How Much Does A Supplier CSR Monitoring Program Cost? Make/Buy Analysis

February 11, 2016 EcoVadis

When investigating or preparing to launch an initiative in your company to monitor supplier Corporate Social Responsibility (CSR) practices, risks and performance, a couple key questions you face include: “How much will it cost?” and “What can I do internally, and what should I outsource?” Here are some guidelines and tools we’ve developed over the past eight years working with over 120 procurement teams from global multi-nationals, to help you gain some insight on these questions.

Step 1: Defining Cost Elements For A Supplier CSR Monitoring Program

Before jumping into a calculation, lets define the scope of the program, and break it down into components. Here are our starting set of steps, based on our experience with 120 procurement organizations’ sustainable procurement programs:

  1. Risk Analysis of Supplier Profiles: Since most procurement teams in large Multi-national companies have 10’s of thousands of suppliers, it is neither practical nor useful to assess all of them at once. Instead, most start by classifying supplier risk profiles based on three basic criteria Category, Size, and Country.
    • In-house staff-time measured typically in minutes per supplier
  2. Research CSR Risks per sector: In order to properly classify supplier risk, each sector must be rated for risk. This research would include a regulatory watch, best practices identification and review, defining KPI’s and scoring model:
    • In-house staff-time measured typically in staff-days per sector
  3. Research CSR Risks per Country: Similar to sector risks, geographic location can be a very important indicator for risk of a supplier. This research includes researching and and reviewing country-related risks and defining scoring model:
    • In-house staff-time measured typically in staff-days per sector
  4. Supplier Outreach and CSR Assessment Questionnaires: The backbone of supplier evaluation programs are the CSR questionnaire that collects documents and proofs of their CSR practices and performance. This step involves creating the survey mechanism (online, spreadsheet, etc.), deploying the survey (e.g. email campaign), and follow up with suppliers (emails, phone calls) to maximize response rate.
    • Estimated In-house staff-time is typically in hours per supplier;
    • + additional time/staff/cost for translation to support documents to/from local supplier languages
  5. Data verification and document audit: Collect and audit documents. This step is perhaps the most important, and requires staff with an educational background in a sustainability-related field such as masters of Environmental Engineering, Environmental management, Environmental studies, or related field such as Chemical Engineering or similar. The task is to examine the documents and provide an opinion on their completeness and relevance across all domains environmental, labor/human rights, ethics, and sustainability management of their own suppliers. For example: company policies; 3rd party certifications such as ISO 14001; site audit reports; CSR reporting; GHG emissions, energy use data and KPIs; external accreditations; etc.
    • In-house staff-time is typically estimated in hours per supplier assessment;
    • + additional time/staff/cost for translation to support documents in local supplier languages
  6. Monitoring / “360° Watch”: In addition to collecting data from suppliers, the reliability and depth of the evaluation is significantly enhanced by validating with external/diversified sources. This step involves research of CSR information/incidents on suppliers provided by stakeholders (NGO’s, Trade Unions,…);
    • In-house staff-time typically measured in minutes per supplier per week;
  7. Supplier Debriefing: Once a supplier has completed and submitted a survey questionnaire, related documents, and you have analyzed their performance, they will want feedback on the outcome. In this step, the sustainable procurement team prepares a summary of their results/performance, ideally with a compared to an industry benchmark, and then conducts the debriefing with each supplier.
    • In-house staff-time measured in in hours per supplier;

Step 2: Calculating your costs

With the set of cost elements and parameters defined, the next step in estimating the cost of your program is to assemble these inputs into a table, and plug in the number of suppliers you want to evaluate to determine your cost. A spreadsheet model is the easiest way to do this.

Here’s an example of this table:
The rows you list the cost elements described in part 1. Columns contain estimated costs per unit for each, based on best practice examples.  The “Variables” Columns contain the variables you enter, depending on how many total suppliers you have, and how many you end up evaluating. This process assumes you perform a risk analysis first to help select suppliers. You can see an example formula to calculate the cost in Staff days.

EcoVadis provides a customized evaluation of your company’s supplier CSR monitoring system, and which includes a detailed Cost Calculator Spreadsheet, similar to this one.

Step 3: Comparing to a full-service outsourced program such as EcoVadis

A comparison of approaches should encompass both the direct cost differences, as well as the qualitative value comparison including

  • Value for stakeholders
  • Value for Suppliers
  • Value for Buyers
  • Cost

Each company will have a unique set of issues and scope. If you want to receive a free consultation and cost calculation customized to the sustainable procurement needs in your organization, or have any questions or more data you can share on the costs of Supplier Assessment and monitoring, please contact us!

Click here to contact us or request a free consultation →

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