Tag Archives: corporate social responsibility

Suppliers financing customers: where is the line drawn on Corporate Social Responsibility?

money wrestling

This week I read the New York Times news item “SYDNEY — Rio Tinto, one of the world’s  biggest miners has doubled its payment terms in a move that will force embattled suppliers to wait up to 90 days to be paid.” Can these suppliers survive? Update: On April 14 Rio Tinto announced it is dropping plans to extend supplier payment terms.

This is a great example of leveraging suppliers who, themselves, have invested in facilities, employees and inventories in the most remote corners of the globe just to support the customer. In an article The Unsuitability of Extended Payment Terms, Raz Godelink highlights that major food producers like Mondelez, Mars, Kellogg’s, Church & Dwight, Anheuser-Busch In Bev and Heinz extend payments to suppliers from 90 to 120 days. In many cases the suppliers to the food industry are agricultural industries surviving crop-year to crop-year. This industry requires capital to acquire the seed, fertilizer and equipment, which is all at risk in volatile commodity markets.

Stephanie Strom’s NYT article Big Companies Pay Later Squeezing Their Suppliers points out that companies like Mondelez are using the cash for a stock buyback initiative. Kellogg’s is financing a restructuring project and P&G has added significantly to its cash flow. The end result is a cash poor supply chain that cannot withstand interest rate hikes or another financial crisis. We have been fortunate the past few years that money has been virtually free, enabling this practice. In the long term, I believe it’s not sustainable and many of the smaller suppliers in many supply chains will be in trouble should conditions change.

I have to admit, reading those articles caused me to flash back to that July day during the last recession when I was on the phone with a Fortune 500 customer who hadn’t paid invoices dating as far back as November for work done according to the contract. I couldn’t tell my employees that they I couldn’t pay them because the customer hadn’t paid, so I maxed out the business line of credit and borrowed the max on my house to pay salaries and bills for the business. On that July day, the customer’s project manager was telling me that I would be paid the following week if I would discount the fees owed. I had little choice but grant a discount at the time—credit was extremely tight and we were owed a lot of money. By the way, the payment terms for this client were 90 days, plus I had 3 other clients who had moved to 90 day terms, so having a customer stretch payments as much as 180 days was a true crisis. I’ve never forgotten this $1 billion+ company using my small business as the bank.

Companies often cite Corporate Social Responsibility as a key part of a sustainability program. I believe cash-starving the suppliers who extend a company’s capability is irresponsible. It starves investment, innovation, growth and quality; how sustainable is that?

Are you requiring suppliers to act like a bank?

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Earth Day: Does your company make the grade?

 

New-Life

On this Earth Day, it is appropriate to dedicate this blog to sustainability. There is no doubt now that sustainability will be a performance indicator for future investors in companies and it’s interesting to read corporate reports dedicated to green , sustainable priorities. While many corporations give lip service to sustainability, unfortunately, when it comes to funding such efforts many companies fall short. Fortunately, more companies are making the investment, like these that warrant mention:

  • Alcoa’s executive compensation is tied to safety and environmental leadership, which includes greenhouse gas emissions.
  • GE uses it in resources department to integrate sustainability into the company’s culture.
  • Coca-Cola has committed to reduce water use by 25% and hired an external audit firm to monitor these results.
  • At its shareholder meeting, Starbucks CEO Howard Schultz discussed the company’s efforts to work with suppliers and local communities investing in sustainable farming and ethical sourcing.
  • Dell integrates recycle materials in its product and packaging and considers end-of-life recycling.

All are examples of leadership in sustainability that starts in the board room and becomes part of a company’s DNA.

Since sustainability is becoming important to investors, many firms are measuring corporate sustainability and ranking them according to their criteria. One notable firm is the Toronto-based Corporate Knights, who publish a list of the top 100 most sustainable companies.

For sustainability to be effective, there must be a deliberate strategy, commissioned by the Board of Directors, mandated by the CEO and driven to be part of the culture.

Is sustainability part of your company’s DNA?

Sustainability is key

If any suppliers needed more evidence of the importance of sustainability in the sourcing decisions of huge consumer goods companies, they certainly got it in spades over the last several weeks.

