Sustainability in Soft Drinks & Water - Part II - Collaboration with Suppliers
The second part of this month's management briefing, which focuses on the soft drinks and bottled water category, looks at the relationship between producers and their suppliers.
As the overall aim of environmental sustainability strategies of soft drinks producers and bottled water brands has developed from minimising impacts within their own operations to mitigating environmental impacts throughout the value chain, collaboration with suppliers, partners and other actors has become more vital than ever.
Stakeholder engagement and partnership with suppliers have become key planks in the sustainability strategies of both the Coca-Cola Co and PepsiCo as they seek to mitigate environmental impacts more broadly.
"For sustainability programmes to be successful, it is critical that they are collaborative, that you bring your partners on the journey with you," Dan Bena, senior director of sustainable development at PepsiCo, tells just-drinks.
This view is echoed by Joe Franses, director of corporate responsibility and sustainability at Coca-Cola Enterprises.
Alluding to the CCE's value chain target to reduce the carbon footprint of an average product in its portfolio by one third by 2020, Franses acknowledges the role suppliers will play in realising that and other sustainability goals. "We know we can't do that on our own," he says. "We know we have to do that in conjunction with our suppliers. Those relationships are going to be critical to our ability to deliver our sustainability plan targets. The next phase in our journey is very much about supplier collaboration."
While companies will stress the collaborative nature of this process, it is clear that sustainability is coming into the negotiation as well. Franses talks of CCE "beginning to challenge our suppliers more than ever before" on sustainability issues. "We have always had quality, service, cost and innovation as the four main criteria in our SRM [supplier relationship management] programme. We have now have added corporate responsibility and sustainability."
With its franchised bottler system, the Coca-Cola Co arguably already has valuable experience in sharing expertise and collaboration across different components of the value chain.
Operating a franchise system as opposed to a vertically-integrated company requires "a lot of management by influence," says Jeff Seabright, VP for water resources and the environment at Coca-Cola, working through "dialogue, collaboration and co-creation".
Seabright points out that "many of the environmental policies and commitments that we have made and are making" have been defined through discussion with the company's bottlers. Most notably, the company's Global Supply Chain Council and, within that structure, its Global Environment Council, which bring together technical personnel from the company's bottlers, provide "a forum in which we co-create our common pathway forward", he adds.
Such cooperation, not only with bottlers but with suppliers and service providers and other stakeholders, will become ever more important as the company moves into the next phase of its sustainability strategy. Having originally set five-year targets to 2012 for criteria such as energy efficiency in bottling plants within the Coca-Cola system, the company will unveil new targets next month which extend across its value chain.
Underlining how sustainability has come into the supplier relationship, the Coca-Cola Co's global procurement division is now called Global Sustainable Procurement, signalling, says Seabright, "that it's not just price we're looking at".
As to whether sustainability criteria have now become dealmakers or dealbreakers, Seabright adds: "What we have said is we are going to value suppliers who bring us sustainability values and we're very clearly signalling that, inviting them to share with us what they would like to do to help advance this agenda." Specifically, the company is looking for three categories of supplier inputs, Seabright says, namely "quick wins", "incremental wins" and "game changers".
Meanwhile, Bryan Jacob, Coca-Cola's climate change director, characterises the way the company's sustainability strategy will influence its supply chain partners as a "supply chain chain reaction". And while he speaks of "management through influence rather than management through control", he also stresses that as a "large purchaser" of raw materials and services, the company does have "rather considerable influence over up and downstream partners" which it can bring to bear.
Given that agricultural supply chains account for a large majority of the water - around 75% to 80% according to most estimates - that goes into the production of a typical soft drink, and a sizeable percentage of the carbon footprint, collaboration with agricultural suppliers is clearly key.
PepsiCo's Sustainable Farming Initiative (SFI), which combines environmental, social and economic elements, supports "continuous improvement in the way agricultural raw materials are produced, by engaging the growers, tracking their progress, and sharing tools and practices that will enable them to improve and succeed", says Dan Bena. "By applying this framework, over time, the resilience of our agricultural supply chain will be improved, and will result in decreased risk to both our business and the growers' businesses - a truly collaborative approach."
While introduced earlier this year to farmers producing potatoes for PepsiCo's snacks subsidiary, Frito-Lay, the SFI programme is now being extended to other agricultural raw material suppliers, including citrus growers. "The momentum has been amazing for the programme, and it is a great example of taking a collaborative approach to improving supply chain resilience," says Bena.
This collaborative approach is by no means restricted to sustainable agriculture projects, Bena continues. "The SFI is one example, with specific regard to our agricultural supply chain, but there are examples across the board where collaboration is crucial. We are actively engaged in the Supplier Ethical Data Exchange (SEDEX), and host PepsiCo Supplier Summits, where we convene over 100 of our key ingredient suppliers for a full day of engagement and information sharing, so that they know about PepsiCo's expectations of our suppliers, and for them to share their challenges with us."
During the past two years, PepsiCo has also begun sharing its plant-level resource conservation best practice tool, called ReCon, with its key suppliers, Bena adds, "to great effect".
Industry collective action and collaboration
There is also significant scope for industry-wide cooperation and collaboration on sustainability. Organisations such as the British Soft Drinks Association (BSDA) and its counterparts in other European countries, along with the American Beverage Association and the Grocery Manufacturers Association (GMA), have established sustainability strategies.
These organisations have a role to play in fostering cooperation and spreading best practice within the sector but also between the soft drinks industry and other sectors, says BSDA director general Gavin Partington.
Having first launched its Sustainability Strategy in 2008, the BSDA will next month unveil its Sustainability Roadmap, developed in collaboration with the UK's Department for Environment, Food and Rural Affairs (Defra).
For Partington, the Sustainability Roadmap will take the soft drinks sector's sustainability mission to the next level, providing a "framework for activity" going forward. He stresses that it reflects a "joined up approach" which brings together the whole soft drinks supply chain in the UK, and not just the members of the BSDA. "The Sustainability Roadmap is really about providing a framework through which industry, and industry beyond our own membership, and other stakeholders, can all make a contribution."
Partington also points to increased collaboration and cooperation on sustainability issues between the BSDA and soft drinks trade associations in other European countries.
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