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Takingthe lead

A guide to more responsible procurement practices

Contents

Taking the lead nwww.cips.org2

02 Table of Content

03 Foreword

03 About the Author

04 Executive Summary

05 Why Change?

07 A Platform for Success

08 Leadership and Accountability

10 Knowledge and the Consequences of Buying Actions

12 Managing Conflicting Priorities

14 Thinking and Acting Beyond Short-Term Horizons

16 Managing Relationships in the Supply Chain

18 Responsible Use of Power in the Supply Chain

20 Responsible Procurement Principles

22 Vocabulary and Definition of Terms Used

www.cips.org �Taking the lead 3

In a world where everything is connected, understanding the impact of our sourcing decisions matters. Whilethe concept of sustainable sourcing is not a new one, the increase of global sourcing opportunities has broughtthe current gaps in procurement practice more to the foreground. As custodians in the ‘external’ face of anyorganisation, it is crucial that procurement professionals begin to address this challenge if their business is toremain competitive and continue to secure the trust of their clients and suppliers.

Foreword

Better governance of procurement andmore transparency are required to support this. Equally, procurementactions and targets must be integrated and aligned with wider organisational objectives. Wemust be aware of,and accountable for, the effect of our actions both directly in terms of what we do and indirectly in terms of whathappens in the supply chain on our behalf. This has significant implications in terms of our level of knowledgeand howwe approach andmanage commercial relationships.

If the procurement profession is to seize these new opportunities, as well as avoid the risks of globalisation, itmust take a wider, more responsible look around.

The Chartered Institute of Purchasing and Supply, along with Traidcraft, hope that this document will act as a realcatalyst for change and as a tool to help the professionmove forward. It’s a vision for the future and one whichwe hope you will help to make a reality.

Ron JarmanCIPS President

ABOUTTHEAUTHORs

Chartered Institute of Purchasing andSupplyCIPS is an international organisation, based in theUK, serving the purchasing and supply profession. Dedicated to promoting good practice,CIPS provides awide range of services for the benefit ofmembers and thewider business community.

Traidcraft ExchangeTraidcraft Exchange is theUK’s only development charity specialising inmaking tradework for the poor. In collaborationwith local partners itworks to create opportunities for those in poverty to harness the benefits of trade, helping them to develop sustainable livelihoods and offeringthemhope for a better future.

TheChartered Institute of Purchasing andSupply (CIPS) and Traidcraft are part of the Responsible Purchasing Initiative (RPI). The RPIworkswith purchasers and sourcing experts to learn fromand improve howsourcing fromdeveloping countries contributes to sustainabledevelopment and to develop good practice. Formore information visit www.responsible-purchasing.org

Traidcraft Exchange commissionedGrahamCollins towrite this report. Graham is aDirector of procurement consultancyProQuest ConsultingLtd. Previously; he held roles as Supplier CSRProgrammeDirector andGlobal Procurement Capability Director at Diageo, buying roles atUnilever, VPSourcing Europe for JPMorgan, andHead of Strategic Sourcing for theNational Australia Bank –where he established aworldwide centre of procurement excellence.

The publication of thisreport has been fundedby the Departmentfor InternationalDevelopment

Taking the lead �www.cips.org4

The European Union (EU) benefits enormously from the openness of its markets, the flow of goods and servicesand economic migration. Growth has been positive for 59 successive quarters, 1more than any developednation, and corporate profitability is at an all-time high.

ExecutiveSummary

However, economic success and thetransfer of wealth throughincreasingly globalised supplychains bring no guarantee that itsultimate distribution will be fair andequitable or that it will impactpositively on those in greatest need.

Even within the EU itself, wherestandards are generally high andthemanagement of suppliers andsupply chains well developed,vulnerable groups, individuals andsuppliers are still open toexploitation. Our use of naturalresources and the environmentalimpact of our actions is currentlyunsustainable.

Increasing external scrutiny andinvestor and consumer awareness,and changing expectations on theother hand, and shaping thepolitical and corporate landscape.Acting responsibly by taking fullaccount of social, economic andenvironmental considerations isnow firmly centre stage.

Why is procurement in thespotlight?Trading relationships and thebehaviour of buying organisationsinfluence the flow and allocation ofeconomic resources and have avery significant impact, whetherdirect or indirect on poverty, socialand environmental conditions andthe development of countryeconomies.

The key question is to what extentbuying organisations, particularly inan increasingly globalisedmarketplace, are exposingthemselves organisation to risk bynot understanding their impact andinadvertently accentuatinginequality or damaging fragilesocial, economic and environmentalresources. Purchasing professionalsare directly responsible for theselection of their suppliers andwhether the relationships theydevelop with these suppliers resultsin exploitation or in theimprovement of social, labour0 andenvironmental conditions to agreedstandards. Purchasingorganisations need to set out thesocial, labour and environmentalconditions they expect to be inplace at their suppliers’ sites ofproduction and agree with relevantsupplier-facing staff how theyshould work with their suppliers tocommunicate, collaborate andenable them to achieve thesestandards.

It is for the purchasing organisationto select and develop the social,labour and environmentalstandards they expect of theirsupply base. As a minimum, apurchasing organisation would beexpected to source from suppliersmeeting the law of the country ofproduction as well as enable theachievement of minimuminternationally agreed labourstandards, as set out by theInternational Labour Organisation.

At a time of relentless competitivepressure to deliver highershareholder returns and reduceprices for customers, thetemptation might be to passinappropriate risks onto suppliers.As such integration of theseconsiderations presents buyingorganisations with a very realchallenge as well as an opportunityto realise commercial benefits andmake a positive social, economicor environmental difference.

Time to act: for those managingprocurement, the need for actionhas never been greater. The prize isa substantial one.

For those leading organisations, itis time to make procurementpractices central to strategicthinking and to manage andscrutinise them in line with theirimportance and the scale ofopportunity and risk they present.This publication presentsrecommendations on how toorganise procurement practices tosupport social, labour andenvironmental standards in thesupply chains serving you.

Whether you are a CEO, CFO orHead of Procurement, werecommend you begin to realiseour vision for more responsibleprocurement by benchmarkingyour organisation’s capabilityagainst our ten Fair Exchangeprocurement principles and wherethere are gaps, work to adopt asmany of them as you can.

1Source Ernst & YoungItem Club Report –May 2007


Whychange

Risk Reward

Driving Forces –Components ofBusiness case

Loss of Controland Failure toDeliverGreater supplychain complexityincreases theneed for cleareraccountabilitiesand secureexecution,particularlywhenworkingglobally orthroughintermediatesuppliers. Poorlyselectedsuppliersmaynot deliverproducts orservices on timeand to correctspecification.

IncreasedVulnerabilityThe legislative,regulatory andthe consumerenvironment istightening andcompetitivepressure isbuilding. Aconsidered andpro-activestancewill makeyourorganisation lessvulnerable andreduce thepossibility ofknee jerkreaction toevents you donot control.

Loss ofStakeholderTrustConsumers andotherstakeholders arebecomingmoredemanding, notonly expectingyourorganisation to“saywhat itdoes”but also to“dowhat itsays”. Losingtrust by notfollowingwordswith actions canhappen inminutes but areputationmaytake years torebuild. Trust isthemostimportant assetyou have.

CompetitiveAdvantageThe supply chainis a key sourceof value creationand supplymanagement acritical enabler.Goodprocurementworks acrossthe supply chainto alignresourcesbehind keybusinessimperatives. It isa source ofcompetitiveadvantage.

CommitmentPeople andsuppliersmakechoices aboutwho they prefertowork for andhowmuchcommitmentthey give.Responsiblebuying practicescreate anopportunity toattract andretain the bestandmostcommittedsuppliers andstaff, leading tobusiness savingsand innovation.

ResponsibleTradingRelationshipsSecure thebenefits of trade,particularlywithdevelopingcountries, safe inthe knowledgethat yourorganisation isactingresponsibly andmaking themostpositive impact itcanwith itsmoney topeople’s lives.Equally, staffappreciateworking for acompany that‘cares’.

Responsible Sourcing andPurchasing Practices

External andinternalrestrainingforces

InertiaA lack ofpressure,leadership orwillingness tochange.

Trends andPower ImbalancesTrends in buying practices, combinedwith economic and powerimbalancesmay inhibit partnershipworkingwith suppliers needed toaddress social, labour andenvironmental concerns associatedwith purchasing decisions.

CapacityThe lack ofcapacity (skills,commitment orresources) tochange. Goodpractice social,labour andenvironmentalperformancelags behindmove to globalsourcing&procurementexpertise is stilldeveloping.

