Roland Verdon has never been one to shirk a challenge but the man who has overseen the transformation of Estee Lauder’s procurement operation over the past 18 months admits that sustainability poses one of the biggest obstacles he has faced since he arrived at the company from Merck Serono in 2008.

The New York-based giant has been producing top class cosmetics since shortly after the end of the Second World War, but Verdon is facing another battle as he looks to ensure that the company gains the necessary visibility into its global supply chain.

And as the company’s VP indirect procurement EMEA, he believes that measuring the benefits that sustainability can bring to services procurement is often an area of great intangibility.

“We have to differentiate direct spend and indirect spend – it is probably easier to do it in the direct spend area because the benefits are more obvious when you buy raw materials,” he tells Sustainable Sourcing. “It’s easier to do in the shopping bags, in the paper, and in the printing, but when it comes to some services it’s more complicated.”

The indirect spend categories that Verdon oversees do, potentially, pose a considerable problem as Estee Lauder look to build a reputation for sustainability. Verdon himself cites the example of flight bookings as one of the reasons why firms like Estee Lauder can’t always make decisions based on green criteria alone.

“We can do it in our airline (booking) but the problem we have there is one of volume. You look at some airlines that have programmes in place that are pretty good in terms of reducing CO2 emissions but if you want to really play with these big guys you need the volume,” says Verdon.

“With 30,000 employees across the globe our volume isn’t that important at this level and does not really enable us to negotiate something good so it probably means that if we go this route we’ll pay more than using another airline.”

Verdon and his team are currently drawing up a draft series of sustainability guidelines aimed at qualifying the company’s vendors, particularly in Asia. It is, though, a work in progress, and Verdon is fully aware of the pitfalls that could lie in wait.

“In terms of visibility some vendors will play the game and will give us good visibility as they have nothing to hide, and on the contrary have something to sell in this area,” he says.

“Some vendors will be probably more reluctance because they have nothing in place or are on the borders of being unfriendly to the environment or have dubious labour practices.”

The world has certainly moved on since Estee Lauder first starting selling their goods in Saks Fifith Avenue in 1948. But the company’s former “faces”, which include the likes of Liz Hurley and Gwyneth Paltrow, would surely approve of Verdon’s long-term vision. Even if it does involve the rather unglamorous process of him getting his hands dirty.

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.

Sustainability is fast establishing itself as one of the key elements of the modern MBA curriculum – and procurement and supply chain is reaping the benefits.

According to research carried out by the Aspen Institute Center for Business Education, the percentage of schools that now require students to undertake a course dedicated to business and society issues has leapt hugely over the past decade, a rise that looks set to continue as we move into 2010.

The increase – from 34% in 2001 to 69% in 2009 – reflects the shift in focus on sustainability since the turn of the century.

And according to Mike Bernon, senior lecturer in supply chain management at Cranfield School of Management, sustainability now forms an integral part of the MBA programme.

“It (sustainability) has impacted significantly on the programmes we’re now offering,” he told Sustainable Sourcing.

“We have put in some specific modules looking directly at the impact of sustainability on supply chains. We look at the issues surrounding areas such as carbon footprinting so that there’s more of an understanding on the impact of your own operations but also what the impacts are through your whole supply chain – that’s upstream through your own suppliers but also consumer use and disposal.”

This increased focus does, Bernon believes, reflect the growing responsibility of those involved in procurement and supply chain to fully appreciate the impact their decision making has from both an environmental and social perspective.

“Although you may not own the whole supply chain you now have a responsibility to understand the impact of your total supply chain from cradle to cradle.”

Bernon’s views reflect those of Brad Gentry, senior lecturer in sustainable investments at the Yale School of Management and co-director of the Center for Business and the Environment at the university.

“In the past, a lot of efforts to help save the planet have come from government and non-governmental organisations,” said Gentry.

“But increasingly, business is playing an important part of those efforts, through innovative technologies, enhanced products and improved management technologies.”

There is also a growing realisation among MBA graduates that, in a constrained job market, sustainability offers the kind of employment opportunities that simply aren’t on offer elsewhere.

“On one of our MSc programmes I run a sustainability elective – and it’s one of our most popularly attended electives,” said Bernon.

“At the moment if you happen to have anything with an environmental badge on it, whether it’s modules taught on an MBA or an environmental MSc, then you’ve got a good chance of getting a job.

“There are still quite a few jobs going in this area that aren’t available elsewhere.”

Richard Edwards

Closer collaboration between procurement, human resources and fleet management is acting as the driving force behind a major change at one of Europe’s largest companies.

As part of a wider initiative which aims to cut emissions across the company by 30% by 2020, Deutsche Post has introduced a carbon budget for its vehicle fleet – a move that Stefan Zeisel, senior vice president of global sourcing at Deutsche Post World Net, admits has turned the company’s car policy “upside down”. 

“It’s a fascinating idea,” Ziesel told SustainableSourcing. “It’s a mixed project, with procurement working alongside HR and fleet, and we see it as a very strong symbol for the environmental direction of the corporation.” 

Carbon quotas

Under the new plans, employees are given a CO2 budget for various available car groups and although the vehicles that the company offers remain largely unchanged, the choices that drivers now make have changed massively. If a driver’s choice of car takes him or her above their CO2 budget they must pay more out of their salary to subsidise it, and vice versa.

“It has been positively acknowledged by everyone involved,” Ziesel said. “The new system is much more flexible in terms of upgrading and downgrading. If someone does decide to downgrade then they can even get paid a certain bonus amount.”

