Also in this issue

Deutsche Bahn’s engine of ethics

Sustainability in purchasing

How good can we be?

Morality and ethics in companies and procurement

Your magazine for Procurement & Logistics

Q4 / 2018 edition

2

Drozak on the spot

Drozak on the spot Save the dates:

Event calendar for 2019

MAY 15 – 16 MAY 2019

World Procurement Congress in London High velocity procurement: The competitive advantage

OCTOBER 23 – 25 OCTOBER 2019

BVL International Supply Chain Conference in Berlin Industry convention for logistics and supply-chain management

professionals

NOVEMBER 13 – 15 NOVEMBER 2019

BME Symposium in Berlin

3

Editorial

The tranquil weeks of Advent and Christmastime make us more amena-ble to taking an ethical view of the stressful societal and political dramas currently playing out all around us.

If we bring this contemplative mood into our daily business, it prompts us to raise questions that we sometimes suppress in order to avoid ethical ar-guments. Are our actions always eth-ically and morally appropriate? More specifically, do we not sometimes place too much pressure on suppli-ers, customers, partners, employees, and colleagues? Does our behavior reflect our own ethical ideas? Or do we sometimes cross ethical lines, and soothe our consciences with the balm of logical justifications such as, “It’s about the company’s continued existence,” “It’s a fight to the death against the competition,” or “I have to make sure of my own family’s fu-ture.” I sometimes ask myself these questions…

For this reason, we have selected this special topic to ring out the year. In part, we want to focus on the perspective

of ethics in purchasing because of the pre-Christmas mood. However, our primary reason is because this topic is only rarely addressed, and its impor-tance continues to grow for numerous reasons.

In our lead article, we begin with an ethical tour de force that ranges from the Bible to the Romans to codes of conduct and the issue of compliance. Swiss theologian, philosopher, and canon-law expert Daniel Schwenzer has tackled the humanistically chal-lenging task of building these ethical bridges.

Afterward, remaining within the purchasing sphere, we enjoy a deep dive into this topic. I am very pleased that we have succeeded in obtaining a comprehensive interview with the CPO of the corporation that faces the most stringent requirements with regard to transparency, traceability, and compli-ance. Deutsche Bahn’s Uwe Günther provides an impressive demonstration of how fundamental ethical values can be practically implemented in a de-manding environment.

With the last article, we complete the thematic triangle of ethics – procurement – implementation. Here, Thomas Keitel offers additional inter-esting examples of how companies worldwide handle the issue of ethics, particularly in the sense of sustainable procurement.

I hope you enjoy your reading, and I wish you and your families a merry Christmas and a healthy new year.

Dr. Jacek Drozak

“Does our behavior reflect our ethical ideas?”

Dr. Jacek Drozak, founder and CEO of Drozak Consulting

Ethics in procurement

Do we need new commandments?Ethics in companies and in purchasing

What rules should we be following?

In 1912, Russian economist and the-ologian Sergei Bulgakov wrote, “The fact of economy always aroused phil-osophical ‘surprise’ in me, and the problem of the philosophy of econo-my ... has in fact never left my spiritual horizon.”

Bulgakov’s “surprise” and his question regarding the philosophy of economy is a topic that remains as important and current today as it was then. This is true not only from the viewpoint of a theologian and ethicist, but also for businesspeople, executives, and employees.

All of these individuals, conscious-ly or unconsciously, ask themselves questions such as the following: What rules, norms and guidelines – beyond those that are legally prescribed – are binding for our activities in the busi-ness world? Are we in conflict with the precepts of charity, mercy, and be-nevolence to our fellow humans when we try to act upon our employer’s economic interests? Is implementing a corporate governance policy and a code of conduct, as most companies

have done, a satisfactory response? And particularly for purchasing de-partments, how should an essential interface be established between ex-ternal relationships and cash flows on the one hand, and the issue of ethics on the other?

