By Richard Edwards

The global economic crisis has failed to have a knock-on effect on green procurement, according to the findings of a recent study by the Supply Chain Management Institute (SMI) of the European Business School (EBS).

Green and sustainable procurement today – A perspective on leading European companies, which was published in the BrainNet Science Edition, surveyed leading figures from 49 European companies boasting a collective spend of more than €137bn.

The study found that 63% believed that the global slowdown was not having an impact on their green and sustainable procurement programs.

A focus on suppliers was identified as one of the key differentiators between top performing companies and their peers, although fears remain that firms are still not doing enough to ensure the ethical credentials of their supply base.

“Many companies are not adequately informed about the time bombs that are ticking away in their added value chains,” said Simone Luibl, practice head, green procurement at BrainNet, the co-author of the study. “After all, it’s not just about high standards within their own four walls: overlooked environmental legislation, poisonous substances in product components or suppliers employing child labor can damage the company’s image long term and bring with it serious financial and legal consequences.

“The application of a company’s own social standards and environmental guidelines should therefore also be a key criterion when choosing a supplier. The best price isn’t  of any help whatsoever if, for instance, the supplier is taken to court over environmental offenses that taint the image of the customer. Many companies have learned this lesson the hard way in recent years.”

Sustainable procurement was more prevalent in companies which are positioned more closely to the end customer, the report found, while those businesses adopting a proactive approach were identified among the top performers.

“The support of top managers makes a crucial difference as to whether a company can achieve the position of ‘best performer’ in sustainable procurement – this is an even more powerful driver than legal requirements,” said professor Constantin Blome, research director in emerging markets at the SMI. “The successful pioneers of ‘Green and Sustainable Procurement’ also focus on long-term, cross-departmental strategies. For stragglers, sustainability is frequently over and done with once a project is completed.”

The UK’s government watchdog, the National Audit Office, published an indepth report into the quality and scope of sustainable governmental procurement this week. It makes for fascinating reading and has recommendations for both public- and private-sector organisations alike as well as real world case studies of sustainable procurement best practice.

By David Rae

The NAO has provided six recommendations for government departments to improve their sustainable procurement habits, outlined in a recent report, Addressing the environmental impacts of government procurement.

While the report found that UK government has improved, many departments are still falling behind targets established in 2005.

“In 2008 progress was made by departments, but only some are on target to be practising sustainable procurement across their business by the end of this year,” said NAO chief, Tim Burr. “Procurement decisions need to be supported by a more thorough understanding of environmental benefits and costs, so that departments can show that their procurement meets the twin requirements of sustainability and value for money.”

The report pulls out a number of key findings:

• The majority of departments are some way from having embedded sustainable procurement into their working practices;
• While 15 of 21 departments claimed they were complying with standards for sustainable procurement “Quick Wins”, just nine of those had systems in place to measure compliance;
• Leadership and governance of sustainable procurement has improved with Department for Work and Pensions staff showing the greatest understanding;
• Risk assessments of procurement activity to identify sustainability impacts were routine in two out of five departments reviewed;
• There were positive examples of departments working collaboratively with suppliers on sustainable outcomes; and
• Training programmes across procurement functions to address sustainability only exist in a minority of departments. 

But it is the recommendations which can be most transferable and have the biggest impact across both public and private sector organisations. They are:

• Concrete and quantifiable targets should be put in place to allow departments to measure and benchmark themselves;
• The benefits and costs of sustainable procurement policies must be evaluated. But it should be made clear when this evaluation should take place;
• Systems to monitor compliance with existing sustainable procurement policies (what the government refers to as “Quick Wins”) must be put in place and departments should conduct regular audits for compliance with minimum standards;
• Greater collaboration between government departments will lead to sustainability wins and cost savings;
• Greater collaboration between government departments and their suppliers will mean that sustainability is embedded into the supply chain, leading to a much greater long-term impact; and
• Best practice should be shared across all departments.

