The social and economic repercussions of the COVID-19 crisis have impacted many New Zealanders; the way we work, our job security and how we view our financial future.
Many businesses are weathering the storm and have already implemented change strategies designed to restructure and rebuild. The immediacy of day to day survival decisions run alongside the need to plan for what is becoming an uncertain future. Most business agree that, to survive, their reshaped business must have the ability to be more resilient than before.
For consumers, there have been two significant shifts in behaviour. The lockdown restrictions created a predominance of online shopping which accelerated digital transformation, particularly in the retail sector. And ‘think local, buy local’ campaigns have struck a chord with New Zealand consumers who, being more conscious of the benefits of being socially responsible, have rallied to the cause.
The headlines paint a grim reality with many trying to envision a post-COVID-19 world. In the context of an ongoing global crisis, we consider whether social responsibility should more significantly influence procurement decisions, and why.
We discuss what socially responsible procurement is and what it looks like. We also highlight the use of technology in managing and monitoring social procurement policies and outcomes.
The business case for social responsibility
It’s no longer the case that businesses exist with a focus purely on profits for shareholders.
The Sustainable Business Council (SBC) in New Zealand, as quoted from its website, “believes the private sector has a leading role to play in addressing climate change, as well as New Zealand’s top environmental and social issues. Our members know that business can only be successful in the long-term, when people live well and within the limits of the planet.” The SBC has 103 member organisations representing 31% of New Zealand’s private sector GDP and 10% of the workforce.
According to the SBC, 83% of NZ consumers would stop buying products if they hear a business is unethical, and 66% of New Zealanders would rather work for a company with strong values, even if paid less. This suggests that brands renowned for being socially responsible benefit from increased demand and employee engagement.
The survey also reported that businesses achieved sales growth of an average of four times compared to their competitors by applying sustainable practices (of which social responsibility is one).
A recent example highlights that disregarding socially responsible practices can have significant consequences. Boohoo, one of the UK’s fastest growing retailers, came under fire from allegations of worker exploitation, which led Amazon, ASOS, Next and Zalando to drop the brand from their websites.
The cost benefits through socially responsible and sustainable practices can be compelling. Operational efficiencies can be achieved through streamlining and energy saving, and waste reduced. Buying local can, in appropriate situations, provide more flexibility, shorter runs and minimum order quantities, reduce freight costs / lead times and stock holding. The social benefit is both a reduction in emissions and an increase in local economic activity and associated community benefits that come from increased employment.
A Hawke’s Bay Council recently voted to adopt a new policy aimed at ensuring that not only is a good price obtained, but that there are additional benefits for the community and the economy. Hastings mayor Sandra Hazlehurst said the timing of the new policy and strategy was critical in helping the economy recover from the effects of COVID-19 by allowing council to define its priorities, such as supporting specific sectors within the community, and working with suppliers to help achieve the outcomes.
“Based on the latest government Rules of Procurement released in October 2019, council’s procurement policy and strategy includes the change in government procurement focus from “value for money” to “public value”.
It seeks to achieve additional positive economic, social, environmental and cultural outcomes, at the same time ensuring competitive pricing and maintaining quality standards.”
– Hawke’s Bay App, 7 May 2020
What is socially responsible procurement and what does it look like?
Wikipedia defines social responsibility as “…an ethical framework [that] suggests that an individual has an obligation to act for the benefit of society at large. Social responsibility is a duty every individual has to perform so as to maintain a balance between the economy and the ecosystems.”
In terms of strategic procurement and supply chain management, this suggests that the organisation’s purchasing decisions should balance the needs of shareholders with broader social and environmental benefits. It’s clearly important that this is not just a set of policies for social procurement, it has to translate further into tangible and measurable actions and become the normal way of doing things.
In October 2019, the Ministry of Business, Innovation and Employment revised the Government Rules of Sourcing, including the idea that ‘value’ is more than just cost. “Broader outcomes” are front and centre, including increasing skill, improving working conditions and supporting the transition to a zero net emissions economy while assisting Government to meet significant reductions in waste. Although these rules are for Government departments and the broader public sector, the impact of broader outcomes has a trickle-down effect into the rest of the New Zealand economy.
Trends of businesses proactively adopting more ethical, sustainable and socially sound operating practices have been solidified by the introduction of legislation specifically aimed at requiring disclosure of human rights risks such as modern slavery in supply chains. Around 17,000 UK businesses are now required to publish annual Modern Slavery Statements under the UK Modern Slavery Act, and another 3,000 Australian companies will need to publish Modern Slavery Statements under the Australian Modern Slavery Act from December 2020 for the first time.
Organisations such as the Ākina Foundation support social enterprise initiatives and provide support to organisations who are interested in transforming how they work and what they do in order to be more socially responsible.
Our banks are starting to get in on the act too. Kiwibank has recently become a living wage accredited employer, which means that contractors to the bank (such as cleaners, security guards and maintenance people) are paid some $4 per hour more than the minimum wage. This allows those workers more choice when it comes to time spent at work versus time at home with their families.
The use of technology in managing and monitoring social procurement policies and outcomes?
Technology solutions such as those offered by Zeren, are now an essential part of a modern and effective strategic procurement approach, including contract lifecycle management and supplier relationship management functions. When extended to the management and monitoring of social procurement outcomes, the underlying data becomes a source of valuable insight for operations and marketing teams.
Criteria for measurement and monitoring need to be established that will allow for the quantitative and qualitative assessment of progress against objectives, and for the data to then be used to drive improvements or changes to both procurement and operational processes. The same data can then be used to measure the success of social procurement policies and practices against industry benchmarks or others in the sector, and to support good news stories.
The use of online dissemination of company disclosures can drive behavioural change. The key policy tool behind both the Australian and UK modern slavery legislation is that company statements must be published online, and are collated in searchable online databases – making it much easier for competitors to be compared, and companies that haven’t complied can be identified as falling behind their peers.
Managing supply chain, supplier and contract data requires a flexible system with powerful analytics capabilities. It should have the ability to classify or ‘tag’ suppliers as being a ‘local employer’, a ‘local manufacturer’, having a ‘strong record of sustainable practices’ or a ‘low emissions supplier’, for example.
Advances in these systems now mean that suppliers are able to self-administer their own information (such as compliance certifications), and can be asked to respond to questionnaires or assessments about their performance against socially responsible outcomes, criteria or KPIs.
This helps to keep all parties aligned on their goals for socially beneficial outcomes and gives confidence that their collective actions are making a difference.
Regardless of whether this global crisis continues for one year or five, we conclude that the shift in consumer attitudes has forever changed the way that organisations need to procure their goods, services or raw materials.
As well as the obvious benefits of reduced supply chain risk and support to the local economy, the business case for socially responsible procurement extends to brand value. Businesses who adopt these practices are more attractive to consumers, and are more likely to be resilient in the longer term.
Technology enables organisations to manage, monitor and measure the success of socially responsible procurement practices. The value of the data captured by both organisations and their suppliers in working to common, socially responsible goals provides insight that can better support business growth and ultimately drive a healthier economy.
Zeren is the legal technology business of Chapman Tripp, New Zealand’s leading commercial law firm.
By empowering our clients with tools to speed up, simplify and reduce cost in their business processes, we help businesses become more efficient, manage risk and perform better. What makes us different is that Chapman Tripp’s legal expertise is built into, and delivered through, Zeren’s solutions.
We design and deliver document and contract automation solutions, automated compliance solutions, and are the New Zealand reseller and implementation partner for Portt – a leading contract, procurement and supplier lifecycle management platform.