Implement agroforestry, cover cropping, polyculture, hedgerows, livestock integration, energy efficiency, and renewable energy as part of regenerative agriculture and decarbonization strategies to increase resilience and farmer income.
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1. Enabling Conditions for Agroforestry in a Procurement Organization:
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Sustainable Sourcing Policies: Development of procurement policies that promote the inclusion of agroforestry products and support suppliers engaging in agroforestry practices.
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Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of agroforestry benefits and promote the inclusion of agroforestry in sourcing strategies.
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Supplier Collaboration: Collaboration with suppliers committed to agroforestry, fostering partnerships and encouraging the adoption of agroforestry practices within the supply chain.
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Certification Standards: Utilization or establishment of certification standards that recognize and verify agroforestry practices, ensuring authenticity and compliance in the procurement process.
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Long-Term Contracts: Consideration of long-term contracts with suppliers practicing agroforestry to promote stability and incentivize continued commitment to sustainable practices.
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2. Enabling Conditions for Agroforestry on a Farm Level:
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Land-Use Planning: Development of comprehensive land-use plans that integrate agroforestry components, considering the placement of trees and shrubs within the overall farming system.
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Technical Support: Access to technical support and extension services to assist farmers in implementing agroforestry practices, optimizing tree-crop interactions, and addressing challenges.
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Financial Incentives: Provision of financial incentives or favorable payment terms for farmers adopting agroforestry, supporting their financial viability during the transition.
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Access to Tree Species: Availability of diverse and appropriate tree species for agroforestry, enabling farmers to select trees that complement their specific crops and enhance overall farm productivity.
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Community Engagement: Engagement with local communities and agricultural extension services to raise awareness of agroforestry benefits, build support, and encourage the adoption of these practices.
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For both procurement organizations and farms, successful implementation of agroforestry requires a commitment to sustainable practices, collaborative relationships, ongoing education, and the integration of agroforestry principles into the core of farming and procurement strategies.
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Agroecological Practices are most likely to emerge as an action for implementation if you have identified the following strategic choices: Regenerative Agriculture, Smallholder Crop Production, Decarbonisation Levers, Selecting a Sustainability Certification, Precision Agriculture, or Supplier Capability Building.
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Implementation of agroecological practices can bring the following benefits:
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• Improve farmer gross margin and income through the avoidance of expensive synthetic agrochemical inputs like fertilisers and pesticides
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• Help enhance yields over the long term through improving the soil and local ecosystem health
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• Improve carbon sequestration on farms. If appropriately set up, monitored, measured and accounted, this could contribute to business carbon reduction commitments. If certified, it could also create a secondary income stream through farmers selling carbon credits.
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Implementing this requires a long-term commitment to upskilling and capability building either with direct suppliers to cascade up the supply chain or, if pursuing Direct Farmer Contracting, direct with farmers. The resource requirements for this training and capability building must be clarified with suppliers as part of the Cost of Goods model, developed as part of the procurement strategy.
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Additionally, if there is an income gap during the transition to new practices, the procurement strategy should identify partners or financial mechanisms, such as blended finance, that can bridge this gap, and ensure these are reflected in the Cost of Goods cost model.
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Environmental Perspective:
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Soil Health: A mix of trees, cover crops, hedgerows, diverse crops, and livestock manure builds soil organic matter, reduces erosion, improves water infiltration, and strengthens microbial activity.
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Biodiversity and Ecosystem Services: Integrating woody perennials, field borders, mixed species plantings, and livestock increases habitat for pollinators and natural enemies, strengthens nutrient cycling, and supports carbon storage.
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Microclimate and Water: Tree rows and borders provide shade and shelter, lower evapotranspiration, and improve water retention and quality across fields.
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Income Perspective:
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Diversified Income Streams: Multiple crops, tree products, and livestock add revenue channels across seasons, reducing reliance on a single commodity.
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Lower Input Costs: Biological nitrogen fixation, manure, weed suppression, and natural pest control cut spend on synthetic fertilizers and pesticides over time.
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Yield and Quality Gains: Better pollination and soil function can lift yields and product quality, improving market returns and access to sustainability premia where available.
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Risk Perspective:
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Operational Stability: Diversity spreads agronomic and market risk and provides feed and forage buffers when a single crop underperforms.
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Pest and Disease Pressure: Habitat for beneficial insects and crop diversity disrupt pest life cycles and reduce outbreak severity.
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Climate Resilience: Improved soils and on farm shelter reduce losses from heat, wind, and intense rainfall, supporting production in variable seasons.
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Link to Procurement Organizations:
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Agroecological approaches need time to implement. Procurement partners must be committed through a long-term sourcing strategy commitment to farmers. This can enable adoption through multi year purchase commitments, technical support, and co investment in establishment costs such as seedlings, cover crop seed, fencing, and water points. Clear sourcing standards and premia for verified outcomes align farm level incentives with company goals on climate and nature, strengthening supply security and performance.
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1. Buyer Perspective:
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Risks
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Supply Chain Complexity: Buyers must address potential challenges in logistics, quality control, and traceability introduced by agroforestry integration, implementing strategies to streamline the supply chain.
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Variable Crop Yields: Buyers need to manage uncertainties in meeting consistent procurement demands resulting from variable crop yields in agroforestry systems, implementing strategies for demand forecasting and inventory management.
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Certification Challenges: Buyers should establish robust monitoring and verification processes to address challenges in ensuring adherence to agroforestry certification standards, maintaining credibility in sustainable sourcing.
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Trade-offs
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Cost vs. Sustainability: Buyers should strategically balance potential cost implications of agroforestry with the desire to support sustainable and environmentally friendly sourcing practices, making procurement decisions that align with sustainability goals.
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Consistency vs. Diversity: Striking a balance between ensuring a consistent supply from traditional sources and offering the diversity of products from agroforestry systems requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and variety.
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2. Supplier Perspective:
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Risks
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Initial Investment: Suppliers adopting agroforestry practices must address the financial challenges associated with initial investments in tree planting and farm restructuring, implementing financial planning strategies.
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Longer Time to Production: Suppliers need to manage the delay in income associated with the longer time to production in agroforestry systems, making strategic decisions to balance short-term financial needs with long-term benefits.
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Market Access Challenges: Suppliers engaging in agroforestry may face challenges in accessing markets that prioritize traditional, monoculture products, necessitating strategic decisions to overcome barriers and establish market presence.
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Trade-offs
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Income Delay vs. Long-Term Benefits: Suppliers must balance the delay in income associated with agroforestry against the long-term benefits, including diversified revenue streams and enhanced sustainability, making decisions that align with their financial goals and long-term vision.
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Traditional vs. Agroforestry Practices: Suppliers may face trade-offs between traditional farming practices and the adoption of agroforestry, weighing the potential benefits against the challenges, requiring a thoughtful and strategic approach to implementation.
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Market Access vs. Agroforestry Adoption: Deciding on the extent to which suppliers want to engage with markets that value agroforestry products and balancing it with traditional market access involves trade-offs, requiring a careful evaluation of market dynamics and supplier priorities.
Evaluate corporate or brand sustainability commitments or targets. Do this to identify whether any of these may be related to and impacted by procurement decisions, and therefore whether they should be considered in strategy development.
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To implement effective Business Procurement Requirements Planning, a procurement organization should align its strategies with overall business objectives, foster collaborative stakeholder engagement, establish comprehensive data management systems, invest in technological infrastructure, ensure skilled procurement personnel, provide continuous training, maintain clear documentation and standardization, integrate supplier relations, implement effective risk management, foster flexibility and adaptability, and establish performance metrics for continuous improvement.
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Corporate or brand sustainability commitments may relate to topics such as climate, human rights, deforestation, water, nature, or circularity. The activities and impacts in the supply chain may directly impact these commitments. Therefore, checking whether they exist and which ones may be relevant is important to ensure alignment with the broader business strategy.
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It may be helpful to consider the following questions:
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• How critical is the spend category in delivering business objectives and commitments now and in the next 5 years?
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• Is the spend category a critical driver for business growth?
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• If the spend category is not critical for driving the business strategy, it is unlikely ‘sustainability risks’ even if identified, will be significantly important for the business to prioritise for direct mitigation.
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• How might activities in the supply chain of this spend category link to the sustainability commitments or targets. For example, does the spend category carry risk of deforestation and does this impact business commitments relating to deforestation?
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Income Perspective
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Market Access and Fair Pricing: Incorporating business strategy needs ensures that farmers understand demand signals and quality requirements. This creates better market access, fairer prices, and improved income stability.
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Efficient Resource Utilization: With clearer alignment to buyer strategies, farmers can plan production more effectively, optimize resources, and reduce waste, which strengthens profitability.
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Environmental Perspective
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Sustainable Agricultural Practices: Strategic alignment encourages farmers to adopt practices that meet environmental expectations, such as efficient water use, reduced chemical inputs, and enhanced biodiversity.
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Reduced Environmental Impact: Producing in line with actual demand lowers the risks of surplus, cutting food waste and the environmental footprint of unnecessary resource use.
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1. Buyer Perspective:
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Risks
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Misalignment with Business Objectives: Inadequate alignment of procurement requirements planning with overall business objectives may lead to inefficiencies and missed opportunities.
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Increased Lead Times: Overly complex planning processes might result in increased lead times, affecting the organization's ability to respond quickly to market changes.
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Supplier Relationship Strain: Excessive demands in procurement requirements planning may strain relationships with suppliers, potentially impacting collaboration and service levels.
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Trade-offs
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Cost Efficiency vs. Quality Requirements: Buyers may face the trade-off between achieving cost efficiency in procurement requirements planning and ensuring stringent quality standards. Striking the right balance involves optimizing costs without compromising the quality of goods or services.
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Flexibility vs. Standardization: Buyers may desire flexibility in procurement requirements to adapt to changing market conditions, but this must be balanced against the benefits of standardization for efficiency. The challenge involves maintaining adaptability while establishing standardized processes.
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Lead Time vs. Urgency: Buyers setting procurement requirements may need to balance lead times for planning with the urgency of meeting immediate needs. The trade-off involves planning ahead while addressing time-sensitive procurement requirements.
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Innovation vs. Compliance: Buyers may seek innovative solutions in procurement but must balance this with compliance to regulatory and organizational requirements. The challenge is to foster innovation while ensuring adherence to necessary standards.
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2. Supplier Perspective
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Risks
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Unclear Requirements: Ambiguous or changing requirements may lead to misunderstandings, causing suppliers to deliver products or services that do not meet buyer expectations.
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Increased Costs: If procurement requirements planning is too stringent, suppliers may face higher production or service delivery costs, potentially impacting pricing agreements.
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Limited Innovation Opportunities: Rigorous planning may limit opportunities for suppliers to showcase innovative solutions, hindering mutual growth.
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Trade-offs
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Consistency vs. Varied Offerings: Suppliers may face the trade-off between consistency in meeting buyer requirements and offering varied products or services. Striking the right balance involves fulfilling standard requirements while showcasing diverse offerings.
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Long-Term Contracts vs. Market Volatility: Suppliers may desire long-term contracts for stability, but this could conflict with the volatility of market conditions. The challenge is to secure stable contracts while adapting to market dynamics.
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Compliance vs. Innovation Investments: Suppliers may need to allocate resources for compliance with buyer requirements, and this must be balanced against investments in innovation. The trade-off involves managing compliance costs while fostering a culture of innovation.
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Customization vs. Standardization: Suppliers may desire customization in meeting buyer requirements, but this must be balanced against the benefits of standardization for efficient production. The challenge involves tailoring solutions while maintaining operational efficiency.
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Indirect
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Indirect
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Based on old procurement framework of IDH and co-developmeent with Mars
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Iterated by EY and based on interview process within the project
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Evidence of clear supplier segmentation process in Mondelez Interview with CPO LATAM, more
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+3,Buyer Sustainability Targets,"
Definition
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Set buyer sustainability targets, supported by performance KPIs, to track and ensure delivery of sustainable procurement outcomes as part of sourcing strategy implementation.
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To effectively implement Buyer Sustainability Targets in procurement:
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1. Secure leadership commitment to prioritize sustainability.
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2. Engage stakeholders, including suppliers, in target development.
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3. Conduct a baseline assessment to identify areas for improvement.
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4. Define clear, measurable, and time-bound sustainability targets aligned with organizational goals.
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5. Foster collaboration with suppliers, evaluating their sustainability practices.
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6. Provide employee training to enhance awareness of sustainable procurement practices.
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7. Integrate sustainability considerations into all stages of the procurement process.
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8. Establish systems for regular monitoring and reporting of sustainability performance.
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9. Ensure legal and regulatory compliance with relevant sustainability standards.
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10. Invest in technology and data systems to streamline tracking and reporting processes.
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Once the strategic choices have been identified, take the time to identify KPIs that will enable tracking of implementation and progress against these choices by buyers. Aim to create as few KPIs as possible to give you the understanding you need while being realistic about data collection capabilities.
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Include these KPIs on internal business scorecards and dashboards, and consider linking them to buyer remuneration. If the strategic choices have been selected thoughtfully, implementation of them will help drive value for the business and mitigate risks. As such, progress against these should be tracked and owners held responsible in the same way as they would for other business critical actions.
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1. Income Perspective
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Incorporating sustainability targets in procurement can guarantee farmers fair trade prices for their products, improving their income. Long-term contracts can offer better income security. Better market access and elevated certification value can also increase sales opportunities for farmers, thereby increasing their income.
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2. Environment Perspective
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Buyer sustainability targets often promote sustainable farming techniques, encouraging farmers to adopt practices that have less impact on the environment. By doing so, it not only contributes to environmental preservation but also improves the long-term sustainability of farms by preserving the health of the soil, preserving water resources, and reducing the impact on wildlife ecosystems.
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1. Buyer Perspective
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Risks
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Increased Costs: Implementing sustainability targets may initially incur additional costs for eco-friendly products or suppliers with sustainable practices.
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Limited Supplier Pool: Stricter sustainability criteria may reduce the pool of eligible suppliers, potentially limiting competitive options.
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Complexity in Compliance: Ensuring compliance with sustainability targets can be challenging, particularly when dealing with global supply chains and diverse regulations.
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Trade-offs
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Sustainability vs. Cost Efficiency: Buyers may face the trade-off between achieving sustainability targets and maintaining cost efficiency in procurement. Striking the right balance involves integrating sustainable practices without compromising overall cost-effectiveness.
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Supplier Diversity vs. Cost Competitiveness: Buyers aiming for supplier diversity may encounter the trade-off between fostering a diverse supplier base and ensuring cost competitiveness. The challenge is to balance diversity goals with the economic efficiency of the supply chain.
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Long-Term Sustainability vs. Immediate Gains: Buyers must decide between pursuing long-term sustainability objectives and seeking immediate gains through potentially less sustainable practices. Striking the right balance involves aligning short-term gains with broader sustainability goals.
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Innovation vs. Established Practices: Buyers may trade off between encouraging innovation in sustainable practices and sticking to established, potentially less sustainable, procurement methods. Balancing innovation with proven practices is essential for sustainable procurement.
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2. Supplier Perspective:
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Risks
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Financial Strain: Adhering to sustainability targets may require suppliers to invest in new technologies or practices, potentially causing financial strain.
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Competitive Disadvantage: Suppliers not meeting sustainability targets may face a disadvantage in bidding for contracts, affecting competitiveness.
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Complex Certification Processes: Suppliers may encounter challenges in navigating complex certification processes to prove their sustainability credentials.
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Trade-offs
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Compliance vs. Innovation: Suppliers may face the trade-off between complying with buyer sustainability targets and innovating in their offerings. Striking the right balance involves meeting sustainability requirements while fostering a culture of innovation.
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Cost of Sustainability Compliance vs. Profitability: Suppliers may incur additional costs to meet sustainability requirements, impacting overall profitability. The trade-off involves managing compliance costs while maintaining a viable and profitable business model.
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Market Access vs. Sustainability Investments: Suppliers must decide between investing in sustainability practices to access markets with stringent requirements and balancing these investments with other business needs. Striking the right balance involves meeting market demands while ensuring financial viability.
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Risk Mitigation vs. Market Competitiveness: Suppliers may prioritize risk mitigation through sustainable practices but must balance this with remaining competitive in the market. The trade-off involves managing risks while staying competitive in the procurement landscape.
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Indirect
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Indirect
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IDH Based Interviews (Frank Joosten)
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EY Based Interviews
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+4,Decarbonisation levers,"
Definition
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Implement decarbonisation levers where net-zero or climate mitigation is a corporate goal or where external risk assessments highlight climate threats to supply security. Opportunities may include agroforestry or soil conservation for carbon sequestration which in turn can create additional sources of farmer income
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1. Enabling Conditions for Carbon Sequestration in a Procurement Organization:
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Sustainable Sourcing Policies: Development of procurement policies that prioritize and support the inclusion of products from suppliers actively engaged in carbon sequestration practices, emphasizing environmentally responsible and climate-friendly agricultural methods.
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Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of carbon sequestration techniques and promote their integration into sourcing strategies.
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Supplier Collaboration: Collaboration with suppliers committed to carbon sequestration, fostering partnerships, and incentivizing the adoption of sustainable farming practices within the supply chain.
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Certification Standards: Utilization or establishment of certification standards that recognize and verify carbon sequestration practices, ensuring authenticity and compliance in the procurement process.
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Long-Term Contracts: Consideration of long-term contracts with suppliers actively engaged in carbon sequestration to promote stability and incentivize continued commitment to sustainable and climate-friendly farming methods.
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2. Enabling Conditions for Carbon Sequestration on a Farm Level:
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Cover Cropping: Integration of cover crops into farming practices to enhance soil health, increase organic matter, and promote carbon sequestration.
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Agroforestry Practices: Incorporation of agroforestry techniques, such as planting trees on farmlands, to sequester carbon in both soil and woody biomass.
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Conservation Tillage: Adoption of conservation tillage methods, like no-till or reduced tillage, to minimize soil disturbance and enhance carbon retention in the soil.
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Crop Rotation: Implementation of crop rotation strategies to improve overall soil health, increase carbon content, and contribute to sustainable soil management.
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Technical Support: Access to technical support and extension services to assist farmers in implementing effective carbon sequestration practices, optimizing soil health and overall sustainability.
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Successful implementation of carbon sequestration requires a commitment to sustainable practices, collaborative relationships, ongoing education, and the integration of climate-friendly principles into the core of farming and procurement strategies.
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When is this a strategic choice?
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Implement decarbonisation levers where net-zero or climate mitigation is a corporate goal or where external risk assessments highlight climate threats to supply security.
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What it means:
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Decarbonisation levers are activities that a business can use to reduce carbon emissions. They can be performed directly by the business or, as is more likely in this instance, in the upstream supply chain. Examples of decarbonisation levers can include:
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• Switching to renewable energy
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• Improving energy efficiency of equipment and processes
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• Agroforestry or soil conservation
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• Carbon sequestration
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Some decarbonisation levers are about directly reducing emissions produced e.g. switching to renewable energy. Others are opportunities to capture carbon, offsetting emissions that may occur elsewhere.
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When offsetting activities are done within your own value chain, it is referred to as insetting. The whole value chain can present opportunities for insetting and materials sourced from agriculture can offer brilliant opportunities. For example, agroforestry, increasing natural habitats for biodiversity or increasing soil organic matter.
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There are challenges associated with insetting. There are physical challenges in ensuring the permanence of actions taken to inset carbon. There are also accountancy challenges in calculating the carbon benefit achieved through these actions. Both of these require specialist input to ensure they are done properly.
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Insetting can also benefit farmer income. Insetting actions that produce carbon credits that a farmer can sell is a way of generating additional income. This can be particularly valuable if farmers can use marginal land for actions such as tree planting.
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Ensuring carbon insetting requires commitment and verification over the long term. A business must be confident that this can be achieved in order to make this a valid strategic choice.
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Environmental Perspective
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Practices such as agroforestry, cover cropping, reduced tillage, and improved manure management increase soil organic carbon and strengthen biodiversity. Shifts to energy efficient machinery, irrigation, and cold storage cut fuel use, while on farm renewables reduce reliance on fossil energy. Together, these actions lower emissions, improve soil and water health, and build resilient ecosystems.
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Income Perspective
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Improved efficiency lowers spending on fuel, fertilizer, and electricity. Renewable energy systems, such as solar for pumping or drying, reduce long term operating costs and can provide surplus energy for sale. Participation in carbon markets can generate additional income through verified credits, and sourcing programs that reward decarbonisation can deliver access to premiums or long term contracts.
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Risk Perspective
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Decarbonisation reduces exposure to energy price volatility, fertilizer shortages, and regulatory pressures on emissions. Practices that build soil carbon and improve efficiency also strengthen resilience to drought, flooding, and extreme weather. By diversifying income through carbon credits or renewable energy sales, farmers reduce dependence on a single revenue stream.
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Link to Procurement Organizations
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Procurement partners must be committed to very long-term physical carbon insetting to create value for farmers for low carbon products, co-investing in renewable installations, and supporting measurement and verification of carbon outcomes. Long term offtake agreements, technical support, and access to finance help farmers adopt practices and technologies that deliver both emissions reduction and supply chain resilience.
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1. Buyer Perspective:
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Risks
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Supply Chain Disruptions: Adoption of carbon sequestration practices may lead to variations in agricultural production and potential disruptions in the supply chain, affecting product availability.
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Cost Implications: Suppliers implementing carbon sequestration practices may incur initial costs, potentially impacting product prices and the overall procurement budget.
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Certification Challenges: Ensuring adherence to certification standards related to carbon sequestration may pose challenges, requiring rigorous monitoring and verification.
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Trade-offs
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Cost vs. Sustainability: Balancing potential cost implications of products from suppliers engaged in carbon sequestration with the desire to support environmentally responsible and climate-friendly sourcing practices.
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Consistency vs. Innovation: Striking a balance between consistent supply from traditional sources and the innovative adoption of carbon sequestration practices within the supply chain.
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2. Supplier Perspective:
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Risks
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Financial Strain: Suppliers implementing carbon sequestration practices may initially face higher costs, potentially causing financial strain and impacting competitiveness.
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Transition Period Challenges: Adoption of new practices may pose challenges during the initial phases, affecting production efficiency and consistency.
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Market Access Concerns: Suppliers may face challenges in accessing markets that prioritize traditional, non-carbon sequestration farming practices.
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Trade-offs
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Cost vs. Market Access: Suppliers may need to weigh the costs and challenges of adopting carbon sequestration practices against potential market access and premium prices associated with sustainable practices.
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Innovation vs. Tradition: Allocating resources to adopt carbon sequestration practices may divert attention and resources from traditional production methods.
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Short-Term Costs vs. Long-Term Benefits: Balancing the short-term financial implications of transitioning to carbon sequestration with the potential long-term benefits in terms of soil health, productivity, and environmental sustainability.
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Addressing these risks and trade-offs requires careful planning, collaboration, and a long-term perspective from both buyers and suppliers in the procurement process.
Conduct a thorough external risk analysis across climate, biodiversity, nature, human rights, forced labour, child labour, and free, prior, and informed consent. Include regulatory sustainability risks (climate, human rights, supply chain due diligence) linked to sourced materials.
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Enabling conditions for environmental risk assessment in a procurement organization include:
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Supply Chain Visibility: Establish comprehensive supply chain visibility to identify key environmental hotspots and potential impacts associated with agri-food procurement activities.
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Environmental Expertise: Ensure that the procurement team has access to or collaborates with environmental experts who can effectively assess and interpret environmental data and impacts.
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Data Collection and Monitoring Systems: Implement robust data collection and monitoring systems to track environmental indicators, enabling the continuous assessment of procurement activities.
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Stakeholder Engagement: Engage with key stakeholders, including suppliers and local communities, to gather insights on potential environmental impacts and foster collaborative efforts in mitigating adverse effects.
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Sustainability Criteria Integration: Embed environmental sustainability criteria directly into procurement policies and evaluation processes, making EIAs an integral part of supplier selection and product sourcing.
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Regulatory Adherence: Stay informed about and comply with environmental regulations and standards specific to the agri-food sector, ensuring that EIAs align with legal requirements.
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Technology Adoption: Leverage innovative technologies, such as satellite imagery or remote sensing tools, to enhance the accuracy and efficiency of EIAs, especially in assessing land use, water consumption, and biodiversity impacts.
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Risk Mitigation Strategies: Develop strategies to address identified environmental risks within the supply chain, incorporating measures to mitigate issues related to water usage, pollution, deforestation, and other relevant concerns.
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Benchmarking and Performance Metrics: Establish benchmarking mechanisms and performance metrics to compare the environmental impact of different suppliers and products, promoting competition in adopting sustainable practices.
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Collaboration with Certification Bodies: Collaborate with recognized environmental certification bodies to align EIAs with established standards, providing credibility and assurance of environmentally responsible sourcing practices.
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Education and Training: Provide ongoing education and training for procurement professionals on the latest methodologies and tools for conducting EIAs, ensuring a well-informed and skilled team.
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Continuous Improvement Framework: Implement a continuous improvement framework based on EIA findings, fostering a culture of learning and adaptation to evolving environmental challenges.
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Transparent Reporting: Communicate EIA results transparently to internal and external stakeholders, demonstrating the organization's commitment to environmental responsibility and accountability.
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Incentivizing Sustainable Practices: Develop incentive mechanisms for suppliers that actively engage in reducing their environmental impact, encouraging a proactive approach to sustainability.
