Category Archives: Sustainability

You Need To Get Sustainable On Your Own Because Customers Still Won’t Pay …

A recent survey by Accenture, summarized on their newsroom in June (Source found the same thing the Trade Extensions survey found five years ago — while customers say they want sustainable, the most important factors are quality and price, with 89% and 84% of customers, respectively citing those as their most important considerations … with environmental impact only cited by 37% of respondents.

So, even though slightly more than half of consumers indicated they would be willing to pay more for sustainable products designed to be re-used or recycled, you can bet that the premium is still limited to 5% or less (which is the maximum amount of cost increase an average consumer would tolerate, as per Trade Extensions’ 2014 survey as reported here on SI in do as I say, don’t do as I do).

So even though the inclination of your senior buyers might be to forego sustainability and ethics when sourcing on the go for the supplier that provides the best value for money, quality, or price, especially since that’s what the average buyer wants, this approach is, now more than ever, the exact opposite of what you should be doing as you need to be quadrupling down on sustainability efforts.

Inflation is here to stay, raw materials are getting scarce and increasing at multiples of the inflation rate, and with Trump inciting the trade-wars to new heights, if you’re not sustainable to the full extent possible, you can expect costs to skyrocket much faster than you can increase prices (as average salaries aren’t going up as fast as cost, and with GDP growth slowing globally, you can expect salaries to stagnate due to lack of market exuberance).

And when we say raw materials are getting scarce, we mean it. Let’s remind you as to what the average consumer wants to buy. Fashion. Electronics. Media. Now consider what these items are made of. Cotton. Rare earth Minerals. Paper. All of these items are in limited, decreasing, supply. Increased drought and increased need of limited farmland for food production are causing cotton prices to increase. (If even leading global clothing brands are starting to invest in recycling programs to try and harvest back cotton, you know scarcity is real and project cost increases significant.( Rare earth minerals are decreasing but demand in modern electronics gadgets is steadily increasing. And paper, well, there are only so many trees and some take decades to grow.

In other words, costs are going to go way up — and, at some point, costs are going to go up to the point the product becomes unaffordable to produce (as it won’t be able to be sold at a profitable price point … and then what does the organization do?). At that point in time, the best strategic sourcing and negotiation skills in the world aren’t going to be worth a dime because you can’t source for less than cost, and if costs skyrocket because there is (much) more demand for the materials than there is supply, your costs skyrocket and your consumers go elsewhere.

But if you quadruple down on sustainability, and source products that use alternative, more readily available, and if possible, renewable materials, from suppliers that focus on recycling and material recovery, then your costs will stay down while your competitors’ costs go up. That’s why, despite your inclination to follow your customers, you have to do a 180 in the other direction to make sure that you keep those customers as time moves on.

And if you design your products for reuse and recycling, even better!

Remember that Sustainability Requires a Shared Understanding

With raw materials getting scarcer, energy costs getting higher, environmental conditions getting worse, and people upset by this all around, sustainability is becoming more important to the supply chain not just from a brand perspective, but from a long term business survival perspective.  But it’s not enough to just say you’re going to be sustainable, only use sustainable resources when the option is there, and only use suppliers who accept your sustainability agenda.  You have to walk the walk as well as talk the talk and make sure all parties involved understand what sustainability really means.

For example, using recycled materials where the recycling process takes more energy or creates more carbon than creating new materials from renewable resources is not a smart move.  Sometimes you want to create reusable materials or containers and not just recyclable ones. Etc.

And while it can be easy to state the goals, it can be difficult to communicate exactly what those goals mean and how they should be addressed.  And, more importantly,  why it is important if the sustainable way costs more, takes longer, or displaces traditional suppliers if they don’t change their core business.

And if people don’t accept the why, the how won’t materialize.  So how do you address the how?  Point out anciliary benefits that could be worth more in the medium and long term than the short term (switching costs).  For example:

  • brand reputation
    if it makes customers want to buy from you, especially those that will spend 5% to 10% more to feel sustainable, that’s good … and while most people don’t want to pay more for sustainability, if a rival brand does something unsustainable or politically incorrect and gets a media backlash, all of a sudden your brand becomes favoured
  • risk management
    if the new material is (more) sustainable, easier to produce, more widely available, overall supply risk is lowered and that’s a good thing since every risk that materializes causes a disruption that is very costly to the organization
  • supplier engagement
    if you can find a supplier who lives and breathes for sustainability, they might be much more willing engage with you on joint-development projects for joint-benefit than a supplier mass-selling the same old widget to a wide supply base, especially if it is a widget that hasn’t changed in five years and it’s now high profit and the supplier has become fat and lazy because it gained a large market share that allowed it to be less aggressive in its offering
  • long-term savings
    if, after the switching costs are covered, the longer term cost projects are lower, than it’s worth the up-front investment

And make sure to point out how the decision stacks up with respect to concrete sustainability factors such as:

