What’s the Value in Sustainable Procurement? Insead, Ecovadis and PWC chip in .. (part 3)

A recent Ecovadis, Insead and PWC study that we’ve been examining of late (click here and here for our first two posts on the subjects) does a credible job establishing the benefits (indirect / direct cost savings and revenue enhancement that investing in the right set of procurement CSR initiatives can bring). But it also highlights the risks and costs for companies that fail to invest in such programmes can face.  Even though the risks are small in probability terms, the numbers can be staggering when things do go wrong.

As an example, look at how in 2007, Mattel, now famous for adding a bit of heavy metal to Barbie’s complexion at the time, faced direct costs of some “$110 million on recall expenses and a communication campaign due to an erroneous assessment of lead content used by tier-2 suppliers”.  Or consider how according to the study, Total S.A “was charged with negligence in oil transport relating to the 1999 Erika oil spill resulting in £200 million in cleaning expenses plus a fine of £200 million.”

Given that the study suggests the cost of investing in a comprehensive procurement CSR program for a €20 billion company with €10 billion in annual spend will average €1.5 million euro per year, it’s pretty clear this amount is a small price to pay for the assurance of reducing the chance of such highly disruptive supply chain costs, not even factoring in the likelihood of direct, top-line payback from CSR initiatives in the first place.

Moreover, even though no such programme can be comprehensive or guarantee against any type of indirect or direct costs associated with a CSR supply chain mishap, having a programme in place provides a first-line of legal defence, by enabling companies to show that a clearly documented methodology, complete with audit trails, was in place to begin with.

So a high-priority area of focus for procurement in 2011 if you aren't already on top of this?  It certainly feels like it.

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