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By focusing on these targeted pproaches, procurement organizations can enhance the effectiveness of their EIAs, leading to more sustainable and environmentally conscious sourcing practices.
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Conducting a value chain risk assessment enables identification and assessment of the sustainability risks in your value chain. This is key to enabling effective risk management in procurement decisions. To do this effectively, it is helpful to have a good level of Value Chain Visibility first. However, a high-level assessment can still bring value to the business by identifying the most likely and severe types of risks associated with different categories.
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The lenses through which you may want to consider a risk assessment include:
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• Country of Origin: The country defines the macro risks based on its environmental, social, political and economic situation.
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• Commodity/category/product of interest: The processes involved in the production of different commodities, categories and products impact the risks associated with them
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• Risks to Assess: The most important risks to assess may be associated with the countries and commodities of interest, or they may come from reviewing your business strategy and sustainability commitments. The risks of interests may include:
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o Environmental: Climate, Deforestation, Water, Nature
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o Social: Human Rights (inc. Child Labour, Forced Labour, Indigenous Rights), Living Wages and Income, Gender Equality, Health and Safety
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If you have engaged with your suppliers as part of improving Value Chain Visibility and have a sense of whether supply chains are likely to be stable or unstable over the next five years, consider potential changes that could occur and, if possible, incorporate this flexibility into the risk assessment approach.
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If you are starting from scratch review the IDH focus areas, which will help surface the material sustainability risks. If you need further help, useful resources may include;
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• Search WRI for environment risks like climate, deforestation, water and nature
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• Search by commodity at Verite for human rights risks
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At this stage you are simply understanding the ‘sustainability’ risks the business is exposed to, from the current value chain, due to the current procurement strategy.
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Environmental Perspective
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Sustainable Farming Practices: Comprehensive risk assessments help farmers identify and adopt practices that reduce negative impacts across the value chain, such as conserving soil, lowering pesticide use, and enhancing biodiversity.
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Climate Resilience: By highlighting vulnerabilities to climate change, these assessments support actions that build resilience to extreme weather and strengthen long term environmental sustainability.
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Income Perspective
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Access to Premium Markets: Farmers who align with value chain risk assessment findings can access buyers and markets that prioritize sustainable and resilient sourcing, often linked to premium pricing.
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Cost Savings: Efficiency gains identified through assessments, such as reduced input use or better resource management, can lower costs and improve overall profitability.
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Risk Perspective
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Market Viability: Assessments strengthen market viability by ensuring farmer practices align with buyer expectations, regulatory standards, and consumer preferences, reducing the risk of exclusion.
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Long Term Stability: By addressing environmental, social, and operational risks across the value chain, farmers position themselves for continued access to markets and long term business resilience.
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Link to Procurement Organizations
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Procurement partners play a central role by communicating risk and sustainability criteria to farmers and the opportunities in rewarding alignment. Supporting risk assessments and providing guidance ensures that sourcing is consistent with company commitments, while helping farmers strengthen practices that secure market access and supply continuity.
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1. Buyer Perspective:
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Risks
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Supply Chain Disruption: To minimize disruption risks, buyers should strategically diversify their supplier base, balancing sustainability criteria with the need for a resilient and varied supply chain.
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Increased Costs: Buyers can strategically negotiate with suppliers, emphasizing the importance of cost-effectiveness while encouraging sustainable practices to manage procurement expenses.
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Limited Supplier Innovation: Buyers can actively engage with smaller suppliers, fostering innovation by providing support and guidance to meet sustainability criteria.
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Trade-offs
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Cost vs. Sustainability: Buyers must strategically navigate the trade-off between cost-effectiveness and sustainability, making informed compromises to achieve both financial and environmental goals.
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Supplier Diversity vs. Sustainability: Balancing sustainability with supplier diversity requires careful consideration, especially in regions or industries where meeting sustainability standards may be challenging.
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Time-to-Market vs. Sustainability: Buyers need to find a balance between selecting sustainable suppliers and meeting time-to-market goals, ensuring that sustainability efforts do not unduly extend procurement timelines.
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2. Supplier Perspective:
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Risks
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Financial Strain: Suppliers can proactively manage financial strain by seeking collaborative partnerships with buyers, exploring cost-sharing models for sustainable investments.
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Competitive Disadvantage: Suppliers with lower sustainability scores should focus on improving practices to avoid losing business opportunities, emphasizing the value of sustainable offerings.
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Compliance Challenges: Suppliers facing compliance challenges should engage with buyers to streamline diverse sustainability standards, ensuring a more manageable and efficient adherence process.
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Trade-offs
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Cost vs. Sustainability: Suppliers must strategically balance the trade-off between implementing sustainable practices and managing production costs, seeking innovative and cost-effective solutions.
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Innovation vs. Compliance: Suppliers can navigate the trade-off by integrating sustainability into their innovation agenda, demonstrating that both innovation and compliance can coexist.
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Market Access vs. Sustainability: Suppliers targeting international markets must weigh the benefits of market access against the costs of adapting to sustainability requirements, aligning their strategies with evolving global standards.
Crop rotation and diversification are core practices considered under regenerative agriculture strategies. These practices involve alternating different crops on the same land over time to improve soil health, reduce pests and diseases, and increase farm resilience.
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1. Enabling Conditions for Crop Rotation and Diversification in a Procurement Organization:
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Sustainable Sourcing Policies: Establishment of procurement policies that prioritize products sourced from farms practicing crop rotation and diversification, promoting sustainable agricultural practices.
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Supplier Collaboration: Collaboration with suppliers committed to crop rotation and diversification, encouraging the adoption of diverse farming methods within the supply chain.
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Educational Initiatives: Providing training and education for procurement professionals to enhance their understanding of the benefits of crop rotation and diversification and the associated impacts on agricultural sustainability.
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Long-Term Contracts: Consideration of long-term contracts with suppliers implementing crop rotation and diversification, fostering stability and incentivizing the continued commitment to sustainable practices.
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2. Enabling Conditions for Crop Rotation and Diversification on a Farm Level:
+
Holistic Farm Planning: Development of comprehensive farm plans that integrate crop rotation and diversification strategies, considering soil health, pest management, and overall sustainability.
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Crop Rotation Plans: Implementation of systematic crop rotation plans that involve alternating the types of crops grown in specific fields over time to break pest and disease cycles.
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Cover Crops Integration: Incorporation of cover crops during periods when main crops are not grown to enhance soil fertility, prevent erosion, and provide additional benefits to the ecosystem.
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Polyculture Practices: Adoption of polyculture practices, including the simultaneous cultivation of multiple crops in the same area, to increase biodiversity and enhance ecological balance.
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Agroecological Approaches: Integration of agroecological principles that mimic natural ecosystems, promoting resilience, reducing reliance on external inputs, and enhancing overall farm sustainability.
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Community Engagement: Engagement with local communities, consumers, and agricultural extension services to raise awareness of the importance of crop rotation and diversification for sustainable agriculture.
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Both at the procurement organization and on the farm level, successful implementation of crop rotation and diversification requires a commitment to sustainable practices, collaborative relationships, ongoing education, and the integration of these principles into the core of farming and procurement strategies.
","
Crop rotation and diversification is most likely to emerge as an action for implementation if you have identified the following strategic choices: Regenerative Agriculture, Smallholder Crop Production, Selecting a Sustainability Certification, Precision Agriculture, or Supplier Capability Building.
+
Implementation of soil conservation can bring the following benefits:
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• Improve farmer gross margin and income through the avoidance of expensive synthetic agrochemical inputs like fertilisers and pesticides
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• Improve yield through enhanced soil fertility
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• Minimise pest and disease build-up associated with continuous cropping
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Implementing this requires a long-term commitment and capability building with suppliers to enable implementation at the farm level. Farmers must understand which crop combinations make the most business sense for sustained income, while buyers need to assess how competitive their crop is within the farm enterprise system. The resource commitment for farmer training must be clearly defined with suppliers and embedded in the Cost of Goods cost model as part of the overall procurement strategy.
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1. Environmental Perspective:
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Soil Health: Crop rotation and diversification contribute to improved soil health by preventing nutrient depletion and reducing the risk of soil-borne diseases.
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Biodiversity Preservation: Diversified farming practices support biodiversity by providing different habitats for various plant and animal species.
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2. Income Perspective:
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Risk Mitigation: Farmers adopting crop rotation and diversification reduce the risk of crop failure due to pests or diseases affecting a single crop. This can lead to more stable and predictable incomes.
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Market Access: Diversification allows farmers to access a broader range of markets, catering to diverse consumer preferences and potentially increasing sales and income.
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3. Risk Perspective:
+
Reduced Input Costs: Crop rotation and diversification can lead to reduced input costs as they minimize the need for external inputs like pesticides and fertilizers.
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Adaptation to Climate Change: Diversified crops provide resilience to changing climate conditions, allowing farmers to adapt and continue generating income even in the face of climate-related challenges.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are essential in providing access to markets and resources. By supporting and incentivizing the adoption of crop rotation and diversification, procurement organizations contribute to the sustainability and resilience of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
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Risks
+
Supply Chain Fluctuations: Buyers must address potential variability in crop yields due to crop rotation and diversification, implementing strategies to manage and predict supply chain fluctuations.
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Higher Initial Costs: Buyers need to manage higher initial production costs resulting from diverse farming methods, ensuring procurement decisions align with budget constraints and efficiency goals.
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Transition Period Challenges: Buyers should be aware of challenges suppliers may face during the transition to crop rotation and diversification, taking measures to minimize potential impacts on product availability and consistency.
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Trade-offs
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Cost vs. Sustainability: Buyers should strategically balance the higher costs of diverse farming methods against the desire to support environmentally sustainable and resilient agricultural practices, making procurement decisions that align with sustainability goals.
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Consistency vs. Variety: Striking a balance between ensuring a consistent supply of products and offering a variety of goods requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and diversity.
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2. Supplier Perspective:
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Risks
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Financial Strain: Suppliers adopting crop rotation and diversification may face initial financial strain, requiring strategic resource allocation to mitigate the impact on competitiveness.
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Transition Period Challenges: Suppliers transitioning to diverse farming methods must address challenges in adapting to new methods, implementing measures to maintain productivity during the transition.
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Market Access Challenges: Suppliers without the means to adopt diverse farming practices may struggle with accessing markets that prioritize sustainability and diversification, necessitating strategic decisions to overcome barriers.
+
Trade-offs
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Cost vs. Market Access: Suppliers must weigh the costs and challenges of transitioning to crop rotation and diversification against the potential market access and premium prices associated with sustainable and diversified products, ensuring a sound investment in diversified farming.
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Innovation vs. Tradition: Allocating resources to adopt diverse farming methods involves trade-offs with traditional methods, necessitating suppliers to find a harmonious integration that maintains productivity.
+
Crop Yield vs. Sustainability: Balancing the desire for higher crop yields with the commitment to crop rotation and diversification may require trade-offs, with suppliers finding optimal solutions that align with environmental goals.
Creating sustainability KPIs to be implemented within procurement. These KPIs can help to track the impact of actions implemented through a sustainable sourcing strategy, and progress towards business and procurement sustainability commitments and targets.
","
To effectively implement Data Management in a Procurement Data Analytics context, a procurement organization should establish a comprehensive data governance framework, implement robust data security measures and privacy compliance, form clear collaboration agreements with suppliers/farmers, promote cross-functional collaboration, ensure high data quality standards, prioritize interoperable systems and integration capabilities, develop a scalable infrastructure, conduct regular audits for compliance, and invest in training programs for procurement professionals, creating a foundation for secure, collaborative, and strategic data use throughout the procurement value chain.
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Once the strategic choices have been identified, take the time to identify KPIs that will enable tracking of progress and impact through implementation of the strategic choices. Aim to create as few KPIs as possible to give you the understanding you need while being realistic about data collection capabilities. There are a few levels that you could consider implementing KPIs at:
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• Individual supplier/project level: Track progress of specific activities
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• Category level: Track progress across a full category of interest e.g. tracking deforestation across the cocoa sourcing category
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• Cross-category level: Tracking progress holistically across multiple categories
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Aim to create KPIs that are a mix of:
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• Leading KPIs: Activities that build towards positive impacts e.g. number of suppliers trained, or number of gender dis-aggregated farmers trained
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• Lagging KPIs: Actual outcome measures that the procurement strategy will deliver e.g. % carbon mitigation, % farmers making living income
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Ensure these KPIs are part of the procurement strategy tracking and implementation in combination with the usual procurement KPIs e.g. savings, inflation, OTIF. Consider including the sustainability KPIs in supplier scorecards and quarterly supplier business reviews.
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Income Perspective
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Market Access and Fair Pricing: Using data to report on quality, sustainability, and compliance allows farmers to meet evolving procurement KPIs, improving market access and supporting fairer pricing. Greater transparency can strengthen trust with buyers and contribute to higher income.
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Efficient Resource Utilization: Data-driven insights enable farmers to allocate resources more effectively, lowering costs and improving profitability.
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Environmental Perspective
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Sustainable Agricultural Practices: Data on soil health, water use, and chemical applications helps farmers identify opportunities to adopt practices that reduce environmental impact while meeting buyer expectations.
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Resource Conservation: Tracking KPIs beyond spend encourages efficient use of inputs such as water and fertilizer, leading to lower waste and a more sustainable production system.
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1. Buyer Perspective
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Risks
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Data Security Concerns: Inadequate data security measures may lead to breaches, compromising sensitive procurement information and exposing the buyer to potential legal and financial consequences.
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Increased Costs of Implementation: Implementing robust data management practices may entail significant upfront costs, impacting the buyer's budget and potentially leading to budget overruns.
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Supplier Collaboration Challenges: Suppliers may face difficulties in adapting to collaborative data sharing, potentially affecting the buyer-supplier relationship and hindering information flow.
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Trade-offs
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Data Security vs. Accessibility: Buyers may face the trade-off between ensuring robust data security measures and providing easy accessibility to relevant stakeholders. Striking the right balance involves safeguarding sensitive information while facilitating necessary access.
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Customization vs. Standardization: Buyers implementing data management systems may need to balance customization for specific needs and standardization for efficiency. The challenge is to tailor data solutions while maintaining standardized processes.
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Cost of Technology vs. ROI: Buyers investing in data management technologies may face the trade-off between the initial cost of technology adoption and the expected return on investment (ROI). The challenge is to manage costs while realizing long-term benefits.
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Data Analytics vs. Privacy Compliance: Buyers utilizing data analytics for insights must balance this with compliance with privacy regulations. Striking the right balance involves leveraging data analytics for informed decision-making while protecting individual privacy.
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2. Supplier Perspective
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Risks
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Increased Reporting Burden: Suppliers may experience an increased reporting burden, potentially impacting operational efficiency and leading to resistance in adopting new data management practices.
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Technology Adoption Challenges: Suppliers may struggle to adopt and integrate new technologies for data sharing, resulting in potential disruptions to their operations and compliance challenges.
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Data Security Risks: Suppliers may face risks related to data security, especially if the buyer's data management practices do not meet industry standards, potentially exposing the supplier to cyber threats.
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Trade-offs
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Data Transparency vs. Confidentiality: Suppliers providing data may face the trade-off between transparency and confidentiality. The challenge is to share necessary information while protecting proprietary and confidential business details.
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Resource Allocation vs. Data Requirements: Suppliers may need to allocate resources for meeting buyer data requirements, and this must be balanced against other operational needs. The trade-off involves optimizing resource allocation for both data compliance and overall efficiency.
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Technology Adoption vs. Operational Impact: Suppliers adopting new technologies for data management may need to balance this with the potential impact on day-to-day operations. The challenge is to adopt efficient data management tools without disrupting regular business processes.
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Data Quality vs. Timeliness: Suppliers must balance providing high-quality data with the need for timely delivery. Striking the right balance involves ensuring data accuracy while meeting the required timelines set by buyers.
",
Indirect
,
Indirect
,"
Based on old procurement framework of IDH and co-developmeent with Mars
+
Iterated by EY and based on interview process within the project
"
+8,Direct & Indirect Pre-Finance,"
Definition
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Pre-financing options can support key strategic choices and help to catalyse sustainable sourcing initiatives. Typically used to help those upstream, who are implementing sustainable practices, access sufficient finance needed to start these actions. Direct pre-finance goes directly to the actor implementing the changes, e.g. direct to the farmer, while indirect pre-finance may go towards bank guarantees, development funds or NGOs that then support actors.
","
To implement direct and indirect finance interventions effectively in a procurement organization, it is crucial to have well-defined procurement objectives aligned with comprehensive financial planning, utilize advanced financial systems, ensure robust budgeting processes, establish a comprehensive risk management framework, maintain strong supplier relationship management practices, understand and adhere to financial regulations, implement stringent data security measures, continuously monitor performance using key indicators, and foster collaboration between procurement and finance teams.
","
Direct and Indirect Pre-Financing is an action for implementation that could emerge from many of the strategic choices selected, as it is about supporting capability building in the upstream supply chain. Choices it is most likely to be linked to include Mutual Supplier-Based Incentives, Upstream Supplier Tier Reduction, Supplier Capability Building, and Long-term Contracts.
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If cash flow is limited and investment is needed in upstream supply chain actors, pre-financing may be required to enable action. Implementing such practices may be particularly important where, as a buyer, you have identified strategic priorities and risks to be managed that must be done by upstream actors and need resource from your business to enable initial investments and actions to be made.
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As a buyer, you must understand the cash flow of upstream supply chain actors and how implementing new sustainable practices might impact this. To ensure these actors have the capability to implement these initiatives, the buyer may need to consider different approaches to financing to ensure upstream actors have healthy cash flows.
+
Examples of direct pre-financing:
+
• Advanced payments: Paying suppliers, farmers, or cooperatives a proportion of the cost of goods in advance to cover costs
+
• Providing inputs: Buying inputs needed, e.g. seeds, fertilizers, technology, to initiate actions that are then deducted from end costs
+
Examples of indirect pre-financing:
+
• Bank guarantees: Acting as a guarantor to a local bank, allowing farmers to access loans and reducing risk for the bank
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• Partnerships with NGOs or development agencies: Collaboration and support for organisations that help farmers access financing and resources they need
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1. Income Perspective
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Farmers often face cash flow challenges due to seasonal variations and market uncertainties. Direct and indirect finance interventions can provide farmers with the necessary capital to invest in their operations, purchase seeds and equipment, and withstand economic fluctuations.
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Improved access to finance allows farmers to make timely investments, leading to increased productivity, higher yields, and ultimately, improved income. It also provides a financial safety net during periods of low agricultural income.
+
2. Environment Perspective
+
Sustainable farming practices are essential for environmental conservation. Finance interventions can support farmers in adopting environmentally friendly technologies, implementing conservation practices, and transitioning to more sustainable agricultural methods.
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Access to financing for sustainable practices, such as precision farming, organic farming, or water conservation, can contribute to soil health, biodiversity, and reduced environmental impact. It aligns with the global push for sustainable agriculture.
","
1. Buyer Perspective:
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Cost of Capital:
+
Risk: Depending on the financial arrangements, the cost of obtaining capital through finance interventions may pose a risk. High-interest rates or fees could increase the overall cost of procurement for the buyer.
+
Tradeoff: The tradeoff involves finding a balance between securing necessary funding and managing the associated costs to ensure competitiveness and profitability.
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Trade-offs
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Cost of Finance vs. Procurement Efficiency: Buyers may face the trade-off between managing the cost of finance and optimizing procurement efficiency. Striking the right balance involves securing favorable financial terms without compromising the speed and effectiveness of procurement processes.
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Risk Mitigation vs. Supplier Relationships: Buyers utilizing finance interventions for risk mitigation may need to balance this with the desire to maintain strong, collaborative relationships with suppliers. The challenge is to manage risks while fostering positive supplier partnerships.
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Customization of Financial Solutions vs. Standardization: Buyers may seek customized financial solutions for different procurement scenarios but must balance this with the benefits of standardization for consistency. The trade-off involves tailoring financial approaches while maintaining standardized processes.
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Long-Term Financial Planning vs. Short-Term Goals: Buyers must decide between focusing on long-term financial planning for sustainable procurement practices and addressing short-term procurement goals. Striking the right balance involves aligning financial strategies with both immediate needs and long-term sustainability.
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2. Supplier Perspective
+
Access to Finance:
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Risk: Suppliers may face challenges in accessing finance if they do not meet the buyer's financial criteria or if the financing process is complex.
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Tradeoff: Tradeoffs involve meeting financial requirements while maintaining independence and ensuring that financial arrangements are supportive rather than restrictive.
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Cost of Compliance:
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Risk: Complying with the financial and contractual requirements set by the buyer may result in additional costs for suppliers.
+
Tradeoff: Suppliers need to evaluate the tradeoff between securing business from a particular buyer and the associated compliance costs. Negotiating fair terms is crucial.
+
Trade-offs
+
Cost of Finance vs. Profitability: Suppliers may face the trade-off between managing the cost of finance and maximizing profitability. The challenge is to secure financing options that contribute to financial stability without significantly impacting profit margins.
+
Cash Flow vs. Financing Terms: Suppliers may prioritize maintaining healthy cash flow but must balance this with the financing terms offered by buyers. The trade-off involves managing cash flow while accommodating the financial terms set by buyers.
+
Risk Management vs. Independence: Suppliers utilizing finance for risk management may need to balance this with the desire for financial independence. The challenge is to mitigate risks while preserving autonomy in financial decision-making.
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Long-Term Financial Partnerships vs. Diversification: Suppliers may desire long-term financial partnerships with buyers, but this could conflict with the need for financial diversification. Striking the right balance involves pursuing stable financial relationships while diversifying funding sources.
",
Direct
,
Direct
,"
Based on old procurement framework of IDH and co-developmeent with Mars
+
Iterated by EY and based on interview process within the project
"
+9,Direct Farmer Contracting,"
Definition
+
Establish direct farmer contracting programs where they offer the fastest, most cost-effective way to implement sustainability strategies and manage risk, bypassing multiple supply chain tiers.
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To effectively implement Direct Farmer Contracting Programs, a procurement organization must establish transparent communication channels, ensure legal compliance, conduct educational initiatives for farmers, integrate technology for monitoring, develop risk management strategies, establish fair pricing mechanisms, define quality standards, provide capacity-building for farmers, offer flexible contract terms, and collaborate with agricultural experts, fostering fair, transparent, and sustainable relationships in the agricultural supply chain.
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When is this a strategic choice?
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When the spend category is business critical and the value chain visibility analysis surfaces value chain actors who are adding cost (e.g. middle men, traders) and/or developing a greenfield site as a buyer. Depending on the outcome of the internal and external analysis, this may be the most competitive cost approach to secure supply and engage directly with farmers to mitigate identified risks.
+
What it means:
+
This is linked to other strategic choices such as Reducing Upstream Supply Tiers and Supplier Capability Building.
+
This will require resource either directly from a buyer’s business or to support identifying an implementation partner for a farmer.
+
• Direct resource could include providing direct funding through procurement-driven sustainability investments, providing technical know-how, or supporting the farmer to build professional skills such as business planning and accessing finance.
+
• Implementation partners could include, for example, identifying in-country partners to work directly with smallholder farmers to coordinate smallholder crop production improvement activities.
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1. Income Perspective
+
Direct contracting often provides farmers with guaranteed prices, reducing uncertainties and ensuring more stable income. Also, establishing direct relationships with businesses opens up opportunities for capacity building and development, contributing to increased productivity and income.
+
2. Environment Perspective
+
Direct Farmer Contracting programs can promote sustainability as companies can enforce their environmental standards directly with the farmers, encouraging and ensuring sustainable farming practices are in place.
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1. Buyer Perspective
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Risks
+
Supply Variability: Direct contracts with individual farmers may expose buyers to supply variability influenced by weather conditions and other uncontrollable factors.
+
Dependency on Localized Sources: Relying on local farmers may lead to limited geographic diversity, posing risks in the event of local disruptions.
+
Contract Non-Compliance: Farmers may face challenges in meeting contract terms, leading to potential disruptions in the supply chain.
+
Trade-offs
+
Supply Chain Control vs. Farmer Independence: Buyers may face the trade-off between maintaining strict control over the supply chain through direct farmer contracting and allowing farmers greater independence. Deciding on the right balance involves assessing the level of control needed versus empowering farmers.
+
Quality Assurance vs. Cost Competitiveness: Buyers must balance the assurance of product quality through direct contracts with the need for cost competitiveness. Striking the right balance involves ensuring quality while remaining economically competitive in the market.
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Risk Sharing vs. Farmer Viability: Buyers may opt for risk-sharing arrangements with farmers to manage uncertainties, but this must be balanced against ensuring the financial viability of individual farmers. Deciding on the level of risk sharing involves considering the economic sustainability of farmers.
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Sustainability Goals vs. Operational Efficiency: Buyers may prioritize sustainability goals in direct farmer contracting programs, but this could impact operational efficiency. Balancing sustainability objectives with the need for streamlined operations is crucial.
+
2. Supplier Perspective
+
Risks
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Price Volatility: Farmers may face risks associated with price volatility in agricultural markets, impacting their income.
+
Market Access Challenges: Dependence on a single buyer may limit farmers' access to other markets, reducing their bargaining power.
+
Input Cost Fluctuations: Fluctuations in input costs may affect farmers' profitability, especially if contracts do not account for these variations.
