Ethical and Sustainable Procurement with input from Leading global excellence in procurement and supply CONTENTS Introduc on 3 Considera ons when sourcing from another country 4 Organisa onal considera ons leading to eec ve ethical procurement 6 The procurement cycle 7 1) Iden fying vulnerability and risk 8 Foreword 2) Understanding, priori sing and dealing with risk 10 3) Supplier market engagement and development of procurement plan 12 4) Evalua on and shortlis ng of suppliers 14 5) Evalua on of quotes or oers and preferred supplier selec on 16 6) Crea on of contract and performance management against contract 18 7) Update ethical procurement programme 21 Appendix 1: Complementary buyer and supplier scorecards for rewarding good workplace performance 24 Appendix 2: Supply chain codes/standards and their context 26 Appendix 3: CIPS Code of Conduct 29 Resources 30 Acknowledgments Report authors: Helen Alder and Fiona Gooch with input from the Walk Free Founda on. We would like to thank all those who have helped in compiling this report, par cularly Kayzi Ambridge, Emma Horan, Anil Kariwala, Alistair Leadbe er, Ben Moxham, Geo Staord, Georgina Thomas, John Ward, Peter Williams and Rachel Wilshaw. Cover photo Workers in the crater of the volcano Iljen Java, Indonesia, Asia May 2011. Copyright: Wunigard. Courtesy of Shu erstock. Image reference: 125440775. CIPS implores Procurement prac oners to read this guide, use it to inuence their CEOs and implement the approach described. CIPS 2013 In a world where everything is connected, understanding the impact of our sourcing and buying decisions is cri cal. Whilst the concept of ethical and responsible procurement is not new, the increase in global sourcing opportuni es has highlighted some serious issues in procurement prac ces that must be addressed. Ethical and responsible procurement is now an economic and reputa onal impera ve, and in some contexts a legal requirement. Procurement professionals, working in conjunc on with their suppliers, can demand be er governance of procurement with the end goal of crea ng an environment intolerant to criminal conduct, such as any form of modern slavery, corrup on or bribery, and minimising or eradica ng harmful environmental and social impacts. They must ensure that labour condi ons for workers in their supply chain are improved and human rights are safe-guarded. The bigger picture is to ensure a be er result for all including increased business returns for the buyers, suppliers and workers. This guide is a star ng point and is aimed to help improve workers' condi ons in all situa ons, especially where buyers deal with businesses who may operate outside the law (o en without the buyers' knowledge), or those who fail to implement minimum legisla ve requirements. We recognise these are very dicult situa ons to manage. Due to cheaper labour costs, sourcing from unfamiliar places is becoming increasingly popular. Procurement professionals have an obliga on to ensure that these savings do not have a human cost. Workers and sub-contractors, who some mes may even be children, are o en not protected by legisla on, and many suer criminal conduct and poor pay and condi ons, o en with li le regard for health and safety. In many instances workers suer harassment and abuse and, in extreme circumstances, workers can be in situa ons of forced or bonded labour. This is not acceptable in the 21st Century and should not be tolerated. Although awareness of these issues is increasing, including the moun ng pressure from consumers to have ethically sourced goods and services, signicant problems s ll exist. It is not acceptable in anyone's world for suering or human misery to take place in the desire to meet the demands of increasingly compe ve supply chains. Whatever sector or global region you work in, we urge you to read this guide and start to make the changes - ensure you become part of a more responsible approach to procurement professionalism. We urge all senior execu ves to put in place objec ves for procurement professionals to follow the principles in this guide. We urge all procurement professionals to take this challenge to the most senior levels and start to make a real impact and dierence on business and society. David Noble Group CEO, CIPS 2 Margaret Vaughan CEO, Traidcra Andrew Forrest Chairman, Fortescue Metals and Founder of Walk Free Introduction This publica on introduces procurement professionals to the key concepts behind ethical procurement and provides prac cal advice for ge ng started. It not only addresses procurement specica ons, but recognises the importance of how a buyer conducts their rela onship with suppliers, including contract nego a on. The guide has a specic focus on procurement across borders, especially when buying from unfamiliar places with weak worker protec ons, or countries with poten ally unfamiliar work cultures. Alongside general discussion of the buyer-supplier rela onship, the main body of guidance presents considera ons when sourcing abroad within a seven-step procurement cycle. Appendices are included, together with a sec on containing resources to explore further. What is ethical and sustainable procurement? Ethical procurement (o en referred to as responsible procurement) refers, in this guide, to procurement processes which; respect fundamental interna onal standards against criminal conduct (like bribery, corrup on and fraud) and human rights abuse (like modern slavery), and respond immediately to such ma ers where they are iden ed, and result in progressive improvements to the lives of people who contribute to supply chains and are impacted by supply chain decisions. Sustainable procurement considers the environmental, social and economic consequences of design, materials used, manufacturing methods, logis cs and disposal. Buyers need to address these issues throughout the supply chain. To achieve this, suppliers, especially in developing countries or countries with weak workplace regulatory environments, need knowledge, guidance and incen ves to improve from the organisa ons they supply. Working with suppliers and focusing on economic, social and environmental performance is good for a buying organisa on's brand reputa on as well as eciency, quality and security of supply. Increasingly, buyers have legal obliga ons (even extraterritorially) to ensure that they take measures to prevent illegal conduct such as fraud, corrup on, bribery and modern slavery, and other human rights abuses, from entering their supply chains. Supplier countries and communi es can reap economic and social benets through ethical sourcing rela onships. Buyers must be mindful of the impact of their decisions and ensure that they do not cause harm to suppliers and workers. Why procure ethically and sustainably? Increasingly, the corporate world is focusing on social issues in supply chains such as slavery, forced labour and human tracking. In this guide, we will use the term \"modern slavery\" to include all of these prac ces. The evidence suggests that the risk aects almost every industry: electronics and high tech, steel and automobiles, agriculture and seafood, mining and minerals, garments and tex les, and shipping and transporta on. The evidence also suggests that, while modern slavery is illegal in every country in the world, it s ll occurs in every country in the world. The risks are more pronounced in: places where workers have fewer protec ons where there are high levels of poverty where there is widespread use of migrant workers some specic high risk industries (typically industries involving raw materials) labour intensive stages of supply chains where the end product is cheap. Governments and consumers are increasingly aware of such issues and are suppor ng, if not demanding, that businesses act to implement ethical sourcing programmes. Organisa ons will suer reputa onal damage if they are found to be sourcing from suppliers which use exploita ve labour. Companies may face legal sanc ons if their suppliers are found to be involved in corrup on or bribery. Increasingly, sta face criminal prosecu on for involvement in fraud, corrup on and bribery, even where this happens oshore. Nega ve impacts may also be costly, for example, when pollu on needs to be cleaned up, or warranty claims are paid out as a result of using cheap but poor-quality suppliers. Organisa ons naturally want to avoid these nega ve impacts. On the other hand, a track record of sustainable and ethical procurement ac vity can encourage investment and improve employee morale as well as exceed legal requirements. Procurement professionals have an important role to play in sourcing in a manner that enables and rewards suppliers for good employment prac ces, rather than purchasing in a manner which drives the use of modern slavery prac ces. This guide sets out how. 29.8m People in modern slavery1 1. Source: Walk Free Founda on (2013). 