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RESPONSIBLE SOURCING FOR FOOD BUSINESS OPERATORS Creating Business Resilience By Managing Supply Chain Risks, Protecting The Brand And Seizing Competitive AdvantageBy Richard Werran

Responsible sourcing is fast becoming recognised as

a business necessity. Most of the large retailers, food

service operators and brand manufacturers have already

adopted some level of responsible sourcing policies, to a

large extent driven by their customers’ expectations and

demands. This paper sets out how a responsible sourcing

policy can also deliver operational, financial and brand

value benefits to businesses sourcing from raw material

supply chains. A responsible sourcing strategy looks to the

future resilience of the business, ensuring its competitive

positioning today and in years to come.

WHAT IS RESPONSIBLE SOURCING?

A recognised definition and the one adopted by

NSF International is:

The voluntary commitment that your business

makes to address the social and environmental

risks that impact your supplier relationships and the

products you source.

Many companies already take into account social and

environmental factors through sourcing policies that are

designed to protect or enhance their brand reputation.

However, responsible sourcing can also encompass the

notion of developing a sourcing strategy which is equally

led by commercial objectives such as protecting security

of supply, operating more efficiently or growing sales of

brands with key sustainability attributes.

There are potentially substantial financial, operational

and reputational benefits to be reaped from adopting

a responsible sourcing strategy. What this means varies

for different food businesses; some may simply react to

established customer expectations, while others prefer

to take a leadership position to deliver operational

efficiencies through research, innovation and technology,

or through clearly differentiated brand positioning. For

example, Hyatt, the global hotel chain, has successfully

carved out its position under the banner of “Food.

Thoughtfully sourced. Carefully served.”

Depending on the characteristics and culture of your

business, your strategy can be reactive or proactive.

All businesses can start to implement changes in their

sourcing practices to reduce risk, create resilience and

unlock value for stakeholders, whatever their starting

point. How far you go on the journey depends on your

business vision and aspirations.

In all cases, a well-constructed responsible sourcing

strategy can provide food business operators with critical

differentiation in today’s extremely competitive high street

trading environment, delivering competitive and even

first mover advantage that contributes not only to the

reputation of the business but to operational profitability

and share value. Investors as well as consumers are

increasingly looking for evidence of responsible and

sustainable sourcing practices.

The better you understand and address the risks inherent

in your supply chain, the better position you will be in

to protect your brand and gain competitive advantage

in your sector, compared to those who are sourcing

from the same supply chains but without the level of

understanding or management practices in place.

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WHERE IS YOUR BUSINESS ON ITS RESPONSIBLE SOURCING JOURNEY?

THE IMPORTANCE OF RESPONSIBLE SOURCING

“History has shown that those who are fully

prepared to acknowledge and engage with

the future shape and prospects of their sector

will not only be better prepared to address

challenges and reduce risks, but will also be able

to capitalise on new business opportunities.”

Steve Adams, Group Director of Supply Chain

Operations, Coca-Cola Enterprises (CCE),

Great Britain1

There are compelling arguments and drivers for

change coming from multiple directions. Food

businesses face the choice of controlled transition

or, potentially, forced disruption.

We are all familiar now with the dynamic and

complicated global environment in which the food

industry operates: issues such as climate change, intensive

farming, and water and energy waste, combined with

other geopolitical and social issues that go way beyond

the sphere of food safety, now present substantial

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and growing risks to business. In today’s complex

and extended supply networks, the issues are myriad,

interconnected and dynamic, and they often lack visibility.

Sourcing product responsibly is one of the key ways to

mitigate your business risks and make both your supply

chain and your business more resilient to failure of supply

through catastrophic or unforeseen events, or incidents

that could cause a devastating loss of consumer or

stakeholder confidence.

Sourcing and supply chain policy is fundamental to the

key factors that deliver business profitability:

• Consistently delivering products and services

customers want, at the quality and prices they are

willing to pay

• Behaving in ways that align with the values and

expectations of customers, investors and other

stakeholders. This includes standards of ethical

behaviour, which may also encompass adopting

brand promises or positioning to appeal to their

chosen target audiences, e.g. Non-GMO, or higher

social or animal welfare.