The blindness of economists

Just as there are many questions, there are also many theories about economics. Every thinker has “their” theory or dogma. For this reason, one can also speak of economic dogmat-ics. Every economic dogmatics bases its theory on regulatory mechanisms

that must either be implemented or rejected. This ranges from the social-ist planned economy that looked to Germany’s war economy during World War I as a model, to the modern so-cial state that was first developed in the 19th century, to so-called pred-atory capitalism, which idealizes an

absence of regulations, and accepts that many people will simply fall by the wayside. One compromise is the so-cial market economy, which – based on the encyclical Rerum Novarum (1891) by Pope Leo III, and subse-quently adapted and developed by economist and later Federal Chancel-lor Ludwig Erhardt – served as the ba-sis of the market economy of the Fed-eral Republic of Germany (particularly the “Bonn Republic”), and with certain exceptions, retains this role today.

Of course, there are many critics. For example, in 2010, economist Ka-ren Horn lamented the “devastating

philosophical and social-scientific blindness” of modern economists, along with a lack of “logical rigor … [in] coupling theory to reality.” This criticism can also be aptly applied to current policies on both the German and European level. A short-sight-ed laissez-faire, or “we can do this,”

A short-sighted laissez-faire, or “we can do this,” relinquishes any ambition of looking creatively ahead, and avoids confronting consequences

4

Ethics in procurement

relinquishes any ambition of looking creatively ahead, and avoids confront-ing future consequences.

The responsibility of the individual

Back to Bulgakov. His philosophi-cal insight is that the category of the freedom of action and of reflection applies not only in the realm of the spirit, but also in the material realm (thus, in economic relationships). This is true not only at an individual level, but also with respect to the entire so-ciety. We see this insofar as the per-son, according to Aristotle, is in truth a zoon politikon – that is, a being that lives in the polis, or literally in a com-munity of many. According to Aristotle, the aim of the zoon politikon is to at-tain the “good life.” For this reason, it is a part of man’s nature to organize into communities and states. This in turn requires rules, along with regu-lated markets and economies. Life is thus an economic process, and world events can be interpreted as econom-ic events.

The Romans had a legal axiom that ran “ubi societas, ibi ius” – that is, where there is society, there is law. This presents us with additional ques-tions. Where there is a society, and where there are people, there are mar-kets that require regulation. Markets as such are surely as old as humanity itself. The question is, how does one act within these markets, and how does one interact with the partners that also populate them? How can all participants derive advantage or ben-efit from this system, so as to to create a situation of universal inclusion?

What does this mean for each one of us? It is here that responsibility is called for. This makes demands on our personal outlook, our personal ethics, and our personal willingness to engage. Fundamental concepts involved in this process include sol-idarity, integrity, the public welfare, and sustainability. These principles apply within spheres both large and small. They involve the responsibili-ty shown by companies, but also the

responsibility and freedom of individ-ual employees, detached from their positions in the function and hier-archy of the company in the context of their tasks. Corporate guidelines, corporate responsibility policies, and employers’ codes of conduct should be observed. However, these do not replace the urgent necessity to make decisions in each situation that do justice to one’s own aspirations as an individual and a human being. Such decisions may even be contrary to the directives of superiors, thus requiring great courage (and legal protection for such whistleblowers).

Corporate responsibility in the Bible

We return now to the topic of pro-curement! Corporate responsibility, integrity, and individual responsibil-ity and freedom are of course topics relevant to purchasing as well. Due to their mandate to use a company’s resources efficiently and effectively, buyers face varied ethical demands, and sometimes challenges as well. Fortunately, since Adam Smith and David Ricardo’s time, there has been a political, economic, and ethical real-ization that trade – and thus also the economic activities carried out by a company – fundamentally increases the welfare of all participants.

