ETHICAL PROCUREMENT

1. ETHICAL PROCUREMENT A SUPPLIER’S PERSPECTIVE

2. LEIGH THOMASSONMANAGING DIRECTOR ROBINSON HEALTHCARE LIMITED [REPRESENTING THE SDMA]

3. Aims of Presentation • Define: • Ethical trade • Fair trade • Environmentalism • Sustainability

4. Aims of Presentation [contd.] • Sourcing from the Third World • Schemes • Potential solutions • Practical difficulties • Discussion points

5. What is Ethical Trade? • An all-encompassing term for business practices which promote socially responsible trade. • Can include environmentally responsible trade. • Applies to procurement, production, sales and marketing or any business activity. • Today we will discuss ethical procurement.

6. What is Fair Trade? • The development of trading partnerships based on dialogue, transparency and respect that seek greater equity in trade. • Contributes to sustainable development by offering better trading conditions and securing the rights of marginalised producers and workers in the developing world. • Retail foodstuff, textile and cosmetic ingredient focussed.

7. What is Sustainability? • Sustainable trade/economics • Sustainable communities and culture • Sustainable ecological practices

8. Is There Much Difference? • They all have a different emphasis • But many of the concepts are increasingly overlapping

9. Focus on Ethical Procurement • What are the concerns? • That labour, generally in the Third World, is being abused in some way.

10. Third World Sourcing • Is sourcing from the Third World or ‘low cost countries’ commonplace? • Yes, in unbelievable quantities.

11. Third World Produce • Why is there so much produce sourced from the Third World? • Because it is cheaper. • Because a supplier may have no option – source or die.

12. Sector Sourcing • Is sourcing from the Third World concentrated in a particular sector? • No, it is common across many business sectors.

13. Sourcing from Low Cost Countries • Is it a bad thing to source from low cost countries? • Not necessarily: • Lowers cost for the importing country. • Suppresses inflation. • But it can lead to de-industrialisation in the importing nation. • Need to be extremely diligent on quality.

14. Positive for the Producers • Provides employment and income. • Reduction in poverty-driven problems: • Food/Education/Healthcare • Political strife [extremism] • Improves international relationships based on mutual understanding. • Done correctly it can be win/win.

15. Third World Production • Is production in Third World countries focussed in just one or two countries? • No, but of course, huge quantities of goods are produced in China.

16. Third World Production • Why is production in the Third World cheaper than in developed western nations? • Labour is cheaper. • All support services are cheaper. • Land and buildings are cheaper. • Legal/regulatory burden much lower. • In some cases exports are heavily subsidised. • All standards are lower.

17. Third World Production • But it may be cheaper because they are cutting corners at the expense of the workers or quality.

18. What is The Cycle? • Increase export production based on lower costs. • Increased wage demands from workers. • Increased demands for better working conditions from employees and customers. • Increased environmental awareness and pressure from customers. • Increased standards and increased costs. • Production shifts to another undeveloped country. • The cycle starts again.

19. Medical Devices • Are there many medical devices produced in the Third World? • Yes, and in huge quantities.

20. SMEs • Is this practice confined to SMEs? • No, in fact the practice started with larger businesses.

21. Devices • What type of devices are produced? • Almost everything you can think of, and more: • Consumables, reusables and now capital equipment.

22. Responsible Device Manufacturers • What are the main concerns of a responsible medical device manufacturer when buying from the Third World?

23. Quality and Design • Goods must meet quality and design specifications: • Why? • Risk to patients. • Legal compliance with Medical Devices Directive. • Risk of loss of certification. • Damage to reputation and brand. • Business loss.

24. Cost Targets • Goods must hit cost targets: • Why? • Business could fail if not competitive. • Customer procurement practice was and, in many cases still is, heavily cost weighted.

25. On-Time-In-Full • Goods must be delivered on time and in full: • Why? • Customer service critical. • Lengthy supply chains.

26. Ethical Production • Goods must be produced ethically: • Is this really fourth on the list? • Yes

27. Why is Ethical Production Fourth? • No right minded person wants their goods produced in an unethical way: • But it is a question of priority and emphasis.

28. Why? • Because there was little concern from the customer base. • Producing ethically costs money and takes time. • Nothing is for nothing. • The best suppliers are usually the most expensive.

