PRS Sustainable Procurement 090917

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Sustainable procurement

Gerard TeulingUnitlunch 17 September 2009

Gerard Teuling Unitlunch SAThe Hague, 17 September 2009

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Content

_Introduction: sustainable procurement_Case Unifine: ginger from Sierra Leone_Discussion


_ Advisor sustainable economic development, KIT_ Expertise

_ market and business development through chain development_ marketing strategies and business planning

_ Background_ market development consultant in South East Asia_ freelance consultant value chain analysis in Vietnam

(clients: SNV, ILO, Oxfam Hong Kong, World Bank)

_ Book: how Dutch firms can achieve sustainable procurement from development countries?

_ Basis: study Oxfam and Unilever (2005) on international business and poverty; study MVO Nederland into foreign entrepreneurship

Author: Marije Boomsma

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_ Term most commonly used in international development arena for all management activities related to purchasing, such as managing relations with suppliers

‘the management of the company’s external resources in such a way that the supply of all goods, services, capabilities and knowledge which are necessary for running, maintaining and managing the company’s primary and support activities is secured at the most favourable conditions’ (Van Weele, 2005)

_ More or less similar terms: purchasing, supply management

Sustainable procurement

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_ The need for companies to become more competitive in an increasingly global market. They are making their buying practices more efficient through innovation, and try to cut costs by buying directly from producers

_ The growing demand of consumers for quality and traceable products. That also pushes companies to buy direct from the source and to invest heavily in improving their supply chains and quality control systems

_ Rising public concern for social and environmental effects of global business. This leads companies to adjust their supply chains according to corporate social responsibility principles

Elements of procurement trends (1)

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Elements of procurement trends (2)

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_ The challenge for companies is to find the right balance between these three elements, leading to sustainable procurement


_ In manufacturing the costs of procuring goods and services is the largest of all costs reducing costs can have a big impact on a company’s returns

_ Firms could increase their profitability by 21% by professionalizing their procurement (NEVI, 2004; study among 69 Dutch companies)

_ At first, purchasing was seen as a function to enable factories to run: only the cheapest inputs were purchased, no synergy between buying practices

_ Nowadays purchasing management, supplier partnerships and supplier involvement are key to many businesses

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Why important?


Purchasing and supply development model (based on Van Weele 2005)

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_Final stage: value chains are fully integrated_ suppliers are actively included in product development to

achieve full customer satisfaction_ Full cooperation is sought in the value chain upwards (suppliers,

producers) and downwards (customers, consumers)_ Purchasing and marketing functions are fully integrated

_Result: low costs, high quality and social responsibility basis of sustainable procurement

_From there CSR in the supply chain is a small step_Final stage in Weele’s model is relatively new,

reliability not yet demonstrated

Customer satisfaction

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10 Case Unifine: ginger from Sierra Leone


_ Former part of Royal Cosun (cooperative sugar beet farmers)

_ Produces about 500 sauces and spice mixes for the meat-packing and food industries and for restaurants, caterers and wholesalers

_ Turnover: approx. 90 mln; 300 employees_ Frontrunner in responsible business

Unifine: company profile

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_ Sourcing ginger: one of Unifines main products 500 – 1000 tons a year

_ Pilot sourcing ginger from the Cotton Tree Foundation Ginger Enterprise (CTFGE)_ 2007: 40 tons - 2008: 75–100 tons - longer term: 200 tons

_ Aim: replace its practice of sourcing through traders and brokers

_ Driving factor: Unifine’s need for better quality assurance and full traceability in its supply chain, and coompetitiveness

Sourcing ginger

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_ Quality raw materials from development countries is unreliable

_ Consumers and supermarkets increasingly want to know the origin of ingredients (Sainbury and Tesco driving force)

_ Many wholesalers and general traders lack technical skills and knowledge about the products they trade in, because they are not connected to suppliers or to the value chain

_ To overcome this lack of transparency, processors such as Cosun and Unifine feel the need to source directly

_ Cosun: sugar-beets potatoes red fruit herbs & spices

_ Results sourcing peanuts directly (pilot test) better quality, fewer losses, better prices, lower operation costs

Quality and traceability

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_Unifine’s driving force partnership CTFGE: _ need to be competitive_ diversification supply ginger

_Pilot in Sierra Leone: learning to work with small-scale farmers and local start-up company

_Long run: CTFGE becomes ‘normal business’. Unifine can’t afford to pay more: B2B, products not visible for consumers

Competitiveness

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Organizational structure of Unifine

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_ Purchasing manager_ Quality control quality assurance: quality

control in all stages production_ Sales department: storytelling

Reorganisation business

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_Secured quality products: less production waste, fewer unwanted products, fewer recalls, fewer complaints

_Downside: higher production costs (audits, staff training, organizational)

_Losses compensate additional costs: unclear_ Customers do not pay more for sustainability_ Sales price not risen above market price_ Same target markets

Results

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_ High production costs at supplier level_ CTFGE is still in its infancy and not yet cost-effective, so it faces

difficulties in dealing with the current low world market price. Scaling up necessary in order to be able to supply to other clients

_ Sustainable financial support_ Is the Cordaid grant sustainable in this business case? Providing financial

assistance to companies is sustainable as long as the investments are based on a realistic growth plan. And the management needs to improve its results. Both are uncertain

_ High costs of sustainability_ Unifine: B2B, positioned in the middle of the value chain. Front runner in

a market that is (still) very disorganized (with ad hoc buying and selling). Risk: Unifine’s cannot directly add value by promoting sustainability. The strategy may harm its competitiveness in the short run

Limitations to sustainability

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_Hoe interpreteren jullie de activiteiten van Unifine?

_Wat denken jullie van Weeles benadering van full customer satisfaction? Herkennen we deze ontwikkeling?

_Wat kunnen we hiermee bij onze klanten?

Vragen voor discussie

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PRS Sustainable Procurement 090917

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Transcript of PRS Sustainable Procurement 090917