Case studies

The Department for Work and Pensions and demand management

“DWP has run an IT Transformation Programme and reduced the total number of desktop computers in the Department by over 37,000 alongside introducing more efficient computers. It reports savings of around £2.2 million per annum in electricity costs, with a saving of 7,300 tonnes of carbon.

Similarly, HMRC has reported savings of over £300,000 from its ‘Streamline’ programme, which removed landlines and duplication of mobile phones and other handheld communication devices.

HMRC has gathered data on fuel and CO2 emissions from its vehicle fleet and used it to identify under-used vehicles, which were redeployed, avoiding the need to procure more.”

Examples of working around existing contracts

The Office Solutions procurement team at DWP recognised that a contract which came into force in 2007 did not drive sustainability as far as it could. It responded by:

• Putting in place a new sustainable procurement strategy for office supplies, written in conjunction with the supplier; and
• Encouraging the supplier to suggest sustainable solutions, focused on helping improve DWP’s service delivery. More sustainable products have since been added to office products catalogues (though the less sustainable products are still available).

In the health sector, NHS Supply Chain, the private sector organisation which runs much of the NHS’s logistics operations, has terms of reference which do not include sustainability. The NHS Business Services Authority (an arm’s length body of the Department of Health) has, however, agreed a Memorandum of Understanding with NHS Supply Chain, under which NHS Supply Chain is developing a business plan for sustainable procurement, which will align with the Flexible Framework and include use of the Quick Wins.

Innovation in engaging suppliers

Unilever uses a ‘Business Partner Code’ to communicate to suppliers its expectations that they conduct their business according to principles that are consistent with Unilever’s. The key elements of the Business Partner Code include compliance to national law concerned with labour standards, health and safety, environmental management and business integrity.

Where required, Unilever requests its suppliers to complete a self-assessment against these four key elements, to a common format supported by an established third party service and database provider – Sedex – and thereby store and track the information. Unilever intends to use this data to build an accurate picture of supplier networks and standards so that the company can engage with suppliers on priority areas for improvement.

Marks and Spencer has established a ‘Supplier Exchange’, a network for suppliers including a web portal through which it communicates its sustainability objectives to suppliers (for example, reducing the weight of non-glass packaging by 25 per cent by 2012). The network is also designed to drive innovation and action on sustainability by suppliers. As part of the Supplier Exchange the company holds meetings for its largest suppliers to brainstorm priority issues and to share best practice between suppliers and from expert speakers. The company has worked with the Carbon Trust to deliver a high level carbon footprint of its whole UK and Republic of Ireland operations. The company has also carried out analysis of the carbon hotspots for its food and clothing products production. This analysis has enabled the company to prioritise areas for action to reduce CO2 emissions in the supply chain.

The Environment Agency has assessed sustainability and reputational risk within its supply chain. Based on this assessment, it worked with suppliers to audit certain key supply chains. For example, it conducted an audit of its textiles supply chain, confirming that its clothing suppliers in China met its requirements for labour conditions. It also worked with its timber importers to confirm that the timber it purchases is from legal and sustainable sources. Sustainability improvement plans are agreed with all suppliers on the audit programme.

Examples of forward commitment procurement

The Ministry of Justice has awarded a contract for a zero waste mattress programme for the Prison Service which would recycle used mattresses and pillows into carpet underlay. The contract will enable the department to significantly reduce the 40,000 mattresses it currently sends to landfill each year. MoJ estimates this programme will save between £4 million and £6 million over a five year period. Other organisations could learn from this programme. For example, NHS Supply Chain manages a framework agreement within which NHS Trusts in England procure about 24,000 mattresses a year.

The Department for Innovation, Universities and Skills, Department of Health and NHS PASA are working together to encourage suppliers to develop more energy-efficient lighting systems. A pilot project to apply such technology is underway with the Rotherham NHS Foundation Trust. Any gains in energy efficiency would have the potential to deliver substantial energy savings if such lights

This week’s World Economic Forum report into supply chain decarbonisation provides a deep look into the carbon footprint of the world’s corporate supply chains as well as ways in which it can be reduced.

Global carbon emissions amount to around 50 gigatonnes (50,000,000,000) annually with logistics and supply chains (from a small truck in India to global transport groups like DHL) contributing about 5% of that.

