Social and Environmental Responsibilities do not make Business Sense : Responsible Sourcing breaks the Myth
October 27th, 2017, 5:19 am|
Next time you munch on your favourite Nestle Kitkat, a cocoa farmer in Ivory Coast will be empowered – thanks to Nestle’s responsible sourcing strategies.
Traditional sourcing is primarily identifying and purchasing goods and services required by the organization with key focus on price governed by aspects like quality, quantity, time and location with hardly any efforts to sustain the sourcing value chain. “Responsible sourcing” brings a refreshing change in the paradigm. According to the International Chamber of Commerce, “responsible sourcing is a voluntary commitment by companies to take into account social and environmental considerations when managing their relationships with suppliers.”
Let us find out how leading corporations across food and beverage, home furnishing and fragrance & flavours sectors are restructuring their procurement models to be more responsible and embed sustainability along their value chain. Why? Because it makes business sense for them, more so than traditional procurement models.
Food and Beverage
For Nestle, Cocoa is the key ingredient for its CHF 8.7 billion confectionary business and responsible sourcing of Cocoa germinated as an idea to create shared value and curating a sustainable business model around it. Kitkat, the world’s third largest chocolate brand constitutes of 100% sustainably sourced Cocoa under the Nestle Cocoa Plan which is strengthening Cocoa growing communities in West Africa. The organization’s responsible sourcing philosophy of “Better Farming, Better Lives, Better Cocoa” seamlessly integrates business needs and social responsibilities. Nestle’s “Better Farming” approach believes improving productivity by good agricultural practices is key in improving farmer’s income. Hence in 2016 alone the organization provided access to 2.16 million high yielding Cocoa saplings and trained 57,000 farmers on bettering productivity with an investment of CHF 1.1 million per annum. By investing CHF 2.1 million in “Better Lives” initiative Nestle primarily focusses on eradicating unlawful child labour from the Cocoa value chain and promoting gender equality in growing cocoa. Today 10,000 children have access to quality education in 40 Nestle run schools and 33% of the cocoa plantations are managed by women. 95% of the cocoa is grown by smallholder farmers and Nestle has developed farm practices to source improved qualities of cocoa beans through its “Better Cocoa” initiative. Nestle through its model has devised win-win scenario with the cocoa growing community – while it has a continuous supply of good quality cocoa, the farmers benefit with an improved and steady income, quality education for their children and enhanced food security.
IKEA’s decision to pursue responsible sourcing stems majorly from its core business interest. Firstly, the furniture retail giant sources wood for manufacturing two-third of its product offerings. Secondly, an internal market research spanning 8000 customers across 8 countries identified wood sourcing as the second most critical issue to be addressed by the organization. As a commitment towards responsible sourcing, IKEA excludes wood sourced from unethical practices like illegal harvesting, ecologically conserved areas and genetically modified tree plantations. IKEA considers norms laid by Forest Stewardship Council (FSC) as its gold standard and currently more than 70% of timber and wood purchased are from FSC certified sources. Responsible sourcing has allowed IKEA to have more control over the supply chain with reliability in steady supplies which solves supply risks and quality control challenges in the value chain. (Data Source: https://www.wwf.org.uk/sites/default/files/2017-05/WWF%20Business%20Case%20responsible%20sourcing_0.pdf )
Flavours and Fragrance
Firmenich, the world’s largest privately held company in the fragrance and flavours industry curated a win-win situation for itself and the Vanilla farmers in Madagascar. Vanilla is one of the 40 natural products of the organization which often goes through a boom and bust cycle. Madagascar, which produces 80% of natural vanilla globally suffers the most during the bust phase when prices plummet to record lows. Though the African island country has a rich biodiversity, economically it is one of the poorest countries globally. Crashing of natural Vanilla market pushes the farmers into abject poverty where it gets difficult to meet even the basic needs. Firmenich as a part of their responsible sourcing commitments worked towards meeting the basic needs of 2800 Vanilla farmers and their families by providing access to health facilities, drinking water and education. Most importantly, Firmenich introduced a floor pricing of Vanilla for their partner farmers which guaranteed at minimum 60% of the agreed prices even during adverse market conditions. These social interventions has helped the Vanilla farmers to sustain as a community, Firmenich in turn having a transparent, steady and robust sourcing value chain in place.
Responsible Sourcing makes business sense – more so than traditional procurement models by
a) Business Sustainability: Foreseeing and eliminating sourcing linked business continuity risks
b) Increased Value Chain Traceability: Allowing the organization to have better visibilities and control over the value chain
c) Brand Differentiation: Responsible sourcing allows an organization to position itself as a socially and environmentally responsible brand
WWF’s 2017 report on Responsible Sourcing of Forest Products states 80% of the companies reported positive impacts through risk management and brand reputation, while 60% saw positive impacts on customer satisfaction & stakeholder engagements and 70% experienced positive impacts on employee engagements. However, every positive transformation comes with a premium and these top corporations are constantly channelizing their time, money and efforts to create an impact. But are we as end-users ready for responsible consumerism?