24 August 2009
How far you take responsible procurement through your supply chain depends on the potential risks or benefits, says Shaun McCarthy
Many organisations are recognising the importance of managing their supply chains in a more responsible way. The word 'procurement' is now frequently preceded by 'sustainable', 'green' or 'responsible'.
The question I am most frequently asked is: "How far down my supply chain should I go?" And my answer is usually an unhelpful: "It depends." But here I will try to shed some light on the subject.
IMPACT AND RISKS
Organisations need to think hard about their sustainability objectives and how they may apply to their supply chains. These usually fall into two categories:
l Positive influence. These tend to be driven by corporate or political targets, such as cutting carbon emissions, reducing waste to landfill, increasing the number of supported businesses in the supply chain, and so on. They may also be driven by costs related to energy consumption or landfill use.
l Risk mitigation. These tend to be driven by reputation. For example, detecting and preventing inappropriate labour standards, pollution incidents or other activities your suppliers may carry out that could damage your reputation.
To decide how far down the supply chain to investigate, you need an idea of the size of the risk you are dealing with.
For example, the sportswear industry has suffered badly with international news coverage of poor labour conditions and excessive profiteering, which affected the sales and stock values of global brands significantly.
A major sportswear manufacturer told me: "We know where every garment we sell is manufactured and under what labour conditions. We know where every metre of fabric that goes into every garment is made and under what conditions. We don't yet know where every fibre comes from to make up the material, but we are working on it."
The issue of fibres is mostly about cotton. This product accounts for 25 per cent of the world's pesticides and has a significant impact on ground and air pollution. In some countries cotton is picked by forced labour. Man-made fibres have their own problems related to the energy intensity of manufacture, safety and toxic waste. Put these factors together and you have a major reputation risk for the industry, so it becomes necessary to trace every fibre. Organisations with less risk related to clothing may only choose to go back to the point of manufacture; others may not address the issue at all. A robust risk analysis is needed to develop the right solution.
Here's another example. Tantalum or coltan is a little-known mineral, which is an essential ingredient in manufacture of electronics equipment, particularly capacitors. It is mined in very few places and has great commercial value. There are abundant supplies in Congo, where mines have, at times, been taken over by guerrilla groups and the profits used to support violence and oppression in the region.
Major electronics distributor Farnell dealt with this risk long ago as part of its comprehensive CSR programme. It sought written assurances from its three capacitor vendors that their supplies of coltan were not sourced from this region. Having received this confirmation, Farnell informed its customers. It has a contingency plan to divert sourcing between the remaining suppliers if any are found to have a problem. This is an appropriate response to a risk with potentially serious impact, but low probability.
A major issue for the construction industry is the combination of natural resource use and embodied energy (the energy required to make and transport material). It takes approximately four tonnes of CO2 to make a tonne of concrete, and two tonnes to make a tonne of steel.
The London 2012 Olympics pledges to be the "most sustainable games ever" and has been very diligent in managing its carbon footprint. Its target is 3.4 million tonnes, over 60 per cent of which will be embodied in construction. The target has led to amazing designs for venues and some innovative work in commodity procurement. The carbon footprint of concrete is tracked and managed all the way back to the quarry.
Other construction clients tend to focus on the energy efficiency of the built environment, but as our knowledge of the carbon cost of construction improves, there will be more focus on this issue.
Organisations need to develop a deep understanding to formulate a plan. A good illustration is United Utilities, which is accustomed to long-term planning and investment. Clear definition of its sustainability risks and objectives over the long term, followed by an analysis of its supply chain, have resulted in a six-year plan to address a variety of impacts to different degrees, depending on the level of risk or ambition against individual supply categories. For example, United Utilities wants to understand the carbon and waste footprints related to the materials it uses, but it is recognised that this will take time.
The company also buys several pumps, which use a lot of energy. So it's addressing not only the efficiency of the pumps and motors, but also how its designers can optimise the efficiency of its plants. This is an immediate objective based on carbon-reduction targets and the aim of cutting the firm's huge electricity bill, which helps to keep water costs to customers to a minimum.
However, pumps are made of cast or forged metal, a highly energy-intensive manufacturing process, and are heavy to transport. United Utilities has a longer-term plan to understand and manage these impacts, which will start to influence where and how products are made.
Organisations need to deal with sustainability risks at the point in their supply chain where it can make the most difference. This may be in a pump factory, a cotton plantation or a quarry. It's not easy and takes a long time, but it will support your organisation's
long-term success. Shaun McCarthy is director of Action Sustainability and chair of the Commission for a Sustainable London 2012 (www.actionsustainability.com; www.cslondon.org)