'The Global Slavery Index 2013'. www.globalslaveryindex.org 3 Considera ons when sourcing ETHICAL OBJECTIVE Where breaches of basic standards occur, such as those involving corrup on, fraud, bribery and modern slavery, a 'zero tolerance approach' should be adopted, with such breaches addressed immediately. This does not mean that a buyer 'cuts and runs' from a supply rela onship, but that immediate ac on is taken to inves gate the conduct and remediate it where possible. In rela on to workers, the ethical objec ve is to achieve at least minimum working condi ons as dened by the Interna onal Labour Organisa on (ILO). The Global Slavery Index es mates there are 29.8 million people globally in modern slavery. Within this massive number of people, the Interna onal Labour Organisa on (ILO) es mates business and governments are responsible for the largest majority of people in forced labour. Of those exploited by businesses, the largest propor on were subjected to forced labour in industries such as agriculture, construc on and manufacturing. USEFUL TIPS Tips for cross-cultural communica on Good communica on with suppliers is vital in making sure appropriate standards are set and upheld. The table on page 5 suggests ac ons for the buyer to take to ensure good communica on with their supplier. 2. Declan Walsh and Steve Greenhouse \"Cer ed Safe, A Factory in Karachi S ll Quickly Burned\" The New York Times, 7 December 2012, available at h p://www.ny mes.com/2012/12/08/world/asia/pakistan-factory-re-shows-aws-in-monitoring.html?pagewanted=all&_r=0 4 from another country RESOURCING AND GOVERNANCE PROCESSES Suppliers abroad may well be communica ng in their second or third language. Some words do not have direct transla on and the concept behind a word may not exist in another language or culture. Check that buyer and supplier share an understanding of objec ves and terms. Building trust may take longer. In some cultures it is dicult for a supplier to say no or indicate uncertainty. This can lead to misunderstandings and delay the founda on of a strong rela onship. Learn about cross-cultural communica ons for specic supplier countries. To overcome common supplier cau on over voicing problems, invest me up-front in ge ng to know suppliers Buyers need to check understanding sensi vely and be able to pick up on small clues which indicate uncertainty. The knowledge and implementa on of labour laws by suppliers may be weak or absent. It may not be a priority or there may not be sucient na onal budget for the local government to update or enforce labour laws, or provide protec on for workers that are informally employed, do home-based work, are smallholders, temporary and contract workers. Owners, managers and workers may not be aware of their own laws. In some countries the law on minimum wage has not been updated, which results in workers earning insucient wages to live on. Workplaces where workers are in debt or very poorly paid provide a context for exploita on, sexual harassment and modern slavery. Depending on risk, do desk-based research looking at Interna onal Labour Organisa on's sta s cs, contact local civil society organisa ons, including trade unions to advise on working condi ons. Use audits and other compliance and accountability mechanisms to inform follow-up conversa ons between the purchaser and supplier Communicate minimum standards (such as those in rela on to fraud, bribery, corrup on and modern slavery) through a clear code of conduct. Be aware of underlying social issues, such as a lack of social security. For as many as half of the world's workforce there is no unemployment or incapacity benet, old age pension or social housing. In general, medical care is not free and provision of free educa on varies across countries. Therefore, benets such as day care, free transport or medical checkups are key parts of an overall employment package. These provisions should be regarded as a posi ve commitment of the supplier to its workforce, unless these services are provided in a manner that \" es\" workers to the employer. Develop an understanding of local social condi ons and consider this when checking the breakdown of a supplier's price and comparing prices across countries. Gender discrimina on can be acute. On worksites with a high propor on of women workers buyers need to be alert to circumstances that could have a dispropor onate impact on women or put them at risk. Inves gate, encourage and promote equal opportuni es for women or minori es into supervisory and management roles in a supplier's workplace, par cularly if they are under-represented. This is good prac ce at sites with a high percentage of women or workers of a dierent culture/class to management, since it lessens the risk of exploita on. Bribery and corrup on can be an issue in some loca ons, channelling money away from produc ve, transforma ve ac vi es within a supply chain and reducing opportuni es for living wages to be paid to workers. Require suppliers and buyers to sign up to a code of ethics (see Appendix 3 for the CIPS Code of Conduct). Also ensure systems are in place to detect and respond to bribery and corrup on. Health and safety legisla on may not have been updated. There may be insucient re exits 2, unsafe buildings 3, or hazardous materials may inadvertently be used. Encourage suppliers to have an eec ve health and safety commi ee,4 have independent checks and systems for whistleblowers, and become knowledgeable on health and safety hazards associated with produc on processes. 3. Sarah Butler \"Bangladeshi Factory Deaths Spark Ac on Among High-Street Clothing chains\" The Observer, 23 June 2013 available at h p://www.theguardian.com/world/2013/jun/23/rana-plaza-factory-disaster-bangladesh-primark 4. Workers at Spectrum factory warned supervisors of cracks in the wall before the building collapsed, killing and injuring workers (www.cleanclothes.org). 5 Organisa onal considera ons leading to eec ve ethical procurement External drivers The following external drivers inuence an organisa on's choice to purchase abroad, or from a par cular supplier: Economic - exchange rates, prot margin, du es, taris, insurance, the employment market and availability of resources. Sustainable innova on can lead to the crea on of new market space for products and services Technological - the ability to communicate real- me informa on enables developing country suppliers to compete eec vely Legisla on - social, technical, environmental and economic/compe on Social - social consciousness, e.g. avoidance of worker exploita on, inuences consumer behaviour and poli cal ac vity. Increased worker sa sfac on can improve produc vity Environmental - use of energy, re-useable, non-toxic materials, reduc on of waste and processes to improve prot margins, reduc on of carbon in supply chains, etc. How an organisa on chooses to respond Due to the business risk of unethical procurement prac ces, many organisa ons already have Codes of Conduct that set out minimum standards and parameters for procurement other than simply cost. Where they are not already in place, procurement professionals need to play a role not only in implemen ng the above policies and ini a ves, but also in shaping their organisa on's approach. The complementary publica on for senior procurement management, 'Taking the