The International Supply Management Conference end of December 2011 in Amsterdam hosted about 1.200 participants; almost all of them buyers/purchasers from a variety of companies, private and public, CPO as they are called, Chief Procurement Officer, an executive responsible for supply management, a three letter word, just as the CMO (chief marketing officer) and the CEO (chief executive officer or the general manager).
The new purchaser is a reverse marketer
In one of the workshops of the Conference, on Inclusive Business Models, the conclusion once again was: it’s rather easy for NGOs to set up programs with the nice and cozy CSR teams from private companies, but ‘oh my God’ if you have to start cooperating with the buyers when things are finally put into practice. A reality also Vredeseilanden faces when cooperating with the private sector.
But will this conception that buyers are stubborn and hard negotiators still be a reality within short notice? The central message of the CPO speakers and researchers during the conference was that not only the practice of the CPO has changed during the last years in the big companies (and is changing quickly in the small ones) but also their competences are undergoing a change. Where before they were the ones who had terrible relationships with suppliers, always trying to buy things at the cheapest price as possible, they are considered now as responsible for ‘reverse marketing’: build up long term relationships of trust with suppliers, so that these like (or even love) the company, they have become protectors of the brand, just as the real marketing people in the company, not towards consumers, but towards the suppliers.
“The 7th billion one that has been born has shaken us awake”, tells Murielle Arts (Global Leaders Academy). A CPO might become in the future the ‘value chain architect’, optimizing end consumer and supplier. And it’s all about managing scarcity. A company has to think these days in supply chains, full chains, from raw materials to the consumer. That’s a reality that changed completely after the last recession. Sourcing has become extremely important and CPOs are the ones that can make sustainability happen. 90 percent of CO² emission for the production of a good seems to come from raw material suppliers…
“The drive for sustainability is intrinsic motivation. It is not the image of starving children you see on television, it is witnessing a burned down piece of rain forest in Indonesia for planting oil palm” says Mark Engel (CPO Unilever), “it’s your own motivation that you use in your leadership”. “Until now it has been the CMO (marketer) that has been leading sustainability, more than the CPO (purchaser), it has been more pull than push. But this is changing quickly. And it’s up to NGOs to motivate these changes for companies. NGOs should act as sustainable supply chain motivators.”
Producing more with less resources: the challenge of this century
So, scarcity of commodities seems to lead to this change in the function of a CPO; the consciousness that without sustainability companies will not thrive. A company can only be healthy within a healthy community. In other words: the people, planet, profit concept has lost importance; no profit if the economy is not integrated within a healthy social system and no healthy social system without being integrated into a healthy planet. The theme of this Conference was ‘Is your Company 21st Century Proof?’ and almost all speakers addressed the impact on business of seeking sustainability.
The scene was set by the director of WWF, Mr. Jason Clay. Nice how WWF always manages to translate its message in some simple numbers. “If we all would be living like Europe, we would need two earths right now, if like the US, we would need three”. “Agriculture is responsible for 30 % of the greenhouse gas emissions says the US government, so it should be more’. My favorites: “We will have to produce for the next 40 years as much food as the total we have produced during the last 8.000 years” and “ we should go for a higher productivity with regard to water, instead of producing 1 calorie per liter water, we should produce 4 calories”.
Mr. Clay states that certification still has a long way to go if you look at the quantities of food we will have to produce at one side and the growing scarcity of resources on the other side. Certification or labels don’t measure productivity, only a few focus on water (for example organic doesn’t), they all focus on practices and not on performance, none of the schemes measures the impact of the certification… How can they then proof their claims?
He also states that initiatives from only private sector and NGOs (as has become fashionable) will not be enough. Governments should be there; they need to move the bottom. And no company, NGO, government, no institution is big enough to address the issues we face today, partnerships and cooperation cannot be missed.
Some other points from Mr. Clay:
- Food is too cheap; prices will go up, as commodities will (through scarcity). If you produce more efficient the price will go down, and we should also integrate external costs in the price, like pollution.
- Sustainability should not differentiate on the shelf, all products should be sustainable, sus-tainability is pre-competitive; companies should work together (if you do not have raw materials, you will not have a product and you will not make profit).
- Concentration: 3 companies trade 70 % of palm oil worldwide. It is more or less the same with other commodities. So: there are only about 40 companies worldwide you have to convince to see a change, that’s not so difficult!!! Or: ‘advocacy work is not so difficult’.
Paul Naar, Executive Vice President Food Ingredients Cargill Inc., assures that if you can resolve the problem of sustainability in agriculture, you can resolve the food security issue for a growing population. Cargill has set up Farmer Field Schools in West-Africa (Ghana and Ivory Coast, 70 % of cacao production worldwide) among smallholder farmers. These Farmer Field Schools have led to 50 % productivity increase and 30 % pesticides decrease, while farmers have been UTZ certified and have gained premiums for quality increase of more than 100 US $ per farmer per year.
