Tag Archives: procurement regulations

Why Diligence is Due

Ethical sourcing makes good business sense. Plus… it’s the law! Nick Ford explores how to exercise due diligence.

Pioneering U.S. academic fundraiser James W. Frick once cautioned prospective donors: “Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are.”

For procurement professionals, how they source products and services and where they spend their budgets is not only commercially expedient, but also framed by strict international regulations. The risks contingent on neglecting – or wilfully evading – such rules have profound effects on an organisation’s reputation and, ultimately, it’s bottom line.

Due diligence is about managing risks in the supply chain responsibly; it does not ask companies to guarantee 100 per cent ‘ethical’ supply chains. Tracing the origin of a product, part or service is only one part of this.

The OECD Guidelines

Essentially, the overarching ethical sourcing and procurement principles are set out in the Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises. According to Emily Norton, Campaigner at Global Witness, these are the most comprehensive set of government-backed recommendations on responsible business conduct and ethical sourcing in existence today.

The guidelines are far-reaching recommendations by governments to multinational enterprises operating in or from adhering countries. Currently, 48 countries adhere to the guidelines, including most in the E.U. They provide voluntary principles and standards for responsible business conduct in areas such as employment and industrial relations, human rights, environment, information disclosure, combating bribery, consumer interests, science and technology, competition, and taxation.

The OECD rules are buttressed by the UN Guiding Principles for Business and Human Rights, endorsed unanimously in 2011. They make it clear that companies have a responsibility to make sure their activities do not fund harm and abuses. In many sectors, risk-based due diligence, as recommended by the UNGPs has emerged as a practical and effective way for companies to meet this responsibility.

EU Regulations

Spurred on by these ethical sourcing frameworks, a new EU regulation came into force in June 2017, the first of its kind to adopt a truly global scope. It requires EU-based importers of tin, tantalum, tungsten and gold (ores and metals) to meet the OECD standard when sourcing minerals from any conflict-affected or high-risk area globally. Technology firms who import tin, tantalum, tungsten or gold in their metal forms into the EU, e.g. for manufacturing purposes, will be covered by the new EU law.

Unfortunately, the EU has chosen to ignore a whole category of companies bringing minerals into the EU. This includes firms who buy and sell products containing these minerals, who are outside scope of the regulation. The EU trusts them to self-regulate.

In Asia, Chinese industry guidelines were launched in 2015 for Chinese companies operating abroad, which are also based on the OECD guidelines and are global in scope.

US Regulations

Meanwhile in the US, Section 1502 of the Dodd Frank Wall Street Reform and Consumer Protection Act requires companies listed with the Securities and Exchange Commission (SEC) to carry out checks on their supply chains where they believe their products contain tin, tantalum, tungsten and gold sourced from the Democratic Republic of Congo and its neighbours. Companies in the aerospace, electronics, medical devices, jewellery and clothing, among other, sectors are subject to this law.

Procurement executives at industry behemoths IBM and Walmart are currently experimenting with blockchain and radio-frequency identification (RFID) tags to clarify the provenance and passage of their products.

The Modern Slavery Act

Here in the UK, the Modern Slavery Act mandates that firms generating over £36m or more a year must produce slavery statements approved by their boards. A quarter of the FTSE 100 are currently non-compliant, forcing anti-slavery commissioner Kevin Hyland to contact them to address slavery in their supply chains. It is estimated that 16 million enslaved people are working for companies around the world.

Whether or not companies are caught by laws and regulations, all firms should be living up to the international OECD standard. This means checking whether their supply chains globally may contribute to conflict finance, human rights abuses or corruption around the world. They should be transparent about what they are doing.

Nick Ford will be speaking at Big Ideas Summit in London next month. To find out more information and register to attend in person or as a digital delegate visit our dedicated site. 

You Could Be In For A Nasty Shock This Easter

What’s “shrinkflation”? It’s the practice of selling a smaller product at the same price, and it’s increasingly common in the chocolate industry. Procurious looks at three big stories about Chocolate supply management that have hit the news in the past week. 

Regulation impacts complexity, complexity impacts costs, and costs impact the size of your chocolate bar.

Shrinkflation: Why Brexit means Cadbury chocolate bars will get smaller

It might be time to panic-buy your favourite Cadbury chocolate bars in bulk, because Cadbury UK’s parent company (Mondelez International) has warned that Brexit could lead to higher prices, or shrinkflation.

What’s shrinkflation? It’s the practice of selling smaller products for the same price. Mondelez has done this before, when its new-look Toblerone was revealed to have wider gaps between its iconic chocolate triangles, reducing the weight from 400g to 360g but selling at the same price. A pack of six Cadbury Creme Eggs – an Easter favourite – was also reduced to five eggs with only a slight decrease in the recommended retail price, from £3.05 to £2.85. The company has pointed to rising commodity costs, the falling value of the pound and an increase in cocoa prices, while Brexit is expected to make it increasingly costly to do business with other countries in the future.