Lead', provides guidance on issues to be considered when organising internal policies, structures and processes, and outlines the business case for ethical procurement. encourage buyers and suppliers to collaborate with organisa ons who have exper se in addressing systema c problems within the supply chain iden fy and address unacceptable prac ces like fraud, bribery and modern slavery enable the buyer to collaborate with others who are purchasing from the same supplier (where appropriate). Organisa ons should take an approach that recognises the shared responsibility for suppliers to implement good workplace prac ces and for buyers to select, enable and encourage good performance by suppliers. Where bad performance is iden ed, especially where it concerns conduct that violates minimum standards, this should be addressed as a priority. An integrated balanced scorecard for performance appraisals of both individual buyers and suppliers can be used (see Appendix 1). RESOURCING AND GOVERNANCE PROCESSES Corporate governance and structure (to support and guide). Develop strategy (how an organisa on responds to opportuni es and minimises risks). Buy-in from management (essen al). Buyer organisa ons need to support individual procurement professionals to improve condi ons in their supply chains. They need to develop systems and ways of working which:5 collect and provide all par es with the informa on they need to plan more eec vely, (e.g. share audit reports) lead to ecient communica ons and formalised, streamlined buying and produc on processes empower procurement professionals to select and reward good prac ce and leadership of suppliers Nominate a leader of sustainable/ethical procurement to champion and drive ac vity in procurement func on (to inuence and integrate objec ves into business and procurement). Adopt sustainable procurement policies and develop implementa on procedures which reect ethical/responsible procurement approach. People development policy which supports ethical procurement ini a ves (through training, annual personal objec ves, appraisals and reward systems). Programme for performance improvement ini a ves (including targets and margins). 5. Traidcra and Impac Limted (2008) 'Material Concerns', page 14, for tools which support purchasers, and page 16 for how responsibili es of sta within a garment brand can be streamlined to support sustained improvements. 6 The procurement cycle A detailed procurement cycle breaks down into seven major stages. The following sec on examines each of these stages, highligh ng good prac ce and, specically, what a buyer should bear in mind. Update ethical procurement programme, (share and reward good prac ce). Crea on of contract and performance management against contract. Stages 1 and 7 Stages 2 - 6 Stages 1 and 7 focus on the ethical/responsible purchasing programme, covering all purchases. Stages 2 - 6 are the stages a purchasing organisa on goes through in rela on to each purchase. Iden fying vulnerability and risk, (priori sing products). THE PROCUREMENT CYCLE Understanding, priori sing and dealing with risk, (in supply chains). Supplier market engagement and development of procurement plan. Evalua on of quotes or oers and preferred supplier selec on. Evalua on and shortlis ng of suppliers, (including pre-qualica on followed by crea on of Invita on to Tender or Request for Quota on informa on packs). 7 1 Iden fying vulnerability and risk An organisa on needs to iden fy risks and vulnerabili es in its supply chain to be able to priori se its ac ons to improve social and environmental impacts. Iden fy vulnerabili es In the ini al stages of risk assessment, it is useful to look for 'known' supply chain vulnerabili es: these can be broken down on a geographical, sector, commodity, product or services basis. For example, there are known vulnerabili es to modern slavery where migrant workers are used. Assess risk against importance to the organisa on Ini ally assess purchases made against the following to establish which to priori se: Level of spend vs. level of business cri cal or opera onal risk (Kraljic matrix) Level of 'sustainability risk' or likelihood of noncompliance with the organisa on's ethical or sustainability objec ves Likelihood of non-compliance with interna onal or na onal law, including vulnerability of supply chain to serious issues like fraud, bribery, corrup on and modern slavery. (See table 1. Oxfam's Product Risk Assessment). Tradi onal Kraljic (spend vs. opera onal risk) matrix assessments fail to highlight areas of sustainability risk and may suggest inappropriate 'win/lose' procurement rela onships. Some purchases made using this rela onship style result in worker exploita on or harmful environmental impacts, par cularly if sourcing from countries where the enforcement of laws is weak. Some of these purchases or categories when assessed on a 'sustainability risk vs. importance to organisa on' matrix may fall into the high sustainability risk. (See table 2. Centrica Example, plo ng categories of likelihood of noncompliance against importance to organisa on). Assess risk against scope for improvement Buyers should look further into categories judged to have a high risk, to assess poten al risk to be addressed proac vely or for improvement to be made in condi ons. There is frequently scope for improvement through be er models, alterna ves and innova on opportuni es. On the other hand, the product or service may be inherently unsustainable or harmful. (See table 3. 'Sustainability Risk' vs. 'Scope for Improvement Objec ves'). Set targets for ethical procurement programme Two types of targets are needed: 1. Opera onal targets may support an ethical procurement programme, e.g. policy development, implementa on of business systems, training 2. Purchasing ac vity targets may focus on categories or the number of purchases/tenders achieving a par cular level of social or environmental performance. PRACTICAL CONSIDERATIONS Are any key contracts coming up for renewal? Are lower risk alterna ves available? Do sta members have specic exper se or knowledge? Can external experts be engaged to assist in innova on and improvements? At the end of this stage the buyer has iden ed the vulnerabili es in their supply chain to ethical and sustainability risk, rela ng to supplier or product risks, as well as found low risk or alterna ve sources/suppliers/products or where there is scope to improve, to avoid unacceptable risks. 8 1. OXFAM'S PRODUCT RISK ASSESSMENT Supply chain risks are based on assessment of both product and supplier: Products made using produc on processes likely to have poor labour standards Products which carry the Oxfam brand Products sold in Oxfam shops Informa on given by suppliers who complete Oxfam's ethical (labour standards) ques onnaire (see Stage 4). 2. CENTRICA EXAMPLE: 'SUSTAINABILITY RISK' VS. 'IMPORTANCE TO ORGANISATION' MATRIX 6 HIGH Promo onal Goods (Asia) Likelihood of non-compliance Sta onery/Paper FM/Cleaning/ Catering/Security Controls Oshore Centres Work-wear Copper Meters Branded Boilers IT Services Fleet Agency Labour/Contractors Tools/Safety Equipment Oce Furniture Smoke HIGH LOW Rela ve importance 3. 'SUSTAINABILITY RISK' VS. 'SCOPE FOR IMPROVEMENT OBJECTIVES' HIGH Sustainability risk Priority: Encourage be er prac ces with exis ng suppliers or, where that fails, switch to be er suppliers. Low priority LOW Challenge supplier: What fundamental changes/ innova on can be made? Quick wins Scope for improvement HIGH 6. BITC (2009) 'How to Manage Your Supply Chains Responsibly' page 18. 