+
Trade-offs
+
Stable Income vs. Market Diversification: Farmers may face the trade-off between securing stable income through direct contracts and diversifying their market exposure. Striking the right balance involves managing income stability while avoiding over-reliance on a single buyer.
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Access to Resources vs. Autonomy: Farmers must decide on the trade-off between accessing resources provided by buyers in direct contracts and maintaining autonomy in their farming practices. Balancing resource support with the desire for independence is essential.
+
Risk Reduction vs. Profit Potential: Farmers may opt for direct contracts to reduce production and market risks, but this may come with limitations on profit potential. Deciding on the right balance involves assessing risk tolerance and profit expectations.
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Long-Term Stability vs. Flexibility: Farmers may seek long-term stability through direct contracts, but this could limit their flexibility to adapt to changing market conditions. Finding the right balance involves considering the benefits of stability against the need for adaptability.
",
Direct
,
Indirect
,"
IDH Interview Sessions
+
Nespresso Example, Norwegian & Pakstanian Rice producer
"
+10,Fair Pricing and Flexible Payment Terms,"
Definition
+
Use fair pricing, milestone payments, partial prepayments, or shorter payment cycles to support direct farmer contracting, supplier capability building, and other strategic relationship models.
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To effectively implement Fair Pricing Negotiation Practices, a procurement organization should conduct thorough market research, maintain transparent cost structures, establish fair and ethical sourcing policies, provide negotiation skills training, utilize data analytics for price trends, implement Supplier Relationship Management practices, ensure legal and regulatory compliance, encourage cross-functional collaboration, define clear contractual terms, establish performance metrics and monitoring mechanisms, and promote supplier diversity and inclusion, fostering a transparent, ethical, and collaborative approach to pricing negotiations.
","
Being cognisant of cash flows and investment needs of upstream supply chain actors may require implementation of fair pricing and flexible payment terms. Implementing such practices may be particularly important where, as a buyer, you have identified strategic priorities and risks to be managed that must be done by upstream actors and need resource from your business to enable initial investments and actions to be made.
+
As a buyer, you must understand the cash flow of upstream supply chain actors and how implementing new sustainable practices might impact this. To ensure these actors have the capability to implement these initiatives, the buyer may need to consider different approaches to financing to ensure upstream actors have healthy cash flows.
+
Similarly, even if not asking upstream suppliers to implement new practices, as a buyer you should be conscious of whether your current payment terms are inhibiting healthy cash flow for upstream suppliers. This could be creating risk in itself by limiting supplier and farmer ability to implement their own improvements.
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Income Perspective
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Fair, transparent pricing linked to quality and sustainability premia lifts farm income and rewards good practice. Shorter payment periods and milestone or partial payments smooth cash flow, improve planning, and reduce reliance on expensive credit. Pre finance for inputs enables timely purchase of seed, fertilizer, and services, supporting higher yields and more reliable revenue.
+
Environmental Perspective
+
Stable cash flow and input pre finance make it feasible to invest in soil health, efficient water use, and low impact pest management. When premia are tied to verified outcomes, farmers are paid for reduced inputs and positive environmental results, reinforcing adoption over time.
+
Risk Perspective
+
Predictable payments and advances cut cash flow gaps that lead to distress sales or under application of inputs. Transparent price formulas and floors reduce exposure to market swings. Timely working capital lowers the risk of missing planting windows and supports recovery after weather shocks.
+
Link to Procurement Organizations
+
Procurement partners must be clear on how they are ensuring a healthy cash flow for farmers, with little bureaucracy. Buyers can operationalize this through clear pricing formulas, documented premia for verified practices, prompt payment targets, and payment schedules aligned to the crop calendar. Offering pre finance or input on account, with fair deductions at delivery, plus simple dispute resolution, builds trust and supply continuity while advancing climate and nature goals.
","
1. Buyer Perspective
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Risks
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Higher Costs: Strict adherence to fair pricing practices may lead to higher procurement costs for buyers.
+
Supplier Resistance: Suppliers might resist fair pricing negotiations, potentially impacting the buyer's ability to secure competitive rates.
+
Market Competition: Intense market competition may limit the effectiveness of fair pricing negotiations, particularly in situations with a limited supplier pool.
+
Trade-offs
+
Cost Savings vs. Fairness: Buyers may face the trade-off between pursuing cost savings through rigorous negotiations and ensuring fairness in pricing for suppliers. Striking the right balance involves negotiating for favorable terms while respecting fair pricing practices.
+
Competitive Bidding vs. Relationship Building: Buyers must decide between competitive bidding processes that focus on price and relationship-building approaches that consider fairness. The trade-off involves balancing the pursuit of cost-effective solutions with the desire to foster long-term relationships with suppliers.
+
Market Competition vs. Supplier Relationships: Buyers navigating fair pricing negotiations may find that intense market competition limits the effectiveness of such negotiations, particularly in situations with a limited supplier pool. The trade-off involves managing market dynamics while maintaining strong supplier relationships.
+
Timeliness vs. Thorough Negotiation: Buyers may need to balance the desire for timely negotiations with a thorough examination of pricing terms. Striking the right balance involves efficient negotiation processes without compromising the depth of the evaluation.
+
2. Supplier Perspective
+
Risks
+
Reduced Profit Margins: Accepting fair pricing may result in reduced profit margins for suppliers.
+
Loss of Competitive Edge: Strict adherence to fair pricing may limit a supplier's ability to offer lower prices compared to competitors.
+
Financial Strain: If fair pricing practices are not universally adopted, suppliers might face financial strain compared to those not adhering to fair pricing.
+
Trade-offs
+
Profitability vs. Fairness: Suppliers face the trade-off between maximizing profitability and adhering to fair and transparent pricing practices. Balancing the desire for profit with a commitment to fair pricing contributes to sustainable and ethical business practices.
+
Stability vs. Cost Competitiveness: Suppliers may weigh the benefits of stable, long-term relationships with buyers against the need to remain cost-competitive in the market. The trade-off involves maintaining stability while ensuring competitiveness in pricing.
+
Relationship Building vs. Market Exposure: Suppliers may need to balance building strong relationships with buyers against the desire for exposure to a broader market. The trade-off involves fostering collaboration with key buyers while exploring opportunities in the wider marketplace.
+
Innovation vs. Budget Constraints: Suppliers may desire to innovate in their offerings, but budget constraints imposed by fair pricing negotiations can limit these initiatives. Striking a balance involves finding innovative solutions within the constraints of negotiated pricing terms.
Apply relevant certifications where corporate or brand-level commitments exist or where certifications have been identified as strategic levers to achieving goals.
","
1. Enabling Conditions for Fair Trade Certifications in a Procurement Organization:
+
Sustainable Procurement Policies: Development of procurement policies that prioritize fair trade certifications, emphasizing the inclusion of products from suppliers adhering to ethical labor practices, fair wages, and environmentally sustainable production.
+
Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of fair trade principles and certifications, promoting awareness and commitment to ethical sourcing.
+
Supplier Collaboration: Collaboration with suppliers committed to fair trade practices, fostering partnerships, and incentivizing the adoption of socially responsible and sustainable farming methods within the supply chain.
+
Commitment of the procurement organization: Utilization or establishment of recognized fair trade certification standards, ensuring authenticity and compliance in the procurement process, and supporting transparency in supply chain practices.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers holding fair trade certifications, promoting stability and incentivizing continued commitment to fair and ethical trading practices.
+
2. Enabling Conditions for Fair Trade Certifications on a Farm Level:
+
Fair Labor Practices: Implementation of fair labor practices, including fair wages, safe working conditions, and protection of workers' rights, contributing to social sustainability and fair trade certification eligibility.
+
Environmental Sustainability: Adoption of environmentally sustainable farming methods, such as organic farming or agroecological practices, to align with fair trade certification requirements that emphasize environmental responsibility.
+
Community Engagement: Active engagement with local communities, ensuring their participation and benefit from fair trade practices, promoting social inclusivity and responsible business conduct.
+
Transparent Supply Chains: Implementation of transparent supply chain practices, including traceability and documentation, to facilitate fair trade certification processes and demonstrate adherence to ethical standards.
+
Technical Support: Access to technical support and extension services to assist farmers in meeting fair trade certification requirements, optimizing their ability to comply with the necessary standards.
+
Successful implementation of fair trade certifications requires a commitment to ethical practices, collaboration, ongoing education, and the integration of fair trade principles into the core of farming and procurement strategies.
","
Fair Trade or Organic Certification is most likely to emerge as an action for implementation through selection of Selecting a Sustainability Certification as a strategic choice.
+
These certifications can provide assurance that the supply chains involved are mitigating certain risks and negative impacts, e.g. ensuring living incomes are met for farmer and avoiding environmental damage through excessive use of agrochemicals. If these have been identified as significant risks in the value chain, certification can be a strategic lever to minimising these risks in your supply chain.
+
This will mean an increase in cost of goods for the certification premium. It may also impact availability of the product, both volume and possible sourcing locations. For some commodities, sufficient certified volumes may be readily available. For others, this may require working with suppliers and upstream farmers to build certified volume, increasing costs even further. These impacts on costs should have been accounted for during the strategic choice selection process.
","
Environmental Perspective
+
Both certifications encourage practices that build soil health, conserve biodiversity, and reduce chemical use. This improves ecosystem resilience, lowers pollution, and supports long term farm productivity.
+
Income Perspective
+
Certification can secure premium or minimum prices, providing farmers with higher and more predictable income. Reduced dependence on synthetic inputs in organic systems can lower costs over time, while Fairtrade often channels funds into community development that creates additional livelihood opportunities.
+
Risk Perspective
+
Price floors and premium markets reduce exposure to volatile commodity prices and create stable income streams. Organic production reduces environmental risks such as soil degradation and water contamination, while Fairtrade networks strengthen social resilience and provide support during market or climate shocks.
+
Link to Procurement Organizations
+
Procurement partners must be clear within their business that this is a strategic choice for the long term. By recognizing and rewarding certified products, procurement organizations open access to differentiated markets and signal long term demand for sustainable production. Incentives, technical support, and clear sourcing commitments help farmers maintain certification, aligning farm level practices with company goals on ethical, sustainable supply.
","
1. Buyer Perspective:
+
Risks
+
Higher Costs: Buyers must evaluate the potential impact on the procurement budget due to the higher production costs associated with fair trade products.
+
Supply Chain Complexity: Buyers need to anticipate and manage complexities introduced into the supply chain by fair trade certifications to ensure logistics efficiency.
+
Market Competition: Buyers may encounter challenges in markets where consumers prioritize lower prices, potentially affecting the competitiveness of fair trade products.
+
Trade-offs
+
Cost vs. Ethical Sourcing: Buyers must make decisions that balance the potential cost implications of fair trade products with the desire to support ethical labor practices, fair wages, and environmentally sustainable production methods.
+
Consistency vs. Diversity: Achieving a balance between a consistent supply from traditional sources and the diverse range of fair trade products requires strategic decision-making in procurement offerings.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers adhering to fair trade certifications need to address potential financial strain resulting from higher production costs.
+
Certification Costs: Suppliers must manage additional administrative and certification-related costs associated with obtaining and maintaining fair trade certifications.
+
Market Access Challenges: Suppliers may face difficulties accessing markets that prioritize lower-priced products over fair trade certifications.
+
Trade-offs
+
Cost vs. Market Access: Suppliers should carefully weigh the costs and challenges of fair trade certifications against potential market access and premium prices associated with ethical and sustainable practices.
+
Innovation vs. Tradition: Allocating resources to adhere to fair trade certifications may divert attention and resources from traditional production methods, requiring suppliers to find a balanced approach.
+
Short-Term Costs vs. Long-Term Benefits: Suppliers need to balance the short-term financial implications of fair trade certifications with the potential long-term benefits in terms of brand reputation, market access, and social responsibility.
Group certification programmes allow a number of small-scale farmers to become certified together, with a single certificate covering the group rather than individual farmers. All farmers in the group must adhere to the same set of controls to ensure compliance with the certification’s standards. Using group certification reduces costs for the individual famer making certification more accessible.
","
Enabling conditions and prerequisites in a procurement organization to effectively and successfully implement Sustainable Agricultural Certification Premiums include:
+
1. Clear Sustainability Criteria
+
Prerequisite: Establish clear and well-defined sustainability criteria aligned with recognized agricultural certifications.
+
2. Engagement with Certification Bodies:
+
Prerequisite: Collaborate with reputable agricultural certification bodies to align premium criteria with industry-recognized standards.
+
3. Supplier Education and Training:
+
Prerequisite: Provide education and training programs for suppliers on sustainable agricultural practices and certification requirements.
+
4. Transparent Premium Structure:
+
Prerequisite: Design a transparent premium structure outlining the criteria for receiving sustainable agricultural certification premiums.
+
5. Monitoring and Verification Systems:
+
Prerequisite: Implement robust systems for monitoring and verifying supplier adherence to sustainability criteria.
+
6. Financial Capacity:
+
Prerequisite: Ensure financial capacity within the organization to fund sustainable agricultural certification premiums.
+
7. Legal and Ethical Compliance:
+
Prerequisite: Ensure compliance with legal and ethical standards in premium structures and supplier engagement.
+
8. Promotion of Certification Benefits:
+
Prerequisite: Actively promote the benefits of sustainable certifications and associated premiums to suppliers.
+
9. Stakeholder Collaboration:
+
Prerequisite: Collaborate with stakeholders such as farmers, certification bodies, and industry groups to build support for sustainable agriculture.
","
Group Certification Programmes is most likely to emerge as an action for implementation through selection of Selecting a Sustainability Certification as a strategic choice.
+
Implementing a group certification programme may be necessary if sustainability certification has been identified as a strategic choice, but sufficient supplies of certified commodities are not readily available in your current, and future, supply chain. Group certification programmes can be a cost efficient way to create a supply of certified commodities by allowing small-scale farmers and producers to obtain certification with lower costs required individually.
+
The buyer and supplier should assess the opportunities for group certification programmes, the expected up-front investment cost and the expected cost avoidance and risk mitigation opportunities that come from its implementation. Such investments should be captured in the Cost of Goods model.
","
1. Income Perspective
+
Group certification can open up access to premium markets, leading to higher sales and income for farmers. Reduced individual costs of certification mean more funds are available for other operational investments, potentially increasing productivity and income.
+
2. Environment Perspective
+
Group certification programs often require farmers to adopt sustainable practices to meet certification standards. This encourages environmentally-friendly farming, which can lead to better environmental outcomes in the farming community.
","
1. Buyer Perspective
+
Risks
+
Complex Coordination: Coordinating multiple suppliers for a group certification program may introduce complexity in logistics and communication.
+
Dependence on Group Compliance: Relying on group compliance may pose a risk if individual suppliers fail to maintain the required standards, impacting overall certification.
+
Challenges in Group Alignment: Achieving alignment among diverse suppliers in terms of practices and commitment to certification may be challenging.
+
Trade-offs
+
Cost Efficiency vs. Customization: Buyers may face the trade-off between achieving cost efficiency through group certification programs and providing customization to individual suppliers. Striking the right balance involves optimizing group benefits without compromising the unique needs of each supplier.
+
Risk Mitigation vs. Supplier Independence: Buyers using group certification programs may seek risk mitigation through standardized processes, but this could affect the independence of individual suppliers. The trade-off involves managing risks while preserving the autonomy of suppliers.
+
Supplier Collaboration vs. Competitive Edge: Buyers promoting collaboration among suppliers through group certification programs may need to balance this with the potential loss of a competitive edge for individual suppliers. The challenge is to foster collaboration while maintaining a competitive marketplace.
+
Long-Term Sustainability vs. Short-Term Goals: Buyers must decide between pursuing long-term sustainability objectives through group certification and achieving short-term procurement goals. Striking the right balance involves aligning group efforts with broader sustainability goals.
+
2. Supplier Perspective
+
Risks
+
Loss of Autonomy: Suppliers may feel a loss of autonomy in adhering to group certification requirements, potentially affecting their individual brand image.
+
Free-Rider Phenomenon: Some suppliers within the group may benefit from certification without actively contributing to sustainable practices, creating a ""free-rider"" scenario.
+
Complexity in Adherence: Adhering to group certification standards may be challenging for suppliers with diverse operations and practices.
+
Trade-offs
+
Group Benefits vs. Individual Recognition: Suppliers may face the trade-off between benefiting from group certification programs and seeking individual recognition for their sustainability efforts. The challenge is to leverage group benefits while showcasing unique contributions.
+
Compliance Costs vs. Group Support: Suppliers may incur compliance costs for group certification, but this must be balanced against the support and resources provided by the group. The trade-off involves managing costs while leveraging the collective strength of the group.
+
Market Access vs. Autonomy: Suppliers participating in group certification programs may gain enhanced market access, but this could impact their autonomy in decision-making. The challenge involves accessing markets collaboratively while preserving individual business strategies.
+
Resource Allocation vs. Certification Standards: Suppliers may need to allocate resources effectively to meet group certification standards, but this must be balanced against the potential impacts on overall resource allocation. The trade-off involves optimizing resources for both group compliance and individual operational efficiency.
",
Indirect
,
Indirect
,
How Much Does Rainforest Alliance Certification Cost? | Rainforest Alliance (rainforest-alliance.org)
+13,Integrated Pest Management (IPM),
Definition: Integrated Pest Management is an approach to the management of pests on farms in an ecologically sensitive way. The approach combines knowledge of pest lifecycles and natural pest control from beneficial predator insects or disease resistant crops. Synthetic pesticides are only used when required.
,"
1. Enabling conditions in a Procurement Organization:
+
Clear Policies and Guidelines: Establishing comprehensive policies and guidelines that prioritize the adoption of IPM practices in the procurement of agricultural products.
+
Supplier Collaboration: Collaborating with suppliers to ensure their adherence to IPM principles, promoting sustainable and environmentally friendly pest control methods.
+
Education and Training: Providing education and training programs for procurement staff to enhance awareness and understanding of IPM practices.
+
Monitoring and Auditing: Implementing regular monitoring and auditing processes to assess supplier compliance with IPM principles and identify areas for improvement.
+
Incentives for Sustainable Practices: Offering incentives or rewards for suppliers who demonstrate effective implementation of IPM and sustainable pest management practices.
+
2. Enabling conditions on the farm level:
+
Integrated Pest Management Plan: Developing and implementing a comprehensive IPM plan tailored to the specific characteristics and challenges of the farm.
+
Crop Rotation and Diversity: Incorporating crop rotation and diverse plantings to disrupt pest cycles and create less favorable conditions for pests.
+
Biological Control: Utilizing natural predators, parasites, or pathogens to control pest populations and reduce reliance on chemical pesticides.
+
Monitoring Systems: Establishing regular monitoring systems to detect pest populations early and assess the effectiveness of control measures.
+
Community Engagement: Engaging with the local community, neighboring farms, and agricultural extension services to share knowledge and collectively address pest management challenges.
+
Continuous Improvement: Emphasizing a commitment to continuous improvement by regularly reviewing and updating IPM strategies based on monitoring results and emerging pest threats.
+
Both in a procurement organization and on a farm, a holistic and collaborative approach that integrates sustainable and environmentally friendly pest management practices is key to successful implementation of Integrated Pest Management.
","
Integrated pest management is most likely to emerge as an action for implementation if you have identified the following strategic choices: Regenerative Agriculture, Smallholder Crop Production, Selecting a Sustainability Certification, Precision Agriculture, or Supplier Capability Building.
+
Implementation of integrate pest management can bring the following benefits:
+
• Improve farmer gross margin and income through the avoidance of expensive synthetic agrochemical inputs
+
• Improve yield and minimise disruption of supply due to pests
+
• Allow better yields for longer on the same land through avoiding environmental damage to soil and the wider ecosystem through excessive application of synthetic agrochemicals
+
Implementing this requires a long-term commitment to upskilling and capability building either with direct suppliers to cascade up the supply chain or, if pursuing Direct Farmer Contracting, directly with farmers. The resource requirements for this training and capability building must be clarified with suppliers as part of the Cost of Goods model, developed as part of the procurement strategy.
","
1. Environmental Perspective:
+
Biodiversity Preservation: IPM emphasizes the use of diverse and ecologically sustainable pest control methods, promoting biodiversity by avoiding the negative impact of broad-spectrum pesticides on non-target species.
+
Soil and Water Conservation: Reduced reliance on chemical pesticides in IPM practices contributes to the conservation of soil quality and water resources, supporting environmental sustainability.
+
2. Income Perspective:
+
Cost Savings: While implementing IPM practices may require initial investment in training and monitoring, farmers can achieve long-term cost savings by reducing expenses on chemical inputs and potentially benefiting from government incentives for sustainable practices.
+
Access to Premium Markets: Farmers adopting IPM may gain access to premium markets that prioritize products produced using environmentally friendly and ecologically sustainable pest control methods, contributing to increased income.
+
3. Risk Perspective:
+
Reduced Dependency on Chemicals: IPM reduces the risk of developing pesticide-resistant pests, addressing a significant challenge in conventional agriculture. This enhances the long-term effectiveness of pest control strategies for farmers.
+
Health and Safety: IPM minimizes the health and safety risks associated with the handling and exposure to chemical pesticides, creating a safer working environment for farmers.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are crucial in providing access to inputs and resources. By supporting and incentivizing the adoption of IPM practices, procurement organizations contribute to the sustainable farming practices of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Potential Supply Chain Disruptions: Buyers must carefully manage the implementation of IPM to avoid disruptions in the availability of agricultural products, ensuring a stable and reliable supply chain.
+
Higher Costs: Buyers need to strategically navigate higher production costs from IPM practices, balancing sustainability goals with efficient procurement to manage overall expenses.
+
Limited Product Availability: Implementing IPM practices requires buyers to assess potential impacts on product availability, making informed decisions that maintain a balance between consistency and variety.
+
Trade-offs
+
Cost vs. Sustainability: Buyers should strategically navigate the trade-off between cost considerations and supporting sustainable pest management practices, ensuring both economic efficiency and environmental responsibility.
+
Consistency vs. Variety: Balancing a consistent supply with a diverse range of products necessitates compromises, requiring buyers to find an optimal mix that meets both supply chain stability and product variety.
+
2. Supplier Perspective:
+
Risks
+
Financial Impact: Suppliers adopting IPM practices must strategically manage initial cost increases, ensuring the financial impact doesn't compromise their stability during the transition.
+
Competitive Disadvantage: Suppliers practicing IPM must focus on mitigating competitive disadvantages, emphasizing the added value of environmentally friendly practices to counterbalance potential higher costs.
+
Transition Challenges: Suppliers transitioning to IPM should address challenges effectively to minimize disruptions and maintain productivity during the adaptation period.
+
Trade-offs
+
Cost vs. Environmental Impact: Suppliers must strategically navigate the trade-off between managing costs and minimizing the environmental impact of pest management practices, ensuring a balance between financial efficiency and ecological responsibility.
+
Innovation vs. Tradition: Suppliers adopting IPM practices must integrate innovation efforts with traditional methods, ensuring a harmonious coexistence that doesn't compromise established workflows.
+
Market Access vs. IPM Adoption: Suppliers targeting environmentally conscious markets must weigh the benefits of market access against the costs and challenges of adopting and maintaining IPM practices, aligning their strategies with evolving consumer expectations.
Use long-term contracts to mutually provide financial stability and the basis to encourage suppliers to invest in sustainability improvements across environmental and human rights areas.
","
Enabling conditions for the effective implementation of long-term contracts in a procurement organization include establishing robust risk management strategies, ensuring clear performance metrics and key performance indicators (KPIs), fostering strong relationships with suppliers, conducting thorough due diligence on contractual terms, maintaining flexibility to accommodate changes, and implementing advanced contract management technologies to facilitate monitoring and compliance over extended periods.
","
When is this a strategic choice?
+
When you need to give your supplier the confidence to invest in the transformative practices for the long term. For example, the supplier investment required in building their capability to ensure living income is achieved for smallholder farmers in their upstream supply chain. This can be a means to enable and support supplier capability building to perform actions that meet a buyer’s identified strategic needs.
+
What it means:
+
• This requires a mind-set shift on your part as a buyer; moving from short-term transactional activities, to long-term, e.g. 5 year plus, cost horizons for strategic activities.
+
• Ensure as a buyer you have engaged with your supplier and identified a genuine opportunity for mutual value creation. For example, implementing a longer-term contract will remove volatility for you as a buyer and provide more secure income to the supplier.
+
• Watch out: Do not engage your supplier in this strategic choice if you are not certain that you can deliver, i.e. you are pushed internally to take advantage when markets are favourable. If you pull out of the contract in twelve months, this will damage trust and your reputation as a buyer.
","
1. Income Stability:
+
Long-term contracts provide farmers with a stable pricing structure, reducing income volatility and offering financial stability for their households.
+
2. Risk Mitigation:
+
By mitigating the impact of market price fluctuations, long-term contracts protect farmers from sudden downturns, preserving their income levels and ensuring financial security.
+
3. Investment Confidence:
+
The confidence provided by long-term contracts encourages farmers to make investments in technology, equipment, and sustainable practices, ultimately leading to increased productivity and income.
+
4. Financial Planning:
+
Long-term contracts enable effective planning for farmers, both in terms of crop cycles and financial management, contributing to better financial planning and increased farm productivity.
+
5. Incentive Alignment:
+
Aligning incentives in long-term contracts creates a collaborative environment where both farmers and buyers benefit from the success of the partnership, encouraging investment in sustainable and efficient farming practices.