This in turn is quite biblical, and is re-flected in the New Testament parable of the talents. In this story, a rich man goes on a journey, and distributes his wealth among his servants so that

they, each according to their ability, can work with and increase the money. After his return, he holds an account-ing. The servant who had received five talents has earned another five, while the one who had received two talents has also gained two more. Only the servant who received just one talent

– apparently because he was already the least capable – has earned nothing in addition. Out of fear of loss, he had simply buried his talent. The parable also casts a glance at our own tasks and personalities. “Talents” are origi-nally an ancient unit of currency, but in everyday speech, they have become what we still understand by the con-cept today: abilities or skills. It is thus ethical to employ your skills to increase the goods entrusted to you. This in turn appears to work to the good of all: The rich man in the parable is pleased that his wealth has been enhanced by his employees, and the successful serv-ants are also pleased at receiving their personal share in their success. It has therefore been beneficial to put the talents to work. Only the servant that did nothing is punished. In this regard, the Bible and its parables are based on human experience. They certainly reflect the society of the time, but can also be instructive in our society. Work in accordance with one’s own talents is and should be profitable. Or, ex-pressed in the context of modern so-ciety and its division of labor, property (and one’s function within a company) entails obligation.

Walk the talk

The fact that nearly a billion people still live under conditions of absolute poverty provides a strong justification for work in a company. The biggest decline in poverty has taken place in countries that have opened them-selves to trade. And are not purchas-ers often on the leading edge of trade,

as the first in countries both near and far to open the door of the global economy to economic agents? How-ever, it is important that buyers, and salespeople too, follow ethical princi-ples, so that they genuinely provide a share in happiness and success to everyone. Adam Smith’s invisible hand

Purchasing and business processes must be oriented toward a comprehensive sustainability,

and thus an ethical concept of the future

5

6

creates wealth, but does not neces-sarily distribute it equitably. Thus, buy-ers must always ask themselves: Is my purchasing both honest and proper? Am I following the right values as an individual person, and are we doing so as a company? Here, the “right” val-ues are those that create a win-win sit-uation for all participants, rather than leaving one party behind while all oth-ers profit. Or, asked differently: Are the company’s purchasing activities and business processes oriented toward a comprehensive sustainability, and thus an ethical conception of the future?

In this regard, each society must take itself by its own entrepreneurial nose, and continually ask itself the hard questions. In terms of the ethical as-pirations of economic entities, free markets, and free economies, it is best that this originates from within, in a process of self-illumination, rather from the outside, for instance through laws. We are thus talking about cor-porate responsibility. However, this always concerns the entire compa-ny as a corporate body, not simply the executive level, the headquarters or the sales department. All of these might offer good ideas and ideals, but in many cases such goals are not after ward pursued or observed.

“Do unto others...”

The lived aspiration to corporate re-sponsibility within a company should be subjected to regular monitoring, screening, oversight, and logging by purchasers and suppliers. This places demands on individual company em-ployees. Ultimately, many biblical pre-cepts can be summarized in the fol-lowing saying: Do unto others as you would have them do unto you. (Or, as the popular German maxim has it: Was Du nicht willst, das man Dir tu, das füg’ auch keinem andern zu.) Formulated differently: If I as a member of my

company and as a purchaser consider something to be both proper and im-portant, I must demonstrate this and set an example with my own ethical action. This responsibility for the self applies both from above and below, from within and from without.

Only in this way can markets genuinely work toward ending poverty and free-ing people from its grasp. Population figures around the globe are rising. To keep the world from falling regularly into conditions of disaster (such as wars, famines, and epidemics – the one of which is often a factor in the next), each link in the human chain

must promote and demand sustain-ability. This is about the relationships of individuals to and with one another. It is about how we deal with poverty, because there can be no freedom of choice in the context of involun-tary poverty. However, the freedom of choice (education, the free choice of profession, horizontal and vertical mobility) is itself a requirement for the free development of states and their residents. If, as suggested above, the human being is a zoon politikon, then the polis – the city on a small scale, the state on a larger scale, and the international community in the larg-est sense – is the place where busi-ness and politics are done. All those that abide by ethical rules are already making policy. This is because they are contributing to the well-being and welfare of all, and of course to their own in the process.

