It may be a purely economic decision, but efforts to create 100% sustainable and traceable products have a positive social impact
Unilever has made a big promise: "100% of palm oil bought will be traceable to known sources by end 2014" gloats the press release on the company's website. But how practical is such a promise for a business, especially at a time when European retailers and food manufacturers cannot (or will not) even guarantee which animal the meat in the food they sell comes from?
Let's take a look at a company's motivation: it is certainly desirable to have traceability of where things are being sourced, if only to know what you think you are buying is actually what you are getting. Knowing the source helps a business verify whether the sources are desirable or not – witness the importance of the diamond industry sourced from war zones, or "blood diamonds" for instance – especially if they sell their products directly to consumers.
In Unilever's case, the emphasis is on whether or not the source for palm oil is sustainable or not, and the definition of sustainability can be as broad or as narrow as you want. Unilever certainly has taken a broad view. Traceability may be important for ensuring that economic sanctions against country X are being maintained. More than anything else, if a business wants to ensure sustainability or security in its supply chain, traceability is the first necessary step. Anything less than 100% traceability is akin to being less than 100% faithful to your spouse: you can easily hide indiscretions.
So it's desirable to be transparent, but what about the additional cost? If traceability requires investment, or if it requires the company to pay more for supplies, couldn't there be better uses of the money to create shareholder value? That may depend on a company's specific circumstances. Unilever did not announce that all supplies or even all commodities they purchase would have 100% traceability – they restricted their announcement to palm oil.
There are three reasons why this makes sense for a commercial organisation such as Unilever. First, to a large fast-moving-consumer-goods manufacturer with huge sales in environmentally conscious western Europe, a small increase in costs can be easily offset by a large (perceived) increase in revenues. Unilever has already had a positive experience bringing sustainability to its Lipton tea brand in Western Europe.
Second, there is the matter of who pays for the cost: the buyer or the supplier? For the adoption of radio frequency identification by retailers, the cost was mostly borne by the suppliers. Unilever is one of the largest buyers of palm oil so it can assert itself with suppliers.
Finally, the market may or may not have the capacity to provide traceability or sustainable products. The market for palm oil has softened greatly – supply now exceeds demand – and prices are the same now as they were in 2010, about 30% lower than what they were in 2012. They are expected to weaken further. So if you are supplier of palm oil and a big purchaser like Unilever wants "traceability", you are likely to provide it and at your own cost.
From where things stand today, it may not be practical for all companies to seek 100% traceability for all things they purchase but it is certainly desirable. Unilever has shown that it is possible to aim for traceability and sustainability where it makes immediate economic sense – and even that benefits society as well as shareholders. Perhaps some day we might even find out what we are eating.
ManMohan Sodhi is professor of operations and supply chain management at Cass Business School
*Join the community of sustainability professionals and experts. **Become a GSB member** to get more stories like this direct to your inbox* Reported by guardian.co.uk 8 hours ago.
Unilever has made a big promise: "100% of palm oil bought will be traceable to known sources by end 2014" gloats the press release on the company's website. But how practical is such a promise for a business, especially at a time when European retailers and food manufacturers cannot (or will not) even guarantee which animal the meat in the food they sell comes from?
Let's take a look at a company's motivation: it is certainly desirable to have traceability of where things are being sourced, if only to know what you think you are buying is actually what you are getting. Knowing the source helps a business verify whether the sources are desirable or not – witness the importance of the diamond industry sourced from war zones, or "blood diamonds" for instance – especially if they sell their products directly to consumers.
In Unilever's case, the emphasis is on whether or not the source for palm oil is sustainable or not, and the definition of sustainability can be as broad or as narrow as you want. Unilever certainly has taken a broad view. Traceability may be important for ensuring that economic sanctions against country X are being maintained. More than anything else, if a business wants to ensure sustainability or security in its supply chain, traceability is the first necessary step. Anything less than 100% traceability is akin to being less than 100% faithful to your spouse: you can easily hide indiscretions.
So it's desirable to be transparent, but what about the additional cost? If traceability requires investment, or if it requires the company to pay more for supplies, couldn't there be better uses of the money to create shareholder value? That may depend on a company's specific circumstances. Unilever did not announce that all supplies or even all commodities they purchase would have 100% traceability – they restricted their announcement to palm oil.
There are three reasons why this makes sense for a commercial organisation such as Unilever. First, to a large fast-moving-consumer-goods manufacturer with huge sales in environmentally conscious western Europe, a small increase in costs can be easily offset by a large (perceived) increase in revenues. Unilever has already had a positive experience bringing sustainability to its Lipton tea brand in Western Europe.
Second, there is the matter of who pays for the cost: the buyer or the supplier? For the adoption of radio frequency identification by retailers, the cost was mostly borne by the suppliers. Unilever is one of the largest buyers of palm oil so it can assert itself with suppliers.
Finally, the market may or may not have the capacity to provide traceability or sustainable products. The market for palm oil has softened greatly – supply now exceeds demand – and prices are the same now as they were in 2010, about 30% lower than what they were in 2012. They are expected to weaken further. So if you are supplier of palm oil and a big purchaser like Unilever wants "traceability", you are likely to provide it and at your own cost.
From where things stand today, it may not be practical for all companies to seek 100% traceability for all things they purchase but it is certainly desirable. Unilever has shown that it is possible to aim for traceability and sustainability where it makes immediate economic sense – and even that benefits society as well as shareholders. Perhaps some day we might even find out what we are eating.
ManMohan Sodhi is professor of operations and supply chain management at Cass Business School
*Join the community of sustainability professionals and experts. **Become a GSB member** to get more stories like this direct to your inbox* Reported by guardian.co.uk 8 hours ago.