All posts by Alis Sindbjerg Hemmingsen

How Does it Feel to Be a Supplier to You?

Being a customer of choice in procurement is important. Ensuring your supplier feels part of the team is also important.

Supplier to You

As procurement professionals we care about the quality, delivery, cost, innovation and sustainability performance of our suppliers. These are usually wrapped up in Key Performance Indicators (KPIs), a key tool within the procurement community.

Now that we as a population are facing resource scarcity, what sort of questions should we start asking ourselves to ensure that we continue being the ‘customer of choice’, and make the supplier feel that they are a prime source of value to our organisation?

Why ‘Customer of Choice’ is Important

Every day, news headlines and scientific reports reflect a world increasingly impacted by unsustainable trends and catastrophic climate events.

Oceans are becoming more acidic, with devastating results on coral and connected ecosystems. The air in major cities is full of dangerous particulates. Crop-growing regions for key commodities are shifting. Sea levels are rising.

All this could potentially lead to resource constraints and risk in the supply chain which procurement, amongst others, should mitigate.

The essential questions procurement should be asking itself are:

  • How can organisations possibly develop a ‘single point of truth’, which is reliable and up to date?
  • How can they manage contracts and monitor KPI’s?
  • How can they handle data and information and avoid rework and duplication and look at the relationship from the supplier’s perspective?

Key Questions for Your Supplier

It starts with the sourcing process where the supplier is evaluated, perhaps even audited, and then at the end when a contract is developed with them. Suppliers will evaluate whether these selection processes run fairly and competently.

In the on-boarding and the execution part of the relationship, the supplier will most probably evaluate how the communications went, how easy it was to create and implement changes to the administrative routines, and how the on-boarding was tackled.

When the relationship starts out, the evaluation will typically be how time consuming or complicated it is to deliver goods and services, and whether the same information is requested by different people.

When it comes to the strategic relationship, a key question to ask yourself is whether you ask your suppliers their opinions about issues that might affect them, including issues around risk.

And then, when you ask them, are you then open to new ideas, new products, and new ways of doing things?

Organisational Benefits

How would this benefit organisations? The time it takes to manage the relationship should become more effective. So should the visibility from spend analysis to sourcing exercises to strategic relationship management.

As a result it should help drive better relationships and help achieve competitive advantage for both parties. And this should of course be linked to your company’s sustainability journey.

Is it Worth Fighting for Sustainable Procurement?

Why procurement professionals must drive supplier innovation in order to keep up the fight for a sustainable planet.

Sustainable Procurement Fight

As a procurement professional it can sometimes be a little bit challenging to keep up the motivation to pursue a more sustainable planet. News headlines and science reports reflect a world which is developing in the wrong direction.

Oceans are becoming more acidic, with devastating results on coral and connected ecosystems. The air in major cities is full of high levels of dangerous particulates. Crop-growing regions for key commodities are shifting. Sea levels are rising.

At the end of the day, is there still hope for you, me and the planet? In this article I will put focus on some of the positive signs we can see. Let me be clear – it is still worth fighting for sustainable procurement, the planet and the generations to come.

Greater Transparency

Transparency is growing. It’s harder and harder to hide malfeasance. Carbon emissions are disclosed. Everyone is online everywhere, and we have easy access to information, and the ability to pictures of something that we dislike at any given time of the day. And if you fail, even as a company, the public will collectively judge and give the verdict.

Even in procurement we are working with tools, like the Ecovadis sustainability rating system, where the performance of the suppliers is evaluated. Not only for the sake of performance, but also because we want companies to change. To create impact driven approaches.

Regulators and Heroes Show the Way

It is obvious that the more transparent we get, the more the regulators act. More and more companies and public actors disclose their behaviour, and this leads to actions amongst regulators who create climate treaties, introduce carbon taxation, or hand down regulations to markets.

Investors have even started incorporating sustainability and ESG risk into their calculations on where to invest their money.

Heroes are among us. Alongside the great minds in science, many individual policy-makers, business leaders, farmers and consumers are making millions of decisions and taking small steps, every day, to reduce their impact or improve the planet.

The vast majority of people want to take care of their world, and science and the media are providing the tools and knowledge to help them do so. Lights are being turned off. Public transport systems are being built and used. Less food is being wasted. Each of us wants to be a hero.