Confusion – external and internalResponsibilities for social, labour andenvironmental performance is sharedby buyer, supplier, and publicauthorities. A lack of internal sharedvision and accountabilitymay occur ifthe demand for “more responsibleprocurement” practices developswithout the benefit of a coherentorganisational framework, is unclearor not grounded in the culture of theorganisation.


What forces stimulate change andwhat is restraining implementation of responsible purchasing practices?

Whychange

There is a strong commercial casefor actingmore responsibly.Responsible procurement isessential to the core business of acompany, since no business cansell its goods or services unlesssuppliers deliver those goods andservices on time, to the agreedspecification and cost.

Research for this publicationinvolved procurement directors,category and buyingmanagerswho cited compelling reasons forchange.2

As with all transformationprogrammes, implementation is ajourney, as Figure 13illustrates. Thetask is to lead progressivelythrough a concerted programmeof information, education andactions to gain the commitmentneeded and ultimately, tointernalise the change, at whichpoint it can be considered to be“business as usual.”

Economic logic drives supplier development for SABMillerOur SouthAfrican origins and our experience of operating in emergingmarkets have helped us to understand howour economic successimproves the lives of people living in poverty.Webelieve that emergingmarkets need tomove away fromaid dependence towards encouraginghome-grownenterprise and opening up opportunities for investment. Economic success creates employment, generateswealth and, in ourcase, fosters stronger local supply chains and amarket for our products. (SABMiller, SustainableDevelopment Report, 2007)

2 The research wasundertaken during 2007and brought together theinput of buyers, suppliersand experienced supplychain practitionerssupplemented desk basedresearch. Examples areused to illustratedimensions of the subjectand are not meant toimply any view about theperformance of theorganisation or itsprocurement practices ingeneral. Nor should it beinferred by the reader.Thanks to those whocontributed andexpressed their views soopenly.

Acknowledgements;(in alphabetical order)Acona Research, AlfaLaval, Barclays, BodyShop, Brakes, BT, EnglishFarming and FoodPartnership, The EthicalTrading Initiative,Flamingo Holdings, GapInc,. Insight Investment,L’Oréal, R.C. Treatt & Co.Ltd, SAB Miller.

3http://www.army.mil/escc/cm/model2.htm

Figure 1 Adapted fromODR, Inc


Analysis of the research identified six key success factors to achievingmore responsible purchasing. These werecommon to all of the cases examined and the feedback given. Together, we believe they hold the key todelivering better social, economic and environmental outcomes through procurement practices andwill help toachieve a fairer andmore equitable distribution of the proceeds of trade throughout the supply chain.

Whilst recognising the complexityof individual buying decisions andsupply chains, our findingssuggest that these six successfactors have broad, cross-sectorapplication. We hope they willencourage debate and carefulconsideration.

The key success factors for anorganisation to manageresponsible purchasing are:

1. Leadership and accountability.2. Knowledge and the

consequences of buyingactions.

3. Managing conflicting priorities.4. Thinking and acting beyond

short term horizons.5. Managing relationships in the

supply chain.6. Responsible use of power in

the supply chain.

This paper analyses each of thesekey success factors in terms of thefollowing:

1. What the best are trying toachieve.

2. Why our findings indicate thisis important.

3. What acting responsiblydelivers.

4. What characterises themostsuccessful.

Aplatform forsuccess

Findings of anATK/ISMSurvey of 25 Fortune 100 Companies• CEOs and theBoardrooms have discovered sustainability as a “top line” opportunity toenhance brand promises

• The supply chain as a key source of value creation becomes the litmus test for the“promise” and supplymanagement is the enabler

• Being “green and ethical”will no longer be an option, it will be necessary for allparticipants in the supply chain

• Most firms lack both the formal direction and processes to fulfil sustainability commitments• Within the next 12monthsmany companieswill significantly change how they engagewith their suppliers on this issue

• Today,many lack a comprehensive and robustway to track their ownand supplierssustainability performance

Source: ProcurementConsultancy AT Kearney& The US Institute ofSupply ManagementJanuary 2007

...achieve a fairer and more equitable distribution of theproceeds of trade throughout the supply chain...


CEOs and senior management have taken ownership of responsible purchasing andmade it an integral partof procurement practices.

1. Leadership andaccountability

What the best are trying toachieve• To integrate responsible

sourcing practices intomainstream procurementprocesses as quickly aspossible.

• To work on a priority basis tounderstand their impact andthe impact of those they workwith in the supply chain and totake action to change andimprove where we can dobetter.

Why our findings indicate this isimportant• Procurement is a complex

multifunctional process. Itrequires strong co-ordinationand leadership to implementchange.

• The emergence of social,labour and environmentalperformance considerations inprocurement is comparativelynew and implementation ischallenging, especially in longand complex supply chains.

• Those who indirectly affectoutcomes, for example productdevelopment, logistics,marketing and financedepartments, have to be fullyengaged in policy developmentand implementation and beaware of their potentialinfluence and impact on thedelivery of successfuloutcomes.

• Accountability for the varioustasks and activities involved indeveloping and implementingpolicies and standards has tobe clearly assigned tostakeholders and individuals.

• Policy conflicts and changes toexisting working practices haveto be reconciled and overcomeor progress will be frustrated.

What acting responsibly delivers• Buyers are more likely to take

the lead implementingresponsible sourcing practices.

• There will be singleaccountability for reconcilingdiffering organisationalpriorities and delivering themthrough sourcing actions.

• Cross-functional activity will beco-ordinatedmore effectively.

• The organisation’s vision andstandards are more likely to bereflected in sourcing strategiesand actions.

• The implementation of highersocial, labour andenvironmental standards willbecome core buyingconsiderations.

• Better outcomes will bedeliveredmore quickly.

• More effective leadership andaccountability will win heartsas well as minds in the buyingcommunity and beyond bysending clear and strongmessages and by aligningwords and actions.

What characterises themostsuccessful• Executive sponsorship. Visible

commitment.• Procurement as a recognised

professional discipline.• Employees with the right level

of skill and seniority lead thisagenda across the organisationand its supply chains.

• Social, labour andenvironmental performance isembedded within theorganisation’s coreprocurement process and notmanaged as a separate activity.

• Procurement is held to accountfor delivering social, labour andenvironmental performanceimprovement in the externalsupply chain.


Case study 1

BT CSR leadership success - from the top down5

Case study 2

R C Treatt6 & Co Ltd show visionary leadership that makes sound commercial sense resulting in lasting benefitsto local suppliers and communities.

In 2006, BT's chief procurement officer had overall responsibility forCSR supply-chain programmes and reported to aBTBoardmember.Locally, BT buyers implement CSRprogrammes supported byprocurement CSRmanagers, product stewardship andwasteexperts, productmanagers and aCSR virtual teamofrepresentatives fromacrossBT procurement.

Setting high environmental, supplier diversity and human rightsstandards and stretching improvement targets have resulted insignificant progress, something thatwas recognised byBTwinningthe 2006 Chartered Institute of Purchasing andSupply “Bestcontribution to corporate responsibility” award. The judgescommented that BT hadmade “an exceptional entry in a difficultarea, demonstrating that continual improvement and consistentsupport, visibility and ownership from the top can lead to changes.”

The awards judges said thewinning entry fromBT stood apart fromthe other candidates because its CSRprogrammewas led from thetop of procurement. Its CPOwas also the company's champion ofthe CSR steering group andwas supported by a head of CSRstrategy and policy for procurement,who enabled purchasing toimprove its linkswith similar programmes across the group.

BT also hopes that its active engagement of supply chain partnersand the sharing of best practice through conferences and seminarsand face-to-face discussionwith targeted supplierswill help createa “ripple effect” across the group’s £6.9bn global supply chain.

Treatt takes great pride in the longevity of their supplier relationshipsand they are proud to be able to trace one of their suppliers backover 80 years.

The supplier is Segoma village at the foot of theUsambaraMountains in Tanzania. It lieswithin an old estate once owned by aGerman,Mr VonBrandis,who planted bitter orange trees there inthe 1930s. It is bitter orange oil that they are still buying today.

