The word procurement is now frequently preceded by sustainable, green or responsible, phrases that have entered the business lingo with the surety that underscores their demands. To be responsible in business now isn’t just a PR exercise, it’s a matter of compliance and necessity, and of good business practise.
As a procurement professional, how far you take responsible procurement depends on the potential risks and benefits. These factors are usually set by your organisation, and often fall into two categories, namely Positive influence, which is driven by corporate or political targets, or Risk mitigation, which is driven by reputation, or the need to preserve it.
When IMPA launched the IMPA ACT in September 2013 it brought to the market a product that accounted for those factors, and in so doing delivered the first product of its kind for the maritime sector. It had collaborated with the Danish shipping giants DS NORDEN and J.Lauritzen, developing a framework that was not only practical and easy to implement, but had tangible benefits for purchasing departments in the marine sector.
Nine months on from the launch and steady progress has been made with the IMPA ACT, both in the industry and its implementation in the companies that have adopted it.
DS NORDEN, the global tramp ship operator based in Copenhagen, began working with five companies over a year ago, engaging with the likes of Garrets and Wartsilla, as well as an oil major and a leading freight forwarder. It has successfully completed the process with one company and has identified the suppliers it will engage with over the next two years - so far, so good.
‘We are very pleased to notice how enthusiastic and positive the suppliers with whom we have started implementing the IMPA ACT Supplier Code of Conduct (SCoC) are’ says Ole Lykke, Senior Purchasing Manager at DS NORDEN, whose industry insights proved valuable during the development of the IMPA ACT.
‘The involved companies can see the benefit of an industry standard SCoC because it isn’t as time consuming as adhering to countless Codes of Conducts for the suppliers.
‘It is therefore very important we make a big effort explaining that the IMPA ACT is not a commercial tool as such and has nothing to do with terms and conditions, pricing and the like, but merely a ‘soft’ issue.’
Ole’s words are echoed by his counterpart at J Lauritzen, Henrik Steffensen, a man that was highly influential in bringing the IMPA ACT to market.
‘We’ve been working on this for 18 months and we’ve engaged with 12 suppliers. So far the response has been very positive, even from the major ones like Alfa Laval and Jotun.
‘CSR is important to our company because it is important to show our customers that we care and that we are responsible.
‘When it come to responsible supply chain management (RSCM), it means a lot because I see it as a structured way to develop the cooperation with our suppliers that results in a win-win scenario for all of us. It is essentially improving the supply chain.’
Many companies implementing RSCM policies for the first time are put off by the time consuming nature of the work involved, though to dismiss adopting such practises for that reason is to do so without a real understanding of the benefits they bring.
While it is time consuming to reach fruition – in some cases it can take one to two years for a supplier to reach the agreed milestones for the self assessment –the most fundamental part of the IMPA ACT process is bringing organisations together.
‘Supplier selection for the SCoC is based on spend, frequency and dependence’, says Ole. ‘We attribute scores to those criteria and an overall score used to identify the candidates.’
The system allows companies like NORDEN and Lauritzen to evaluate not only where and when they are spending money, where and when, but also to look at who their strongest business relationships are with.
‘The advantages are that you get a much better relationship with the supplier all year round,’ says Ole. ‘This is because you are in dialogue with them all the time, even on other issues such as prices and products etc. You get a better connection with them.
‘For the supplier side they will get approval – once they have completed the self assessment they’ll be an IMPA ACT approved supplier and they can use that for marketing purposes going forward when approaching other ship owners or purchasers.
‘It’s about improving relationships and building better business relationships with these companies.’
Engagement too is a critical part of the part of the process at Lauritzen. Around four years ago some of its suppliers asked that it take better control over its CSR issues and so it developed a code with Lloyd’s so that it’s purchasers could audit their suppliers .
‘Now we see that the CSR thing has developed from that,’ says Henrik. ‘Of course it’s much more complicated dealing with CSR and human rights. That’s probably where most people get scared is the human rights.
‘I was scared to learn that there were 43 rights and thought I should know them and understand their impacts, but that is not the case, because we have CSR departments to help us, and also where IMPA and the IMPA ACT can help smaller suppliers.’
Henrik admits that implementing the IMPA ACT has changed the way his department works, though says it is for the better. Meetings with suppliers are now just as focussed on building relationships as they are on checking for SCoC compliance and solving problems.
‘It has improved the relationships we have with our suppliers because we see them in a different light. Now we are not talking just to the key account manager or the sales executive, but also to the QA manager and other people in the organisation.
‘It’s a tool for strengthening the business.’
Although both Lauritzen and NORDEN have been working with the IMPA ACT for a short time, its effect is starting to show, and in the medium term the seeds sown now will begin to bloom.