Fostering Innovation and Collaboration

Innovation matters. Enormous investments are being made. These efforts, many of which are being driven by the best minds in academic and business labs, will without a doubt deliver solutions to many of our environmental challenges. It’s a question of when, not if.

Collaboration is happening. Competitors are talking to each other and to policy-makers around how to share best practices to reduce costs and improve efficiencies. Solutions to global sustainability problems are too big for any one country or company to solve.

Integrating Sustainable Supplier Innovation

We should not forget that a company’s ability to build close partnerships with innovative suppliers is directly correlated with the firms successful innovation performance. Companies which include their suppliers in the innovation process seem to financially outperform their peers that do not.

It is a fact that 90 per cent of companies do not include their suppliers in their innovation processes. 69.9 per cent of corporate revenue is directed towards externalised, supplier driven cost. Suppliers should be viewed as an extension of the company and, as such, they should be incentivised, coached, sanctioned and rewarded to help achieve corporate objectives.

The message is clear: we need to keep fighting for sustainable procurement, the planet, and the generations to come. We can make a start by integrating suppliers closer to the innovation processes.

12 Ethical Questions to Ask in Supplier Pre-Approval

In procurement, ethical practice is the key to a positive organisational image. Knowing the right ethical questions to ask can make a real difference.

Ethical Questions

Increasingly the corporate world is focusing on social issues in supply chains such as slavery, forced labour and human trafficking, typically referred to as “modern slavery”. Procurement professionals have an important role to play, by sourcing in a manner that enables and rewards suppliers for good ethical practices.

Local governments and consumers are increasingly aware of such issues and are supporting, if not demanding, that businesses act to implement ethical standards in their procurement processes. Organisations will suffer reputational damage if they are found to be sourcing from suppliers using exploitative labour.

Companies may also face legal sanctions if suppliers are found to be involved in corruption or bribery. Organisations naturally want to avoid negative impact.

The issue of modern slavery has highlighted issues in countries where:

  • Workers have fewer or no protections.
  • There are high levels of poverty.
  • There is widespread use of migrant workers.
  • Because of the industry and use of raw materials, there are high risks.
  • The supply chain is labour intensive, because the end product is cheap. 

Codes of Conduct

Many companies have a Code of Conduct. This is a great way to start out, but can seem ‘non-actionable’ when on its own. So instead, a company can also introduce initiatives such as:

  • Collecting and providing all parties with the information they need to plan more effectively (for instance by sharing audit reports).
  • Creating processes which ensure efficient communications and formalised, streamlined buying and production processes.
  • Empowering procurement professionals to reward good practice and leadership amongst suppliers.
  • Encouraging buyers and suppliers to collaborate with organisations who have expertise in addressing systematic problems within the supply chain.
  • Enable the supplier to collaborate with others who are purchasing from the same supplier.

Your Role as a Procurement Professional

Typically, a procurement organisation will establish some firm processes to ensure the ethical practices. In addition, you can, as a procurement professional, also make yourself aware of some of the most essential ethical questions that you can ask during a sourcing activity, within the supplier pre-approval part of the process.

I would recommend that you, as part of your pre-approval process, get inspired to use some of the following ethical questions and observations in your process:

You want the supplier to have good labour standards, a positive impact in the community, and actively work to improve standards.

You should be looking for:

  • Staff turnover at production sites
  • Good human resource management systems
  • Good labour standards audit results
  • Sharing of good practice with other suppliers
  • Willingness to discuss issues such as pressures on working hours and pay
  • Retrospective comparison of planned vs. actual timings and volume outputs, measured against overtime worked at site

You want the supplier to demonstrate improved working conditions at all times.

You should be looking for:

  • Sites with initiatives such as active trade union representation
  • An existing recognition agreement and collective bargaining agreement
  • Number of workers with long term agreements
  • Analysis of working hours

You want the supplier to demonstrate stable relationships with own suppliers and subcontractors.

You should be looking for:

  • Average length of relationship with individual production sites
  • The dialogue they have with their suppliers/subcontractors on labour conditions

The Circular Economy Demands Procurement Collaboration

Faced with the dual challenge of sustainability and growth, businesses are looking to procurement collaboration to help.

