Hard Facts: Ethical and Sustainable Sourcing roundtable

Without access to the facts, procurement directors have an all but impossible task to drive change in sustainable purchasing. but even with the facts, it’s anything but easy.

Fact-based decision-making lies at the heart of successfully addressing the challenges of sustainability, according to the cross-industry group of procurement executives who had gathered at Shakespeare’s Globe Theatre in London to debate sustainability issues in the supply chain and procurement.

It was a lively session with vigorous debate among the attendees. One thing soon became clear: without access to the facts, improving sustainability, whether environmental, social or ethical, just isn’t possible. Only when they are armed with the facts can business leaders take the next step and collaborate. And it is this collaboration that will ultimately drive the consistencies in measurement metrics, audit procedures and the necessary KPIs to make a difference.

Ignorance
Steve Parr, supply chain director at UK house builder Taylor Wimpey, was the first to explain how important access to the relevant information is. “We have major investors asking us about our sustainable procurement,” he said. “They drill down into the detail from a product point of view. They care about timber, but they probably don’t give a damn about the light switch that might be made in China using child labour (and I’m not saying we do that). So even from an investor perspective, they’re actually uneducated and not making decisions based on fact.”

It was a point backed up by Peter Lacy, head of sustainability at event sponsor Accenture. “Very few companies have a really good fact base about their impact on some of these sustainability areas,” he said. “So they don’t even have the baseline to be able to have a real dialogue with consumers and explain the complex trade-offs there are between cost and quality and some of the sustainability issues.”

The drivers of sustainability proved difficult to pin down, however. Neil Deverill, until recently the executive VP of group procurement at mining giant Anglo American, said that, in his industry, pressure wasn’t coming from customers. “Nobody has said to me, ‘By the way, customer X, Y or Z is really concerned about how you’re doing stuff.’ But regulatory assurance is absolutely enormous. We can’t move because of the regulatory expectations.”

Copper constraints
He described how Anglo American has sustainable policies at its core because of the nature of mining. “In Peru, we just bought ourselves a new project to mine copper in the mountains there and part of the deal was that for two years we had to set up an entire community and invest in that community before we even cut any earth,” he said. Anglo American can’t even close a mine unless it ensures that the land is regenerated and the local communities are sustained into the future.

But the retail sector, for example, is led far more by political pressure and consumer spending power. Accenture’s Lacy explained that research conducted by his firm found that 55% of consumers were prepared to change brand on the basis of poor sustainable performance.

And then there is PR. “Being cynical for a moment, one of the reasons why the institutional investors are very keen to understand what you’re doing about sustainability is because they want to be seen investing in the right companies, in the right area,” argued Laurence Moran, chief procurement officer at telecoms company Cable & Wireless. “They don’t want an absolute disaster on their hands.”

One of the best examples of both the power of public relations and the need to understand the facts was put forward by Caroline Booth, chief procurement officer of bank Lloyds TSB, who worked for Shell during a furore over the planned end-of-life sinking of a UK oil tanker loading buoy called Brent Spar in the 1990s, which was eventually broken up instead because of a Greenpeace-fuelled public outcry.



“I was still in Shell when that happened and it was absolutely the wrong thing for the environment,” said Booth. “The absolute best thing for the environment was to take it out in deep water and sink it. They were talking about all the heavy metals and things that were on Brent Spar and somebody said to me that it was in reality the equivalent of about four AA batteries. And I said, ‘Why on earth don’t you say that?’ Even if you’re not trying to put positive messages out, you have to actually manage the messages.”

While the drivers of sustainability are wide-ranging, it is only by aiming for consistency – at least across industries – that real momentum will be made in reducing carbon emissions and improving sustainable practice. Several of the attendees are involved in crossindustry steering groups or think tanks designed to address the issue. And all were happy to share their experiences and projects with the group.

“Let me give you a simple fact,” said Taylor Wimpey’s Parr. “It costs us £7m per annum to dispose of the waste that is generated in building houses. What is even more intriguing is that the cost of those construction materials we are disposing of is more than ten times that.

So it’s costing us at least £77m in waste disposal. We’ve done more and more analysis and it doesn’t matter which channel we go down, as soon as you start to pull out the facts you can start to build a business case.”

Martin Perminas, procurement strategy director at the UK’s Royal Mail Group, made the point that Parr’s example was as much to do with hard cash as with softer, sustainable issues. “Your business case is not a sustainability business case, it’s an economic business case,” he said.

Good for business, good for green
Perminas offered another simple example. “At Royal Mail, if we could cut our £150m worth of spend on diesel by a third because we have better driver patterns, better logistics, etc, that’s just good for business. But it’s having a positive effect on the environment.”

Obviously, suppliers are vital to the whole process. The problem is, how do you ensure that they are following sustainable policies themselves?

“How many of us actually demand that every single supplier to the organisation states whether they have environmental policies in place?” challenged Parr.

While several attendees said they did just that, according to Moran the issue goes deeper. “Are you going to actually set up an army to check what they say? We ask for the commitment. ‘Do you comply? Yes we do.’ And you do a cursory audit of the paperwork, but do you actually send your team out there to ensure they did it? You just can’t afford to do that; that’s the issue.”

Jonathan Wright, a partner in the supply chain service line at Accenture, highlighted another problem area. “I was talking to a client and they were saying that their supply base is relatively immature, so they can’t rely on it to have rigorous processes. So actually they’ve got to educate and put processes in place to help them manage their carbon emissions,” he explained.

