Socially Responsible Warehousing and Distribution PDF

Socially Responsible Warehousing and Distribution [L3M6] Core Study Guide Level 3 Advanced Certificate in Procurement ana Supply Operations Contents Your qualification . , . v Guide to qualification content v ii About our exams and your study commitments Howto use this book i Book features 0 0...

Socially Responsible Warehousing and Distribution [L3M6] Core Study Guide Level 3 Advanced Certificate in Procurement ana Supply Operations Contents Your qualification . , . v Guide to qualification content v ii About our exams and your study commitments Howto use this book i Book features 0 0 vij i. 5 ix Socially Responsible Warehousing and Distribution Chapter 1 x The concept of sustainability and the practical implications for procurement and supply • What is sustainability? • What is sustainable procurement? • Sustainability in action in procurement and supply • The benefits of sustainable procurement • Guidelines and standards • Challenges in sustainable procurement • Integrating sustainability into the procurement process 2 2 8 10 18 19 20 21 The importance of corporate social responsibility (CSR) • What is corporate social responsibility (CSR)? • Why is CSR important? • Social performance issues • Environmental performance issues • Economic performance issues • Leading companies in CSR • CSR in the mining sector • CSR in small and medium enterprises • Reporting on CSR 28 28 29 33 36 40 42 43 44 45 Chapter 2 49 The environmental impact of procurement and supply Sustainability and Corporate Social Responsibility (CSR) The impact of environmental sustainability • World trade and globalisation • Renewable energy • Public awareness • External pressure on organisations • International treaties, declarations and agreements • Environmental law • Leading countries in environmental sustainability The environmental impact of transportation and storage • The role of procurement and supply • Air pollution and atmospheric emissions • Warehousing and storage > • Carbon footprint • Noise pollution • Accidents at work • Vibration • Land-take • Visual intrusion • Challenges in environmentally aware procurement 50 50 57 58 67 71 73 74 76 76 77 84 85 87 91 95 96 96 101 iii Contents The role of government in promoting environmental sustainability • Sustainability from a government perspective • Eco-friendly fuels • Greener modes of transport • Energy efficiency • Government regulations on road safety • Government influence on land use • Government regulations on noise pollution • Government laws on mining • Spending in the public sector 101 101 107 109 110 112 114 115 115 118 Chapter 3 Methods for the storage and movement of inventory Principles of store and warehouse design • Location of stores and warehouses • Design of stores and warehouses • Factors that influence store and warehouse layout • Flow, space utilisation and flexibility 122 Explain the different types and uses of warehousing equipment • Materials handling equipment • Palletisation and unit loads • Packing and packaging • Environmental standards for packaging • The use of automation in warehousing 143 123 132 135 139 143 147 149 151 153 Chapter 4 The environmental impact of warehousing and distribution 159 Explain the impact of environmental sustainability • Globalisation vs. green logistics • Public awareness • External pressure on organisations • International legislation and agreements 160 160 161 162 164 Explain the environmental impact of warehousing and distribution • Carbon footprint calculation • Air pollution • Noise pollution • Accidents • Vibration • Land-take • Visual intrusion 165 166 167 16S 169 171 172 172 Explain the environmental cost of warehousing and logistics • Global warming • Greenhouse gases • Cost of environmental damage • Cost of avoiding environmental damage • International versus, national 173 173 Describe the role of government in promoting environmental sustainability • Policy on sustainable logistics • Greener modes of transport • Energy efficiency 177 178 178 180 174 175 176 176 Glossary 183 Index 205 Your qualification Your qualification Cl PS qualifications are regulated internationally to ensure we offer a recognised, professional standard in procurement and supply. CIPS Level 3* Advanced Certificate in Procurement and Supply Operations is a vocationally related professional qualification. Formal recognition is included within the regulatory frameworks of an increasing number of countries such as the UK (England, Wales and Northern Ireland), UAE (including Dubai) and Africa (including Zambia). Further information on this recognition and the details of corresponding qualifications levels for other international qualifications frameworks are detailed on our website. CIPS members can have confidence in our regulated qualifications, which reliably indicate the standard of knowledge, skills and understanding that you, as a learner, are required to demonstrate. This is an entry level vocationally related qualification. It is Developed in close collaboration with experts from the procurement designed to follow on from the CIPS Level 2 Certificate in and supply profession and businesses, and with the providers who Procurement and Supply Operations as learners are expected to will be delivering the qualifications, CIPS Level 3 Advanced develop, use and apply the professional language and skillsets Certificate in Procurement and Supply Operations is designed for introduced at Level 2 within a practical working environment. This individuals who will be working at the Tactical but moving towards qualification will prepare intermediate level learners looking to the Operational level of the CIPS Global Standard for Procurement specialise in procurement and supply and to progress on to the and Supply. This is the first level of the CIPS qualifications CIPS Level 4 Diploma in Procurement and Supply. structure where elective modules are introduced, giving learners the choice of a specific professional path such as Procurement or Supply Chain. Entry level Entry level J \ 'ertificate in 'rocurement and Supply Operations Highest Entry level Leve/4 Diploma ^rocure m Supply and 1 1 i J z Level 6 -t« a Next steps This qualification provides progression to the CIPS Level 4 Diploma in Procurement and Supply. * Refers to levels within the UK RQf Other regulatory bodies may have different corresponding levels a We have created a suite of regulated, flexible and agile professional qualifications that pave the way for a whole new generation of global procurement and supply learners. W Dr Gary Ramsden, FCIPS Chartered Professional and Supply Professional, Head of Education Development and Standards. LIPS V Guide to qualification content Guide to qualification content Four CORE modules make up 24 of the required credits Choose one ELECTIVE module to make up the final six required credits ELECTIVE Socially Responsible ELECTIVE Socially Responsible Procurement (L3M5) ° . CPE'TS Warehousing and Distribution ® (L3M6) carats Who is it for? This qualification will prepare intermediate level learners looking to specialise in procurement and supply and to progress on to the CIPS Level 4 Diploma in Procurement and Supply. What will I learn? Learn how to apply factual, procedural and theoretical knowledge of procurement and supply. You will be able to complete tasks and address problems that are well defined but may be complex and non-routine. You will understand what relevant information is required and how to interpret and review its effectiveness. Entry requirements This is the second entry level qualification, there are no formal entry requirements. Credit values To gain a qualification you are required to complete a total number of credits. This is a way of quantifying the required number of study hours. 