Sourcing and procurement as driving forces for sustainable business - Sustainable sourcing and procurement
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ustainable sourcing S and procurement Sourcing and procurement as driving forces for sustainable business y Helen van Hoeven, b Lean & Green
Foreword Contents
President Obama recently said that there IDH acts as a knowledge broker, capturing Foreword
are only two kinds of car companies: those and sharing best practices in sustainable
that sell hybrid cars and those that will business. This will help frontrunners to 1.0 Introduction: Setting the scene 4
sell hybrid cars in the near future. The same move even faster, while supporting others 1.1 Sustainability as a source of competitive advantage 5
is true for sustainability in supply chains. to overcome thresholds. To mark its first- 1.2 Sustainable sourcing 9
There are companies that source and sell year anniversary, IDH is publishing a series
more sustainable products and there are of six booklets on current practices in 2.0 Best Practice AkzoNobel: Delivering tomorrow’s answers today 10
those that will do so in the near future. sustainability in mainstream business: 2.1 Sustainability at AkzoNobel 11
With a world soon populated by nine billion • Sustainable Marketing: The positioning 2.2 Sustainable procurement 13
people and over two billion new middle-class of sustainable products in mainstream 2.3 Lessons and advice 15
citizens, traditional sourcing and selling will markets, with cases of Lipton (tea),
simply be a no. You are either on the pathway FSC (timber) and Nespresso (coffee). 3.0 Best Practice Mars: The five principles 16
to sustainable development or you are out • Sustainable Sourcing: Advanced 3.1 Sustainability at Mars 17
of business. strategies and cutting-edge practices 3.2 The five principles of Mars 17
in sustainable procurement, with case 3.3 Sustainable sourcing 18
The challenge of sustainability is reshaping studies of AkzoNobel (chemicals), Mars 3.4 Lessons and advice 20
the relation ship between business and (cocoa) and IKEA (cotton).
society. Industry needs to better manage • Sustainable Trading: Why and how traders 4.0 Best Practice IKEA: Low price – but not at any price 22
natural resources and significantly lower have become key agents for sustainability 4.1 Low price – but not at any price 23
its global ecological footprint. And companies in the coffee supply chain and how this 4.2 Sustainability 23
need to engage much better with suppliers is being replicated in cocoa, with case 4.3 Sourcing 24
and workers in the emerging and developing studies of Ecom (coffee) and Olam (cocoa). 4.4 Lessons and advice 27
economies. • Sustainable SMEs: Best practices in
sustainable sourcing among small and 5.0 Conclusion 28
The mission of the Dutch Sustainable Trade medium-sized enterprises, with case studies
Initiative (IDH) is to upscale and accelerate of Wijma (timber), Fair Wear Foundation Acknowledgements 31
the mainstreaming of sustainability in (garments), and RMP Grafmonumenten
international commodity chains. IDH joins (natural stone).
the forces of business, non-governmental • Sustainable Retail: Why and how retailers
organisations, labour unions and governments. incorporate sustainability into their business
We bring diverse stakeholders together strategy, with case studies of Ahold,
in focused and result-oriented sectoral Asda/Wal-Mart, and Carrefour.
coalitions that implement ambitious • Labour Standards beyond Auditing:
improvement programmes. These programmes Best practices in going beyond auditing
tackle social, ecological and economical to achieve genuine social impact, and the
bottlenecks in the countries of origin of raw business case for doing so, with a dozen
materials, while at the same time creating cases in the garments, electronics, and
value for more sustainable products in sportswear industries.
developed countries.
We hope you enjoy reading these booklets
and that they may inspire you with actionable
ideas to further embed sustainability within
your own organisation.
Joost Oorthuizen, Director IDH
Andre Veneman, President IDH /
Director Sustainability AkzoNobel
Sustainable sourcing and procurement — 2 Sustainable sourcing and procurement — 3Chief Procurement Officers who adopt sustainable
approaches can support corporate social responsibility
goals and potentially reduce operating costs.
Chapter 1
Introduction: Setting the scene
‘How much
can Procurement is uniquely positioned to lead
organisations through these turbulent times
Paradoxically, in the same survey, sustainable
procurement is still the number three priority,
sustainability
in which both the environment, society and with 90% of respondents labelling the issue
economies are being challenged: firstly by as critical or important. How do companies
managing the demand within the company, deal with this paradox? How can we protect
secondly by sourcing from sustainable sources operating profit margins and at the same
really
and thirdly by motivating suppliers to use time drive sustainability?
less resources. Rising to the environmental
and ethical challenge can only boost the This booklet presents the best practices of
procurement profile and improve business’ three companies – AkzoNobel, Mars and IKEA
access to future opportunities. – that have successfully integrated margin
contribute
and sustainability concerns into innovative
Sustainability and corporate social sourcing policies, where sustainability is
responsibility are buzz words, with support used as a source of competitive advantage.
for their implementation gathering pace for The best practices are instructive as a source
to the
some years now. In the current economic of inspiration to improve sustainable sourcing
climate companies must now ask how much in your organisation, so you can capture that
sustainability can really contribute to the competitive edge!
bottom line. In challenging times, cutting
bottom line?’
costs is the name of the game. 1.1 Sustainability as a source
of competitive advantage
Indeed, a survey of procurement directors
conducted in 2009 by HEC-Ecovadis 1 2009 is a crucial year for the sustainability
identified cost reduction on direct and agenda, forcing companies to ruthlessly
indirect spend as an overwhelming priority, assess which policies and sourcing decisions
with over 94% ranking it as either their actually deliver shareholder value and which
highest priority or a high priority. Such a benefit the bottom line. When companies
response does not immediately lend itself analyse their potential for social responsibility
to supporting sustainability policies which using the same frameworks that guide their
often involve investments and sourcing core business choices, they will discover that
from more expensive suppliers. sustainability can be much more than a cost
or a constraint – it can actually be a source
of opportunity, innovation and even
competitive advantage. 2
1 Bruel, Menuet and Thaler, ‘Sustainable
procurement: a crucial lever to end the crises?’