Both issues can be focussed down into two key sourcing

themes and both present opportunities as well as risks:

No or few resources applied

Resources Level of Activity Result

Separate “sustainability” department

Sustainability integrated in all functions

None – no interest

Minimal – enough to comply with legislation and basic compliance

Some – A strategy developed and implementing certain policies

Sustainability integrated in all functions

At risk

Creating differentiation and competitive advantage

Addressing brand protection and security of supply

Level of engagment

with “Sustainability”

HIGH

LOW

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FOOD SECURITY

• Access to future supply of sufficient quantities of

safe product/ingredients at the appropriate quality at

the right time, place and price

• Availability of product in the short-, medium- and

long-term – and from all locations

• Security of corporate assets in the relevant locations

• Ability to capitalise on and deliver to new and

evolving markets

BRAND REPUTATION:

• Meeting consumer values

• Building stakeholder trust

• Maintaining brand integrity

DRIVERS AND CHALLENGES

The business drivers for responsible sourcing are

geopolitical, social, regulatory, economic and commercial.

We highlight below some of the prime examples.

CLIMATE CHANGE

Climate change is having a major effect on food security

in agrarian communities and threatens supply of product

from established locations to developed nations.

Agriculture is having to adapt, as are sourcing strategies.

Droughts and heat waves destroyed nearly 10 percent of

the rice, wheat, corn and other cereal crops in countries

hit by extreme weather disasters between 1964 and

2007, according to a new study. (Rice, wheat and maize

alone provide more than 50 percent of global calories.2)

Government-driven international initiatives (notably the

UN climate change talks in 2015 in which 196 countries

agreed to limit carbon emissions) to slow down global

warming are putting increasing pressure on businesses to

reduce carbon emissions. Thirty percent of greenhouse

gas emissions can be traced to the food production and

distribution system.

As energy and water usage are also major costs for

business, the incentives to effectively manage and reduce

their use are clear.

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WASTE

LAND USE CHANGE

WATER AVAILABILITY

DIETARY SHIFTS

ANTIBIOTIC RESISTANCE

PRICE VOLATILITY

WORKER WELFARE

SOIL HEALTH

BIO-DIVERSITY

LOSS

CLIMATE CHANGE

PESTS & DISEASE

ANIMAL WELFARE

GEO-POLITICAL INSTABILITY

RESOURCE SCARCITY

FOOD SECURITY

RISKS

FOOD QUALITYBRAND

REPUTATION RISKS

FOOD SAFETY

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OTHER ENVIRONMENTAL FACTORS AFFECTING FOOD SECURITY

These include pollution and the effects of intensive

farming, e.g. fertiliser and antibiotic use, damaging use

of pesticides, loss of biodiversity, water shortages and soil

degradation. Every year, 75 billion tonnes of crop soil are

lost worldwide to erosion by wind and water and through

agriculture; this costs about US $400 billion a year.3

These issues are increasingly the focus of governmental

policy and legislative initiatives.

HEALTH AND NUTRITION

Governments in developed nations are increasingly

concerned about obesity, diabetes and other emerging

public health issues in their populations, which are

putting unsustainable resource and cost strains on health

service providers. Moves toward lower sugar, salt and fat

content plus more natural and also functional ingredients

are being driven by a combination of policy initiatives and

growing consumer awareness and demand for healthier

food. The recent sugar tax in the UK may signal the

beginning of a new trend in punitive regulatory actions,

necessitating product and menu reformulations to align

nutrition and health.

SOCIAL WELFARE/JUSTICE

Concerns around exploitation and social inequality in

developing countries is driving regulatory developments

in this area, for example as in the Modern Slavery Act,

introduced in the UK in October 2015. Currently it is

believed there are 45.8 million people in modern-day

slavery.4 That figure includes an estimated 5,000 slaves

in the UK making clothes and picking produce. The

Modern Slavery Act contains a Transparency in

Supply Chains clause, which means businesses of a

certain size will be legally obliged to publish annual

slavery and human trafficking statements that

outline the actions they have taken to eradicate

modern slavery.5 Although the act came into force in

2015, many UK companies have yet to comply.