1 credit is equivalent to 10 hours of study. Each module is given a credit value of 3 or 6 credits. Total credits required for completion 30 About our exams and your study commitments About our exams and your study commitments Objective response exam format (OR) These questions allow you to select a response from a list of possible answers. You will find these types of exams across all our qualifications levels; they are marked by computer and then moderated by CIPS examiners. Your total qualification time (TQT) The TQT indicates the overall number of guided learning hours, additional self-study and assessment time that is required. Guided learning hours (GLH) It is expected that you will undertake 200 GLH. The definition of guided learning hours is: 'A measure of the amount of input time required to achieve the qualification. This includes lectures, tutorials and practicals, as well as supervised study in, for example, learning centres and workshops'. Self-study requirement (SSR) Additionally, we recommend that you also commit to at least [90 SSR] hours. This includes wider reading of the subject areas and revision, to give yourself the best preparation for successfully achieving the qualification. Total exam time All the modules in CIPS qualifications are assessed by an examination. vii How to use this book Welcome to this study guide for Socially Responsible Warehousing and Distribution. It contains all the information needed to prepare you for the assessment in this module. This study guide follows the order of the module specification and each chapter relates to one of the learning outcomes below. You can also see the assessment criteria for each learning outcome. By the end of this chapter you will understand how procurement can influence environmental sustainability through sourcing and contracting goods and services. viii ——------------------------------------ — ---------- • Book features Book features Throughout this book there are a number of features to aid your learning and simplify your revision. Take a look at the different features you will find in the book below. A Z Glossary These are the key terms and their definitions. Remember This information is important, so you should make a note of it. Check These revision questions give you a chance to check you understand the content in this chapter. Apply These tasks give you a chance to test out your knowledge and understanding. Recap This information will summarise sections from previous chapters. Link to CIPS knowledge where members will be able These case studies will relate the content you have learned to real-world examples. to access additional resources to extend your knowledge, plus links to online eLearning content including videos, audio and interactive quizzes to recap and test your knowledge and understanding. IDENTIFY End of chapter assessments At the end of each chapter there is a set of exam-style questions to prepare you for your assessment. End of Chapter Assessment ® The National Health Service (NHS) in tile UK Is an example otan organisation from which sector? a. Public c. b. Private d. Primary Third ix Socially Responsible Warehousing and Distribution [L3M6] On completion of this module, learners will be able to describe methods for the storage and movement of inventory and identify the environmental and social impact of warehousing and distribution operations. Module aim(s) Warehousing and distribution are key components of organisational success. The transport, storage and handling of products as they move from raw material, through production systems to the final point of sale Module purpose has been fundamental to economic development for millennia. In more recent times, against a background of increasing public and governmental concern for the environment, organisations have come under increasing pressure to reduce the environmental impact of their warehousing and distribution processes. Similarly, company reputation can be severely damaged if the organisation or one of its suppliers, is seen to be neglecting sustainability and corporate social responsibility (CSR). This module is designed for those working in procurement and supply who have responsibility for product storage and distribution. It takes as its focus the storage and movement of inventory but also recognises the impact of such operations on environmental sustainability and CSR. MODULE LEARNING TIME CIPS GLOBAL STANDARD 11.1 11.2 11.3 X CHAPTE R1 corporate sociaZ responsibility ('CSR) Learning outcome By the end of this chapter you will understand the concepts of sustainability and corporate social responsibility (CSR). Chapter overview The concept of sustainability and the practical implications for procurement and supply You will understand: • Meeting the needs of the present without compromising the ability of future generations • Adopting a broader range of decision-making criteria apart from traditional economic criteria • Extending procurement decision-making criteria away from price and quality • Including environmental merits and social impacts of alternative solutions Oi The importance of corporate social responsibility (CSR) You will understand: • Extension of corporate goals and decisions to include organisational objectives and financial measures of performance • Promoting good corporate citizenship and responsibility for corporate actions • Encouraging a positive impact on all stakeholders • Social, economic and cultural diversity Introduction This chapter provides a brief overview of the importance of sustainability in organisations. You will learn how private companies, nonprofit organisations and governments approach sustainability. You will also look at how organisations I CHAPTER 1 Sustainability and corporate social responsibility (CSR) • - — apply sustainable practices to their supply chain and procurement. You v4|| u about the use of guidelines and standards and about some of the challenge** sustainable procurement. Successful organisations meet the needs of a range of stakeholders. You vyj|| i how businesses balance the interests of their stakeholders with sustainability objectives. The principles of corporate social responsibility (CSR) in different ty^ of organisations will also be explained. You will look at the practical applicatici of CSR using examples from leading companies and case studies. Finally, yOu .. learn about reporting CSR. The concept of sustainability and the practical implications for procurement and supply What is sustainability? The concept of sustainability is relatively new. It developed during the latter part of the 20th century and has its roots in an initiative commissioned by the United Nations in 1983. The Norwegian Prime Minister at the time, G.H. Brundtland, was asked to launch the new World Commission on Environment and Development. I aim was to investigate why economic development in many countries had not ha a positive impact on levels of poverty and suggest solutions. ’ By 1990, the Brundtland Commission released its final report, Our Common Future. The definition it provided has become the widely accepted definition of sustainability. K Sustainability means meeting our own needs without compromising the ability of future generations to meet their own needs} rv-; This ambitious goal is interpreted and applied a little differently in the private and public sectors of the economy although the end objective is similar. Sustainability comes down to the kind of future we are leaving for the next generation and beyond. The three pillars Remember > I corporate sustainability is not just atCorporate sustainability i—holistic approach that considers enviis not just about 'going Z ' nrr>noi^r>; — £ ---------------------- green'. It is a hniief.