HEC-Ecovadis, 2009.
2 Porter and Kramer, ‘Strategy and Society’,
Harvard Business Review, December 2006.
Sustainable sourcing and procurement — 4 Sustainable sourcing and procurement — 5Up to recently, most companies active in Figure 1. Looking Inside Out: Mapping the Social impact of the Value Chain
the field of sustainability use the following Box 1. Mapping Social Opportunities
four arguments to justify their activities: Porter and Kramer 1 developed an the value chain depicts all the activities activities. These ‘inside-out’ linkages may
• the felt moral obligation to ‘do the interesting framework to analyse a company engages in while doing business. range from hiring and layoff politicise to
right thing’ the interdependence between It can be used as a framework to identify the greenhouse gas emissions, as the partial list
• the notion of the ‘license to operate’ business, environment and society. positive and negative social impact of those of examples illustrated here demonstrates.
– companies need tacit or explicit This framework helps companies to
permission from their stakeholders set their sustainability agenda in line
to do business with their core business choices, and Support Firm Infrastructure 1
Activities (e.g., financing, planning, investor relations)
• corporate reputation analyses the potential of sustainability
• continuity – companies should operate activities from two perspectives:
in ways that secure long-term economic Human Resource Management 2
performance by avoiding short-term 1. The value chain – depicts all the (e.g., recruiting, training, compensation system)
actions that are socially detrimental activities a company engages in while
or environmentally wasteful doing business, and is used to identify Technology Development 3
the positive and negative impacts of (e.g., product design, testing, process design, material research, market research)
All of these arguments focus on the those activities. By doing this, the
(potential) tension between business, the company creates an inventory of Procurement 4
environment and society, rather than on their problems and opportunities–mostly (e.g., components, machinery, advertising, services)
interdependence. The mutual dependence operational issues- that need to be
of corporations, the environment and society investigated, prioritised and addressed. Primary Inbound Operations 6 Outbound Marketing After-Sales
Activities Logistics 5 (e.g., assembly, Logistics 7 & Sales 8 Service 9
means that business decisions and social Sustainable sourcing will often appear
(e.g., incoming component (e.g., order (e.g., sales (e.g.,
and environmental policies must follow the as a tool to decrease the companies’ material fabrication, processing, force, installation,
principle of ‘shared value’. Choices must negative impacts and will prove to offer storage, data, branch warehousing, promotion, customer
benefit both sides in order to support the opportunities for strategic distinction. collections, operations) report advertising, support,
long term prosperity of both. 2. The company’s competitive context service, preparation) proposal complaint
customer writing, resolution,
– shows how the conditions at a
access) website) repair)
company’s locations affect its ability to
compete. The competitive context can
be divided in four areas:
• the quantity and quality of available
1 • Financial reporting practices 4 • Procurement & supply chain 7 • Packaging use and disposal
business inputs, such as human
• Government practices practices (e.g., bribery, child (McDonald’s clamshell)
resources or transportation • Transparency labour, conflict diamonds, • Transportation impacts
• the rules and incentives that govern • Use of lobbying pricing to farmers)
competition, such as policies that • Uses of particular inputs 8 • Marketing & advertising (e.g.,
ensure transparency 2 • Education & job training (e.g., animal fur) truthful advertising, advertising
• the size and sophistication of local • Safe working conditions to children)
demand, which is influenced by • Diversity & discrimination 5 • Transportation impacts • Pricing practices (e.g., price
consumer rights and fairness • Health care & other benefits (e.g., emissions, congestion, discrimination among customers,
in government purchasing • Compensation policies logging roads) anticompetitive pricing
• Layoff policies practices, pricing to the poor)
• the availability of supporting industries
6 • Emissions & waste • Consumer information
such as service providers and
3 • Relationships with universities • Biodiversity & ecological • Privacy
machinery producers. These aspects • Ethical research practices (e.g., impacts
can be opportunities for sustainability animal testing, GMOs) • Energy & water usage 9 • Disposal of obsolete products
initiatives and serve as a framework • Product safety • Worker safety & labor relations • Handling of consumables
for sustainable sourcing • Conservation of raw materials • Hazardous materials (e.g., motor oil, printing ink)
• Recycling • Customer privacy
Source: Michael E. Porter, The Competitive Advantage: Creating and Sustaining Superior Performance, 1985
Sustainable sourcing and procurement — 6 Sustainable sourcing and procurement — 7Figure 2. Looking Inside Out: Mapping the Social impact of the Value Chain The analysis based on the model of Porter The best practices in sustainable sourcing
and Kramer (see Figures 1 and 2) gives a and procurement of AkzoNobel, Mars and
In addition to understanding the social These can be understood using the diamond valuable insight into the opportunities for IKEA, described in this booklet, will illustrate
ramifications of the value chain, effective framework, which show how the conditions shared value. The challenge is to choose this. These companies understand that all
CSR requires an understanding of the social at a company’s locations (such as the correct sustainability issues to address business functions, including sourcing,
dimensions of the company’s competitive transportation infrastructure and honestly i.e. those which present an opportunity to contribute to shareholder value. So their sole
context – the ‘outside-in’ linkages that affect enforced regulatory policy) affect its ability create shared value by being meaningful mission in sourcing and procurement is not
its ability to improve productivity and to complete. to the company, the society and the cost-cutting. Instead, they chose to drive a
execute strategy. environment. In this case, the sustainable comprehensive sustainability agenda, which
initiative chosen can help a company to helped them to maintain and win market
grow revenues, reduce costs, manage risks share and revenues, even in an overall
• Availability of human resources • Fair and open local competition
and build intangible assets. declining market.
