At the IBX Procurement Executive Summit last week in Oxford, Vodafone’s Rob Lees, an Oxford graduate himself, gave what I found to be a highly informative talk about what his employer was up to in the area of supplier sustainability. Perhaps most interesting of all was how Vodafone incorporates its supply chain CSR program as a direct component of their overall supplier performance management initiative. At the beginning of the talk, Bob noted that the supplier performance program originally launched in 2004 has already led to not only a material reduction in energy and its C02 footprint, but cost savings as well. Let's first examine how the program is structured from a governance and process perspective before we get to the savings component.
According to Rob, there are six key pillars of supplier performance at Vodafone with corporate responsibility (the CSR component) accounting for 10% of how the firm takes measure of their suppliers. The other areas include financial stability, technology road map, commercial relationship, delivery capability and quality management. Since formalizing its original supplier performance program, Vodafone has seen their suppliers overall scores improve considerably, from a 61% average in 2004/2005 to 85% today. The suppliers in the program all tend to be larger and most strategic to Vodafone (it seems the majority are not held to the same level of scrutiny based on his account).
From what Rob said, it appears that there are roughly 50 suppliers in the main program. The program works by Vodafone setting targets for suppliers and with suppliers "understanding that they must reach a standard target" to maintain and nourish the relationship. In recent years, 11 of its suppliers managed to exceed a 90% target.
How does the program work in practice? Perhaps the most important core element is how Vodafone measures supplier performance throughout the relationship lifecycle on a continuous basis, putting "sourcing strategy" at the core. From a CSR perspective, the process starts with supplier qualification before moving into the supplier evaluation and supplier optimization phases. Qualification includes "the site assessments of new suppliers on a basis of risk and speed" and also sharing and requesting suppliers sign up to Vodafone’s "Code of Ethical Purchasing in Global Contracts". This code requires suppliers to sign up to the same standards as Vodafone -- taking into account the "environment, child labor, forced labor, health and safety, freedom of association, discrimination, disciplinary practices, working hours, payment, and individual conduct".
Suppliers are evaluated on an ongoing bi-annual basis through score-carding and supplier awards are given on the merits of these results. Supplier optimization takes place through "supplier improvement projects for poor performing suppliers" and "site assessments of existing suppliers on a basis of risk and performance". These activities include engagement with suppliers on "energy efficiency and [to] ensure environmental compliance" as well.
Vodafone’s entire supplier performance program -- and its CSR components -- are grounded in the notions of active supplier engagement and transparency. From the beginning, this starts with not only gathering credentials and relevant certification (e.g., ISO 14001, OHSAS18001, SA8000, etc.) but also measuring and considering -- not to mention getting involved in, as necessary -- whether suppliers have "active improvement activities in their supply chain" and whether or not suppliers themselves are "looking at climate change initiatives". The program, uniquely, does not take a one-size fits all approach. And even though it's global in scope, Vodafone takes the need to "drive deeper into the areas where individual suppliers need help" in a serious manner.
Stay tuned for further analysis of Vodafone’s supply chain CSR programs in Part 2 of this analysis.