Category Archives: CSR

The State of Sustainable Procurement Reporting

ORSE (Observatoire sur la Responsabilite Societale des Entreprises) just released a detailed 36-page study on “Sustainable Procurement Reporting”, sponsored by Ecovadis, that aimed to identify the major trends in terms of Sustainable Procurement Policies. Many of the observations were not unexpected given the recent uptake in sustainability in the corporate world, but a few of the findings were disturbing.

First of all, the finding that European companies are twice as effective at communicating their sustainability goals and structuring their policies (75% of European companies are at an ‘advanced’ level compared to only 40% of American companies) is bothersome. Why is Europe so far ahead of us?

Secondly, despite the fact that 95% of companies mention Sustainable Procurement in their Sustainable Development reports, only 51% of companies have quantitative Sustainable Procurement targets. Without goals, it’s all just a bunch of hot air.

Thirdly, even though two thirds of North American companies (and almost nine tenths of European companies) analyze supplier performance, in some sectors, less than half of the companies assess the CSR performance of their suppliers. Why is performance so inconsistent across industries?

Fourth, only 13% of companies have a sustainable procurement team. While dedicated full time staff are not required, there should be a dedicated team of employees who have sustainable policy development, implementation, and (supplier) training as part of their job.

Fifth, on average, only 6% of companies train their suppliers to be sustainable. In order for sustainable practices to take root, they need to spread. In order for them to spread, they need to be taught.

In other words, the state of sustainable procurement reporting is improving, but there is still a long way to go. For more details, check out the detailed 36-page study on Sustainable Procurement Reporting.

What’s the Fastest Way to Lose a Supplier?

It’s a good question, but is it one that has a statistically backed up answer? I have to admit, I don’t know, but I’d like to.

Recently, I came across this article over on the Get Satisfaction blog on the “fastest way to lose customers”. According to the article, the top three reasons that customers leave a company are because:

  • they move to the competition
  • they are dissatisfied with the products and service
  • they don’t like the treatment they received

However, most of the time, it’s because they don’t like the treatment they received. In fact, that’s the case seven (7) out of ten (10) times.

But how often does a supplier leave when they don’t like the treatment they receive? My guess is not very often. As long as the bills get paid, suppliers will put up with a lot more than customers, even if they shouldn’t. However, go long enough without paying your bills, and your suppliers will probably bolt faster than lightening after serving you with a summons. However, depending on order size and frequency, it could take a while before the amount owed is enough for the supplier to drop you.

So what is the fastest way to lose a supplier? And how do you prevent it from ever happening?

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To Make Your Supply Chain More Socially Responsible, Find the Value

An article late last year in the McKinsey Quarterly on “making the most of corporate social responsibility” — a topic that is at the forefront of everyone’s minds given the recent headlines about the rash of Foxconn suicides — made a great point: if you want CSR (Corporate Social Responsibility) initiatives to take off, find the value. Without it, you’ll be limited to pet projects, propaganda, and philanthropy — and while the latter can be good if you donate to the right organization, you’re not really doing anything as an organization if you’re just passing the buck.

The article suggested that the way to develop an approach that can truly deliver on lofty ambitions and achieve real success for the business and for society is through smart partnering which focuses on key areas of impact between business and society and develops creative solutions that draw on the complementary capabilities of both to address major challenges that affect each partner, and it made some good points. By combining strengths to overcome each partner’s weaknesses, two organizations can often make more of an impact than one.

But if you read closely, and think about the examples the article presents, the real key to success is finding a solution that brings short and long term value to society and to the business. If it only brings value to society, as soon as times get tough, funding for the initiative will be the first item cut from the budget. If the only real value is to the business, the recipients of the initiative won’t be that interested in participating and the company risks being, correctly, accused of propaganda and / or greenwashing. But if the initiative helps society and the business in the short term and contributes lasting value to society and the business in the long term, then the initiative will be a success (and the company will look like a hero in the eyes of the media, which will generate even more success for the company as it will increase its brand value).

