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Directors Corporate Culture and the Role of Boards Marks and Spencer – supply chain standards

Marks and Spencer – supply chain standards

Headquartered in London, Marks and Spencer is a leading retailer of clothing, home products and food. With revenue of £10.3bn in the year to March 2015, it employs 83,000 people.  It aims to create value through a comprehensive approach to sustainability based on respect for the environment and long term relationships of trust with all stakeholders. This is embodied in Plan A, a detailed programme of sustainability targets in every relevant area.
 

Background

Marks and Spencer’s business model aims to create long term value through the effective use of its resources and relationships. It manages these in line with its core values of inspiration, innovation, integrity and in touch. Plan A is the embodiment of these values. It consists of a wide range of targets and commitments which are measured and updated regularly. Progress is overseen by an Executive Committee which includes several main board directors and by an Advisory Board which includes external stakeholders.

The supply chain forms a critical part of this programme. This partly reflects the fact that 98% of what Marks and Spencer sells are its own products. A breach of trust in one product area could therefore have consequences for the brand as a whole. Also, the supply chain is a much bigger universe than the company itself. The company deals with about 700 factories in each of its food and general merchandise divisions and with about 20,000 individual farms. The company believes that a long term relationship of trust with its suppliers helps ensure that they understand and reflect the values that the company has set for itself.

Its approach to the supply chain is based around Global Sourcing Principles which set standards in areas such as human rights, gender equality and fairness to all suppliers, including small ones.  Its standards are demanding, but it seeks to help its suppliers to meet them for example through the training of its sponsors.

Measurable targets in food production relate among other things to sustainability, wildlife conservation, responsible fish farming and addressing deforestation. Targets in general merchandise include energy efficiency, chemical and effluent management, living wage, use of sustainable cotton and training.  The company works with its suppliers and partners to provide a training and education programme covering employees’ roles, responsibilities and rights, health care and, where possible, numeracy and literacy. Around 650,000 workers in its general merchandise supply chain have received training since 2010.

A feature of Plan A is that new targets are introduced as existing targets are met. Among new commitments, it aims to work with industrial bodies, opinion formers and suppliers to deliver innovation and working practices that will reduce hazardous waste discharges from clothing manufacture to zero by 2020. The company has also introduced a new target of removing plastic micro-beads from all own brand personal care products from this year onwards.

In food production, it has created an incentive for suppliers through a Gold/Silver/Bronze benchmarking standard for human resources, environmental and resource efficiency management. Orders will flow to suppliers that meet the highest standards. The company has now met its original target of buying 30% of product by volume from suppliers meeting the Silver standard. The figure was 32% in 2015, up from 19% the previous year. It is now looking to buy 100% of product by 2020 from factories that have met at least the Silver level. This target itself has been increased from 75% previously.

In some areas, the company realises it must work with others. Deforestation is an example where it works with other global retailers and food producers through the Consumer Goods Forum to promote sustainably produced palm oil, low carbon refrigeration and eliminate food waste. This should help the company meet its own target of zero deforestation from the use of palm oil, soy, cattle and paper materials in the company’s products by 2020.

A critical part of the process is audit and assurance where it must both satisfy itself that the required standards are being met and avoid alienating its suppliers by being too strict. A policy of unannounced audit in which the assurance team can arrive at any time can be disruptive, especially when the bulk of suppliers are meeting the expected standards. On the other hand, previously announced audits allow the supplier to hide bad practice. The company has opted to give a window for when audits will take place, so that the suppliers know that the assurance team will arrive at some point within the space of, say, a month. The period is short enough to limit the disruption but long enough to prevent bad practice being temporarily hidden.

Impact

Marks and Spencer says that Plan A as a whole has delivered measurable savings of £160m in the 2014/15 business year and a total of £625m since 2007. The figure relates to savings generated through reduction of waste and environmental efficiency. Some of these savings accrue to the supply chain where, for example, it has required its top clothing suppliers to install energy efficient lighting, and improved insulation and temperature controls. The aim was to reduce energy consumption by 10% by 2015.

However, the company does not seek to measure the financial impact of Plan A in terms of margin, corporate earnings and brand value. It considers this is a number that cannot be calculated, but it believes that the impact of Plan A in terms of the trust it generates with customers, as well as on the morale of its workforce and that of its suppliers, will make the company more resilient and more adaptable, enhancing its sustainability in a rapidly changing world.

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