How to commercialise a sustainable supply chain
Ethical Corporation talks to some leading supply chains executives about risks and challenges, and why sustainability is central to long-term security
The global economy relies in large part on a complex web of supply chain networks, which facilitate trade and keep businesses competitive.
But managing these global supply chains is becoming increasingly difficult, as their extended nature leaves them vulnerable to an ever-evolving array of problems: from IT failure to natural disasters, terrorist action, worker health and safety issues or political unrest.
Whether it’s horsemeat in beef burgers, child labour in factories, unethical sourcing of materials to save money or warehouses being destroyed by hurricanes, managing risk and ensuring integrity all the way down each tier of the chain is essential if companies intend to remain competitive and keep reputations intact.
Creating and maintaining a sustainable supply chain means different things to different companies.
The McDonald’s approach
The long-term vision of McDonald’s is to ensure that all food and packaging comes from sustainable sources. “Our approach to sustainability is guided by the ‘three Es’ – economics, the environment and ethics,” says Keith Kenny, senior director at McDonald’s Europe. “Making sure farming and agriculture is economically viable, minimising the environmental impacts of our business and our supply chain and setting high ethical standards.”
These principles are applied along the entire length of the firm’s supply chain, from the way in which it sources agricultural raw materials through to manufacturing, logistics, its restaurant operations and waste management.
For consumer multinational Unilever, the two key areas are sustainable sourcing and reducing environmental impact. “We look at our entire operation through the lens of sustainability,” says Pier Luigi Sigismondi, chief supply chain officer.
“This includes everything we source, from our 100,000 plus suppliers; everything we make, from our global network of more than 250 factories; and everything we deliver to the customer by our international logistics operation.”
Unilever’s Sustainable Living Plan aims to reach 100% sustainable sourcing of all agricultural raw materials by 2020 (it currently stands at 36%) including 100% sustainably sourced palm oil – a target it achieved three years ahead of schedule. More than 50% of its factory sites are now zero non-hazardous waste to landfill and it is aiming for 100% by 2015.
However, Sigismondi believes the real impact comes when the company can use its influence and experience to create wider change. “With palm oil, we are building partnerships [with suppliers] to build capacity and promote the production and use of sustainable palm oil from physically-traceable certified sources,” he explains. Unilever has also joined the Grow Africa project, an international partnership aiming to accelerate agricultural investment in Africa.
For Mike Coupe, group commercial director at supermarket giant Sainsbury’s, a sustainable supply chain is not just about sourcing with integrity, it’s about actively working with suppliers to educate them.
“We form partnerships with our suppliers, going beyond compliance, to help them consider the economic, environmental and social impacts of their activities,” Coupe explains. “It’s about co-creating solutions, and encouraging and incentivising innovation throughout the supply chain.”
The Sainsbury’s 20x20 Sustainability Plan sets out 20 ambitious commitments to be achieved by 2020, including to double the amount of UK-sourced food sold by 2020, ensure key raw materials and commodities are sourced sustainably to an independent standard, and to work with its own-brand suppliers to reduce carbon emissions across all of its own-brand products by 50% relative.
“These are demanding goals and we’re not entirely sure how they will be achieved,” admits Coupe. “However, we know that it’s what our customers expect and what our supply chain needs.”
Climate change, water scarcity and rising energy costs (which in turn affect transport logistics) are just some of the risks facing today’s supply chains, with the extreme weather patterns of recent years having a particular impact.
For McDonald’s, future availability and affordability of key agricultural raw materials is a concern, especially as the vast majority of these are sourced in Europe. “Like many other businesses, we are facing challenges linked to climate change impacts, water scarcity and the cost of fuel and transport,” says Kenny.
And with sustainability forming the backbone of a strong supply chain, building long-term relationships with suppliers is also essential, particularly from tier 2 and beyond.