Procurement Collaboration

Since the Global Financial Crisis in 2008, most established firms have reduced costs, focused their resources, and become more lean and efficient. Now, however, they face the challenge of how to grow. This will require the development and implementation of truly innovative products, services, and business models.

In this challenging economic climate, procurement professionals are being asked to do more with less. The efficiency of Procurement, as well as procurement collaboration, is now seen as a critical part of moving the business forward.

Research confirms the new picture

Recent research by Oxford Economics for Ariba and SAP shows that more than two-thirds of senior procurement executives and employees say procurement is “becoming more collaborative with other parts of the business”. These figures are also valid for Responsible Procurement.

According to Procurement Leaders Research from 2012 on how procurement aligns with other functions on CSR topics, 33 per cent responded that, “there is an informal communication between procurement and other functions”. 47 per cent stated that there is formal communication between procurement and other functions.

The Supplier Coach

Procurement collaboration with the supplier is also key, though it is also critical for the process, and the sustainable outcome, that procurement acknowledges its role as a ‘supplier coach’. Typically procurement is responsible for the Supplier Relationship Management part of collaboration, although there is a need for a more open interpretation of the relationship.

The relationship should build on a joint relationship with win-win approach, where both parties will be engaged in driving the sustainable agenda on an equal basis.

As a coach, the procurement professional should:

  • Ensure that the supplier is motivated to work with the company’s agenda.
  • Ensure that the supplier continuously improves by providing input for improvement.
  • Promote the supplier’s interest within the company.
  • Ensure that the supplier has the strategic capabilities, or the willingness, to contribute to the company’s long-term growth.
  • Develop effective communications both internally and externally with the supplier.

Need for Business as ‘Unusual’ 

Typically, a supplier will encounter CSR at the very beginning of the relationship via the supplier selection and evaluation process, through the risk management process, or through the settling of the contract.

No business can escape the fact that global economic conditions, the status and future availability of affordable resources, energy supplies, and a growing global population are creating an ever more complex business environment.

The limitations and growing problems of the linear economic model, that has served organisations well for many decades, demands that ‘business as usual’ is unlikely to be a winning strategy in the future. The winning strategy lies within the circular economy.

The Circular Economy

The Ellen McArthur Foundation defines the circular economy as “one which is defined as an industrial system that is restorative or regenerative by design”, essentially replacing the end of life concept with restoration.

It shifts business towards the use of renewable energy, eliminates the use of toxic chemicals, which impair re-use and aims for the elimination of waste through intelligent design of materials, products, systems, technologies and business models. We could call it circular innovation.

Supply chains are getting more complex every day in terms of the number of involved partners and the quality and degree of interdependency between them. One of the predictions in relation to the integration of circular thinking, is that complexity will increase.

Businesses operate in a globalised world, where the volatility of markets, the speed of technological progress and the pace of change in the economic and business environments, will continue to rise rapidly. As a result product life cycles are getting shorter and market demands become more and more unpredictable.

Collaboration with all types of partners, and their willingness and ability to share their knowledge, will be crucial and key to a successful development and integration of circular thinking.  

Key Questions

The key question is how procurement can advance procurement collaboration with suppliers on circular thinking in an effective way? How can procurement ensure that the suppliers are willing and able to share their knowledge?

In many companies it is typically a challenge to include suppliers in the front end of the innovation process. Procurement teams are often disconnected from the functions they serve and the markets they engage with. They are not fluent in the nuances of the business and hence lack experience and authority.

Also in many companies, procurement are used to innovation being an internal capability. They are not used to working together with external partners on delivering it.

For procurement to be successful in these innovation oriented supply partnerships, I believe that it requires new models for relationship building and collaboration. It also requires procurement collaboration and integration across the whole organisation.

There is a great opportunity for Procurement to take a leading position within an organisation and transform the company approach from a linear economy to a circular economy. In order to do this, procurement has to facilitate the change of supply partnerships from a pure cost orientation, towards a strong focus on joint collaboration and innovation.

Reap the Benefits of a Structured Approach to Responsible Procurement

You are about to set out on the journey to make Responsible Procurement more integrated into your procurement processes.

Responsible Procurement

To reap the benefits – and win recognition – you will have to be well prepared, implement the right tools and processes, and communicate every achievement. But where to start? In this article, I share some things you should consider.