9 2 Understanding, priori sing and dealing with risk If it is not already clear from the Code of Conduct and procurement policies, procurement professionals should work with internal colleagues who requisi on products, as well as other colleagues, to shape the technical, social and/or environmental criteria of the specica on. Understand the supply chain behind the purchase For suppliers/products deemed to be high risk, buyers should develop a map of their supply chains. There are various products and services on the market to assist companies in this task (e.g. Sedex Ethical Data Exchange). In this way, labour-intensive stages of produc on and other vulnerabili es can be iden ed and proac vely managed to ensure good human resource management occurs and that workers are not exploited. The diagram below shows a supply chain map (in this instance for a co on garment supply chain), organised according to the main phases in the chain. This process will enable buyer and supplier to explore together how best to priori se and address issues of concern. For example, a garment retailer consciously focused rst on the social issues of manufacturing, and later considered environmental aspects such as packaging and the use of organic co on. This enables buyers to highlight social and environmental issues of par cular concern, directly with the supplier. Achieve visibility over deep ers of the supply chain Buyers should look beyond the rst, second and even third ers of their supply chain. Workers at the bo om of the supply chain, or on the branches of the supply chain, such as migrant workers recruited though labourhire intermediaries, will o en be most vulnerable to exploita on. It takes work to achieve this level of visibility, however a diligent procurement professional will be able to see and ag these risks. Modern slavery, for example, presents serious reputa onal risk to a buyer company at any point on the supply chain. EXAMPLE: COTTON GARMENT SUPPLY CHAIN MAP Seed co on Ginned co on (lint) Yarn Fabric Fabric Fabric Example of co on garment supply chain process enabling the buyer to engage with supplier about each step of the process in order to iden fy and priori se issues. 10 Dra social and environmental criteria for the specica on The social, environmental or economic criteria within the specica on need to be shaped by: buyer objec ves (as set by their corporate governance, business principles, corporate social responsibility or sustainable development programme), and the specic vulnerabili es of the supply chain. For example, the buyer may have a corporate policy of procurement only from produc on sites which meet minimum standards set out in the Interna onal Labour Organisa on's core conven ons, or use fair trade criteria. The buyer may also seek statutory declara ons from suppliers that minimum standards are upheld. The use of these standards or codes of conduct can progress ethical procurement when supported by the economic and business parameters nego ated in a contract. (See Appendix 2 for further informa on.) Specica ons which are output-based rather than input-based can increase supplier innova on, reduce waste, and minimise harmful social and environmental impacts. Garment manufacture Labelling and packaging At the end of this stage the buyer is more aware of specic environmental, social and economic issues associated with a product's produc on process and has dra ed social, economic and environmental criteria for inclusion within the specica on. The buyer will build systems to iden fy and deal with the risk of serious ac vity such as fraud, corrup on, bribery and modern slavery, and to achieve visibility over complex and deep supply chains. Transport and customs Retail Wholesalers 11 3 Supplier market engagement and development of procurement plan Engage suppliers Engage with suppliers to assess: Are there suppliers which meet the organisa on's desired standards, or should the buyer ask suppliers to progress towards these standards? What are examples of good prac ce amongst current or poten al suppliers? What issues have suppliers iden ed? What exper se can they bring to a discussion about improvements? Which suppliers have the awareness and skills needed to improve? Do suppliers understand what the buyer considers to be high priority or high risk areas? Have mul -stakeholder ini a ves (involving organisa ons with relevant exper se) been established to address problema c prac ces within a supplier country or a sector? How eec ve have they been? Which suppliers are working with interna onally respected independent trade unions or NGOs? Is there current or recent research poin ng to cri cal concerns in an industry or country? What standards or codes of conduct are currently in use? If there are enduring labour concerns, it is best to take a mul -stakeholder approach to harness exper se. Develop procurement plan Supplier market assessment Buyers may wish to assess the following: The economic situa on of the workers in that supply chain. Do they earn a living wage or are they trapped in cycles of debt? Are they able to inuence their terms of employment? Have they paid a fee to get that job? Have they borrowed money for travel and recruitment fees? How does this impact on the risk of forced labour? Are laws updated and enforced? Are there relevant na onal or sectoral ini a ves to improve worksites? Procurement professionals give feedback to internal colleagues on what the market is able to provide, and the implica ons of dierent sourcing approaches, including mings. The buyer develops a plan for the procurement process along with me frames (pre-qualica on, tendering) and evalua on criteria, and records who within the organisa on will be involved and at what stage in the process. 'INFLUENCE' VS 'SCOPE FOR IMPROVEMENT' MATRIX HIGH Influence Research how to improve 7 Encourage Engage other purchasers to LOW 12 Develop partnering Scope for Prac cal considera ons; is further research needed? does the buyer need to include me and resource to work with civil society organisa ons based in the country of produc on? if purchasing a labour-intensive product, is there sucient lead me to avoid excessive over me during produc on? how will the buyer monitor compliance with ethical requirements and mi gate the risk of corrup on/bribery? At the end of this stage the buyer has updated the specica on and decided whether to include a standard or code. In addi on, they may have iden ed a need for a mul stakeholder approach. Addi onal me and resources should be included in the procurement plan. CASE STUDY Mul -stakeholder ini a ve8: South Africa's Agricultural Ethical Trade Ini a ve (AETI) AETI was created in 2002 as a result of collabora on between UK purchasing companies, NGOs and union members of the Ethical Trading Ini a ve to address racial discrimina on and sexual harassment in the vineyards of South Africa. Vineyards and farms which are members of the associa on undertake to meet certain requirements and workplace standards. AETI organises regular inspec ons and training courses to support improvements. Part of its success is due to its track record in addressing systemic problems, and to support from interna onal buyers who recognise the value of the associa on and only purchase from its members. rela onship with suppliers to: Implement be er prac ces supplier to improve inuence sector and supplier market improvement HIGH 7. AETI's execu ve commi ee is composed of agricultural producers, unions, NGOs and the South African government's Department for Labour. 8. For example, the UK prison service s mulated suppliers to develop 100% recyclable ma resses for prisons, HM Prison Service (2005) Sustainable Development Report 2004-2005 and Ac on for Sustainability 'Sustainable Procurement - Myths and Legends', US Department of Labor research www.dol.gov/ilab/programs/oc /2012TVPRA.pdf 13 4 Evalua on and shortlis ng of suppliers During this stage buyers reinforce to suppliers the importance of environmental and social performance, and assess suppliers' willingness to meet ethical standards. Given their role in understanding supply markets and communica ng with suppliers, procurement sta should; incorporate ethical and sustainability concerns into procurement decisions, as well as into contract material con nue to communicate the organisa on's sustainability policies to suppliers measure suppliers' prac ces in rela on to the buyer's sustainable procurement objec ves coordinate clear, consistent communica ons, par cularly if a number of sta communicate with a supplier. Contradictory messages will undermine the rela onship. Issuing a pre-qualica on ques onnaire and an Invita on to Tender (ITT)/Request for Quota on (RFQ) is a perfect opportunity to communicate the buyer's commitment to sustainability and ethical procurement alongside gathering relevant informa on. 