By Richard Edwards

For a company that sold 12,000,000,000 litres of beer in more than 150 markets in 2008, it should come as no surprise to hear that water consumption is one of Carlsberg’s primary concerns as the company looks to navigate the choppy waters generated by the global economic slowdown.

The past 12 months have seen the Denmark-based brewer – the fourth largest in the world – take significant steps in areas such as water reduction and energy consumption.

And although Bengt Erlandsson, the company’s vice president of global procurement, admits that there is still more to be done, the results of Carlsberg’s ambitious sustainability programme are already beginning to filter through.

“For sure we are following our policies in this field, and I think it’s an area that is getting more and more developed,” he told Sustainable Sourcing.

In 2008, Carlsberg’s Swedish operation cut water consumption by 32%, while energy consumption was almost cut in half. A tightening of the company’s logistics operation also saw the number of beverages distributed per litre of diesel increase by 19%.

In addition to the continuing procurement of trucks that run solely on biofuels, Carlsberg also recently unveiled plans to switch deliveries from its brewery in Falkenburg – a town on Sweden’s south west coast – from the road to a 1126km stretch of railway running to Umea on the other side of the country.

Last year, Carlsberg signed up to the UN Global Compact, in addition to revising its own CSR policies, which included the introduction of a Supplier and Licensee Code of Conduct, covering areas such as labour and human rights, health and safety and environment and business ethics.

In December, however, Carlsberg was the recipient of a letter from an alliance of investors worth $1.5 trillion, urging the world’s top 100 companies to adopt sustainable water use policies, and calling on chief executives to join the CEO Water Mandate.

“Water sustainability is a real financial issue for long-term investors,” said James Gifford, executive director of the UN supported Principles for Responsible Investment.

And although the company was already working to manage it’s water usage, it served to create a greater focus for a company operating in one of the world’s most water intensive industries.

“We’re working with our suppliers on how we can reduce water consumption,” said Erlandsson. “It doesn’t matter which industry sector you’re involved in, sustainability is just something that you can’t ignore and it’s firmly on our agenda.”

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

By Richard Edwards
 
Marks & Spencer is pushing ahead with its ground-breaking green factory programme as it looks to ensure the ethical credentials of its global supply chain. Central to the strategy is Mike Barry, it’s head of sustainable business. 
 
Next month, M&S opens its fourth eco-factory, this time in China, just over a year after MAS Intimates Thurulie – situated 60km north east of the Sri Lankan capital, Colombo – threw open its (environmentally friendly) doors to an admiring global audience. The company now supports two such factories in Sri Lanka, as well as a similar operation run by its furniture supplier, Westbridge, in Wales.
 
Such has been the success of these schemes that the company’s Welsh site, post-conversion, now emits 48% less CO2, leading to electrical energy savings of 56% and a reduction in water consumption of almost 30%. 
 
“We have a responsibility to give leadership and that’s exactly what we’re doing with these green factories,” Mike Barry, head of sustainable business at M&S, tells Sustainable Sourcing.
 
It’s now over two years since M&S launched its Plan A sustainability programme, which set out 100 environmental and ethical commitments. It was a process that procurement was, and still very much is, heavily involved in.
 
“The team that put plan A together included the head of technology for food, the head of technology for clothing and the head of procurement,” Barry says. “Procurement and sourcing was placed right at the heart of delivering the plan.” 
 
Of course, the major concerns for those firms involved in the fashion industry – as some of M&S’s competitors have already found to their cost – are the ethical credentials of a supply base that leans heavily on the Asian sub-continent. And while the company’s eco-factories ensure that the company’s own house is in order, Barry admits that challenges remain.
 
“We have incredibly tight controls on our food business – our coffee and tea, for example, is fair-trade and fully traceable,” he says. “On the cotton side it’s often impossible to fully trace the origin but it’s a journey and, as the biggest buyer of fair-trade cotton in the world, we’re doing all we can.”
 
Also integral to M&S’s approach is a supplier exchange network that has so far enabled up to 1,500 of the firm’s suppliers to share best practice.
 
When Plan A was originally unveiled in January 2007 the company estimated that its implementation and running would cost £200m up until 2012 – the reality, however, has been somewhat different. 
 
“We decided to do it because it was the right thing to do,” says Barry. “But now we’re really seeing the cost benefits too – to date Plan A has been cost neutral. In the short-term it can help the company through the tougher times, it also means you can start preparing for a very different future.”
 
And while many companies appear ill-equipped to deal with that future, Plan A should ensure that M&S is well-placed to thrive in a drastically altered business environment.
 
“We’re going to be operating in a much more constrained world in terms of carbon and commodity prices – there’s simply not enough stuff to go round,” says Barry. “Whether or not you like it as a business, this is what you have to do. Mid-2010 I think people are really going to start focusing on what the next decade looks like and 2010 to 2020 is going to be an interesting bridging period as companies plan for the future post-2020”.
 
“We’re very clear that M&S has only just begun climbing a mountain called Everest”, he adds.
 
However, while M&S insists that it is still in the foothills, the success of Plan A suggests that the firm is far closer to the peak than many of its competitors – and has little need to consider a Plan B.

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.

BT is currently working towards a carbon intensity reduction target of 20 per cent by 2010 (a saving of some 200,000 tonnes of CO2), and it’s taking no prisoners – as some of its suppliers have already found to their not inconsiderable cost.

“We recently surveyed 1800 of our suppliers and graded them all on a scale of 0 (those who have no sustainability strategy in place) to 3 (those who are almost there),” Donna Young, head of environment and climate change BT Group, told Procurement Leaders in an exclusive interview. If you’re a zero then you won’t get on the tender list,” she said. “That’s not to say we then abandon them, part of what we’re trying to achieve here is that we work with them to get them started on the road to where we, and they, need to be.

“In terms of our supply base it has been a very positive piece of work, and hopefully we’re now starting to see an appreciation of what they can do within their orgainsation – not just in the products they sell and manufacturer but across their entire supply chain.

“We’re well aware that these suppliers aren’t only working with us, so anything we can do to set them on the road to a more sustainable future benefits everyone. We’ve got companies in all areas of the world that are doing well, we’ve seen some really good practices in China, for example, but generally it depends on the attitude of the individual company and it depends on the industry. Behaviours are the biggest issue right through the value chain.”

When you consider that BT has been involved in £2.2 billion worth of bids in the first ten months of 2008, the cost of neglecting sustainability has never been as high.

BT, which started measuring its carbon footprint in the early 1990’s, long before the majority of its major competitors followed suit, now builds environmental requirements into its procurement contracts as standard practice. And it’s this engagement with suppliers, along with BT’s 110,000 strong workforce that Young identifies as being crucial in the company’s quest to lead the field in an area which, she admitted is still seen elsewhere as a “nice little add on”.

“Sustainability is now on every person’s lips,” Young said. “And it’s certainly very much at the top of the agenda at BT – it’s on the whole board’s mind.

You have to make sure that it’s embedded into the organisation and I believe this is something we’ve been very successful at.”

Another factor occupying the minds of board members at the present time is cost, and in an industry as energy-intensive as BT’s, it’s little wonder that every penny counts.

Young said: “No-one in procurement needs telling that the cost of energy has risen considerably over the past 12 months, which is why it’s so important for us to do all we can to minimise our usage. If we can cut consumption then it obviously does far more than simply reduce our carbon footprint – it makes a lasting contribution to our bottom line.”

BT, like the technology it relies on, has come a long way, and Young appears determined to leave her mark – although you might struggle to see her footprint.