Mondelez’s UK boss Glenn Caton told The Guardian that his organisation is watching the Brexit negotiations closely. “First of all [the Government] needs to make sure we have a stable and thriving U.K. economy,” Caton said. “If the economy is growing, all businesses benefit from that. Secondly, ensuring there is no new, more complex regulation and that there is free movement of goods and minimal barriers to trade. Regulation impacts complexity, complexity impacts costs, as do trade barriers and tariffs.”

Mondelez has invested more than £200m in Cadbury UK, including £75m on modernising manufacturing at Bournville in Birmingham, the home of the 193-year-old Cadbury brand. Bournville is also home to the global R&D team, which has grown from 25 to 250 people since Mondelez took over in July 2013.

Mars reinvests US$70 million in US supply chain while president warns of protectionism

Mars is re-shoring its manufacturing operation in a move that will mean over 95% of its chocolate products sold in the US are made domestically.

The investment of $70 million will add approximately 250 new jobs to production sites across the US, including a Mars Food factory in Greenville Missouri which will receive a $31 million injection. Last year, Mars poured US$52 million into its chocolate factory in Ontario, Canada.

The announcement was made on the same day that Mars Good President, Fiona Dawson, told the American Chambers of Commerce to the EU that protectionist trends worldwide are “threatening to undermine global trade and make the world less connected”.

“The absence of hard borders with all their attendant tariff, customs and non-tariff barriers allows for an integrated supply chain, which helps to keep costs down. The return of those barriers would create higher costs, threatening that supply chain and the jobs that come with it.

“If Britain ends up trading with the EU on the basis of WTO rules, ‘Most Favoured Nation’ rates would come into force. In the area of confectionery that alone would mean tariffs of around 30%.” 

Prince Charles seeks to halt chocolate-industry deforestation

HRM Prince Charles, a keen environmentalist, convened a meeting with global cocoa and chocolate companies to target deforestation in the cocoa supply chain. Delegates from twelve major companies, including Hershey, Mars and Nestle, met with senior government representatives from two of the world’s leading cocoa-producing countries, Cote d’Ivoire and Ghana.

In his speech to the attendees, Prince Charles noted that aside from environmental damage, “The most powerful direct reason for action is that deforestation threatens to undermine the very resilience of the cocoa sector itself, and with it the livelihoods of the millions of smallholders who depend on it, due to the increased climate variability that follows forest loss.”

The meeting resulted in a Collective Statement of Intent to end deforestation and forest degradation in the cocoa supply chain.

That’s more than enough about chocolate. In other procurement news this week…

UK Grocery Chain Waitrose introduces trucks powered by rotten food

  • Waitrose has partnered with bio-fuel company CNG Fuels to place an order for 10 flatbed trucks that will be powered entirely by rotten food.
  • The fuel will be sourced from unsold food at supermarkets across the UK. Globally, an estimated one-third of all food, or 1.3 billion metric tons of produce – goes to waste every year.
  • The new biomethane trucks have an average range of nearly 500 miles, with the biofuel to cost 40% less than diesel fuel. The biomethane emits 70% less carbon dioxide than diesel.

Read more on Konbini.

Boeing’s VP Supply Chain nominated for US Deputy Secretary of Defence

  • The White House has nominated Boeing’s Patrick Shanahan as Deputy Secretary of Defence, with a view to tap Shanahan’s knowledge of the business side of military aircraft procurement.
  • In December, Trump rattled Boeing management with a Tweet complaining about the high cost of replacing the presidential plane (Air Force One) and threatening to cancel the program. Since then, the relationship between the White House and Boeing appears to have improved.
  • Under new ethics rules, Shanahan will be required to recuse himself from any Boeing-related procurement contract decision for the next two years.

Read more on Seattle Times.

How The ‘Brexit’ Could Change Public Procurement

Although the UK referendum isn’t until June, an increasing number of reports are now discussing the potential impact of the ‘Brexit’ on public procurement.

Brexit

On June the 23rd, UK voters will go to the polls in order to decide on the UK’s future as part of the EU. The referendum promises to polarise opinion, much like the Scottish Independence Referendum in 2014, but there is an increasing focus on what it will mean for public procurement in the UK, as well as supply chains crossing UK/European borders.

EU Procurement Directives, required to be taken into account for all public procurement activity within the community, are widely recognised, and even more widely discussed. While there are critics of the Directives, many believe that they are key to maintaining a fair and equitable process in sourcing activities.

