Shared Value in the Supply Chain

A multinational corporation which has faced condemnation for its manufacturing practices has been taking steps to build an ethical supply chain, writes Ellie Cooper in this month’s Executive Insight.

In the inaugural State of Shared Value in Australia report, Nestlé Oceania was found to be working to address social and environmental issues in order to reduce costs and increase productivity in their value chain.

“Nestlé’s focus on supply chain included not only reducing costs but also on securing access to raw materials,” the report said.

Australian oats are one of Nestlé Oceania’s most sourced commodities. But as they are vulnerable to disease and drought, and? with an uncertain market with unreliable economic returns, it was becoming increasingly difficult to find a sustainable source that met demand and retail standards.

Nestlé Oceania’s Executive Director of Technical Production, Stephanie Hart, said the company’s procurement team established a program to support farmers and ensure sustainable supply.

“We’re able to work specifically on oat breeding programs to have greater longevity on the crop that we plant. We know that we have farmers that are able to provide good crops which also feeds the overall agriculture industry – some of it benefits Nestle, some of it doesn’t,” Hart said.

“But in the end this just delights consumers, and we’re here as a business to provide nutritious, healthy, tasty products for our consumers. And we know by embarking on our shared value journey we’re able to do that.”

Nestlé partnered with the South Australian Research and Development Institute (SARDI) to develop more resilient oat strains, which supports crop-growers, ensures Nestlé’s supply and creates a healthier product for consumers.

“We have a manufacturing facility in Wahgunyah, and we source all our oats within a 100 kilometre radius,” Hart said.

“We work with farmers in that 100 kilometre area to come up with oats that are heartier, more resistant to drought conditions, and just provides a good, diverse range of crops for farmers to invest in.”

Nestlé said that in 2014 they sourced 26,649 tonnes of oats, with nearly 11,000 tonnes from within the 100 kilometer radius of Wahgunyah on the New South Wales and Victorian border. This is an increase from 2008 levels where only 2500 tonnes were procured.

Nestlé has also been working to achieve shared value in its coffee and cocoa production arms.

In 2012 Nestlé allowed the Fair Labor Association (FLA) to independently investigate the company’s cocoa supply chain. The FLA found numerous child labour violations, which kick-started Nestlé’s strategy to eradicate forced labour and child labour in its production.

“Our investigation of Nestlé’s cocoa supply chain represents the first time a multinational chocolate producer has allowed its procurement system to be completely traced and assessed. For too long child labour in cocoa production has been everybody’s problem and therefore nobody’s responsibility,” then FLA President, Auret van Heerden, said.

All retail chocolate sold in Australia is now made with 100 per cent sustainably sourced cocoa.

Ninety per cent of Nestlé’s coffee beans, grown in Papua New Guinea and processed in a factory in Gimpy, Queensland, are also 4C verified. Hart said by the end of 2015 100 per cent of beans will be verified.

Since mapping its supply chain and implementing the Nestlé Cocoa Plan and Nescafé Plan, Hart said the company is training and educating workers and taking action against child labor violations, as well as developing community initiatives.

“When we work with these farmers we provide the ability for living conditions to be improved, we educate the farmers, ensure children are in school and not working on farms, and support women who are a heavy part of the coffee and cocoa industries. We do the same thing with the Nestlé Cocoa Plan,” she said.

“In Papua New Guinea we’re working with various farmers groups. We’re working with a widows and orphans group, helping them to grow coffee is one of the things they’re doing as well as grow vegetables and farm animals.

“We’re working with various cluster groups in partnership with a big coffee exporter there in terms of farmer field training, helping to fund field officers and going around to help farmers improve the coffee they’re producing.

Hart said that the company implements these initiatives without the expectation of always directly benefiting.

“What’s quite interesting about the Nescalé Plan and the Nestlé Cocoa Plan is we’re actually working with farmers to build these skills, and it’s not obligatory for them to sell their coffee to Nestlé,” she said.

“It’s designed so that they can have a better crop and a better offering so they can go to the customer that provides them with the best return. That’s quite impactful. It’s not just about us putting money into an area and us 100 per cent benefiting from that, it’s actually to help anyone who is a purchaser, and the same thing with coca.”

However, Nestlé explained in the Shared Value report that these initiatives, even when not directly improving the company’s bottom line, have benefits.

“We believe that to be successful in the long term we need to have a positive impact on society,” it said.

Hart explained that creating shared value generates customer loyalty, which Nestlé has identified as a priority.

“It’s quite simple, when we look at the economic benefit if we have consumers who appreciate [our] products, then we know those consumers can be consumers for life,” she said.

“The economic benefit is that we have longstanding consumers who continue to purchase our products, which obviously assists our company in our growth measures.”

Hard said that creating shared value is a challenging task compared to corporate social responsibility activities that run side-on the the core business.

“It’s hard, people think it’s really easy but it’s hard. It would be very easy for us as an organisation to do what we never do and that’s just give money out,” she said.

“We’re not an organisation that just gives money for a good cause, but we actively are involved in the movement that we’re committed to, to truly make a difference.”

Auret van Heerden also hinted at the controversy Nestlé has faced, and the challenge posed in improving the company’s reputation.

“There’s definitely [a challenge in] external relationships as well. And it’s influencing the external key opinion leaders who may have a very tainted view of Nestlé,” she said.

“We are sometimes just painted as a big food and manufacturing company, but we’re a big food manufacturing company that’s concerned about people, that’s concerned the environment, that’s concerned future generations.”