Commenting on the long-lasting relationship Treatt’s seniorpurchasing&business developmentmanagerDaemmonReevesays: “It makes good sense commercially, as this is possibly the onlysource of hand-pressed bitter orange oil in theworld. Othersuppliers produce bitter orange oil usingmachines,whichwealso

buy, but this oil is different.Wemarket the hand-pressedSegomaoilat a premium to the customer and pay a premium to the producersfor its uniqueness. Segoma village gain a reliable and fair income,something that prevents thembecoming a subsistence economy.”He adds: “Buying natural productsmeans that short-term thinking isdangerous.When a crop fails (and they do) because of extremeweather, for example, a long-term relationship helps us to securethe availablematerial. It also allows us tomaintain continuity ofsupply at timeswhen our competitorsmay not be able to. Our role inthe supply chain is to enable customers to keep putting theirproducts (in this case awide variety of consumer products that usethe bitter orange oil as an ingredient) on the shelves 365 days peryear. They do notwant to hear about devastating hurricanes inFloridawiping out 70%of theworld’s grapefruit oil supply forexample.”

5http://www.btplc.com/Societyandenvironment/

6Treatt plc is a global,independent ingredientssupplier to the flavourand fragranceindustries.http://www.treatt.com/


Procurement professionals are expected to think about the impacts of their decisions and to work jointlywith suppliers to overcome problems.

2.Knowledge and theconsequencesofbuying actions

What the best are trying to achieve• To understand the impact of

what they do.• To use knowledge as a source

of competitive advantage• To be alert to events in the

supply chain whichmightindicate a need to improve orthat tell them other standardsand aspirations may be at risk.

Why our findings indicate this isimportant• The buying organisationmay

not be aware of theconsequences of its sourcingpractices.

• Traditional managementinformation systemsmay beinadequate.

• The trend towards the transferof operational management toothers (e.g. tier-one suppliers,category managers, outsourceproviders or agents) reducestransparency and distances thebuying organisation from themarket and what is happeningin its own supply chain.

• If supply chain complexityincreases at the same time astransparency decreases, therisks are magnified.

• Traditional risk managementtechniques do not adequatelycapture the impact theorganisation itself poses tovulnerable social, economic orenvironmental resources in thebuyer’s supply chain.

• A lack of knowledge captureinhibits the organisation’sability to learn and developbetter techniques and practices.

What acting responsibly delivers• Knowledge and greater

awareness reduce operational,financial and reputational risk.There will be fewer “fires” tofight.

• Knowledge increases the scaleand positive impact of costsavings and other supply chainbenefits and improves thelikelihood that they can berealised.

• It helps the buying organisationidentify and protect vulnerableresources or skills in the supplychain.

• It benefits all procurementactivity and is a source ofcompetitive advantage.

What characterises themostsuccessful• A high degree of market and

supply chain knowledge.• Segmentedmanagement of

sourcing and the supply chainby category, product portfolioor geography.

• Training of buyers andcolleagues in other supplier-facing departments is tocompany-agreed standards aswell as exhibiting best practiceprinciples.

• Commercial awareness of thecost breakdown of productsand the distribution of cost inthe supply chain.

• Clear and explicit discussionbetween supplier and buyer onthe agreed prices and the costof compliance.

• Extensive feedback, learningand information-sharing acrossthe supply chain and fromexternal stakeholders(including NGOs, localgovernment and trade unions)and colleagues, is used torevise policies and practices asappropriate to achieve thesupply chain standardsexpected.

• Recognising the role of theexternal stakeholder inachieving desired standards,for example, ensuring thatworkers at suppliers’ sitesreceive information on theirlabour rights.

• Effective and relationshipmanagement practicesinternally and externally.


Case study 3

Barclays accepts responsibility for the living standards of contract workers and sees a real and positive impact oncontract staff turnover one year on. 7

Case study 4

Gap commissions external NGO8 research to help it understand and improve the impact of its procurementpractices.

Barclays introduced a “fairwage” programme followingworkwithTradeUnionAmicus. JonCouret, head of facilitiesmanagement atBarclays in April 2006, said: “Although our direct contract iswith ourcontractors,who in turn directly employ and pay our cleaners,werecognise that ultimately it iswewho are responsible for improvingtheir standard of living.” SeanHaley,managing director of AtkinsAssetManagement, added “This is good news for the cleaners,Barclays and its customers. The fairwage programmewill have ahuge, positive impact on thousands of lower paidworkers across theUK.” AtkinsAssetManagementmanagesBarclays suppliers andwill

oversee the rollout of the package. It will beworking closelywithBarclays cleaning suppliersMitie, Lancaster andAimHygiene,whichwork in different regions of theUK. Bringing the story up todate Couret says: “Webelieve that this initiative has been a goodinvestment for Barclays. It provides our third-party employeeswith afair andwell-rounded remuneration package, and helps thecontractors delivering services toBarclays to retain their bestemployees. Our cleaning contractor,Mitie, has a staff turnover rateof around 5%, significantly lower than the industry average”(Barclays, April 2006/August 2007)

Inefficient purchasing practices are endemic throughout the apparelindustry. In its study for GAP,WorkingWomenWorldwide (WWW)pointed out that the situation is not unique toGap Inc, and thatmostother brands and retailers face similar issues.WWWpraisedGapInc. for its commitment to compliance, and the high priority Gap Inc.places on longer-term relationships and good communicationwithgarment factories.WWW’s research highlighted threemainproblemswithin the current pipeline process. First, unforeseendelays can create situations inwhich factories do not have enoughtime to complete production orders. For example, fabricmay arrivelater than planned due to the use of an inefficient fabricmill orbottleneckswith local transportation or customs officials. If a factorydoes not receive timely approval on sample garments fromGap’s SanFrancisco office or local labs that test for product safety, it may alsohave to delay the start of production,which in turnmaymakecompleting an order on time. In addition, factoriesmustwait

to ship finished garments until theQuality Assurance teamhascompleted its final checks, so if the team is not immediately available,shipmentsmay be delayed.Second, changes to production orders—ranging fromalterations to the design of a garment to thewaygarments are packaged or shipped—can be difficult for factories tomanagewhen they occur after production has begun. Significantchanges to the desired quantity of garmentsmay also be challengingto handle if they occurwith little or no advancewarning. Third, theuse of flowproduction aswell as the seasonal nature of the garmentindustry can lead to a sub-optimal utilization of some factories’production capacity. In flowproduction, an order ismanufactured inbatches staggered over a period of time. During peak seasons orflows, some factoriesmay havemore production than they canhandle,while during low seasons or flows, theymay not haveenough. This variation in the production cycle canmake itchallenging for factories tomaintain a stable level ofworking hours.

7http://www.newsroom.barclays.com/

8Women WorkingWorldwide an NGOhttp://www.gapinc.com/public/documents/www_study.pdf


Managers acknowledge the potential for different departments in the organisation to put responsiblepurchasing under pressure and give purchasers the ability to prioritise in line with the overall objectives ofresponsibility.

3.Managing conflicting priorities

What the best are trying toachieve• To ensure that progress in

implementing better sourcingpractices is not jeopardised byother pressures and that theircollective actions are consistentin terms of their impact on thesupply chain and the standardsthey aspire to achieve.

Why our findings indicate this isimportant• Procurement resources are

spread thinly and, with limitedcapacity, operational issues willprevail. Despite good intentionsat an executive level necessarychange will not beimplemented.

• Conflicting priorities or thedisjointed actions andcommunication of those whoare managing the supply chainimpair its performancesignificantly. This is particularlyacute when sourcing from low-cost countries where unclearcommunication can result inheightened confusion due tolanguage and cross-culturalissues.

• Suppliers have to respond todemand patterns that are moreunstable andmore difficult topredict than they actually are.

• Conflicting priorities put themost vulnerable externalsupply chain resources atgreater risk.

What acting responsibly delivers• Clarity about standards

expected in the supply chain,enabled by purchasingpractices, will lead to:

• Better customer service.Suppliers have a greateropportunity to plan andmatchcapacity and resources tosupport demand. Suppliers canplan with confidence knowingthat the purchasing companywill not change its mind ordemand conflictingdeliverables.

• Amore stable supply chainworkforce reducing the need toemploy short term contract ortemporary labour that ispotentially less skilled andmore vulnerable toexploitation.

What characterises themostsuccessful• The standards expected in the

supply chain and themethod ofworking with suppliers toachieve these standards, areagreed with suppliers, andshared cross-functionally.

• To achieve social, labour andenvironmental standardsexpected in the supply chain,measurement and rewardsystems are aligned cross-functionally to help eliminateconflicting behaviours. Forexample, the purchasingcompany has a good trackrecord of sticking to an agreedcritical path.

• Lead times and delivery datesare agreed with the supplier,taking into account the need toachieve social, labour andenvironmental standards.