And according to Sean Doherty, associate director and head of the logistics & transport group at the WEF, the contribution which logistics and supply chains make to overall global carbon dioxide emissions could be halved. “The main message is that there’s considerable scope to reduce the carbon content of global supply chains, and not always in the ways that often pop up, such as road miles,” said Doherty. “What we tried to do was to quantify, of the 20 or 30 strategies, which ones had the biggest reduction potential and were also economically feasible.”

He explained how sourcing from a different location came top of that list, but that the manufacturing of the sourced goods must be taken into account as well as the transportation route. “In most supply chains, manufacturing is a large part of emissions,” he said.

Despeeding is another strategy which Doherty pointed to as key to reducing carbon emissions – and it is a strategy which has already been taken advantage of by many companies, not least in the automotive sector who were using ships as “floating warehouses”.

It’s a further example of how environmental and economic decisions often go hand in hand.

David Rae

A sustainable approach to the selection of contractors helped Bovis Lend Lease win a £2.4bn contract to build schools in the UK’s second city of Birmingham according to its head of supply chain management, Nigel McKay.
 
Bovis, one of the world’s largest project management and construction companies, won the contract earlier this month, and McKay, speaking exclusively to SustainableSourcing, claims that the work done on improving the sustainability of suppliers and contractors gave his company the edge.
 
“We won that bid based on the supply chain management and diversity policies because we had all of this in place and could demonstrate it,” he said.

Mckay said that up to 30% of his working week is now spent on sustainability issues because a huge amount of day-to-day operations now include aspects of it as a matter of force. “In the company, there are five sustainability targets,” he explained. “The first one is carbon reduction, the second one is a reduction of waste, the third one is responsibly-sourced materials, fourth is community which leads into diversity and the other is sustainable design. Elements of all of those are delivered through the procurement process which is why every one of those imperatives is also in my business plan.”

Mckay has defined a new accreditation scheme called Building Confidence, a joint venture managed by Achilles on behalf of Bovis and two partners. “What we’ve done is a two-day audit to assess every one of our top-tier contractors and we have managed to get other main players and their clients involved so they’re pushing their contractors our way as well.

“We’ve got 329 companies going through this process – they’re anybody that at the moment we spend anything in excess of £100,000 a year with.”

Mckay is now in the second year of the audit process, and so far in 2009 seven out of nine contractors who failed the audit last year have now passed and achieved full accreditation. “We’re making headway now. We see this as a continuous improvement tool. We don’t see it as a way of selecting which contractors we’re not going to deal with. This is about saying to the guys, ‘look, you’re long-term partners with us,’” he said.

As part of that continuous improvement, suppliers and contractors have to join in and get involved, he said. “At the end of the day, they [contractors] have to get out of the victim mode and into the opportunity mode,” he said.

Bovis puts his contractors through a rigorous audit process, which includes several questions which are continually updated. Scores are given against each of those questions and a pass, or a fail, awarded.

The questions are, with each one receiving a score of between one and five:

• How does the company control its environmental procedures that have been produced for its activities?
• Does the organisation incorporate environmental controls into its risk management process?
• How does the company manage and assess the environmental performance of its supplier and subcontractors?
• How does the company comply with current waste legislation?
• Does the organisation participate in 1st, 2nd or 3rd party ethical audits?
• How are working hours monitored?
• Does the organisation utilise child labour in the manufacturing and construction process?
• Does the organisation have a code or policy on ethical conduct?
• Does the organisation actively engage with the local communities in which it operates?
• Does the organisation source goods and services locally (where available)?
• Does the organisation have a policy to procure fairly-traded goods where available?
• Does the organisation actively avoid sourcing materials or goods from oppressive regimes (where human rights may be impaired)?
• Does the organisation actively source goods from developing countries? If yes, do they actively try to ensure they use ethical supply chains?
• If the organisation handles materials from legal and sustainable sources, can they demonstrate chain of custody certification?
• If the organisation procures aggregates do they try to identify all aggregate suppliers and do
  they use recycled and local supplies?
• If the organisation procures cement do they try to source from manufacturers who have a strategy for reducing carbon dioxide emissions?
• If the organisation procures glass, do they try and use manufacturers that have a strategy for reducing carbon dioxide?
• If the organisation procures steel, do they source from manufacturers that have a strategy for
  reducing carbon dioxide?
• Does the organisation look at environmental issues?