29. But Will The Customer Pay The Extra? • Only if he knows what he wants. • If he does not you will lose the business.

30. Can The Costs Be Mitigated? • To some degree – yes. • Improved conditions give better quality. • Improved conditions give more labour motivation. • Remember – decent working conditions – not First World – may not cost much.

31. The Importance of Volume Commitment • Drives productive efficiency. • But it must be over the long-term. • Short-term = no investment or commitment.

32. Relationships • Need a relationship of trust and openness: • Purchaser needs to pay a reasonable price. • Purchaser does not wish to be taken advantage of. • If the purchaser cannot compete = loss/loss.

33. Remember • Ethical procurement takes time and costs money for the purchaser. • But once rolling, additional costs are not too prohibitive.

34. Codes of Conduct/Certification • Codes of conduct/certification: • Can be very confusing for everyone. • There are many different organisations around the world. • Increasing overlap in objectives. • Many have a particular niche.

35. ETI – Ethical Trade Initiative • Working to improve the lives of poor and vulnerable workers. • Produce the ETI Base Code [guidelines]. • Based on the conventions of the International Labour Organisation.

36. ETI – The Ethical Trade Initiative • What do they do? • Define best practice. • Help workers help themselves. • Build strategic alliances. • Influence key decision makers. • Drive improvements.

37. ETI – The Ethical Trade Initiative • What they do not do: • Audit • Issue Certificates of Compliance

38. SEDEX • Aim to drive improvements in ethical and responsible business practices. • It is an information sharing exchange. • An on-line collaborative platform for sharing ethical supply chain data. • They do not audit or issue certification. • Idea is to avoid duplication of effort and cost. • Used extensively by UK retailers.

39. SMETA – SEDEX Members Ethical Trade Audit • An audit methodology developed by SEDEX using principles of: • ETI base code • ILO conventions • SA 8000 • ISO 14001 • They do not audit

40. SMETA Audits • SMETA audits are carried out by professional auditors: • No Certificate of Compliance issued. • Look at the manufacturing site listed as producer. • Do not go back down the supply chain.

41. SAI – Social Accountability International • Aim to improve workplaces and communities by developing and implementing socially responsible standards. • Developed the SA 8000 Standard.

42. SA 8000 • The first auditable social certification standard. • Recognised internationally. • SAAS authorise third party auditing firms to audit to SA 8000. • SAAS are a sister company to SAI. • Authorised audit firms check the suppliers and issue Certificates of Compliance.

43. LSAS – Labour Standards Assurance Scheme • Commissioned by the Department of Health and NHS Supply Chain. • Bespoke standard developed by SGS. • Requires an audit. • Very similar principles to the other conventions and schemes. • Introduced for surgical instruments.

44. LSAS is Different • It requires much more information and control over the audited suppliers’ supply chain. • It has a phased introduction to allow suppliers to get up to speed. • Meeting phased targets is mandatory.

45. LSAS • What it does not do: • Concern itself with other aspects of supplier performance. • Require the supplier to visit and audit their supply chain to confirm accuracy of information. • System based and relies on accurate and truthful returns. • At the highest level of compliance, arrangements for labour standards assurance submitted for third party review. • But a good start and it will probably develop.

46. SA 8000 and LSAS • LSAS audits the supplier not the supply chain. • SA 8000 audits the production unit.

47. SA 8000 Certification • If we specify that SA 8000 certification is mandatory for the suppliers and their entire supply chain, what is the problem? • SA 8000 is not a guarantee that everything will be fine. • Corruption is widespread in the Third World. • Significant problems of reliance on Third World certification even when reputable auditing bodies are involved. • Comment applies to Medical Devices Directive compliance as well as ethical certification.

48. Recent Problems • RINA which is a large auditing firm based in Italy audited a production facility to SA 8000 in Karachi, Pakistan in August 2012 and approved the facility. • Three weeks later an horrific fire killed almost 300 workers.

49. The Response • No new SA 8000 certificates are being issued until investigations have been completed. • All certified facilities are being re-inspected for compliance with fire requirements by audit firms. • SAAS will do audits themselves. • Inspectors will make unannounced visits.

50. Food for Thought – Comments by SAI • We are not a police force. • We do not have statutory powers. • Any system is open to abuse by the company. • SA 8000 is not a substitute for enforcement of local laws.