• Risk and vulnerability impactassessments are used to helpimprove decision- making andtomitigate the negativeconsequences arising frompriority conflicts internal to thebuying organisation.

• The purchasing companylearns from the analysis of rootcause issues if conflicts dooccur.


Case study 5

External supply chain problems often arise fromwithin the buying organisation: Insight Investment/AconaResearch Finding “Buying YourWay into Trouble”9

Case study 6

General Motor’s (GM) combative approach to cut costs with its suppliers resulted in long-term detriment to GM’ssupplier relationships.

Many companies report that they find critical pathmanagementdifficult. Although this varies between sectors, it seems fairly typicalthat slippages, particularly in the early stages of the process, lead toorders being placed late. Since final delivery dates can rarely bemoved, this results in the supplier’s production time beingdramatically squeezed. This situation can lead to suppliers hiring inshort-term labour,working excessive hours, enforcingmandatoryovertime and/or outsourcing. All of these practices can reduceethical and quality standards and increase risk to the retailer. Thisresearch has revealed a number of factors that lead to late orderplacement and late production;• Inefficient decision-making: getting internal sign-off for buying

decisions can be a lengthy procedure particularlywhenmanyindividuals and/or committees are involved. Key individuals oftentravel extensively, and if a decision slips by a fewdays, it maythen beweeks before the responsible person is back in theUK.This can be especially difficultwhere creative design decisionsare involved and can be further exacerbated by newandinexperienced buyers. The problems are often then repeatedwith decisions regarding packaging design.

• Holding back decisions: buyers often deliberately defer adecision until the last possibleminute in order to understandbetterwhat their competitorsmight do and to reflect exactlycurrent consumer demands, either in terms of volume or productspecification. Thismanifests as a constant drive for “perfection.”Participants quotemany examples of final samples of productsbeing subject to revisions, even after production is underway or(in one case) entirely complete.

• Focusing on only certain dates in the critical path: someof thedeadlines in the critical path are truly immovable – typically theshipping date for overseas products and the instore launch.Others are typically seen as internalmilestones that can besafely disregarded. This can lead to a compression of the final

stages of the critical path. The extension of critical paths,whichseems to be increasingly common,may compound this effect.Retailers report starting range reviews fifteenmonths ormorebefore the product is due in store, perhaps leading to aperception that there is plenty of time to spare, and consequentslippage in the early stages of the process.

• Poor communication between buyers and suppliers: accuratelycommunicating a precise product specification can bechallenging. This is particularly so in the case of 25 fashion itemsand clothing,where the design needs to be followed exactly andwhen the designermay change theirmind during thecommunication process. The desire to say “yes”means thatsuppliers often do not ask for the clarification they need. Theresult is often that a very high number of samples are producedbefore the final product is agreed. These problems can be acutein countries such as China,where it is culturally inappropriate torefuse a request froma customer, but the agreement thatWestern buyers think they have securedmay be impossible toachieve.

• Poor information sharing about the critical path:mostcompanies attempt to share some information about the criticalpathwith suppliers, but this is often fairly rudimentary, thusmaking it difficult for the supplier to plan production. Sharing thisinformation in away that is useful for factorymanagers in othercultures is a further challenge.

• Lack of trust between buyers and suppliers: the greater distancebetween buyers and suppliers seems to lead to deterioratinglevels of trust between them. One example quotedwas thatoverseas suppliers are reluctant to order components until theyhave a formal order from the buyer. In contrast, buyers explainedthat tried and tested local suppliersmay take a risk and startpreparing for production if informally told that theywill get theorder, thus giving themmore time.

GM traditionally usedmultiple vendors for the samecomponent andhad been reluctant to offer long-termcontracts. GM’s poor financialperformance in the early 1990s led to a draconian series of cost-cuttingmeasures spearheaded by purchasing czar José IgnacioLópez. GMadopted a notoriously combative approachwith itssuppliers, demanding double-digit price reductions inmanyinstances. It also broke the tradition of renewing one-year contractswith long-term vendors, instead often awarding the business to thelowest bidder. On several occasions, it is alleged, after a supplierhelpedGMdevelop a newpart –while absorbing part of thedevelopment cost –GM then divulged the proprietary designs to

competitors, searching for the best production prices. In the short-term, GMdid achieve significant savings in annualmaterials, but it iswidely acknowledged that thiswas at the expense of GM’s long-termsupplier relationships.10 “On the one hand,Mr Lópezwas anexcellent example of themassive difference that procurement canmake to the organisation. He came toGMat just the right time. It wasrumoured that at one point in 1991GMcamewithin 16 hours of notmeeting it’s payroll!…On the other hand he is also creditedwithpotentially causing irreparable harm to the long-term supplierrelationships that are key toGM's future competitiveness.”11

9http://www.acona.com/rogaland/stavanger/AconaWCM.nsf//7387F0C6E4D46E95C1257295006E0384/$FILE/Buying+your+way+into+trouble.pdf

10http://www.osat.umich.edu/research/industry/OEM.doc;OEM Parts Purchasing:Shifting Strategies; TheOffice for the Study ofAutomotiveTransportation,University of MichiganTransportation ResearchInstitute UMTRI 00-48;Michael S. Flynn, Kara F.Alkire, David GrahamJanuary, 2001.

11Bernie van Niekerk in“How one procurementmanager's vision shookthe auto-industry”, SmartProcurement.


Managers and procurement professionals should set long-term targets that reflect the values of theorganisation.

4. Thinking andacting beyond short-termhorizons

What the best are trying toachieve• To ensure there is a clear

framework for eachexpenditure area within whichthe best sourcing solutions canbe developed to addressbusiness priorities now and inthe future.

• To consider thoroughly and toembed social, labour andenvironmental performancerequirements and to chart adirection over time that has thesupport of the business as awhole.

Why our findings indicate this isimportant• The implementation of more

responsible sourcing practicesrequires concerted action overa long period.

• With only short-term horizons,buyers may focus onimmediate deliverables (cost,inventory, speed of response)at the expense of morestrategic objectives, such asinnovation, that support theorganisation’s medium andlonger-term goals.

• A longer perspective will allowother stakeholders andsuppliers to shape events andco-ordinate their own actions insupport of them. This will leadto better andmore lastingresults.

• Unplanned actions create risk,because others in the supplychain are not able to anticipateor plan for their consequences.This particularly affects themost vulnerable resources likelabour where short-termmarketing promotions canincrease the use of casualworkers who are not properlyprotected by employmentcontracts.

• Buyers need to act consistentlyif they are to effect change.

• Without context, short-termtactical actions damage trustand confidence.

What acting responsibly delivers• More considered and

consistent actions will delivermore lasting results.

• Sourcing strategies will benefitfrom the consideration andinput of others.

• Better co-ordination will resultin less waste and betterperformance from amoreefficient supply chain.

• Increased supplier involvementand dialogue will create anopportunity to capture extravalue and supply chaininnovation that otherwisemight be lost.

What themost successfuldemonstrate• Sourcing strategies exist for

key expenditure areas.• Independent scrutiny and

endorsement of sourcingstrategies to help build trustand confidence.

• Supplier relationship andmarket management12practices do not existseparately and are linked to thefuture objectives of thesourcing strategy.

• Strong team and crossfunctional working.

• Strong connectivity betweeninternal and externalrelationships.

• Good communication of supplychain performance against thedesired social, labour andenvironmental standards andproblem issues, to facilitatecollaborative problem solving.

• Periodic external andindependent periodic reviewsof sourcing strategyeffectiveness.

12Awareness andmanagement of the widersupply market, includingpotential suppliers andsubstitutes


Case Study 7

L’Oréal’s purchasers are responsible for workingwith suppliers to ensure suppliersmeet responsible trade standards,improveworking conditions and share information so that suppliers receive consistentmessages from L’Oréal staff.

Case study 8

Short term actions can potentially undermine long-term strategic objectives and damage trust and relationshipsin the supply chain13 14

Sourcing the rawmaterials sourcing for L’Oreal tomanufacture andsell 4.5 billion units under 19 brands valued at 15.8 billion Euros peryear is challenging. L’Oréal has beenworking tomake the purchasingof rawmaterials and packaging for use in its 40 international factoriesmore consistent. Social and environmental responsibilities have beenintegrated into L’Oréal’s responsible sourcing principles in recognitionof value creation opportunities aswell as the need tomanage risk.

