Sustainable suppliers, sustainable markets.

THE RELATIONSHIP BETWEEN REPUTATION AND BRAND VALUE ISN'T NEWS. BUT IT'S NOW CLEAR THAT REPUTATION IS CLOSELY LINKED TO THE SOCIAL, ENVIRONMENTAL AND ETHICAL PROFILE OF AN ORGANIZATION'S SPENDING. BUYING SMART ISN'T JUST ABOUT LOWEST COST--IT'S ABOUT STRATEGICALLY MANAGING SPENDING AND SUPPLY CHAINS WITH A SUSTAINABILITY FRAMEWORK

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Reputation can be a fragile thing, and it can be defined not by what your business does, but what the media say it does. IKEA and Hudson's Bay Co. (Hbc) learned the sustainability purchasing lesson the hard way when they were severely criticized for negative environmental and social behaviour in their supply chains. Both industry giants were able to leap from laggard to leader in the area of sustainability, leveraging positive media exposure to redefine and renew their brands. The good news is that other organizations don't have to learn this lesson the hard way if they choose to be proactive. Many organizations have broken ground in the area of sustainable purchasing and sourcing and there are now many tools available to help companies add value and manage risk.

Brand value and the bottom line

Over the past decade, many companies have been placed in the media spotlight for poor workplace practices, poor environmental standards or a negative track record in the communities in which they operate. Both IKEA and Hbc stand out, however, as major companies that responded proactively to community concerns and established themselves as leaders.

Today, consumers all over the world recognize IKEA for its environmental and social responsible products and work in the business community. Hbc had a glaring spotlight on it over coverage of working conditions at factories in its supply chain. Today, not only has Hbc successfully implemented a vendor code of conduct and social compliance program, they are serving a leadership role in organizing Canadian retailers to take action on ethical sourcing.

Swedish-based IKEA battled a series of costly environmental conflicts throughout the 1980s, mainly over the type of wood sourced and the use of chemicals like PVC and formaldehyde in their products. The media picked up on it and consequently, IKEA went through a severe drop in market share in the countries in question. In 1992, IKEA's internationally popular Billy bookshelves, representing millions of dollars in annual revenues, was found to contain lacquer exceeding Germany's legislated requirements. IKEA was blasted by the international press and halted worldwide production of Billy. Direct costs to track and redesign the product were estimated at USD$6-7 million, not counting the costs of diverted labour, lost sales, and supplier production--in addition to the costs of convincing customers the redesigned product was no longer toxic.

The company reports that the Billy incident was a wake up call that environmental issues needed to play a central role in their overall business strategy. IKEA established and began to implement a sustainable purchasing policy. Over the years they have expanded this policy and phased out several substances. In addition, a Code of Conduct was introduced as a part of all IKEA's agreements with their suppliers (for more information, visit www.ikea-group.ikea.com/corporate/responsible/conduct.html)

The Hudson's Bay Company (Hbc) story of sweatshop labour hit the media later. Even though Hbc had done its homework on ethical supply chains and had begun developing proactive policies, the company was publicly accused of using sweatshops for manufacturing in 2002. Hbc failed to implement the sustainable sourcing plans and policies they had developed. They hadn't uniformly communicated details of their vendor code of conduct (VCC) to their suppliers, nor did the public (or stakeholders) have any knowledge of their social compliance program (SCP). As a result, it was very difficult for the company to prove what standards were being upheld, when and where their products were manufactured. To battle the blaze, Hbc shareholders called upon management to adhere to the International Labour Organization (ILO) labour standards and to report annually on compliance. Motivated by the desire to drive change both internally and externally, Hbc formalized their SCP, and now ensures that all suppliers are meeting the VCC by auditing factories for compliance.

The stories of IKEA and Hbc underscore the value of embedding sustainability considerations into overall business strategy, as well as in purchasing and sourcing activities.

What is sustainability purchasing?