The changes are being felt throughout the business, with even board members finding themselves far more conscious of the company car they are driving. “Five years ago, if a major figure within the business turned up for work in a Smart Car then eyebrows would have been raised,” he said. “Now that isn’t socially accepted – it’s no longer trendy.” Another innovation overseen by Ziesel includes the use of free railway travel, or ‘Bahn cards’, for those who choose to travel by public transport. 

Of course, while the environmental benefits of Deutsche Post’s plans are clear, the cost implications of the scheme also make it particularly attractive.

“The total cost of ownership of employees using more economical cars has the potential to save the company millions in the future,” Ziesel said. “We estimate that new fuel-efficient cars could save the company up to €1,200 per person over the lifetime of the car. Multiply that by 5,000 and that figure is soon running into the millions.”

By Meryl Bushell

Talk of sustainability has grown considerably over the last 10 years, but how much of the talk is translated into action, especially in these challenging economic times?

When I first started having discussions about CSR in supply chains I was met with a lot of resistance. It was not easy to convince others that there were business benefits in adopting ethical and sustainable practices in procurement. I can remember many debates where the topic was dismissed as unimportant or “hobbyist”.

Over the years, climate change science has alerted the developed world to the folly of ignoring the impact of CO2 emissions and a huge number of organisations have started to take action to limit their environmental footprint.  But how many organisations have done this in a rigorous and thorough way? Most organisations start by looking at their own usage and introduce programmes to reduce their in-house energy consumption. At the simplest level these are about turning the lights out and reducing the heating a notch or too. We have all seen hotels pleading with us to reuse our towels, and many companies have introduced double sided photocopying or conference calls in place of travel. While worthy, these initiatives are hardly ground breaking and cynics will remark that they smack of self interest as they double as cost saving initiatives.

Some organisations pick a high profile sustainability item and channel all their efforts into their flagship area – many bespoke recycling activities fall into this category.

Few organisations meet best-practice levels of a comprehensive sustainability programme which encompasses all of their activity. I believe that there are three areas that need to be systematically addressed:

Own Use
Ensuring that all in-house production and operating activities are executed with minimum impact on the environment (and this does not mean coming down heavy for items affecting employees, but allowing senior executives to drive around in gas-guzzling company cars).

Bought in Goods and Services
Laying down minimum standards for suppliers and actively selecting only those goods and services which meet environmental specifications. Simply designing a questionnaire and getting suppliers to tick boxes serves only to keep bureaucrats  employed. Sustainability standards should be part of every adjudication process, and given the same level of weighting as other product specification items. Quality checks and audits should take place for sustainability criteria in the same way as they do for other criteria.

Product and Service Design
Developing goods and services which actively help an organisation’s customers and stakeholders improve their environmental impact.

Of course, sustainability should not be constrained to items impacting the environment but should also embrace human factors, diversity and ethics. The credit crunch and the subsequent economic downturn have led many firms to abandon their high ideals and instead drive for short-term cost savings. If they had studied the available research they might have thought twice before embarking on this course of action.

While consumers are indicating that the financial climate may force them to purchase fewer organic products, demand for Fairtrade and other sustainably-sourced produce is holding up, and if anything the indications are that demand will increase. In studies undertaken by Feel Research, 92% of consumers claim to be willing to pay extra for ethically-sourced products, and a recent PricewaterhouseCoopers report found that 58% of consumers said they are currently buying fewer sustainable products than they would like to.

So, driving comprehensive CSR policies and practices islikely to help organisations to maintain and win market share and revenues even in an overall declining market. The business case for CSR in supply chains is even stronger in times of economic woe, and procurement professionals should be championing sustainability at the board level to help their companies survive and thrive.

Meryl Bushell is an independent consultant and executive coach. She is the former chief procurement officer of BT.

Watch out for Fairtrade Fortnight which runs from 23 Feb to 8 March.

Richard Edwards

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.

Colin Maund, CEO of sustainable procurement specialist Achilles, believes that many companies are now extremely fearful that key suppliers are simply going to disappear – a concern that is placing procurement under increasing pressure.

“We’ve reached the stage where it’s not just about prices, it’s about something far more fundamental,” he told Procurement Leaders.

“Companies are starting to ask questions about the financial solvency of their suppliers, and with things getting progressively worse this is now becoming a major issue.

“In the past suppliers would occasionally disappear but it was never an every day occurrence, now there’s a genuine fear that a large number of suppliers could just disappear overnight.

“The priority order for sustainability is moving away from climate change towards ensuring that key suppliers will still be in business.”

Despite these worries, however, Maund believes that the current situation does place procurement in a strong position when it comes to introducing and enforcing a more ethical approach across their entire supply chain.

“Buyers are now in a stronger position that they ever have been,” he said. “In a sense suppliers are more malleable. During the boom time a company faced with a sustainability study could brush it off – now no one wants to upset a purchaser, particularly in a highly susceptible sector.

“People in these positions can now be completely clear with suppliers on what they want and expect.”

The global scope of these supply chains does though, pose a growing headache for procurement operations.

“Companies have got very large and complex supply chain,” Maund said. “Ten years ago, for example, procurement knew it could get suppliers on the phone and manage any problem in what was a relatively short and simple supply chain in a fairly short space of time. This has completely changed.”

Whereas the initial economic crisis appeared to be restricted to the banking industry, Maund now believes there’s a growing realisation across all sectors that these issues are spreading well beyond “a few naughty banks”.

“In the past month there has been a dramatic change in mindset,” he said.

“Now companies are beginning to question three things; firstly whether they themselves will go bust; secondly whether their major suppliers will go bust; and thirdly the potential price impact of businesses inability to raise credit – something that could potentially force prices up extremely quickly, even though commodity prices are coming down.

“I think the scale of the impending situation is only just beginning to sink in.”

“As far as I’m aware I don’t think any previous Games have gone into as much detail as we have in terms of preparation.”