What good is it to make a large profit today at a partners’ expense, cata-pulting sales and turnover figures up-ward, while in the long term destroy-ing and rationalizing away the sales territories and markets that you want to keep serving? In doing so, one ulti-mately rationalizes oneself away, or at least one’s own economic existence.

If these points are heeded and lived, it is possible to contribute successfully to making our world a little fairer and more reasonable by working as part of a company. In so doing, one may even enable our children and the children of our partners (and so on) to live in a more just world. Fair and sustainable. Forward-looking. Honest.

Daniel Schwenzer, theologian, philosopher, canon-law expert,

and organizational consultant

Ethics in procurement

It’s about the relationships of individuals to and with each other

Daniel Schwenzer, theologian, philosopher, canon-law expert,

and organizational consultant

Schwenzer researches, works, and lives where the clerical, spiritual, and secular spheres intersect. Along with being a superviso-ry-board member, a head of refu-gee shelters, a canon-law expert, an ecclesiastical judge, and an expert witness, he carries out his own academic research activities. With more than 50 publications to his name, he is widely read and fre-quently cited. Alongside his family, his passion is the question of “what holds the world together in its inner-most being.”

He studied theology, philosophy, history, and canon law in Tübingen, Vienna, Strasbourg, and Fribourg (Switzerland).

7

trend: Ethics in purchasing means that a company has fundamental principles and guidelines that must also be applied in the procurement context. What aspirations or framework does Deutsche Bahn operate with in this regard? „

The concept of ethics is about norms of activity, and thus rules, which we use to orient ourselves when deciding on actions. This encompasses moral, ethical, and responsibil-ity-oriented criteria and values, and concerns all employees. However, it is naturally above all a leadership task – in pro-curement departments, too. The purchasing division typically has the company’s largest degree of direct interaction with market par-ticipants, or suppliers. This is true of Deutsche Bahn as well. From lead pencils to the high-speed ICE trains, we supply everything. Our business mission in this regard is to provide a secure supply for our internal clients in all product groups according to the criteria of quality, logistics, and cost-effectiveness. Our ambition here is to act internationally, innovatively, and sustainably. Thus, ethical prin-ciples are integrated very clearly into the procurement division’s operational rules and values. Every two years, in

the context of the Innotrans interna-tional railway-sector convention, we award supplier ratings to outstanding business partners that have imple-mented criteria such as environmental protection or high-quality production conditions for their employees in an exemplary way. Behavior that follows norms and legal standards is one of the most important basic conditions

for a functioning procurement organ-ization. Within Deutsche Bahn, it has always been a primary requirement for employees, executives, processes, and systems.

trend: How does Deutsche Bahn make sure that this ambition is being operationally imple-mented in the course of daily business? What instruments are used for this purpose? „

One prerequisite is clear positioning on the part of management – that is, the “tone from the top” must be clear. Then, the necessary rules must be defined in specifications and agree-ments, and an oversight system must be established. For procurement ac-tivities, this begins with the internal

purchasing guidelines, and for busi-ness partners with the Code of Con-duct (CoC). I am in regular contact with our company’s board of directors regarding these issues, and we agree together on all documents and ac-tions. The recognition of our CoC or an equivalent document is a precondi-tion for the establishment of business relationships. These documents not

only specify relevant legal requirements, but also formulate voluntary commit-ments and values that are important to us as Deutsche

Bahn. Another part of this process is ensuring that all our interactions – with colleagues, suppliers, and customers, as well as with all business partners and other contacts – are fair and trust-based. We have built all of this into our supplier-management system, and potential providers must show they are committed to these values. In this regard, we want full transparency. This is one of the foundations for a stable long-term supplier relationship. Our supplier-management system begins with a suitability test for potential sup-pliers. Here, we examine ethical and social qualifications, as well as quali-tative and economic factors. No factor

Interview

Setting a moral course in the large corporation

The recognition of our Code of Conduct is a precondition for the establishment of business

relationships

An interview with Deutsche Bahn Chief Procurement Officer

Uwe Günther on values and responsibility in the company’s procurement operations

8

Interview

is addressed in isolation; it is the en-tire package that matters. The suppli-er qualification process is required in order to participate in our competitive bidding processes, thus keeping the focus on prevention.