^ -- • environmental, social and economic factors together when entering into any business relationship. x L CHAPTER 1 Sustainability and corporate social responsibility (CSR) Figure 1.1 shows this concept using the three pillars: social, environmental and economic, to support the roof of sustainability. These pillars are also known as people, planet and profit. Figure 1.1 The three pillars of sustainability The business case for supply chain sustainability is growing. There is mounting external pressure on organisations from their customers, investors and shareholders to focus on, for example, reducing energy and resource consumption and eliminating waste. Focusing on supply chain sustainability has implications when selecting suppliers, when creating evaluation criteria and also when monitoring supplier performance. By improving economic, environmental and social performance through best practice, organisations not only save costs, optimise processes, and increase productivity - they also become good corporate citizens. Business case A justification for a proposed project or undertaking on the basis of its expected benefits Ll t J Responsible business practices, combined with collaboration and innovation, con bring about powerful change in markets and societies - proving that principles and profits go hand in hand.2 f \ [ I Sustainability as a value is demonstrated in the policies of companies, governments and nonprofit organisations and in their day-to-day activities and behaviours. Individuals also play a major role in developing our current environmental and social compacts. We will now consider each of the three pillars individually. Social Universal human rights and basic necessities should be attainable by all. Everyone should have access to sufficient resources to keep their families and communities healthy and secure. Healthy communities have leaders who ensure that personal, 3 CHAPTER 1 Sustainability and corporate social responsibility (CSR) — labour and cultural rights are respected and that people are protected from discrimination. Environmental Bottom line An accounting term meaning a company's income after all expenses have been deducted from revenues We can eliminate waste and optimise processes through the supply chain by using available expertise and new technologies. If we waste less we can reduce our environmental impact, Improve worker safety and have a positive impact on the bottom line. Sustainable organisations promote the use of renewable energy, recycling and the elimination of waste. Economic Economic sustainability in business simply means staying in business. But in its broadest form, sustainable economic growth seeks to satisfy the needs of humans in a way that preserves natural resources and the environment for future generations. Checks and balances are needed to make sure that the risk of failure is reduced. It is about being financially stable and continuing to be competitive. Figure 1.2 shows that the economic, environmental and social elements are interdependent and need to work together to achieve sustainability. Natural resources should ideally be consumed by humans at a rate at which they can replenish themselves. Environment Viable Bearable Sustainable Economic Equitable Social Figure 1.2 The three interdependent elements of sustainability Remember These are the three pillars of sustainability. • Social • Environmental • Economic The triple bottom line 4 CHAPTER 1 Sustainability and corporate social responsibility (CSR) 1. Profit: this is the traditional measure of the success of a business, and equates to the 'bottom line' of the business' accounts. 2. People: this 'bottom line' is the measure of an organisation's social responsibility, in terms of its human impact throughout its operations. 3. Planet: this 'bottom line' reports a measure of the company's environmental responsibility. The 3Ps, people, profit and planet, comprise the triple bottom line of a company. TheTBL is intended as a holistic measure of an organisation's performance that takes into account financial, social and environmental factors over a given period. 3 However, a problem with the triple bottom line is that the three separate accounts are not easily combined for reporting purposes. Measuring financial performance is clearer as it must be based on global standards and guidelines. Measuring an organisation's impact on people and the planet is somewhat subjective and difficult to measure in financial terms. It is important to remember that there are other goals and key performance indicators in addition to financial ones. For example, the cost of an operational disaster such as an oil spill at sea has a quantifiable physical cost for the clean-up. But what about the impact on marine life and the coastal communities affected? This will be covered in more detail in section 1.2. Sustainability at Patagonia Patagonia is a privately owned US-based outdoor equipment and clothing company that is a leader in sustainability as represented by the 3Ps: people, profit and planet. The company's mission is to 'build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis'.4 One of its goals is to hire independent, environmentally conscious outdoors people and teach them business. In November 2016, Patagonia decided to give 100% of its global retail and online Black Friday sales to charities working on environmental issues.5 To date, the company has donated about $70 million to community organisations doing work on behalf of the environment.6 Patagonia is a certified B Corp that has committed to meeting specific standards for social and environmental performance. Its initiatives include political advocacy, FairTrade salaries for workers and constant innovation in its supply chain - most recently, through the implementation of a responsible wool standard.7 Since 2014 Patagonia has quadrupled its profits and revenues while considering its social and environmental impact. Other companies that are being recognised for their TBL initiatives are DHL, Novo Nordisk and Nike. 5 CHAPTER 1 Sustainability and corporate social responsibility (CSR) i rpfiprtion of the triple bottom line, sustainability can be expressed as being at X"o^oPle. planet and profit, as shown In figure 13. Figure 1.3 People, profit and planet Remember The triple bottom line: • • • People Profit Planet The United Nations (UN) is an influential leader in the field of sustainability and is a strong influence on global companies. It initiated the sustainable development goals which are based on the year 2030 agenda. The sustainable development goals are a collection of 17 broad interrelated goals, each with its own targets for countries to achieve, as shown in figure 1.4. 