Category Archives: CSR

Procurement Trend #10. e-Procurement Integrates Sustainability

We’re down to seven anti-trends. And even though most of the “future” trends we are now discussing are recent enough that the older generation can actually remember their beginnings with clarity, we need to follow LOLCat’s lead and find a way to stop the beat of the futurists‘ drum because, even with these trends that started in some of our life-times, the drum has been beaten to death and I still fear, like LOLCat, that the futurists’ may soon return to the age old art of cat-skinning to make a new one!

So why do these hare-brained futurists (who obviously re-enacted one too many Looney Tunes skits during wabbit-season) keep pushing the integration of sustainability into e-Procurement as a future-trend? Is it because, after years of real forward thinkers trying to convince the Businessman that cost-savings and sustainability weren’t diametrically opposed ideas, the futurists finally clued in? Or is it because

  • energy prices are going through the proverbial roof

    and they are grasping at straws trying to find a solution (and lucked on the right one)

  • raw material supply is running out

    and they finally realize the importance of sustainability in supply management, but since that’s not catchy, they chose to integrate it with the first concept they pulled out of their hat (and got lucky again)

  • CSR is increasing in importance with consumer concern

    and since customers are telling them to buy responsibly, and buying is e-Procurement, this must be the way to go.

Well, they are right. But leading companies have recognized this since the 1990s and have been doing this for well over a decade. They recognized that while renewable energy had a high-up front cost because it required large investments in solar panels, windmills, and turbines and new plants to either store excess energy produced during peak times in natural pump storage or huge battery arrays, it’s cost over time approaches pennies per Megawatt hours as sun, wind, and water power, unlike coal and oil, is free. Once the plant construction costs are paid off, it is just maintenance costs. It doesn’t matter if the technology is only 80% efficient and the pump storage only captures 60% of excess energy. The energy is free! Plus, these forward thinkers, unlike our futurists, also recognized that fresh water would soon be in short supply and invested in plant redesign to minimize water requirements.

Energy Prices

You need to go renewable to the extent possible and put plans in place to get to 100% renewable energy for all fixed operations and short-haul transport as soon as is feasible. While electric and bio-diesel may not yet be a suitable option for long-haul 18 wheelers, trains, and air-planes, electric and bio-diesel has bee proven cost effective for local courier delivery and hybrid has been proven cost-effective (by Walmart) for long-haul 18-wheeler transport. And if you build your own power plant, the long-term return from solar, wind, and/or water power, depending on where your operations are located, will be enormous. So there’s no excuse to not be using renewable energy for the majority of your energy needs. Plus, the first company to get 100% renewable for its operations gets huge bragging rights and brand karma!

Raw Material Supply

As per our post on increased raw material scarcity, you have to facilitate alternate designs that reduce or eliminate rare earth minerals and other expensive metals in limited supply and design for recycle in the interim so that you can recover as much as possible of the rare-earth minerals as possible to keep future costs down. (Preferably without outsourcing to a third-world country that breaks down your products in improper environments without proper containment and safety gear for handling your products that contain hazardous chemicals. No one wants your e-waste, especially if its hard to handle. If even India enacted anti-dumping legislations for e-waste, that should tell you something.)

Corporate Social Responsibility

We are approaching the point where it is no CSR, no sale, with many consumers, and as far as the doctor is concerned, it cannot come soon enough. We won’t knowingly put up with sweatshops and unsafe working conditions at home, so we shouldn’t put up with it in our supply chain. To turn a blind eye is hypocritical and, to be blunt, just unacceptable. It is time to get sustainability initiatives in place, embed ethics in the supply chain, and embed responsibility in the organizational culture. Suppliers don’t have to go the extra mile, but they should provide their workers with safe working conditions, a fair wage based on the local market, and actively insure that child labour is not used in their supply chain.

Key Priorities for Ethical Supply Chains – An Interesting Study

Software Advice, a software review company which covers the supply chain management space, recently posted the results of its “Key Priorities for Ethical Supply Chains” Industry View 2014 that discussed the results of two surveys distributed to over 1,100 consumers. The findings are interesting, generally indicative of the current state of affairs, but, as far as SI is concerned, specifically off, though not due to any fault of Software Advice or the methodology employed by the researcher. What do we mean? Read on.