As a part of our daily business, we work in various committees – for example, the steering committee for cartel-damage prevention, or the committee responsible for deciding to exclude certain participants from future bids. Here, we also assess how well our suppliers have fulfilled their contracts in these areas. Any irregu-larities or violations are detected and penalized. Every supplier is regularly subject to an assessment process, the criteria for which are made clear at the point the contract is signed.

trend: That has both breadth and depth. But given the complexity of this topic, how do you make sure that buyers are always up to date with changes in the law? „

Within the purchasing division, we hold a regular training program on supplier management and the issue of compliance. Today, of course, we also have e-learning programs that address the code of conduct and cor-ruption prevention. In this regard, we include all employees who are a part of the procurement process, even our technical staff, quality engineers, and users from the various business segments. This results in cross-de-partmental coordination. Of course, Deutsche Bahn also has a whistle-blower management system, which can be used by external partners.

trend: To many people, ethical claims and corporate interests seem to be in tension with one another. That is, the corporation’s financial goal is to make the greatest possible profit, and so other interests such as those of the environment or of suppliers appear to be given a secondary importance. Does Deutsche Bahn succeed in balancing interests here? „

Deutsche Bahn aims to make a sustainable profit. This goal is firmly rooted in the company’s strategy. The strategy sets equal priority on profit-ability, factors relating to the environ-ment and sustainability, and the goal of being a top employer.

Executives today find their challeng-es in the overlapping spaces of the market, power, and morality. My core belief is that morality in business is possible. Moreover, it is more impor-tant than achieving the lowest possi-ble costs. No matter what the focus on success and money, morality and ethics cannot be allowed to fall by the wayside. The fundamental ethical ori-entation cannot be torpedoed by false goals, overvalued results, a creeping immorality, or a tacit acquiescence.

I act on this core belief in my dai-ly work, and also expect it from my organization. This requires clear communication both internally and externally, along with continuous re-flection on current market conditions.

The existing set of rules at Deutsche Bahn has been intensively developed over the course of recent years. In my opinion, it today represents a model framework for compliance-oriented corporate-level procurement. We can also confirm this through the regular use of external benchmarks. In our product-group strategies and employ-ee-target agreements, sustainability and environmental goals are regarded as being equally important as contri-butions to earnings and value-added targets.

trend: We know this from the media: In recent years, Deutsche Bahn has fallen victim to the unethical (and criminal) behavior of suppliers in a number of cases. How does Deutsche Bahn try to protect itself from such dangers? „

Yes, there were a few cases like this, unfortunately. The most serious case was definitely the rail cartel, in which a number of producers engaged in price-fixing, damaging Deutsche Bahn and our customers. We were able to uncover these cases, penalize the be-havior, and make up for the damage thanks both to our focused suppli-er-management system and the op-portunities the legal system provides for the parties involved to turn state’s evidence. In this process, the procure-ment division worked closely with the

My core belief is that morality in business is possible. And it is more important than achieving

the lowest possible costs.

Prevention of cartel-related damage and bans on future contract bids: Each supplier

is regularly subject to an assessment process. Any

irregularities or violations are detected and penalized.

