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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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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.
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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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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.
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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:
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
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FULL%20REPORT_FINAL%20VERSION_27.01.16.pdf