David Rae

Buyers should plan for slower and better-optimised transport systems if they are to successfully reduce the carbon footprint of their supply chains according to a comprehensive report published yesterday by the World Economic Forum.

The lengthy study, which was carried out with the aid of Accenture, recommends a series of measures that key stakeholders in the supply chain can take in order to improve the overall environmental impact of product sourcing and delivery.

According to the WEF, buyers are in an excellent position to, “take decisions which actively drive positive change up and down the supply chain”.

The areas in which buyers can make a substantial impact include:

Product and packaging design
By agreeing standards and targets around packaging and agreeing modularisation of transit, goods can be shipped far more efficiently.

Low-carbon sourcing
By developing sustainable sourcing policies that consider the carbon impact of primary production, manufacturing and rework activities (to browse company sustainable policies, see our Policy Bank).

Tactical nearshoring opportunities
Buyers should take the carbon emission impact into account when considering nearshoring options.

Mode switches
Buyers should consider mode switches across supply chains and despeed the supply chain so that larger quantities are delivered less frequently.

Carrier incentivisation
Build environmental performance indicators into the contracting process.

Consumer incentivisation
Support better understanding of carbon footprints and labelling where appropriate, work with consumers to make recycling easier and more resource efficient.

Technologies and techniques to help synchronise supply chains
Encourage collaboration among shippers and carriers and invest in data exchanges to increase the visibility of co-loading and other collaboration opportunities.

You can find a full version of the report on the WEF website.

David Rae

As professor of logistics and supply chain management at the Newcastle Business School, professor David Oglethorpe is working closely with the UK government’s food and rural affairs agency, Defra.

The paper that professor Oglethorpe is working on suggests that locally-produced organic goods are more harmful to the environment than mass-produced goods for supermarkets. His conclusions are likely to upset those who herald a return to local produce as one way to reduce road miles and therefore carbon emissions.

“As consumers, the more we draw away from the production [of] food and leave this up to large-scale business processes, the more cost-efficient overall production and consumption will be,” he told the Daily Telegraph. “Business-led production happens in a cost-efficient, profit-making environment. Consumption does not. Making a 20-mile round trip to a local farm shop for a small amount of produce in your car is simply not as efficient as buying food from a nearby supermarket that’s been brought to the shelf by a heavy goods vehicle with around 25 tonnes of other stuff.”

Oglethorpe’s findings may not come as too much of a surprise to all. But it does highlight the need to look at the bigger picture. It also reminds me, indirectly, of a story I heard at a Procurement Leaders roundtable on sustainability last year. The story related to the proposed sinking of Shell’s Brent Spar oil drilling platform which was jumped on by Greenpeace as an environmental disaster waiting to happen due to the amount of heavy metals it could release into the ocean. Following a huge campaign, the proposed sinking was canned and instead it was towed to a wrecker’s yard for demolition.

Which, from an environmental perspective, was the worst-possible solution to the problem – it turned out that the total amount of heavy metals on the Brent Spar equalled that of a single AA battery.

David Rae

Sourcing from developing countries is a given for multinational companies, but with the pressure to maintain sustainable procurement policies, purchasing professionals must treat such regions with care.

The topic is given great attention in the latest bulletin from the Royal Tropical Institute (KIT) of the Netherlands which provides detailed case studies of sustainable procurement from developing countries.

Ahold in Mali

Dutch retail giant Ahold is the subject of one of the case studies through its subsidiary Albert Heijn, a supermarket chain with annual sales of more than €6bn. The bulletin provides detailed insight into its sourcing of thousands of tonnes of mangoes from the west African country of Mali. For Ahold, the main drivers for buying mangoes from Mali are business, as it can meet the supermarket’s demand for year-round supply. But the keen eye of CSR-savvy consumers is also trained on its developing world procurement policies.

