Nine things ESG and procurement can do together to create social value
Sustainability in Supply Chains. Photo By: Jizhidexiaohailang on Unsplash
Why supply chains are a vital piece of the social value puzzle.
Suppose you are a social value, ESG or sustainability professional working for a large, multinational company. The chances are you’re pretty busy at the moment. From writing social value answers in bids to requests from board members; about what the company is doing to reach net zero by 2030. Your hands are probably too full to be worrying about your supply chain. After all, that’s procurement’s function. You aren’t alone in thinking this way, but you would be wrong.
Social value is about ensuring that your business behaves in a way that creates value for society and profit for your company. It’s no longer acceptable to make money at any cost. As corporate reputation expert, Daisy Powell-Chandler recently told us. “Consumers want companies to look after employees, show up in the community, not harm the planet and pay their taxes. Social value is the thing that ties all of these things together.”
Your supply chain is an extension of your business. Your suppliers play a crucial role in helping you deliver your products and services, so how your suppliers behave is almost as important as how you do. After all, it doesn’t matter how environmentally friendly your manufacturing processes are if the raw materials you use are unsustainably sourced.
Working with your suppliers to ensure they are delivering and helping you meet your commitments should be high on your priority list.
Are the supply chains in your organisation helping you create social value? Photo by Sid Suratia on Unsplash
What can you do, and where should you start?
The most important thing is to recognise that supply chain engagement forms a key pillar of any sustainability strategy and that it will be impossible to deliver on your social value commitments without having your suppliers onboard. To achieve this corporate responsibility, professionals need to not only work closely with colleagues in procurement and finance but also to take the time to understand how these functions work and to acknowledge the important role they have to play in helping deliver your social value objectives.
Procurement is an essential function of any large organisation, but it is often under-resourced and removed from the ‘front office’ and business delivery functions. Please don’t underestimate how challenging this process could be for them, and work to get them on board at the earliest opportunity. They will be able to help you create strategies that are realistic to implement and won't be subject to legal challenges.
Board/SMT level backing is essential
As well as considering enhancing or realigning the resource available to procurement, they may also need to review their KPIs. At the moment, their ‘success’ is largely evaluated by how much money they ‘save’ their business by negotiating ‘better’ contracts. Evaluating a supplier based on how they behave as a company means that price may not be the deciding factor. We know many procurement teams would be delighted by this – they know good value is about more than price but will find it easier to move at pace knowing they have the board's support and the CEO's backing.
It’s not just about complying with legislation
Over the past decade, laws such as the 2015 Modern Slavery and 2010 Bribery Acts have forced companies to examine their supply chains in much more detail, but procurement value is more than compliance. Just because something is legal doesn’t mean that it’s right, and the court of public opinion is a far harsher judge than any court of law. Suppliers' poor (though not illegal) behaviour is every Communications Director’s worst nightmare, destroying the hard-earned reputations of even the most major and established brands overnight.
Whilst you can expect most procurement teams to have fairly robust processes to ensure suppliers comply with legislative obligations, with many thousands of companies in their supply chains, it’s extremely unlikely they will know whether a supplier supports disabled workers or what they do with their waste.
It’s not just about who you currently buy from; it’s also about who you could buy from
Just as legislation like the Social Value Act and community wealth-building initiatives are helping the public sector ensure every pound they spend works hard to deliver value for society, buying from a wide variety of suppliers can help the private sector's pound go further. When procurement professionals talk about diversity, they are referring to diversity in the kind of companies you are buying from; are they large, small, local, national, international, women-led or owned by members of a minority group; are they a social enterprise or charity? Buying from companies like these helps your money create social and economic value.
9 ways ESG and procurement can ensure supply chains are creating social value
We’ve put together this list of ten ideas for things sustainability or social value professionals can do to help procurement teams ensure the supply chains in your organisation are helping you create social value.
1. Agree on what's important
Before you start, it’s important to be clear about what's important to your organisation – and that these priorities are agreed upon collectively.
The procurement functions of most large companies are already doing a lot of work in this area, but they may not have realised how much their objectives overlap and align with yours. Talk them through your social value /sustainability strategy and get them to talk you through theirs. Focus on what’s most important to your business and remember to be reasonable - don’t ask suppliers to do things you aren’t doing yourself.
2. Look at who you are currently buying from
Who are your suppliers? What do they sell? How many people do they employ? Where are they located? Don’t try and find everything out at once. Keep it simple, decide what’s important to you and start small. Look at what information your system currently captures and go from there. Blue Light Commercial’s excellent Social Value Planning Tool is one of the best examples, which has many ideas for things you could ask suppliers about.