  • raw materials
    are the materials you are using renewable and can they be extracted with minimal harm to the environment
  • energy requirements
    are the energy requirements associated with your purchase (for production, storage, and transportation) minimal and can they be met with renewable resources
  • waste products
    are waste products minimal and/or reusable and/or reclaimable? can the food waste be used to feed livestock? can the metal waste be melted down and reused?
  • worker treatment
    are all workers who take part in your supply chain treated ethically, responsibly, and fairly, using standard guidelines

If a supply management decision would increase brand reputation, reduce risk, contribute to medium and long term value, enhance supplier relationships, use renewable (and non-environmentally harmful) raw materials, reduce energy requirements, or minimize (or eliminate) waste in production, and do any of this in the context of ethical worker treatment, then, regardless of what definition of sustainability each individual on a cross-functional sourcing team is partial to, it should be easy to agree that such a decision, at least in the mid-term, is sustainable.

Maybe You Can Be a Procurement Hero!

Everyone wants to be the corporate hero, but at the end of the day, very few people in a company get to be society’s hero, and fewer still without blowing the whistle on criminal activity (and being made the target of a well paid hitman).

But if your company is big enough, and the spend you’re responsible for is large enough, you can sometimes do the right thing for the company and the right thing for society (even if it’s a bit tough at first).

How? You get corporate buy in to use your corporate spending power for good. You get commitment that it’s not just the lowest cost, it’s the lowest sustainable cost that meets minimum ethical guidelines. You get a commitment from the C-Suite to not only do your best to follow what is becoming the law in many jurisdictions and eliminate slave, forced, and child labour from your supply chain but to do it because it’s the right thing. Then, you can also get a commitment to shift at least some supply to suppliers that are making efforts to be more sustainable (and not polluting the local water table) or corporately responsible (and making efforts to improve the quality of life of their workers or the local community). In certain categories (primarily sourced from low-cost countries), each of these options will generally be a bit more expensive in the short term than going with the lowest cost supplier, who likely underpays the workforce or destroys the local environment, but well worth the temporary cost increase.

First of all, your C-Suite won’t have to worry about criminal charges or jail. Secondly, sustainable suppliers tend to be around for the long haul and get more leaner, more productive, and more cost effective over time — especially with your investment (and work with you to contain costs when they start to rise). Third, you can market the heck out of your commitment to sustainability and corporate responsibility. While not all consumers will pay more, some will, and those that are willing are those that will stick with you. Plus, when your competition stocks out because their supplier is finally shut down for its poor practices, you won’t have any disruptions.

Now, you’re probably saying one buyer can’t make a difference, but if you are buying a multi-million, or hundred million, category for a Fortune 500 / Global 3000, that’s a lot of money and you can use it to make a huge difference. No supplier wants to lose out on that amount of money, and even current suppliers can be changed.

Plus, if you band together with peers that are part of a trading network (like the Ariba Network that does more commerce annually than Alibaba, Amazon, and eBay combined) and all make a commitment to stop buying from a certain supplier until they adopt certain minimum corporate responsibility and sustainability requirements, you can bet that supplier will turn on a dime.

The reality is that if Procurement gets a Purpose in the Global 3000, and practitioners can garner the resolve to stick to their guns, they are one of the few people who can make a difference in this corporate driven world. It won’t be easy, but is anything worth doing?

For a slightly deeper dive into Procurement With Purpose, check out the doctor‘s two-part series over on Spend Matters (Part I) and for a much deeper dive, check out the public defender‘s new paper on Procurement with a Purpose — Making a Positive Impact on Organisations, Human Rights and Communities, sponsored by Ariba.

Recycling Efforts in Trouble due to the Political Climate?

Today’s guest post is from Brian Seipel, a Procurement Consultant at Source One Management Services focused on helping corporations understand their spend profile and develop actionable strategies for cost reduction and supplier relationship management.

There are plenty of opinions when it comes to the environment on both ends of the political spectrum. You can likely find thousands of posts across the internet on the topic, were you so inclined. I promise that this post doesn’t delve into either side’s take on the planet or our stewardship of it.

So where else might a post of recycling and politics go? More to the point, how does it align with news Procurement Pros may be interested in? As it turns out, plenty of Procurement pros have a stake in the fate of our collective trash.

And in terms of America’s biggest partner in the recycling process, China, we have a problem thanks to a ban set to take effect in Q1 of 2018.

Setting the stage

A good amount of paper, corrugated, and plastic packaging products can be recycled and reused to create new packaging materials. These same materials can also be transformed into other products and, likewise, other products can be turned into packaging. Plenty of packaging procurement initiatives touch upon recycled materials.

At the heart of this recycling transformation are the organizations who purchase these recycled materials so they can be remade into valuable products. Since the early 2000’s, these organizations have been overwhelmingly found in China. In terms of American exports of bales of scrap, China is our number one partner, with these facilities importing over $5.6 billion annually in American paper, metal, and plastic scrap.

