Sustainable Procurement makes for Stronger Supply Chains

In 2017, Chinese authorities shut down an estimated 80,000 factories^[1] for breaching environmental regulations: regulations which, in many cases, were being rigorously enforced for the first time. The combination of targeted factory closures and rolling shut-downs of entire industrial zones on high pollution days cascaded down supply chains, increasing volatility and costs. Ripple effects were felt throughout the economy. Yet chemical company BASF – which serves practically every industry – observed that none of its direct suppliers in China were subject to targeted factory closures. Why?

The answer lies in the strict standards BASF establishes for supply chain sustainability. Suppliers are required to comply with both local laws and recognized international environmental, social and governance standards. They are also expected to actively work against such problems as child labor, forced labor and corruption; and strive to minimize their impacts to biodiversity, water scarcity and climate change. BASF has taken a systems approach to align suppliers’ interests with environmental, social and governance objectives, with a clear assessment process to earn ongoing business. 

One such system is Together for Sustainability (TfS), an initiative created by of some of the world’s leading chemical companies. Suppliers selling to TfS member companies are subjected to rigorous assessments that often go beyond compliance with local law. The TfS motto is “an audit for one is an audit for all.” In practice this means that when a supplier undertakes an audit, the results are posted on a secure database available to all TfS member companies. All parties save time and money. Companies which do not meet the standards are given support to improve.

Most take a breach seriously, and make demonstrable improvements within a year. Those which do not risk losing their contracts. This was the case with one BASF supplier in 2017. The TfS audit revealed significant weaknesses in occupational and plant safety, as well as wastewater management. The company’s management agreed to fix these issues. When they failed to do so BASF stopped purchasing from the supplier. Luckily, this situation is rare. The majority of suppliers strive to improve their sustainability performance, helping both secure valuable economic relationships and build their credentials as corporate citizens. 

This required joint efforts, working together and support each other. Thus BASF invested to create a training program for Chinese suppliers with the East China University of Science and Technology in 2014. The one-day training course included sustainability topics such as corporate governance and management, labor and human rights, and environment, health and safety (EHS). The goal is to train participants from more than 1000 Chinese suppliers by 2019. Suppliers who complete the coursework are better equipped to manage risks and costs – and to attract other buyers with similarly high standards. The appreciation runs deep.

“The training session was very enlightening and pragmatic. Through the vivid discussion between professors and the participants at class, we have an overall understanding of the sustainability concept and identify the areas that we need continuously to make improvements.” said one participant.

“Sustainability is central to how we conduct business,” explains Frank Haunert, Vice President, Direct Procurement, BASF Asia Pacific. “But it’s also a team effort. We perform 100-plus supplier assessments and 50 on-site audits in Asia Pacific every year. Our suppliers pay for those assessments. They also spend time in the classroom, learning about and adopting better practices. We believe this makes for stronger supplier relationships, and simply better business.”

[1] China’s pollution crackdown and its impact on business, December 11th, 2017, China Briefing, http://www.china-briefing.com/news/chinas-pollution-crackdown-business-impacts/.