The Ethical Trading Initiative reported that fraud, illegal

acquisition of land and slavery were used by many

tomato growers and suppliers in Italy. The UK sources

approximately 60 percent of their tomatoes from Italy,

so this represents a significant reputational risk lying

dormant in the supply chain.6

ANIMAL WELFARE

Levels of concern and regulatory protection for animals

varies widely across the world, but the direction of travel

is increasingly toward higher welfare production methods.

In the UK the RSPCA reports that its surveys since 2006

show an increasing proportion of shoppers are concerned

about animal living conditions and identifies animal

welfare as a key variable impacting their purchasing

decisions. The number of animals reared in systems with

higher welfare potential, including outdoor and enriched

indoor systems, has increased. Farm assurance schemes,

animal welfare NGOs and scientists, retailers, government

legislation, consumers, celebrity chefs and farmers have

all played their part in driving these changes.7

POLITICAL FACTORS

Food insecurity is closely related to political instability

and can be both a cause and an effect of this. On the

one hand, natural and man-made food security crises

can have devastating human cost in their local regions,

for example, in Somalia and Ethiopia, and potentially

affect established export supplies. On the other hand,

punitive actions by unfriendly regimes can also shut down

supply, for example most dramatically seen in 2015 when

President Putin threatened to shut down gas supply to

Ukraine, which would have seriously affected the whole

of Europe.

CONSUMER BEHAVIOUR

Consumers want to trust the brands they buy and have

expectations which, if disappointed, can be extremely

damaging to the brand owner. The desire for transparency

and trust has been heightened by recent incidents that

have caused a loss of confidence in the safety and

quality of our food. This, combined with the fact that

consumers are now better educated and informed about

their health and wellness, the environmental and social

impacts of the production process, and the safety of

their food and drink, places ever greater onus on food

business operators to demonstrate the integrity of their

supply chains. Consumer demands for seasonal products,

sustainable fish, British meat and locally-sourced produce

have all found their way onto the menus of high street

chains. This pressure will continue.

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SOCIAL MEDIA

The added power of the internet and social media

provides consumers with instant access to supply chain

information about issues they care about in a way that

was never previously available. It means that issues can

be global within hours. Today’s reality is that you may

lose a customer on the basis of one negative comment

in social media whether or not it is true. Animal welfare

and child labour are emotive issues that are cases in point.

Being able to evidence, monitor, manage and control your

supply chain is a critical for brand defence.

“In 2010 public trust in companies was least

affected by financial performance (only 45

percent of respondents cited this as important to

corporate reputation), whereas 64 percent cited

good corporate citizenship and 83 percent cited

transparent and honest practices as important to

corporate reputation.” 8

WHAT DO CONSUMERS CARE ABOUT MOST?

Consumers care about responsible sourcing and

sustainability issues. Where the offer is well defined and

differentiated, some customer segments are prepared to

pay a price premium for responsibly sourced products,

although the default position of the vast majority of

consumers would be that food businesses should be

sourcing responsibly across all product price ranges.

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CONTINUED...

ISSUES CONSUMERS CARE ABOUT

The top ranked environmental issues that consumers care about as researched by Eurobarometer 9.

Air pollution

Water pollution (seas, rivers, lakes and underground sources)

The impact on our health of chemicals used in everyday products

The growing amount of waste

Depletion of natural resources

Agricultural pollution (use of pesticides, fertilisers, etc.)

Shortage of drinking water

Loss or extinction of species and their habitats and of natural ecosystems (forests, fertile soils)

Our consumption habits

Urban problems (traffic jams, pollution, lack of green spaces, etc.)