It isn’t just the US that exports recyclable scrap to China – the International Solid Waste Association reported in 2014 that 56% of the world’s scrap was exported to China. Clearly, any disruption to China’s buying habits of this scrap material will have very real effects on recycling initiatives globally. In turn, companies involved in the purchase of products made from recycled materials should keep an eye on these import-export relationships.

So what’s the problem?

Recycling isn’t easy – a lot of work needs to be done to get scrap material in shape to recycle. It takes real resources to process scrap material. The cleaner and better sorted scrap is when it arrives at a Chinese factory, the easier, faster, and more lucrative it is to convert to recycled materials. As such, it isn’t surprising that China has been more and more interested in ensuring a quality scrap product in recent years.

This demand for better scrap material, and objection to what China is calling excessively contaminated shipments, have led the country to ban a number of solid waste imports.

This could potentially have a direct impact on the availability of “virgin” materials as we move forward into the ban next year. For example, fewer sources of recycled paper products could lead to a tighter pulp supply and higher costs.

How Will the Scrap Industry Respond?

Assuming China does, in fact, move ahead with plans to ban key scrap imports, American companies are going to have to come up with a response. Several are on the table:

  1. Forego recycling, and send scrap shipments to the landfill instead.
    This is not the greatest of solutions by any means, but if companies take no steps to change behavior, this will be the natural result of a “do-nothing” stance on the problem.
  2. Fight the ban on a socio-political basis.
    From the language of the ban, to the impact the ban will have on businesses both foreign and domestic, there is certainly opportunity to challenge China’s path forward in terms of viability.
  3. Add more quality controls.
    In terms of recycling, an empty soda can is both garbage and a product. If China’s main concern is one of quality control, then steps taken to improve quality levels (in other words, ensuring a process that removes contaminates before bales of scrap are sent to China) may alleviate China’s concerns, and help move the scrap industry back on track.
  4. Further develop and strengthen alternative markets.
    Local organizations may also benefit from building some diversity into their strategies. China put a very fine point on the issue with this waste ban, but their intentions aren’t new, either. China has been increasing their scrutiny of imported scrap bales for the last several years, leading to the rejection and return shipment of subpar bales – Some American exporters have used these intervening years to plan alternative outlets for their scrap. This may include finding other countries to export to, or finding local customers for this scrap material.

The Institute of Scrap Recycling Industries (ISRI) is a US-based trade association made up of organizations from 30 countries that represent the lifecycle of recycled materials; from processing to brokerage, to industrial consumers. ISRI released a nine page response to China’s ban, which provides a few key talking points – Essentially, ISRI’s opening response combines items two and three above.

The response opens by challenging the language of China’s ban, arguing that clarification is required on China’s end to better outline how the band will be enacted (ISRI suggests, of course, that China should follow guidelines developed by ISRI to achieve this goal. Simultaneously, the response calls China’s own capabilities into question in comparison to the United States’ recycling industry: “where it takes 1,150 tons of recyclable fiber to make 1,000 tons of new paper in the United States, it takes 1,300 tons of recyclable fiber to make the same 1,000 tons of new paper in China. As a result, Chinese manufacturers have come to rely on the supply of high‐quality scrap from abroad in order to stay competitive.”

Moving forward

It is too early to say what the true impact will be moving into 2018. The American scrap industry has set wheels in motion to fight the ban politically, as well as ramp up efforts to either improve scrap exports to China or find alternative destinations for the material.

One thing is certain, however. Moving forward, Procurement teams in markets that rely on recycled materials should keep their eyes open and attention focused on China’s next moves.

Thanks, Brian.

Compliance – A Complex Problem with few Procurement-Centric Solutions

Why is compliance a complex problem with few Procurement-Centric Solutions? Because compliance goes well beyond the narrow view that many platforms take. At a high level, we have:

  • Regulatory Compliance
    which consists of government regulations at various levels that need to be adhered to and consists of requirements across organizational governance, workforce, materials, services, trade, and environmental considerations
  • Organizational Compliance
    which consists of adhering to the policies your organization puts in place for purchasing, inventory tracking, regulatory compliance, auditing, etc.
  • Industry Compliance
    which consists of adhering to industry standards and collective agreements
  • Governance
    which consists of ensuring that all governance requirements of the organization are met across the regulatory, organizational, and industry efforts

And when you look at the market, most of the solutions on the market are narrowly focussed on:

  • Environmental Compliance across environmental sustainability factors
  • Trade Compliance to insure that all trade regulations are adhered to (and appropriate paperwork filled out)
  • Tax Compliance to insure all appropriate taxes paid (or reclaimed)
  • Workforce Compliance to insure all workers are eligible, appropriately paid, and/or appropriately insured
  • Governance Compliance which makes sure appropriate internal processes are followed (and documentation maintained for audit trails)

… and, to slightly modify a common phase, never any two shall meet. And that’s why it’s a complex problem with few solutions in Supply Management. Will this change soon? We shall see …