(Marriot’s job training) (e.g., the absence of trade
• Access to research institutions barriers, fair regulations)
and universities (Microsoft’s • Intellectual property protection 1.2 Sustainable sourcing The case for sustainability in sourcing is even
working connections) • Transparency (e.g., financial stronger in times of economic recession than
• Efficient physical infrastructure reporting, corruption: Extractive Companies can’t be leading edge in at other times. First, any reduction in the
• Availability of scientific and Transparency Initiative) sustainability if they are not leading edge company’s demand for commodities, such
technological infrastructure • Rule of law (e.g., security, in sourcing and procurement. Sustainable as energy, transport, waste disposal and
(Nestlé’s knowledge transfer protection of property, legal sourcing is a process of buying goods and packaging, will lead to direct contributions
to milk farmers) system) services that takes into account the long to the bottom line results. In addition, a focus
• Sustainable natural resources • Meritocratic incentive systems
term impact on people, profits and the on sustainable sourcing usually leads to trans
(GrupoNueva’s water (e.g., antidiscrimination)
planet. Organisations that excel in sustainable parency in the supply chain. Transparency will
conservation)
• Efficient access to capital
sourcing typically have an integrated business enable you to further optimize your supply
model, which recognises the integral chain and to secure it in the long run, both
Context for firm strategy connection between sustainability and the in terms of volume and quality.
and rivalry supply chain. Sustainable sourcing considers
The rules and incentives that
how products are made, where and from Procurement professionals should be
govern competition
whom they (and their components) come championing sustainability at the board level
from, how they are transported, and how to help their companies survive and thrive.
they are disposed of. In most cases, Because whether you like it or not-
Factor (input) conditions Local demand conditions sustainable sourcing will require calculation sustainability is here to stay!
Presence of high-quality, The nature and sophistication of ‘total cost of ownership’ (the costs to the
specialized inputs available to of local customer needs
company starting at the source until the
firms
product or service is disposed of). This is
a much broader perspective than the
traditional sourcing policies which focus
Related and supporting on quantity, quality, price, lead times and
industries vendors. Sustainable sourcing demands full
The local availability of
transparency of the supply chain, insights
supporting industries
into the sustainable competences of the
vendors, knowledge of the commodities used,
and often co-operation with other companies,
• Availability of local suppliers • Sophistication of local demand
governments and NGOs to secure the supply
(Sysco’s locally grown produce; (e.g., appeal of social value
Nestlé’s milk collection dairies) propositions: Whole Food’s
of sustainable commodities. Sourcing with
• Access to firms in related fields customers) those insights in mind will increase the
• Presence of clusters instead of • Demanding regulatory standards sustainability of the company in the long-
isolated industries (California auto emission & term, and still be on top of the margins.
mileage standards)
• Unusual local needs that can be
served nationaly and globaly
(Urbi’s housing financing,
Unilever’s ‘bottom of the pyramid’
strategy)
Source: Michael E. Porter, The Competitive Advantage of Nations, 1990
Sustainable sourcing and procurement — 8 Sustainable sourcing and procurement — 9AkzoNobel thinks about the future, but acts in the
present. They are passionate about introducing new
ideas and developing sustainable answers for their
Chapter 2 customers. That’s why their 59,000 employees – who
Best Practice AkzoNobel: are based in more than 80 countries – are committed
Delivering tomorrow’s answers today to excellence and delivering their long-term strategy of
sustainable value creation: ‘tomorrow’s answers today’.
‘Sustainability
is still a AkzoNobel is proud to be one of the
world’s leading industrial companies.
2.1 Sustainability at AkzoNobel
differentiator
Based in Amsterdam, the Netherlands, In 2008, AkzoNobel, was the first company
they manufacture and supply a wide range in the world to combine their annual report
of paints, coatings and specialty chemicals – and their sustainability report into one
2008 revenue totalled 15.4 billion euros. publication. In this way they proved
at present,
In fact, AkzoNobel is the largest global paints sustainability to be a business case, a novelty
and coatings company in the world. With a for most companies. The company’s strategic
total buying volume of around 8 billion agenda for 2009 consists of seven aims,
but will be
euros, mostly spend on raw materials (75%), listing the aims on profitable growth and
AkzoNobel is an important player in the margins, but also the aim to strive for world
sector. As a major producer of specialty class sustainability and safety. AkzoNobel
chemicals they supply industries worldwide is already ranked on the Dow Jones
your license
with quality ingredients for items we all use Sustainability Index as one of the leading
every day, from ice cream to asphalt, soup companies, and the aim is to remain in the
to soap, and plastics to paper. top three in 2009.
to operate Clearly, sustainability is embedded in overall
company strategy. Sustainability is managed
in an integrated way across the business and
in the future’
it is reviewed on the basis of a balanced score
card. To map out their sustainability journey,
AkzoNobel has developed a framework to
demonstrate all environmental, economical
and social aspects of their operations.
This framework has three levels: ‘Invent’,
‘Manage’ and ‘Improve’.
Sustainable sourcing and procurement — 10 Sustainable sourcing and procurement — 11Environmental Economic Social Improve 2.2 Sustainable procurement
AkzoNobel is working to continuously
improve in several compliance areas. AkzoNobel is working to incorporate
Invent Carbon and water Eco-premium Leadership training The foundation of this lies in the AkzoNobel sustainability throughout its entire value
Integrate sustainable policies products business principles, as included in their chain. This would not be possible without
value propositions code of conduct. The principles define how a progressive sourcing and procurement
AkzoNobel operates as a company: their policy in which it works in partnership with
commitments and responsibilities to suppliers to ensure business integrity and to
shareholders, employees and customers, help AkzoNobel to deliver sustainable value
as well as to suppliers and other business to its customers.
Manage Market R&D Investment Sourcing Manufac- Sales en partners, the communities in which they
research decisions turing marketing
Include sustainability operate and the environment. The main The current organisational changes in
in all aspects of focus is on: procurement will without doubt support
the value chain • Integrity management. The code of the aim of integrating sustainability in
Required eco analysis Supportive supplier visits conduct outlines the requirements for procurement. The organisation of
employees and for the company to operate procurement has gone through a major
with integrity. There is a compliance change resulting in the growth of the centrally
Improve Product Code of conduct Safety and procedure, a corporate compliance coordinated budget, from 0.5 billion euros
Continue to comply stewardship HR practices committee and business compliance in 2007 to 6.5 billion euros in 2008. In fact,
and ensure a license officers in place to manage these issues. the procurement function was recognised for
to operate A global complaints procedure also allows its wide-ranging, value-focused sustainability
Risk management employees to report any violations which programme with the prestigious European
they may encounter. ProcureCon award for sustainability.