Brexit Impact

Although the EU procurement directives receive a lot of bad press, they were set up with a specific purpose in mind – elimination of trade barriers resulting from discriminatory and preferential procurement practices. It was hoped that this would assist countries across the EU realise savings in public procurement, and create a level of transparency in activities.

Further changes have been made to the procurement directives in the past 12 months, aimed at simplifying and modernising the public procurement process. The directives also have their supporters, who argue that they help to maximise competition, achieve value for money, and enable social benefit and innovation in purchases.

There are also arguments made that, had the UK not joined the EU Common Market, now the European Union, it would have still ended up with public procurement regulations that would not have been vastly different to what exists now.

The impact of a UK exit, or ‘Brexit’, is still largely unknown, and can only be estimated in terms of costs to both the UK economy and UK businesses. However, from the point of view of procurement regulations, some parties are stating that it wouldn’t have an immediate impact on current UK procurement rules.

In fact, any changes to procurement law in the UK public sector would be low on the Government’s priority list. And if there were changes, the rules would end up being very similar (where they have been successful), or some industries, like agriculture, would have to maintain EU standards in order to continue doing business on the Continent.

Supply Chain and Procurement Costs

But what about costs to import goods and the wider supply chain impact in the event of the ‘Brexit’? Well, there still isn’t a consensus when it comes to this either. Some reports show a potential drop of 8 per cent in import costs, but that this could potentially be offset by rising labour costs, partly due to a loss of access to low cost, or cheaper, labour.

Open Europe, a think tank, predicted a worst case scenario of a 2.2 per cent fall in UK GDP, but a potential 1.6 per cent growth in GDP, by 2030. There are also concerns that any possible saving the UK might see in tariffs and not paying money into the EU, would be swallowed up by having to cover subsidies paid to certain industries by the EU.

For both UK and European businesses with supply chains operating across borders, there would be a loss in freedom of movement, both goods and services, and labour. Some goods could be subject to as much as 35 per cent export tariffs, while pan-European partnerships could be lost or cancelled.

While a ‘Brexit’ is by no means a certainty, both British and European companies should start preparing for it happening. Actions like monitoring alternatives suppliers, assessing logistics decisions, and work with existing suppliers to put deals in place, all help to reduce the risks that businesses are exposed to.

What are your (non-political!) thoughts on the ‘Brexit’? Is your business likely to be exposed to the impacts? Let us know in the comments below.

As ever, we’ve been scouring the ‘net this week for top headlines to enjoy with your morning tea or coffee…

Using Waste to Plug Power Gap

  • Using the energy from processing waste at anaerobic digestion plants in the UK could help to solve the country’s energy issues
  • However, there are warning that if the AD technologies aren’t promoted better, they could be lost before they even manage to prove benefits
  • Despite favourable tax breaks, environmental benefits and cost savings, the UK lags a long way behind European countries such as Germany in the number of AD plants it has
  • There are currently 434 plants in the UK, some of which support large retailers (Sainsbury) and manufacturers (Diageo) in their operations

Read more at Supply Management

Brazilian Retailer to Clean Up Supply Chain

  • Brazil’s largest grocery chain has pledged to stop selling beef reared on deforested land in the Amazon rainforest
  • Retailer, Pão de Açúcar, also promised to stop buying beef produced by workers living in slave-like conditions, or cattle produced on land grabbed from local communities
  • The new purchasing plan is set to be in place by the 30th of June, at which point the business will stop dealing with suppliers linked to deforestation and modern slavery
  • The firm operates 832 stores across Brazil and has pledged to help its suppliers improve their practices ahead of the June deadline.

Read more at Thomson Reuters

Love Your Waste to Save Money

  • New reports have shown that Scottish households waste the equivalent of 26 million beef burgers (2,900 tonnes of beef) each year in food wastage
  • Zero Waste Scotland has launched a campaign aimed at reducing this waste by using leftovers as part of other dishes, something that could save each household up to £460 per year
  • Confusion over dates on labels, caution about meat safety and worries over freezing and reheating can lead to good meat being thrown away even thought it is still fine to eat
  • In February, Scottish environment secretary Richard Lochhead pledged to cut food waste in Scotland by a third by 2025, to save businesses and households at least £500m

Read more at Supply Management

2016 Enviro Challenge Launched

  • Enviro Challenge’s challenge day for 2016 is set to take place next week in the Waikato, Auckland, Bay of Plenty, and Central Plateau regions of New Zealand
  • The day is aimed at inspiring schools to develop sustainability and leadership skills in high school students
  • Students are also asked to develop, or continue developing, a project for their school with measurable outcomes, and encouraged to think long term
  • Students will be working on initiatives that will have ongoing positive impacts on their schools and their communities, which this year include renewable energy and biodiversity

Read more at Sun Live