All suppliers are assessed against the sameKeyPerformanceIndicators, including social responsibility, in recognition that thechoice of suppliers and howprocurement is undertaken is L’Oréal’sresponsibility. L’Oréal has followed the same step-by-step processwith all its suppliers since 2002. This is as follows:

• An ethical commitment letter is signed by the supplier• A “semi-announced” audit ofworking conditions for the supplier

site, paid for by L’Oréal. The supplier is notified of a 30-daywindow inwhich an auditwill occur. The sameaudit report andcorrective action plan is sent to the supplier and to L’Oréal to formthe basis of a discussion.

• A corrective action plan is developed and responsibility forfollowing this up lieswith the supplier, supported by the L’Oréalpurchaser, recognising that theremight be an inter-relationshipbetween L’Oréal’s orders (aswell as other buyers) andworkingconditions at the supplier site.

These three documents are shared on an internal extranet platform sothat the L’Oréal purchasers, factorymanagers, and technical teamallhave access to the same information and can reinforce the samemessagewhen discussing issueswith the supplier.L’Oréal produced 94%of its finished goods using local plants and

local distributionwarehouses. All have been audited,whereverlocated,with the sameprocess so that the L’Oréal teamcan sharetheir ownexperience of being audited and resulting improvementssharedwith suppliers.After the audit L’Oréal commits to the following:• to continue sourcing from the supplier (in recognition that

honesty is essential to solving issues, and also, that de-listingdoes not helpworkers.) except if there is non collaboration by thesupplier

• a follow-up audit undertaken at the supplier’s expense(recognising shared responsibility of improvingworking practicesand to encourage improvements to be put in place).

Purchasers at L’Oréal are seen as the key point of contact for thesupplier and are responsible forworkingwith the supplier toimplement the corrective action plan. L’Oréal recognises thatconfused andmixedmessageswhich drive “falsification” by suppliersare counter-productive.Where an audit uncovers amajor problem,the purchaser has the authorisation from L’Oréal to stop sourcing theproduct until the issue is resolvedwith the supplier – even if thismeans L’Oréalmay go short of product, until an issue is resolved. Thisis to underline to the supplier howserious L’Oréal views good socialcompliance.

L’Oréal sees the inclusion of social responsibilitywithin the role ofpurchasers as away of increasing the job satisfaction of theirpurchasers. To support the buyer and underline the importance of thisarea, trainingmaterials are being developed and L’Oréal has stated itis a disciplinary offence for a buyer to purposefully avoid addressingproblematicworking conditions or to present a false image to L’Oréalabout a supplier.

An organic pig farmer has put in an anonymous submission to theCompetition Commission concerning Tesco's price-squeezing ofbacon hewas supplying via HelenBrowning's Eastbrook Farmbrand. Having converted to organic production to supply Tescothrough Eastbrook, sixmonths into the arrangement, the farmerfound “everything had changed.” Hewas facedwith two options:either accepting a reduction in the price by almost half, or acceptingthe sameprice for a small percentage of his stock andmarketing theremaining pigs elsewhere. The farmer lays the blame firmly at thesupermarket giant's door,which suddenly cut back onUK-rearedorganic bacon,whilst increasing its uptake of cheaper importedGerman organic bacon,which does notmeet the same stringentcriteria as theUK. Tesco offered lower prices and volumes toEastbrook,which had no choice but to pass these on to its suppliers.

theEastbrook'sownerandSoilAssociationFood&FarmingDirector,HelenBrowningwasaskedbyFarmingToday,whether she'dbeen“naïve”?“Perhaps,” she responded, but shepointedout that shehadacted ingood faithbasedonan agreementwithTesco to supplyacertain volume foracertainperiodof timeandunderstood that “Tescohadbeenclear that theywanted tobuildaUK foundation [for theirorganicbaconsupply].”Achangeofbuyerdue to illnessappears tohavebeencritical to thechange in thearrangement.Anarrangement that, asis commonwithall farmer/producerdealswith themajor supermarkets,didnot exist in the formofawrittencontract. "It is extremelyunusual togetawrittencontract,” commentedHelenBrowning. “Supermarketstend topush the risksbackdown thesupply-chain. It is a lesson in thepoliticsof power, of theability of things togowrong, and theneed for thewhole supplychain tohaveconstructiveand risk-sharingagreements.”

13Soil Association Reportwww.soilassociation.org

14Farmer number 26,http://www.competition-commission.org.uk/inquiries/ref2006/grocery/third_party_submissions_farmers.htm


Procurement officials are encouraged to stay with their suppliers and to build secure relationships that offer awin-win to both buyer and supplier.

5.Managing relationships in thesupply chain

What the best are trying toachieve• To recognise and value

relationships.• Tomanage them individually

and collectively over time tomaximise their contribution tothe organisation.

• To ensure that where therelationship is between otherparties in the supply chaininsist on good practice to theextent where possible.

Why our findings indicate this isimportant• Suppliers are part of the supply

chain network: their outputsand how they interact withothers is crucial to the successof the supply chain as a whole.

• Well-managed relationshipssignificantly reduce risk.

• Supplier confidence, co-ordination and trust will bedamaged if relationships arenot managed effectively.Without trust, social, labourand environmentalconsiderations are unlikely tohave credibility.

• Access to market knowledge,learning and innovationmaybe lost.

• Poor relationship-managementpractices across the supplychain impede the flow ofinformation, decreasetransparency and limit theinfluence of the buyingorganisation.

• Risk increases if thecommercial relationshipbetween organisations andbetween an organisation andits employees is not expressedclearly in writing. It makes itmore likely that the weakerparty’s interest will not beprotected and that exploitationwill occur. The opportunity forthe exploitation of the mostvulnerable relationship party isalso significantly increased.

What acting responsibly delivers• More intimate relationships

deliver lower costs and bettersupply chain performance.

• Well-managed relationshipsstrengthen the flow ofinformation and knowledgeand become a source ofinnovation.

• Suppliers are more likely to actas “ambassadors” of goodpractice on the buyer’s behalfwithin the supply chain,thereby increasing the buyer’sreach and potential impact.

• Skills and knowledge are morelikely to be transferred betweenthe buyer and the sellerimproving productivity, ifrelationships are well-founded.

• Compliance and control costswill fall by winning “hearts andminds” and building a strongerassociation between the sellerand the buyer.

• The level of exposure and riskto vulnerable resources will bereduced.

What themost successful

demonstrate• Relationship management

frameworks that bring togetherall internal stakeholders so thatthe buying organisation speaksand acts “with a single voice”.

• Relationships segmented bytheir importance so that theyare managed consistently withthe right level of resource andseniority.

• Co-operative working toachieve joint improvementtargets, building trust andconfidence through actions.

• Significant improvements atsupplier’s sites are achievedwithin a reasonable timeframe.

• Suppliers are encouraged toidentify solutions with localstakeholders to meet standardsin a locally appropriate andsustainable manner.

• Linking of sourcing strategies,supplier relationshipmanagement and supplierdevelopment to ensure actionsare consistent and directedtowards delivering longer termobjectives. Training onstandards is offered tosuppliers as appropriate.


Case study 9

Flamingo Holdings, through its Homegrown subsidiary in Kenya, is a major supplier of fruit and fresh flowers toUK high street retailers. As a tier 1 supplier, based in the UK, it is well positioned to implement high standardsacross the wider supply chain on behalf of UK buyers15

Case study 10

The Power of ‘Win-Win’ – SAB Building Supplier Capability in Africa, SABMiller Sustainable DevelopmentReport 200716

The social responsibility policy of Homegrown is central to theworkings of the company, and is in robust shape, aswitnessed byDianaAuret, who has been involvedwith social audits on thecompany’s farms. DianaAuret, Social Auditor: “I am impressedwithall of Homegrown’s units becausemanagement has understood thevalue of having theirworkers as partners in thewhole process

towards complyingwith the principles. In otherwords,worker’srights have becomea key issue for themas have otherwork-relatedissues. There is also a feeling that this relationship is twoway – thatmanagement is open, not only to complaints but to suggestions onhow things can actually be done in a simplermanner ormoreefficiently”.

One of SABMiller’s key focus areas in their supply chain isworkingwith farmers to improve the quality of rawmaterials and improvetheirwell-being. Theywon amajor award for their projectworkingwith 2,000 small-scale and commercial sorghum farmers in Zambia toprovide rawmaterials for Eagle, a quality, affordable beer. Begun inUganda, this has been a successful initiative, which has led to theproject being extended to their operations in Zimbabweand

Tanzania. The relationshipwith the sorghum farmers has led to othersustainable development benefits. Uganda ledHIV/Aids peer trainingfor the farmers,withNGOsupport, has been piloted in thewest of thecountry. This is due to be extended to cover 17 other districts in thecore sorghum-growing areas. This is helping to protect theindigenousworkforce and its future economic productivity.