In the first survey, the group of over 1,100 consumers was split into three and each group of consumers was asked how much more they would pay for a product, normally priced at $100, that was produced more ethically with respect to one of three ethical initiatives: ethically sourced materials, carbon emission offset, and good working conditions. The first group said they’d pay an average of $18.50 more if the raw materials were ethically sourced, the second group said they’d pay an average of $19.70 more if the product had its carbon emissions offset, and the third group said they’d pay as much as $27.60 more if the product was made by workers working in good working conditions. A deeper dive revealed that 35% of consumers would not pay a penny more for products made under these ethical initiatives. And while the second finding does not surprise the doctor, he does not believe the first finding in its entirety. But more on that later.

In the second survey, the respondents were asked which of the three broad ethical initiatives would make them more likely to purchase a company’s products: working conditions, reduced environmental impact, or community involvement. The results were more-or-less evenly split. This does no surprise the doctor either.

So why doesn’t the doctor believe the average consumer would pay considerably more (an average of 21.93% if the above survey is to be believed) for an ethically sourced product? Three reasons.

  1. In the vast majority of verticals, it is not the most socially responsible company that is the market leader.
  2. Fly Research’s recent survey, which attempted to determine what factors are really important to consumers in their purchasing decision, found that only 9% of UK and 16% of US consumers rank “ethical company/brand” in their top 3 attributes but the vast majority are more concerned with value for money (86%), price (76%), and quality (73%). (See SI’s recent post on Do As I Say, Don’t Do As I Do!
  3. The study did not take into account the inherent bias of the consumer. As a result of recent disasters and media storms — including the fire in Bangladesh, the BP oil spill, and underground sweatshops in Russia — not only is corporate ethics and supply chain sustainability on the mind of many caring consumers, but it is stirring up their emotions. And an emotional subject is not an unbiased one. While a consumer might try her best to be unbiased when responding to a survey, when all of the questions stir emotional responses, her responses are going to be skewed relative to what they would be compared to the situation where only a small portion of the survey contains questions or answers that stir emotions. So had these been just three factors in a pool of ten or more that she is asked to consider when defining what is most important to her when selecting a product for purchase, and the other seven plus do not stir any emotion, she will be able to better balance her emotion with her objectivity. And this is why when you compare the results of this survey with the Fly Research study, you find a discrepancy (that cannot be easily accounted for unless there is emotional bias in the consumer responding to the surveys). How else do you explain that a third of consumers expressed a wilingness to pay over 10% more (and up to 100% more) while another third expressed a willingness to pay up to 10% more when the Fly Research study found that less than 43% would pay more than 5% extra and the percentage of respondents who would pay more than 5% declined much faster than the percentage of respondents in the Software Advice Study.

In other words, consumers are starting to care, aren’t necessarily sure which issue they care about the most, will definitely choose a socially responsible product over one that is not socially responsible if all things are equal, but if the cost differential is too high, the average consumer will not be swayed to a more socially responsible product, despite their desire for social responsibility. So while the issues are likely spot on, the relative worth to the average consumer is still in question.

However, in addition to confirming our suspicions that there is no high level issue with respect to social and environmental responsibility that is considerably more important than the others, the study did reveal that if you drill down, there are some specific issues that concern consumers more than others. For example, where environmental responsibility is concerned, more consumers care about reduced water use and biodegradable packaging than reduced carbon emissions. Where community involvement is concerned, 43% believe that the best thing a company can do is to open a factory where jobs are needed (and not outsource to another country). And where working conditions are concerned, 45% believe workers should be paid a fair wage. This gives you starting points in your CSR efforts that will earn you brownie points and increase your brand’s reputation if appropriate initiatives are undertaken. It will be interesting to see how these trend over the coming year.

You Need to Get Sustainable Because Customers Won’t Pay!