Define your commitment

Corporate Social Responsibility (CSR) is a major item on a CEO’s agenda. No annual report is complete without making reference to CSR performance, including the performance of an organisation’s suppliers. CSR is set to be the most influential mega-trend affecting the procurement function by 2020.

Many companies have worked towards Responsible Procurement for a while through a Code of Conduct. A Procurement Leaders CSR Survey in 2012 highlighted the following reasons for pursuing a Responsible Procurement approach:

  • Reduce reputational risk: 71 per cent
  • Moral obligation: 49 per cent
  • Create business opportunities: 36 per cent
  • Legal obligation: 34 per cent
  • Respond to consumer demand: 34 per cent
  • Satisfy investors: 23 per cent
  • Reduce cost: 18 per cent
  • Satisfy the management: 8 per cent
  • Repair reputational damage: 3 per cent
  • Other: 7 per cent

However, in order to reach new heights with your approach to Responsible Procurement, it is time to become more specific. You need to be able to communicate your commitment. This includes your approach to Responsible Procurement, as well as all the achievement targets that you have set out.

Focus on What is Relevant to You

I know of a lot of companies who have copied what everybody else is doing, only to then realise that the massive amount of data that they had collected was a massive waste of time – for both the company and the suppliers – as they had no system or processes in place to handle it, or react to it.

End-users and consumers are demanding. They read your website before they buy from you, and they’ll likely do the same before applying for a job in your company. The mistake many companies make is continuing to focus on everything – environmental, social and economic aspects. Are they all relevant to your business?

Start by asking some of the following questions:

  • You want to take your approach to new heights. Which heights?
  • What is it exactly that you would like to achieve with your Responsible Procurement approach?
  • Where would you like to be in 3, 5 or 7 years time?

You could also:

Conduct a workshop – Gather your most important stakeholders and try to find out how you will combine your company’s CSR, Procurement and Business strategies in one vision. Make sure outcomes are measurable and actionable. Use your own words and your company’s DNA, and don’t be afraid to prioritise. A brand needs a stand. What is your stand?

Gather a fact pack – Understand your company’s drivers, which industry sector standards your company needs to comply with, and what ‘footprints’ you and your suppliers are leaving behind. Most importantly, do some benchmarking.

What kind of approach do your competitors have to Responsible Procurement Management? How does it fit into your current supplier base? I often see that companies forget to look at the supplier base and try to apply a ‘one size fits all’ approach. For example, if you are a bank you don’t want to answer questions on animal welfare.

Develop a strategy  In order to create a strategy, it is important to define your expectations towards your suppliers and procurement professionals. Turn it around and look at what expectations they could have of you as a company. How will you communicate your approach? How will you measure on your progress? What kind of training will you conduct (if any)? Which kind of processes and tools will have to be “reworked”?

Develop a Code of Practice – Right now you might have a Code of Conduct. A ‘Code of Practice’ is a document which not only indicates what your commitment is, but also a document where you indicate what you want suppliers to do in order to meet your requirements.

You need to be much more specific, because that is what consumers expect you to be. And understand that this will show on the bottom line, because the more you share your ‘best practice’ with your suppliers, the more return on investment you will see.

One Last Piece of Advice

Do not underestimate the change management part of implementing a Responsible Procurement approach. Make sure that the top management, not only from your company, but also from your procurement organisation, is involved. You are starting out on a journey which will change your company over time.

Is Your Company’s Product Responsible Enough to Buy?

Is your company’s procurement ‘responsible’ enough? Which pressures and stakeholders are the most powerful ones for your company?

socially responsible procurement

According to a 2012 study by Procurement Leaders, 61 per cent of organisations are driven by end-customers. Governments and regulations represent the second-most influential pressure that organisations face, followed by 48 per cent of organisations that embed CSR principles in order to meet employee expectations of working for a responsible company.

The above underlines that if you do not have CSR activities in place in the procurement function (and the company in general), then you take the risk that your end-consumer will abandon your brand. Conversely, there is also a business opportunity, as consumers are becoming increasingly willing to pay a premium for CSR labelled products.

What does responsibility mean?

Responsibility, or in procurement terminology Responsible Procurement Management, can be divided into 3 main categories: environmental, social and economic.