15www.flamingoholdings.com

16http://www.sabmiller.com/sabmiller.com/en_gb/Our+responsibility/Reports/Sustainable+Development+Report+2007.htm


Good procurement professionals are aware of the power they exercise and use it responsibly to avoid abuses inthe supply chain.

6.Responsible use ofpower in thesupply

What the best are trying toachieve• To recognise that exercising

power can have positive aswell as negative consequences.

• Tomake sure that power isexercised responsibly and thatall reasonable steps are takento identify and enhance social,economic and environmentalperformance in the supplychain that might be vulnerableto its effects.

Why our findings indicate this isimportant• Use of explicit or implicit power

can result from “top down”pressure, the effects of whichcan be transmitted through thesupply chain to other parties.

• Use of power in asymmetricsituations creates vulnerabilityand the risk of exploitation.This exploitation can havesocial, economic andenvironmental consequences.

• Governance in this area islimited and the effects arecomplex and oftenmanifestthemselves elsewhere in thesupply chain.

• The consequences are notnecessarily clear to the buyer.

• The use of power influencesthe relationships betweenorganisations and potentiallybetween an organisation andits employees and farmers.

• The use of power is a widelyused technique, underpinningmany buying strategies.

• The irresponsible use of poweror its effects elsewhere in thesupply chain, may not bemitigated by standardmethodsof protection, e.g. contracts orcompliance with standards andlegal or regulatory frameworks.

What acting responsibly delivers• Reduction in risk by better

management and awareness ofthe negative consequence ofpower and its effect onasymmetric relationships.

• Better protection of vulnerableresources, particularly thosemost at risk from exploitationby those with most power.

• The greater use of alternativeand perhapsmore innovativeinfluencing strategies.

• Reduced risk of quality orsupply disruption.

• Less chance of legal orregulatory intervention.

• Better supplier relationships.

What themost successfuldemonstrate• Effective oversight and

governance of sourcingstrategies and supply chains.

• An understanding of howpower and influence are beingused.

• An understanding of the end-to-end supply chain and pointsof vulnerability.

• Using power to achieve social,labour and environmentalstandards, through goodsupplier relationships.

• Effective supply chainfeedback, control and auditframeworks to assess theimpact of buying decisions, toinitiate newways of workingand to learn from non-compliant events. Specificprojects are set up to deal withintractable problems.

• Strong risk managementpractices.


Case study 11

Alfa Laval, being a significant customer of its suppliers, initiated improvements in working conditions at supplierswith hazardous processes and has supported capital improvements with a loan.17

Case study 12

Brakes’ comprehensive integration of social responsibility issues into procurement.

Alfa Laval provides equipment, systems and services to heat, cool,separate and transport products such as oil, water, chemicals,beverages, foodstuffs, starch and pharmaceuticals for customers inmore than 80 countries. Alfa Laval aims to be amajor customer,representing 10 – 20%of the supplier's turnover. Alfa Laval has beenmovingmanufacturing and component sourcing to countrieswithlow labour costs over the last few yearswith an emphasis on IndiaandChina. Alfa Laval’s purchasingmanagement in India havedeveloped amethod to help suppliers to improve theirworkers’health, safety andworking conditions. Alfa Laval has categorised its500 suppliers in India and focused on effort improvingworkingconditions amongst the 97 suppliers rated as “high risk.” Thesesuppliers use inherently dangerous processes and/or have limited

management experience or understanding of how to implement thecompanies business principles. They needed input and help fromAlfa Lavalmanagement in order to implement Alfa Laval’s businessprinciples.

Several of these suppliers are relatively newcompanies andAlfaLaval represents their first significant client. Themanagers of someof the supplierswere eager to learn and improve, and are likely tobecome leading suppliers.

Alfa Laval’s implementation of it’s business principles processbrought the IndianAlfa Lavalmanagement’s attention to suppliercriteria that previouslywere not rated as highly as price, deliveryprecision and product quality.

Brakes is the leading supplier of chilled, ambient and frozen foodsand non-food products to caterers across theUK. Likemany otherfood service companies it sources food fromaround theworld tooffer customers awide range of innovative products and to increaseyear-round availability. It wanted to engagewith it’s suppliers onsocial responsibility issues beyond “lip service” that is currentlybeing paid to ethical trading in some sectors, and it also saw thepotential for quality and productivity improvements through closerinvolvementwith it’s suppliers. As a supplier to blue chip companieswho require peace ofmind it could,with appropriate attention tosocial responsibility, make this a point of difference.

Brakes has decided to take a two-pronged approach to build up it’sexperience in this area and refine it’s approach. One approach is tomake ethical trading central to Brakes’ trading philosophy,whichinvolves building up the expertise of all supplier facing staff on ethicaltrading so that they take a commonapproach to interfacingwithsuppliers on this issue. These employees have been trained to detectethical issueswhilst on site visits and use ethical trading as part ofthe supplier selection process.

The second approach is to carry out third-party audits on a limitednumber of “high risk” suppliers based on whether the supplierproducesBrakes-label product, their level of turnoverwith Brakes,ethical profile of the country and the product. A pilot studywascarried out in Bangladesh during the summer of 2007which led to aprogrammeof improvements developed by the commercial teamandthe supplierworking closelywith the third-party auditor, Impactt.

Brakes and Impactt identified that improvements could bemade tothe availability of drinkingwater and accommodationwhich isprovided toworkers at the factory. As a key customer of thiscompany, Brakes’ interest inworking conditions has stimulated adiscussion between the supplier’s seniormanagement and factorymanagement. A follow-up visit will take place inApril 2008. In themeantime, third-party audits are being carried out on further selectedsuppliers.

With both approaches, Brakes recognises that as a long-termcustomer of it’s suppliers, it has an opportunity to use this relationshipto explore, constructively, how to improveworking conditions.Brakes is alert to the concern that a superficial approach to askingsuppliers to conform to a code of conduct can backfire and actuallyworsenworking conditions. The responsibility forworking conditionsat supplier sites lieswith it’s suppliers and purchasing relationshipscan enable or disable goodworking conditions.

17http://www.alfalaval.com/ -http://www.alfalaval.com/digitalassets/2/file44529_0_BP_Summary_Progress_Report_2006.pdf


Responsible ProcurementPrinciples

FORCHIEF EXECUTIVES, CHIEF PURCHASINGOFFICERSANDCHIEF FINANCIALOFFICERS

Principle Why?

1 Embed responsible procurement statements in senior executivejob descriptions and cascade them to direct reports. Includesocial, labour and environmental practices in competencyframeworks and performance reviews.

Responsible procurement practices flow from the top down.Commitment needs to be unambiguous throughout theorganisation.

These procurement practices should not be compromised in thedelivery of otherwork objectives. Setting personal improvementtargets and goals underlines their importance.

2 Adopt a “BalancedScorecard ” approachwhen settingobjectives and rewarding those involved in procurement.

Make sure that the buyers know that they have to deliver across arange of other imperatives aswell as cost. Thosewho influenceprocurement outcomes indirectly should share complementaryobjectives.Measure and reviewprogress.Adopt a similar processwith external suppliers.

FORBUYERSANDBUYINGORGANISATIONS

Principle Why?

3 Make buyers accountable for delivering social, labour andenvironmental performance/standards alongside other businessimperatives. Buyers are responsible forworkingwith suppliers toachieve agreed standards in amannerwhich is corporatelyagreed and supports the achievement of expected standards.

Without accountability, confusion and ineffective implementationis likely. Single accountabilitymakes it clear that buyers areresponsible for leading the implementation ofmore responsiblepractices and for reconciling thesewith other sourcing priorities.Existing employees and colleagues communicatingwith thesupplier should support the buyer.

4 Build robust sourcing strategies for important category areas,particularlywhere complex or high-risk supply chains exist.

A sourcing strategy requires cross-functional input and is anopportunity to gain stakeholder support for all the businessimperatives it seeks to address. It brings focus to the key prioritiesandmitigates against short-term tactical actionwhich can oftenhave unexpected negative consequences elsewhere in thesupply chain.

5 Subject sourcing strategies to independent review. Sourcing strategies are important for the future success of theorganisation and its reputation. Independent challenge andendorsement provide a strongermandate for change and improvethe organisation’s accountability for procurement actions.