+
6. Negotiation Empowerment:
+
Long-term contracts grant farmers greater negotiation power, allowing them to secure favorable terms and pricing structures that positively impact their income.
+
7. Trust Building:
+
The continuity of long-term relationships builds trust between farmers and buyers, fostering reliability, transparency, and mutual understanding, positively influencing income-related negotiations.
+
8. Sustainable Farming Practices:
+
Long-term contracts create a conducive environment for the adoption of sustainable farming practices, aligning with environmental stewardship goals and enhancing the quality of the farmers' products.
+
9. Financial Access:
+
The more secure financial outlook provided by long-term contracts makes it easier for farmers to access credit and investment opportunities, supporting increased productivity and income.
+
10. Crop Diversification:
+
Long-term contracts encourage crop diversification, allowing farmers to experiment with different crops and potentially increase their income through diversified revenue streams.
","
1. Buyer Perspective
+
Risks
+
Market Volatility: Long-term contracts may expose buyers to market fluctuations, impacting the competitiveness of pricing and terms over time.
+
Technological Obsolescence: Advancements in technology may render contracted goods or services outdated, leading to potential inefficiencies or obsolete solutions.
+
Changing Requirements: Evolving business needs could result in misalignment with the originally contracted goods or services, requiring modifications that may be challenging.
+
Trade-offs
+
Cost Certainty vs. Market Flexibility: Buyers may seek cost certainty through long-term contracts, but this can limit their ability to take advantage of market fluctuations or negotiate lower prices during periods of market decline.
+
Supplier Commitment vs. Competitive Bidding: Long-term contracts often require supplier commitment, but this can reduce the opportunity for competitive bidding, potentially limiting cost savings.
+
Risk Mitigation vs. Innovation: Long-term contracts provide stability and risk mitigation, but they may hinder the buyer's ability to quickly adopt new technologies or benefit from innovations in the market.
+
Relationship Building vs. Supplier Diversity: Developing strong relationships with a few suppliers in long-term contracts can enhance collaboration, but it may limit the diversity of suppliers and potential innovation from different sources.
+
2. Supplier Perspective:
+
Risks
+
Resource Commitment: Suppliers may face challenges adapting to changing market conditions or technology, potentially affecting their resource allocation and profitability.
+
Contract Inflexibility: Long-term contracts may limit a supplier's ability to adjust pricing or terms in response to unforeseen circumstances.
+
Dependency: Suppliers may become overly dependent on a single buyer, leading to vulnerability if the buyer faces financial issues or changes in strategy.
+
Trade-offs
+
Stable Revenue vs. Market Opportunities: Long-term contracts offer stable revenue, but suppliers may forego opportunities to take advantage of higher market prices or more lucrative contracts.
+
Production Planning vs. Flexibility: Long-term contracts allow for better production planning, but they may restrict a supplier's flexibility to adapt quickly to changing market conditions or technological advancements.
+
Cost Efficiency vs. Price Negotiation: Suppliers may achieve cost efficiency through long-term relationships, but this could limit their ability to renegotiate prices upward in response to increased costs or inflation.
+
Collaboration vs. Market Exposure: Building a collaborative relationship with a buyer in a long-term contract is beneficial, but it may limit a supplier's exposure to a broader market and potential new customers.
Shorten the supply chain when current purchasing practices limit influence over sustainability improvements. Closer relationships with upstream suppliers improve effectiveness, reduces costs (removing value chain actors that are not value adding), and reduces risk.
","
1. Strategic Alignment with Organizational Goals
+
Prerequisite: Ensure alignment with overall organizational goals and strategic objectives.
+
Enablement: Strategic alignment guides decision-making towards choices contributing to long-term success.
+
2. Internal Capability Assessment
+
Prerequisite: Evaluate the organization's internal capabilities, expertise, and capacity.
+
Enablement: Understanding internal strengths and limitations aids in determining the feasibility of in-house production.
+
3. Market Assessment and Supplier Evaluation
+
Prerequisite: Conduct a market assessment and evaluate potential suppliers.
+
Enablement: Comprehensive supplier evaluation ensures alignment with organizational needs and goals.
+
4. Comprehensive Cost Analysis:
+
Prerequisite: Conduct a thorough cost analysis for both in-house production and external procurement.
+
Enablement: Detailed cost insights facilitate informed decision-making and resource allocation.
+
5. Cross-Functional Collaboration:
+
Prerequisite: Encourage collaboration between procurement, production, and other relevant departments.
+
Enablement: Cross-functional collaboration enhances information sharing and a holistic approach to decision-making.
+
6. Risk Identification and Mitigation Strategies
+
Prerequisite: Identify potential risks associated with both options and develop mitigation strategies.
Prerequisite: Assess and ensure compliance with relevant regulations and standards.
+
Enablement: Compliance safeguards against legal issues and ensures ethical procurement practices.
+
8. Contract Management Expertise
+
Prerequisite: Have expertise in contract management for effective supplier relationships.
+
Enablement: Strong contract management ensures that external partnerships align with contractual expectations.
+
9. Scenario Planning
+
Prerequisite: Conduct scenario planning for various market conditions and internal capabilities.
+
Enablement: Scenario planning helps in anticipating potential changes and making adaptable decisions.
+
10. Continuous Monitoring and Evaluation
+
Prerequisite: Implement continuous monitoring and evaluation mechanisms post-implementation.
+
Enablement: Regular assessments ensure the ongoing relevance and effectiveness of the chosen Make vs. Buy strategy.
","
When is this a strategic choice?
+
When the spend category is business critical and the value chain visibility analysis surfaces value chain actors who are adding cost and not mitigating risk. This may also be a strategic choice when there are simply so many steps in the value chain that the ability to leverage influence to address environmental and social risks is significantly reduced.
+
What it means:
+
• Reviewing and repeating the supplier sustainability assessment and supplier segmentation activities for actors in the value chains of interest. This allows you to identify partners who have the commitment and the capability to mitigate the sustainability risks surfaced in the value chain risk assessment.
+
• Once these suppliers have been identified, the next step will be building and developing new supplier relationships with long term commitments.
","
Income Perspective
+
By working more directly with buyers and reducing layers of intermediaries, farmers gain clearer market access and greater income stability. Direct relationships can secure consistent demand, better prices, and access to technical and financial support, reducing reliance on fragmented or uncertain markets.
+
Environmental Perspective
+
Closer integration with buyers can align farm practices with corporate sustainability goals, encouraging reduced chemical use, improved soil and water management, and enhanced biodiversity. With fewer supply chain layers, monitoring and support for environmental improvements become more effective, leading to stronger outcomes on farm.
","
1. Buyer Perspective
+
Risks
+
Operational Complexity: In-house production may introduce operational complexities, including managing additional resources, technology, and expertise.
+
Investment Risk: Investing in production capabilities involves a significant upfront cost, which may not be justified if demand fluctuates.
+
Dependency on Internal Processes: Relying solely on internal processes may limit the buyer's agility in responding to market changes.
+
Trade-offs
+
Cost Efficiency vs. Control: Buyers may face the trade-off between achieving cost efficiency through outsourcing (buying) and maintaining greater control over processes through in-house production (making). Deciding on the right balance involves evaluating the importance of cost savings versus control.
+
Expertise Access vs. In-House Skills Development: Buyers must weigh the advantage of accessing external expertise through outsourcing against the potential benefits of developing in-house skills. The trade-off involves deciding between immediate access to specialized knowledge and building internal capabilities over time.
+
Risk Mitigation vs. Flexibility: Buyers may prioritize risk mitigation by outsourcing certain processes to specialized suppliers, but this could reduce the flexibility to make rapid changes internally. Balancing risk mitigation with the need for adaptability is crucial in the decision-making process.
+
Time-to-Market vs. Quality Control: Buyers may need to balance the desire for a rapid time-to-market through outsourcing against the need for stringent quality control in in-house production. Striking the right balance involves considering time constraints while ensuring product or service quality.
+
2. Supplier Perspective
+
Risks
+
Overdependence on a Single Buyer: Suppliers heavily reliant on a single buyer may face financial vulnerabilities if the buyer changes its production strategy.
+
Market Access Challenges: Suppliers relying solely on external sales may face challenges in accessing certain markets or industries.
+
Limited Control over Production: Suppliers may face risks associated with limited control over production processes and quality standards.
+
Trade-offs
+
Stability through Contracts vs. Market Volatility: Suppliers may face the trade-off between seeking stability through long-term contracts with buyers and navigating market volatility. Long-term contracts offer stability but may limit the ability to respond quickly to market changes.
+
Specialization vs. Diversification: Suppliers must decide between specializing in a particular product or service for a single buyer (making) and diversifying their offerings to cater to multiple buyers (buying). The trade-off involves assessing the benefits of specialization against the risks of dependence on a single buyer.
+
Economies of Scale vs. Customization: Suppliers may weigh the advantages of achieving economies of scale through serving multiple buyers against the customization requirements of individual buyers. The trade-off involves deciding between mass production efficiency and tailoring products or services to specific buyer needs.
+
Cash Flow Predictability vs. Market Dependency: Suppliers may prioritize cash flow predictability through long-term contracts, but this may result in dependency on specific buyers. Balancing cash flow stability with market diversification is essential for supplier sustainability.
Develop shared incentive programs to accelerate strategic implementation, especially when building supplier capability, reducing supplier tiers, or transitioning to direct sourcing relationships.
","
To effectively implement Performance-Based Incentives in procurement, a logical progression includes defining clear performance metrics, establishing transparent contractual agreements, developing robust data analytics capabilities, implementing effective Supplier Relationship Management (SRM), establishing communication and feedback mechanisms, defining performance evaluation criteria, designing flexible incentive structures, providing training and support programs, ensuring financial stability, and ensuring legal and ethical compliance, creating a conducive environment for continuous improvement and collaboration with suppliers.
","
When is this a strategic choice?
+
If it has been identified that effective mitigation of sustainability risks can only be achieved through long-term partnering with upstream supply chain actors, trust must be built to provide the foundation for an effective relationship.
+
What it means:
+
Committing to deep partnering and to genuinely understanding what is mutual for both buyer and supplier. This will require confronting and agreeing a fair balance of value creation and acceptance of risk for both parties.
+
This is important to consider when exploring actions such as Supplier Capability Building, Reducing Upstream Supplier Tiers, and Direct Farmer Contracting.
","
Income Perspective
+
Mutual incentive schemes increase farmer income by rewarding achievement of shared targets agreed with buyers. Aligning incentives to continuous improvement and efficiency creates additional opportunities to strengthen profitability while building longer term partnerships.
+
Environmental Perspective
+
When incentives are jointly tied to sustainability goals, farmers are encouraged to adopt practices that improve soil, water, and biodiversity outcomes. This supports climate resilience, long term productivity, and alignment with buyer commitments on sustainable sourcing.
","
1. Buyer Perspective
+
Risks
+
Financial Strain: Offering performance-based bonuses may strain the buyer's budget, especially if multiple suppliers are eligible for bonuses simultaneously.
+
Potential for Misalignment: There's a risk that the buyer's expectations for performance may not align with the supplier's capabilities, leading to disputes over bonus eligibility.
+
Supplier Dependence: Over-reliance on performance bonuses may create a dependency on bonuses rather than fostering sustainable long-term performance improvements.
+
Trade-offs
+
Cost Savings vs. Performance Quality: Buyers may face the trade-off between achieving cost savings and ensuring high performance quality through incentives. Striking the right balance involves aligning incentives with performance expectations without compromising cost-efficiency.
+
Contractual Rigidity vs. Flexibility: Buyers using performance-based incentives may grapple with maintaining contractual rigidity and allowing flexibility for suppliers to meet performance targets. The trade-off involves defining clear performance metrics while accommodating dynamic market conditions.
+
Risk Mitigation vs. Innovation: Buyers may use performance-based incentives for risk mitigation, but this could impact supplier innovation. Balancing risk management with fostering innovation involves setting incentives that encourage both reliability and continuous improvement.
+
Supplier Accountability vs. Relationship Building: Buyers may emphasize supplier accountability through performance-based incentives, but this may affect the overall relationship with suppliers. Striking the right balance involves holding suppliers accountable while fostering a positive working relationship.
+
2. Supplier Perspective
+
Risks
+
Unrealistic Performance Expectations: Suppliers may face challenges if the buyer sets overly ambitious or unrealistic performance targets.
+
Financial Dependence: Dependence on performance bonuses may create financial uncertainty if bonuses are not consistently achieved.
+
Operational Strain: Intense focus on bonus-driven metrics might strain the supplier's operations, potentially affecting overall service or product quality.
+
Trade-offs
+
Profitability vs. Performance: Suppliers may face the trade-off between maximizing profitability and meeting performance metrics to earn incentives. Balancing the desire for profit with the commitment to achieving performance targets is crucial for supplier success.
+
Resource Allocation vs. Incentive Earning: Suppliers may need to allocate resources effectively to meet performance targets, but this must be balanced against the potential for earning incentives. The trade-off involves optimizing resource allocation for both performance and profitability.
+
Stability vs. Variable Income: Suppliers relying on performance-based incentives may experience variability in income. The trade-off involves managing income stability while leveraging performance incentives as a revenue stream.
+
Long-Term Relationships vs. Short-Term Targets: Suppliers may need to balance building long-term relationships with buyers and meeting short-term performance targets for incentives. Striking the right balance involves aligning performance incentives with broader relationship-building objectives.
Deploy precision agriculture technologies to reduce environmental impacts and input costs on farms.
","
1. Enabling Conditions for Precision Agriculture in a Procurement Organization:
+
Data Integration Systems: Implementation of robust systems for collecting, integrating, and analyzing agricultural data to inform procurement decisions based on precise insights.
+
Technology Adoption: Adoption of cutting-edge technologies such as sensors, GPS, drones, and data analytics platforms to monitor and optimize agricultural processes.
+
Supplier Collaboration: Collaborative partnerships with suppliers who employ precision agriculture practices, fostering a seamless integration of technology-driven approaches throughout the supply chain.
+
Educational Programs: Training procurement staff on the principles and benefits of precision agriculture, enhancing their ability to make informed decisions.
+
Regulatory Compliance: Ensuring alignment with relevant regulations and standards related to data privacy, technology use, and environmental sustainability in precision agriculture.
+
2. Enabling Conditions for Precision Agriculture on a Farm:
+
Technology Infrastructure: Establishment of a reliable and efficient technology infrastructure, including high-speed internet and connectivity to support precision agriculture applications.
+
Data Management and Analysis: Implementation of robust data management systems and analytics tools to process and interpret data collected from precision agriculture technologies.
+
Skill Development: Continuous training and skill development for farm personnel to effectively operate and leverage precision agriculture tools and technologies.
+
Equipment and Sensor Integration: Integration of precision agriculture equipment, sensors, and monitoring devices into farm operations to optimize resource use and enhance overall efficiency.
+
Financial Investment: Availability of financial resources to invest in the initial setup and ongoing maintenance of precision agriculture technologies and equipment.
+
Sustainable Practices: Integration of precision agriculture with sustainable farming practices, considering environmental impact and resource conservation.
+
For both procurement organizations and farms, a holistic approach that combines technological infrastructure, data-driven decision-making, collaboration with stakeholders, and a commitment to sustainable practices is essential for successful implementation of precision agriculture.
","
Precision agriculture technologies are any technologies or practices which optimises agricultural inputs. For example, mapping the soil nutrient levels across a field and then adjusting fertiliser applications across the field to match the required nutrient levels.
+
When is this a strategic choice?
+
When you, as the buyer, have a clear understanding of current and future sourcing origins and are prepared to actively support suppliers in adopting precision agriculture systems.
+
What it means:
+
• As a buyer you are confident that your suppliers have both the capability and commitment to implement and sustain the technology infrastructure required for precision agriculture. This may include Geographic Information Systems (GIS), input optimisation tools, and precision machinery.
+
• As a buyer you are also prepared to provide any additional support needed, including investment capital if necessary.
+
• This strategy depends on suppliers maintaining long-term, trust-based relationships with producers at the farm level.
","
1. Environmental Perspective:
+
Reduced Environmental Impact: Precision agriculture minimizes the environmental impact of farming activities by precisely targeting inputs, minimizing runoff, and optimizing resource use. This supports environmental sustainability and conservation.
+
Soil and Water Conservation: By precisely managing inputs, precision agriculture helps farmers conserve soil quality and water resources, reducing the overall environmental footprint of farming.
+
2. Income Perspective:
+
Cost Savings: Precision agriculture technologies enable farmers to make more informed decisions, reducing input costs and improving overall operational efficiency. This leads to cost savings and increased profitability for farmers.
+
Increased Yields: Improved decision-making based on real-time data can lead to increased yields, contributing to higher income for farmers.
+
3. Risk Perspective:
+
Climate Resilience: Precision agriculture provides tools for farmers to adapt to climate variability by offering real-time data on weather patterns and allowing for more effective risk management.
+
Market Viability: Adoption of precision agriculture practices enhances the market viability of farmers by showcasing their commitment to sustainable and technologically advanced farming methods, reducing the risk of market exclusion.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are vital in providing access to advanced technologies and resources. By supporting and incentivizing the adoption of precision agriculture practices, procurement organizations contribute to the technological advancement and sustainability of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Initial Investment Costs: Buyers should strategically manage the upfront investment in precision agriculture, ensuring the technology aligns with long-term procurement goals without exceeding budget constraints.
+
Dependency on Technology: Buyers must assess and mitigate the risk of overreliance on precision agriculture technology by implementing backup systems and contingency plans for supply chain disruptions.
+
Data Security Concerns: Buyers need to address data security concerns by implementing robust cybersecurity measures, safeguarding sensitive information collected through precision agriculture.
+
Trade-offs
+
Cost vs. Efficiency: Buyers should make strategic decisions on the adoption of precision agriculture technology, weighing upfront costs against expected long-term efficiency gains in procurement and supply chain management.
+
Environmental Impact vs. Productivity: Deciding on the level of technology adoption involves a trade-off between potential environmental benefits and increased productivity, requiring buyers to find a balanced approach that aligns with sustainability goals.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers investing in precision agriculture must carefully manage financial strain, strategically allocating resources to ensure the adoption of technology doesn't compromise their stability.
+
Technological Skill Gaps: Suppliers should address skill gaps by investing in training or recruiting skilled personnel to effectively adopt and implement precision agriculture practices.
+
Market Access Challenges: Suppliers without means to adopt precision agriculture may face challenges accessing markets that prioritize technologically advanced practices, necessitating strategic decisions to overcome barriers.
+
Trade-offs
+
Cost vs. Competitiveness: Suppliers must strategically balance the costs of adopting precision agriculture with the potential for increased competitiveness in the market, ensuring a sound investment in technology.
+
Innovation vs. Tradition: Allocating resources to adopt new technologies involves a trade-off with traditional farming practices, requiring suppliers to find a harmonious integration that maintains productivity.
+
Market Access vs. Technology Adoption: Suppliers need to weigh the benefits of market access against the costs and challenges of transitioning to and maintaining precision agriculture practices, aligning their strategies with evolving buyer expectations.
Invest strategically where required improvements are not yet in place or need acceleration. Incentivise suppliers to adopt sustainability practices aligned with internal and external analysis.
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To enable financially robust and strategically impactful procurement-driven sustainability investments, a procurement organization should prioritize:
6. Strategic Supplier Engagement: Engaging with suppliers aligned with sustainability goals in a strategic manner.
+
7. Technology for Financial Insight: Leveraging technology tools for financial insight and reporting.
+
8. Return on Investment (ROI) Tracking: Establishing mechanisms to monitor and assess the financial outcomes of sustainability initiatives.
+
9. Continuous Improvement Culture: Fostering a culture of continuous improvement within the financial and strategic aspects of sustainability investments.
+
10. Regulatory Compliance Management: Incorporating financial planning to ensure compliance with environmental regulations.
","
When is this a strategic choice?
+
Based on the internal and external analysis – this will have been identified as an investment opportunity to support supplier improvements.
+
What it means:
+
When you need to give your supplier the confidence to invest in the transformative practices for the long term. This investment may take many forms – depending on your needs as the buyer and what is mutual for both buyer and supplier. For example:
+
• Long term contracts: Giving confidence to the supplier to invest in capability building
+
• Pre-financing agreements: Finance provided upfront to enable a supplier or farmer to cover costs needed to start an initiative. Investment comes back to the buyer further down the line.
+
• Cost of Goods Addition: When making a high-value purchase, a supplier/buyer agrees a minor additional percentage of the Cost Of Goods, enabling the supplier to invest in smallholder capability building. The percentage agreed can be decided based on a cost avoidance calculation done to understand the long term cost benefits of the capability building
+
• Performance Cost Model Incentives: Agreeing performance cost model incentives for the supplier, which reduce the buyers total cost of ownership. For example, price indexed to delivering high quality specifications, which brings efficiency by reducing waste for the buyer associated with receiving out-of-specification goods.
","
1. Supply Chain Resilience:
+
Environmental Perspective: Resilient supply chains, supported by sustainability investments, protect farmers from environmental risks, preserving their livelihoods.
+
Income Perspective: Stable supply chains ensure consistent income for farmers, reducing financial vulnerabilities associated with disruptions.
+
2. Quality Assurance:
+
Environmental Perspective: Implementing sustainable farming practices contributes to environmental conservation, ensuring the longevity of farming activities.
+
Income Perspective: High-quality products can command premium prices, positively impacting farmers' income.
+
3. Mitigating Supply Chain Risks:
+
Environmental Perspective: Sustainable farming practices reduce the risk of environmental degradation, safeguarding the long-term viability of farming.
+
Income Perspective: Mitigating supply chain risks ensures stable income for farmers, protecting them from financial uncertainties.
Income Perspective: Ensuring compliance protects farmers from legal issues, preserving their income and reducing financial risks.
+
5. Long-Term Supply Assurance:
+
Environmental Perspective: Sustainable practices contribute to the long-term availability of agricultural inputs, ensuring the sustainability of farmers' livelihoods.
+
Income Perspective: Consistent supply ensures long-term income stability for farmers, reducing the risk of income fluctuations.
+
6. Cost Efficiency:
+
Environmental Perspective: Sustainable practices contribute to resource efficiency and reduce environmental impact.
+
Income Perspective: Cost-efficient practices positively impact farmers' income by optimizing production processes and reducing waste.
+
7. Market Access and Premiums:
+
Environmental Perspective: Sustainability investments enhance the marketability of products, contributing to environmental sustainability.
+
Income Perspective: Access to premium markets and higher prices for sustainable products directly benefits farmers' income.
+
8. Community Engagement:
+
Environmental Perspective: Community engagement initiatives support sustainable and community-focused farming practices.
+
Income Perspective: Positive community engagement contributes to stable income for farmers, fostering a supportive local environment.
+
9. Risk Mitigation Through Training:
+
Environmental Perspective: Training in sustainable practices supports environmental conservation and adaptation to changing conditions.
+
Income Perspective: Risk mitigation through training ensures farmers can adapt to market demands, preserving their income and livelihoods.
","
1. Buyer Perspective
+
Risks
+
Higher Initial Investment: Implementing sustainability initiatives may require a higher upfront investment in eco-friendly products or services.
+
Uncertain Return on Investment (ROI): The long-term financial benefits of sustainability investments may be uncertain, making it challenging to quantify ROI accurately.
+
Market Volatility: Dependence on sustainability-sensitive suppliers may expose the buyer to market fluctuations, impacting the financial stability of the supply chain.
+
Trade-offs
+
Cost vs. Sustainability Impact: Buyers may face the trade-off of prioritizing lower costs versus making sustainable procurement decisions that may involve higher upfront expenses. Striking the right balance is crucial for achieving sustainability goals while managing costs.
+
Supplier Relationship vs. Sustainable Sourcing: Building strong relationships with existing suppliers may conflict with the pursuit of sustainability if those suppliers do not align with sustainable sourcing practices. Buyers must balance loyalty with the need for suppliers committed to sustainability.
+
Short-Term vs. Long-Term Sustainability Goals: Buyers may need to decide between meeting short-term procurement targets and pursuing more ambitious, long-term sustainability goals. Achieving immediate sustainability gains may conflict with broader, transformative initiatives.
+
Standardization vs. Customization for Sustainability: Standardizing procurement processes can enhance efficiency, but customization may be necessary for tailoring sustainability requirements to specific products or suppliers. Balancing standardization and customization is crucial for effective sustainable procurement.
+
2. Supplier Perspective
+
Risks
+
Increased Production Costs: Adhering to sustainability standards may lead to increased production costs, impacting the supplier's financial performance.
Market Exclusion: Suppliers not meeting sustainability standards may face exclusion from contracts, limiting market access and revenue opportunities.
+
Trade-offs
+
Cost Competitiveness vs. Sustainable Practices: Suppliers may face the trade-off of remaining cost-competitive while adopting sustainable practices, which might involve investments in eco-friendly technologies or certifications. Balancing these factors is essential for sustainable procurement partnerships.
+
Market Presence vs. Sustainability Credentials: Suppliers may need to weigh the importance of building a strong market presence against the need to invest in and showcase sustainability credentials. Striking the right balance ensures visibility and commitment to sustainability.
+
Flexibility vs. Compliance with Sustainable Standards: Suppliers may value flexibility in their operations, but strict compliance with sustainability standards may limit their operational freedom. Achieving compliance without compromising operational efficiency is a key trade-off.