'INFLUENCE' VS 'SCOPE FOR IMPROVEMENT' MATRIX EXAMPLES OF ASSESSMENT CRITERIA Economic Social Environmental Previous/current experience Accredita on by independent cer ca on organisa on to a standard Impact of materials used and processes of produc on Produc vity/service capacity Evidence that workers know their rights and responsibili es at work Impact of packaging Design robustness/innova on Presence of independent trade unions or eec ve management/worker commi ees which address workers' priori es, including pay, hours and condi ons Impact of transport (air freight from Europe may be greater than sea freight from Asia/Africa) Whole-life cos ng of product Sub-supplier prac ces and condi ons Impact of product life cycle, including disposal Switching cost of current supplier Par cipa on in mul -stakeholder ini a ves that educate and change prac ces to address ingrained problems 9. See BITC (2009), 'How to Manage Your Supply Chains Responsibly', and as an example, Oxfam's supplier ques onnaire, www.oxfam.org.uk/resources/suppliers 10.ICLEI Respiro Guide (www.iclei-europe.org/index.php?id=4919) and www.mairie-lille.fr 14 Shortlist suppliers The pre-qualica on ques onnaire may ask about policies, processes and performance.9 From the informa on which the supplier submits, buyers will be able to assess; a) the supplier's a tude b) what standards a supplier is working to c) the current situa on, if the supplier submits previously completed audit reports d) whether the supplier will be willing to meet the buyer's ethical and sustainability standards. These ques onnaires can also be used to assess the economic, social and environmental performance of exis ng suppliers. Develop ITT or RFQ The ITT/RFQ is sent to the shortlisted suppliers, giving a list of criteria for selec ng the winning bidder. (Examples of non-cost criteria are given below.) Weigh ngs should be applied and tenders should be scored against each criterion in order to rank results. Usually, cost and noncost aspects are scored separately, weighted and combined to give an overall score. At the end of this stage the buyer has shortlisted poten al suppliers and sent them ITT or RFQs, which explain how the bid will be assessed, and what standards the successful tenderer will need to achieve or work towards. Sustainable development criteria in contract award The City of Lille includes 'sustainable development performance' as one of the award criteria in its calls for tender. The award matrix is as follows: Technical quality: 50%, evaluated on the technical descrip on Price: 30% Sustainable development performance: 20%, evaluated on informa on requested from tenderers. This includes declara ons on respec ng the ILO Core Conven ons.10 15 5 Evalua on of quotes or oers and preferred supplier selec on When buyers assess pre-qualica on ques onnaires, tenders or audit reports from suppliers abroad, it is important to look for inter-related elements (see Stage 4, Examples of assessment criteria). If a more detailed assessment is undertaken, for example through face-to-face mee ngs, it is recommended that the following ques ons are asked: Is there evidence of leadership by the supplier to improve workplace condi ons, the local environment or address community needs? If a union is present, are workers' representa ves appointed by Management? (The workers, not the supplier, should determine whether or not they join the union) If unions are not present, what is the workers' and the supplier management a tude to trade unions and the existence of an ongoing management process that nego ates with their workers, through, for example, workers' commi ees?11 What is the economic situa on of the workforce? Are fees paid during the recruitment process? Do they hold their own iden ty documents? Does workers' pay equal or exceed the income needed to meet their living costs? This may indicate the eec veness of the dialogue between managers and workers' representa ves What are the labour hire prac ces of the supplier? Are there recruitment intermediaries? Do they employ migrant workers? What is the legal status of such workers? Do they have eec ve protec ons? Has the company ever detected bribery or corrup on and what was the response? What fraud control measures are in place? Assessing these inter-related elements may best be done by talking to local organisa ons around the supplier's worksite(s), as well as the relevant trade union. Good rela onships between management and workers will reduce the likelihood of strikes (causing product delivery delays) and yield higher quality products, as well as providing the context for innova on. Sucient wages to live on and being paid on me are necessary for workers and their families to be healthy, resul ng in a more produc ve working environment and removing the circumstances for reputa on-damaging stories. Almost all cases of child labour can be traced to adult workers' pay being insucient to meet their families' basic needs. Suppliers with poor social and environmental prac ces may be able to oer lower prices than exis ng suppliers with be er condi ons. Unless robust measures are in place to ensure good minimum standards before any new supplier is selected, the buyer will undermine its own ethical policies, expose itself to reputa onal risk, and signal to the market that they value sustainability less than other criteria. Given the business case for good rela onships between management and workers, buyers can: select suppliers who have collec ve bargaining agreements formed between management and worker representa ve or an independent trade union discuss with preferred suppliers the value of a modern human resources approach, which recognises the value of eec ve dialogue between management and worker representa ve or unions. In situa ons where suppliers are hos le to representa ve structures for workers, establishing a health and safety commi ee can demonstrate the benets of discussing produc on processes with workers, o en achieving rapid results.12 If a supplier remains hos le to eec ve dialogue with its workers, this provides context for exploita on and the purchaser should seek alterna ve suppliers sign an interna onal framework agreement with an interna onal trade union. For example, Inditex, an interna onal garment retailer, signed such an agreement with the Interna onal Tex le, Garment and Leather Workers' Federa on13 take measures to ensure the labour hire ma ers are addressed, and that migrant workers have specic protec ons. Have fraud control measures in place. At the end of this stage the buyer has selected a supplier on the basis of their performance against ethical standards and evidence of willingness to improve. 11.Independent union ac vi es may be restricted in Export Processing Zones, or in some countries e.g. China. 12.Impac Limited found that the presence of health and safety commi ees at the Chinese supplier sites of their clients reduced the prevalence of issues around over me premiums and excessive working hours, indica ng that these commi ees are helpful in managing dangerous levels of over me (www.impac limited.com/resources/ge ng-smarter-ethical-trading-in-the-downturn). 13.Interna onal Framework Agreement Between Industria De Diseo Tex l, S.A. (Inditex, S.A.) and the Interna onal Tex le Garment Leather Workers Federa on on the Implementa on of Interna onal Labour Standards throughout the Inditex Supply Chain (2007), www.itglwf.org 16 CASE STUDY Mining company A mining company triggered an audit process of a supplier a er receiving informa on that it was holding workers' passports. Reten on of passports is a widely recognised indicator of risk of forced labour, although the supplier argued this was common prac ce in the Middle East. The buyer engaged social auditors Verite to undertake a labour standards audit of the supplier's Middle East opera ons, focusing on an assessment of recruitment and onsite management of foreign workers, and working condi ons across mul ple sites and projects, with specic focus on comparison of labour and human rights condi ons against interna onally accepted norms and indicators of forced labour. The audit found nearly 80% of the workers interviewed (94 out of 120) had paid agent's fees far in excess of the company limit of INR 20,000 (USD $385). 