6 Give suppliers a “voice”within your organisation and listen towhat they say. They are part of your strategic thinking.

Suppliers can provide important input to policy development andexecution and play a role in the governance of procurement itself.Suppliers are key stakeholders in the organisation itself and theirvoice and input should be formally sought and acted upon.


FORSUPPLIERSANDSUPPLYCHAINS

Principle Why?

7 Insist on contracts between organisations in the supply chain andbetween employees,whether formal or casual and theorganisation theywork for. Include social, labour andenvironmental standards in all contracts.

Contracts protect and promote the interests of individuals andorganisations by creating an agreed basis for trade, clearperformance expectations and better communication.Contracts do not have to limit operational flexibility.

8 Identify vulnerable social, economic and environmental points inthe supply chain. Implementmeasures tomonitor and protectthem.

Unlike risk,which looks at the potential impact on theorganisation, vulnerability assessment can be used to look at thepotential impact the organisation and its supply chain has on theexternalworld.Make this a formal process and subject it toindependent, preferably external scrutiny.

9 Manage relationships professionally. Customers and suppliers represent the organisation’s primaryconnection to the externalworld and though relationships havedifferent characteristics they all need somedegree ofmanagement attention.

Segment relationships and focusmore resources and strongerlevels of internal co-ordination on themore complex ones.Relationshipmanagement is a necessary consequence of doingbusiness and a key part of implementing change that should notbe ignored.

Suppliers also need to be encouraged to embed the same level ofprofessionalism in their own supplier dealings. Cascade goodpractice to them.

10 Encourage collectiveworker representation as away ofprotecting individuals fromexploitation.

Individualworkers are particularly vulnerable to exploitation,especially thosewho are employed on a temporary or casualbasis.Worker representation should be encouraged asresponsible good practice.

If necessary, take steps to enable individuals to ‘whistle blow’confidentiallywhen breaches of employment ofworkplacepractices have been observed or experienced. It provides themwith a “safety valve of last resort.”

If workers are not able to present their priority concerns to theemployer, then problematic practices can develop and continueunchecked, resulting in reputational accidentswaiting to happen,whichwill expose buyers and other supply chain partners.

Based on our findings we have identified 10 “Responsible Procurement Principles” which, if adopted, willact to accelerate the implementation journey. Unlike the success factors, which set apart theorganisation, the ten Procurement Principles are intended for the various individuals who make up thesupply chain, including senior management, buyers and suppliers.


Vocabulary anddefinitionof terms used

Asymmetric relationshipAn unequal relationship in termsof scale, dominance of market,particular sector, percentage ofturnover or control of access tomarkets.

Corporate Social Responsibility(CSR)A private sector policy where thecompany chooses to address itsenvironmental social andeconomic impacts. www.csr.gov.uk

International Labour Organisation(ILO)19The ILO, founded in 1919, is thespecialised United Nations agencywhich adopts and promotesinternationally recognisedstandards on workers’ rights. TheILO’s 1998 Declaration onFundamental Principles and Rightsat Work sets out eight core ILOConventions whose principles arebinding on all ILOmember states.They cover freedom of associationand the right to collectivebargaining; the elimination offorced and child labour; and theelimination of discrimination inemployment. www.ilo.org

The UK government supports thedevelopment of the Ethical TradingInitiative, which focuses on thelabour standards, which are basedon the ILO core conventions.http://www.ethicaltrade.org/

Responsible procurementUsed in this document to describeprocurement practices thatcombine commercialconsiderations with social, labourand environmental performance.

RiskSomething that will prevent theachievement of a desired result oran objective, a combination ofimpact and probability.

Risk managementA systematic approach to theassessment and prioritisation ofrisk and themitigation of itspotential effects.

Supply chainA network of organisations,people, activities, information andresources involved in moving aproduct or service in a physical orvirtual manner from supplier tocustomer. Supply chain activitiestransform rawmaterials,components, resources,knowledge and intellectualproperty into a finished product orservice to satisfy a customer need.

VulnerabilityA point of weakness: social,economic or environmentalresources subject to potentialexploitation.

Supplier relationship management(SRM)A structured process by whichexternal supplier relationships arecategorised andmanaged in orderto deliver maximum value. Forrelationships that are morecomplex SRM involves extensiveinternal and external co-ordination.

Sustainable procurement20A process whereby organisationsmeet their needs for goods,services, works and utilities in away that achieves value for moneyon a whole-life basis in terms ofgenerating benefits, not only to theorganisation, but also to societyand the economy, whilstminimising damage to theenvironment.

19www.ilo.org

20UK SustainableProcurement Task Force

Taking the lead �www.cips.org

Leadership andaccountability

LEADERSHIPANDACCOUNTABILITY

Success factors formanagingresponsible purchasing

Why our findings indicate thisis important

What acting responsiblydelivers

Effect of responsiblepurchasing practices

Case studies and relevantreferences

What the best are trying toachieve“To integrate responsiblesourcing practices into ourmainstreamprocurementprocesses as quickly aspossible. Towork on a prioritybasis to understand our impactand the impact of thoseweworkwith in the supply chainand take action to change andimprovewherewecan dobetter.”

• Strong co-ordination andleadership is needed toimplement change sincepurchasing is amultifunctional process andconsideration of social,labour and environmentalperformance inprocurement is challenging,especially in long, complexsupply chains.

• Social, labour andenvironmental performanceneeds to be embeddedwithin the organisations’core procurement processand notmanaged asseparately, ensuring thatthosewho indirectly affectoutcomes, for exampleproduct development,logistics,marketing andfinance are fully engaged.

• Accountability fordeveloping andimplementing policies andstandards have to beclearly assigned.

• Changes to existingworking practicesmust bemanaged to overcomeproblems.

• Buyers lead in sourcingresponsibly.

• Clear accountability helpsreconcile differing prioritiesand fulfil them in sourcing.

• Cross functional co-ordination is effective.

• Standards are clearlyreflected in practices.

• Social, labour andenvironmental standardsare core buying issues.

• Business and social, labourand environmentalperformance improvesmore quickly.

• Sending clear and strongmessages backed byactionswill win support inthe buying community

• Executive sponsorship.Visible commitment.

• Procurement as arecognised professionaldiscipline.

• Resourceswith the rightlevel of skill and seniority tolead this agenda across theorganisation and its supplychains.

• Procurement held toaccount for deliveringsocial, labour andenvironmental performanceimprovement in the externalsupply chain.

• BT• Treatt plc


Knowledge and theconsequences of buyingactions

KNOWLEDGEANDTHECONSEQUENCESOFBUYINGACTIONS






What the best are trying toachieve“To deeply understand theimpact ofwhatwe do. To useknowledge as a source ofcompetitive advantage and tobe alert to events in the supplychainwhichmight indicate aneed to improve or that tell usthat our standards andaspirationsmay be at risk.”

• The buying organisationmay not be aware of theconsequences of itssourcing practices.

• Traditionalmanagementinformation systemsmay beinadequate.

• The trend towards thetransfer of operationalmanagement to others (e.g.tier one suppliers, categorymanagers, outsourceproviders or agents)reduces transparency anddistances the buyingorganisation from themarket and its own supplychain.

• Simultaneous increases insupply chain complexitymagnify risks.

• Traditional riskmanagement techniques donot adequately address thesocial, economic orenvironmental threats theorganisation itself posesthrough its supply chains.

• A lack of knowledge inhibitsthe organisation’s ability tolearn and develop bettertechniques and practices.

• Knowledge and greaterawareness• reduces operational,

financial andreputational risk.

• increases the likelihood,scale, impact of costsavings and other supplychain benefits

• helps the buyingorganisation identify andprotect vulnerable partsof the supply chain.

• benefits all procurementand is a source ofcompetitive advantage.

• harnesses purchasers’and colleagues’commitment toresponsible purchasing.

• Diversemanagement of thesupply chain by category,product or geography.

• Training for employees insupplier facing departmentsis based on companyagreed standards and bestpractice.

• Awareness of thedistribution of cost in thesupply chain.

• Explicit discussion betweensupplier and buyer onprices and compliancecosts.

• Feedback, learning andinformation sharing acrossthe supply chain andwithexternal stakeholders(includingNGOs,government and tradeunions) is used to revisepractices to achieve highstandards.

• Recognise the role ofexternal stakeholders inachieving desiredstandards. e.g. ensure thatworkers at supplier sitesare educated about theirrights.

• Barclays• Gap• Auditing does not shield

buying organisations fromreputational damage.