It was a point picked up by Booth, who also explained how her industry is getting around the problem. “I think where you have to be very careful is around handling the smaller suppliers who don’t have the bandwidth to respond,” she said. “Financial services has got a cross-industry group to actually come up with one set of questions that we are using in an online questionnaire. So that’s one of the ways of actually alleviating the burden on some of our suppliers.”

Perminas questioned how companies could afford the resources that such a process inevitably required, and it was an issue that most attendees agreed was difficult. Booth explained that, at the time, her organisation was going through a major transformation anyway, and assessing every contract in the business. As a result, assessing environmental and sustainability issues at the same time wasn’t a major extra overhead.

As part of Lloyds TSB’s approach to sustainability, category managers have sustainability targets as well as cost savings targets. “Within every category we have all the dimensions and what the impact is on the CSR [corporate social responsibility],” explained Booth. “Every month we have a CSR steering committee. For carbon, we have a waterfall diagram as to how much we think various initiatives are going to take out to get to our target, which is aligned for 2012.”

Nine-month job
Eddy Hills, head of UK sourcing at Reuters, said his organisation’s supplier ethical code took about nine months to put in place, with one colleague working on it for 50-60% of their time. “You don’t necessarily go out and create a separate function to do it,” he said. “You utilise the resources that you have. It becomes part of supplier relationship management. It becomes part of their daily sorting, and it becomes part of their category plans.

“The very first step was making sure that we’d got our top suppliers signed up and those suppliers that we had identified as being more sensitive in terms of corporate responsibility issues signed up to the code as well. It enables us to take it forward from being a department that was promoting a supply chain ethical code to looking at a range of facets to make us a department in the organisation that can at least take a chair at the table when it comes to steering this.”

Hills explained howthesenior leadership team at Reuters took it as a bonusable objective last year. “I think it gave us the focus we wanted,” he said. “Interestingly, though, people see it as an important issue. This year it’s not a bonusable objective, but it is one of our measures.”

While Hills’ focus last year was to get as many suppliers signed up to the code as possible, this year it’s more about looking from a regional perspective and how different suppliers from different regions can learn from each other and adapt best practice throughout the supply chain. “We’re recycling in many respects,” he said before going on to explain how setting consistent standards and KPIs across the industry is the next challenge. “We’ve still got some work to do in that space.”

Heather Rodgers, head of group procurement and supplier management at Centrica, was able to offer an insight from the perspective of an energy company. Centrica has established a centre of excellence to drive sustainability through its supply chain and Rodgers chose an enthusiastic graduate to work together with one of the senior leaders in the company to go out and check what other companies were doing. She also worked with the Carbon Trust, a UK government-sponsored organisation that helps businesses address their carbon footprint challenge, which she described as “invaluable”.

“We brought in 20 of our key suppliers to start talking with them to say we can’t do this on our own, we have to work with you,” she said. “Some were far more advanced than others and you could see the other suppliers scribbling down notes. The ripple effect was very good and we’re in our second session where we have been talking with them on the roll out of responsible procurement and supplier management policies in the supply chain.”

Absolute baseline
However, she hinted at some of the issues that multinational companies face to ensure consistent standards throughout their supply chains, and the need to make some tough decisions. “I remember participating in an executive debate about the social and environmental challenges of operating in Nigeria” she said. “Our chief executive was unequivocal about the need for our business principles and operating standards to be upheld wherever we operate. This approach is essential to meet the challenges of operating in sensitive geographies head on.”

The sustainability debate is a huge area to cram into a two-hour roundtable debate, not to mention a four-page article. But ultimately, sharing knowledge and understanding the facts lie at the heart of the issue. Only then will the business world truly be able to make its mark on the issue and, at the same time, reduce costs and increase profitability.

However, Parr illustrated just how far some sectors have to come. “Across the hundreds of local authorities up and down this country, every single one of them has a different view, either around procurement, around materials or whatever. There’s complete inconsistency. I’ve sat on forums with local government, major architects, the investment community and I’ve heard it go round so many times in so many different ways,” he said.

And to make that difference, executive support is key. “You can’t really have a clear CSR strategy if one division wants to talk about it but the others are indifferent,” said Lee Carlyle, director at Credit Suisse. “So within Credit Suisse it is the CEO who drives CSR and environmental matters. I think that is absolutely vital.”

Don’t mess with the message
One particularly heated debate during the evening focused, perhaps not surprisingly, on public relations and spin, which perhaps inevitably has found its way into corporate sustainability messages.

Martin Perminas of Royal Mail had an issue with how some companies market compliance with environmentally based regulations as evidence of being green. “The green spin starts to come out,” he argued. “It’s because you’re doing something that’s legally compliant. My argument would be, don’t position that as being green; that’s being compliant.”

Others disagreed. Neil Deverill argued that his former company, Anglo American, is “missing a huge opportunity” to call itself a green mining company. “It’s a cost already because you’ve got to do it,” he said. “If you have a marketing strategy that tells people you’re doing it, you’ll actually create revenue as well.”

But Peter Lacy of Accenture sounded a note of warning. “I think you need to be very careful in making claims about green that aren’t substantiated or aren’t differentiated,” he said. “Communicating it as something to differentiate your company with consumers is dangerous because greenwash can actually come back and do more damage to you as a brand.”

If you would like to contact any of the roundtable attendees, email editor@procurementleaders.com