17 goals to transform our world i J L Governments, businesses and civil society together with the United Nations are mobilizing efforts to achieve the Sustainable Development Agenda by 2030. Universal, inclusive and indivisible, the Agenda calls for action by all countries to improve the lives of people everywhere.8 6 CHAPTER 1 Sustainability and corporate social responsibility (CSR) SUS7AINABIE OEVELOOMENT GOALS 17 GOALS TO TRANSFORM OUR WORLD The sustainable development goals offer organisations a roadmap to business growth while Figure 1.4 UN sustainable development goals (Source: w.vw,unglobalcompact.org/ news/3991-04-26-2017) addressing social and environmental goals. They are based on Shared value’, in which a business' strategy encompasses social and environmental efforts rather than regarding them as add-ons. The key to shared value is the idea that a profit-only approach is not sustainable in the long term. Consumers in many industries and sectors are demanding that businesses develop and show that they care about their impact on people and on the planet. The UN Global Compact is a multi-year strategy to drive business awareness and action in support of achieving the sustainable development goals by 2030. Thousands of organisations from academia, business, non-governmental organisations (NGOs) and associations are signatories to these goals, which make the UN a world leader in sustainability. Of 1950 companies surveyed by the UN Global Compact, 80% say the UN Global Compact has helped them address sustainability challenges. Remember The key to shared value is the idea that a profit-only approach is unsustainable in the long term. The United Nations Global Cornpact has ten principles: Human rights Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights. Principle 2: Make sure that they are not complicit in human rights abuse-', Labour Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining at 7 CHAPTER 1 Sustainability and corporate social responsibility (CSR) Principle 4: The elimination of all forms of forced and compulsory labour. Principle 5: The effective abolition of child labour. Principle 6: The elimination of discrimination in respect of employment and occupation. Environment Principle 7: Businesses should support a precautionary approach to environmental challenges. Principle 8: Undertake initiatives to promote greater environmental responsibility, Principle 9: Encourage the development and diffusion of environmentally friendly technologies. Anti-corruption Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery. Sustainability statement A company's entire supply chain can make a significant impact in promoting human rights, fair labour practices, environmental progress and anti-corruption policies. However, UN Global Compact participants rank supply chain practices as the biggest challenge to improving their sustainability performance.9[ Companies also set out their supply chain practices in their own policy statements This case study looks at a company involved in infrastructure projects. WorleyParsons WorleyParsons is a multi-national construction, engineering and project management company with clients in both government and the private sector. It has a comprehensive sustainability statement that refers to its related policies. This is typical of forward-thinking organisations that have considered their sustainability responsibilities. Apply Visit the WorleyParsons website and read the company's sustainability statement. What is sustainable procurement? If sustainability is the meeting of our own needs without compromising the ability of future generations to meet their needs, then sustainable procurement is just an extension of that. Sustainable procurement is the process of making procurement decisions that meet an organisation’s needs for goods and services in a way that benefits not only the organisation but also society as a whole, while minimising its impact on the environment. CHAPTER 1 Sustainability and corporate social responsibility (CSR) It is about making procurement decisions by taking social and environmental factors into consideration alongside financial and economic factors. It also involves looking beyond the traditional economic decision making and looking at the whole life cost and the associated risks. The end-to-end cost including disposal is also termed Total cost of ownership (TCO). TCO takes the original purchase price of an item into account but also considers installation, maintenance, repairs, training and support. It is sometimes called whole life cost. Calculating TCO ensures that an organisation is aware of the full financial cost of its procurement options, and can thus make informed decisions based on best overall value. Although sustainable alternatives can have a higher upfront purchase price, they often have a lower TCO that saves money over time. Figure 1.5 shows the total cost approach. Total cost of ownership (TCO) A structured approach to calculating the full costs associated with buying and using an asset or acquisition over its entire life cycle Figure 1.5 The total cost approach A simple example of a purchase that has an impact on both economic and environmental factors is buying a lightbulb. It may cost more to purchase an LED lightbulb than a traditional incandescent bulb, but the LED bulb will last longer and use less energy so it is typically the more economical option. Because it is bought less frequently and disposed of less often, it is also better for the environment. The purchase price of a new vehicle makes up only a small part of the full cost of owning that vehicle over its useful lifetime. To calculate TCO we would first consider the economic factors. • Purchase price • Depreciation • Fuel costs • Insurance • Financing • Repairs • Licensing • Fees and taxes • Maintenance • Downtime 9 — CHAPTER 1 Sustainability and corporate social responsibility (CSR) - The same economic factors are relevant when purchasing IT equipment such a s servers, printers and other peripherals. Social and environmental factors include the following. I • Environmental compliance • Air pollution • Employee wellness • Waste disposal and recycling • Disposal of hardware Remember Sustainable procurement is about taking social and environmental factors into consideration alongside financial and economic factors when making procurement decisions. Apply All the factors listed above are important when considering the procurement of any type of technology. For each of the factors, what would be the implications of purchasing 1000 smartphones forypur company or organisation? Sustainability in action in procurement and supply The concept of sustainable procurement emerged in the mid-1990s as an expansion of corporate ethical behaviour. Until recently, the focus has been on the environmental aspects of sustainable procurement, hence the term 'green procurement'. Sustainable procurement continues to develop in scope to encompass social performance criteria while still reaching economic goals. Figure 1.6 shows the components of each pillar of sustainability. -.'I-. • Human rights Labour I* Climate change practices Local sourcing Living wage Carbon footprint Diversity Health and wellness Natural resources Energy Water Waste Figure 1.6 inside the three pillars of sustainable procurement Sustainable procurement in the private sector Sustainability in procurement and supply is based on the principle that socially responsible products and services are not only good for the environment, 10 CHAPTER 1 Sustainability and corporate social responsibility (CSR) but are also important for long-term profitability. By improving our economic, environmental and social performance through best practice we can become good corporate citizens too. Companies in the private sector need to continue to make money to stay profitable and competitive. But they also need to be 'sustainable', i.e. they need to operate their businesses in such a way that they manage their risks to stay trading. Concentrating only on short-term profits may cause long-term damage, For example, here are three sustainability goals that a typical supermarket retailer would like to achieve when procuring refrigerators. 