One of the things companies struggle with is how to do this retrospectively when there are thousands of companies on their supply chain. There’s no doubt it’s time-consuming (remember we said that procurement would need resources?), but there are lots of effective ways you can engage with suppliers, from electronic surveys to events, communication campaigns and desk-based research.
3. Review your company's supplier code of conduct
It will likely be focused on ensuring suppliers comply with your legislative obligations rather than looking at the potential opportunities for value creation. Does it reflect your corporate sustainability / social value strategy? Most supplier codes of conduct are fairly robust; the challenge is that they are rarely enforced. What guidance is available to support its implementation, and what are the consequences if it’s ignored? The UK Government’s code of conduct for its suppliers is a good starting point, but it’s light on detail. Think about practical examples of what each point means for you – once you know what good looks like, it will be easier to explain what you expect from suppliers.
4. Include specific criteria in contracts
Don’t just rely on your code of conduct to ensure your suppliers are delivering your priorities. Include specific questions in your contract tenders and clauses to help you differentiate from potential suppliers and ensure you only buy from companies who can help you deliver on your priorities.
The most important thing is to make sure whatever suppliers commit to during the tender process is mandated by clauses in the contract. We’ve seen too many examples where the client thought social value was being delivered only to find out it wasn’t because it wasn’t included in the contract.
5. Look at who you could buy from and go out of your way to broaden the diversity of your supply chain
Encourage more diverse businesses into your supply chain by targeted advertising of contract opportunities, breaking opportunities into smaller lots, and going out of your way to remove any barriers which might prevent smaller or local businesses from bidding for them.
6. Set diversity targets
In Australia, the public sector mandates a certain number of suppliers much be indigenous-owned, while in America, there is a drive to support businesses owned by minority groups. SAP has committed to 5x5x25 - making 5% of spending with social enterprises and another 5% with diverse suppliers by 2025 - something Frank Omare explained to us (and encourages others to copy) in more detail earlier in the year.
7. Support the SMEs in your supply chain
It’s not just about buying from them. You can also help them thrive. Companies like Sodexo and BAE do a huge amount to support the small companies in their supply chains (click on links for more), and at Samtaler, our own (female-owned, military spouse-run) business was given a huge boost after we won a two-year contract with a multinational company which gave us the financial investment we needed to grow our company. You can do a huge amount to stimulate and support the smaller companies in your supply chain and help them thrive. This UN guide identifies ways companies can support their SME suppliers to be more sustainable, for example, and there are a huge number of creative ways to do so, from providing finance to professional skills development, resource sharing, and even just being understanding of the challenges that small businesses face when faced with the gargantuan, complexity of doing business with very large companies. And, in another familiar theme, make sure to pay your suppliers within 30 days.
8. Improve your market engagement, seek new suppliers and rely less on frameworks
Procurement professionals love frameworks because they make their lives easier but make it incredibly difficult for regional, smaller, and local firms to enter new markets. Not advertising contract opportunities openly or restricting tender processes to pre-determined frameworks of suppliers means not only are you preventing local areas from feeling the economic benefits of your investments, but you’re also driving up costs and increasing risk. As Frank Omare told us, local chains bring ‘local expertise, local knowledge and shorten the lead time for various products and services at the same time as having a positive social impact.’ A result that has mutually beneficial written all over it.
9. Help procurement see suppliers as stakeholders and reframe their relationship with them.
For this approach to work, it requires transforming the relationship between supplier and customer into that of a partnership. You need to view the relationship as a symbiotic relationship rather than benevolent. That can be strange for many procurement departments who are used to saying, ‘here’s a hoop; if you want the business, you have to jump through it’. While your supply chain is essentially just the other companies you buy products or services from to be able to carry out your business purpose, it is much greater than the sum of its parts. Your supply chain carries risks and can create opportunities for your business, and it’s important that you are listening and learning from suppliers as you are buying from them. Scott Collins highlighted the importance of describing the best performances he’d witnessed coming from closer relationships between the customer and the supplier and an understanding that achieving value is a two-way process, benefitting both sides.
How we can help
At Samtaler, we understand the importance of your social value commitment. You’re here because you care about the impact your business has on society and want to be better. We want you to succeed, and we know from experience that achieving social value requires skill, strategy, and support.
To find out how we can help send an email to hello@samtaler.co.uk
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