24 of the 83 Indian workers had borrowed money to pay these fees at rates of 60% interest. The audit report noted that: \"Three years a er coming back to India, workers are s ll unable to pay the principle amount on the loan, and are only able to pay interest.\" The audit process also conrmed that while management considered produc on workers agreed to have their passports stored, workers did not consider this process to be voluntary. The ndings conrmed the risk of debt bondage and the reten on of passports clearly highlighted that the prac ce of forced labour in the workforce was very real. Following the audit results, the senior execu ves of both supplier and buyer companies worked on the remedia on strategy. The supplier paid $45,000 worth of illegally charged fees to workers and ins tuted a program of ensuring there were safes available to workers in their rooms in the labour camps, so they could safely store their own passports. At this stage the purchaser is either selec ng a supplier which is able to meet desired standard of ethical prac ce, or the purchaser will make it a condi on of contract for the supplier to improve their prac ces over the life of the contract. Where a purchaser only takes small volume or small percentage from a supplier then the purchaser will iden fy other purchasers to work with to build a pool of suppliers who do meet desired ethical standards as part of their ac vi es in Stage 7. ADVICE AND GUIDANCE ADVICE AND GUIDANCE Agreements between companies and workers Preferred supplier selec on guidance At the heart of a good workplace lies a good rela onship between management and workers. It is good prac ce for companies and worker representa ves, or ideally, supported by an independent trade union on behalf of the workers to nego ate a collec ve bargaining agreement. This can: help improve and monitor human resource prac ces. In one factory workers went on strike over inconsistent use of regula ons when a worker caught stealing received merely a rst wri en warning, while another worker arriving ve minutes late was red on the spot put in place fair and transparent terms and condi ons, e.g. rewarding workers for experience, skills and eort rather than on the basis of gender, race or religion be the best way to achieve improvements. Nego a ng with an elected workforce representa ve to make over me op onal, and discussing how to improve produc on techniques, upgrading skills or improving health and safety, is likely to be more eec ve than imposing over me on a red workforce. If there is a supplier able to deliver the working condi ons which meet the buyers code of conduct, then strongly consider giving them the business. Business with good working condi ons are eroded when contracts are awarded to compe tors with worse working condi ons. If a supplier is not able to deliver working condi ons which meet the buyers code of conduct, then make it a condi on of the contract over the life of that contract. This approach encourages transparency, rather than pushing suppliers in a posi on where they lie, and do not address the issues they have with working condi ons. 17 6 Crea on of contract and performance management against contract Create contract Contracts state all the important aspects of the business transac on, such as price, deadlines, quality and terms of payment, as well as expecta ons regarding ethical and sustainable supply. The economic and business parameters which are nego ated impact social responsibility through a series of posi ve or nega ve consequences for the supplier or the environment. Ethical procurement and sustainability targets should be included in the contract as well as in the specica on. Key Performance Indicators (KPIs) can measure the progress towards targets in rela on to; example criteria to assess suppliers against (see Stage 4) elements from the supplier ethical scorecard (see Appendix 1) progress in implemen ng a correc ve ac on plan to meet a code of conduct or standard. These targets can be adjusted or priori sed according to learning from market analysis or par cular supplier circumstances. Checklist for managing contracts Communicate the contents of the contract, emphasising sustainability and ethical procurement requirements if these are new Obtain feedback from users to ensure any impacts of sustainable procurement provisions are understood, assessed and acted on Obtain ini al feedback from suppliers to check shared understanding, hear ideas for how to improve their social and environmental performance, and establish how the buyer can support and facilitate improvements14 Monitor supplier performance on KPIs. Get addi onal feedback from local organisa ons about workplace or environmental performance at supplier sites Manage supplier performance. Agree ac ons to be taken as a result of informa on gathered. Where suppliers lack exper se, facilitate relevant training or develop an ac on plan to address skill gaps. Where the buyer has li le leverage or it is a short-term rela onship, collaborate with other buyers Provide appropriate incen ves. Reward suppliers for performance related to sustainability (e.g. higher volume orders, contract extensions, addi onal opportuni es to tender for contracts, higher price for higher social and quality performance) Implement appropriate accountability measures. Manage performance against contract Buyers need to assess supplier performance against the desired level of social or environmental performance, focusing on elements iden ed in correc ve ac on plans or improvement ini a ves recorded in the contract. Feedback on performance is a two-way process and a buyer needs to consider how the supplier regards them as a customer. A buyer should avoid making such high cost ethical demands (compared with the value of the business) that the supplier puts them into the Nuisance box (see matrix below). Where conduct breaches basic standards, buyers will need to respond quickly but sensi vely. Ideally, the supplier will view their business with the buyer as being in the Develop or Core box. MANAGING RISK THROUGH RELATIONSHIPS: SUPPLIERS' VIEW OF CUSTOMER HIGH CORE NUISANCE EXPLOITABLE A rac veness of customer's business Supplier aim: Help customer grow business Rela onship style: 'Win/Win' Supplier aim: Lose or replace business Rela onship style: 'Win/Lose' LOW 18 DEVELOP Supplier aim: Improve bo om line of both Rela onship style: 'Win/Win' Supplier aim: Improve own bo om line Rela onships style: 'Win/Lose' Value of customer's business HIGH CASE STUDY 'Brand A found a new accessory supplier in Taiwan and told us [the factory] to use this new one for the next order. We conrmed the delivery date. The brand delayed giving details of the new supplier who, when contacted, was already at full capacity. These delays caused us to do excessive over me and s ll shipment was delayed. We ended up paying for the [air] freight as a penalty for late shipment.'15 Factory manager At the end of this stage the buyer has signed a contract with the supplier which includes sustainability and ethical procurement standards and targets. It has put in place a structured rela onship oversight and review process, which aims for con nuous improvement. Exit strategies, for where a supplier fails to meet basic standards, should also be considered, only a er safeguards have been put in place for workers. The importance of zero tolerance for Supplier rela onships and exit slavery, fraud, corrup on and bribery strategy Where breaches of basic standards occur - such as those involving corrup on, fraud, bribery and modern slavery, such breaches must be addressed immediately. This does not mean that a buyer 'cuts and runs' from a supply rela onship, but that immediate ac on must be taken to inves gate the conduct, remediate it where possible, and