1. Reduce costs by saving energy and water 2. Promote the reuse of products and recycling to reduce waste 3. Minimise packaging and transportation Private sector Organisations run with the aim of making a profit C °2 The chemical formula for carbon dioxide which is a colourless, odourless gas found in our atmosphere A recent report by the management consulting company Accenture, entitled Why a Sustainable Supply Chain is Good Business, noted a beverage company's sustainability effort. Working with its outsourced transport supplier, the company was able to decrease the amount of fuel used for distribution trucks by 1.4 million litres. This was a significant cost saving but also had the effect of reducing CO2 emissions by 3900 tonnes.10 Remember Companies that can identify and implement a corporate sustainability strategy can position themselves to be leaders in their field by making their policies public. The influence of the consumer Increasingly, customers expect organisations to use sustainable business practices and to demonstrate stewardship of the environment we work and live in. Sustainability is now seen as vital to delivering long-term profitability as it makes business sense. —Consumers also expect manufactured products to be made and distributed without negatively affecting the environment and without depleting natural resources. Consumers are also concerned about food waste and packaging, such as non-biodegradable plastics. According to Nielsen, the market research company, companies around the world have invested time, talent and treasure in social and environmental efforts for several reasons. For many companies, cause marketing - the use of social and environmental efforts to build a brand and increase profits - has been a secondary if not primary motivation.11 There is research evidence of a socially conscious segment of consumers who have an influence in the market. The characteristics of the socially conscious 11 CHAPTER 1 Sustainability and corporate social responsibility (CSR) consumer are shown in figure 1.7. 'Customers can mean buyers of consumer products but it can also mean corporate buyers. WHOISTHE ir. GLOBAL, SOCIALLY-CONSCIOUS CONSUMER? Figure 1.7 The socially conscious consumer (Source: www.nielsen.com/content/dam/ corporate/us/en/newswire/uploads/2012/03/socially-conscious-consumer.png) Consumers are trying to be responsible world citizens and they expect the same from companies and other organisations that serve them. They use public opinion, research websites and social media to obtain product information. Consumers want products that are good for them and good for society. The trend will only increase over the coming years, with more companies using sustainability as a way to differentiate themselves from their competitors. Small and medium enterprises as well as NGOs that are not yet fully aware of sustainability's importance and practical benefits will be influenced by NGO A nonprofit the actions of larger companies and the public sector. New legislation organisation that together with pressures from consumer groups, investors and others will operates independently of any encourage organisations to conform. government L J With the rise of social media, a spotlight can easily be shone on companies - and their suppliers - that fail to operate in a sustainable way. Far from perceiving sustainability as a costly inconvenience, supply chain leaders are using it to their advantage, as it provides new opportunities to optimize costs and reduce waste.'2 r; In the private sector, many fast-moving consumer goods companies are active in applying sustainable practices. They publish their sustainability strategies, objectives and targets, which cover both social and environmental goals. Global companies such as Nestle, Procter & Gamble, Johnson & Johnson, Coca-Cola and L'Oreal are leading the way. Organisations like these expect and demand similar behaviours from their suppliers. More recently, they have put pressure on their suppliers' suppliers to embrace sustainability. 12 - CHAPTER 1 Sustainability and corporate social responsibility (CSR) The Coca-Cola Company The Coca-Cola Company aims to grow its global juice business significantly by 2020. Sustainably sourcing fruit for its juice products is an increasingly important issue. The company estimates that it will have reached 54% of its goal to sustainably source its lemon by 2020. Half of Coca-Cola's lemon is sourced from Argentina, with 90% of the country's supply for Coca-Cola sustainably sourced. 'Sustainably sourced' means that farm suppliers meet certain standards set for them. These standards relate, among other things, to human rights, workplace rights, environmental protection, and responsible farming management. (Source: adapted from www.coca-colacompany.com/stories/coca-cola-and- fruit-awinning-combination-in-sustainable-sourcing) The global purchasing power held by consumer companies and retailers gives them significant influence over their suppliers' business practices. Some companies in the consumer sector and other sectors are using that influence to get their suppliers to act on sustainability. Manufacturers and retailers are using more sophisticated and effective methods for changing their suppliers' practices. The automotive industry The automotive industry is of strategic importance to many countries, with many developing and emerging countries competing for growth markets where there is the possibility of new business and employment opportunities. ..The Automotive Industry Action Group is a unique nonprofit organisation. It comprises automakers, suppliers, service providers, government entities and academics, who have worked together for 35 years to drive down costs and complexity in the supply chain. 13 Figure 1.8 shows the suppliers to an automobile manufacturer. Tier 1 suppliers provide the key systems and products to original equipment manufacturers (OEMs) that build vehicles. Tier 2 suppliers supply the components needed to build the products and systems to Tier 1 suppliers. Tier 3 suppliers supply the parts to the Tier 2 component suppliers and so on. At the lowest level there may be many more supplier tiers; up to ten tiers in the supply of items to an OEM is possible. Ford recently joined the Electronic Industry Citizenship Coalition, a group of electronics companies working together to improve the social, environmental and ethical conditions in their supply chains, with a specific focus on worker wellbeing. 