9

Interview

legal and audit departments. Because individual misconduct by suppliers’ em-ployees is often the problem, we first of all expect firms to get their own houses in order, and to participate active ly in the investigation of such cases. Then, of course, we also assume there will be compensation for damages and a change in processes. Afterward, we carry out appropriate compliance au-dits, and also offer training programs for the suppliers. All of this must be reviewed in an environment of open communication. We regularly discuss these topics at association meetings and industry conferences. The German Association for Supply Chain Man-agement, Procurement, and Logistics (BME) also offers training programs.

With regard to prevention and aware-ness, we must always be vigilant. We especially have to provide young man-agers with operational security in this regard.

trend: One question certainly interests us all as DB customers: Does Deutsche Bahn see ethical behavior as a competitive advantage from a rational point of view? Or do the company’s goals in this area simply produce additional costs and expenses? „

Behind our code of conduct are val-ues to which we are committed. The question of whether we can afford it doesn’t come into the equation. These values allow us to derive internal rules and obligations that must in turn be observed. In sum, this leads to trans-parent and fair competition. For exam-ple, the criteria for suitability and the acceptance of bids are applied in an open and easily understood manner, and every supplier has a chance to compete. This is then an advantage for Deutsche Bahn, its customers, and all of its business partners. They can rely on the fact that we abide by eth-ical principles rather than operating in a purely profit-oriented way. There is today a societal consensus that this is the correct way to act. We agree com-pletely, and try to lead by example. In this regard, we as buyers represent Deutsche Bahn as a whole, and must be very conscious of this responsibility.

trend: You have been CPO at Deutsche Bahn for a number of years now. With regard to ethics, what successes in the corporate purchasing sphere make you particularly proud? „

I am extremely pleased with the over-all development of our procurement organization and its partners over the last few years, particularly with re-gard to the compliance-management system, the cartel-related damage prevention system, and the supplier- management tools. Here, we are cer-tainly on the right path. The results of our recent external benchmarks regarding progress toward being a world-class procurement organization also show this. In these assessments, we were placed in the “professional procurement” category. This is only possible if you apply and implement fundamental ethical principles in your procurement processes.

trend: I would also like to ask you if you have tips for the manufacturing industry. What could other companies learn from Deutsche Bahn with regard to ethics in purchasing? „

My recommendation is always the same. First, let’s engage in dialogue. Let’s discuss all the requirements associated with the mobility market, and look together for the most inno-vative and sustainable solutions! But let’s also talk about potential or ac-tual problems and their causes. Fair-er and more transparent world trade is particularly necessary today, when policymakers are threatening and ar-guing about punitive tariffs and trade sanctions.

In our daily work, we must be collectively aware of the small tempta-tions to weaken our ethical principles. This helps us immunize one another against such temptations. Of course, we must also avoid losing our healthy sense of proportion.

The purchasing department plays an important role here. By selecting high-performance suppliers, we want to gain customers on a sustainable basis, and make Deutsche Bahn the top choice in the mobility market.

This interview was conducted by Jacek Drozak,

CEO of Drozak Consulting

Uwe Günther, Chief Procurement Officer,

Deutsche Bahn

In his function as chief procure-ment officer, Günther is respon-sible for a purchasing volume of €20 billion for the main corpora-tion, DB Schenker, and DB Arri-va. Previously, he served as head of infrastructure procurement and head of building works for Deutsche Bahn. Before his time with Deutsche Bahn, Günther was active as an engineer- economist in management-lev-el procurement positions with Siemens Rail Automation, Rolls-Royce Deutschland, and Elektro Apparate Werke Berlin.

Since 2018, Günther has also been an active member of the German Association for Supply Chain Management, Procure-ment, and Logistics (BME), the trade association for buyers, sup-ply-chain managers, and logistics specialists in Germany and across continental Europe.

Until spring 2018, he was also chairman of the Railsponsible In-itiative, which focuses on sustain-able procurement in the railway industry.

Günther is married, and has three adult children.

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“Sustainability” is a buzzword many of us do not associate with our current businesses. However, it has become an important and integral element in the operations of leading internation-al corporations, and particularly with-in their procurement departments. Moreover, sustainable procurement will certainly become a mainstream purchasing topic in the future.