• Health, safety, environment and security
management. HSE&S management Ton Geurts led the organisation through
Invent Manage systems are based on international and these changes and was awarded CPO of the
With the growing global emphasis on better AkzoNobel continues to focus on internal company standards. year in 2008. According to Ton Geurts,
management of natural resources and incorporating a strong sustainability Implementation is carried out by trained sustainability in procurement is ‘not about
a lower ecological footprint in all areas component throughout the entire value experienced employees, actions are driven philanthropy, it is about cost reduction, risk
of industry, the focus of AkzoNobel is chain, from market research through to by objectives and verification is achieved reduction, building new opportunities and
increasingly on identifying and managing sales and marketing: though internal and external audits. building stakeholder support’. The company
areas which will provide long-term and • research, development & innovation: • Product stewardship. Management systems has identified the following four important
sustainable opportunities for the business. groups focus on product design for eco- and processes are in place to control the areas for sustainable procurement:
The long term opportunities for AkzoNobel efficiency safety of the products and to ensure
are to: • source: working in partnership with compliance with international and local
• work in partnership with customers and suppliers to ensure business integrity, and regulations, e.g. REACH in Europe.
suppliers to deliver eco-premium solutions to help deliver sustainable value to the • Employment practices. HR systems are
• manage long-term resource and customers set up to meet business and local needs,
environmental issues • manufacture: optimising processes, within the framework of the global HR
• develop their people to lead and deliver improving yields, and improving energy policy, which outlines the principles for
innovative solutions efficiency development, education and training,
• increasingly work in partnership with • sales and marketing: work with customers and compensation and benefits of
a range of stakeholders to achieve to develop eco-premium solutions staff members.
transformational change Currently, close to a fifth of the revenue of Each of these areas includes directives and
AkzoNobel comes from products which are standards, management systems, objectives
more eco-efficient than rival products. By to drive improvement, training and auditing.
2015, AkzoNobel aspires to increase this They are underpinned by AkzoNobel’s risk
figure to 30% of the revenue. management process, which integrates
environmental, social and governance issues.
AkzoNobel develops position papers and
an improvement plan by corporate staff
members for particular sustainability issues
which might be of concern to stakeholders.
Sustainable sourcing and procurement — 12 Sustainable sourcing and procurement — 131. Supplier assurance & development 2. Logistics & travel 4. Packaging Ton Geurt’s advice to procurement
The AkzoNobel vendor policy outlines the The procurement group has achieved Savings are being achieved through organisations on sustainability is fourfold:
expected environmental and social standards significant savings through efficient use standardisation, material reduction and
for their suppliers. The target is to have 85% of hauliers in China and they are currently ecological improvement due to recycled 1. Strategy: Set up a sustainability strategy
of the budget for raw materials committed planning a second project in Latin America. material content, end-of-life recycling and in line with the company strategy, for
through signed agreements that comply Furthermore, new communication carbon efficient sourcing. For instance, each commodity or spend category.
with the vendor policy. technologies such as video conference tools inbound steel drums are used for packing Translate the strategy into plans and
are being used to decrease the business products for consumers, resulting in a targets. Award with an extra performance
The vendor policy is complemented by travel footprint. In lease cars, AkzoNobel reduction of up to 50% in the use of new rating. Celebrate successes and give the
support visits to suppliers in emerging has set the ambitious target of a weighted drums in the US. This way of working has buyers the opportunity to demonstrate
markets. Over 150 suppliers have been average of 130 g/km CO2 measured over been expanded to Europe and China. their success to the board, (for instance
visited in 2008 and 50 more are planned in the total fleet by 2013. For comparison, Another clear win-win situation in this field through a sustainability council with
2009. They help their suppliers to support the average in Europe is 150 g/km CO2. is the fact that water-borne paints now use board members).
AkzoNobel to meet the demand of the plastic, not tin packaging. This has resulted 2. Control: Ensure that the function of
customers and to outperform their 3. Waste management in considerable cost savings and a more control is embedded in the sustainability
competitors. Sustainability in procurement The procurement group works on a environmentally friendly solution. projects and targets. Be prepared to be
is taken seriously. If a supplier proves to be country-wide basis to identify opportunities audited at all times. Manage your risks but
unfit to work with AkzoNobel as a sustainable for material and cost saving. Individual sites The procurement group is also working also let sustainability lead. For instance,
partner, volumes will be shifted towards a are identifying ways to reduce waste at the closely together with AkzoNobel’s energy within AkzoNobel, the quality manager,
sustainable competitor. source and to increase beneficial uses and efficiency centre of excellence, which instead of the buyer, approves the
recycling. Good waste management can provides energy reduction plans for sites suppliers, to prevent the risk of a short-
Another element is the key supplier be very beneficial. For instance, Alox which and plants. A conservative estimate is that term focus on costs, as a trade-off
management programme which involves is a by-product of H2O2 production is now this programme will lead to energy efficiency against sustainable quality.
co-operation with key suppliers to enhance being used as a raw material for cement savings of 35 million euros annually by 2012. 3. Share: Share best practices and successes
eco-premium solutions for customers. production, leading to a recurring benefit of in a competence centre, preferably
An eco-premium solution provides the several thousands of euros annually. Another 2.3 Lessons and advice supported by an intranet portal.
same or better functionality for the customer, striking example is the use of plant waste as 4. Change: Sustainability is a change
but has a clear eco-efficiency benefit over an alternative fuel in the cement industry, Ton Geurts’ vision of sustainability is that management programme. You must
mainstream products in the marketplace. leading to huge environmental benefits, due it is a core competence for successful evaluate the value chains and adapt your
For example, AkzoNobel together with to the reduction in landfill costs and leading entrepreneurs. It represents a unique business model and organisation
BSF has developed a sunroof paint which to a recurring benefit of several thousand opportunity to innovate your supply chain accordingly. Changes will not happen
keeps out the heat and contributes to euros per year. from the perspective of sustainability and overnight, but need time to be accepted
lowering the energy use of air conditioning. to implement more profitable value chains. by the organisation.
