Is it possible to fully decommodify procurement?

Businesses need to ‘decommodify’ procurement and move to a system of radical transparency, because working directly with suppliers is essential to making meaningful progress on ethical sourcing and ESG, says the head of impact at ethical chocolatier Tony’s Chocolonely.

But do business leaders agree?

Joel Lange general manager, Dow Jones Risk & Compliance 

Joel Lange“It’s a fascinating question. But is it realistic for everyone? In the cocoa sector, fair trade has been an endemic problem, but while decommodifying is a helpful piece of terminology, I would argue it’s already an existing phenomenon, thanks largely to regulation around anti-slavery and legislation such as the US Uyghur Forced Labor Prevention Act (UFLPA) and Germany’s Supply Chain Due Diligence Act. Behind all of this is pressure to be on the right side of ESG concerns and attempts to bring certain parts of your supply chain closer to home. There’s nothing wrong with this, but the debate has other nuances. The cost paradigm it involves will be a challenge to firms in this current inflationary cycle.

Whether deep decommodifying happens depends on a brand’s objectives. Where brands have premium product status it might be fine, but most do not, so the question is whether they can afford to price this in. Buyers are looking for value, and recessionary talk makes tackling decommodifying tough. We’ve noticed a slight backlash against ESG and investing in ethical suppliers where it raises price, so there is tension. There’s no denying that firms need to know where issues in their supply chain might arise. But where there might be a win is around procurement taking on more of a ‘detecting’ role – spotting issues early through due diligence. This will avoid incurring higher costs later down the road.”

Dean Whittingslow commercial manager, CloudNC (manufacturing)

Dean Whittingslow“We’ve grown our supply chain in recent years specifically to support what our customers want, and included in any decision around new suppliers is how robust their ethical stance is. The tricky conversation, however, is always where you bring in cost as a result of this – perhaps it’s the cost savings of being less good quality, to what a supplier’s delivery promises entail.

The one thing we’re finding is that things do become easier where supply is nearer and we’re increasingly looking to move supply chains closer. The manufacturing suppliers we use are already 99% onshore in the UK. I think we all have to accept that our supply chains are always under more scrutiny and when we’re looking at raw metals suppliers, for instance, we do now stipulate that metal is of US origin, rather than from parts of the world that are politically sensitive. Through onshoring we actually lost 25-30% of our aluminium supply because of the Russia-Ukraine conflict. It’s also led to higher storage costs, as distributors have had to buy in bigger quantities to maintain margins, which then has to be stored. But we’d rather do this to be more ethical.

I think we’re all in a global marketplace still, so we’re all, technically, in a commodity environment. However, I think that we can all choose where we buy from now, and which suppliers support our outlook. There’s always costs that can be absorbed or not, or passed on or not. It’s just what outlook you choose to take. We build traceability into all of our terms and conditions. It’s just what we do.”

James Butcher chief executive officer, Supply Pilot

James Butcher“We can all agree with the sentiment that people need to stop thinking purely about price and think of ‘values’ rather than ‘value’. The truth of the matter is that decommodifying doesn’t mean procurement has to go right to source, nor does it mean it necessarily has to cost more – because working with suppliers that have, say, healthcare for their workers saves on ill-health and staff absenteeism. But for those companies that don’t have a ‘values-based’ rationale, change can often be resisted. So, whether decommodifying happens becomes more about the change journey they want to go on.

Suppliers typically want to do the best they can, but if decommodifying is used as a blunt instrument to enforce change it tends not to work as effectively as a brand explaining what it is doing and why it wants to instigate change. I think that in an abstract way, decommodifying is fine, but it’s the detail of doing it that can be complex. It’s worth noting that we can’t always get to totally green suppliers. What there will be though, are grey ones that want to be green, and so the question becomes how willing companies are to take their suppliers on a journey with them.

Fortunately, I do think more people realise there are some products that shouldn’t be at the price they are because it can’t be ethical. There’s plenty of evidence to suggest that when this is explained to people they’re willing to pay more – even in tougher times. We find the best change happens when relationships are resilient and fair between brands and their supply chain. When brands share data with their suppliers we know it leads to double-digit reductions in overall complaints, because suppliers can see what matters to consumers. Suppliers don’t want complaints any more than the brand does.”

Mayank Shah founder & CEO, Minority Supplier Development UK (MSDUK)

Mayank Shah“I agree with the point to an extent. If procurement is to move away from being transactional and be used as a tool to create sustainability, diversity, inclusion, and all the things that being ethical encompasses, then of course procurement should decommodify. Doing this has the potential to be what makes procurement truly transformational. However, it’s easy for Tony’s Chocolonely to say this, but when procurement professionals are making sourcing decisions, their priorities tend to be more commercial unless there’s a whole top-down ethos created by the CEO.

Then there’s the fact that so many procurement people aren’t even making true buying decisions, but often only come in at the end when contracts are being created. In essence, decommodifying is not difficult to achieve, but it is difficult to get all the other areas of the business in sync with procurement, so that it’s just part of the business strategy. Ultimately, we need to work better with suppliers in developing countries, and consumers need to expect that things will cost more.