Sustainability is an overarching concept that has been defined many ways, but usually boils down to a triple bottom line of social benefits and human rights, environmental benefits, and financial prosperity. British Columbia's Sustainable Purchasing Network (www.buysmartbc.com) views sustainability purchasing as "a management process for acquiring goods and services in a way that gives preference to suppliers that generate positive social and environmental outcomes, and that integrates sustainability considerations into product selection so that impacts on society and the environment are minimized throughout the full life cycle of the product." Simply put, sustainability purchasing involves looking at what products are made of, where they have come from, who has made them, how they will be ultimately disposed--even considering whether the purchase needs to be made at all. Even more simply put--it's about buying goods and services that have a "sustainability premium" and avoiding those products or contractors that have obviously poor operating practices from a triple bottom line perspective.

The business case

As IKEA and Hbc's stories demonstrate, sustainability purchasing can safeguard and enhance your organizational reputation and the value of your brands in the marketplace. But this is only one of many benefits of the sustainability purchasing agenda. Meeting environmental, social and ethical requirements enhances a business' "license to operate" among all stakeholders. As one timely example, the Vancouver Organizing Committee for the 2010 Olympic and Paralympic Games (VANOC) in Vancouver, B.C., requires all suppliers to complete a sustainability questionnaire as part of their bid to do business with the Games, signalling the international importance of sustainable purchasing and sourcing. Sustainable purchasing in North America has become the pre-eminent way that companies "walk the talk," demonstrating their corporate social and environmental responsibility.

Some sustainability purchasing initiatives can have a significant direct savings benefit--particularly in the areas of energy use for heating and lighting, waste disposal, health and safety, and legal and insurance fees. The general notion that sustainable products and services always come with a cost premium is now a myth. While this is still true in some cases, there are many product categories in which the market is well-developed and such items are very competitively priced.

Ultimately, the demand for more sustainable products and services is increasing in the market--your ability to attract and retain customers depends on your ability to meet their expectations for sustainable products and responsible business practices.

Getting started

In practical terms, there are many ways to purchase with sustainability in mind. It's important to keep efforts simple early on and gain momentum with experience. It's easy to start by creating specifications for products or services that include some of the generally accepted environmental or fair trade certifications--especially where the markets for such products is mature and well developed (e.g. office supplies, electronic products, cleaning suppliers, lighting, and apparel). An organization will certainly want to quickly capitalize on those opportunities that exist to save money and/or where a move to sustainability purchasing strongly aligns with organizational mandates or values. The most important step is the first one you take--just get started.

Ultimately, the social agenda for sustainability purchasing is about transforming the market to carry a wide range of products and services that encourage health and well-being, support healthy and productive jobs, and reward the operations of responsible businesses. By making better consumer choices, we can all contribute to fostering a sustainability marketplace.

Tim Reeve is principal of Tim Reeve & Associates ([e-mail]) a sustainability consulting firm based in Vancouver, B.C. He is also program manager for the Sustainability Purchasing Network (www.buysmartbc.com). Jasper Steinhausen ([e-mail]), M.Techn.soc is an independent Green Business Development Consultant in Vancouver.

RELATED ARTICLE: Sustainable Olympics--making it happen

Late in December 2006, David Crawford, CMA, accepted a senior management position with the Vancouver Organizing Committee for the 2010 Olympic and Paralympic Winter Games (VANOC)--director of transportation and sustainable services and planning.

"Part of my duties include the implementation of two of VANOC's sustainability objectives--zero waste and the carbon-neutral/carbon offset programs," says Crawford. "And some of my work will involve both the creation and implementation of sustainability and values-focused scorecards."

The job includes managing a number of basic requirements for the 2010 Games that most of us would overlook--snow removal and storage, cleaning, portable toilets, waste management, litter abatement, and the transportation of millions of individuals to and from the venues.

"We face some interesting challenges," notes Crawford. "For instance, there are compliance regulations around road salt that we have to consider, and where we can dump snow that may have salt in it so that it doesn't affect the environment when it melts in the spring."