Eco-efficiency is about creating more value In his view, sustainability is still a differentiator
with less environmental impact. AkzoNobel at present, but will be your license to
aims to increase the turnover in eco-premium operate in the future.
solutions, from 18% to 30% by 2015. This can
only be done through close co-operation He strongly believes that each company
with the suppliers. Research on more needs a carbon strategy because climate
environmentally friendly products is change is one of the biggest issues that
increasingly common, especially in the society has to face today. In fact, a sound
chemical industry, and this expertise is now carbon strategy will prove to be a driver of
being used to serve the customers in a business, will give companies a competitive
better way. edge and will be used as a sales argument in
terms of the ‘carbon’ advantage. AkzoNobel
is ready for future legislation and requests
for information on CO2, and can even be
audited on CO2 emissions.
Sustainable sourcing and procurement — 14 Sustainable sourcing and procurement — 15Mars recognises that their long-term economic growth
is intrinsically linked to their ability to determine how
they address sustainability in the context of their
Chapter 3 businesses, product ranges and impact on the planet.
Best Practice Mars: The five principles They believe that their commitment to sustainability
depends on their long-standing ethical commitment
‘How can we to the individual and to the larger community,
expressed and captured via the five principles.
grow profitably, Mars Nederland B.V. is part of the family 3.2 The five principles of Mars
celebrate our
owned Mars, Incorporated group, founded in
1911. Mars, Incorporated is one of the largest The five principles guide Mars in the choices
private companies in the world, generating they make daily and the manner in which they
community,
an annual revenue of over 30 billion dollars do business. The essential values that they
from their operations in six business embody define the company’s philosophy
segments: Chocolate, Petcare, Wrigley Gum and approach to how they operate.
and enhance
and Confectionary, Food, Drinks and Sustainability flows naturally and directly from
Symbioscience. Amongst their billion dollar their principles and will continue to shape
brands are M&Ms®, Snickers®, Dove®, Mars®, how they think and act.
Estra®, Orbit®, Pedigree®, Royal Canin® and
the health
Whiskas®. This success is due to the 1. Quality. The quality principle states,
company’s constant creativity and sharp ‘The consumer is our boss, quality is our
instinct for trends that have continually work and value for money is our goal.’
of the planet?’
brought Mars forward, step-by-step, after Beyond the traditional aspects that still
almost a century of business matter greatly, such as price and value
for money, consumers around the world
3.1 Sustainability at Mars are expanding their definition of quality
to include stewardship of the environment.
Rather than simply trying to minimize the
effects of unsustainable activities, Mars 2. Responsibility. Mars seeks to make
envisions growing their businesses in a responsibility a personal endeavour,
manner that is mutually beneficial to the holding themselves accountable for
social, environmental and economic areas their individual and collective actions.
that they impact on. Sustainability is viewed Viewed in the context of sustainability,
by Mars as a source of innovation and as an this means upholding social, economic
emerging business opportunity. It will enable and environmental standards, not only
Mars to gain competitive advantage, increase on behalf of their business, but also
revenue, add long-term value, whilst also for the larger community to which they
making the world a better place by making belong and the planet at large.
a difference. Their goal, albeit aspirational,
is to manage and grow their businesses
asking themselves, ‘How can we grow
profitably, celebrate our community, and
enhance the health of the planet?’
Sustainable sourcing and procurement — 16 Sustainable sourcing and procurement — 173. Mutuality. Mars seeks to achieve mutual In summary, Mars believes that the five The cocoa commitment Securing the supply chain
benefit of all parties involved with their principles and their approach to sustainability Mars takes a leading position on cocoa. Small family farms are at the heart of the
business. Mars believes that ‘a mutual in the context of their businesses will drive Together with Nestlé, Mars buys about 20% cocoa industry, with 5 to 6 million farmers
benefit is a shared benefit: a shared innovation and enhance their competitive of the available cocoa on the global market. providing more than 90% of the world’s
benefit will endure’. Sharing success advantage, long-term growth and the value This means that Mars can take a leading role cocoa crop. Mars has developed the
is what they aim to do. In terms of of their brands. By embracing both change in motivating the market towards sustainable following policies in order to integrate
sustainability, they recognise that the and profitability, sustainability at Mars growth of cocoa. And that is unquestioningly smallholder farmers in the cocoa industry
independence they enjoy as a privately provides a lasting bond with their traditions what Mars has been doing. In April 2009, in a sustainable way:
held business is based on their and a bridge to their future success. Mars announced their ambitious intention to
interdependence with others, and source 100% sustainable and certified cocoa 1. Farmer training: Mars aims to train
successful partnerships are the foundation 3.3 Sustainable sourcing at Mars ingredients by 2020. This commitment places hundreds of thousands farmers, mostly
of sustainability. Their goal is to consider Mars as an industry leader in the pursuit located in the Ivory Coast, in increasing
the social, environmental and economic There is a lot more to Mars than chocolate. of socially responsible cocoa production. the productivity of their land and trees
impacts of their business decisions, The main commodities sourced by Mars are To illustrate this, in 2020, Mars expects to without causing ecological damage.