But I think it goes even further than this. What we really need to do is educate people not to live beyond their means. Initially expensive, ethically sourced products aren’t actually more expensive if they are better quality and last longer. Consumers being addicted to buying ‘stuff’ regularly probably doesn’t help. We have to be honest with ourselves and honest about our behaviours.”

Liz Holfordsustainability strategy manager (E&S), Network Rail

Liz Holford

“At Network Rail we’re increasingly considering the detail of how the products we procure are created, so that we can influence their ESG impacts. For example, we’re working to enhance circularity and reduce carbon in the manufacture of steel railway track. Underneath the track we use sleepers, and we’ve partnered with a company called Sicut to introduce composite products manufactured from recycled plastics and reinforced with glass fibre. These offer multiple ESG benefits over traditional timber sleepers.

Also, last year Network Rail signed an agreement to access renewable energy capacity from EDF Renewables UK’s planned Bloy’s Grove solar farm in Norfolk. This decommodified procurement process will enable us to meet around 15% of our annual non-traction energy needs and is in line with our commitment to source 100% of non-traction energy from renewable sources by 2030. Critically, it will also help us improve air quality, minimise our use of fossil fuels, and transition to a rail industry powered by green, renewable, low-carbon energy.”

Ian Thompson vice-president Northern Europe, Ivalua

Ian Thompson“It’s an interesting question – but it is also idealistic and you have to ask whether you can really fight the commodity markets. What’s certain, however, is that all companies are going to have to better develop their ethical sourcing. In this respect it’s logical that all companies – not just Tony’s Chocolonely – have to be impact-first. My big-picture view is that if brands have proper relationships with their suppliers, then they should already know whether there are ethical problems in their supply chain. It’s visibility that gives confidence about the whole ESG side of things. As soon as a company becomes commoditised, I would argue it loses this visibility, and undesirable outcomes and problems become more likely. So in this respect, I agree that decommodifying will drive up ethical behaviour because it turns the light on in a darkened room.

But how do you do this? There are often so many suppliers in some markets that it can be hard to know how to start. Technology at least gives companies the ability to engage directly with smaller producers, to give them the same efficiencies that dealing with an intermediary would. Technology, at the very least, is vital for making decommodifying happen. It can also enable brands to get further down the supply chain and drive standards. We must challenge assumptions that costs will increase and, even if they do, we need to factor in the fact that people do fundamentally believe in ESG enough for it to now become non-negotiable. Not buying ethically is a reputational issue. Talking to CPOs I believe this is something they are really starting to care about. Whether or not this will happen tomorrow though, that is the issue.”

John Pearce chief executive officer, Made in Britain

John Pearce“Professional procurement is an art as well as a science; it combines hard-nosed data-driven decisions and softer considerations that are also crucial, with corporate social responsibility at the top of that list. The decommodification of procurement is absolutely possible. In fact it’s already underway in many respects, and it’s a very positive development. One of Made in Britain’s key activities is advocating for higher UK procurement in both the public and private sectors. We facilitate monthly sessions between our British manufacturing members and leading procurement organisations serving both government and business.

In recent years, and particularly post-pandemic, we’ve seen an increase in awareness of the intricacies around procurement and the importance of manufacturers’ knowing exactly what is going on in their entire supply chain, particularly in relation to ESG. Manufacturers understand a high level of transparency is required by the organisations and institutions that they supply. We’ve certainly moved on from the just-in-time business philosophy, which quickly shifted to just-in-case thinking in 2020 when the Covid pandemic hit hard. At that time, supply chain professionals were faced with shortages of essential healthcare items and PPE. Like many other countries, the UK was faced with an urgent need for a million (or a billion) units of certain key items. This sudden paradigm shift had immediate impacts on buying decisions, and has had a longer term impact too. Today, the British manufacturing community is fully aware that environmental considerations and other social implications are central to the decisions being made by procurement professionals across the board. The pace of progress towards a more transparent, holistic, responsible – and, yes, decommodified – procurement environment is accelerating every year.”

David Everett department manager strategic sourcing – business administration, Honda Motor Europe

David Everett“Honda Procurement doesn’t make decisions on its suppliers based solely on their market price. Instead we have a comprehensive scoring matrix of quality, cost, delivery, management, scope and environment (QCDMSE), and we can alter the weightings on each project so the social and environmental impacts are taken into account.

By structuring our scoring in this way we can not only improve our ESG targets but also promote more sustainable and responsible business practices. Furthermore, we are looking to support practices from our suppliers that can lead to cost savings, improved reputation, increased customer loyalty and make a positive impact on their local community.

This needs to extend well past the sourcing and request for proposals stages through to the ongoing contract management, monitoring and reporting on progress, finding new ways of collaborating with suppliers to improve their social and environmental performance.

The issue is harder as we enter a period of economic challenge, and we need to ensure we continue to fight the ESG corner so that its weighting is still significant when considering our supplier options.”

CIPS Knowledge
Find out more with CIPS Knowledge:
  • best practice insights
  • guidance
  • tools and templates