Games organizers have lofty goals for 2010--zero waste, and aspiring to achieve carbon neutrality. Crawford says his team is working towards this. "Being carbon neutral is certainly a challenge, but we're considering a number of options to help us out--our primary focus is on reducing our greenhouse gas emission. We're doing our best to scope things properly, such as using the right sized vehicle for the right activity to reduce fuel consumption."

Like all directors working on 2010 Game-related procurement activities, Crawford is mandated to use the Buysmart process. "We're certainly making sure that those we make contracts with are working towards the same goals we are--to make this the most environmentally friendly Winter Games ever. This includes, for instance, the use of environmentally friendly recycled-content products. Overall, we hope this will help change supplier behaviour in much the same way it's changing our buying behaviour."

RELATED ARTICLE: Ten steps to sustainable purchasing success

The Sustainable Purchasing Network has identified the following 10 key steps to start or enhance your sustainable purchasing strategy:

1. Find allies in your organization

A sustainability purchasing strategy usually starts as the project of a few champions in an organization. Talk to your colleagues and senior executives about sustainability purchasing and how it can benefit the organization--use the Business Case Resource at www.buysmartbc.ca/resources.html as a guide. Strike up a committee or working group that meets regularly to discuss and work on purchasing initiatives.

2. Tap into key resources

As a professional, your time is limited. For reliable and current information, connect to the Sustainability Purchasing Network (SPN) as a resource to find out what is new, what is being done and who is doing it. Quarterly Learning Circles are free events that you can attend to network with other purchasers and practitioners working on similar issues.

3. Find ways to use less of what you already have

A simple and very effective thing to do to get started is to be more efficient in how you use what you already have. Try to squeeze a bit more use out of products before they are disposed--as one example, try to print and photocopy double-sided on paper and reuse misprints and drafts as note-paper where possible. Before purchasing something new, take a step back and ask yourself if it's really necessary.

4. Make a "Top 10" sustainability shopping list

A shopping list is a simple and powerful tool to get you started. Write down items that have the seal of approval from credible certification systems such as the ISO 14001, Ecologo, TerraChoice, Energy Star, Green Leaf, LEED, Fair Trade, and Certified Organic. Write down items that have had a track record of success with other organizations.

5. Take a "total cost of ownership" approach to what you buy

You already spend valuable time on your purchasing--now take a few more minutes to consider the life cycle of what you want to buy. It will be well worth your time! A total cost of ownership (TCO) assessment adds up the financial costs over a product or service's life cycle--the acquisition costs of the item or service plus any staff costs, training, training aids, support, etc.

6. Draft a policy statement

Putting a policy in place is an important step--it's a formal signal inside and outside of your organization that sustainability purchasing is a priority. A good policy should clearly state what sustainability purchasing means to you and what qualities you are looking for in the items and services you buy and the organizations you buy them from.

7. Start a sustainability conversation with suppliers

When you have a clear idea of what you are looking for and where you are going to start, strike up a conversation on sustainability purchasing with your suppliers. Take a little time to get to know who your suppliers are and what they do. Start an informal conversation and ask them a little more about themselves and how they feel about corporate responsibility.

8. Choose new committed suppliers

When getting ready to go to market for a new product or service, use the opportunity to find out more about the sustainability performance of prospective companies and their products and services. You might want to create a questionnaire for suppliers as part of an Expression of Interest or Request for Proposal that asks for information about the company's environmental performance.

9. Set goals and track your activities

What is it that your organization really wants to achieve? Consider creating an opportunity for colleagues in your organization--including the senior management team--to spend some time with this question. Clear goals accompanied by measurable targets assigned to a timeframe are likely to be most helpful. Once you have goals in place, set up a regular schedule to track what you are doing and refine it over time.

10. Communicate and reward achievements

Spreading the word about your success in sustainability purchasing is a powerful way to promote your organization and its products and services within and outside the company. Tell the good news internally to the whole company and watch the boost in productivity and employee satisfaction. Tell the good news to suppliers, stakeholders and consumers and watch relationships improve and sales increase. And remember that through case studies, testimonials and fact sheets, you can convey the highlights of what you have done and how you have done it to the media and award and recognition agencies.