Land take (i.e. that more land is used to build roads or cities, and that cities expand into the surrounding countryside)

Noise pollution

Soil degradation

The spread of harmful non-native plants and animals (invasive species)

56%

50%

43%

43%

36%

29%

27%

26%

24%

23%

15%

15%

13%

11%

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THE COMMERCIAL ARGUMENTS FOR RESPONSIBLE SOURCING

The good news is that whatever the position of a business

in terms of its sustainable or responsible sourcing policies,

a company’s commitment to ‘doing the right thing’ often

dovetails with fundamental business objectives.

The Sustainable Restaurant Associations reports that 70

percent of diners would prefer to eat in a sustainable

restaurant, while simple measures to reduce energy, water

usage and waste can save an average restaurant £20,000

per year. Similar examples can be found in management

of the supply chain.

The State of Sustainability 2015 report from the Ethical

Corporation found that senior managers were increasingly

recognising the importance of having a sustainable

supply chain, with 71 percent of buyers saying that their

boss was beginning to understand the added value that

improved sustainability could add to their company.

GOOD CORPORATE SOCIAL RESPONSIBILITY AND TRANSPARENT PRACTICES GENERATE CONSUMER AND INVESTOR TRUST AND ADD FINANCIAL VALUE TO COMPANIES.

There is evidence that brands that demonstrate strong

social values and good corporate responsibility are more

resilient and have a higher monetary value than those

that do not.

“Companies that consistently manage and measure their

responsible business activities outperformed their FTSE

350 peers on total shareholder return (TSR) in seven out

of the last eight years. The TSR of these companies also

recovered more quickly in 2009 compared with that of

their FTSE350 and FTSE All-Share peers, with an average

10 percentage points higher shareholder return.” 9

Investors, too, care about the sustainability measures

being taken by companies:

“We know investors care about this information,” said

Mary Schapiro, the former Securities and Exchange

Commission Chairman in comments to a Bloomberg

Sustainable Business summit in New York, but “It’s still

a challenge for investors to get the information they

need on environmental, social and governance issues.”

Investors are “highly dissatisfied with the information they

are getting today” and “can’t really use it effectively for

their allocation decisions.” 10

DOING THE RIGHT THING AND BENEFITING FROM COST SAVINGS

Many responsible sourcing policies present opportunities

to reduce costs and/or improve resilience. Obvious

examples include reducing water and fossil fuel use in

supply processes which also has the benefit of cutting

out significant costs to the business. Even simple

measures such as buying from local suppliers, demanding

reduced packaging and buying seasonally can reduce

operating costs.

Importantly, developing relationships with suppliers and

creating longer-term partnerships whilst investing in

training and standards can reap long-term financial and

brand protection benefits.

MCDONALD’S CUTS CARBON EMISSIONS

McDonald's has carried out a study of UK and Irish

beef farms, which identifies measures that can

help farmers meet government standards for CO2

reduction and boost profits. The beef carbon report

measured carbon emissions from more than 1,300

beef farms in the UK and Ireland between 2008 and

2014. McDonald's says the study had driven a 23

percent reduction in carbon emissions on the farms

it monitored, suggesting that British beef farmers

may be capable of achieving the 11 percent voluntary

reduction target for greenhouse gas emissions set

by the UK government for 2020. Moreover, as well

as reducing their carbon footprint, farmers who

participated in the study recorded yearly savings of up

to £23,000.11

TOWARD A RESPONSIBLE SOURCING SOLUTION

It is clear that the wide-ranging issues to be addressed

in a responsible sourcing approach are complex and

interrelated, not least because tackling one problem may

impact negatively on other areas. The question is how do

businesses identify and unpick the issues, prioritise them

and find a logical and effective way to start addressing

them, whilst still delivering safe, quality and competitive

products to market?

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THE COMPLEXITY OF SUPPLY

Approaches taken can vary widely, from the huge,

international corporations with the ability to position

themselves as industry leaders and innovators such as

Coca-Cola, to the small and medium-sized businesses

(SMEs) who may only take small tactical measures to

future proof their brand.