from the local to the global level. cocoa, fish, meat, palm oil, peanuts and sugar. source about 400,000 tonnes of certified They do this by building capacity within
In every category in which they operate, sustainable cocoa ingredients Currently, only institutions and NGOs who can reach
4. Efficiency. Efficiency, while being an they strive to make a difference. Mars’ actions 2%-3% of the cocoa market can be labelled many farmers. For example, Mars is
indispensable part of implementing and initiatives on these commodities range as sustainable. Mars’ aim for sustainable working together with UTZ and The
sustainable strategies such as lean from commitment to the round table on sourcing will undoubtedly impact on the Rainforest Alliance to help farmers
manufacturing, cannot achieve sustainable palm oil to co-operation with cocoa market, their competitors and their to produce more cocoa from fewer
sustainability on its own. Mars’ long-term the tropical agricultural research institute in supply chain. A budget of about twelve trees and to diversify their production
success depends on ‘doing the right India to improve the sustainability of peanut million euros has so far been allocated to so they can balance their income across
things’ as well as on ‘doing things right’. production. They focus on the production of the sustainable cocoa project. the seasons. By training farmers in a
When they use highly efficient processes sustainable commodities, as well as reducing structured way to increase their
in the service of effective practices, they the environmental impact of their company This Mars investment has three productivity through better agricultural
can create commercially profitable, processes through initiatives which aim important drivers: practices, it is estimated that productivity
socially beneficial and ecologically to decrease waste, packaging, use of water, • The company and its owners are strongly and incomes can double, and reduce
intelligent products and services that use of energy and CO2 emissions. committed to the five principles in which poverty in the process.
form the basis of robust, sustainable, responsibility and mutuality are clearly 2. Stable prices: For Mars as well as for
long-term growth. signalled. As Mars is family owned, it can smallholder farmers, stability in the price
plan even twenty years ahead. of cocoa is important. If the price of cocoa
5. Freedom. Profitability enables Mars • The consumer is buying the tasty, healthy drops too much, the farmer may decide
to preserve their freedom to operate. drinks and snacks that Mars is producing to switch to growing other crops and
Their company’s unique qualities and in a sustainable way, in record breaking hence start a spiralling effect of reduced
ways of doing business provide the volumes. It is expected that the consumers supply – increased demand. If the cocoa
opportunity to approach sustainability will increasingly demand the same price increases to the extent that the price
as both a significant business opportunity standards for all chocolate-based snacks. of chocolate increases, the consumer
and a common goal. Sustainability can • More sustainable production can help to may choose to buy an alternative, cheaper
help drive self-sustaining cycles of diminish the supply chain risks which snack food. Stimulating competitors to
innovation and profitability. currently endanger the cocoa value chain. buy sustainable cocoa is an important
Presently, aging trees, outdated farming part of Mars’ view on mainstream
techniques and plant disease reduce certification, as it leads to less price
annual crop yields by more than 50% of disadvantages. With higher demand,
their potential. Overcoming these problems the competitive disadvantage of premium
is essential, not only for the supply chain prices will decrease and ultimately
of cocoa processing industries, but also for through volumes, prices will leverage.
the economic wellbeing of the sector and
for the sustainability of rural livelihoods.
Sustainable sourcing and procurement — 18 Sustainable sourcing and procurement — 193. Certification: Mars strongly believes that 3.4 Lessons and advice
certifying systems, such as UTZ and The
Rainforest Alliance, will drive sustainability, Peter van Grinsven and his team have been
where a premium is paid to the farmer responsible for steering Mars’ aims in relation
groups and in exchange they are assured to the cocoa industry for several years.
of a more stable supply of high quality His previous commercial experience in
cocoa. Working together with UTZ analysing supply and demand is an asset in his
and The Rainforest Alliance helps Mars current job. Having gained a lot of experience,
to enable farmers to have access to it is interesting to note the most important
certified, sustainable and traceable lessons he has learned in the past years:
cocoa. Peter van Grinsven, Cocoa
Sustainability Field Research Manager • Contribution: Know why you want to work
for Mars, is convinced that certification on sustainability and on what issues you
can make a difference, because farmers can have major impact on. Find out how
receive the training and support they you can contribute – is it expertise or
need to improve their productivity and buying power or something else? Always
run more profitable cocoa farms. make sure that you contribute in line with
the long-term goals of the company.
While Mars has supported farmers and the • Sourcing: Implementing sustainability in
sustainable development of the cocoa crop sourcing is important in building a secure
for many years, it is now focusing its attention and sustainable supply chain. The best route
on a foundation called ‘Putting farmers first’. to follow is to source certified commodities
Resources will be directed towards working or services. This helps to create
with certifying partners, cocoa farming standardisation, volume and leverage.
communities, cocoa sector governments and • Share: Don’t try to do it all by yourself but
national institutes to effect real change in organise the sector. Accept the fact that
sustainable farming practices and certification competitors will benefit from shared
of cocoa. By investing in ‘farmers first’, Mars knowledge and initiatives.
has demonstrated that it is serious about • Persistence: Most projects will need time
helping cocoa buyers to source sustainably to show success, and it takes time for the
grown cocoa. sustainability approach to be accepted
by the organisation. Be prepared to invest
This initiative is similar to Mars’ genome the necessary time.
project where the entire cocoa genome is
being analysed. Mars will share the genome
information with the industry. Unlocking the
genome will enable farmers to plant better
cocoa varieties and create healthier, stronger
cocoa crops with increased yields, pest and
disease resistance, and improved water and
nutrient use efficiency.
Sustainable sourcing and procurement — 20 Sustainable sourcing and procurement — 21For IKEA, sustainability is an opportunity to
optimise the current way of thinking and handling.
Sustainability projects are always labelled as business
Chapter 4 projects because they need to serve the planet, the
Best Practice IKEA: people and the profit, meaning that environmental,
Low price – but not at any price social and economical criteria are connected to
create a better business.
‘Taking
responsibility The IKEA story began in 1943 in the small
village of Agunnaryd in Sweden, when the
To support business, there are a number of
social and environmental specialists covering
for people and
founder, Ingvar Kamprad was just 17. Since a wide range of areas, such as chemical
then, the IKEA Group has grown into a major experts, forestry specialists, energy experts,
retail experience with around 128,000 code of conduct developers and auditors.
co-workers and 253 stores in 24 countries, All IKEA stores and distribution centres have
the environment
generating annual sales of more than 21.1 social and environmental co-ordinators
billion euros. The IKEA group has 41 trading who work in the areas of training, working
service offices in 30 countries to support conditions, safety, waste management,
is a prerequisite
their worldwide sourcing. Their supplier base water and energy conservation.
covers 1,769 suppliers in 54 countries.