+
Short-Term Profits vs. Long-Term Sustainability Investments: Suppliers may need to decide between prioritizing short-term profits and making long-term investments in sustainable practices. Balancing immediate financial gains with sustainable investments is critical for long-term success.
Definition: Adopt regenerative agriculture practices where internal commitments or identified value chain risks point to degradation in soil, nature, water, or biodiversity being priority areas to address. Regenerative agriculture approaches help mitigate risks using natural inputs and support long-term sustainability.
","
1. Enabling Conditions for Regenerative Agriculture in a Procurement Organization:
+
Sustainable Sourcing Policies: Development of procurement policies that prioritize regenerative agriculture practices, emphasizing the sourcing of products from farms employing regenerative principles.
+
Supplier Engagement: Collaborative partnerships with suppliers committed to regenerative agriculture, encouraging transparency and the adoption of sustainable practices.
+
Educational Initiatives: Providing training and education for procurement professionals to enhance their understanding of regenerative agriculture principles and the associated benefits.
+
Certification Standards: Utilizing or establishing certification standards that recognize and verify regenerative farming practices, ensuring authenticity and compliance in the supply chain.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers practicing regenerative agriculture to promote stability and encourage ongoing commitment to sustainable practices.
+
2. Enabling Conditions for Regenerative Agriculture on a Farm Level:
+
Holistic Farm Planning: Development of comprehensive farm plans that integrate regenerative agriculture principles, considering soil health, biodiversity, and ecosystem resilience.
+
Crop Rotation and Cover Crops: Implementation of crop rotation and cover cropping strategies to enhance soil fertility, reduce erosion, and promote biodiversity.
+
No-till Farming Practices: Adoption of no-till or reduced tillage methods to minimize soil disturbance and promote soil structure and carbon sequestration.
+
Agroforestry Integration: Integration of agroforestry practices, such as the planting of trees and perennial crops, to enhance biodiversity and provide ecosystem services.
+
Livestock Integration: Thoughtful integration of livestock into farming systems to mimic natural ecological processes, improve soil health, and contribute to nutrient cycling.
+
Community Involvement: Engagement with local communities, consumers, and agricultural extension services to raise awareness of regenerative agriculture and foster support for sustainable farming practices.
+
Both at the procurement organization and on the farm level, successful implementation of regenerative agriculture requires a commitment to sustainable principles, collaborative relationships, ongoing education, and the integration of regenerative practices into the core of farming and procurement strategies.
","
1. Cost Perspective:
+
Input Cost Reduction: Regenerative agriculture focuses on enhancing soil health and reducing the reliance on external inputs. This can lead to cost savings for agri-food companies by minimizing the need for synthetic fertilizers and pesticides.
+
Operational Efficiency: Improved soil health and biodiversity associated with regenerative practices contribute to operational efficiency, potentially reducing the need for extensive pest control and fertilization.
+
2. Revenue Perspective:
+
Market Differentiation: Agri-food companies adopting regenerative agriculture can differentiate themselves in the market by offering products with improved environmental and ethical credentials. This differentiation may attract consumers seeking sustainable and responsibly produced goods.
+
Premium Pricing: Products associated with regenerative agriculture may command premium prices due to their perceived environmental and health benefits, contributing to increased revenue.
+
3. Risk Perspective:
+
Supply Chain Resilience: Regenerative agriculture practices, such as diversified crop rotations and cover cropping, can enhance supply chain resilience by reducing vulnerability to climate-related risks, pests, and diseases.
+
Reputation Management: Agri-food companies adopting regenerative practices can mitigate reputational risks associated with environmental degradation and contribute to positive brand perception.
+
4. Link to Procurement Organizations:
+
The use of regenerative agriculture practices links back to procurement organizations as they influence the sourcing decisions of agri-food companies. Procurement teams play a role in establishing criteria that encourage suppliers to adopt regenerative practices, ensuring that the entire supply chain aligns with sustainability and regenerative goals.
","
Environmental Perspective
+
Practices such as cover cropping, reduced tillage, crop rotation, and integrating perennials build soil organic matter, improve water retention, and reduce erosion. Greater plant and microbial diversity strengthens ecosystems and enhances resilience. Lower reliance on synthetic fertilizers and chemicals reduces emissions, and regenerative systems can cut energy use through fewer field passes and input applications.
+
Income Perspective
+
Although transition may require upfront investment, long term cost savings come from reduced fertilizer, pesticide, and energy costs, alongside improved soil fertility and productivity. Access to markets that reward regenerative practices with price premiums or preferential sourcing further increases income potential.
+
Risk Perspective
+
Healthier soils and diversified systems improve resilience to drought, floods, and heat stress, reducing yield losses from climate volatility. Lower dependence on purchased inputs and fossil energy buffers farmers against price spikes and supply disruptions.
+
Link to Procurement Organizations
+
Regenerative agriculture approaches need time to implement. Procurement partners must be committed through a long-term sourcing strategy commitment to farmers to enable technical support and financial incentives. Recognizing regenerative outcomes and linking them to clear sustainability goals strengthens supply security while rewarding farmers for building resilient and climate positive production systems.
","
1. Buyer Perspective:
+
Risks
+
Higher Initial Costs: Buyers must carefully manage the potential increase in procurement expenses associated with higher production costs in regenerative agriculture, ensuring a balanced budget.
+
Variable Supply: Buyers need to address challenges related to variable crop yields in regenerative agriculture, implementing strategies to predict and manage supply fluctuations effectively.
+
Transition Period Challenges: Buyers should be aware of challenges suppliers may face during the transition to regenerative practices, taking measures to minimize potential impacts on product availability and consistency.
+
Trade-offs
+
Cost vs. Sustainability: Buyers should strategically balance the higher costs of regenerative agriculture against the desire to support environmentally sustainable and resilient farming practices, making procurement decisions that align with sustainability goals.
+
Consistency vs. Variety: Striking a balance between ensuring a consistent supply of products and offering a variety of goods requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and diversity.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers adopting regenerative agriculture may face initial financial strain, requiring strategic resource allocation to mitigate the impact on competitiveness.
+
Transition Period Challenges: Suppliers transitioning to regenerative practices must address challenges in adapting to new methods, implementing measures to maintain productivity during the transition.
+
Market Access Challenges: Suppliers without the means to adopt regenerative practices may struggle with accessing markets that prioritize sustainability and regenerative agriculture, necessitating strategic decisions to overcome barriers.
+
Trade-offs
+
Cost vs. Market Access: Suppliers must weigh the costs and challenges of transitioning to regenerative agriculture against the potential market access and premium prices associated with sustainable and regenerative products, ensuring a sound investment in regenerative practices.
+
Innovation vs. Tradition: Allocating resources to adopt regenerative practices involves trade-offs with traditional methods, necessitating suppliers to find a harmonious integration that maintains productivity.
+
Crop Yield vs. Sustainability: Balancing the desire for higher crop yields with the commitment to regenerative and sustainable farming practices may require trade-offs, with suppliers finding optimal solutions that align with environmental goals.
Definition: Where value chain visibility reveals reliance on smallholder farmers, support them in improving agricultural practices to manage sustainability risks and find opportunities to improve yield and supply security.
+
such as integrated pest management, soil conservation, and precision agriculture. This requires direct collaboration and supplier capability building.
","
1. Enabling Conditions of Small-Scale Crop Production in a Procurement Organization:
+
Inclusive Sourcing Policies: Establishment of inclusive procurement policies that prioritize the inclusion of small-scale farmers and their products in the supply chain.
+
Local Supplier Networks: Development of local supplier networks to connect with small-scale farmers, fostering collaboration and enabling their participation in procurement opportunities.
+
Fair Trade and Ethical Sourcing Standards: Adoption of fair trade and ethical sourcing standards to ensure fair compensation and ethical treatment of small-scale farmers in the supply chain.
+
Capacity Building: Implementation of capacity-building programs to empower small-scale farmers with the skills and knowledge needed to meet procurement requirements.
+
Financial Support: Provision of financial support or favorable payment terms to small-scale farmers to enhance their financial stability and facilitate their participation in procurement processes.
+
2. Enabling Conditions of Small-Scale Crop Production on the Farm Level:
+
Access to Resources: Provision of access to essential resources such as land, seeds, water, and credit to support small-scale farmers in crop production.
+
Training and Extension Services: Implementation of training programs and agricultural extension services to enhance the technical skills and knowledge of small-scale farmers.
+
Collective Action: Encouragement of collective action through farmer cooperatives or associations to strengthen the bargaining power of small-scale farmers in procurement negotiations.
+
Market Linkages: Establishment of direct market linkages between small-scale farmers and procurement organizations to facilitate the sale of their products.
+
Technology Adoption: Support for the adoption of appropriate agricultural technologies that enhance productivity and sustainability for small-scale farmers.
+
For both procurement organizations and small-scale farms, fostering collaboration, providing support, and implementing inclusive practices are essential for successful small-scale crop production that benefits both parties.
","
Smallholder crop production support can include agricultural practices such as integrated pest management, soil conservation, and precision agriculture. Such practices can help reduce negative environmental impacts, improve farmer crop yields, improve crop resilience to environmental changes and hence improve security of supply. Improving yields and crop resilience can subsequently improve level and stability of incomes for farmers.
+
When is this a strategic choice:
+
When value chain visibility surfaces smallholders as a key characteristic in a business’s value chain and environmental risks or social risks have been identified linked to these smallholders, leaning into supporting smallholders would be a strategic choice.
+
What it means:
+
• Smallholders usually have yield / knowledge gaps – which will need to be closed through training capability, this requires committed and long-term resource of implementing partners to be factored into cost of goods.
+
• Exploring the creation of co-operatives to facilitate capability building for large numbers of smallholders, is a practical management option.
+
• Long term commitments to smallholders through direct suppliers. Buyers must be prepared to create new pricing/cost models accounting for churn/loss of smallholders. Smallholder churn often occurs as smallholders are often ‘price takers’ taking a short term view of buyers, by taking the ‘best price’ the market has to offer.
","
1. Environmental Perspective:
+
Biodiversity Preservation: Small-scale crop production often involves diverse farming practices that support biodiversity and contribute to ecosystem health.
+
Sustainable Agriculture: Small-scale farmers are often more inclined to adopt sustainable and environmentally friendly practices, contributing to overall environmental conservation.
+
2. Income Perspective:
+
Market Access: Collaborating with agri-food companies provides small-scale farmers with broader market access, allowing them to sell their products to a wider audience and potentially increasing income.
+
Stable Incomes: Contractual agreements with agri-food companies can provide small-scale farmers with more stable and predictable incomes compared to traditional markets.
+
3. Risk Perspective:
+
Diversification of Income: Engaging with agri-food companies diversifies the income sources for small-scale farmers, reducing the risk associated with dependency on a single market or crop.
+
Access to Resources: Collaboration with agri-food companies may provide small-scale farmers with access to resources, technologies, and expertise that enhance their resilience to risks such as climate change and market fluctuations.
+
4. Link to Procurement Organizations:
+
For small-scale farmers, procurement organizations are crucial in providing access to markets and resources. By establishing partnerships and contracts with agri-food companies, procurement organizations contribute to the economic viability and sustainability of small-scale farmers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Supply Inconsistency: Buyers must address potential supply inconsistencies from small-scale crop production, implementing strategies to manage and predict procurement demands effectively.
+
Quality Variability: Buyers need to manage fluctuations in crop quality resulting from the variability in farming practices among small-scale producers, ensuring consistent product standards.
+
Limited Capacity: Buyers should be aware of the limitations small-scale farmers may face in meeting large-scale procurement requirements, taking measures to support them during peak demand periods.
+
Trade-offs
+
Cost vs. Local Impact: Buyers should strategically balance potential cost advantages of large-scale production with the desire to support local communities and small-scale farmers, making procurement decisions that align with social impact goals.
+
Consistency vs. Diversity: Striking a balance between ensuring a consistent supply from larger suppliers and offering the diversity of products from small-scale farmers requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and variety.
+
2. Supplier Perspective:
+
Risks
+
Market Access Challenges: Small-scale farmers must address challenges in accessing markets due to competition with larger suppliers, implementing strategies to overcome barriers and establish a market presence.
+
Limited Bargaining Power: Individual small-scale farmers should be aware of their limited bargaining power in negotiations with procurement organizations, strategizing to secure fair terms of trade.
+
Financial Vulnerability: Small-scale farmers need to mitigate financial vulnerability by diversifying their buyer base and reducing dependence on a single buyer or limited market access.
+
Trade-offs
+
Scale vs. Autonomy: Small-scale farmers must balance the potential advantages of larger-scale production with the desire to maintain autonomy and independence, making strategic decisions that align with their values and goals.
+
Efficiency vs. Sustainability: Small-scale farmers may face trade-offs between adopting more efficient practices and maintaining sustainability, requiring strategic decisions to meet procurement demands without compromising long-term environmental goals.
+
Market Access vs. Local Focus: Deciding on the extent to which small-scale farmers want to engage with larger markets while maintaining a focus on local and community needs involves trade-offs, requiring a thoughtful approach that aligns with their overall mission.
Introduce soil conservation practices where soil degradation threatens supply security or where carbon sequestration supports decarbonisation goals.
","
1. Enabling Conditions for Soil Conservation in a Procurement Organization:
+
Sustainable Sourcing Policies: Development of procurement policies that prioritize and support the inclusion of products from suppliers practicing soil conservation, emphasizing environmentally responsible and soil-enhancing agricultural practices.
+
Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of soil conservation practices and promote their integration into sourcing strategies.
+
Supplier Collaboration: Collaboration with suppliers committed to soil conservation, fostering partnerships, and incentivizing the adoption of sustainable farming practices within the supply chain.
+
Certification Standards: Utilization or establishment of certification standards that recognize and verify soil conservation practices, ensuring authenticity and compliance in the procurement process.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers practicing soil conservation to promote stability and incentivize continued commitment to sustainable and soil-friendly farming methods.
+
2. Enabling Conditions for Soil Conservation on a Farm Level:
+
Conservation Tillage Practices: Adoption of conservation tillage methods, such as no-till or reduced tillage, to minimize soil disturbance and erosion.
+
Cover Cropping: Integration of cover crops into farming practices to protect and enrich the soil, reduce erosion, and improve overall soil structure.
+
Crop Rotation: Implementation of crop rotation strategies to enhance soil fertility, minimize pest and disease pressure, and contribute to sustainable soil management.
+
Terracing and Contour Farming: Construction of terraces and use of contour farming techniques to reduce water runoff, prevent soil erosion, and promote water retention in the soil.
+
Technical Support: Access to technical support and extension services to assist farmers in implementing effective soil conservation practices, optimizing soil health and overall sustainability.
+
Successful implementation of soil conservation requires a commitment to sustainable practices, collaborative relationships, ongoing education, and the integration of soil-friendly principles into the core of farming and procurement strategies.
","
Soil Conservation is most likely to emerge as an action for implementation if you have identified the following strategic choices: Regenerative Agriculture, Smallholder Crop Production, Selecting a Sustainability Certification, Precision Agriculture, or Supplier Capability Building.
+
Implementation of soil conservation can bring the following benefits:
+
• Improve farmer gross margin and income through the avoidance of expensive synthetic agrochemical inputs like fertilisers
+
• Improve yield through enhanced soil fertility
+
• Help protect farmers against drought through better soil water retention
+
• Improve carbon sequestration of the soil. If appropriately set up, monitored, measured and accounted, this could contribute to business carbon reduction commitments. If certified, it could also create a secondary income stream through farmers selling carbon credits.
+
Implementing this requires a long-term commitment to upskilling and capability building either with direct suppliers to cascade up the supply chain or, if pursuing Direct Farmer Contracting, directly with farmers. The resource requirements for this training and capability building must be clarified with suppliers as part of the Cost of Goods model, developed as part of the procurement strategy.
","
1. Environmental Perspective:
+
Biodiversity Promotion: Soil conservation practices contribute to biodiversity by creating a healthier and more balanced ecosystem within agricultural landscapes.
+
Water Quality Improvement: Soil conservation helps prevent soil runoff, improving water quality and contributing to environmental sustainability.
+
2. Income Perspective:
+
Cost Savings: Farmers can achieve cost savings through soil conservation practices by reducing expenses related to soil inputs, erosion control measures, and potentially increasing overall income.
+
Diversified Income Streams: Soil conservation practices may create opportunities for farmers to diversify income streams, such as selling carbon credits or participating in conservation programs.
+
3. Risk Perspective:
+
Reduced Crop Failure Risk: Healthy soils resulting from conservation practices reduce the risk of crop failure by providing optimal conditions for plant growth and resilience against pests and diseases.
+
Climate Resilience: Soil conservation practices enhance climate resilience by improving soil structure and water retention, helping farmers adapt to changing weather patterns.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are crucial in providing access to markets and resources. By supporting and incentivizing the adoption of soil conservation practices, procurement organizations contribute to the sustainability and resilience of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Disruptions: Adoption of soil conservation practices may lead to variations in agricultural production and potential disruptions in the supply chain, affecting product availability.
+
Transition Costs: Suppliers implementing soil conservation practices may incur initial costs, potentially impacting product prices and affecting the overall procurement budget.
+
Certification Challenges: Ensuring adherence to certification standards related to soil conservation may pose challenges, requiring rigorous monitoring and verification.
+
Trade-offs
+
Cost vs. Sustainability: Balancing potential cost implications of products from suppliers practicing soil conservation with the desire to support environmentally responsible sourcing practices.
+
Consistency vs. Innovation: Striking a balance between consistent supply from traditional sources and the innovative adoption of soil conservation practices within the supply chain.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers adopting soil conservation practices may initially face higher costs, potentially causing financial strain and impacting competitiveness.
+
Transition Period Challenges: Implementation of new soil conservation techniques may pose challenges during the initial phases, affecting production efficiency and consistency.
+
Market Access Concerns: Suppliers may face challenges in accessing markets that prioritize traditional, non-conservation farming practices.
+
Trade-offs
+
Cost vs. Market Access: Suppliers may need to weigh the costs and challenges of adopting soil conservation practices against potential market access and premium prices associated with sustainable practices.
+
Innovation vs. Tradition: Allocating resources to adopt soil conservation practices may divert attention and resources from traditional production methods.
+
Short-Term Costs vs. Long-Term Benefits: Balancing the short-term financial implications of transitioning to soil conservation with the potential long-term benefits in terms of soil health, productivity, and environmental sustainability.
+
Addressing these risks and trade-offs requires careful planning, collaboration, and a long-term perspective from both buyers and suppliers in the procurement process.
",
Direct
,
Direct
,
Conservation agriculture- Case studies in Latin America and Africa (fao.org)
+22,Supplier Capability Building,"
Definition
+
Build supplier capabilities when internal or external analysis identifies gaps in delivering sustainability outcomes. Direct investment may be the most effective way to manage risks and secure competitive sourcing.
","
Enabling effective implementation of supplier capacity-building initiatives in a procurement organization involves conducting a thorough needs assessment, defining clear objectives, integrating initiatives into the overall procurement strategy, allocating sufficient resources, establishing transparent communication channels, building collaborative partnerships, developing targeted training programs, leveraging technology, implementing robust monitoring and evaluation mechanisms, and incorporating recognition and incentives, ensuring a conducive environment for suppliers' skill development and overall capacity improvement.
","
When is this a strategic choice?
+
When the spend category is business critical, based on the outcomes of the Incorporate Business Strategy intervention, and when a gap in supplier capability, identified in the Supplier Segmentation, has been identified as critical to overcome for optimising costs, ensuring security of supply, or mitigating risks.
+
What it means:
+
This will require resource either directly from a buyer’s business or to support identifying an implementation partner for a supplier.
+
• Direct resource could include providing direct funding through procurement-driven sustainability investments, providing technical know-how, or supporting the supplier to build quality assurance capability.
+
• Implementation partners could include, for example, identifying in-country partners to work directly with smallholder farmers to coordinate smallholder crop production improvement activities.
","
1. Income Perspective
+
All aspects of supplier capacity building will help farmers to increase their income. Enhanced productivity, improved product quality and market access, and access to financial resources all contribute to the potential for increased sales and profits. Additionally, longer-term partnerships can provide more predictable income streams for farmers.
+
2. Environment Perspective
+
Capacity building that promotes sustainable practices and efficient resource utilization fostincs environmentally-friendly farming. This doesn't just benefit the environment but also the farmers, as such practices can lead to healthier soil, increased resilience to climate change, and potential eligibility for certain grants or subsidies.
","
1. Buyer Perspective
+
Risks
+
Resource Intensity: Implementing capacity-building initiatives may require significant time and resources, impacting the buyer's budget and operational efficiency.
+
Dependency on Suppliers: Developing strong supplier capabilities may create a dependency on key suppliers, posing a risk in case of supplier-related disruptions.
+
Unrealized Returns: Despite investments, there is a risk that the expected returns in terms of improved supplier performance may not be fully realized.
+
Trade-offs
+
Short-Term vs. Long-Term Impact: Buyers may face the trade-off between addressing immediate procurement needs and making long-term investments in supplier capacity building. Balancing short-term requirements with the long-term impact on supplier capabilities is essential.
+
Cost vs. Quality in Capacity Building: Buyers may need to decide on the level of investment in supplier capacity building, considering the trade-off between cost considerations and the quality of the capacity-building initiatives. Striking the right balance ensures cost-effectiveness without compromising quality.
+
Speed vs. Thoroughness: Buyers may prioritize swift capacity-building initiatives, but this may come at the expense of a more comprehensive and thorough approach. Deciding between speed and thoroughness involves assessing the urgency of capacity building against the need for a robust program.
+
Focus on Strategic Suppliers vs. Inclusivity: Buyers may need to decide whether to concentrate capacity-building efforts on strategic suppliers or adopt a more inclusive approach. Balancing strategic focus with inclusivity requires assessing the impact on the entire supply chain.
+
2. Supplier Perspective:
+
Risks
+
Resource Strain: Suppliers may face resource strain in adapting to capacity-building requirements, especially if the initiatives demand substantial investments.
+
Dependence on Buyer's Strategy: Suppliers investing in capacity building may become overly dependent on the buyer's strategy, risking vulnerability if the buyer's priorities shift.
+
Competitive Imbalances: Capacity-building initiatives may inadvertently create imbalances among suppliers, impacting competition within the supplier base.
+
Trade-offs
+
Operational Disruption vs. Long-Term Benefits: Suppliers may face operational disruption during capacity-building initiatives, but they must weigh this against the long-term benefits of enhanced capabilities. Striking a balance involves managing short-term challenges for long-term gains.
+
Resource Allocation vs. Day-to-Day Operations: Suppliers may need to allocate resources to capacity building, impacting day-to-day operations. Deciding on the appropriate level of resource allocation involves considering the trade-off between immediate operational needs and building long-term capabilities.
+
Specialized Training vs. General Skills Enhancement: Suppliers may choose between providing specialized training for specific requirements or offering more general skills enhancement. Balancing these options requires assessing the trade-off between meeting immediate needs and building a versatile skill set.
+
Strategic Alignment vs. Independence: Suppliers may need to align strategically with the buyer's goals during capacity building, but this may affect their independence. Deciding the extent of strategic alignment involves evaluating the trade-off between collaboration and maintaining autonomy.
",
Indirect
,
Direct
,"
One of the key learning from IDH Interview sessions
Segment suppliers according to their sustainability commitment maturity and capability to support sustainability goals, identifying those best positioned to deliver strategic outcomes.
","
To effectively implement Supplier Segmentation in a procurement organization, key enabling conditions and prerequisites include establishing a comprehensive category calibration, evaluating business requirements, and developing strategic category strategies. Additionally, integrating supplier lifecycle management, ensuring effective accreditation, streamlining qualification and onboarding processes, and employing a structured segmentation approach based on criteria like performance, risk, innovation potential, geography, product category, and spend size are essential. Utilizing questionnaires, conducting regular segmentation analyses, implementing robust performance and risk management, and fostering proactive supplier development and innovation initiatives contribute to a successful Supplier Segmentation framework aligned with organizational goals.
","
Analyse suppliers based on their public disclosures or those shared in confidence with respect to sustainability commitments, strategies, KPIs, policies and actions. If you have conducted a Supplier Sustainability Assessment, the outputs of this will directly feed into this.
+
Create a simple 2x2 matrix to plot suppliers along two axes:
+
o Capability (e.g. business size, evidence of sustainability knowledge)
+
o Commitment (e.g. sustainability commitments, policies in place, actions to prevent or mitigate risks)
+
Use this segmentation to generate insights beyond cost. This could include risk exposure or risk reduction that suppliers may bring, even in areas not traditionally assessed in supplier evaluations.
+
Prioritise commitment over capability. Highly capable suppliers may lack meaningful sustainability commitments. Understanding this balance is critical to evaluating whether a supplier’s cost competitiveness is outweighed by the sustainability risks they may pose.
","
1. Income Perspective
+
Fair Pricing: Supplier segmentation allows farmers to be categorized based on factors like product quality, yield, and reliability. This enables fair pricing mechanisms, ensuring that farmers with high-quality products receive competitive prices, contributing to increased income.
+
Market Access Opportunities: By segmenting farmers, businesses can identify high-performing ones and provide them with increased market access, leading to expanded opportunities for sales and improved income.
+
2. Environment Perspective
+
Sustainable Practices Recognition: Supplier segmentation can incorporate criteria related to sustainable farming practices. Farmers engaged in environmentally friendly and sustainable methods may be recognized and rewarded, encouraging broader adoption of eco-friendly practices.