plan so that it is prevented from recurring in the supply chain. This is because breaches of this nature are illegal and have the poten al to cause enormous reputa onal damage to the buyer organisa on. The importance of progressive standards Where suppliers which meet the desired standards are not available, buyers should consider how these standards are going to be achieved. A simple 'pass or fail' ck-box approach does not o en lead to improvements for suppliers and their workers, and can simply shi problems elsewhere. This may be because the supplier does not understand the standards or their benets. Progress standards, on the other hand, allow some exibility and encourage improvements to be made. The key to achieving progress is in the supplier and buyer's mutual willingness to bring about change and their ability to work together to do so. Above all, communica ons with suppliers should stress the importance of transparency over compliance. Concealing issues makes it harder for them to be addressed. The type of supplier rela onship should be appropriate. For high risk sectors or strategic/cri cal categories, partnering rela onships may be essen al to encourage trust, collabora on, sustained improvements and coopera on. Where a problem is not being resolved, an eec ve escala on process should be used to ensure that threats to the development programme are being communicated and that accountability for resolu on of threats is correctly assigned. In extreme cases, where required improvements have not been made, it may be necessary to exit a rela onship with a supplier. This should be a last resort, a er the buyer has made signicant eort to support the supplier but the supplier demonstrates no inten on or ac vity to improve. To con nue to source from such a supplier indicates to compe tors and other suppliers that the buyer is not serious about working to a required standard. When termina ng a rela onship, buyers should check that workers have been and will be paid correctly if their work ends before any nal payments are made. There have been instances where laid-o workers have protested against both buyer and supplier, which can damage the purchasing organisa on's reputa on and denies people wages which you as buyer have eec vely subsidised. Buyers work with suppliers to reduce child labour 'Of the world's children, one in seven is in child labour of some kind. In the Asia-Pacic region 122 million children aged 5-14 work.' 16 BBC Worldwide, C&A Europe, CWF, Hallmark Cards UK, Kingsher and New Look are integra ng Child Labour Opera onal Procedures (CLOP) 17 into their ethical programmes. These set out how the companies will work with their suppliers, factories and locally-based organisa ons to get children back to school whilst ensuring that the family's nancial posi on is not jeopardised, rather than abandoning a supplier and its workers. 14. For example, Traidcra Plc supplier feedback www.traidcra .co.uk/about_traidcra /social_accounts/trading/working_with_producers/comments.htm 15. Pentland (Summer 2009) Corporate Responsibility Review 16. ILO (2006), 'Facts on Child Labour', www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/publica on/wcms_067558.pdf 17. Impac Limited (2008), www.impac limited.com/resources/impac -child-labour-remedia on-guidelines-in-the-industrial-context/ 19 Audit - a useful tool? In cases where a contract requires social or environmental standards of the supplier, an audit can be invaluable in determining which parts of the standard were met. Some buyers provide their suppliers with self-assessment workbooks or explanatory guides.18 This is par cularly helpful when na onal laws or interna onal standards are not well known by both communi es. Prior to an audit, buyers should check the supplier's understanding of the desired standard. Audits involve in-situ checking of the supplier's condi ons, and, in some cases, o-site interviews with workers and ex-workers in places where they are free to speak honestly. Audits can be undertaken by a third party (NGOs, commercial audit companies) or by sta of the buyer. A combina on of approaches may elicit more reliable informa on. Interviews and document review are essen al components of good audi ng. Interviews should be conducted in local languages and should occur at three levels: management, middle management/supervisors, and oor workers. Document reviews should be used to iden fy inconsistencies between what is said in interviews and what is recorded. Buyers should check that individual auditors have appropriate competencies and sensi vity to the conden ality of workers' statements. Suppliers with experience of selling interna onally may already have been audited, and buyers could ask to see recent results. Ini a ves like Sedex19 have been set up to share audit data to avoid duplica on and reduce supply chain costs. To enable swi progress to be made at the end of an audit, the Correc ve Ac on Plan (CAP) needs to be shared with all relevant decision makers, i.e. not only site managers, supplier owners and buyers but also workers' representa ves. Since it is workers' rights which are usually assessed through audits, sharing audit data with workers' organisa ons supports their capacity to nego ate fair condi ons - the sustainable and ethical long-term solu on. Workers can comment on the veracity of the audit, suggest improvements and highlight the highest-priority changes. Workers are the best monitors of whether changes have occurred at their workplace. Commercial audit companies may oer to monitor the implementa on of the 'correc ve ac ons'. However, the buyer's direct involvement in discussions with suppliers and worker representa ves emphasises the buyer's desire for improvements to be made. For example, they could update the contract to make a commitment to the supplier for a xed term, on the condi on that improvements are sa sfactorily implemented. The manner in which audits are undertaken can, however, undermine the social or environmental objec ves. A supplier's goodwill can be lost if the buyer requires them to pay for audits and improvements but fails to enable and support improvements. Buyers may need to adapt their commercial terms and think twice about requiring a supplier to make the costly investment of an audit when there is no guaranteed order. In the worst case, this can result in suppliers falsifying records for an audit, asking workers to lie in audit interviews or bribing the auditor. The table below highlights the frequency of double books and coached workers.20 INSTANCES OF DOUBLE BOOKS AND COACHED WORKERS DURING 2012/13 INSPECTIONS Region Prevalence of double books Prevalence of coached workers South East Asia 31% 29% China 35% 34% Bangladesh 50% 29% India 75% 75% UK 4% 4% Reliance solely on audits is not advisable. Having trade union representa on or an independent workers' organisa on at a supplier site can be an advantage for the buyer. Unions can provide informa on, inform workers about their rights and provide a structured process for supplier management to discuss workers' priori es and grievances. The key to whether audits lead to posi ve or nega ve outcomes lies in how the results are used and whether processes are put in place which lead to sustainable improvement in condi ons. Building up worker awareness of their rights and establishing an eec ve worker-management dialogue mechanism is a cost eec ve way of ensuring sustainable improvement in condi ons. 18.Kingsher (2006), 'Kingsher Guide to Indian Workplace Laws and Regula ons', www.kingsher.co.uk/managed_content/les/sr_pdf/KF_IndiaLaw.pdf 19.Supplier Ethical Data Exchange (SEDEX) is a secure database where suppliers can upload data about their sites. See SMETA for best prac ce guidance on conduc ng ethical trade audits www.sedex.org.uk/sedex/go.asp?u=/WebSite/Home&pm=6&loca on=Smeta 20.Impac Limited (2013), www.impac limited.com/resources 20 7 Update ethical procurement programme... ...including standard se ng and share and reward good prac ce Iden fy root causes and barriers to improvement Building on reviews of suppliers' performance against individual