For one of the world’s most renowned coffee companies it should come as little surprise that Italian-giant Illy Café is taking the express route to sustainability.

The Trieste-based company has been at the forefront of sustainable sourcing for the past two decades and, as Sustainable Sourcing discovered in an exclusive insight into the company’s supply chain and procurement practices, the firm is determined to build on a green reputation that is the envy of most in the food and beverage industry.

As reported by Sustainable Sourcing in December , Det Norske Veritas (DNV) has used Illycaffé as a model for its new sustainable supply chain certification programme.

That clearly provided a ringing endorsement of Illy’s work in this area but the company itself has other, more ambitious targets, in its sights.

Illy is currently working hand-in-hand with the Oxford University Centre for the Environment (OUCE) to improve sustainability standards in the coffee industry.

The company is examining coffee growing techniques in countries across the world in an attempt to establish which are the most environmentally and ethically sound.

“In India they cultivate coffee together with other plantations produced fruits such as bananas and oranges,” Anna Adriani, global PR director at Illycaffe, tells Sustainable Sourcing.

“We are now finding out whether this is the most sustainable way of producing coffee and, if it is, we will try to promote this way to our suppliers in other coffee growing countries.”

Ethical and sustainable sourcing already plays a key role in Illy’s various global ‘coffee universities’, which aim to promote sustainable practices in all the company’s coffee-growing nations.

“In Brazil, the University of Coffee has been set-up in partnership with the University of Sao Paolo and sustainability plays a crucial role,” says Adriani.

“Together we teach them that the best way for suppliers to handle the business is through sustainable means.”

Of course, Illy is just one of a large number of companies trumpeting its sustainability credentials, but despite the undoubtedly huge strides taken in this area, Adriani believes that the food and beverage industry still has some way to travel.

“What’s very important is that sustainability must become integral to the way that companies do business,” she says.

“Otherwise there is a real danger that sustainability simply becomes a fashionable word.”

And when one of the world’s most cutting-edge coffee houses speaks, others would do well to take notice.

If nothing else, the recent United Nation’s Climate Change Conference in Copenhagen at least got sustainability on the news agenda. The problem is, that’s all it did. After 12 days of political posturing, photo shoots and demonstrations, very little of real note came out of the event.

Of course, it showed that political leaders recognise they can’t be seen to be ducking the issue – even if that’s what they continue to do.

To my mind, however, there is a glimmer of hope despite the lack of anything concrete or useful coming out of the talks. That glimmer is that it reaffirmed my belief that government action isn’t where the real battle lies. The real battle lies in corporate boardrooms and in the wallets of consumers.

Fact: consumers are far more sustainability conscious than they were even a few short years ago and spending behaviour is already turning towards responsibly sourced goods.

Fact: companies that don’t recognise this and develop their goods to meet this growing development will lose out in the long term.

And, of course, this is where procurement and supply chain has a huge part to play. Sustainable Sourcing has covered a huge number of positive stories in 2009 about how chief procurement officers have forced positive sustainable change in their companies. We come across countless stories of CPOs getting in touch with each other and sharing information, knowledge and tips on how they can improve sustainability in their supply chains.

They, at least, recognise the importance of this issue and are working hard to try and address it. So, despite the utter failure of politicians to properly address this problem of global importance, with the hard work of the corporate world, progress can still be made.

A volatile supply market could see a rapid expansion of sustainability projects as the world’s major economies emerge from recession.

That’s the view of Mickey North Rizza, research director at AMR Research, who told Sustainable Sourcing that a strengthening of the oil price from its lowest point midway through the meltdown brought on by the bankruptcy of Lehman Brothers, could act as wake-up call for some of the world’s largest companies.

And as supply restraints take hold, she predicts a huge increase in investment in alternative energy sources.

“We’re going to see sustainability initiatives take off even more than they have in the recent past,” North Rizza told Sustainable Sourcing. “There’s two reasons for this. Firstly, we have an energy crisis in general around the globe because we’re using a resource that only has a finite life span. And secondly, it’s very hard to get to grips with this because the availability of the resource is constantly being dictated by other countries.”

North Rizza argues that cost imperatives will dictate that the corporate world takes a far more proactive approach in this area as the oil price continues to rise.

“From a corporate standpoint, companies are realising that they can use alternative methods of doing things – and when you do that, that takes costs out of materials and costs out of processes,” she said. “It’s a win-win situation.”

Back in March, the McKinsey Global Institute published a report warning that energy demand could outstrip demand as the global economy staggers back to its feet. ‘Averting the next energy crisis: The demand challenge’, claimed that oil price could spike to pre-credit crunch levels – and perhaps even hit the $200-a-barrel mark predicted by Goldman Sachs – as soon as 2010.

Taking those findings into account it’s little surprise that companies are looking to take affirmative action now.

“Sustainability hasn’t quite taken off – but at some point it will become a driver,” said North Rizza.

David Rae

SustainableSourcing has researched the world’s largest 500 companies to find those that have published a dedicated sustainable procurement policy and, for those companies that have, what information lies within. While many companies that cover sustainable procurement in their CSR reports deserve credit, we only have space for those with dedicated policies. 

The information below is intended to give procurement executives that haven’t developed a sustainable procurement policy the raw material to get started. It will also help those that have started to improve, collaborate and move forward.

To put forward your own companies sustainable procurement policy, email the editor.  

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

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.