+
Environmental Impact Mitigation: By categorizing suppliers based on environmental impact, businesses can work collaboratively with farmers to implement practices that reduce the overall environmental footprint, contributing to sustainable agriculture.
","
1. Buyer Perspective
+
Risks
+
Limited Supplier Diversity: Rigorous segmentation may limit supplier diversity, potentially reducing the pool of available suppliers and limiting competitive advantages.
+
Overreliance on Segmentation Criteria: Overreliance on specific criteria for segmentation may result in overlooking emerging suppliers or failing to adapt to dynamic market conditions.
+
Complexity in Management: Managing multiple segmented supplier groups may introduce complexity and require additional resources for effective oversight.
+
Trade-offs
+
Efficiency vs. Tailored Services: Buyers implementing supplier segmentation may face the trade-off between achieving procurement efficiency through standardized processes and offering tailored services to specific supplier segments. Striking the right balance involves optimizing efficiency while meeting the unique needs of diverse suppliers.
+
Cost Savings vs. Supplier Relationships: Buyers segmenting suppliers for cost savings may need to balance this with the goal of maintaining strong relationships with strategic suppliers. The challenge is to achieve savings without compromising valuable partnerships.
+
Risk Mitigation vs. Supplier Innovation: Buyers may segment suppliers for risk mitigation purposes, but this could impact the potential for supplier-driven innovation. The trade-off involves managing risks while fostering an environment that encourages supplier innovation.
+
Standardization vs. Supplier Diversity: Buyers aiming for standardization in procurement processes may need to balance this with the objective of promoting supplier diversity. The challenge is to standardize processes while supporting a diverse supplier base.
+
2. Supplier Perspective
+
Risks
+
Exclusion from Opportunities: Strict segmentation criteria may lead to the exclusion of certain suppliers, limiting their access to procurement opportunities and potentially hindering their growth.
+
Increased Competition within Segments: As buyers focus on specific criteria, suppliers within a segment may face increased competition, potentially affecting profit margins.
+
Uncertain Market Positioning: Suppliers may face uncertainty in understanding their market positioning within segmented categories, affecting their strategic planning.
+
Trade-offs
+
Fair Access vs. Specialized Opportunities: Suppliers may desire fair access to procurement opportunities but must balance this with the potential benefits of specialized opportunities within specific segments. The challenge involves ensuring equal opportunities while recognizing the value of specialization.
+
Stability vs. Competitive Bidding: Suppliers in segmented categories may seek stability in contracts, but this could conflict with the competitive nature of bidding processes. The trade-off involves pursuing stable relationships while adapting to competitive procurement dynamics.
+
Innovation vs. Compliance Requirements: Suppliers may desire to innovate in their offerings, but strict compliance requirements within segmented categories may limit this. Striking a balance involves fostering innovation within the framework of compliance obligations.
+
Collaboration vs. Independence: Suppliers in collaborative segments may value partnerships, but this could conflict with the desire for independence in certain business aspects. The challenge is to collaborate effectively while respecting the autonomy of suppliers.
",
Indirect
,
Indirect
,"
Based on old procurement framework of IDH and co-developmeent with Mars
+
Iterated by EY and based on interview process within the project
+
Evidence of clear supplier segmentation process in Mondelez Interview with CPO LATAM, more
"
+24,Supplier Sustainability Assessment,"
Definition
+
Assess suppliers' public commitments to sustainability across climate, human rights, biodiversity, and nature. Use this data to inform Supplier Segmentation.
","
Enabling conditions for supplier sustainability assessment in a procurement organization include:
+
Clear Sustainability Criteria: Establish well-defined and comprehensive sustainability criteria that cover environmental, social, and economic aspects, providing a clear framework for supplier assessments.
+
Clear Sustainability Criteria: Establish well-defined and comprehensive sustainability criteria that cover environmental, social, and economic aspects, providing a clear framework for supplier assessments.
+
Collaborative Standards: Engage with industry organizations, NGOs, or sustainability initiatives to leverage established standards and frameworks for supplier sustainability, ensuring alignment with recognized best practices.
+
Data Transparency: Encourage suppliers to provide transparent and accurate data on their sustainability practices, facilitating a more thorough and reliable assessment process.
+
Capacity Building Support: Offer training programs and resources to suppliers, enabling them to enhance their sustainability practices and meet the criteria set by the procurement organization.
+
Supply Chain Mapping: Implement supply chain mapping tools to gain visibility into the entire supply chain, allowing for a more comprehensive assessment of the environmental and social impacts associated with suppliers.
+
Risk Mitigation Strategies: Develop strategies to address identified sustainability risks within the supply chain, incorporating contingency plans and collaborative initiatives with suppliers to mitigate potential issues.
+
Continuous Monitoring: Implement ongoing monitoring mechanisms to track supplier sustainability performance over time, allowing for the identification of trends, areas for improvement, and recognition of exemplary practices.
+
Internal Accountability: Establish internal mechanisms and responsibilities within the procurement organization to ensure accountability for sustainability assessments, fostering a culture of commitment to responsible sourcing.
+
Supplier Feedback Loops: Create channels for open communication and feedback between procurement organizations and suppliers, encouraging a collaborative approach to sustainability improvement.
+
Technology Integration: Utilize advanced technologies, such as blockchain or digital platforms, to enhance transparency, traceability, and the efficiency of supplier sustainability assessments.
+
Diversity and Inclusion: Integrate diversity and inclusion criteria into supplier assessments, considering social aspects such as fair labor practices, gender equality, and community engagement.
+
Benchmarking and Recognition: Implement benchmarking mechanisms to compare supplier sustainability performance within the industry and recognize and reward top-performing suppliers.
+
Performance Incentives: Establish incentive structures that motivate suppliers to go beyond compliance and excel in sustainability, offering recognition, preferential treatment, or collaborative opportunities for high-performing suppliers.
+
Third-Party Verification: Consider engaging third-party organizations or auditors to verify and validate supplier sustainability claims, enhancing the credibility and reliability of the assessment process.
+
These additional conditions contribute to a more nuanced and comprehensive approach to supplier sustainability assessment within procurement organizations.
+
Collaborative Standards: Engage with industry organizations, NGOs, or sustainability initiatives to lever
","
Understanding whether suppliers are internalising sustainability risks is critical to identifying the risks they may expose a buyer’s business to.
+
As part of external analysis, review publicly available supplier information, or information shared in confidence by the supplier, (e.g. sustainability commitments, strategies, policies, codes of conduct) and create a simple table capturing evidence of the following:
+
• Material sustainability risk assessment linked to sourcing practices
• Human rights due diligence in the upstream supply chain, including:
+
o Conducting a human rights impact assessment
+
o Awareness and actions to prevent forced labour
+
o Awareness and actions to prevent child labour
+
o Living wage/income considerations
+
o Consideration of Free Prior Informed Consent regarding Indigenous Communities and land rights
","
1. Environmental Perspective:
+
Promotion of Sustainable Farming Practices: Supplier sustainability assessments encourage farmers to adopt sustainable practices to meet the criteria set by agri-food companies. This leads to environmental benefits such as reduced pesticide use, soil conservation, and biodiversity preservation.
+
Climate Resilience: Aligning with sustainable farming practices contributes to climate resilience, reducing environmental risks associated with extreme weather events and fostering long-term sustainability.
+
2. Income Perspective:
+
Access to Premium Markets: Farmers adhering to sustainability criteria in supplier assessments gain access to markets that prioritize sustainable sourcing. This can result in premium pricing for their products, contributing to increased income and improved profitability.
+
Cost Savings: Sustainable farming practices promoted by supplier sustainability assessments often lead to cost savings over time. This includes efficient resource use, reduced input costs, and increased overall efficiency.
+
3. Risk Perspective:
+
Market Viability: Supplier sustainability assessments ensure that farmers align with market expectations for environmentally and socially responsible practices. This enhances the market viability of their products, reducing the risk of market exclusion or loss of business opportunities.
+
Long-Term Viability: By meeting sustainability criteria, farmers contribute to their own long-term viability. This includes securing market access, adapting to changing consumer preferences, and reducing vulnerability to environmental risks.
+
4. Link to Procurement Organizations:
+
For farmers, the link to procurement organizations lies in their ability to meet the sustainability criteria set by agri-food companies. Procurement organizations play a central role in establishing and communicating these criteria, shaping the practices and behaviors of the farmers within the supply chain. This ensures that the entire supply chain, from farmers to end consumers, adheres to sustainability principles.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Disruption: To mitigate disruption risks, buyers should strategically diversify their supplier base, balancing sustainability criteria with the need for a resilient and varied supply chain.
+
Increased Costs: Buyers can negotiate with suppliers, emphasizing cost-effectiveness while encouraging sustainable practices to manage procurement expenses effectively.
+
Limited Supplier Innovation: Buyers should actively engage with smaller suppliers, fostering innovation by providing support and guidance to help them meet sustainability criteria.
+
Trade-offs
+
Cost vs. Sustainability: Buyers must strategically navigate the trade-off, making informed compromises to achieve both financial and environmental goals without compromising overall sustainability objectives.
+
Supplier Diversity vs. Sustainability: Achieving a balance between sustainability and supplier diversity requires careful consideration, especially in regions or industries where meeting sustainability standards may be challenging.
+
Time-to-Market vs. Sustainability: Buyers need to find a balance between selecting sustainable suppliers and meeting time-to-market goals, ensuring that sustainability efforts do not unduly extend procurement timelines.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers can manage financial strain by seeking collaborative partnerships with buyers, exploring cost-sharing models for sustainable investments to alleviate potential economic burdens.
+
Competitive Disadvantage: Suppliers with lower sustainability scores should focus on improving practices to avoid losing business opportunities, highlighting the value of sustainable offerings to remain competitive.
+
Compliance Challenges: Suppliers facing compliance challenges should engage with buyers to streamline diverse sustainability standards, ensuring a more manageable and efficient adherence process.
+
Trade-offs
+
Cost vs. Sustainability: Suppliers must strategically balance the trade-off, seeking innovative and cost-effective solutions to implement sustainable practices without compromising competitiveness.
+
Innovation vs. Compliance: Suppliers can navigate the trade-off by integrating sustainability into their innovation agenda, demonstrating that both innovation and compliance can coexist harmoniously.
+
Market Access vs. Sustainability: Suppliers targeting international markets must weigh the benefits of market access against the costs of adapting to sustainability requirements, aligning their strategies with evolving global standards.
Establish full traceability back to the origin of materials. This is critical to identifying environmental and human rights risks at the source, particularly at the farm level. Without this visibility, sustainability risks and strategic procurement decisions cannot be fully informed.
","
To implement effective Supply Chain Traceability in a procurement data analytics context, a procurement organization should focus on prerequisites such as establishing a robust data analytics infrastructure, formulating a clear integration strategy (e.g., Blockchain as an example), ensuring data standardization and interoperability, fostering collaboration with suppliers, utilizing transparent and immutable data records, encouraging cross-functional collaboration, investing in relevant education, implementing security and privacy measures, planning for scalability, complying with legal and regulatory requirements, and establishing continuous monitoring and improvement practices.
","
Establishing visibility of the full value chain is foundational to being able to identify risks and opportunities upon which to make strategic procurement decisions.
+
Building this visibility does not have to mean investing immediately in traceability software tools, it can start with the existing relationships you have with your direct suppliers. Questions that it may be helpful to start exploring with your direct suppliers are:
+
• How may tiers are in their supply chain? Do they know the countries these tiers are based in?
+
• Do they know where farm-level production is happening and the characteristics of this farming e.g. small holder, plantation, commercial farming?
+
• Does the supplier know whether and how their value chain is likely to evolve in the next five years? This can help surface whether the supply chain is stable or unstable.
+
Why are these questions relevant?
+
• The country of production and farm characteristics will impact the probability and severity of environmental and social risks
+
• Understanding whether and how a supply chain is expected to evolve in the next five years helps to surface whether there is instability in either the supply chain or the supplier’s approach to it.
+
• If a supplier has blind spots about their supply chain, this flags the possibility of material sustainability risks within their supply chain. The supplier may lack the capability or inclination to understand their own supply chain and take action to identify and mitigate risks within it. If the supplier lacks this ability, it will be harder for actors further down the value chain, e.g. manufacturers and retailers, to understand and mitigate their own risks.
+
Establishing and maintaining value chain visibility can help enable early identification or risks and proactive management of them.
","
Income Perspective
+
Market Access and Premium Pricing: Value chain visibility allows farmers to demonstrate the origin, quality, and sustainability of their produce, strengthening competitiveness. This can open access to new markets and premium pricing, increasing income.
+
Efficient Resource Allocation: Farmers can use visibility data to optimize production processes, reduce inefficiencies, and cut waste, improving profitability.
+
Environmental Perspective
+
Sustainable Agricultural Practices: Greater visibility across the value chain encourages farmers to adopt practices that align with buyer sustainability goals, such as reduced chemical use, efficient water management, and biodiversity protection.
+
Reduced Environmental Footprint: By leveraging data to minimize waste and use resources efficiently, farmers lower their environmental footprint and contribute to more responsible production systems.
","
1. Buyer Perspective
+
Risks
+
Increased Costs: Implementing traceability measures, especially with advanced technologies, may lead to increased procurement costs, impacting the overall budget.
+
Data Security Concerns: Storing sensitive traceability data poses potential security risks, including data breaches or unauthorized access.
+
Supplier Resistance: Suppliers may resist sharing detailed information, fearing increased scrutiny or potential competitive disadvantages.
+
Trade-offs
+
Cost Efficiency vs. Enhanced Traceability: Buyers may face the trade-off between achieving cost efficiency in the supply chain and investing in enhanced traceability measures. Striking the right balance involves optimizing costs while ensuring transparency and traceability.
+
Complexity vs. Simplicity in Supply Chains: Buyers aiming for traceability may need to balance the complexity associated with detailed supply chain tracking and the simplicity required for streamlined operations. The challenge is to implement traceability without overly complicating processes.
+
Supplier Collaboration vs. Independence: Buyers may seek collaboration with suppliers for improved traceability, but this could conflict with the desire for supplier independence. The trade-off involves fostering collaboration while respecting supplier autonomy.
+
Risk Mitigation vs. Agility: Buyers may implement traceability for risk mitigation, but this could impact the agility of the supply chain. Striking the right balance involves managing risks while maintaining a flexible and responsive supply chain.
+
2. Supplier Perspective
+
Risks
+
Increased Reporting Burden: Suppliers may face additional reporting requirements, leading to increased administrative burdens and potential operational disruptions.
+
Technology Adoption Challenges: Suppliers may encounter challenges in adopting the required technologies for traceability, affecting their ability to comply.
+
Competitive Disadvantage: Suppliers may perceive that sharing detailed traceability data could lead to a competitive disadvantage in the marketplace.
+
Trade-offs
+
Investment in Technology vs. Cost Management: Suppliers may face the trade-off between investing in technology for traceability and managing overall costs. The challenge is to adopt traceability measures without significantly impacting the financial aspects of operations.
+
Transparency vs. Confidentiality: Suppliers providing traceability data may need to balance transparency with the need to protect confidential business information. The trade-off involves sharing relevant information while safeguarding proprietary details.
+
Regulatory Compliance vs. Market Competitiveness: Suppliers may need to comply with traceability regulations, but this could impact market competitiveness. Striking the right balance involves meeting regulatory requirements while remaining competitive in the marketplace.
+
Resource Allocation vs. Traceability Standards: Suppliers may allocate resources for meeting traceability standards, and this must be balanced against other operational needs. The trade-off involves optimizing resource allocation for both traceability compliance and overall efficiency.
",
Indirect
,
Indirect
,"
Based on old procurement framework of IDH and co-developmeent with Mars
+
Iterated by EY and based on interview process within the project
+
Evidence of clear supplier segmentation process in Mondelez Interview with CPO LATAM, more
"
+26,Selecting a sustainability certification,"
Definition
+
Choose sustainability certifications that help meet corporate commitments and/or implement procurement goals. For some commodities, certified supplies are readily available.
","
To effectively implement Sustainable Agricultural Certification Premiums in procurement, prerequisites include establishing clear criteria, collaborating with certification bodies, educating suppliers, designing a transparent premium structure, implementing monitoring systems, ensuring financial capacity, complying with legal standards, promoting certification benefits, fostering stakeholder collaboration, and establishing a continuous improvement feedback loop. This systematic approach creates a conducive environment for successful premium programs, encouraging sustainable farming practices and supplier participation.
","
When is this a strategic choice?
+
When the value chain risk assessment has surfaced potential risks in the supply chain of certain commodities, and an existing sustainability certification exists than provides sufficient assurance that this risk is mitigated in the supply chain of certified goods.
+
What it means:
+
Sustainability certifications can provide assurance that certain impacts are being mitigated in the supply chain of a certain commodity. In some instances, sourcing certified goods can be a quicker and less costly alternative to mitigating environmental and social risks in the supply chain from scratch. Additionally, some downstream actors like brand manufacturers or retailers may require certain certifications to purchase from you, creating a commercial need to purchase certified goods.
+
Some commodities have existing certifications that provide assurance for known high-risk impacts. For example, the RSPO certification for palm oil focuses or the Rainforest Alliance certification for Cocoa provide assurance that deforestation is being mitigated in the supply chain. However, it is important to note that these certifications may not cover all risks in a supply chain. For the Cocoa supply chain, for example, more expensive and direct actions may be needed to ensure actions to mitigate against child labour risks.
+
It is important to assess whether the sustainability certification is fit to deliver the desired outcomes. This assessment may include:
+
o Checking the commodities in scope and availability in your current, potential, or future sourcing market of the certification scheme.
+
o Benchmarking and understanding sustainability certification schemes in terms of sustainability impacts addressed. The ITC standards map benchmarks the majority of sustainability standards.
+
o Governance of the standard is a key factor to understand; ISEAL members all have credible governance in place.
+
o Understanding the different chains of custody models; segregated or mass balance.
+
Watch out: As a business to ensure the continued impact of a certification scheme is aligned to delivering the impact identified in your strategic choice, this will require partnering closely with the certification scheme owner.
","
Income Perspective
+
Choosing the right certification can secure access to markets that reward sustainable production with better prices and stronger demand. Certification can also provide more stable buyer relationships and opportunities for higher sales and profits.
+
Environmental Perspective
+
Sustainability certifications guide farmers toward practices that improve soil, water, and biodiversity outcomes. Financial incentives and market rewards help offset the costs of adoption, making it more feasible to implement practices that deliver long term environmental benefits.
","
1. Buyer Perspective
+
Risks
+
Increased Costs: Implementing sustainable agricultural certification premiums may lead to higher procurement costs, impacting the buyer's budget.
+
Limited Supplier Pool: Stringent sustainability criteria may reduce the pool of eligible suppliers, potentially limiting sourcing options.
+
Complex Certification Processes: Suppliers may face challenges navigating complex certification processes, leading to delays or non-compliance.
+
Trade-offs
+
Sustainability vs. Cost Efficiency: Buyers may face the trade-off between supporting sustainable agricultural practices and maintaining cost efficiency in procurement. Striking the right balance involves integrating sustainability without compromising overall cost-effectiveness.
+
Premium Costs vs. Competitive Pricing: Buyers offering sustainable agricultural certification premiums may need to balance the costs associated with premiums against the need for competitive pricing. The trade-off involves supporting sustainability while remaining competitive in the market.
+
Supplier Diversity vs. Certification Requirements: Buyers aiming for supplier diversity may encounter the trade-off between fostering a diverse supplier base and ensuring compliance with specific certification requirements. The challenge is to balance diversity goals with certification standards.
+
Short-Term Costs vs. Long-Term Sustainability: Buyers must decide between incurring short-term premium costs for sustainable agricultural practices and realizing long-term sustainability benefits. Striking the right balance involves aligning short-term investment with broader sustainability objectives.
+
2. Supplier Perspective
+
Risks
+
Financial Strain: Adhering to sustainable agricultural practices for premium eligibility may strain suppliers financially, especially for smaller entities.
+
Competitive Disadvantage: Suppliers not meeting premium criteria may face a competitive disadvantage in bidding for contracts.
+
Risk of Unfair Evaluation: Suppliers may feel unfairly evaluated if certification processes are unclear or subject to frequent changes.
+
Trade-offs
+
Compliance Costs vs. Profitability: Suppliers may face the trade-off between incurring additional costs to meet sustainable certification requirements and maintaining overall profitability. The challenge is to manage compliance costs while ensuring a viable and profitable business model.
+
Market Access vs. Certification Investments: Suppliers must decide between investing in sustainable certifications for access to markets with stringent requirements and balancing these investments with other business needs. Striking the right balance involves meeting market demands while ensuring financial viability.
+
Resource Allocation vs. Certification Standards: Suppliers may need to allocate resources effectively to meet certification standards, but this must be balanced against the potential impacts on overall resource allocation. The trade-off involves optimizing resources for both certification compliance and operational efficiency.
+
Risk Mitigation vs. Market Competitiveness: Suppliers may prioritize risk mitigation through sustainable certifications but must balance this with remaining competitive in the market. The challenge involves managing risks while staying competitive in the procurement landscape.
",
Direct
,
Direct
,
With and beyond sustainability certification: Exploring inclusive business and solidarity economy strategies in Peru and Switzerland - ScienceDirect
+27,Sustainable water management,"
Definition
+
Sustainable water management is the approach and actions taken to ensure that water is withdrawn, consumed and discharged in a sustainable way. It is particularly important in locations of water scarcity to ensure the supply chain, environment and dependent communities are not negatively impacted by water-related issues.
+
Make sustainable water management a strategic priority where water scarcity is identified through internal commitments or traceability to origins with limited water resources, impacting supply security.
","
1. Enabling Conditions for Sustainable Water Management in a Procurement Organization:
+
Sustainable Sourcing Policies: Development of procurement policies that prioritize and support the inclusion of products from suppliers practicing sustainable water management, emphasizing water efficiency and conservation.
+
Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of sustainable water management practices and promote their integration into sourcing strategies.
+
Supplier Collaboration: Collaboration with suppliers committed to sustainable water management, fostering partnerships, and incentivizing the adoption of water-efficient practices within the supply chain.
+
Certification Standards: Utilization or establishment of certification standards that recognize and verify sustainable water management practices, ensuring authenticity and compliance in the procurement process.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers practicing sustainable water management to promote stability and incentivize continued commitment to responsible water use.
+
2. Enabling Conditions for Sustainable Water Management on a Farm Level:
+
Water-Use Planning: Development of comprehensive water-use plans on farms, incorporating efficient irrigation methods, rainwater harvesting, and other sustainable water management practices.
+
Technical Support: Access to technical support and extension services to assist farmers in implementing effective water management practices, optimizing water use efficiency and minimizing waste.
+
Financial Incentives: Provision of financial incentives or favorable payment terms for farmers adopting sustainable water management practices, supporting their financial viability during the transition.
+
Water Conservation Technologies: Adoption of water-saving technologies, such as drip irrigation or soil moisture sensors, to enhance water efficiency on farms.
+
Community Engagement: Engagement with local communities and agricultural extension services to raise awareness of sustainable water management benefits, build support, and encourage widespread adoption.
+
For both procurement organizations and farmers, successful implementation of sustainable water management requires a commitment to efficient practices, collaborative relationships, ongoing education, and the integration of water conservation principles into the core of farming and procurement strategies.
","
When is this a strategic choice?
+
When you, as the buyer, have a clear understanding of current and future sourcing origins and recognise that without sustainable water management, there is a high risk of supply disruption. Water management may feature in internal commitments and/or the value chain risk assessment may have identified locations in the supply chain with limited water resources, negatively impacting supply security.
+
What it means:
+
• As a buyer you are confident you and/or your supplier is capable of engaging farmers and stakeholders at the catchment level to collectively monitor, manage, and invest in water resources to meet shared sustainability goals.
+
• As a buyer you are confident your supplier works with farm-level partners who can implement water management and stewardship actions, supported by appropriate technology and infrastructure for ongoing maintenance. For example, precision irrigation technologies that apply the right amount of water at the right time.
+
• As a buyer you are prepared to provide additional support where required, including investment capital.
+
• This approach relies on suppliers maintaining long-term, trust-based relationships with producers at the farm level.
","
1. Environmental Perspective:
+
Water Conservation: Sustainable water management practices, such as precision irrigation and rainwater harvesting, contribute to water conservation, ensuring the long-term availability of water resources.
+
Ecosystem Health: Responsible water usage supports the health of aquatic ecosystems and biodiversity, contributing to overall environmental sustainability.
+
2. Income Perspective:
+
Cost Savings: Water-efficient practices lead to cost savings for farmers by reducing expenses related to water use, such as energy costs for irrigation and investments in water infrastructure.
+
Market Access: Adopting sustainable water management practices may provide farmers with access to markets that prioritize sustainably produced goods, potentially leading to premium prices and increased income.
+
3. Risk Perspective:
+
Climate Resilience: Sustainable water practices enhance the resilience of farming operations to climate-related risks such as droughts or erratic rainfall patterns.
+
Regulatory Compliance: Adhering to sustainable water practices helps farmers comply with evolving water usage regulations, reducing the risk of legal and regulatory challenges.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are crucial in providing access to markets and resources. By supporting and incentivizing the adoption of sustainable water management practices, procurement organizations contribute to the sustainability and resilience of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Disruptions: Buyers must address potential disruptions in the supply chain caused by changes in agricultural production due to sustainable water management, implementing strategies to ensure consistent product availability.
