27 November 2008

Audits, codes of conduct and supplier monitoring are all very well, but when it comes to ethical purchasing there's no substitute for strong relationships with suppliers, argues Fiona Gooch

When times get tough and budgets come under pressure, finding greater efficiencies is likely to be top of the purchaser's agenda. Sourcing from low-cost countries becomes an increasingly attractive option but brings with it new challenges and new risks.

For the hard-pressed individual trying to make the figures add up, considerations of how to purchase more responsibly, in ways that treat suppliers fairly, may not loom large. The failure to factor them into the purchasing decision can, however, pose threats to a company's reputation, image and supplier relationships that, ultimately, prove more costly.

To help navigate this minefield, the Responsible Purchasing Initiative (RPI), co-ordinated in the UK by Fairtrade organisation Traidcraft in collaboration with CIPS, has produced a range of guides, reports and online tools to show how purchasing can be done in a manner that benefits producers as well as delivers commercial advantage.

SCALE OF THE CHALLENGE
The reality is there's a long way to go to improve the conditions for workers in the supply chains that so many UK businesses depend on. The trend towards short-term contracts and ever cheaper production means costs and risks are often passed down the chain until, at the bottom, workers find themselves vulnerable to the demands of a market they cannot reach and are powerless to influence.

Purchasers have to balance the tension between a risk management approach to suppliers and developing relationships that deliver enhanced benefits. This can also affect their approach to codes and standards. A risk-averse approach may lead to an overemphasis on codes, and auditing and monitoring them. When coupled with terms of trade that make ethical behaviour more difficult, this can sour relationships or, in the worst cases, foster dishonesty as the supplier (perhaps in collusion with a purchaser) acts to conceal breaches of the code or standard.

A relationship-focused approach, which encourages and supports suppliers that take a lead in improving social responsibility, is more likely to be successful. In the long run, it may also be the strategy offering the lowest risk, as well as yielding greater business benefits through greater productivity. This is thanks to better human resources management and providing a conducive environment for collaborative innovation, the RPI says.

SUPPLIER AWARENESS
Hardly a week goes by without news of yet another company being brought into disrepute by exposure of unethical practices in its supply chains. But the truth is it is often very difficult for purchasing professionals - particularly those in industries with long supply chains - to know all the suppliers well.

Purchasers may have little idea how their decisions affect their suppliers who are undertaking labour-intensive activities. For example, how they buy - the terms and conditions, timescales, last-minute demands - may make it extremely difficult for a supplier to meet basic human rights standards, including minimum International Labour Organisation core conventions.

Understanding the impact you have is a critical first step towards responsible purchasing. And there is no substitute for direct research involving key stakeholders, including suppliers, workers and local community organisations.

To help buyers engage with these issues in an enjoyable way, the RPI, together with CIPS, has launched The Buying Game. It's an interactive online game in which users negotiate the supply of an imaginary product, deciding what to do in a series of scenarios. Case studies of producers run throughout the game, giving insights into the impact buying decisions can have on the lives of real people. And, as in real life, a wrong decision can have disastrous consequences. At the end of the game, buyers get a score assessing how well they have done, as well as feedback.

The Pentland Group, which owns brands such as Speedo and Berghaus and manages worldwide licences for Lacoste and Ted Baker footwear, sources from emerging markets including China, Vietnam, Thailand and India. A number of buyers from the company's different brands tried the game. Lesley Roberts, director, corporate responsibility, says: "They thought the scenarios were realistic and said there was value in seeing the ramifications of their decisions. Of particular interest were the stories of the people affected in both good and bad ways."

They concluded it would be especially useful to raise the awareness of new employees. "Often these messages are general and for many it is not obvious how they might be relevant to their job. For some, this would be the first time that they had been challenged in such a way."

TOOLS AND REPORTS
The RPI has also produced a range of publications offering practical guidance and advice. Some are for all sectors, whereas others are sector-specific; and some are aimed at junior buyers, whereas others are directed at senior purchasers. All of the publications are based on research with suppliers, workers and local organisations in low-cost sourcing countries that are selling into the UK market, as well as UK purchasers. For each resource, the RPI organised a peer review process drawing on its advisory committee, which comprises purchasers, suppliers, investors, international development charities and CIPS.

For example, the report Buying Matters looks at the realities of the buying desk, examines the pros and cons of purchasing fairly and sets out characteristics of responsible purchasing for any sector, as well as proposing possible guidelines for the way forward. Taking The Lead provides commercial directors, heads of buying and chief procurement officers with a guide to good practice. It highlights the activities of companies that are already demonstrating consideration for responsible purchasing.

Ariane Thomas, L'Oréal purchasing director, said at the launch of the report: "Fundamentally changing the way we work with suppliers, including actively discussing with them how to reach the working conditions that are expected, has sometimes meant taking tough decisions. But the positive results in relation to mitigating business risk and enhancing product innovation are worth it. Our buyers understand that this is a serious commitment and L'Oréal is proud that some 75 per cent of our expenditure is with suppliers that have worked with us for 10 years or more."

Recognising that more sector-specific examples were needed to show how the responsible purchasing approach can be applied to different categories, a range of guides has now been launched for sectors where low-cost sourcing is predominant.

A Fresh Perspective examines supply chains of fresh perishable produce and identifies five key areas for action. Nigel Jenney, chief executive of the Fresh Produce Consortium, the sector's trade association, said: "The perishable nature of fresh produce makes the supply chain one of the most challenging to manage profitably." He said the guide will help companies to improve supply reliability and reduce wastage.

A Fair Cup looks at the tea sector, where raw materials are sourced from all over the world, frequently through auctions, whereas Material Concerns focuses on the garment industry. The latter outlines a two-pronged approach to implementing a comprehensive and effective responsible sourcing strategy.

It sets out a clear set of operational principles that define the ground rules for purchasing relationships and includes practical recommendations on how buyers can make changes at different points in the critical path of sourcing a garment.

The guide also contains sample scorecards to incentivise buyers and suppliers on ethical as well as commercial grounds, recognising the business benefits of better HR management within the supply base.

As purchasers know, it is important for activities that are focused on ensuring workers' rights to be respected in the supply chains serving the UK market. It is progress, not perfection, that we need to see. Responsible purchasing and supply involves difficult and complex issues, but there is much to gain by beginning to tackle them and much to lose if you ignore them.

Steve Homer is corporate governance manager at horticulture business Flamingo, which works with smallholders in Africa and South America to produce fresh and prepared vegetables for UK supermarkets. He said: "Many companies are investing a lot of resources in managing overseas suppliers to reduce technical and reputational risk. What is exciting about this initiative is that it focuses on simple actions that can be taken right here to deliver real benefits, and in some cases commercial gains, for those who are most vulnerable in the supply chain."



Fiona Gooch is UK director, RPI, and policy adviser at Traidcraft

The RPI wants to continue to learn and share knowledge and experiences of what has gone well and what is possible. Please send any comments to: responsible-purchasing@traidcraft.org.uk
For more information about The Buying Game and implementing a responsible sourcing strategy, visit www.traidcraft.co.uk
analysis 2008 low cost country sourcing supplement 2008

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