13 CHAPTER 1 Sustainability and corporate soda! responsibility (CSR) Figure 1.8 Suppliers to an automobile manufacturer (OEM) The United Nations Industrial Development Organization (UNIDO) is collaboratir with the automotive industry and providing the following technical assistance. • Productivity and quality upgrading of Tier 1 and lower tier automotive component suppliers (at shop floor and management levels) • Training in resource efficiency and cleaner production techniques • Developing automotive supplier networks and clusters UN support is intended to benefit projects in emerging and developing markets. Sustainable procurement in the nonprofit sector Many global nonprofit organisations (also sometimes called non-governmental associations) have well-defined procurement policies that uphold the goals of sustainable procurement. They highlight taking social and environmental factors into consideration alongside financial factors when making sourcing decisions. These organisations are active in humanitarian, educational, health care, public policy and other areas, and they also vary in size and type of funding. The Unitec Nations, the Red Cross, Oxfam and Save the Children are organisations in this sector, as well as thousands of civil society associations and other nonprofits an charities. Purchase decisions are made based on the whole life cost, taking into account the associated risks as well as concern about the implications for societ and the environment. (j' d The aim and challenge of sustainable procurement is to integrate environmental and social considerations into the procurement process, with the goal of reducing adverse impacts upon health, soci conditions and the environment, thereby saving valuable costs for pu ic sector organizations and the community at large. Sustainabl procurement forms a key part of an overall push for sustainable development by governments and UN organizations.™ n m 14 CHAPTER 1 Sustainability and corporate social responsibility (CSR) Sustainable procurement is also in place at other international organisations. The global development banks (World Bank, Inter-American Development Bank, Asian Development Bank) along with several UN agencies formed The Environmentally and Socially Responsible Procurement Working Group. The aim is to share experiences on sustainable procurement, identify new sustainable procurement partners, and develop joint procurement strategies and guidelines. Natural History Museum, UK The Natural History Museum in London is a registered charity and receives funding from the UK government. It needed to appoint a new waste and recycling contractor to manage the removal of all its waste. The inclusion of sustainability requirements in its tender helped the Museum meet the waste and recycling targets set out in its environmental management system. It issued a tender with detailed requirements asking bidders to explain how they would handle the following. • Service provision, including mobilisation, capability, capacity, how suppliers can assist with improving recycling rates, management of contamination and collection of the additional waste streams such as food and garden waste. • Performance monitoring: progress against targets, including overall weights, disposal routes and CO2 savings through recycling. • Waste disposal routes: notification of any changes to facilities and disposal locations and ensuring a fully auditable trail is available for inspection. Detailed requirements for service provision, performance monitoring and waste disposal routes are included in the new contract. The service provider is also required to implement new facilities to allow additional streams such as food and garden waste to be composted. It is expected that the introduction of new waste streams alone will increase the amount of material recycled by an estimated 50 tonnes, or 7% of total waste. (Source: adapted from www.ec.europa.eu/environment/gpp/pdf/news_ alert/lssue31_ Case_Study65_NHM_waste.pdf) Fair Trade Fair Trade is a global nonprofit movement with a strong presence in the UK. It promotes fairer trading conditions and empowers producers to fight poverty. Fair Trade sets social, economic and environmental standards for both companies and the farmers and workers who grow food and raw materials for clothing. For farmers and workers the standards include protection of workers' rights and the environment. For companies they include the payment of the Fair Trade Minimum Price and an additional opportunity to invest in business or community projects of the community's choice. 15 CHAPTER 1 Sustainability and corporate social responsibility (CSR) Fair Trade bananas One in three bananas bought in the UK is Fair Trade and it makes a huge difference to thousands of farmers, workers and their families. The price of a banana bought in a UK supermarket has dropped from around $0.24 a decade ago to just $0.15 now (2018). The result is that for farmers and workers in countries like Colombia and the Dominican Republic, growing bananas for a living is becoming unsustainable. Buying FairTrade bananas in the UK means that producers are guaranteed a minimum price, get an extra premium to invest in their community and have improved workplace conditions and protection. The UK consumes more bananas than any other country in the European Union. Import volumes have more than doubled between 1990 and 2018 and Fair Trade's percentage of imports is growing. FairTrade bananas are available in most major UK supermarkets. (Source: adapted from www.fairtrade.org.uk/Buying-Fairtrade/Bananas) Countries across the world are embracing Fair Trade principles too. Belgium is considered a leader in the area of Fair Trade products, which respects labour and human rights. It has a legal definition of Fair Trade, including it in public procurement mandates and providing guidelines for public authorities at federa regional and local levels. The World Wide Fund for Nature (WWF) offers more than 50 performance indicators for measuring the supply chain risks associated with the production of a range of commodities, to be used as a guideline by other organisations. It includes information about identifying the probability and severity of those risks. Many NGOs and large charities look past the traditional economic measures such as price, availability and functionality. They are concerned with use of natural resources, energy efficiency, water conservation and the communities that produce our food and clothing. Remember The nonprofit sector includes non-governmental organisations, both large and small, and charities. Non-governmental organisations (NGOs) are often concerned with the use of natural resources, energy efficiency, water conservation and the communities that produce our food and clothing. Sustainable procurement in the public sector Procurement can be used as a mechanism to further the economic, social and environmental development of citizens served by local, regional and central governments. Implementation of sustainable procurement in the public sector can be more complex than in the private sector. This is mainly due to rules and regulations, especially those governing competitive bidding and lack of resources. In Canada, Toronto's culture of using procurement to achieve strategic and workforrp