General Mills’ executive vice president of supply chain operations John Church announced a new corporate climate policy to track and reduce GHG emissions as part of its commitment to environmental stewardship and sustainable agriculture. In his blog post, he said this new policy requires key ingredient suppliers to demonstrate environment, social and economic improvements in their supply chains.

Shortly afterwards, Coca-Cola increased its investments in Africa to support, among other activities, key sustainability initiatives and programs there. The company also signed a letter of intent to launch Source Africa, an initiative to secure more consistent, sustainable local ingredient sourcing for its products, in partnership with the New Alliance for Food Security and Nutrition and Grow Africa.

On the heels of Coca-Cola, Tata Global Beverages announced their plans for 100% sustainable sourcing by 2020. A major focus of its sustainable sourcing strategy is sustainable agricultural practices, including reducing the use of Plant Protection Products in the tea industry.

Suppliers, take note.

Source Responsibly

Consumer pressure for sustainability has become so powerful that even a company that is dedicated to celebration and partying – Bacardi –  is taking a socially responsible position on sourcing. It has released a very detailed list of actions it’s taking.

These actions range from sustainable packaging to recycling waste to building a green-certified distillery in England. Bacardi even exclaims its goal to obtain 40% of the sugarcane-derived products used to make its rum from certified, sustainable sources by 2017 – and 100% by 2022.

Bacardi is using social media to promote its branded initiative, artfully called “Good Spirited.” So it obviously believes the initiative has marketing value. That tells us two things:  One. Sustainable sourcing is generally accepted as good for the company. Two. It’s still considered something that’s unique enough to set Bacardi apart.

The question is, how long until sustainable practices are so widely adopted and universally expected that touting them isn’t even worth it. What do you think?

 

Look Who is Buying From Bangladesh

It’s easy to say the right thing, but it’s not always easy to do the right thing as a recent investigation by The New York Times reveals.  The U.S. government, which encourages companies that buy goods overseas to use their spending clout to push for improved working conditions, is itself spending more than $1.5 billion each year to buy clothing from factories in Bangladesh, where hundreds of garment workers have died on their jobs.

The challenge of putting its money where its mouth is: how to spend the U.S. taxpayers dollars efficiently without supporting companies that abuse their workers. However, cities like Los Angeles and states like Maine have found ways, including requiring companies that bid on their contracts to publicly disclose the addresses of the factories where the clothing will be made.

The Sweatfree Purchasing Consortium maintains that similar requirements could work on a national level if federal agencies coordinate their purchasing decisions more closely and consider conducting joint investigations to ensure they are using only the best factories.  In other words, the U.S. government should use its own clout to make a difference.

 

 

 

 

 

Employees Succeed if Their Voice is Heard

Simple logic: if an employee is given the opportunity and is encouraged to share his or her opinion the company will benefit… not only because employees feel valued and comfortable, but because it prioritizes brainstorming and collaboration.

This is particularly crucial in Supply Chain so that everyone can contribute towards the continuous improvement of production. AlterNet indicates the United States may be a bit behind the times in this thinking (specifically in the automotive industry).

After spending a lifetime developing purchasing and supply chain professionals, I am always amazed that some of the supply base innovation gets lost or is never heard.  Perhaps we need to improve our presentation skills, but management must improve its listening skills.

Do you think employee voice is directly related to company success?

Takin’ it to the street

Frustrated with Procter & Gamble’s lack of urgency in finding sustainably sourced palm oil, Greenpeace literally took to the streets in Cincinnati and London in protest.  The activists, including two dressed as a tiger and an orangutan, unfurled banners on the side of P&G’s Cincinnati headquarters and erected barricades in front of its advertising agency’s headquarters in London.  At the same time, Greenpeace posted a video on You Tube mocking the “Thank you Mom” ad campaign and focusing on the plight of orangutans.

This is a good example of how non-governmental organizations like Greenpeace are ramping up their mass communications efforts to raise people’s awareness of important environmental issues and change their behavior, while governments lumber along, taking years to initiate and enact news rules and regulations.

While Procter & Gamble may have their dander up at the bad press, Unilever executives may be smiling for the way they stayed ahead of the curve. As we wrote in September 2013, Unilever’s goal is to source 100% of its agricultural raw materials sustainably.  In the way they managed their message about palm oil, Unilever stands head and shoulders above P&G.