Lauritzen, for example, has identified the suppliers it plans to work with over the next 18 months and by the end of 2015 expects to be engaged with around 35 companies. At NORDEN the story is similar, and it is down as much as anything to careful planning at the supplier selection stage.
Each supplier that NORDEN and Lauritzen works with but isn’t immediately engaged in the IMPA ACT has an agreement written into their contracts stating that as part of the RSCM process they are expected ‘to comply with the Supplier Code of Conduct (SCoC).’
As part of the agreement NORDEN and Lauritzen reserve the right to invite its suppliers to a self-assessment exercise that will confirm their compliance, or that will alternatively reveal any issues of non-compliance, which by a joint effort, should seek to have corrected.
‘We encourage our suppliers to use the IMPA ACT Code of Conduct with their own suppliers, in order to ensure that their supply chain is responsible as well,’ Ole adds.’
This practice has a ripple effect that will in time see RSCM easier to implement - company information will be pooled centrally and accessible to those using the IMPA ACT - and more widely adopted. In Henrik’s case he has noticed that his company’s actions have already influenced one of their major suppliers.
‘One company that we have worked with have said that they were happy we approached them because they were missing the good arguments to internally take it further,’ Henrik says. ‘Their CSR manager wanted to move forward internally, but it was difficult to prove why until we as customers wanted to go further .
‘This means that the educational aspect of the IMPA ACT comes into focus. We see resistance from some companies, often the smaller companies. Sometimes they think that the cost is huge and that it is very time consuming. That’s why JL and NORDEN are very happy to be able to present the IMPA ACT along with IMPA to say ‘here’s something that makes is easy for you – it’s plug and play almost.’
While the progress with the IMPA ACT has been steady several key challenges lay ahead. Ole was keen to stress that although the Danish market has made impressive strides it should not be to the detriment of other regions.
There are, he says, regions that have poor reputations when it comes to labour and human rights whose suppliers might be overlooked because of potential problems, though, he adds, that would be wrong.
‘If we do that then we discriminate ourselves. Avoiding suppliers from certain regions because there might be issues with them means we are not fulfilling the guidelines. But at some point we will have to deal with suppliers from that region and so we have a duty to educate them. Wworking with companies in that type of region is also a challenge and learning process for us.’
The other major challenge is to reiterate the relevance of RSCM to the purchasing function, and not just from a regulatory sense but from a business sense too. At the IMPA CSR Conference last year keynote speaker Michael Addo said that purchasers had the chance to be pioneers in their organisation. On a practical level it makes business sense too.
‘It’s relevant when it comes to develop the supplier in way where you want them to be,’ says Henrik. ‘It’s important to know our suppliers and what they stand for, and it’s important to know in detail what they’re willing to do. Do they have the will to change and to meet our demands and wishes?
‘Companies that engage with the IMPA ACT will stand a much better chance with other companies in the future. Organisations like J.Lauritzen and NORDEN will prefer companies that are working in accordance with the UN Global Compact and the UNGPs. We (JL) will demand that our suppliers have signed our COC, or are at least working to comply with issues in our COC.’
One supplier that J.Lauritzen and DS NORDEN have in common is Weilbach, the supplier of nautical charts, flags and instruments. Katja Farver tells us about her company’s experience with the IMPA ACT process.
We’ve been clients of Lauritzen’s for almost 40 years. We try to be benchmarks in terms of social responsibility, not just within our core market.
Before we began working with DS NORDEN on the IMPA ACT we had some CSR policies in place but it (the IMPA ACT) has helped us to augment our existing policies and encouraged us to focus on issues that we hadn’t looked at before.
Prior to working with DS NORDEN, we had implemented the ISO 9001 and are looking to achieve ISO 14001 certified (we expect to be certified this year), since working with them it has brought a larger focus to the environment. It’s been a helpful process.
We were familiar with the UN Global Compact and the UN Guiding Principles; we see the IMPA ACT as a prolonged, augmented version of the UN Global Compact.
As part of our ISO 9001 certification we had some RSCM policies in place through a selection of our suppliers, which again had a focus on the environment as well and on social responsibilities.
We are distributors on behalf of the IMO, so we are limited to who we can select and de-select in terms of suppliers, though we have been able to look at how we work with some of them which has brought about a greater focus on social responsibility.
Has it changed the changed the way we work? Not as such. We were already in the process of looking into these issues but it has brought on a larger focus on the issues that they wanted, although they implied that these were the key issues that we had to address. Also it was an augmentation of what were doing already.
Of course it takes time, but as we are dealing with this kind of process daily it hasn’t been time consuming – we were doing these things anyway. That might not be the case for companies that aren’t working to ISO 9001, but for companies that are the SCoC is an augmentation of that.