4.2 Sustainability
IKEA’s vision is to create a better everyday
for doing
life for many people. Their business idea IKEA has a very active approach to
supports this vision by offering a wide range sustainability. To illustrate this, these are
of well-designed, functional home furnishing some of the highlights:
good business’
products at prices so low that as many
people as possible will be able to afford • IKEA puts considerable effort in their
them. To make good products at low prices, ‘IKEA goes renewable’ programme which
you need to develop methods that are both aims to have all of their products
cost-effective and innovative. recyclable within the next two years.
• IKEA has identified potential energy
4.1 Low price – but not at any price efficiency improvements in existing stores.
New energy efficient features will be
Low prices are the cornerstone of the IKEA included (including use of renewable
vision and their business idea – low prices, energy for heating) in the 20 new stores
but not at any price. At IKEA, their believe is being constructed.
that taking responsibility for people and the • IKEA has estimated their entire carbon
environment is a prerequisite for doing good footprint to identify the full extent of their
business. The IKEA culture is a good example climate impact – from the extraction of
of how a responsible conduct is being raw materials to customer transportation
integrated throughout the organisation. and the use of products. The result showed
All business units of IKEA have integrated that 60% of the footprint is related to
sustainability in their business plans, leading raw materials.
to sustainable targets and Key Performace
Indicators (KPIs) for all managers. In effect, all
IKEA managers are responsible for achieving
the sustainability targets in their daily work.
Sustainable sourcing and procurement — 22 Sustainable sourcing and procurement — 23• IKEA co-operates with companies, trade 4.3 Sourcing • There are also specific requirements on Only a few Chinese suppliers have been
unions, NGOs and organisations to develop improving the efficiency of transportation, fully approved. Since the introduction of
and strengthen the impact of their work IKEA sources globally, with the top five for example their supplier of sea freight is IWAY in 2000, there has been some positive
within the social and environmental field. countries being China (21%), Poland (17 %), requested to use a specific AKZO Nobel developments amongst IKEA’s Chinese
For example, IKEA works in partnership Italy (8 %), Sweden (6 %) and Germany (6 %). coating which leads to 6% reduction in fuel suppliers and in 2008 the IWAY fulfilment
with UNICEF and Save the Children to Overall IKEA sources mostly in Europe (67 %) use. All transport service providers must rate for China improved significantly, from
improve children’s rights and with the and Asia (30 %). IKEA has two important measure their carbon dioxide emissions 4 % to 7 %. There are major challenges with
global conservation organisation WWF on focus points, increasing the sustainability and set a three year target to reduce these regard to the social and environmental
forestry, cotton and climate change projects. of their supplier base and increasing the use emissions. This shows that IKEA has a conditions in China. The most difficult labour
• IKEA has taken some steps to engage in of sustainable raw materials. firm grip on sustainability issues in their related challenges are related to wages,
water conservation projects and raise the supply chain. working hours, overtime compensation, lack
awareness of their suppliers. Over the next Increasing the sustainability of unions and social insurance. These issues
few years IKEA will work to adopt a more of the IKEA suppliers IKEA auditors regularly visit suppliers to are not unique to IKEA but relate to all
systematic and comprehensive approach IKEA strives to build long-term relationships ensure that IWAY criteria are met. These visits multinational companies who are doing
to water. with suppliers that share their values and who can be both announced and unannounced business in China. IKEA is approaching these
want to grow and develop together with and each supplier is audited at least every issues in two different ways.
Another important step forward is the IKEA. Their focus is to motivate and support second year. The IKEA auditors help to • IKEA participates in the business for social
update of IWAY, the IKEA code of conduct, suppliers in such a way that developments set up action plans when there is non- responsibility (BSR) project ‘One voice –
which describes minimum requirements for become sustainable and independent of compliance and conduct follow-up visits to beyond monitoring.’ The aim of the project
social and working conditions, together with IKEA presence. Suppliers are motivated to review progress. is to facilitate IKEA to build relationships
environmental norms. The code of conduct become compliant in order to stay in business with other multinational companies doing
has been established in order to make the with IKEA. All suppliers have to commit to The compliance and monitoring group business in China, and to work jointly with
IKEA position clear to suppliers and their develop to 100 % compliance to the IKEA (CMG) is responsible for ensuring that the them to find solutions to corporate social
co-workers, as well as any other parties. It is code of conduct IWAY. New suppliers are same audit criteria are followed worldwide. responsibility challenges. During the
based on the eight core conventions defined selected based on start-up requirements and CMG works to fine-tune and calibrate audits financial year 2008/2009 there has been
in the Fundamental Principles and Rights they are obliged to commit to a 2- to 3-year by training and supporting IKEA auditors an active dialogue with Chinese authorities
at Work, ILO declaration June 1998 and the plan in which they will reach 100% compliance. in order to create a common standard and academia to promote issues on both
Rio Declaration on Environment and of auditing. Third party auditors such as a national and local level.
Development 1992. Further, IKEA recognises IKEA has identified four major groups of KPMG, Intertek Testing Services and • Audit rates have been increased in China
the fundamental principles of human rights suppliers: Home Furnishing suppliers (13,800), PricewaterhouseCoopers participate to (and in some other countries) and specially
as described in the Universal Declaration of FOOD suppliers (76), Catalogue suppliers verify IKEA working methods and audit appointed IWAY-developers offer support
Human Rights (United Nations 1948). IKEA (50) and Transport service providers (263). results. These third party auditors also carry and training to actively contribute to
has also adopted a long-term sustainability out their own audits at IKEA suppliers. improvements among suppliers.
direction, stating that the IKEA business shall For all suppliers the IKEA IWAY code of
have an overall positive impact on people conduct is applicable. Additional Obviously, IKEA puts in enormous effort to During the financial year 2008/2009 IKEA
and the environment. Improved routines requirements are outlined depending on the motivate their suppliers to become 100 % updated IWAY. IKEA wants to shift focus
enables IKEA to focus more on supporting category of the supplier. compliant with IWAY. In 2008 the number from an audit-driven process, and work
suppliers to take responsibility and • For instance, the IKEA Food Quality and of IWAY-approved suppliers continued to together with suppliers beyond monitoring.