contracts, the buyer needs to review and update its ethical procurement programme, assessing it against the following: Were planned standards met and procedures implemented? Were the desired social or environmental standards achieved? Consider assessing both the extent to which the standard was achieved and the percentage of suppliers and/or spend associated with sites which have achieved the desired standard Do suppliers take an a tude of encouragement, guidance, fair trading terms and rewards for good economic, socially and environmentally responsible management when dealing with second and third- er suppliers? Assess: What are the root causes of non-compliance or poor performance? Within the buyer? Within the supplier? Elsewhere? What were the barriers for buyers to bring about improvements at supplier sites? Contractual targets and agreements which recognise the shared responsibility for bringing about social and environmental improvements can be incorporated. This approach will result in supplier development as well as delivery against outcomes from procurement strategy. Act to address root causes Many organisa ons are moving to what is termed 'beyond audi ng' and focusing on what is needed to help a supplier improve its social and environmental performance.21 An important component of this is training and awareness-raising within both buyer and supplier organisa ons, to ensure standards are clearly communicated and understood. ACTIONS TAKEN BY PURCHASING ORGANISATIONS TO ADDRESS ROOT CAUSES OF POOR WORKING CONDITIONS 22 Addressing purchasing prac ces? Factory audit results disclosed? Unannounced audits and use of worker interviews? Inditex, Spain Nike, USA Tesco, UK Company name, country Publically commi ed to the ILO?* Par cipate in industry/mul -stakeholder approach? Adidas, Germany Carrefour, France H&M, Sweden Factory training provided? Tackling dicult labour standard challenges e.g. living wages, trade union rights? *Interna onal Labour Organisa on 21.F and C Investments (2009), 'Factory Labour Standards in Emerging Markets: An investor perspec ve' www.fundnets.net/fn_lelibrary//le/co_gsi_Factory_Labour_Standards_in_Emerging_Markets.pdf 22.Business Leaders Ini a ve on Human Rights (2009), 'A Guide to Integra ng Human Rights into Business' 21 7 Update ethical procurement programme... Increase the capacity of workers and suppliers to improve Update ethical procurement programme and set new targets The buyer should facilitate the building of workers' and suppliers' knowledge, skills and processes, for example, by providing them with guidance on good prac ce and/or providing training for workers. Support is more eec ve when buyers collaborate with organisa ons experienced in bringing about workplace improvements in that country. Mul -stakeholder organisa ons have helped buyers to collaborate, discuss how to bring about improvements, and produce guidance. (See Resources on page 30.) Building on their assessment of the current ethical purchasing programme and benchmarking, the buyer can now undertake a gap analysis between desired and actual performance (determined by supplier assessments and other informa on). Any gaps iden ed will form the basis for improvement targets and objec ves for the new ethical purchasing programme. Share good prac ce A review of the ethical, procurement programme will iden fy in which areas suppliers have implemented good prac ces, and in which areas they may be weak. Mul -stakeholder organisa ons, others sourcing similar products or from the same area and organisa ons based in the supplier community may also know of good prac ces. Supplier development can help improve the prac ces of specic suppliers, and supplier co-ordina on can help share good prac ces and ini a ves between groups of suppliers to bring about improvements, increasing the likelihood of achieving agreed targets for the benet of both par es. Improve procurement prac ces Feedback from supplier and workers' organisa ons indicates that, on some occasions, it is the procurement prac ces of the buying organisa on which limit the improvement of working condi ons for example, placing large urgent last minute orders on the supplier. Buyers need to nd ways of harnessing supplier feedback to improve their own ability to support posi ve social and environmental outcomes. Benchmarking The buyer can benchmark the performance of their ethical procurement programme against others. Both performance and processes, such as the ac ons listed in the table on page 21, can be used in the benchmarking exercise. Buyers are reluctant to be at a compe ve disadvantage on ethical procurement issues. Investors, customers and other stakeholders may also exert pressure to improve. 22 Recognise and reward good performance and leaders in ethical procurement Ethical procurement is a process of con nuous improvement involving both the buyer and the en re supply network. The buyer can consider introducing supplier awards to recognise progress in aspects of social and environmental performance, for example through 'preferred supplier' status or similar mechanisms which direct orders towards be erperforming suppliers. In some contexts the owners or managers of suppliers are under peer pressure from other managers not to improve condi ons. In these cases it becomes even more crucial that the buyer supports leadership in good social and environmental performance at produc on sites. Appendix 1 includes an integrated performance scorecard for both buyers and suppliers. This tool can help the buyer embed recogni on and reward structures for good supplier prac ce in how sites are managed and for the way in which buyers select suppliers and enable good workplace outcomes through their procurement. At the end of this stage the buyer has updated their procurement programme based on feedback, learning and an assessment of progress towards desired social and environmental outcomes. This informa on guides ac vi es within the programme to address root causes of problems, iden fying areas in which the buyer can facilitate learning across suppliers, and where reward structures both for suppliers and buyers should be adjusted. CASE STUDY Indian supplier: The business benets of improving working condi ons A Calcu a-based supplier realised business benets a er making changes following a labour standards audit. The 250,000 unit-permonth factory with an annual turnover of 3.8m employs approximately 500 workers to make bags, accessories and clothes for the European, US and South American markets. 'In 2006, a er audit results indicated there was room for improvement, we reorganised produc on to try to mo vate workers. The audits were required for the factory to con nue supplying certain customers. In our opinion, the addi onal costs of compliance have been far outweighed by the benets arising from produc vity, lower employee turnover, be er quality due to increased job security and, most importantly, access to be er customers. As a result of implemen ng changes, labour costs increased by 20%. However: Produc vity increased by 10-20% (a er providing workers with steel gloves, face masks, and needle guards) Worker turnover went from 30% to less than 5%, reducing training costs. To facilitate discussions and ensure collec ve bargaining, a 21member workers' commi ee has been established. This commi ee meets once a month, rstly on its own, and then with the factory manager and two senior sta. Its purpose is to raise concerns and share ideas for how the factory could be run be er. The factory also operates an ambulance service, as the nearest is more than an hour away. Workers now feel proud to work at the factory because of the benets it shares with their community.' 23 Ethical procurement is increasingly an economic and reputa onal impera ve. Purchasers working in conjunc on with their suppliers can start to improve labour condi ons for workers in their supply chain and limit any harmful environmental impacts, resul ng in business benets for both purchasers and suppliers. 23.Interview with managing director 23 Appendix 1: Complementary buyer and supplier for rewarding good workplace pe