To this end, it has adopted the GlobaGAP system, a voluntary set of standards for the certification of agricultural products. It has also established a department to develop guidelines for safety, quality and social accountability. On top of this, it has established the Ahold Sustainable Trade Development, with has 2.5 full-time staff, one in the Netherlands, one in Ghana and one part-time in South Africa.

So far, Ahold estimates that through its sustainable trade activities it has boosted turnover by €20m – €25m over the last five years.

Other measures include the formation of a development foundation which has the aim of auditing suppliers and measuring the impact on local farmers and communities.

Through an extremely close relationship between Ahold and Malian farmers, the Dutch company has succeeded in increasing market share (by securing supply year round for a good price); improving its reputation (by supplying a fair trade, traceable product from Africa) and gaining long-term supplier relationships.

AgroFair in South Africa

AgroFair is a relatively small conglomerate which is partowned by the farmers which supply its Fairtrade products. The case study focuses on the procurement of citrus from Limpopo Province in the north east of South Africa.

Despite growing competition from mainstream retailers increasingly getting involved with Fairtrade products, AgroFair was able to increase the turnover of oranges between 2005 and 2007 by about €3.8m. It has invested about €80,000 in various sustainability certifications.

Unifine in Sierra Leone
Unifine Sauces & Spices, part of a cooperative of sugar beet farmers, has since been acquired by private investment company, Clearwood. The case study looks into its sourcing of ginger from Sierra Leone, a developing country with a history of civil war.

The case study looks into how Unifine partnered with the Cotton Tree Foundation Ginger Enterprise (CTFGE) to buy traceable and sustainable root ginger from the country.

This traceability was key as it vastly improves both the quality and sustainability of product, and has led the company to aim for a target of 100% quality and zero losses; but even getting there results in a much more efficient production process.

However, to achieve this level of quality, Unifine has had to invest in costly audits – to the tune of about €100,000 a year. Staff training and storage have also increased to meet the new demand. Whether this is compensated for by a reduction in waste and an increase in quality or business is still unclear, according to the report.

The KIT bulletin provides a detailed look into the challenges that sourcing goods from troubled regions of the world throws up. In doing so, it outlines a number of requirements that companies must address to meet sustainable demands– these range from the drivers necessary to get started to technology and management capacity requirements.

KIT Bulletin 385 can be downloaded at the KIT website, www.kit.nl

Alexandra Cain

The logistics industry offers an excellent hunting ground for environmental improvements, with two of the world’s largest players involved in innovative sustainability projects.

DHL, the world’s largest logistics company, is spearheading a sustainable supply chain approach and has made a commitment to reduce its carbon footprint by 10% by 2012 and 30% by 2020. Some of the early initiatives DHL has embarked on include using recycled paper and packaging and local education campaigns to reduce energy and water use.

But this is really only the tip of the iceberg for DHL, which is looking at replacing aircraft and vehicles as part of its sustainability push.

Flight of fancy

Paul Graham, CEO of DHL Exel Supply Chain, Asia Pacific, said that upgrading aircraft and fleet shows a benefit in terms of cost savings, “which is important because we’re spending a lot on sustainability.”

Cost savings stem from fuel savings by using more fuel-efficient planes and lorries, although Graham acknowledges DHL’s sustainability program is a long-term commitment, with the company having had to invest hundreds of millions of euros upgrading its fleet.

Other sustainable initiatives by DHL include better management of energy usage and better water recycling, including increased use of grey water. It is also looking at replacing old air conditioning systems for far more efficient replacements.

In Asia, DHL is looking at installing solar panels on some building rooftops and in Europe, it’s exploring whether small windmill generators might be an appropriate energy source.

“Nothing’s off the table, we’re still at an embryonic stage in terms of our sustainable development,” Graham said.

DHL has operations in India, China and Indonesia which have relatively less robust country supply chains compared with more developed nations. “That’s where the sustainability model has less relevance,” said Graham. “These countries need more water and power, not to use less. But there are still things that can be done in developing markets and creating awareness of sustainability is a positive outcome.

