If you are a social value, ESG or sustainability professional working for a large, multinational company, the chances are you’re quite busy at the moment. Between writing social value answers for bids to answering requests from board members for information 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, right? You aren’t alone in thinking this way, but you would be wrong.
Social Value is all about ensuring that your business is behaving in a way which creates value for society as well as 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 be looking after employees, showing up in the community, not harming the planet and paying 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 key 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.
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. Don’t underestimate how challenging this whole 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 challenge.
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 probably largely evaluated by how much money they ‘save’ their business by negotiating ‘better’ contracts. Evaluating a supplier based on how they behave as company, means that price may not be the deciding the factor. We know lots of procurement teams who 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 support of the Board and the backing of the CEO.
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 value in procurement is about more than compliance. Just because something is legal doesn’t mean that its right and the court of public opinion is a far harsher judge that any court of law. Poor (though not illegal) behaviour by suppliers 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 in place 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 delivers value for society, so 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 about 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 as well as economic value.
10 ways ESG professionals and procurement teams can work together to ensure supply chains are creating social value
We’ve put together this list of 10 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 what's important
Before you start it’s important to be clear about what's important to your organisation – and that these priorities are agree 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. One of the best examples we’ve seen is Blue Light Commercial’s excellent Social Value Planning Tool which has lots of 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 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 for you it will be easier to explain to suppliers what you expect from them.
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 tenders and clauses in your contracts 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 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 have 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 to 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. There’s a huge amount you can do 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.
9. Improve your market engagement, seek new suppliers and rely less on frameworks
Procurement professionals love frameworks because they make their lives easier but they also make it incredibly difficult for regional, smaller, 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 feeling the economic benefits of your investments, you’re also driving up costs and increasing risk. As Frank Omare from SAP, 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.
10. Help procurement see suppliers as stakeholders and reframe their relationship with them.
For this approach to work it requires a transformation of the relationship between supplier and customer into that of a partnership. You need to view the relationship as 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 in order to be able to carry out your purpose as a business, it is in effect, 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 this describing the best performances he’d witnessed coming as a result of closer relationships between the customer and the supplier, and an understanding that achieving value is a two-way process, benefitting both sides.
If you would like to initiate any of the ideas mentioned above in your business, or for more information on how we can support you, send an email to firstname.lastname@example.org