But what is sustainable procurement? Broadly speaking, it is carrying out procurement processes in a way that minimizes waste and the use of energy and raw materials, while also requiring minimum corporate- governance, envi-ronmental, safety, and social standards from your suppliers. These standards can also be required along your sup-ply chain, poten tially including even sub-suppliers and their suppliers. In practical terms, this will prevent your organization from the embarrassment of discovering that child labor is em-ployed in your supply chain, as hap-pened to a well-known apparel compa-ny, for example. Similarly, it can reduce the risk of litigation – for example, from the NGOs that right fully pointed out that a global consumer brand was pro-viding indirect support to corrupt gov-ernments that were clearing rain forests in distant countries.

By consciously adhering to sustainable procurement standards, corporations make an ethical decision – without being driven by external requirements such as legislation, international law, or supranational conventions. In so doing, they demonstrate responsibility toward the environment, human rights, and the fight against corruption.

Ethical and good for business too…

But is an ethical attitude the only factor driving corporations to develop sus-tainable procurement processes? Do they make the effort to implement a new and challenging procedure simply because they want to take the moral high ground? Obviously, there are oth-er reasons too. In additional to purely ethical motivations, companies also see tangible benefits associated with such activity.

Actions of this kind can mitigate rep-utational risks and create a reputa-tional competitive advantage. This is in large part because customers are becoming more aware of corporate behavior, particularly within end-cus-tomer markets. Such actions may also anticipate future regulations, while en-hancing the resilience of the supply chain and its ability to deal with the

ever-increasing volatility in supply mar-kets. They strengthen and enhance partnerships within a company‘s sup-ply universe by requiring and enabling closer collaboration. And lastly, they further development and innovation by enhancing existing products and processes and prompting the crea-tion of new ones, in part because the principle of sustainable procurement demands carbon-footprint reductions. Logically, this in turn requires that a given amount of output be produced with less waste, using less raw materi-al and energy as inputs.

Capital markets like sustainability

One particularly important advantage associated with sustainable action is the prospect of improved access to equity capital and credit. Investors today are placing increasing empha-sis on sustainability in their investment decisions. Some large institutional in-vestors are investing only in compa-nies with sustainable business models and operations. With regard to cred-it, large lenders (e.g., supranational institutions such as the World Bank, EBRD, or KfW) are more willing to fund sustainable businesses, often with comparatively lower capital costs.

Sustainable procurement

Sustainable Procurement

is becoming a standard but still yields a competitive advantage

Walmart will cut 1 billion

tons of carbon emissions

from its supply chain, greenbiz.com

„It is not good enough to do

what the law says. We need

to be in the forefront of social

responsibility issues.“

Kellogg aims for

fully sustainable

packaging by the end

of 2025,

Thomson Reuters

HP saved more than 100mn$ within

97% of procurement

organizations surveyed

considered Sustainable

Procurement ‘important’

or ‘critically important’,

HEC / Ecovadis SP Barometer 2017

‘Together for Sustainability’ is the

supply chain initiative in the chemical

industry, which has 18 major global

companies as members

5 years by innovating their

recycling model,

Harvard Business Review

An

ders

Dahlv

ig,

CEO o

f IKEA

Sustainable Procurement

11

A number of large-scale equity and credit programs feature very favorable conditions aimed exclusively at en-couraging and enhancing sustainabili-ty within corporations.

Global corporations such as Nestlé, BASF, Unilever, and Anglo American all practice sustainable procurement. Most major leading corporations have a code of conduct (CoC) or a sustain-ability charter. The trend is even more pronounced within the public sector, where sustainable procurement has often become a requirement.