The company is also setting up systems to measure sustainability data, with country-level data being fed back into a centralised repository for further analysis. Best practice local programs can then be established.

Blaze a trailer

Julie Gaskell, head of communication at transport and logistics behemoth Stobart Group, says the company is working hard to increase its sustainability push. An important project is a plan to increase the length of its trailers by one metre, allowing trailers to carry larger loads to increase efficiencies within its fleet.

“That has the potential to save three million litres of fuel a year from UK roads,” said Gaskell.

Another initiative was the introduction of a traffic light system to indicate whether lorries are fully loaded. The company has also invested in rail freight and its first service, launched in 2006 between Daventry and Scotland, is the equivalent of taking 30 lorries off the road each day, saving around 2.4 million litres of fuel a year.

Anne-Marie Saulnier at environmental management consultancy Optim Resources acknowledged that most logistics companies are still in the early stages of sustainable development.

“Sustainability is still in the process of being integrated into purchasing functions,” she said “At the moment, sustainable practices are parallel to traditional practices and politics. There is no integration. At the purchasers’ level, there is a real interest, but there is a lack of tools and models to help them to act,” she said.

With strategies ranging from solar-generated power to environmentally sound vehicles, Belgian supermarket chain Colruyt has become something of a model of sustainable business management.

None other than Crown Prince Philip of Belgium climbed onto the roof of its distribution centre at Halle, near Brussels to inspect a wind turbine and the largest area of solar panels in the country. Solar installations at every new Colruyt store can produce up to 95% of the energy used by that store.

Perfect case study

But royal intervention and green energy aside, Colruyt’s activities in the world of sustainable business were described as “the perfect case study” at a recent event at KHLeuven business school, which concluded with a tour of the retailer.

During the tour, Colruyt’s regulatory affairs manager, Koen Demaesschalck, who is also responsible for procurement and supplier relations, explained the mechanics of sourcing and shifting goods in a fast-moving supply chain. He focused on how Colruyt applies the sustainable management ethos to commercial decision-making as well as internal processes and systems.

The company grew during the 1960s cash-and-carry movement but now sells itself on a combination of value, efficiency and sustainability. Its stores are still plain, functional spaces and its ‘lowest-price’ promise survived the transition. But its
product range has undergone a marked change with all stores offering organic or bio products. Colruyt is also opening Bio-Planet stores selling only organic products in the Netherlands and Belgium.

For cost reasons, fresh products are sourced in their raw state and in bulk whenever possible.

“We work with seven farms on exclusive contracts to supply meat,” said Demaesschalck.

A central butchery prepares the meat for store distribution and produces 50% of Colruyt’s cooked meats. There is an added benefit of easy traceability of meat to the cattle breeder.

What about wine bottling, cheese packaging, frozen goods, transport and logistics? “We do it ourselves,” Demaesschalck said.

Packers complete 14 million trays (nearly 24,000 tonnes) of fruit and vegetables a year. Sustainable sourcing of rice has led to Colruyt working with the people of Benin in West Africa to grow production volumes. An agreement to buy 10% of the total will give the country a guaranteed income.

An education programme focuses on developing countries and regions where Colruyt buys goods, including teak furniture from Indonesia. Some 5% of profits go back to these regions through non-governmental organisations in Belgium and around €150,000 a year funds schooling programmes.

According to Peter Tom Jones, ecology economics specialist at KHLeuven, European sustainable production and consumption goals call for new technology and innovation at all levels.

Colruyt is trialling radio frequency identification technology with Danone and Gillette to improve efficiencies.

Co-sourcing alliance

The company engages in joint sourcing with other members of Coopernic, a strategic retail alliance of five independent companies, and works on product innovations, new markets and new technology with them as well.

Veronica Velo, research director at Coventry University Enterprises, believes the business world can gain by working closely with universities.

“Numerous opportunities exist for actors from academia to collaborate with the retail industry at international level to advance the mission of operating at lower cost and in a responsible manner,” she said.