Gavin Neath, Senior Vice President Sustainability from Unilever, tells more or less the same story: “By 2030 we will have a 50 % higher demand of energy, 50 % of food and 30 % of water. And if as this is not enough, we will have a climate change thread hanging above us, and all in absence of an international government. The costs of transition to live up to these challenges are borne by the first mover(s). Challenges are complex, multidimensional and interdependent.” Mr. Neath is convinced that you will not reach anything anymore with regard to these challenges without partnerships. The Round Table on Palm Oil is one of the examples he cites. In 2008 Greenpeace attacks Unilever, Unilever in the role of sustainable supply chain motivator. “Unilever got angry but Greenpeace was right”, Mr. Neath testifies, “since then we know we are not only working within our palm oil value chain, but also before (with producers of oil palm) and after (with consumers) if we want to reduce our environmental impact”. Only 26 % of that impact comes from production, 68 % of impact comes from consumers!
Paul Polman, CEO Unilever, says that the Sustainable Living Plan of Unilever is monstrously ambitious but very liberating. “The US has put a statue of liberty at their West-Coast but they forgot to install a statue of responsibility at the East-Coast. We should get rid of focusing only on short term Anglo-Saxon shareholder thinking”. Innovation for sustainability can come from strange angles for Unilever. In SE Asia for example, much more water is used for rinsing than for washing laundry. Consumers have to walk 2-3 km for water. Unilever has changed the formula of washing powder so that less water is needed: now only one bucket needed to rinse.
Mr. Polman is convinced of the need for long horizon views: customers, consumers, communities should be at the same level of importance for a company than shareholders. “Nobody can be successful in a world that fails”. But he also says that not everything can be resolved in a precompetitive phase as Mr. Clay from WWF stated before: “competition leads to innovation and we know that innovation leads to a quicker sustainability”. For Mr. Polman, business should take the lead in sustainability, we know that governments don’t do it, and it’s not only moral it’s also commercial. He doesn’t consider consumer behavior as a driving force for sustainability: “companies offer opportunity, consumer takes it”. That’s what happened with the Unilever teas. And it’s even more obvious with palm oil. Nobody knows what palm oil is, you don’t see it in the product. Companies should take away responsibility from consumer.” Within Vredeseilanden we also focus on changing consumer behavior; are we addressing the wrong target?
Creating Shared Value; beyond CSR
Michael Porter from the Harvard Business School can be considered as the inventor of the value chain terminology with his research and books on competitiveness in the eighties and beginning of the nineties. The last years he has been adapting competition issues to new realities (a world with physical limitations) and has been quite influential with his ‘creating shared value’ theory. Shared value creation is the role business has in society, tells Mr. Porter. “It’s not just about doing good, it is pure capitalism, you need to create shared value to run highly profitable business”.
In his eyes, currently companies are perceived to be prospering at the expense of the broader community, and in doing so as the cause of economic, social and environmental problems. Governments and civil society often attempt to address these societal issues at the expense of business. And despite growing corporate citizenship, legitimacy of business has fallen.
Mr. Porter is convinced we have to move beyond the responsibility mindset. The first stage in doing so has been ‘philantropy’ (businesses that create foundations etc.) by donating to worthy social causes. But it didn’t make a difference; impact has been low, amounts of money way too little. The second phase has been CSR; founded in good corporate citizenship and compliance with community standards, targeting sustainability. This has been a big step forward: business started realizing it is not in a bubble; it’s in communities. But, neither this phase has led to solutions to problems we try to address, nor has it won respect from communities, impact remains low. Examples of CSR are recycling in workplace, using less paper…
The third phase is the ‘creating shared value’ phase. And this is fundamentally about capitalism. If business wants to deal with complex issues like water shortages, enough food for a growing world population, poverty… and win respect from communities, then it should do that through business, integrating societal improvement into economic value creation itself. Shared value is then about the maximum profit while addressing the problems of society; creating economic value by creating societal value, profit involving shared value enables society to advance and companies to grow faster.
Using this same logic, Mr. Porter comes to the conclusion that “Fair Trade is about CSR”. “Fairtrade is about redistributing income from the rich to poor farmers, that’s nice, but it doesn’t work, the impact is too little”. A capitalist solution for him would be to help farmers improve their yield, eventually finance them. “You don’t give a farmer more because that’s nice but because of the quality he offers and the amount he can sell. You work together with him as a business. That’s the difference between CSR and CSV.” Interesting to hear that people want to move beyond Fair Trade; but a pity that those kind of speakers do not acknowledge the historical and current role of Fair Trade in mobilizing consumers and pull mainstream trade actors towards acting in favor of more justice.