+
Higher Costs: Buyers need to manage potential increases in product prices resulting from the additional costs for suppliers practicing sustainable water management, seeking cost-effective procurement strategies.
+
Certification Challenges: Buyers should anticipate and address challenges related to ensuring adherence to sustainable water management certification standards, implementing robust monitoring and verification processes.
+
Trade-offs
+
Cost vs. Sustainability: Buyers should strategically balance potential cost implications of sustainable water management with the desire to support environmentally responsible sourcing practices, making procurement decisions that align with sustainability goals.
+
Consistency vs. Resource Conservation: Striking a balance between ensuring a consistent supply from traditional sources and the conservation of water resources through sustainable practices requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and resource conservation.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers implementing sustainable water management practices must address potential financial strain associated with higher initial costs, implementing financial planning strategies.
+
Transition Period Challenges: Suppliers need to manage challenges during the initial phases of adopting new water management practices, ensuring minimal impact on product yields and consistency.
+
Market Access Concerns: Suppliers may face challenges accessing markets that prioritize traditional, non-sustainable products, requiring strategic decisions to overcome barriers.
+
Trade-offs
+
Cost vs. Market Access: Suppliers may need to weigh the costs and challenges of implementing sustainable water management against potential market access and premium prices associated with sustainable practices, making decisions that align with long-term market strategies.
+
Innovation vs. Tradition: Allocating resources to adopt sustainable water management practices may divert attention and resources from traditional farming methods, requiring suppliers to find a balance that aligns with their innovation goals and traditional practices.
+
Crop Yield vs. Water Conservation: Balancing the desire for higher crop yields with the commitment to water conservation and sustainability may necessitate trade-offs, requiring suppliers to prioritize sustainability without compromising productivity goals.
Implement agroforestry, cover cropping, polyculture, hedgerows, livestock integration, energy efficiency, and renewable energy as part of regenerative agriculture and decarbonization strategies to increase resilience and farmer income.
","
1. Enabling Conditions for Agroforestry in a Procurement Organization:
+
Sustainable Sourcing Policies: Development of procurement policies that promote the inclusion of agroforestry products and support suppliers engaging in agroforestry practices.
+
Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of agroforestry benefits and promote the inclusion of agroforestry in sourcing strategies.
+
Supplier Collaboration: Collaboration with suppliers committed to agroforestry, fostering partnerships and encouraging the adoption of agroforestry practices within the supply chain.
+
Certification Standards: Utilization or establishment of certification standards that recognize and verify agroforestry practices, ensuring authenticity and compliance in the procurement process.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers practicing agroforestry to promote stability and incentivize continued commitment to sustainable practices.
+
2. Enabling Conditions for Agroforestry on a Farm Level:
+
Land-Use Planning: Development of comprehensive land-use plans that integrate agroforestry components, considering the placement of trees and shrubs within the overall farming system.
+
Technical Support: Access to technical support and extension services to assist farmers in implementing agroforestry practices, optimizing tree-crop interactions, and addressing challenges.
+
Financial Incentives: Provision of financial incentives or favorable payment terms for farmers adopting agroforestry, supporting their financial viability during the transition.
+
Access to Tree Species: Availability of diverse and appropriate tree species for agroforestry, enabling farmers to select trees that complement their specific crops and enhance overall farm productivity.
+
Community Engagement: Engagement with local communities and agricultural extension services to raise awareness of agroforestry benefits, build support, and encourage the adoption of these practices.
+
For both procurement organizations and farms, successful implementation of agroforestry requires a commitment to sustainable practices, collaborative relationships, ongoing education, and the integration of agroforestry principles into the core of farming and procurement strategies.
","
Agroecological Practices are most likely to emerge as an action for implementation if you have identified the following strategic choices: Regenerative Agriculture, Smallholder Crop Production, Decarbonisation Levers, Selecting a Sustainability Certification, Precision Agriculture, or Supplier Capability Building.
+
Implementation of agroecological practices can bring the following benefits:
+
• Improve farmer gross margin and income through the avoidance of expensive synthetic agrochemical inputs like fertilisers and pesticides
+
• Help enhance yields over the long term through improving the soil and local ecosystem health
+
• Improve carbon sequestration on farms. If appropriately set up, monitored, measured and accounted, this could contribute to business carbon reduction commitments. If certified, it could also create a secondary income stream through farmers selling carbon credits.
+
Implementing this requires a long-term commitment to upskilling and capability building either with direct suppliers to cascade up the supply chain or, if pursuing Direct Farmer Contracting, direct with farmers. The resource requirements for this training and capability building must be clarified with suppliers as part of the Cost of Goods model, developed as part of the procurement strategy.
+
Additionally, if there is an income gap during the transition to new practices, the procurement strategy should identify partners or financial mechanisms, such as blended finance, that can bridge this gap, and ensure these are reflected in the Cost of Goods cost model.
","
Environmental Perspective:
+
Soil Health: A mix of trees, cover crops, hedgerows, diverse crops, and livestock manure builds soil organic matter, reduces erosion, improves water infiltration, and strengthens microbial activity.
+
Biodiversity and Ecosystem Services: Integrating woody perennials, field borders, mixed species plantings, and livestock increases habitat for pollinators and natural enemies, strengthens nutrient cycling, and supports carbon storage.
+
Microclimate and Water: Tree rows and borders provide shade and shelter, lower evapotranspiration, and improve water retention and quality across fields.
+
Income Perspective:
+
Diversified Income Streams: Multiple crops, tree products, and livestock add revenue channels across seasons, reducing reliance on a single commodity.
+
Lower Input Costs: Biological nitrogen fixation, manure, weed suppression, and natural pest control cut spend on synthetic fertilizers and pesticides over time.
+
Yield and Quality Gains: Better pollination and soil function can lift yields and product quality, improving market returns and access to sustainability premia where available.
+
Risk Perspective:
+
Operational Stability: Diversity spreads agronomic and market risk and provides feed and forage buffers when a single crop underperforms.
+
Pest and Disease Pressure: Habitat for beneficial insects and crop diversity disrupt pest life cycles and reduce outbreak severity.
+
Climate Resilience: Improved soils and on farm shelter reduce losses from heat, wind, and intense rainfall, supporting production in variable seasons.
+
Link to Procurement Organizations:
+
Agroecological approaches need time to implement. Procurement partners must be committed through a long-term sourcing strategy commitment to farmers. This can enable adoption through multi year purchase commitments, technical support, and co investment in establishment costs such as seedlings, cover crop seed, fencing, and water points. Clear sourcing standards and premia for verified outcomes align farm level incentives with company goals on climate and nature, strengthening supply security and performance.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Complexity: Buyers must address potential challenges in logistics, quality control, and traceability introduced by agroforestry integration, implementing strategies to streamline the supply chain.
+
Variable Crop Yields: Buyers need to manage uncertainties in meeting consistent procurement demands resulting from variable crop yields in agroforestry systems, implementing strategies for demand forecasting and inventory management.
+
Certification Challenges: Buyers should establish robust monitoring and verification processes to address challenges in ensuring adherence to agroforestry certification standards, maintaining credibility in sustainable sourcing.
+
Trade-offs
+
Cost vs. Sustainability: Buyers should strategically balance potential cost implications of agroforestry with the desire to support sustainable and environmentally friendly sourcing practices, making procurement decisions that align with sustainability goals.
+
Consistency vs. Diversity: Striking a balance between ensuring a consistent supply from traditional sources and offering the diversity of products from agroforestry systems requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and variety.
+
2. Supplier Perspective:
+
Risks
+
Initial Investment: Suppliers adopting agroforestry practices must address the financial challenges associated with initial investments in tree planting and farm restructuring, implementing financial planning strategies.
+
Longer Time to Production: Suppliers need to manage the delay in income associated with the longer time to production in agroforestry systems, making strategic decisions to balance short-term financial needs with long-term benefits.
+
Market Access Challenges: Suppliers engaging in agroforestry may face challenges in accessing markets that prioritize traditional, monoculture products, necessitating strategic decisions to overcome barriers and establish market presence.
+
Trade-offs
+
Income Delay vs. Long-Term Benefits: Suppliers must balance the delay in income associated with agroforestry against the long-term benefits, including diversified revenue streams and enhanced sustainability, making decisions that align with their financial goals and long-term vision.
+
Traditional vs. Agroforestry Practices: Suppliers may face trade-offs between traditional farming practices and the adoption of agroforestry, weighing the potential benefits against the challenges, requiring a thoughtful and strategic approach to implementation.
+
Market Access vs. Agroforestry Adoption: Deciding on the extent to which suppliers want to engage with markets that value agroforestry products and balancing it with traditional market access involves trade-offs, requiring a careful evaluation of market dynamics and supplier priorities.
Evaluate corporate or brand sustainability commitments or targets. Do this to identify whether any of these may be related to and impacted by procurement decisions, and therefore whether they should be considered in strategy development.
","
To implement effective Business Procurement Requirements Planning, a procurement organization should align its strategies with overall business objectives, foster collaborative stakeholder engagement, establish comprehensive data management systems, invest in technological infrastructure, ensure skilled procurement personnel, provide continuous training, maintain clear documentation and standardization, integrate supplier relations, implement effective risk management, foster flexibility and adaptability, and establish performance metrics for continuous improvement.
","
Corporate or brand sustainability commitments may relate to topics such as climate, human rights, deforestation, water, nature, or circularity. The activities and impacts in the supply chain may directly impact these commitments. Therefore, checking whether they exist and which ones may be relevant is important to ensure alignment with the broader business strategy.
+
It may be helpful to consider the following questions:
+
• How critical is the spend category in delivering business objectives and commitments now and in the next 5 years?
+
• Is the spend category a critical driver for business growth?
+
• If the spend category is not critical for driving the business strategy, it is unlikely ‘sustainability risks’ even if identified, will be significantly important for the business to prioritise for direct mitigation.
+
• How might activities in the supply chain of this spend category link to the sustainability commitments or targets. For example, does the spend category carry risk of deforestation and does this impact business commitments relating to deforestation?
","
Income Perspective
+
Market Access and Fair Pricing: Incorporating business strategy needs ensures that farmers understand demand signals and quality requirements. This creates better market access, fairer prices, and improved income stability.
+
Efficient Resource Utilization: With clearer alignment to buyer strategies, farmers can plan production more effectively, optimize resources, and reduce waste, which strengthens profitability.
+
Environmental Perspective
+
Sustainable Agricultural Practices: Strategic alignment encourages farmers to adopt practices that meet environmental expectations, such as efficient water use, reduced chemical inputs, and enhanced biodiversity.
+
Reduced Environmental Impact: Producing in line with actual demand lowers the risks of surplus, cutting food waste and the environmental footprint of unnecessary resource use.
","
1. Buyer Perspective:
+
Risks
+
Misalignment with Business Objectives: Inadequate alignment of procurement requirements planning with overall business objectives may lead to inefficiencies and missed opportunities.
+
Increased Lead Times: Overly complex planning processes might result in increased lead times, affecting the organization's ability to respond quickly to market changes.
+
Supplier Relationship Strain: Excessive demands in procurement requirements planning may strain relationships with suppliers, potentially impacting collaboration and service levels.
+
Trade-offs
+
Cost Efficiency vs. Quality Requirements: Buyers may face the trade-off between achieving cost efficiency in procurement requirements planning and ensuring stringent quality standards. Striking the right balance involves optimizing costs without compromising the quality of goods or services.
+
Flexibility vs. Standardization: Buyers may desire flexibility in procurement requirements to adapt to changing market conditions, but this must be balanced against the benefits of standardization for efficiency. The challenge involves maintaining adaptability while establishing standardized processes.
+
Lead Time vs. Urgency: Buyers setting procurement requirements may need to balance lead times for planning with the urgency of meeting immediate needs. The trade-off involves planning ahead while addressing time-sensitive procurement requirements.
+
Innovation vs. Compliance: Buyers may seek innovative solutions in procurement but must balance this with compliance to regulatory and organizational requirements. The challenge is to foster innovation while ensuring adherence to necessary standards.
+
2. Supplier Perspective
+
Risks
+
Unclear Requirements: Ambiguous or changing requirements may lead to misunderstandings, causing suppliers to deliver products or services that do not meet buyer expectations.
+
Increased Costs: If procurement requirements planning is too stringent, suppliers may face higher production or service delivery costs, potentially impacting pricing agreements.
+
Limited Innovation Opportunities: Rigorous planning may limit opportunities for suppliers to showcase innovative solutions, hindering mutual growth.
+
Trade-offs
+
Consistency vs. Varied Offerings: Suppliers may face the trade-off between consistency in meeting buyer requirements and offering varied products or services. Striking the right balance involves fulfilling standard requirements while showcasing diverse offerings.
+
Long-Term Contracts vs. Market Volatility: Suppliers may desire long-term contracts for stability, but this could conflict with the volatility of market conditions. The challenge is to secure stable contracts while adapting to market dynamics.
+
Compliance vs. Innovation Investments: Suppliers may need to allocate resources for compliance with buyer requirements, and this must be balanced against investments in innovation. The trade-off involves managing compliance costs while fostering a culture of innovation.
+
Customization vs. Standardization: Suppliers may desire customization in meeting buyer requirements, but this must be balanced against the benefits of standardization for efficient production. The challenge involves tailoring solutions while maintaining operational efficiency.
",
Indirect
,
Indirect
,"
Based on old procurement framework of IDH and co-developmeent with Mars
+
Iterated by EY and based on interview process within the project
+
Evidence of clear supplier segmentation process in Mondelez Interview with CPO LATAM, more
"
+3,Buyer Sustainability Targets,"
Definition
+
Set buyer sustainability targets, supported by performance KPIs, to track and ensure delivery of sustainable procurement outcomes as part of sourcing strategy implementation.
","
To effectively implement Buyer Sustainability Targets in procurement:
+
1. Secure leadership commitment to prioritize sustainability.
+
2. Engage stakeholders, including suppliers, in target development.
+
3. Conduct a baseline assessment to identify areas for improvement.
+
4. Define clear, measurable, and time-bound sustainability targets aligned with organizational goals.
+
5. Foster collaboration with suppliers, evaluating their sustainability practices.
+
6. Provide employee training to enhance awareness of sustainable procurement practices.
+
7. Integrate sustainability considerations into all stages of the procurement process.
+
8. Establish systems for regular monitoring and reporting of sustainability performance.
+
9. Ensure legal and regulatory compliance with relevant sustainability standards.
+
10. Invest in technology and data systems to streamline tracking and reporting processes.
","
Once the strategic choices have been identified, take the time to identify KPIs that will enable tracking of implementation and progress against these choices by buyers. Aim to create as few KPIs as possible to give you the understanding you need while being realistic about data collection capabilities.
+
Include these KPIs on internal business scorecards and dashboards, and consider linking them to buyer remuneration. If the strategic choices have been selected thoughtfully, implementation of them will help drive value for the business and mitigate risks. As such, progress against these should be tracked and owners held responsible in the same way as they would for other business critical actions.
","
1. Income Perspective
+
Incorporating sustainability targets in procurement can guarantee farmers fair trade prices for their products, improving their income. Long-term contracts can offer better income security. Better market access and elevated certification value can also increase sales opportunities for farmers, thereby increasing their income.
+
2. Environment Perspective
+
Buyer sustainability targets often promote sustainable farming techniques, encouraging farmers to adopt practices that have less impact on the environment. By doing so, it not only contributes to environmental preservation but also improves the long-term sustainability of farms by preserving the health of the soil, preserving water resources, and reducing the impact on wildlife ecosystems.
","
1. Buyer Perspective
+
Risks
+
Increased Costs: Implementing sustainability targets may initially incur additional costs for eco-friendly products or suppliers with sustainable practices.
+
Limited Supplier Pool: Stricter sustainability criteria may reduce the pool of eligible suppliers, potentially limiting competitive options.
+
Complexity in Compliance: Ensuring compliance with sustainability targets can be challenging, particularly when dealing with global supply chains and diverse regulations.
+
Trade-offs
+
Sustainability vs. Cost Efficiency: Buyers may face the trade-off between achieving sustainability targets and maintaining cost efficiency in procurement. Striking the right balance involves integrating sustainable practices without compromising overall cost-effectiveness.
+
Supplier Diversity vs. Cost Competitiveness: Buyers aiming for supplier diversity may encounter the trade-off between fostering a diverse supplier base and ensuring cost competitiveness. The challenge is to balance diversity goals with the economic efficiency of the supply chain.
+
Long-Term Sustainability vs. Immediate Gains: Buyers must decide between pursuing long-term sustainability objectives and seeking immediate gains through potentially less sustainable practices. Striking the right balance involves aligning short-term gains with broader sustainability goals.
+
Innovation vs. Established Practices: Buyers may trade off between encouraging innovation in sustainable practices and sticking to established, potentially less sustainable, procurement methods. Balancing innovation with proven practices is essential for sustainable procurement.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Adhering to sustainability targets may require suppliers to invest in new technologies or practices, potentially causing financial strain.
+
Competitive Disadvantage: Suppliers not meeting sustainability targets may face a disadvantage in bidding for contracts, affecting competitiveness.
+
Complex Certification Processes: Suppliers may encounter challenges in navigating complex certification processes to prove their sustainability credentials.
+
Trade-offs
+
Compliance vs. Innovation: Suppliers may face the trade-off between complying with buyer sustainability targets and innovating in their offerings. Striking the right balance involves meeting sustainability requirements while fostering a culture of innovation.
+
Cost of Sustainability Compliance vs. Profitability: Suppliers may incur additional costs to meet sustainability requirements, impacting overall profitability. The trade-off involves managing compliance costs while maintaining a viable and profitable business model.
+
Market Access vs. Sustainability Investments: Suppliers must decide between investing in sustainability practices to access markets with stringent requirements and balancing these investments with other business needs. Striking the right balance involves meeting market demands while ensuring financial viability.
+
Risk Mitigation vs. Market Competitiveness: Suppliers may prioritize risk mitigation through sustainable practices but must balance this with remaining competitive in the market. The trade-off involves managing risks while staying competitive in the procurement landscape.
",
Indirect
,
Indirect
,"
IDH Based Interviews (Frank Joosten)
+
EY Based Interviews
"
+4,Decarbonisation levers,"
Definition
+
Implement decarbonisation levers where net-zero or climate mitigation is a corporate goal or where external risk assessments highlight climate threats to supply security. Opportunities may include agroforestry or soil conservation for carbon sequestration which in turn can create additional sources of farmer income
","
1. Enabling Conditions for Carbon Sequestration in a Procurement Organization:
+
Sustainable Sourcing Policies: Development of procurement policies that prioritize and support the inclusion of products from suppliers actively engaged in carbon sequestration practices, emphasizing environmentally responsible and climate-friendly agricultural methods.
+
Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of carbon sequestration techniques and promote their integration into sourcing strategies.
+
Supplier Collaboration: Collaboration with suppliers committed to carbon sequestration, fostering partnerships, and incentivizing the adoption of sustainable farming practices within the supply chain.
+
Certification Standards: Utilization or establishment of certification standards that recognize and verify carbon sequestration practices, ensuring authenticity and compliance in the procurement process.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers actively engaged in carbon sequestration to promote stability and incentivize continued commitment to sustainable and climate-friendly farming methods.
+
2. Enabling Conditions for Carbon Sequestration on a Farm Level:
+
Cover Cropping: Integration of cover crops into farming practices to enhance soil health, increase organic matter, and promote carbon sequestration.
+
Agroforestry Practices: Incorporation of agroforestry techniques, such as planting trees on farmlands, to sequester carbon in both soil and woody biomass.
+
Conservation Tillage: Adoption of conservation tillage methods, like no-till or reduced tillage, to minimize soil disturbance and enhance carbon retention in the soil.
+
Crop Rotation: Implementation of crop rotation strategies to improve overall soil health, increase carbon content, and contribute to sustainable soil management.
+
Technical Support: Access to technical support and extension services to assist farmers in implementing effective carbon sequestration practices, optimizing soil health and overall sustainability.
+
Successful implementation of carbon sequestration requires a commitment to sustainable practices, collaborative relationships, ongoing education, and the integration of climate-friendly principles into the core of farming and procurement strategies.
","
When is this a strategic choice?
+
Implement decarbonisation levers where net-zero or climate mitigation is a corporate goal or where external risk assessments highlight climate threats to supply security.
+
What it means:
+
Decarbonisation levers are activities that a business can use to reduce carbon emissions. They can be performed directly by the business or, as is more likely in this instance, in the upstream supply chain. Examples of decarbonisation levers can include:
+
• Switching to renewable energy
+
• Improving energy efficiency of equipment and processes
+
• Agroforestry or soil conservation
+
• Carbon sequestration
+
Some decarbonisation levers are about directly reducing emissions produced e.g. switching to renewable energy. Others are opportunities to capture carbon, offsetting emissions that may occur elsewhere.
+
When offsetting activities are done within your own value chain, it is referred to as insetting. The whole value chain can present opportunities for insetting and materials sourced from agriculture can offer brilliant opportunities. For example, agroforestry, increasing natural habitats for biodiversity or increasing soil organic matter.
+
There are challenges associated with insetting. There are physical challenges in ensuring the permanence of actions taken to inset carbon. There are also accountancy challenges in calculating the carbon benefit achieved through these actions. Both of these require specialist input to ensure they are done properly.
+
Insetting can also benefit farmer income. Insetting actions that produce carbon credits that a farmer can sell is a way of generating additional income. This can be particularly valuable if farmers can use marginal land for actions such as tree planting.
+
Ensuring carbon insetting requires commitment and verification over the long term. A business must be confident that this can be achieved in order to make this a valid strategic choice.
","
Environmental Perspective
+
Practices such as agroforestry, cover cropping, reduced tillage, and improved manure management increase soil organic carbon and strengthen biodiversity. Shifts to energy efficient machinery, irrigation, and cold storage cut fuel use, while on farm renewables reduce reliance on fossil energy. Together, these actions lower emissions, improve soil and water health, and build resilient ecosystems.
+
Income Perspective
+
Improved efficiency lowers spending on fuel, fertilizer, and electricity. Renewable energy systems, such as solar for pumping or drying, reduce long term operating costs and can provide surplus energy for sale. Participation in carbon markets can generate additional income through verified credits, and sourcing programs that reward decarbonisation can deliver access to premiums or long term contracts.
+
Risk Perspective
+
Decarbonisation reduces exposure to energy price volatility, fertilizer shortages, and regulatory pressures on emissions. Practices that build soil carbon and improve efficiency also strengthen resilience to drought, flooding, and extreme weather. By diversifying income through carbon credits or renewable energy sales, farmers reduce dependence on a single revenue stream.
+
Link to Procurement Organizations
+
Procurement partners must be committed to very long-term physical carbon insetting to create value for farmers for low carbon products, co-investing in renewable installations, and supporting measurement and verification of carbon outcomes. Long term offtake agreements, technical support, and access to finance help farmers adopt practices and technologies that deliver both emissions reduction and supply chain resilience.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Disruptions: Adoption of carbon sequestration practices may lead to variations in agricultural production and potential disruptions in the supply chain, affecting product availability.
+
Cost Implications: Suppliers implementing carbon sequestration practices may incur initial costs, potentially impacting product prices and the overall procurement budget.
+
Certification Challenges: Ensuring adherence to certification standards related to carbon sequestration may pose challenges, requiring rigorous monitoring and verification.
+
Trade-offs
+
Cost vs. Sustainability: Balancing potential cost implications of products from suppliers engaged in carbon sequestration with the desire to support environmentally responsible and climate-friendly sourcing practices.
+
Consistency vs. Innovation: Striking a balance between consistent supply from traditional sources and the innovative adoption of carbon sequestration practices within the supply chain.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers implementing carbon sequestration practices may initially face higher costs, potentially causing financial strain and impacting competitiveness.
+
Transition Period Challenges: Adoption of new practices may pose challenges during the initial phases, affecting production efficiency and consistency.
+
Market Access Concerns: Suppliers may face challenges in accessing markets that prioritize traditional, non-carbon sequestration farming practices.
+
Trade-offs
+
Cost vs. Market Access: Suppliers may need to weigh the costs and challenges of adopting carbon sequestration practices against potential market access and premium prices associated with sustainable practices.
+
Innovation vs. Tradition: Allocating resources to adopt carbon sequestration practices may divert attention and resources from traditional production methods.
+
Short-Term Costs vs. Long-Term Benefits: Balancing the short-term financial implications of transitioning to carbon sequestration with the potential long-term benefits in terms of soil health, productivity, and environmental sustainability.
+
Addressing these risks and trade-offs requires careful planning, collaboration, and a long-term perspective from both buyers and suppliers in the procurement process.
Conduct a thorough external risk analysis across climate, biodiversity, nature, human rights, forced labour, child labour, and free, prior, and informed consent. Include regulatory sustainability risks (climate, human rights, supply chain due diligence) linked to sourced materials.
","
Enabling conditions for environmental risk assessment in a procurement organization include:
+
Supply Chain Visibility: Establish comprehensive supply chain visibility to identify key environmental hotspots and potential impacts associated with agri-food procurement activities.
+
Environmental Expertise: Ensure that the procurement team has access to or collaborates with environmental experts who can effectively assess and interpret environmental data and impacts.
