13.03.2016 | Supply chain
Indspark: Is your company’s product responsible enough to buy?
How do you determine whether your product is responsible enough to buy. Responsible Procurement is a definition which could give some answers.
Corporate Social Responsibility (CSR) is a major item on the CEO’s agenda. No annual report is complete without making reference to CSR performance. Part of the CSR performance is the performance of the suppliers. Actually it is said to be the most influential megatrend affecting the procurement function in 2020. It is most often expressed by pressures coming from both internal and external stakeholder’s. The pressures usually determine which CSR initiatives that a company should focus on.
Which pressures and stakeholders are the most powerful ones in your company?
End-customers impose the highest pressure
According to a study made by Procurement Leaders in 2012 61% of the organizations are driven by end-customers. Governments and regulations represent the second-most influential pressure that organizations face. You should not underestimate the fact that 48% say they want to pursue on the CSR journey because they know that their employees want to work for a responsible organization.
The above just underlines, that if you do not have CSR activities in place in the procurement function (and the company in general) then you risk that the end-consumer will abandon your brand. On the other hand there is also a business opportunity as consumers are becoming increasingly willing to pay a premium for CSR labelled products.
What does responsibility mean?
Responsibility, or in procurement terminology Responsible Procurement Management, can be divided into 3 main categories: Environmental, social and economic. Practically speaking, Responsible Procurement is about defining a set of mutually compatible requirements, specifications, and criteria that favor protection of the environment, social progress, and economic development. You do this by identifying resource efficiency, improving the quality of products and ultimately by optimizing costs.
In short, you could say that Responsible Procurement is about increasing a company’s profit, improving its strategic supplier relationships, and strengthening its brand, while remaining vigilant towards competitors and revolutionizing the procurement strategy.
What does this mean to your company?
From an environmental point of view, your company should ensure that natural resources that are extracted and processed into goods and services are consumed in a more efficient way – getting more out of less. And by changing the way we produce and consume, we can still limit the impact that climate change is bringing about. From an economic and social perspective, your company has to ensure basic human rights and economic development, regardless of age, gender, nationality, religious belief or economic status.
How could your company get started with the journey?
Risk is basically a matter of probability that there will occur violations of the company’s or its key stakeholders values and perceptions. Determining a company’s risk profile is very company specific. Some companies will choose to focus on suppliers where the company has some bargaining power and suppliers who have a strategic importance to the company. Others choose to target all of them.
- Risk level: Is it a strategic or an operational risk?
- Probability: Here you should indicate the probability of the risk occurring. Do you consider this as high, medium or low risk
- Impact: What would the potential risk be in the event that this risk will occur? Again use high, medium or low
- Risk treatment: You should indicate the appropriate treatment for the risk. This could be: avoid risk, reduce or control probability, reduce or control the impact, transfer risk or accept risk.
- Owner: The owner is the person who is accountable for taking action (risk treatment).
- Current status: Detail the current status of the risk e.g. has vital information been gathered?
Start managing your risks
Following the risk assessment the next natural step will be to look for ways to manage the risks. Risk management options will be particularly affected by the following factors:
- Which bargaining options does your company have over your suppliers?
- Is your company a major customer or just one among many?
- Who are the drivers of the value chain; is it producer or consumer-driven?
- To what extent are subcontractors used, and how big a role do they play in the manufacture of products: for example, in situations where the supplier is a wholesaler, it may be necessary to identify the actual manufacturers.
- How many financial and human resources is needed to work with it?
- How far back in the chain will it be necessary to manage the risks?
Don’t give up – though the picture must be right
When Procurement Leaders back in 2012 started their research on how important CSR currently was in heir respective organizations 42% of the respondents answered that it was very important and 38% said it was important. When asking them how long their CSR policy had been in place they answered 1-3 years (36%) and 30% said 4-6 years. For sure nobody want’s to be left behind. Appearance does matter. Nobody want’s to be seen as a laggard in this field. The most important message is though that the actions you take must be equal to the picture you draw to the public.
This article was first published on the Procurious website. Check it out here.
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