The Unilever examples provided in the article are prime examples of how value insures success. In the Kericho example (in southwestern Kenya), where Unilever applied sustainability principles to the production of tea and focussed on productivity, sustainability, and environmental management, even though Unilever had to invest more money up front, Unilever won in the long run as they gained greater control over a critical supply of raw material while improving productivity. And the initiative was a success for society as the farmers made more revenue and increased their skills and living standards. Both parties win from the initiative, so both will continue to support it through the long term.

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The Governator Has Your Supply Chain In His Sights!

Are you prepared?

As recently reported in Procurement Leaders, California Governor Arnold Schwarzenegger is being lobbied to sign a bill that, if enacted, would require retailers and manufacturers doing business in California to disclose their efforts to eradicate slavery and human trafficking from their direct supply chain. A letter, signed by 32 signatories representing organizations with assets of $40 Billion under management, which supports The California Transparency in Supply Chains Act of 2010 (SB 657) has been sent to the Governor, urging him to sign the bill, which will affect approximately 3,200 global companies with revenues of more than 100 Million each.

Beginning January 1, 2001, the bill requires companies (with more than 2 Million in annual sales) to publicly disclose the policies they have in place to ensure their supply chains are free of slavery and human trafficking, including the extent to which the company uses third party verification to evaluate and address human trafficking and slavery risks in their direct product supply chains. It also requires companies to conduct independent, unannounced audits of suppliers to ensure compliance. A company that does not comply will face action from the Attorney General for injunctive relief in addition to remedies that may be sought for violating other state and federal laws.

Giving the realities of the marketplace, the pressing need for companies to be sensitive to social and ethical issues, and the support of organizations that control over 40 Billion in assets, there’s a very good chance that the Governator will sign the bill into law. Are you prepared?

Supplier Audits Must Be Surprise To Be Effective

As per this recent article in CPO Agenda by Meryl Bushell on why “ethical audits aren’t the final word on supplier standards”, in the past few years, audits have been shown to be ineffective for workers and also to be increasingly affected by fraud, double bookkeeping and coaching for workers so that they give “the right answer”.

If a supplier who knowingly violates common standards on child labour, health, safety, and hygiene, working hours, and wages (among other things) knows that they are going to be audited on a given day, they are going to be prepared. They’ll send the child labour home. They’ll reduce the work force on that day to “safe” numbers (which is whatever number they have enough “show” protective equipment for and / or whatever number fits in the factory without overcrowding). They’ll make sure to give the staff that will be present that day some “time off” the previous two days (i.e. they’ll only work them 8 hours instead of 16) so they don’t look dog dead tired. And they’ll fix all the books so that everyone makes a “living wage”.

But if you show up unannounced, you’ll see how things really run. You’ll see whether or not they (regularly) use child labour. (In some situations, child labour is okay. We let our children work part time at McDonalds when they turn 13. If they only employ children part time for light work in safe situations, in struggling economies, that’s a good thing because it boosts the family income, teaches them responsibility, and gives them a better quality of life. But if they work the child labour 80 hours a week in the mines or on the shop floor, that’s a different story. In this situation, they should all get life in work-camp prison doing the same job.) You’ll also see how “safe” working conditions really are and whether or not their people are not overworked simply by counting the number of employees with bags under their eyes and lifeless faces. (And if you get to the office fast enough, you might even catch them with the real books on the table!)

In addition, as Meryl recommends, you should also make sure that the surprise audit includes a detailed forensic assessment and unsupervised off-site interviews with random workers. This type of audit can quickly reveal a range of serious problems including child labour, below-minimum wages, faked records and protective equipment provide only during audits even when the standard on-site audit reveals only minor issues.

Now it’s true that regular surprise audits can pose quite a resource strain on your suppliers, and a financial strain on the suppliers that aren’t committing ethical atrocities in particular, and that your average supplier shouldn’t be subjected to more than a couple of surprise audits each year, but this problem is easily rectified if you cooperate with other major customers of the supplier and hire a reputable third-party that specializes in ethical audits to perform the extended surprise audits (with forensics and off-site interviews) on your behalf. This way, the supplier knows that they won’t be overburdened with too many resource and productivity draining audits, without knowing when the semi-annual audits will actually happen. It’s a win for everyone.

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