Investing in a supplier qualification system has helped ensure the retailer meets new regulations
From 2015 onwards, two regulatory changes created new challenges for indirect procurement at the John Lewis Partnership (JLP). The Modern Slavery Act (MSA), which came into force in 2015, was the first, while the second was General Data Protection Regulation (GDPR), which came into effect in 2018.
Section 54 of the MSA requires firms with revenues above £36m to report on steps they have taken to identify and tackle slavery in their supply chains. GDPR imposes severe penalties on firms, including those in their supply chains, found to have misused personal data.
These two legal frameworks came together in such a way that JLP ultimately decided to rethink the way it managed indirect suppliers, having tried first to manage them separately.
Todd Bradley-Cole, partner and senior manager CSR, procurement at JLP, says: “My focus was initially on human rights and the Modern Slavery Act, trying to identify suppliers where there may be a level of risk, trying to get in touch with them and asking questions about what they’re doing.”
“We expect suppliers to respect the law, employees and the environment. That means it’s not negotiable,” he said at a recent event, citing Rule 96 of the John Lewis Partnership constitution.
They found one key area of risk was temporary workers, particularly in warehousing and distribution. Bradley-Cole explains that after a year he had covered around 90% of spend, with assurances from suppliers that they covered modern slavery.
But that was not enough. “It was important to cover all of it, not just 90%,” he says. “Not that anyone could probably get, hand on heart, 100%. But we wanted more than 90%.”
JLP began a project using the Sedex Members Ethical Trade Audit (SMETA), but the quality of internal data proved problematic.
GDPR then came onto the agenda. “It’s a similar process in that you have to identify which suppliers are handling personal or customer data,” says Bradley-Cole.
“We probably covered most of them, but it’s difficult to define in indirect all those suppliers, because they could be anything from small marketing agencies to direct mail to the big people like Google and others who might be doing marketing stuff for us.”
There were also challenges around the fact JLP deals with more than 5,000 indirect suppliers, and the longer you leave it to get in touch, the harder it becomes because contact details go out of date. JLP spends around £1.2bn each year on indirects.
“It’s the magnitude and complexity of a retail organisation that spans everything including trucks, trolleys, IT and maintenance. It means we need to do something to bring this together,” says Bradley-Cole.
“We need to have a view of all those GNFR [goods not for resale] suppliers, and question and identify areas where we could see there could be risk.”
Out of this, the Retail Supplier Qualification System (RSQS) was born, on which Bradley-Cole was the project lead, and planning began early 2018.
The supplier information company Hellios, which has experience in defence, banking and insurance, was chosen via a tender process to manage RSQS after an in-house option was ultimately rejected. And by late 2018, JLP was working with Hellios and internal stakeholders – including finance, health and safety, and legal – to design a system tailored to the retail sector.
Initially, there was resistance to RSQS from some stakeholders who thought it would be expensive and labour intensive. Bradley-Cole argued that without it he could not give auditable assurances that suppliers were complying with the law and JLP standards.
“We pitched this would save them a lot of time and money,” he says.
RSQS would include questions not only about human rights, but also environmental standards, financial stability, anti-bribery, GDPR, data security and privacy. “We would have true visibility of the GNFR supplier base.”
The system followed by RSQS is based on a questionnaire, which starts with 20 questions. There are then a further 120 questions, but these are dependent on any risks triggered in the first section. Stage one takes about half an hour for a supplier to fill in and stage two can be completed in a couple of hours. The benefit is this only needs to be done once, with updates each year.
In effect, this replaces the majority of pre-qualification questions, says Bradley-Cole. “It helps the procurement team in terms of saving time and effort because they don’t have to do it again. The only questions they have to ask are to do with a specific project, which wouldn’t be a standard question,” he explains.
JLP pays Hellios for the service, but some costs are recouped from suppliers through a “small annual fee”, scaled according to their size.
So far, around 800 suppliers have been registered and 30-40 have been identified as having risk. Bradley-Cole expects it will take around 12 months to register 80% of suppliers. He explains it was possible to group suppliers’ responses to the process into three categories: 20% just do it, 60% grumble a bit and require a few nudges but ultimately do it, and 20% don’t want to do it and it takes longer. “It’s going way beyond the law. We have one or two suppliers who are really excited about this.”
Bradley-Cole says the benefits of the process include suppliers who respond by offering more innovative thinking – such as compostable bags and trucks powered by biomethane – and also supplier consolidation. “There will be a number of suppliers where there is duplication and maybe we should look at how we consolidate certain areas because we have too many suppliers,” he says. “This is a tool to identify who we want to have a better relationship with.
“We want procurement people to be inquisitive, to ask questions and to be guardians of the partnership’s reputation,” he says.
Taking action - no more mattress failures
The system will help stamp out supplier failures. Bradley-Cole referred to the case of bed maker Kozee Sleep – which supplied JLP, and whose owner was convicted in 2016 of slavery offences – and another recycling company.
“There are people out there who we thought were recycling mattresses, but they were going into a field somewhere,” he said. “Know what your suppliers are doing – that’s really key.”