Expectation 4 for food and beverage companies: sourcing and supplier relationships

Companies should evaluate suppliers for labour performance, including on minimum labour compliance criteria and on suppliers’ capacity to manage compliance of their own suppliers.

They should require compliance with their codes of conduct as a condition of contracts, and support suppliers in achieving this by building suppliers’ and workers’ capacity to attend to labour issues and prevent them from arising.

Companies should develop longterm supplier relationships, and incentivise good labour performance of suppliers through multi-year contracts or other means. Companies should avoid short notice requirements on suppliers, and implement a cost model that enables its suppliers to pay adequate wages.

Background

Changing demands at short notice, and short-term contracts with companies with different standards can make it difficult for suppliers to implement a variety of demands. To enable suppliers to comply with expectations, companies should support suppliers and build longer lasting partnerships.

Engagement questions

Opening questions

Communicating expectations to suppliers

Has the company taken steps to communicate its supplier code of conduct to all of its suppliers?

Sourcing practices

Does the company have minimum labour performance criteria for its suppliers?

Follow-up questions

Communicating expectations to suppliers

Does the company include the expectations outlined in its supplier code of conduct in contracts with all direct suppliers, or ask its direct suppliers to sign the code?
Are the expectations outlined in the supplier code of conduct clearly communicated to all sub-suppliers (through the company or through suppliers)?

Sourcing practices

Does the company evaluate new and existing suppliers on social/labour performance?
Does the procurement process consider suppliers f capacity to manage compliance of their own suppliers?
Do the evaluation criteria consider all elements outlined in the supplier code of conduct?
Does the company fs product cost model ensure the labour costs of a product enable its suppliers to pay at least legal minimum wage levels?
How does the company avoid price requirements, short notice requirements or other business considerations undermining suppliers f capacity to comply with labour standards?
Does the company disclose the outcomes of its sourcing decisions (e.g. the percentage or absolute number of new and/or existing suppliers screened for labour practices, signed onto a code of conduct or in compliance with a code)?

Incentivising good labour performance

Does the company incentivise supplier good practice, e.g. does it
- give preference to suppliers with better labour performance?
- build long-term partnerships with socially compliant/outperforming suppliers?
Is the company able to demonstrate evidence of providing incentives by reporting on the outcomes (e.g. the number or percentage of suppliers that have received incentives or participate in long-term partnerships or similar initiatives)?

Supplier and worker capacity building

Does the company provide awareness raising, training and capacity building on its supplier code of conduct for its suppliers (this may include smallholder cooperatives), such as:

- checklists for suppliers to work towards?
- training or technical assistance for strategic or critical suppliers (i.e. those at highest risk and where the company has most leverage) or suppliers where training needs were identified?
- issue-based resources, guidance or joint projects?
- financial support to fill gaps in supplier compliance?
Is the company able to provide evidence that it builds capacity regularly and systematically, including at subsupplier level and through training of workers?

Company examples

Communicating expectations to direct suppliers and sub-suppliers: The Swiss chocolatier and confectionery company Lindt & Sprüngli clearly communicates that compliance with its code of conduct is a prerequisite for doing business with the company. In its Supplier code of conduct and compliance declaration, Lindt asks its suppliers to confirm in writing that they have taken notice of the code, and that they will effectively communicate its contents to their employees, subcontractors and suppliers and ensure it is implemented.

Integration of expectations into contracts: The US food, snack and beverage company PepsiCo includes the expectations of its Global Supplier Code of Conduct into contracts with its suppliers. With prior notice, PepsiCo may conduct audits at its suppliers to verify compliance.

Sourcing practices: Unilever’s Responsible Sourcing Policy sets out three levels of supplier performance aimed at shifting suppliers’ practices from doing no harm to doing good: mandatory requirements, good practices and best practices. Unilever sets specific time-bound targets for its suppliers and creates commercial incentives for suppliers to move from entry-level to best practice. In order to become a supplier to Unilever, suppliers need to acknowledge alignment with Unilever’s Responsible Sourcing through contractual language or by completing a self-assessment questionnaire. Depending on the risk level, suppliers may be required to undergo an understanding responsible sourcing audit (URSA). This takes place at site level. In case of non-compliance, the supplier will have to undergo corrective action plans before being able to supply Unilever (a ‘no conformance, no contract’ system). Suppliers must also be willing to continuously improve.

Building strategic partnerships: In 2011, Unilever launched Partner to Win, a strategic programme focused on building relationships with selected key supplier partners, including on sustainability. Unilever’s goal is to help its Partner to Win suppliers to move from mandatory requirements to good practice by the end of 2016. This covers approximately 200 large suppliers which cover up to 40% of Unilever’s total spend. In addition, the company aims to move its remaining strategic partners – 1,200 suppliers covering up to 5,000 sites and 80% of Unilever’s raw and packaging material spend – from mandatory to good practice by the end of 2017.

Supplier capacity building: Unilever provided on site awareness raising and training on its Responsible Sourcing Code to suppliers in highest risk countries. In 2014 and 2015 these were attended by over 750 supplier staff. Other relevant suppliers will be engaged via online training and Q&A documents, which include a self-assessment questionnaire gap analysis tool and audit checklists.

Tools and further guidance

How to improve sourcing practices: A checklist for evaluating new suppliers:

SAI, IFC (2010) . Measure & Improve Your Labor Standards Performance. Performance standard 2 handbook for labor and working conditions, chapter eToolkit: Labor Standards Performance In Your Supply Chain f: section eNew Supplier Procedures Checklist f, p. 163f.

How to create longer term partnerships with suppliers:

BSR, UN Global Compact (2015) - Supply Chain Sustainability - A Practical Guide for Continuous Improvement, Second Edition, chapter 5: Engaging with Suppliers, p. 37ff (see for example p. 38, Creating Incentives for Strong Sustainability Performance)

How to provide supplier capacity building:

SAI, IFC (2010) . Measure & Improve Your Labor Standards Performance. Performance standard 2 handbook for labor and working conditions, chapter on eLabor Standards Performance in Your Supply Chain f: Training Your Suppliers & Contractors, p. 77.