“If our direct suppliers know that we plan to buy from them in the future that enables them to establish strong relationships further down the supply chain and invest in sustainability,” says Kenny. “We are very proud of the fact that many of our key suppliers have been with us in Europe for over 30 years.”
Telecoms giant Telefónica is involved in the Global e-Sustainability Initiative (GeSI), which is supported by the UN Environment Programme and the International Telecommunications Union.
“Participation in organisations such as GeSI addresses key issues for our sector, such as coltan,” says Alberto Andreu Pinillos, global MD of public affairs. Coltan is a metallic ore crucial in the manufacture of electronic devices. “These actions have provided us a platform for dialogue and collaboration with our suppliers in order to ensure and accelerate the management of critical aspects [of the supply chain].”
An example of this collaboration is the Allies programme in Latin America. “It provides a framework that encourages sustainable management with third parties who have a direct relationship with the customer,” Andreu Pinillos says. In 2012, almost 14,000 risk management audits were carried out, 6,500 employees received training and more than 4,700 supplier workshops took place.
Opportunity for growth
“Sustainable sourcing not only helps us manage a key business risk, it also presents an opportunity for growth,” Sigismondi says. Unilever has invested heavily in improving farming practices among tea farmers, building capacity to more than 170,000 tonnes of Rainforest Alliance certified tea for brands such as Liptons.
“In Kenya, by partnering with the Sustainable Trade Initiative and the Kenya Tea Development Agency to co-fund farmer field schools, we have trained more than 450,000 smallholder farmers in sustainable agriculture techniques,” he explains. This helps the smallholders to become more competitive and therefore improve the quality of their livelihoods.
Back in the UK, Sainsbury’s has been busy building relationships with farmers and growers.
Its Dairy Development Group is six years old, and came about on the back of huge fluctuations in the market price of milk, which was resulting in large numbers of farmers leaving the dairy industry. “From the very beginning it was set up with the farmers at the heart of the group, in order to work on improving economic sustainability and the quality of what they produce,” Coupe explains.
Farmers were initially paid a premium over and above the market price of milk for being part of the group. In return, Sainsbury’s paid for and collected farm level data that provided an overall picture of the efficiency and effectiveness of the group on a number of metrics – and importantly provided each farm with data that was benchmarked against the rest of the group.
“The collection of this data has done more to improve dairy farmer productivity than any other initiative I have seen over the last 20 years,” claims Coupe.
All agree that there are challenges ahead. “The complexity of the supply chain is increasing, not only by the number of companies that comprise it, but also by the relocation that globalisation brings,” says Telefónica’s Pinillos. “Therefore, its management has become one of the great challenges of sustainability for businesses.”
What is very apparent is that creative thinking and constant challenging of the status quo is required if companies are to stay on top of ever-shifting supply chain issues.
“Our 20x20 Sustainability Plan commits us to hitting a billion pounds' worth of sales in fairly traded products,” says Coupe. “We’re clear it will only be achieved through new supply chains, with new ways of working, new investment, new partnerships and, perhaps above all, new attitudes.”
Supply chains: coping with the unknown
- Know the point of origin for all materials and take accountability for what happens beyond tier 1 suppliers – carry out the due diligence.
- Encourage transparency with suppliers – share your plans and expectations and learn from their ideas and knowledge.
- Expect the worst – do you have a contingency plan in place in the event of another Icelandic volcanic eruption (that closed international air space)? Could you charter a jet or use an alternative courier if deliveries were threatened?
- Be hands on – if your supply chain is global, do you have in-country representatives who can vet suppliers and navigate legal and regulatory frameworks to ensure compliance?
- Create goodwill – communicate with your suppliers, make your expectations clear, be flexible (and always have a back-up in case relations turn sour).
Mike Coupe from Sainsbury’s, Keith Kenny from McDonald’s Europe and Andreu Pinillos from Telefónica will be among the corporate leaders discussing ways to commercialise sustainability in supply chains at Ethical Corporation’s 8th annual sustainable supply chain summit in London on October 7-8.