Category Archives: Sustainability

Can You Solve the Modern Compliance Challenge? Can Ecovadis?

Compliance used to be easy. Collect the tax information. Make sure the other party is not on a denied party list. Don’t buy or sell a restricted material without the right permits and don’t buy or sell a banned substance. Done.

But then came globalization. Now you had to collect information for import / export requirements. Satisfy a new slew of tax regulations. Comply with additional inspection and security requirements. Track all of the restricted substances, denied materials, and denied parties of another country. And then as supply chains lengthened and ships made multiple port stops, multiply these requirements.

And that was manageable, but then came a new round of financial regulations, like SOX, in the wake of corporate meltdowns (like Enron) which made compliance more cumbersome. And that was somewhat doable. But with the global penetration of the internet, news spread faster and faster and the unsafe and sometimes inhumane working conditions that outsourced providers were comfortable with made the news regularly, the dangers of poor “recycling” efforts which just saw almost toxic waste dumped on mass to ill-equipped “recycling” centers, and the use of slave/child labour where it was not known before.

As a result, ethical countries started implementing laws on environmental protection, dangerous substances, especially around recycling and disposal, ethical and safe working conditions in the supply chain, and even anti-trafficking and anti-slavery laws — all of which the last link in the chain, the end buying organization, was responsible for.
This makes compliance a bit more tricky. There’s lots of data on financial performance and financial risk, certifications, import/export, and even public sector performance data, but when it comes to corporate social responsibility — environmental compliance, worker’s rights, anti-trafficking, and so on – where do you get that data. Not D&B. Not BvD.

This is where a new generation CSR player comes into play – one that tracks environmental data, sustainability data, social compliance data, and third party audits. But there aren’t many players here yet, and Ecovadis is the largest. But will they be able to take their European success and globalize? While there are a few other players in Europe (Sedex Global, FLO-CERT, e-Atestations, etc.), there are few, if any in North America.

Ecovadis likely has the best shot, especially with their ever-increasing partner footprint, but they need to be the first to scale and win over the hearts (and wallets) of global procurement organizations, especially those in North America, which generally are not as advanced around CSR tracking compared with their European counterparts. The road ahead will be interesting to watch.

Reuse, Recycle, Re-manufacture … Now! (Updated)

Sourcing Innovation has been promoting sustainability since the beginning and design for recycle since the very early days, which is essentially what you are doing if you are designing for remanufacturing, which is taking way too long to take hold in the manufacturing sector, with even fashion poised to overtake it (considering H&M and Zara are not only taking back clothes, but working on technology to create fabrics that can be more easily reused in the future).

When you think about the average complexity of today’s consumer products, especially in electronics, it becomes clear that when a product breaks, it is typically only one component that is broken and a replacement of that component makes the product useable again. That’s why a lot of computer, tablet, and phone manufacturers have entered the refurbishment business — once the damaged or defective part in a product that was returned under warranty or reclaimed upon disposal by a customer, it can be reused and, more importantly, resold.

But the concept doesn’t end with electronics, and doesn’t end with refurbishment. Electronics can be designed more modularly with re-manufacture in mind, so that parts can be upgraded en-masse when the products are returned en-masse in a regular upgrade cycle. For example, if laptops were designed for easy replacement of not only memory and drives, but processors and peripheral connectors (in anticipation of USB 4, Thunderbolt 2, etc.), the previous generation models could become the next generation models and resold as either lower-end offerings in the same market or new offerings in a foreign, emerging market.

And automotive suppliers, who not only know that parts wear out, but when parts are likely to wear out, and which parts wear out together, could not only design their engines to make it easy to replace parts, such as spark plugs, batteries, belts, filters, and pumps that wear out quickly, but also the engine block as a whole, that is going to wear out in 7 to 15 years, depending on the average annual mileage, if the rust-proof frame can last for 15 to 30 years. Given the choice, many people on a fixed income (who don’t live by the ocean and have rust to worry about) would rather replace the engine for 3,000 to 5,000 and keep the car for another 7-10 years if the frame is fine than pay 25,000 or 30,000 for a new car. And while this may not look as attractive from a bottom line perspective to a manufacturer, it significantly reduces the chance of the customer migrating to a different car company, which is very common if a competitor is offering a significantly better deal on a comparable car.

Plus, if the components are themselves designed for remanufacturing, it will be relatively easy for the manufacturer to reclaim the raw materials from the damaged or defective components, which is where a lot of the cost comes in, especially if we are talking rare earth metals. For example, the price of praseodymium-neodymium oxide exceed 1.70 an ounce and prices of terbium oxide (a semi-conductor that is used as an activator for green phospors in colour TV tubes) exceeded 112.00 an ounce this summer, and it keeps rising!  Gold, a metal used in many electronics products, is now hovering around $1500 an ounce. And while there is not much gold in a single laptop, when you put fifty of them together, you’d likely get an ounce. And given that there are roughly 100 Million PC laptops and computers sold a year, that’s close to 2 Million ounces of gold that need to be reclaimed!

And, as per a now classic green & clean article, remanufactured products offer cost savings in the 45% to 60% range! So if doing the right thing isn’t enough, that should be enough of a justification to invest in remanufacturing! This goes double if you are in electronics (for some of the reasons given above) or automotive, where the global market for remanufactured auto parts is projected to reach $91 Billion by 2026. (Source:
Persistence Market Research)

So, regardless of what you want to call it, it’s time to do it. It’s not just good environmental stewardship, it’s good economics.

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.