Mobile Edition
Print
Get the Mag
Weekly UpdatesTHE 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
**********
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 (timreeve@telus.net) a sustainability consulting firm based in Vancouver, B.C. He is also program manager for the Sustainability Purchasing Network (www.buysmartbc.com). Jasper Steinhausen (js@steinhausen.dk), 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."
FEED