Sustainable Procurement: Want change? The first step is to create urgency

April 11, 2012 EcoVadis

“Change is the only constant.”
– Heraclitus, Greek philosopher

Companies are in a continuous state of flux and evolution, and they have to be in order to survive. It is undeniable that companies which advance towards Corporate Social Responsibility (CSR) are not only committing themselves to the methods of sustainability but are committing them the long-term business continuation.

The organizational shifts required to embed environmental, social and ethical factors into a management system can be resource intensive and time consuming, but the nonetheless the changes are underway.

While companies are taking ownership of their direct environmental and social impacts, the indirect sustainability impacts of their supply chain are a step beyond and require an additional commitment. This may be obvious, but you cannot ask your suppliers to be sustainable, unless you yourself are already walking down the same path.

When new clients come to us they often have many questions about the right steps to take in order to ensure effective implementation of their sustainable procurement program. They are aware it will take time, but the immediate steps of action are not always clear.

Procurement professionals are an extraordinarily busy breed and are especially bogged down with supplier data on cost, quality, delivery, price, etc. Adding in CSR criteria to their already full workload will seem like nothing but a burden unless the topic is approached with a change management strategy. Looking at John Kotter’s 8-Step Process for Leading Change one of the first and most critical steps to implementing change is to create a sense of urgency.

Creating urgency is not about creating an environment of fear or change driven by scarcity, but rather it is about being open and honest about the realities in the marketplace.

So, what are those realities for sustainable procurement? Mention one of two words – “Nike” or “Apple” – and unless your team is in a remote off-the-grid village, the associations will be clear. The potential for reputation damage and the associated clean up costs are a major risk in today’s globalized world.

The reality is that companies are increasingly being held accountable and responsible for the activities in their supply chains.

Some other lesser known “realities”, but just as relevant include:
2010 Royal Dutch Shell was convicted of bribery for bribes paid by transportation supplier, Panalpina, and Shell was required to pay $48.1 million under the US Foreign Corrupt Practices Act
In 2007 Mattel spent US $110 million on recall expenses and a communication campaign due to an erroneous assessment of lead content used by Tier-2 Suppliers
In June 2006, Palm’s stock value dropped 14% in June 2006 due to suppliers not meeting the RoHS directive causing Palm to withdraw Treo 650 from the European market
Regarding regulatory pressure, the last two years alone have presented some major implications for supply chain management:
UK Bribery Act: Came into effect on July 1st 2011: Companies can face a major corporate offense, with an unlimited fine, if convicted of bribery that talks place in their supply chain
Dodd-Frank Act: Section 1502 (Conflict Minerals Act, USA): While this bill passed on July 1st 2010, the final rules have been delayed multiple times due to the complexity of the regulation. Ultimately it will require annual reporting to SEC regarding due diligence measures to prevent conflict minerals in supply chain.
California Transparency Supply Chains Act (USA): Came into effect 1 January 2012, requires public disclosure of efforts to prevent slavery and human trafficking in the supply chain by manufacturers and retailers operating in the State of California
HR 2759: Business Transparency on Trafficking and Slavery Act (USA): Proposed in August 2011, but has not yet passed. It is similar to the CA Transparency Act, except that it would apply to companies operating in all sectors.
Other realities include the financial pressure being brought forth by investors. A new report released by Eurosif says that investors are increasingly auditing supply chain sustainability. Sustainable indexes such as Dow Jones Sustainability Index are becoming more strict as well. The DJSI 2012 questionnaire, to be open for answering as of today, has already become more advanced in regards sustainable procurement:

The old criterion ‘Standards for Suppliers’ has been replaced with a new section called ‘Supply Chain Management’ which takes a more comprehensive approach to companies’ management of both risks and opportunities in their supply chain.
With DJSI’s “best in class” assessment approach this means that in order for companies to be included or remain in the index, they must continually intensify their sustainable practices, including sustainable procurement initiatives. Ladies and gentlemen, the bar is being raised.Feeling the urgency, yet? Great ! Now, grab your nay-saying colleagues and catch them up to speed with the realities that procurement professionals are facing. The likelihood is that they will remain a little more open when it comes to changing (i.e. implementing sustainable procurement business processes). So, then what?

In the weeks to come we will continue to look at how you can drive change towards implementing a sustainable procurement plant. Up next, steps 2-4 of Kotter’s Leading Change Process: creating a leadership coalition, creating a vision, for change and communicating that vision.

This article was written by Nicole Sherwin, a CSR Analyst at EcoVadis. You can follow her on twitter @NicSherwin

Photo from flickr creative commons by korpisto

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