When price is king, and procurement is often accused of “bullying” suppliers, can we really say procurement is serious about sustainability initiatives?
This article is by Gerard Chick, Chief Knowledge Officer, Optimum Procurement Group.
As we entered 2016, many of us will have made New Year’s Resolutions. It strikes me that this is as relevant to our professional lives as it is to our personal lives.
Eating or drinking too much is as unsustainable as exercising too little. The above all have outcomes that are bad. We know they are bad, and we also know that to change them is hard.
Last year, the newspapers and other media outlets were teeming with stories about procurement professionals using “bullying” tactics against suppliers, and with claims that big brands were using their power to squeeze suppliers. Inevitably a breakdown of trust (amongst other things) began to emerge, and this clearly needs to be resolved.
We read about farmers protesting against Morrisons’ terms of contracts. We read about Majestic Wine dropping their chief buyer after its pre-tax profits dropped by almost half, and supply chain relationships became tense after it asked suppliers to give them cash towards new warehousing. We also read about Carlsberg facing hostility from its suppliers after it extended its payment terms to 93 days.
Regrettably, such practices are all too common. The tactics used by big business towards suppliers have become a standard feature of today’s marketplace, where price is king and any means of reducing costs seems to be considered valid.
And yet procurement frequently claims it is in the van when it comes to issues regarding sustainability. Some supply managers are, but many aren’t. A more sustainable supply chain is needed, but it will only emerge when the breakdown in trust between suppliers and procurement is resolved.
Let’s take a step back. The word frequently used in the media was ‘bullying’, but perhaps if we are to put this right we should contemplate ‘behaviours’. A better word, I feel, and one we can focus on in a more professional manner.
Perhaps these behaviours reflect that many of these people are simply unskilled and, even worse, unaware of it. The difficulty being that it is hard for them to recognise their incompetence, which in turn leads to inflated self-assessments of their skills and abilities.
Bad relationships are not just about negative publicity and brand damage, but also impact on the ambitious sustainability targets many businesses are now setting themselves.
Take climate change. Up to 90 per cent of the greenhouse emissions linked to a company are generated outside its immediate operations, with the lion’s share often occurring in its supply chain.
Collaboration Over Compliance
Moreover, business’ struggle for economic survival must not come at expense just about anything else! Big business characteristically operates in a top-down manner. Supply managers issue suppliers with codes of conduct and environmental targets, and oblige them to comply. The result is an exploitative game between suppliers and auditors sent out to verify farms, factories, working conditions and so forth.
Not only is compliance difficult to achieve, especially beyond the second tier, but it’s only half the story. A more effective solution would be for procurement professionals and suppliers to work together to develop innovative solutions to supply chain issues and to help ensure each others’ sustainability.
It strikes me too, that the smaller, more agile supply organisations (as well as procurement organisations) are more likely to be able to innovate than the behemoths of big business, stuck in their cycle of annularity and the need to satisfy shareholders at all costs.
Tapping Supply Base Creativity
So how can companies looking to become more sustainable tap the creativity of their supply base? The first and most obvious answer is to cut the double-messaging. Corporate procurement teams are frequently blindsided by a ‘cost-out’ mantra. The risk this poses is it frequently supersedes all other agendas and that is simply not sustainable.
The perennial issues of time, cost, quality and service will always feature in procurement decisions, but social and environmental considerations must be factored in as well. Alignment is key. For example, Marks & Spencer prohibits its procurement teams from purchasing any product that can’t meet at least one of the goals of its corporate sustainability plan.
This often leads suppliers to view such demands as a box to tick. To remedy this, suppliers need to be incentivised. New ways of working need time, resources and dedicated attention – all of which are at a premium for small suppliers.
What is needed is a change in behaviours and the development of more trusting relationships. Ideally procurement organisations need to co-invest in the long-term research and development with their key suppliers.
As mentioned above, annularity dominates the mind-set and behaviours of many large companies. They simply focus on the short-term and would rather sit back and wait for proof of concept, than stump up the cash and experiment.
Ultimately, talk of sustainability-focused supply chain innovation will only ever begin to take effect when the breakdown in trust between suppliers and buyers is resolved. That requires a shift from a model based on adversarial brinkmanship, to one of mutual interest and transparency. The more open and honest a corporate customer is about its sustainability challenges, the higher the chance of generating innovative solutions.
Perhaps now is the time for procurement professionals to make a New Year’s resolution.