Spencer * Unilever * Nestle

Ethical brands of course: Patagonia / Interface * Mars * New Look *

Nike – let’s take a look here – panel here and campaigners here and company here

* Puma / Kering * Dow / DuPont * IKEA * SAB Miller * Wimar * Golden AgriResources * Sime Darby * New Britain Palm Oil etc

Many many others, too many to name here!

Apple is a good example of recent challenges and some solutions.

Here’s an example from Intel: Conflict free supply chains.

Ikea’s recent achievements

• Asian Fabrics, a textiles supplier in India, achieved 100 per cent energy independence after installing a 1.5 MW PV array and four turbines that generate 20 MW wind energy.

• Jansons, textiles supplier based in Erode, Southern India, inspired by Ikea’s People and Planet Positive strategy implemented 15+ measures. These include ystem to recycle wastewater for printing, new dyeing process which uses less water, and saves energy.Janson’s have been able to save over 285 MWh of energy and 69 million litres of water through this initiative.

Ikea’s recent achievements

• Ikea in India associated with WWF and other partners to support over 100,000 cotton farmers in India. They are helped with skill development, seed selection, harvesting, water management, less use of chemicals & pesticides and marketing.

• In India, Ikea currently has 48 suppliers with about 45,000 direct employees and about 400,000 people in the extended supply chain.

• Read more about it here

Golden Agri Resources• Huge global Palm Oil

company, controversial: Indonesia operations

• Campaigned against by NGOs, Greenpeace etc

• Struck deal with pressure from Nestle, Unilever, with NGOs

• Committed to zero deforestation footprint & RSPO membership by 2015. Won back customers.

• Share price rose as a result

“No deforestation” commitment: Now extended to pulp & paper Sister company APP in Feb 2013

Coca-Cola Enterprises• EU bottling/distribution

arm of Coke. Leading on sustainability in Coke world-wide

• Engages suppliers, holds annual awards, encourages eco-innovation, offer support

• Shares results and best practice

• Reducing supply chain impact year after year: Cutting carbon, emissions and costs

Waitrose, UK supermarket

• Assisted vegetable supplier Barfoots

• Reduced waste by 30,000 tonnes, Removed 3000 tractor journeys from local roads to move waste

• Anaerobic digestion plant offsets 3200 tonnes of carbon per annum

• Ultra violet light technology eliminated the use of water during sweetcorn cleaning

PepsiCo cuts carbon & water • PepsiCo: Helping farmers

with direct rice seeding in India cuts water by 30% and carbon by 70%

• Engaging farmers in EU to reduce carbon footprint

• Helped potato farmers measure water and climate footprints

• Encourage “more crop per drop” attitude

• Stakeholder engagement roundtable and some results here

Direct rice seeding saves resources

Conclusions

• The business case is evolving slowly

• Most companies see suppliers as a cost, not an opportunity

• Only a few understand that engagement is better than audits

• Audits cheap: Engagement less

Audits have limited value

Conclusions

• Pilot projects/case studies have delivered excellent results

• Scaling these and sharing knowledge is a major brand challenge

• Technology seen as major solution: Better, smarter systems

• Innovation also coming from emerging markets: India, Turkey

Tesco: Funding supplier technical training

Conclusions: How do brands help?• Access to technical

knowledge• Best practice sharing• Financing/loans• Contract surety / Longer

term contracts • NGO partnership brokering• Change the way they

source: Fewer changes to orders at the last minute, for example PepsiCo’s Icrop technology helps farmers

Check out Zimele – Anglo American initiative on SME development

APP progress report and slideshow

Rainforest Alliance audit 2014

Forest protection issues for APP

Plantation

Forest