A responsible sourcing policy embraces seven key

strategies:

• Anticipating and adapting to trends – better than

your competitors do. At its most basic, if future

supply is limited, how do you ensure yours? At the

other end of the scale, what emerging consumer

demands can you take advantage of?

• Finding new ways for your suppliers to operate

more efficiently – to better satisfy consumer and

stakeholder demands

• Adopting new technology to help do this – and to

help measure progress and create value

• Dealing with effects of climate change – whatever

the implications may be for your business

• Saving water, energy and carbon as specific goals –

to meet public policy demands

• Helping to drive down poverty and create food

security, for the good of the global community

• Improving social justice and conditions.

“Every supply chain has risks and opportunities – they are

two sides of the same coin. The key is to prioritise what

you do and where you do it based on understanding and

managing what’s most important to your customers and

the future of your business.” Simon Davis, Agriculture

Development Manager, NSF International

Businesses often assume that they are resilient because

they are on top of current issues. However, managing

the day-to-day pressures of supply, demand and price

volatility is not at all the same as having a clear and

evidence-based understanding of the longer-term trends

that will affect the sourcing of your specific products and

ingredients.

CONTINUED...

HUNDREDS OF INGREDIENT TYPES

DIFFERENT TIMES OF THE YEAR

VARYING REQUIREMENTS

SHARED SUPPLYCHAINSMULTIPLE

REGIONS

A PRACTICAL APPROACH

The starting point should always be the evidence base:

ensuring that the science, the data and your policies are

closely aligned to deliver brand competitive advantage.

Your company needs to:

• Identify the relevance of the prevailing science and

theory to your business and your supply chains. An

example here might be ‘big data’ and your ability

to predict risk through analysis of datasets from

your suppliers’ audit histories. Until recently, the

technology was not available to make this a practical

option.

• Collect, measure and analyse data from your

business and other key sources to clearly understand

key sourcing risks, opportunities and priorities. Data

sources include certification and audit data, financial

and operational data, public data and bespoke

measurement and surveys.

• Implement prioritised changes that can be measured

via benchmarking and trending, to help your

business better manage the issues and gain clear

and consistent feedback on progress.

When mapping the supply chain and designing a

responsible sourcing initiative, the factors to be taken into

account, should include:

• The raw materials and the country of origin that

your business sources from

• The complexity of your supply chains and your

relationships with key suppliers

• Your business’s existing responsible sourcing

priorities

• Progress made toward public commitments, CSR or

corporate strategy

• The level of internal understanding, governance and

commitment to a sustainable sourcing culture

• Key stakeholder relationships and partnerships

• How others, including competitors, have approached

a similar challenge

There are wide range of tools, to facilitate this process,

but the key is to design a project process that drives

innovative solutions and provides a route forward in

incremental steps.

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CONTINUED...

RESPONSIBLE SOURCING IN ACTION: A REAL-WORLD EXAMPLE

REMA 1000 is a multinational supermarket chain operating

in Norway and Denmark on a franchise basis. They buy large

quantities of a limited range of products and offer these to semi-

independent owners in over 500 stores. Their strong brand values

include a commitment to price, quality and responsibility- offering

good quality products at the lowest prices while trading to high

ethical standards.

REMA’s customers have increased expectations in relation to levels

of product integrity, provenance and traceability. In order to meet

these customer expectations, REMA 1000 realised it required a root

and branch review of their practices to ensure they could meet

the challenges of continued growth within a highly competitive

marketplace.

REMA 1000 commissioned NSF International to undertake a

consultancy project to enable the business to establish and

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roadmap its quality and responsible sourcing objectives

for 2020 and beyond. The project provided an overview

of the REMA 1000 supply chain from farm to fork

through interviews and visits to farm, supplier, distributor

and REMA 1000 stores.

