Sustainable procurement is a hugely important part of managing any business's value chain as it is often where a business can have the most influence or control.
Do you have procurement procedures in place? How far do they go? Do they address financial, social and environmental issues in your entire upstream value chain or just with your immediate suppliers?
It makes sense to procure sustainably – with risk minimisation and cost savings being top of most companies' lists of why they do it. The areas that business commonly focus on when it comes to sustainable procurement include labour standards and practice, environmental performance and legal/regulatory compliance. Below are examples of businesses that have faced this issue within their upstream value chain and have taken steps to address it.
- Labour standards and practice
- Environmental performance and compliance
New Zealand Post's supply chain values criteria explains some of these areas by defining performance indicators/metrics.
Benefits of managing your upstream value chain:
- A secure supply – a strong value chain improves resilience.
- Stronger brand – understanding your value chain can improve credibility and accountability.
- More predictability – reducing risk and inefficiencies can avoid unforeseen costs.
- Opportunities to collaborate – value chain work provides a platform for suppliers to collaborate and innovate with you.
How can you work with your suppliers?
A sustainable procurement strategy is a good place to start taking a consistent and holistic approach to managing your upstream value chain. This can be built into an existing procurement strategy and sets out how you will engage with selected suppliers on sustainability issues.
As part of this strategy you may choose one or more of the ways listed below to engage your suppliers.
- Ask questions of the supplier through questionnaires or tenders and contracts.
- Agree a supplier code of conduct.
- Set and carry out reporting or inspection practices through contracts.
- Request third party verification.
If you have limited resources within your business we recommend taking a staged approach, addressing high cost or high risk suppliers first, and with a greater level of detail than low spend and low risk suppliers.
- The NZBCSD 2003 Sustainable Supply Chain Guide provides detailed questions that will help prompt your thinking on supplier management (page 20).
- The Ministry of Economic Development's (MED) 2008 Sustainable Procurement Guide. Prioritising your suppliers impact to your agency provides detailed questions to help prioritise interaction with suppliers (page 5).
- The Australian Government Sustainable Procurement Guide contains useful templates for engaging small suppliers (pages 51-55).
1. Asking questions of your supplier
A simple questionnaire can help you understand how your suppliers view and enact sustainability. It is commonly used in tender processes to measure and track the performance of your existing supply chain.
Use the information you gather to compare the sustainability of suppliers' products or services or to identify areas where you may be able to collaborate to create shared value.
The questions you ask should align with your own values and performance which you should set out clearly at the start. Key areas to cover include:
- Suppliers' environmental performance – environmental policies and improvement initiatives.
- Suppliers' social performance – including labour rights and health and safety.
- Suppliers' sustainable management of their own value chain.
- Use all the information you collect. If you don't need it, don't collect it.
- Be specific about the information you need so the supplier is more likely to engage.
- Make sure your own environmental and social performance is in line with what you expect of your supplier.
- Let your supplier know what happens if information isn't provided.
Many businesses use this tool initially to assess new suppliers and then review suppliers annually or as new contracts arise.
- The NZBCSD 2003 Sustainable Supply Chain Guide provides examples of scoring responses pages 22-23).
- For a practical example of a supplier questionnaire see the Australian Government Sustainable Procurement Guide (page 48) for a practical example of a supplier questionnaire.
- For an example of how the answers can be weighted/graded see New Zealand Post's supply chain values criteria.
2. Agree a supplier Code of Conduct
A code of conduct, especially when developed collaboratively, will reflect the standards you want your suppliers to meet and reduce risk for both parties by building common goals.
A code of conduct is generally not audited and can often rely on your suppliers' goodwill and self-declaration of performance. It is up to your organisation to decide if and when to audit your suppliers to make sure they meet the criteria.
- For examples of how to implement a code of conduct for suppliers refer to the NZBCSD 2003 Sustainable Supply Chain Guide (pages 18-21).
- For examples of a code of practice in use refer to ANZ and DB Breweries.
- For examples of a code of conduct and engagement with suppliers refer to Westpac Group and Siemens.
3. Set reporting or inspection practices through contracts
You can use contracts to set reporting or inspection practices that demonstrate to suppliers you are committed to verifying that they are doing what they say they are. Actual verification of performance can be very time consuming and may rely on your suppliers providing you with the right information, staff and access to their sites. To encourage your suppliers to meet your goals, help them understand why you are reporting on their activities, it may be to help the supplier improve their performance or to ensure compliance. In some cases it may be possible to collaborate with the suppliers' other customers to increase efficiencies. Demonstrate to them that despite the extra time needed, it can benefit them too.
- A good example of a New Zealand company doing this is The Warehouse, which sets out the process for its factory inspections and the minimum Labour and Environment standards for factories that they trade with. Learn more
- In addition, The Warehouse holds "Way of Working Workshops" and an Ethical Sourcing and Quality Forum to educate and collaborate with suppliers.
- For help with using or develop a risk matrix that has specific reference to contracts refer to the Ministry for Economic Development 2008 Guide 1 to Sustainable Procurement: Identifying Sustainable Procurement Priorities (page 11).
4. Requesting third party verification
Requesting a supplier achieve a third party verified standard (such as the environmental management standard ISO 14001) can reduce risk and transaction costs for your organisation.
Requesting third party verification can be costly for your supplier – and that cost may be passed on through their products and services.
There are many third party standards available. Again, your organisation should be clear about why you are requesting a supplier achieves a particular one and if so, what will you do if they don't achieve it? Would you be willing to assist them and if you are asking it of your suppliers should your own organisation have it first?
Sedex has developed a useful free, publicly available guide for suppliers to help them understand what good practice looks like and how to achieve it when working towards many of their customers requirements such as the Ethical Trading Initiative (ETI). The workbook helps suppliers take a systems approach to identify and manage social, environmental and governance non-compliances.