Hp\/olnnmcint- crrvnlc ic amhnrlrlarl ir-> She coriPlL economic CHAPTER 1 Sustainability and corporate social responsibility (CSR) procurement framework. The programme drives inclusive economic growth in the following ways. \ • By improving access to the city's supply chain for diverse suppliers • By leveraging meaningful training and employment opportunities for people experiencing economic disadvantage To achieve this, the City of Toronto has a social procurement policy, tools and trained staff, and is engaged in community capacity-building and outreach initiatives. To put in place sustainable procurement practices, local governments need to engage with asset, fleet, finance and environmental managers, and with external procurement agencies and suppliers. Barriers to the adoption of sustainability in local and regional government procurement include lack of trained staff, poor spend ahd information, and decentralised procurement spread across many divisions. Irish government The Irish Government's policy of decentralisation of Government Departments led to the construction and fitting-out of several new offices outside of Dublin. It ran a tender process that included sustainability considerations. Suppliers who demonstrated that their goods and processes were environmentally preferable were given additional evaluation points. This led to a number of improved environmental practices among contractors. One supplier delivers goods wrapped in blankets, rather than using plastic-based wrapping. Another company now shreds its hardwood waste materials for use in its own heating system. Use of packaging material that can be returned to the supplier is now standard practice for all the government's suppliers. Contractors are required to employ good environmental practices on site with regard to waste reduction, occupational exposure to hazardous substances, minimisation of packaging, control of environmental emissions, and the efficient use of materials and transport. Ireland is a member of the European Union. The Irish government has experienced no increase in costs as a result of these sustainability policies. Costs have come down and suppliers themselves have saved money through enhancing the environmental profile of their products and activities. In the UK, all government departments and their related organisations must meet the minimum mandatory Government Buying Standards (GBS) when buying goods and services.15 The product specifications set out in the GBS form part of the departments' sustainable procurement commitment and are specified by industry sectors. In the USA, the federal government is the single largest consumer, spending over $450 billion each year on a wide variety of products and services. The Environmentally Preferable Program was designed to help federal 1’ CHAPTER 1 Sustainability and corporate social responsibility (CSR) agencies purchase greener products and use this spending power to support these efforts.16 The term 'green procurement' is used widely in the USA to den c the practice of environmentally sustainable sourcing. Remember Procurement can be used as a mechanism to further the economic, social and environmental development of citizens served by local, regional and central government. a he benefits of sustainable procurement Leading organisations benefit from their sustainable procurement policies by taking the following actions. Economic • Control costs by adopting a wider approach to life-cycle cost • Comply with regulations and applicable laws • Ensure continuity and security of supply • Minimise business risks • Create competitive advantage • Manage reputation and improve consumer perceptions • Facilitate access to capital and increase valuation Environmental • Reduce waste and improve resource efficiency • Reduce carbon emissions and manage energy consumption • Limit the negative impact of operations by purchasing from certified sources • Ensure compliance with environmental legislation and guidelines Social • • Positively contribute to the communities in which they operate Eliminate child labour and pay a living wage Involve employees in volunteering on community projects • Invest in projects that improve quality of life for citizens Ensure compliance with social legislation and guidelines Pi 18 Nestle n Nestle s vision is to improve the lives of farmers in its cocoa supply chain over five years. Most cocoa farmers in Ghana and Cote d'Ivoire are smallholders with low productivity and incomes. They live in poor communities with depleted soils and older, less productive trees. OJ in CD on <—r C CL << ¥ • CHAPTER 1 Sustainability and corporate social responsibility (CSR) They often resort to using their children for tasks that could be harmful to their physical or mental development which Is therefore classified as child labour. Women in the cocoa supply chain are often under-rewarded for their work, or are not given a voice In their communities. Nestles annual purchases of cocoa are in excess of 300,000 tonnes. In 2017, 42.9% of the total cocoa purchased was responsibly sourced. The company only uses sustainably sourced cocoa from suppliers accredited by independent third parties to make its KitKat bars. Nestles Cocoa Plan operates across three key pillars. 1. Better farming, addressing challenges such as agricultural practices and rejuvenation of plantations 2. Better lives, which seeks to empower women and eliminate child labour 3. Better cocoa, which covers certification, deforestation and building long-term relationships in its supply chain (Source: adapted from w\\w.nestle.com/csv/raw-materials/nestle-cocoa- plan and\ww.nestle.com/niedia/news/kitkat-announce-sustainably- sourced-cocoaglobal) Guidelines and standards In 2017, The International Organization for Standardization (ISO) issued the world's first international standard for sustainable procurement - ISO 20400. It was designed to help organisations reduce their impact on the environment, tackle human rights issues and manage supplier relations. L LJ ISO 20400 aims to help companies make better purchasing choices throughout their supply chains by establishing guidelines for companies to judge suppliers on ethical and sustainability issues.'7 q q 19 CHAPTER 1 Sustainability and corporate social responsibility (CSR) RR narticiDating countries and 14 observing nations. rns "represents 65% of the world’s population, 85% of global GDP and 73% of . carbon emissions. As well as environmental considerations, the standard also takes into account social and economic sustainability when judging what sustainable purchasing looks like.18 ISO 20400 provides guidance for organisations wanting to integrate sustainabjy into their procurement processes and helps to improve communications amon^ all stakeholders. 19 Many individual organisations such as universities, corpo ratSi companies and NGOs publish their own sustainable procurement guidelines. , Refer to the references at the back of the book for other organisations that publish general guidelines and standards. Challenges in sustainable procurement I, Organisations that have been successful in implementing sustainable arocurement initiatives have also had to deal with and overcome some challenge The main barriers to achieving sustainable procurement and their possible solutions are shown in table 1.1. i p ! li 1 1 Sustainable procurement challenges 1. I n J ■■ ■ I? 1 c i Possible solutions | The right arguments need to be tabled to The need to justify the principles of justify the undertaking. Get commitment sustainable procurement and its to sustainable development as an implementation cost to management. organisational policy. Costs arise in the short run from the need to collect information and to develop internal and external strategies and procedures. Commitment can end when finances and resources are needed. 