As per Monday’s post on Do as I Say, Don’t Do as I Do, while customers say they try to buy from companies with a good record on sustainability and ethics, but don’t always, the reality is that only 9% of UK customers and 16% of US customers rate ethical company/brand in their top 3 attributes, being considerably more concerned with value for money, price, and quality. Furthermore, while most customers say they will pay more to buy from a sustainable company, they won’t pay more than an extra 5%.

As a result, the inclination of most senior buyers might be to forego sustainability and ethics when sourcing and go for the supplier that provides the best value for money, quality, or price, especially since that’s what the average buyer wants. But this reactionist approach is the exact opposite of what you should be doing! In fact, you should be doubling down on sustainability efforts.

Consider 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. 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 up — and, at some point, costs are going to go up significantly. 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 double 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.

Do As I Say, Don’t Do As I Do!

As promised, today is Masquerade Monday.

There’s a lot of hype about the importance of ethics and sustainability to today’s consumers and how companies that aren’t sustainable and ethical are at risk of consumer boycotts and bankruptcy.

But is this really the case?

In an attempt to answer this question, Trade Extensions commissioned Fly Research to conduct two general public awareness surveys to answer the question. Fly Research collected 1,000 responses from US consumers and 1,000 responses from UK consumers. The results were not quite what you might expect.

While 47% of UK and 48% of US consumers say they “try to buy from companies with a good record on sustainability and ethics, but don’t always“, when asked what was important when shopping for goods only 9% of UK and 16% of US consumers rank “ethical company/brand” in the top 3 attributes. In contrast, 87% are more concerned with value for money, 76% are more concerned with price, and 73% are more concerned with quality I’d expect.

Furthermore, when given the choice, only 31% of US and 19% of UK companies are much more likely to buy from companies with proven policies on sustainability and ethics. And, furthermore, while 90% state that they would be happy to pay a little more if they knew that an item was sustainably sourced, the majority, 47%, would not pay more than 5% extra!

In other words, while the masses say they want sustainability and ethics, they want sustainability and ethics only as long as it doesn’t cost them anything.

220 Years Ago Today, Congress Banned US Vessels from Supplying Slaves to Other Countries

However, slavery was not banned in the US until 1862, 68 years later! It’s unfortunate that while the Congress of 1794 was enlightened enough to ban the spread of slavery, they were not progressive enough (or should I say benevolent enough) to ban slavery outright. The sad truth is that the forefathers of the robber barons new that cheap labour was the key to building their empire, and didn’t want to ban slavery as the cheapest labour was free labour.

And the lust for cheap labour continues until this day. The abolition of slavery didn’t do much to increase the average person’s quality of life as there were no minimum wage law until 1933 and no minimum wage law between 1935 and 1938 (as the first law was struck down by the Supreme Court). As a result, only those lucky enough to be protected by the unions in the mid-to-late 19th century had any guarantee of a decent wage until the minimum wage act came into force.

And what happened when the minimum wage reached its highest purchasing power ever in 1968? The new robber barons of the 1970’s started to look abroad for cheaper labour and by the early 1980’s, the biggest organizations were starting to outsource to China, Vietnam, and other low-cost locales. (And when those locales got expensive, outsourcing spread to other locales like India, Malaysia, and the Philippines and a blind-eye was turned when the supply chain used child labour.)

The lesson here is that 220 years ago the Congress of the United States embarked along the right path with a very ethical decision to ban US ships from supplying slaves to other nations, but didn’t follow up with an across-the-board ban on slavery. As a result, slavery endured for three more generations and gave the US a black eye from a historical human rights perspectives that it need not have gotten. Similar tardiness with respect to unions’ rights legislation, minimum wage laws, equal rights laws, and child labour laws have also resulted in black eyes either for the nation or some of its biggest corporations that spread its image around the world.

There’s no need for any of this, especially today when your organization can control its fate and its image (and have a positive effect on the image of its country). It’s time for you to put an end to “just do as I say, don’t do as I do” in your supply chain and take proactive efforts to make sure you’re socially responsible across the board and across the supply chain. Stand up and make the US a leader in global human and worker rights initiatives. Show the emerging markets what they have to achieve if they truly want to be a first world super-power. It’s not just about GDP.