Sustainability is a buzzword including in many a corporate brochure and its ubiquity can attract cynicism about a company’s policies to mitigate their impact on the environment. However, food makers and retailers are building the issue into how they interact.
Introduction – Forging a new relationship with suppliers
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By GlobalDataAs sustainability has risen up the corporate agenda, food companies have addressed the issue on a host of fronts from energy usage to employee engagement, from water conservation to alternative fuels, from recycling to animal welfare.
But for all that producers do in their own factories or retailers in their stores they have accepted the reality that grasping the sustainability challenge is to a significant degree about addressing matters beyond their own operations.
In addressing both the environmental and social impacts of their businesses, companies have to reform not only their own practices but those of their suppliers. The deeper this process goes into long and complex supply chains the greater the challenges become.
Bringing sustainability into the buying contract
The buying relationship between food manufacturers and retailers and their suppliers can be said to have traditionally been built on three primary criteria: quality, service and price. The advent of the sustainability challenge has – or should have – introduced a further key element into that negotiation.
The head of sustainability at Belgian-based supermarket retailer Delhaize, Megan Hellstedt, says the sustainability challenge is “changing the way we do business, bringing social and environmental impacts into the conversations we have with our suppliers and building expectations around [those] impacts into our relationship with suppliers”.
The principal challenge in achieving this has been connecting the area of a company driving sustainability with the people managing buying and procurement. So the challenge is often one of business administration.
There may be a degree of scepticism among campaigners when companies speak about the sustainability committees and working groups they have set up to improve internal communication but to achieve real change in supply chains it is vital that the buying function is brought fully into the process.
Companies arguably not only need to incentivise their suppliers to be more environmentally conscious and socially responsible but also must ensure their buyers’ performance is measured not only on the traditional value criteria of price, quality and service but also on the progress they make in achieving more sustainable procurement.
High-level executive involvement in sustainability is generally seen as a positive. An increasingly common model is for the senior executives or directors who oversee various functions at the company to sit on an overall sustainability committee and act as a direct interface between the coordinated sustainability strategy and their respective departments.
This allows the sustainability strategy to be informed by the practical realities in those departments, including buying, while that high-level ownership gives sustainability imperatives the best chance of being driven through at the operational level.
At UK food producer Premier Foods plc, Mark Hughes, group procurement director, sits on the group’s CSR Steering Committee and heads up the company’s Ethical Trading Working Group. Delhaize has a Responsible Sourcing Synergy Team that is made up of buying experts from each of its operating companies. And at UK supermarket chain Sainsbury’s, the brand governance or ‘sourcing with integrity’ group is chaired by trading director Mike Coupe.
Global environmental strategy at PepsiCo is overseen by its Environmental Sustainability Leadership Team which, according to the company’s sustainability report, comprises senior executives at its businesses running a variety of functions including supply chain and global procurement.
Supplier engagement
Supplier engagement has always been a critical element in good business practice, helping to support areas such as quality control and research and development. The sustainability challenge has provided a further very significant reason to facilitate such engagement.
United Biscuits runs supplier forums to “brainstorm” sustainability solutions, while in the US Wal-Mart Stores’ Sustainable Value Networks comprise a range of stakeholders including suppliers. Sainsbury’s holds around five stakeholder engagement sessions throughout the year, bringing key external stakeholders, including suppliers, together to discuss sustainability issues with its senior team.
Once again, this is about two-way communication. While there is much discussion of how companies must shape reform at their suppliers, Delhaize points out that there are times when companies can learn from their suppliers.
Supplier codes of conduct and external tools
Many companies have gone as far as developing a formalised supplier code of conduct (SCoC).
However, these will typically incorporate a general reference to environmental sustainability, with rather greater detail being given over to socially ethical aspects such as child labour and free association.
In drafting codes of conduct, companies have a number of external programmes they can refer to, such as the Business Social Compliance Initiative (BSCI), Supplier Ethical Data Exchange (Sedex) and the UN Global Compact.
The UN Global Compact is a strategic policy initiative for businesses committed to aligning their operations with ten principles relating to human rights, labour, the environment and anti-corruption. The compact encourages signatory companies to engage with their suppliers on the ten principles. But it acknowledges that many companies “lack the knowledge or capacity to effectively integrate the principles into their existing supply chain programmes and operations”.
This year it has launched a programme specifically aimed at facilitating that process.
To assist companies in improving their processes, the compact is developing guidance on how to take a more proactive approach to integrate its principles into supply chain management. It has formed a strategic partnership with Business for Social Responsibility (BSR), a global industry network and consultancy specialising in sustainability, to develop an implementation guide and a learning and assessment tool for signatories to the compact.
Under the initiative, participants are invited to submit brief examples describing how they are promoting sustainability in their supply chains which are featured on a website at http://supply-chain.unglobalcompact.org/
Founded six years ago, BSCI is a non-profit organisation located in Brussels aimed at achieving convergence in the field of corporate social responsibility. It offers companies a common social management system aimed at improving working conditions in supply chains worldwide. As the name suggests, the emphasis is on social aspects of corporate responsibility. The BSCI code includes one clause on environmental stewardship. Codes of conduct at BSCI member companies are therefore likely to reflect that same balance. The BSCI membership includes a number of major European food retailers, such as Ahold, Delhaize, Rewe, Dansk Supermarked, Edeka, Kesko and Migros.
Sedex, the Supplier Ethical Data Exchange, is a non-profit membership organisation based in the UK aimed at businesses anywhere in the world that are committed to the “continuous improvement of the ethical performance of their supply chains”.
It aims to assist member companies in managing efficiently the ethical and responsible practices of their global supply chains, generating transparency “through the provision of a secure, robust, and user-friendly data exchange”. The Sedex programme has four elements: labour standards, health and safety, environment and business integrity.
Food producers and retailers belonging to Sedex include M&S, Tesco, Waitrose, Sainsbury’s, Aldi UK, Arla Foods, Bakkavor, Dr Pepper Snapple Group, Heinz, Kraft Foods, Nestle, Northern Foods, PepsiCo, Britvic, Smithfield Foods, Unilever, Uniq and United Biscuits.
Spreading best practice
Engaging with suppliers cannot be simply about telling them what is expected of them. Tasking suppliers to adopt more sustainable practices or meet environmental criteria and targets will achieve progress but food companies and retailers have quickly learned that a more hands-on involvement in reforming practices in their supply chains is likely to result in faster change. It will also make the process more efficient as the company will be able to shape sustainability developments at its suppliers to their specific needs.
These activities, which overlap with corporate community investment by food companies, are covered in the second section of this report: Working in Partnership.
For parts II, III, and IV of this just-food management briefing, click here.