2. Lack of training and reliable information Ensure that everyone is aware of the regarding social, ethical and strategy. Training and guidance Is environmental principles and processes. needed to help all of those involved in The difficulty in changing procurement procurement to understand the principles behaviour in both suppliers and of sustainable procurement and whole employees. life costing3. The apparent shortage of suppliers of Research the supply market. Learn from goods and services that can fulfil the the expertise and experience of other sustainability objectives. organisations. Support, develop and educate suppliers. _______________ J 18 CHAPTER 1 Sustainability and corporate social responsibility (CSR) • Possible solutions Sustainable procurement challenges 4. This can be addressed by presenting a business case that illustrates the costs and The perception that both the ongoing processes and outcomes are more costly payback period. or time consuming than is worthwhile. Perform regular audits and monitor achievements to see where you could make further progress. 5. The difficulty of measuring the result of social factors. Economic and environmental performance are more readily measurable than social aspects that relate to human rights and labour standards. Measuring the social behaviour of suppliers is more challenging. Table 1.1 Sustainable procurement challenges and possible solutions Organisations that are committed to their sustainable policies and goals will find ways of countering some of the difficulties. One of these is by including sustainability in the procurement process, which we will now look at in detail. Integrating sustainability into the procurement process Sustainability is incorporated at each step of the procurement process from establishing the need through to monitoring and assessing suppliers. At each step, we build sustainability goals into our actions. The final step of the process is to monitor and assess whether this has been achieved. A major focus on sustainability is particularly important at Step 3: Defining the requirement and developing specifications. Step Description 1. Understanding and assessing the need 2. Planning the requirement 3. Defining the requirement and developing specifications 4. Managing the sourcing or tender process 5. Evaluation of bids 6. Negotiation and contracting 7. Supplier management and monitoring Table 1.2 Steps in the procurement process We will now explore how sustainabilitycan be incorporated in each of the steps shown in table 1.2. seven 21 CHAPTER 1 Sustainability and corporate social responsibility (CSR) - Step 1: Understanding and assessing the need Firstly is this item really needed? It may be that an item or service is no longer useful- it may have been replaced by new technology or a better solution may have been developed. If needed, will it do the job? Is it fit for purpose? Investigate the item's suitability for all potential users in all locations and conditions. Where possible, make the case for sustainable options. Step 2: Planning the requirement • What quantity and quality is needed? It is possible that what is asked for by the users is not what should actually be purchased. • Where and when is it needed? Timing and distance can have an effect on all three pillars of sustainability. Think about the transport of goods and the delivery of service. • Who has the capacity and ability to supply this, taking into account the sustainability requirements? We often assume that we know all the possible suppliers for a given item or service. This is not the case. New suppliers enter the marketplace every day. Pick a consumer, producer or retailer of food or clothing and look into its stated values and policies. Does it have sustainability objectives? Is it a signatory to the UN Global Compact? The answers will help you decide if that organisation's policies are acceptable to you. Step 3: Defining the requirement and developing specifications • Develop detailed specifications for the product or service with consideration of economic, environmental and social sustainability goals. • Consider alternative options to purchasing. What about an operating lease or rental rather than an outright purchase? Lease and rental contracts give suppliers the responsibility for the upkeep of goods such as computers and copiers, and for managing them at the end of their useful life. Businesses that lease equipment tend to manufacture more durable items, salvage reusable parts, and refurbish, recycle, or donate used equipment that can no longer be leased. • Can you buy goods in bulk or in concentrated form? This can significantly reduce the packaging required and save costs. Carefully estimate demand when purchasing in bulk, purchasing more than is needed can create excess that becomes waste. How do we dispose of a product that we own at the end of its life? Developing specifications for the safe disposal of products at the end of their life is becoming a major issue. It has economic, environmental and social impacts. Remember Consider alternative options to purchasing, such as an operating lease or rental arrangement. 22 CHAPTER 1 Sustainability and corporate social responsibility (CSR) Check This stage offers an opportunity to further the economic, social and environmental development of your organisation and introduce a number of safeguards and checks in the procurement process. Which of the principles are most relevant? Case study This is a useful stage to consider the UN Global Compact, which was introduced earlier in this section. What are its three themes? Figure 1.9 The WEEE symbol E.on, a leading UK energy authorities in providing electrical equipment. Unwa the UK's fastest growing type of wastes. Why recycle? Many electrical items can be repaired or recycled, saving natural resources and the environment. If electrical equipment is not recycled, it will end up in landfill where hazardous substances may leak out and cause soil and water contamination - harming wildlife and human health. E.on subscribes to the Waste Electrical or Electronic Equipment (WEEE) Directive which requires countries to maximise separate collection and environmentally friendly processing of these items free of charge. The WEEE symbol is shown in figure 1.9. (Source: adapted from www.eonenergy.com/About-eon/corporaieresponslbility/recyde-your-electrlc-devlces) 23 CHAPTER 1 Sustainability and corporate social responsibility (CSR) Step 4: Managing the sourcing or tender process Most large organisations have standard clauses in their tender document, or request for proposal (RFP). To help increase awareness of sustainability among bidders, the following items can be included in the document. Request for proposal (RFP) A document used to canvass potential solutions from suppliers when the specification is still unclear • A summary of and a reference to the organisation's sustainabili