Practically speaking, Responsible Procurement is about defining a set of mutually compatible requirements, specifications, and criteria that favour protection of the environment, social progress, and economic development. You do this by identifying resource efficiency, improving the quality of products and ultimately by optimising costs.

In short, you could say that Responsible Procurement is about increasing a company’s profit, improving its strategic supplier relationships, and strengthening its brand, while remaining vigilant towards competitors and revolutionising their procurement strategy.

What does this mean to your company?

From an environmental point of view, your company should ensure that natural resources that are extracted and processed into goods and services are consumed in a more efficient way – getting more out of less. By changing the way we produce and consume goods, we can still limit the impact that climate change is bringing about.

From an economic and social perspective, your company has to ensure basic human rights and economic development, regardless of age, gender, nationality, religious belief or economic status.

How could your company get started with the journey?

Risk in Responsible Procurement is the probability that there will occur violations of the company’s or its key stakeholders’ values and perceptions. Determining a company’s risk profile is specific to each particular company.

Some companies will choose to focus on suppliers where the company has some bargaining power, or suppliers who have a strategic importance to the company. Others choose to target all of them.

Creating the risk profile must then take into account the following:

  • Risk level: Is it a strategic or an operational risk?
  • Probability: Indicate the probability of the risk occurring. Do you consider this as high, medium or low risk?
  • Impact: What impact on the organisation would there be in the event of the risk occurring? Again use high, medium or low.
  • Risk treatment: You should indicate the appropriate treatment for the risk. This could be: avoid risk, reduce or control probability, reduce or control the impact, transfer risk or accept risk.
  • Owner: The owner is the person who is accountable for taking action or carrying out the risk treatment.
  • Current status: Detail the current status of the risk. For example, has vital information been gathered?

Start managing your risks

Following the risk assessment the next natural step will be to look for ways to manage the risks. Risk management options will be particularly affected by the following factors:

  • What bargaining options does your company have over your suppliers?
  • Is your company a major customer or just one among many?
  • Who are the drivers of the value chain; is it producer or consumer-driven?
  • To what extent are subcontractors used, and how big a role do they play in the manufacture of products: for example, in situations where the supplier is a wholesaler, it may be necessary to identify the actual manufacturers.
  • How many financial and human resources is needed to work with it?
  • How far back in the chain will it be necessary to manage the risks?

Don’t give up – though the picture must be right

When Procurement Leaders carried out their research in 2012, they asked participants how important CSR was currently in their respective organisations. 42 per cent of the respondents said it was ‘Very Important’, while 38 per cent said it was ‘Important’.

When asked about how long their CSR policy had been in place, 36 per cent stated 1-3 years, while 30 per cent stated 4-6 years. What was clear from the research was that nobody wanted to be left behind, nobody wanted to be seen as a laggard in this field. Appearances matter.

The most important message is, though, that the actions you take must be equal to the picture you draw to the public.

Supplier Relationship Management – Stay Ahead of the Curve

What does it take to stay ahead of the curve nowadays? Exploring why successful Supplier Relationship Management (SRM) can help procurement adapt to the circular economy.

Supplier Relationship Management - Ahead of the Curve

As a company it is important to adapt to the circular economy. The limitations and growing problems of the linear economic model, which has served us well for many decades, demands that business ‘as usual’ is unlikely to be a winning strategy in the future. The winning strategy lies within the circular economy.

The Ellen McArthur Foundation defines a circular economy as an industrial system that is restorative or regenerative by design. It replaces the end of life concept with restoration, shifting business towards the use of renewable energy and elimination of the use of toxic chemicals, which impair re-use.

Ultimately, it aims for the elimination of waste through intelligent design of materials, products, systems, technologies and business models. We could call it circular innovation.

Collaboration Is Key

Supply chains are getting more complex every day in terms of the number of involved partners and the quality and degree of interdependency between them. One of the predictions in relation to the integration of the circular economy is that complexity will increase, and collaboration with partners across and outside the supply chain will be crucial in order to stay ahead of the curve.

Procurement plays a key role in the transition. There is, for sure, more to procurement than savings. The world’s leading global companies are looking to the sourcing and procurement function to do a lot more than cut the price of supplies. Procurement needs to broaden its role in the organisation, well beyond the traditional job of negotiating with suppliers.