Managing conflictingpriorities what the best aretrying to achieve

MANAGINGCONFLICTINGPRIORITIESWHATTHEBESTARE TRYINGTOACHIEVE






What the best are trying toachieve“To ensure that progressimplementing better sourcingpractices is not jeopardised byother pressures and that ourcollective actions areconsistent in terms of theirimpact on the supply chainand the standardsweaspire toachieve”

• Procurement resources arescarce and thus operationalissues predominate.Despite good intentions atan executive levelnecessary changewill notbe implemented.

• Conflicting priorities or thedisjointed actions andcommunication of thosewho aremanaging thesupply chain significantlyimpair its performance,particularly when sourcingacross linguistic andcultural divides.

• Suppliers have to respondto changing demandpatternswhich purchaserscould plan better.

• Conflicting priorities put themost vulnerable externalsupply chain resources atgreater risk.

• Clarity of standardsexpected in supply chain,enabled by purchasingpracticesmean that:• Suppliers can planwith

confidence thatpurchasing companywillnot change orders andthusmatch capacity andresources to demand.

• More stable demandreduces the need forshort termcontract ortemporary labour that ispotentially less skilledandmore exploitable.

• Standards and themethodofworkingwith suppliers toachieve them, are sharedthroughout the supplychain.

• Measurement and rewardsystems for achievingstandards are consistent toeliminate conflictingactions.

• Lead times, pricing, deliveryand payment dates areagreedwith the supplierallowing for social, labourand environmental needs.

• Risk and vulnerabilityassessments improvedecisionmaking andmitigate the negativeeffects of internal conflicts.

• Pro-active learning byanalysing root-causes ifconflicts do occur.

• L’Oréal• External Supply Chain

ProblemsOftenArise fromWithin theBuyingOrganisation : InsightInvestment/AconaResearch Finding “BuyingYourWay Into Trouble”


Thinking and acting beyondshort term horizons

THINKINGANDACTINGBEYONDSHORTTERMHORIZONS






What the best are trying toachieve“To ensure there is a clearframework for eachexpenditure areawithinwhichthe best sourcing solutionscan be developed to addressbusiness priorities nowand inthe future. To thoroughlyconsider and embed social,labour and environmentalperformance requirementsand chart a direction over timethat has the support of thebusiness as awhole.”

• Implementing responsiblesourcing practices requiresconcerted, consistentaction over a long period.

• With only short termhorizons, buyersmay focuson immediate deliverables(cost, inventory, speed ofresponse) at the expense ofstrategic objectives, likeinnovation that support theorganisation’s longer termgoals.

• A longer perspective allowsother stakeholders andsuppliers to co-ordinatetheir actions accordingly.This createsmore lastingand better results e.g.suppliers canmakeinvestments knowing thatthey can recoup their fundsthrough ongoing sales overa stated time period.

• Sudden actions create risk,because others in thesupply chain cannotanticipate them. This affectsvulnerable resources, suchas labour, as suddenincreases in demandrequire casualworkersunprotected by contracts.

• This damages trust andconfidence.

• More considered andconsistent actionswilldelivermore lasting results.

• Sourcing strategieswillbenefit from theconsideration and input ofothers.

• Better co-ordinationwillresult in lesswaste andbetter performance fromamore efficient supply chain.

• Increased supplierinvolvement and dialoguewill create an opportunity tocapture extra value andsupply chain innovation thatotherwisemight be lost.

• Sourcing strategies exist forkey expenditure areas.

• There is independentscrutiny and endorsementof sourcing strategies andtheir effectiveness to helpbuild trust and confidence.

• Supplier relationship needto be linked to the futureobjectives of the sourcingstrategy.

• Strong connectivitybetween internal andexternal relationships.

• Communicate supply chainperformance against thedesired social, labour andenvironmental standardsand problem issues, tofacilitate collaborativeproblem solving.

• Organic pig supplier toTesco

• GeneralMotors


Managing relationships inthe supply chain

MANAGINGRELATIONSHIPS INTHESUPPLYCHAIN






What the best are trying toachieve“To recognise and valuerelationships. Tomanage themindividually and collectivelyover time tomaximise theircontribution to ourorganisation. To ensure thatwhere the relationship isbetween others in the supplychainwe influence goodpractice to the extentwepossibly can.”

• Suppliers’ outputs andrelationswith others arecrucial to the success of thewhole supply chain. Selectappropriate size andcapability of suppliers tomeet business needs.Inappropriate supplierselection or significantchanges to ordermay resultin unreasonable pressureonworkers tomeet higherdemands than envisioned.

• Supplier confidence, co-ordination and trustwill bedamaged if relationshipsare notmanagedeffectively, meaning social,labour and environmentalstandards are less likely tobemet.

• Access tomarketknowledge, learning andinnovationmay be lost.

• Poor relationshipmanagement practicesacross the supply chainimpede the flowofinformation and limit theinfluence of the buyer.

• A lack of clear contractualagreements betweenorganisations or betweenan organisation and itsemployees increases therisk of exploitation of theweakest party.

• Closer relationships deliverlower costs and bettersupply chain performance.

• Well managed relationshipsstrengthen the flowofinformation and knowledge.This fosters innovation andimproves productivity.

• Suppliers aremore likely torepeat good practice on thebuyer’s behalfwithin thesupply chain, therebyincreasing the buyer’sreach and impact.

• The level of exposure andrisk to vulnerable resourceswill be reduced.

• Relationshipmanagementframeworks that co-ordinate the actions,messages and targets of allinternal stakeholders andbuild trust.

• Relationshipsmanagedconsistently at the rightlevel of seniority.

• Significant improvements atsupplier’s sites areachievedwithin areasonable period.

• Suppliers encouraged toworkwith localstakeholders tomeetstandards in a locallyappropriate and sustainablemanner.

• Linking sourcing strategies,supplier relationshipmanagement and supplierdevelopment to ensurethose actions are directedtowards delivering longertermobjectives. Training onstandards is offered tosuppliers as appropriate.

• Flamingo• SABMiller


Responsible use of powerin the supply chain

RESPONSIBLEUSEOFPOWER INTHESUPPLYCHAIN






What the best are trying toachieve“To recognise that exercisingpower can have positive aswell as negativeconsequences. Tomake surethat power is exercisedresponsibly and that allreasonable steps are taken toidentify and enhance social,economic and environmentalperformance in the supplychain thatmight be vulnerableto its effects.”

• Use of power in asymmetricsituations createsvulnerability and the risk ofexploitation.

• Governance in this area islimited and the effects arecomplex and oftenmanifestthemselves elsewhere inthe supply chain so theconsequences are notnecessarily clear to thebuyer.

• It is awidely usedtechnique underpinningmany buying strategies.

• Protection from theirresponsible use of poweror its effects elsewhere inthe supply chainmay not bemitigated by standardmethods of protection, e.g.contracts or compliancewith standards, legal orregulatory frameworks.

• Reducing risk by bettermanagement andawareness of the negativeeffects of power inasymmetrical relationships.

• Better protection ofvulnerable resources.

• Greater use of other, moreinnovative influencingstrategies.

• Reduced risk of quality orsupply disruption.

• Less chance of legal orregulatory intervention.

• Better supplier relationships

• Effective governance ofsourcing strategies andsupply chains.Understanding of howpower is used.

• Understanding of thewholesupply chain and points ofvulnerability.

• Using power to achievesocial, labour andenvironmental standards,through good relationships.

• Effective supply chainfeedback, control and auditframeworks to assess theimpact of practices, initiatenewways ofworking andlearn fromconflict. Specificprojects to dealwithintractable problems.

• Strong riskmanagementpractices.

• Brakes• Alfa Laval• Suppliers investmore in

innovation for customersthey have a goodworkingrelationshipwith than formajor customerswhichhave a lower ‘WorkingRelations Index’ score

• Competition Commission

EastonHouse, Easton on theHill, Stamford, Lincolnshire PE9 3NZ, UK Tel: +44 (0)1780 756777 • Fax: +44 (0)1780 751610 • Email: [email protected] •Web:www.cips.org

The Chartered Institute of Purchasing & Supply

CIPS is an international organisation, based in the UK,serving the purchasing and supply profession. Dedicated to

promoting good practice, CIPS provides a wide range ofservices for the benefit of members and the wider business

community. It is the worldwide centre of excellence onpurchasing and supply management issues with over

44,000 members in 134 different countries.

Its role as a professional body is defined by its RoyalCharter. The Charter provides clear objectives, which need

to be achieved for the public benefit.

©The Chartered Institute of Purchasing & Supply 2007All rights reserved

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