The resulting comprehensive report identified where the

company’s sourcing practices needed to be improved and

made resilient for the future. Importantly, it also focussed

on the potential for REMA to strengthen its brand

positioning and add value to an expanded and more loyal

customer base as ‘The Responsible Retailer’. The report

included recommendations to:

– Clarify and develop the strategic vision within the

context of responsibility and help foster a culture in

which all employees and suppliers buy in to this

– Develop an enhanced customer offer, facilitated

by formalised sourcing policies, data management

systems and procedures, and with improved

customer data and understanding

– Implement new data systems to integrate all

information concerning product, suppliers and

service provision to facilitate measured and

appropriate business decision making, for example

in the areas of complaints, rejections, wastage and

non-compliance against contract

– Establish a customer communications strategy to

position REMA as ‘The Responsible Retailer’

The next step is to develop a detailed and prioritised

roadmap to implement the revised vision and strategy

with key milestone dates and championed by key REMA

personnel.

CONCLUSION

The wide range of issues to be addressed in a responsible

sourcing approach are complex and interrelated, because

of the length and complexity of supply chains themselves

and the thousands of products and ingredients involved,

but also because tackling one problem may impact other

areas. Food sourcing is a complex area.

In summary, the commercial benefits to food business

operators of adopting and exploiting a responsible

sourcing policy include:

– Protection of supply in competitive and/or

resource-limited environments

– Operational efficiencies contributing to the

bottom line

– Evidenced regulatory compliance and risk

mitigation

– Brand protection in media-led reputational crises

– Differentiated competitive positioning

– Ability to maintain price premiums

– Improved brand reputation and customer loyalty

– Increased shareholder value.

The key facets of a successful responsible sourcing

strategy are those that help businesses adapt to or

mitigate risk and make the supply chain more resilient to

future challenges. By doing so, the business can create

more value for its customers, shareholders, suppliers and

other stakeholders.

Responsible sourcing is a conscious business decision,

one which has many tangible benefits for consumers, the

environment and global sustainability – and ultimately,

your business sustainability and brand reputation.

CONTINUED...

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Copyright © 2016 NSF International. This document is the property of NSF International and is for NSF International purposes only. Unless given prior approval from NSF, it shall not be reproduced, circulated or quoted, in whole or in part, outside of NSF, its committees and its members.

Cite as: NSF International. June 2016. Responsible Sourcing for Food Business. NSF: Oxford, UK.

LFP-550-0616

NSF International is a global public health organisation that operates in more than 150 countries, with worldwide laboratory testing facilities, and expert resources across a wide range of professional fields including health sciences, IT, food and beverages, sustainability and agriculture.

For all enquiries contact:

enquiriesEMEA@nsf.org

ABOUT THE AUTHOR

Richard Werran FIFST, FSOFHT is General Manager of Responsible Sourcing for NSF International.

Richard is an acknowledged expert in genetic modification in global supply chains and in former roles he

created and established class leading Non-GMO Standards in the EU and SE Asia markets. His expertise

includes responsible sourcing, supply chain certification, and technical and consulting knowledge in food

manufacturing and food ingredients from primary production to retail. For more information, contact

enquiriesemea@nsf.org

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UzMDYxMjA0MgS2&spJobID=840817500&spReportId=ODQwODE3NTAwS0

3. http://www.nature.com/news/agricultural-policy-govern-our-soils-1.18854

4. https://www.walkfree.org/modern-slavery-facts/

5. http://www.legislation.gov.uk/ukpga/2015/30/contents/enacted

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7. http://www.foodethicscouncil.org/uploads/publications/2014%20FarmAnimalWelfare.pdf

8. http://www.som.cranfield.ac.uk/som/dinamic-content/media/documents/Business%20case%20final.pdf

9. http://www.som.cranfield.ac.uk/som/dinamic-content/media/documents/Business%20case%20final.pdf

10. http://blogs.wsj.com/cfo/2015/11/12/investors-want-more-from-sustainability-reporting-says-former-sec-head/

11. http://www.mcdonalds.co.uk/content/dam/McDonaldsUK/About%20Us/Newsroom/prease%20releases%20downloads/SUSTAINABLE%20BEEF_

FULL%20REPORT_FINAL%20VERSION_27.01.16.pdf