Suppliers, along with procurement professionals, should be involved in the innovation life cycle, from initial idea, all the way to manufacturing and continuous improvement. Innovation is happening with or without the involvement of procurement. The key question is how procurement can build competences to enable the transition?

Supplier Relationship Management – An Effective Tool

One of the ways that procurement could build competences is through supplier relationship management. Companies that have demonstrated this ability typically generate higher profits, innovate more effectively and are better able to manage risk.

Research done by State of Flux shows that the role of the suppliers will only become more important in the future. Companies are becoming both flatter and this makes them rely more on third parties. As in many other areas of life, you are only as good as the weakest part of the chain. In this case business can only be as good as its worst supplier.

The research also shows a direct correlation between companies that are leading the way in this area and strong senior backing of SRM, with 46 per cent of leading companies saying that SRM has the support of their top executives.

Customer Of Choice = Access To Innovation

Organisations that want to make a real difference with Supplier Relationship Management, or put in other words, any organisation that wants to stay ahead of the curve – need to be led by people who understand its importance. That means recognising that changing business dynamics are giving suppliers more power and choice about who they partner with, and how.

It means in turn recognising that becoming a key supplier’s customer of choice will bring access to a range of benefits, from price advantages to innovation – and that failing to do so will mean such benefits accruing to competitors instead. This understanding must be paired with a board-level commitment to investing in the technology and training that underpin successful SRM and to creating an organisational culture.

3 Ideas To Support You In Developing A ‘Circular’ Supplier Relationship

No business can escape the fact that global economic conditions, the status and future availability of affordable resources, energy supplies and a growing global population are creating an ever more complex business environment. It is time to act.

CircularEconomy

There is no such thing as ‘business as usual’, and collaboration with suppliers is key in the transition to a better and more circular world. Suppliers should be involved in the ‘circular innovation lifecycle’ – from initial idea all the way to manufacturing and continuous improvement.

Supplier relationship management is a key tool. The question is, what can you do in order to view suppliers as actual or potential partners, who can help you “stay ahead of the curve” in terms of going more circular?

The question is also how you can expand the scope of interaction with them beyond purchasing and fulfilment transactions and tap into their expertise and capabilities to drive innovation, enter new markets, improve quality and exchange insights about marketplace trends?

Idea #1: Understand Even More About The Relationship

It is key for the supplier to understand your business in detail, as well as for the buyer to understand the supplier’s business too. You need to understand the cost and value of their entire supply chain. Without a thorough understanding of all costs, from raw materials through to the end product or service, and the value provided by each supplier in the process, a supplier relationship cannot be, first, evaluated and, second, further developed.

Remember that supplier strategies go two ways. Most companies focus on what suppliers can do for them rather than on what they can do with the supplier to lower costs. A true partnership leverages the total production cost – and knowledge to both parties’ advantage.

Also I suggest that if you work with LCA (Life Cycle Assessments) that you share them with your suppliers, so they can understand where your critical areas are and where they can help you improve or at least generate ideas for improvement. Perhaps it does not environmentally or economically make sense to create a closed loop, just as an example. Perhaps a dialogue with the supplier and a look at the LCA will show that.

Idea #2: Share Meaningful And Critical Information

Share critical information as early as possible. Information is the grease that makes an integrated supply chain work. Sharing information constantly, with appropriate security and confidentiality, is critical for successfully managing a supplier relationship. Make relationship meetings meaningful. Relationship meetings should focus on critical issues, areas for supplier improvement and discussions on how the buying organisation can improve the relationship.

Idea #3: Define Clear Objectives For Your (Circular) Relationship

If you decide to use SRM as part of your toolbox then it is key to define objectives clearly and specifically. At the same time acknowledging that many of the benefits of SRM may be hard to track and measure with precision.

As a matter of fact evidence also suggests, that suppliers that are engaged through SRM programmes are more willing to put in effort and resources above and beyond what is contracted. More than half of respondents in a recent survey conducted by State of Flux say that their key suppliers’ senior management team is more committed to their partnership as a result of their SRM activities, while the same proportion see improved account management as a result.

Other examples of additional commitment from suppliers include: proactive ideas for continuous improvement (46 per cent); collaborative problem-solving (45 per cent); and priority access to the best people and resources (21 per cent). All of these can help the business stay ahead of the curve and implement more circular business models.

You can download the latest research from State of Flux here