Although many global corpora-tions have implemented sustainable procure ment processes in some form, no universally accepted standard has yet emerged. Rather, there is a large variety of different approaches. For example, the ISO 20400:2017 standard is widely used in the United Kingdom and Australia. It provides guidance to organizations independently of their area of activity, size, or owner ship structure. The Government Buying Standards (GBS) guideline provides a framework for public entities in the An-glo-Saxon world. Beyond these, there are product-based and supplier-based approaches, as well as approaches that cover specific industries. There are also frameworks from the KfW and the United Nations that relate to public-pri-vate activities.

How can a corporation successful-ly make the shift to sustainability in its purchasing in an environment that lacks one-size-fits-all sustainable procurement standards? The answer is simple: Each organization has to assess its business from the point of view of sustainability. This means considering the company‘s business model, operations, supply universe, and market, a necessarily individual approach and process. But how can this be set in motion?

Impetus from the top is needed

As a universal rule, creating and im-plementing sustainable procurement practices requires action from the top of the organization. The decision to act sustainably is by its nature a strategic

one, with wide-ranging implications. In general, board-level approval is neces-sary. Subsequently, the company will act differently vis-à-vis its stakeholders. The ownership structure will be affect-ed, as different kinds of investors will be attracted and current shareholders might chose to take their money else-where. Employees need to be made aware of the initiative. Some will have to be convinced, and all will have to be trained and enabled to operate effec-tively in this new environment. Process-es and systems will need to be adjust-ed accordingly. Incentive systems will need to be aligned. Customers and markets will need to be informed of the shift. But the procurement division will feel the greatest impact, as it will be tasked with driving the changes on the supply side, and making sure they are well integrated with existing organiza-tional processes.

Procurement in focus – people first, process second

Once the decision to become sustain-able has been made, the procurement department needs to prepare for the transition. This means integrating prin-ciples such as accountability, trans-parency, ethical behavior, respect for stakeholder interests, and respect for human rights into its operations. This is quite a significant addition to the traditional focus on cost, quality, and time. For this reason, it is critical to identify, attract, and retain staff able to manage an initiative of this kind. A core team of change agents and evange-lists with a strong mandate needs to be built in order to derive a sustainable procurement roadmap from the cor-porate strategy.

Start slowly but steadily, and continuously improve

Integrating new dimensions such as labor and human rights, environmen-tal assessments, and fair operating practices into the procurement de-partment‘s operations will take time. Even if managed well, there will be a learning curve. In particular, commu-nicating and implementing these new requirements within the company’s supplier universe will lead to gradual

evolution and in some cases a change of vendors, as some incumbents will be unable or unwilling to comply. Miti-gating supply shocks is critical. On the other hand, such a shift can facilitate a reset in supplier relations, enabling a company to strengthen old partner-ships and create new ones. After a cautious beginning, the change-man-agement team can increase its pace, and a virtuous cycle will kick in.

Be the change you want to see in the world

Sustainable procurement is ethical, good for business, and will ultimately be the standard. What are you waiting for?

Thomas Keitel, Drozak Consulting partner

Thomas Keitel, MBA and lic.rer.pol, and a partner at

Drozak Consulting

works with his team to serve cli-ents in the telecommunications, aerospace and manufacturing industries, and helps drive digiti-zation efforts forward. As CPO at two leading global market-listed companies, he helped improve competitiveness through sus-tainable cost reductions, part-ner-based supplier management, and innovation scouting. As an angel investor, he helps young entrepreneurs in his home region, the Palatinate. As a father of three young children, sustainability is an issue close to his heart.

Sustainable procurement

97% of procurement

organizations surveyed

considered Sustainable

Procurement ‘important’

or ‘critically important’,

HEC / Ecovadis SP Barometer 2017

‘Together for Sustainability’ is the

supply chain initiative in the chemical

industry, which has 18 major global

companies as members

Sustainable Procurement

Preview

Imprint

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In our next issue:Cooperation reloaded –

Systematically maximizing the value of supplier relationships

Strategic collaboration made simple

The buyer as relationship manager

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