ownership themselves, while continuing to Environmental Requirements is a increase in Europe and the Americas in Rather than detailing how suppliers can
build long-term relations with suppliers who supplement to IWAY, which consists of particular to 80 % and 91 %, respectively. comply with IWAY, they focus on increasing
share the IKEA values. New suppliers will be specific requirements on food quality and Progress can be detected in Asia (now 34 %), understanding for what they need to comply
selected based on start-up requirements environmental issues which are not though the development towards IWAY- with. IKEA supports their suppliers to improve
with a special focus on working conditions. covered by IWAY. approval in China continues to be slow. their operations and practices using a network
• IKEA requires catalogue suppliers to set of trading service offices. IKEA believes in
environmental targets focusing on the maintaining relationship with its suppliers and
reduction of energy consumption and CO2 does not break off relations simply because
emissions and to document their water of non-compliance. IKEA will continue to
consumption. work with these suppliers as long as they
show a willingness to improve in the right
direction with an agreed plan of action to
comply with the IKEA requirements within
an agreed timeframe.
Sustainable sourcing and procurement — 24 Sustainable sourcing and procurement — 25Increasing the use of sustainable Cotton Of course the question always arises as to 4.4 Lessons and advice
raw materials Cotton is another important raw material for what the impact of all this will have on the
Efficient use of raw materials is one way IKEA IKEA, using nearly 1% of the world capacity price of cotton. Guido Verijke, Deputy IKEA is open to sharing their experiences
manages to keep its costs down. IKEA is of cotton. IKEA is at the end of a long cotton Business Area Manager and Business Leader with others. Guido has even organised
striving to increase the sustainability of their production process. In many countries the (Home textiles), explains that IKEA aims to meetings with competitors to discuss
major commodities and still keep their prices supply chain for cotton is complex and has source at the same price as conventional sustainability issues. In his view, this is not
low. To be ahead of competition, they are several tiers. Lasting change can only be cotton. IKEA is trying to create capacities about competition but about solving a
taking up leadership in stewardship of achieved through co-operation with many which are far beyond the need of IKEA and problem together. His most important lessons
sustainable wood and cotton, and they are parties including other international as such, will help to leverage the price. working for IKEA on sustainability are:
adapting their procurement and sourcing companies, NGOs, governments and • Integrate: sustainability at the very
function accordingly: authorities. The long-term goal is for all Organic cotton can be produced at lower beginning of your process, keeping the
cotton used in IKEA products to be ‘better costs but still a premium price is asked in the total cost of ownership in mind.
Wood cotton’. The availability of sufficient volumes market. IKEA is not in favour of that because • Work together: If you are small, get your
Wood is one of the most important raw of ‘better cotton’ will affect how quickly it is slowing the progress of sustainable sector organised to create volume and
materials for IKEA. As wood is both renewable IKEA can reach their goal. sources. Organic cotton has many advantages impact. Look at initiatives that you can
and recyclable, it is a sound environmental but also disadvantages such as price and join. Work together with NGOs because
choice, provided it comes from responsibly IKEA is one of the founding members of the small available capacities. Better cotton they will provide you with a lot of expertise.
managed forests. Suppliers of wood used in the Better cotton initiative (BCI). This global which IKEA wants to use for all of its products Work in partner-ships with your suppliers.
IKEA products must be able to document multi-stakeholder organisation aims to make can be produced in higher volumes. • No compromise: Put your demand to the
the origin of their wood in an annual global cotton production better for the market and do not compromise.
questionnaire, which is used as the basis people who produce it, better for the Guido Verijke expects that nearly 30% of • Internal commitment: Working in a more
for a wood supply chain audit. Information environment it grows in and better for the IKEA’s cotton needs for 2010 are already sustainable way, will mean considerable
from the questionnaire and a risk assessment future of this sector. Leading participants available. By 2015, he expects to be able to changes in traditional thinking. To get the
are used to choose a number of wood are international companies such as GAP source 100% ‘Better Cotton’ needed for their internal commitment, you must do your
supply chain audits for closer evaluation. and Adidas, NGOs and the United Nations products. IKEA is working in close partnership homework well and know the facts about
The Rainforest Alliance smart wood Environment Programme. Key criteria for with their suppliers because they partly the impact that your company can have.
programme, a third party auditor, sustainable cotton are reduction of the use control the use of ‘Better Cotton’. Work out a sustainability strategy to
complements the IKEA auditing system by of water and reduction of chemicals by at reduce environmental impact and seize
conducting a limited number of wood supply least 50%. In sourcing from sustainable sources, Guido the competitive chances.
chain audits for IKEA. says that it is very important to take the ‘total
Since 2005, IKEA and WWF have field cost of ownership’ into account. This leads to
The IKEA wood procurement group works projects in Pakistan and India, testing opportunities to further optimise the supply
to secure future price reductions and access improved working methods for cotton chain by reducing middlemen, to select
to wood from sustainable sources. The group cultivation and processing. These projects fewer suppliers who work in the preferred
supports selected suppliers to purchase use ‘better management practices’ (BMP) sustainable way and to directly link them to
raw materials and they initiate and handle which enable farmers to reduce their sustainable sources of cotton.
IKEA investments in forestry sawmills and environmental impact, improve efficiency,
component production. Next to that, the maintain cotton crop yields and increase
IKEA wood procurement group has their gross margins. To illustrate the reduction
established co-operation with the pulp and of environmental impact: currently 80%
paper industry and has long-term agreements less pesticide, 50% less water and 30% less
with governments, forest owners, and chemical fertiliser is being used by farmers
forestry-related associations. Suppliers of working with BMP. Another benefit is that
wood are expected to be at least compliant the farmers earn a better income: on average
with the IKEA minimum requirements and 42% more. Some 2,000 farmers in Pakistan
preferably be certified by the Forest and 500 in India are participating through
Stewardship Council (FSC), including the farmer field schools.
Forest Management (FM) and Chain of
Custody (CoC) standards.
Sustainable sourcing and procurement — 26 Sustainable sourcing and procurement — 27You can also read