+
Data Collection and Monitoring Systems: Implement robust data collection and monitoring systems to track environmental indicators, enabling the continuous assessment of procurement activities.
+
Stakeholder Engagement: Engage with key stakeholders, including suppliers and local communities, to gather insights on potential environmental impacts and foster collaborative efforts in mitigating adverse effects.
+
Sustainability Criteria Integration: Embed environmental sustainability criteria directly into procurement policies and evaluation processes, making EIAs an integral part of supplier selection and product sourcing.
+
Regulatory Adherence: Stay informed about and comply with environmental regulations and standards specific to the agri-food sector, ensuring that EIAs align with legal requirements.
+
Technology Adoption: Leverage innovative technologies, such as satellite imagery or remote sensing tools, to enhance the accuracy and efficiency of EIAs, especially in assessing land use, water consumption, and biodiversity impacts.
+
Risk Mitigation Strategies: Develop strategies to address identified environmental risks within the supply chain, incorporating measures to mitigate issues related to water usage, pollution, deforestation, and other relevant concerns.
+
Benchmarking and Performance Metrics: Establish benchmarking mechanisms and performance metrics to compare the environmental impact of different suppliers and products, promoting competition in adopting sustainable practices.
+
Collaboration with Certification Bodies: Collaborate with recognized environmental certification bodies to align EIAs with established standards, providing credibility and assurance of environmentally responsible sourcing practices.
+
Education and Training: Provide ongoing education and training for procurement professionals on the latest methodologies and tools for conducting EIAs, ensuring a well-informed and skilled team.
+
Continuous Improvement Framework: Implement a continuous improvement framework based on EIA findings, fostering a culture of learning and adaptation to evolving environmental challenges.
+
Transparent Reporting: Communicate EIA results transparently to internal and external stakeholders, demonstrating the organization's commitment to environmental responsibility and accountability.
+
Incentivizing Sustainable Practices: Develop incentive mechanisms for suppliers that actively engage in reducing their environmental impact, encouraging a proactive approach to sustainability.
+
By focusing on these targeted pproaches, procurement organizations can enhance the effectiveness of their EIAs, leading to more sustainable and environmentally conscious sourcing practices.
","
Conducting a value chain risk assessment enables identification and assessment of the sustainability risks in your value chain. This is key to enabling effective risk management in procurement decisions. To do this effectively, it is helpful to have a good level of Value Chain Visibility first. However, a high-level assessment can still bring value to the business by identifying the most likely and severe types of risks associated with different categories.
+
The lenses through which you may want to consider a risk assessment include:
+
• Country of Origin: The country defines the macro risks based on its environmental, social, political and economic situation.
+
• Commodity/category/product of interest: The processes involved in the production of different commodities, categories and products impact the risks associated with them
+
• Risks to Assess: The most important risks to assess may be associated with the countries and commodities of interest, or they may come from reviewing your business strategy and sustainability commitments. The risks of interests may include:
+
o Environmental: Climate, Deforestation, Water, Nature
+
o Social: Human Rights (inc. Child Labour, Forced Labour, Indigenous Rights), Living Wages and Income, Gender Equality, Health and Safety
+
If you have engaged with your suppliers as part of improving Value Chain Visibility and have a sense of whether supply chains are likely to be stable or unstable over the next five years, consider potential changes that could occur and, if possible, incorporate this flexibility into the risk assessment approach.
+
If you are starting from scratch review the IDH focus areas, which will help surface the material sustainability risks. If you need further help, useful resources may include;
+
• Search WRI for environment risks like climate, deforestation, water and nature
+
• Search by commodity at Verite for human rights risks
+
At this stage you are simply understanding the ‘sustainability’ risks the business is exposed to, from the current value chain, due to the current procurement strategy.
","
Environmental Perspective
+
Sustainable Farming Practices: Comprehensive risk assessments help farmers identify and adopt practices that reduce negative impacts across the value chain, such as conserving soil, lowering pesticide use, and enhancing biodiversity.
+
Climate Resilience: By highlighting vulnerabilities to climate change, these assessments support actions that build resilience to extreme weather and strengthen long term environmental sustainability.
+
Income Perspective
+
Access to Premium Markets: Farmers who align with value chain risk assessment findings can access buyers and markets that prioritize sustainable and resilient sourcing, often linked to premium pricing.
+
Cost Savings: Efficiency gains identified through assessments, such as reduced input use or better resource management, can lower costs and improve overall profitability.
+
Risk Perspective
+
Market Viability: Assessments strengthen market viability by ensuring farmer practices align with buyer expectations, regulatory standards, and consumer preferences, reducing the risk of exclusion.
+
Long Term Stability: By addressing environmental, social, and operational risks across the value chain, farmers position themselves for continued access to markets and long term business resilience.
+
Link to Procurement Organizations
+
Procurement partners play a central role by communicating risk and sustainability criteria to farmers and the opportunities in rewarding alignment. Supporting risk assessments and providing guidance ensures that sourcing is consistent with company commitments, while helping farmers strengthen practices that secure market access and supply continuity.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Disruption: To minimize disruption risks, buyers should strategically diversify their supplier base, balancing sustainability criteria with the need for a resilient and varied supply chain.
+
Increased Costs: Buyers can strategically negotiate with suppliers, emphasizing the importance of cost-effectiveness while encouraging sustainable practices to manage procurement expenses.
+
Limited Supplier Innovation: Buyers can actively engage with smaller suppliers, fostering innovation by providing support and guidance to meet sustainability criteria.
+
Trade-offs
+
Cost vs. Sustainability: Buyers must strategically navigate the trade-off between cost-effectiveness and sustainability, making informed compromises to achieve both financial and environmental goals.
+
Supplier Diversity vs. Sustainability: Balancing sustainability with supplier diversity requires careful consideration, especially in regions or industries where meeting sustainability standards may be challenging.
+
Time-to-Market vs. Sustainability: Buyers need to find a balance between selecting sustainable suppliers and meeting time-to-market goals, ensuring that sustainability efforts do not unduly extend procurement timelines.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers can proactively manage financial strain by seeking collaborative partnerships with buyers, exploring cost-sharing models for sustainable investments.
+
Competitive Disadvantage: Suppliers with lower sustainability scores should focus on improving practices to avoid losing business opportunities, emphasizing the value of sustainable offerings.
+
Compliance Challenges: Suppliers facing compliance challenges should engage with buyers to streamline diverse sustainability standards, ensuring a more manageable and efficient adherence process.
+
Trade-offs
+
Cost vs. Sustainability: Suppliers must strategically balance the trade-off between implementing sustainable practices and managing production costs, seeking innovative and cost-effective solutions.
+
Innovation vs. Compliance: Suppliers can navigate the trade-off by integrating sustainability into their innovation agenda, demonstrating that both innovation and compliance can coexist.
+
Market Access vs. Sustainability: Suppliers targeting international markets must weigh the benefits of market access against the costs of adapting to sustainability requirements, aligning their strategies with evolving global standards.
Crop rotation and diversification are core practices considered under regenerative agriculture strategies. These practices involve alternating different crops on the same land over time to improve soil health, reduce pests and diseases, and increase farm resilience.
","
1. Enabling Conditions for Crop Rotation and Diversification in a Procurement Organization:
+
Sustainable Sourcing Policies: Establishment of procurement policies that prioritize products sourced from farms practicing crop rotation and diversification, promoting sustainable agricultural practices.
+
Supplier Collaboration: Collaboration with suppliers committed to crop rotation and diversification, encouraging the adoption of diverse farming methods within the supply chain.
+
Educational Initiatives: Providing training and education for procurement professionals to enhance their understanding of the benefits of crop rotation and diversification and the associated impacts on agricultural sustainability.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers implementing crop rotation and diversification, fostering stability and incentivizing the continued commitment to sustainable practices.
+
2. Enabling Conditions for Crop Rotation and Diversification on a Farm Level:
+
Holistic Farm Planning: Development of comprehensive farm plans that integrate crop rotation and diversification strategies, considering soil health, pest management, and overall sustainability.
+
Crop Rotation Plans: Implementation of systematic crop rotation plans that involve alternating the types of crops grown in specific fields over time to break pest and disease cycles.
+
Cover Crops Integration: Incorporation of cover crops during periods when main crops are not grown to enhance soil fertility, prevent erosion, and provide additional benefits to the ecosystem.
+
Polyculture Practices: Adoption of polyculture practices, including the simultaneous cultivation of multiple crops in the same area, to increase biodiversity and enhance ecological balance.
+
Agroecological Approaches: Integration of agroecological principles that mimic natural ecosystems, promoting resilience, reducing reliance on external inputs, and enhancing overall farm sustainability.
+
Community Engagement: Engagement with local communities, consumers, and agricultural extension services to raise awareness of the importance of crop rotation and diversification for sustainable agriculture.
+
Both at the procurement organization and on the farm level, successful implementation of crop rotation and diversification requires a commitment to sustainable practices, collaborative relationships, ongoing education, and the integration of these principles into the core of farming and procurement strategies.
","
Crop rotation and diversification is most likely to emerge as an action for implementation if you have identified the following strategic choices: Regenerative Agriculture, Smallholder Crop Production, Selecting a Sustainability Certification, Precision Agriculture, or Supplier Capability Building.
+
Implementation of soil conservation can bring the following benefits:
+
• Improve farmer gross margin and income through the avoidance of expensive synthetic agrochemical inputs like fertilisers and pesticides
+
• Improve yield through enhanced soil fertility
+
• Minimise pest and disease build-up associated with continuous cropping
+
Implementing this requires a long-term commitment and capability building with suppliers to enable implementation at the farm level. Farmers must understand which crop combinations make the most business sense for sustained income, while buyers need to assess how competitive their crop is within the farm enterprise system. The resource commitment for farmer training must be clearly defined with suppliers and embedded in the Cost of Goods cost model as part of the overall procurement strategy.
","
1. Environmental Perspective:
+
Soil Health: Crop rotation and diversification contribute to improved soil health by preventing nutrient depletion and reducing the risk of soil-borne diseases.
+
Biodiversity Preservation: Diversified farming practices support biodiversity by providing different habitats for various plant and animal species.
+
2. Income Perspective:
+
Risk Mitigation: Farmers adopting crop rotation and diversification reduce the risk of crop failure due to pests or diseases affecting a single crop. This can lead to more stable and predictable incomes.
+
Market Access: Diversification allows farmers to access a broader range of markets, catering to diverse consumer preferences and potentially increasing sales and income.
+
3. Risk Perspective:
+
Reduced Input Costs: Crop rotation and diversification can lead to reduced input costs as they minimize the need for external inputs like pesticides and fertilizers.
+
Adaptation to Climate Change: Diversified crops provide resilience to changing climate conditions, allowing farmers to adapt and continue generating income even in the face of climate-related challenges.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are essential in providing access to markets and resources. By supporting and incentivizing the adoption of crop rotation and diversification, procurement organizations contribute to the sustainability and resilience of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Fluctuations: Buyers must address potential variability in crop yields due to crop rotation and diversification, implementing strategies to manage and predict supply chain fluctuations.
+
Higher Initial Costs: Buyers need to manage higher initial production costs resulting from diverse farming methods, ensuring procurement decisions align with budget constraints and efficiency goals.
+
Transition Period Challenges: Buyers should be aware of challenges suppliers may face during the transition to crop rotation and diversification, taking measures to minimize potential impacts on product availability and consistency.
+
Trade-offs
+
Cost vs. Sustainability: Buyers should strategically balance the higher costs of diverse farming methods against the desire to support environmentally sustainable and resilient agricultural practices, making procurement decisions that align with sustainability goals.
+
Consistency vs. Variety: Striking a balance between ensuring a consistent supply of products and offering a variety of goods requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and diversity.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers adopting crop rotation and diversification may face initial financial strain, requiring strategic resource allocation to mitigate the impact on competitiveness.
+
Transition Period Challenges: Suppliers transitioning to diverse farming methods must address challenges in adapting to new methods, implementing measures to maintain productivity during the transition.
+
Market Access Challenges: Suppliers without the means to adopt diverse farming practices may struggle with accessing markets that prioritize sustainability and diversification, necessitating strategic decisions to overcome barriers.
+
Trade-offs
+
Cost vs. Market Access: Suppliers must weigh the costs and challenges of transitioning to crop rotation and diversification against the potential market access and premium prices associated with sustainable and diversified products, ensuring a sound investment in diversified farming.
+
Innovation vs. Tradition: Allocating resources to adopt diverse farming methods involves trade-offs with traditional methods, necessitating suppliers to find a harmonious integration that maintains productivity.
+
Crop Yield vs. Sustainability: Balancing the desire for higher crop yields with the commitment to crop rotation and diversification may require trade-offs, with suppliers finding optimal solutions that align with environmental goals.
Creating sustainability KPIs to be implemented within procurement. These KPIs can help to track the impact of actions implemented through a sustainable sourcing strategy, and progress towards business and procurement sustainability commitments and targets.
","
To effectively implement Data Management in a Procurement Data Analytics context, a procurement organization should establish a comprehensive data governance framework, implement robust data security measures and privacy compliance, form clear collaboration agreements with suppliers/farmers, promote cross-functional collaboration, ensure high data quality standards, prioritize interoperable systems and integration capabilities, develop a scalable infrastructure, conduct regular audits for compliance, and invest in training programs for procurement professionals, creating a foundation for secure, collaborative, and strategic data use throughout the procurement value chain.
","
Once the strategic choices have been identified, take the time to identify KPIs that will enable tracking of progress and impact through implementation of the strategic choices. Aim to create as few KPIs as possible to give you the understanding you need while being realistic about data collection capabilities. There are a few levels that you could consider implementing KPIs at:
+
• Individual supplier/project level: Track progress of specific activities
+
• Category level: Track progress across a full category of interest e.g. tracking deforestation across the cocoa sourcing category
+
• Cross-category level: Tracking progress holistically across multiple categories
+
Aim to create KPIs that are a mix of:
+
• Leading KPIs: Activities that build towards positive impacts e.g. number of suppliers trained, or number of gender dis-aggregated farmers trained
+
• Lagging KPIs: Actual outcome measures that the procurement strategy will deliver e.g. % carbon mitigation, % farmers making living income
+
Ensure these KPIs are part of the procurement strategy tracking and implementation in combination with the usual procurement KPIs e.g. savings, inflation, OTIF. Consider including the sustainability KPIs in supplier scorecards and quarterly supplier business reviews.
","
Income Perspective
+
Market Access and Fair Pricing: Using data to report on quality, sustainability, and compliance allows farmers to meet evolving procurement KPIs, improving market access and supporting fairer pricing. Greater transparency can strengthen trust with buyers and contribute to higher income.
+
Efficient Resource Utilization: Data-driven insights enable farmers to allocate resources more effectively, lowering costs and improving profitability.
+
Environmental Perspective
+
Sustainable Agricultural Practices: Data on soil health, water use, and chemical applications helps farmers identify opportunities to adopt practices that reduce environmental impact while meeting buyer expectations.
+
Resource Conservation: Tracking KPIs beyond spend encourages efficient use of inputs such as water and fertilizer, leading to lower waste and a more sustainable production system.
","
1. Buyer Perspective
+
Risks
+
Data Security Concerns: Inadequate data security measures may lead to breaches, compromising sensitive procurement information and exposing the buyer to potential legal and financial consequences.
+
Increased Costs of Implementation: Implementing robust data management practices may entail significant upfront costs, impacting the buyer's budget and potentially leading to budget overruns.
+
Supplier Collaboration Challenges: Suppliers may face difficulties in adapting to collaborative data sharing, potentially affecting the buyer-supplier relationship and hindering information flow.
+
Trade-offs
+
Data Security vs. Accessibility: Buyers may face the trade-off between ensuring robust data security measures and providing easy accessibility to relevant stakeholders. Striking the right balance involves safeguarding sensitive information while facilitating necessary access.
+
Customization vs. Standardization: Buyers implementing data management systems may need to balance customization for specific needs and standardization for efficiency. The challenge is to tailor data solutions while maintaining standardized processes.
+
Cost of Technology vs. ROI: Buyers investing in data management technologies may face the trade-off between the initial cost of technology adoption and the expected return on investment (ROI). The challenge is to manage costs while realizing long-term benefits.
+
Data Analytics vs. Privacy Compliance: Buyers utilizing data analytics for insights must balance this with compliance with privacy regulations. Striking the right balance involves leveraging data analytics for informed decision-making while protecting individual privacy.
+
2. Supplier Perspective
+
Risks
+
Increased Reporting Burden: Suppliers may experience an increased reporting burden, potentially impacting operational efficiency and leading to resistance in adopting new data management practices.
+
Technology Adoption Challenges: Suppliers may struggle to adopt and integrate new technologies for data sharing, resulting in potential disruptions to their operations and compliance challenges.
+
Data Security Risks: Suppliers may face risks related to data security, especially if the buyer's data management practices do not meet industry standards, potentially exposing the supplier to cyber threats.
+
Trade-offs
+
Data Transparency vs. Confidentiality: Suppliers providing data may face the trade-off between transparency and confidentiality. The challenge is to share necessary information while protecting proprietary and confidential business details.
+
Resource Allocation vs. Data Requirements: Suppliers may need to allocate resources for meeting buyer data requirements, and this must be balanced against other operational needs. The trade-off involves optimizing resource allocation for both data compliance and overall efficiency.
+
Technology Adoption vs. Operational Impact: Suppliers adopting new technologies for data management may need to balance this with the potential impact on day-to-day operations. The challenge is to adopt efficient data management tools without disrupting regular business processes.
+
Data Quality vs. Timeliness: Suppliers must balance providing high-quality data with the need for timely delivery. Striking the right balance involves ensuring data accuracy while meeting the required timelines set by buyers.
",
Indirect
,
Indirect
,"
Based on old procurement framework of IDH and co-developmeent with Mars
+
Iterated by EY and based on interview process within the project
"
+8,Direct & Indirect Pre-Finance,"
Definition
+
Pre-financing options can support key strategic choices and help to catalyse sustainable sourcing initiatives. Typically used to help those upstream, who are implementing sustainable practices, access sufficient finance needed to start these actions. Direct pre-finance goes directly to the actor implementing the changes, e.g. direct to the farmer, while indirect pre-finance may go towards bank guarantees, development funds or NGOs that then support actors.
","
To implement direct and indirect finance interventions effectively in a procurement organization, it is crucial to have well-defined procurement objectives aligned with comprehensive financial planning, utilize advanced financial systems, ensure robust budgeting processes, establish a comprehensive risk management framework, maintain strong supplier relationship management practices, understand and adhere to financial regulations, implement stringent data security measures, continuously monitor performance using key indicators, and foster collaboration between procurement and finance teams.
","
Direct and Indirect Pre-Financing is an action for implementation that could emerge from many of the strategic choices selected, as it is about supporting capability building in the upstream supply chain. Choices it is most likely to be linked to include Mutual Supplier-Based Incentives, Upstream Supplier Tier Reduction, Supplier Capability Building, and Long-term Contracts.
+
If cash flow is limited and investment is needed in upstream supply chain actors, pre-financing may be required to enable action. Implementing such practices may be particularly important where, as a buyer, you have identified strategic priorities and risks to be managed that must be done by upstream actors and need resource from your business to enable initial investments and actions to be made.
+
As a buyer, you must understand the cash flow of upstream supply chain actors and how implementing new sustainable practices might impact this. To ensure these actors have the capability to implement these initiatives, the buyer may need to consider different approaches to financing to ensure upstream actors have healthy cash flows.
+
Examples of direct pre-financing:
+
• Advanced payments: Paying suppliers, farmers, or cooperatives a proportion of the cost of goods in advance to cover costs
+
• Providing inputs: Buying inputs needed, e.g. seeds, fertilizers, technology, to initiate actions that are then deducted from end costs
+
Examples of indirect pre-financing:
+
• Bank guarantees: Acting as a guarantor to a local bank, allowing farmers to access loans and reducing risk for the bank
+
• Partnerships with NGOs or development agencies: Collaboration and support for organisations that help farmers access financing and resources they need
","
1. Income Perspective
+
Farmers often face cash flow challenges due to seasonal variations and market uncertainties. Direct and indirect finance interventions can provide farmers with the necessary capital to invest in their operations, purchase seeds and equipment, and withstand economic fluctuations.
+
Improved access to finance allows farmers to make timely investments, leading to increased productivity, higher yields, and ultimately, improved income. It also provides a financial safety net during periods of low agricultural income.
+
2. Environment Perspective
+
Sustainable farming practices are essential for environmental conservation. Finance interventions can support farmers in adopting environmentally friendly technologies, implementing conservation practices, and transitioning to more sustainable agricultural methods.
+
Access to financing for sustainable practices, such as precision farming, organic farming, or water conservation, can contribute to soil health, biodiversity, and reduced environmental impact. It aligns with the global push for sustainable agriculture.
","
1. Buyer Perspective:
+
Cost of Capital:
+
Risk: Depending on the financial arrangements, the cost of obtaining capital through finance interventions may pose a risk. High-interest rates or fees could increase the overall cost of procurement for the buyer.
+
Tradeoff: The tradeoff involves finding a balance between securing necessary funding and managing the associated costs to ensure competitiveness and profitability.
+
Trade-offs
+
Cost of Finance vs. Procurement Efficiency: Buyers may face the trade-off between managing the cost of finance and optimizing procurement efficiency. Striking the right balance involves securing favorable financial terms without compromising the speed and effectiveness of procurement processes.
+
Risk Mitigation vs. Supplier Relationships: Buyers utilizing finance interventions for risk mitigation may need to balance this with the desire to maintain strong, collaborative relationships with suppliers. The challenge is to manage risks while fostering positive supplier partnerships.
+
Customization of Financial Solutions vs. Standardization: Buyers may seek customized financial solutions for different procurement scenarios but must balance this with the benefits of standardization for consistency. The trade-off involves tailoring financial approaches while maintaining standardized processes.
+
Long-Term Financial Planning vs. Short-Term Goals: Buyers must decide between focusing on long-term financial planning for sustainable procurement practices and addressing short-term procurement goals. Striking the right balance involves aligning financial strategies with both immediate needs and long-term sustainability.
+
2. Supplier Perspective
+
Access to Finance:
+
Risk: Suppliers may face challenges in accessing finance if they do not meet the buyer's financial criteria or if the financing process is complex.
+
Tradeoff: Tradeoffs involve meeting financial requirements while maintaining independence and ensuring that financial arrangements are supportive rather than restrictive.
+
Cost of Compliance:
+
Risk: Complying with the financial and contractual requirements set by the buyer may result in additional costs for suppliers.
+
Tradeoff: Suppliers need to evaluate the tradeoff between securing business from a particular buyer and the associated compliance costs. Negotiating fair terms is crucial.
+
Trade-offs
+
Cost of Finance vs. Profitability: Suppliers may face the trade-off between managing the cost of finance and maximizing profitability. The challenge is to secure financing options that contribute to financial stability without significantly impacting profit margins.
+
Cash Flow vs. Financing Terms: Suppliers may prioritize maintaining healthy cash flow but must balance this with the financing terms offered by buyers. The trade-off involves managing cash flow while accommodating the financial terms set by buyers.
+
Risk Management vs. Independence: Suppliers utilizing finance for risk management may need to balance this with the desire for financial independence. The challenge is to mitigate risks while preserving autonomy in financial decision-making.
+
Long-Term Financial Partnerships vs. Diversification: Suppliers may desire long-term financial partnerships with buyers, but this could conflict with the need for financial diversification. Striking the right balance involves pursuing stable financial relationships while diversifying funding sources.
",
Direct
,
Direct
,"
Based on old procurement framework of IDH and co-developmeent with Mars
+
Iterated by EY and based on interview process within the project
"
+9,Direct Farmer Contracting,"
Definition
+
Establish direct farmer contracting programs where they offer the fastest, most cost-effective way to implement sustainability strategies and manage risk, bypassing multiple supply chain tiers.
","
To effectively implement Direct Farmer Contracting Programs, a procurement organization must establish transparent communication channels, ensure legal compliance, conduct educational initiatives for farmers, integrate technology for monitoring, develop risk management strategies, establish fair pricing mechanisms, define quality standards, provide capacity-building for farmers, offer flexible contract terms, and collaborate with agricultural experts, fostering fair, transparent, and sustainable relationships in the agricultural supply chain.
","
When is this a strategic choice?
+
When the spend category is business critical and the value chain visibility analysis surfaces value chain actors who are adding cost (e.g. middle men, traders) and/or developing a greenfield site as a buyer. Depending on the outcome of the internal and external analysis, this may be the most competitive cost approach to secure supply and engage directly with farmers to mitigate identified risks.
+
What it means:
+
This is linked to other strategic choices such as Reducing Upstream Supply Tiers and Supplier Capability Building.
+
This will require resource either directly from a buyer’s business or to support identifying an implementation partner for a farmer.
+
• Direct resource could include providing direct funding through procurement-driven sustainability investments, providing technical know-how, or supporting the farmer to build professional skills such as business planning and accessing finance.
+
• Implementation partners could include, for example, identifying in-country partners to work directly with smallholder farmers to coordinate smallholder crop production improvement activities.
","
1. Income Perspective
+
Direct contracting often provides farmers with guaranteed prices, reducing uncertainties and ensuring more stable income. Also, establishing direct relationships with businesses opens up opportunities for capacity building and development, contributing to increased productivity and income.
+
2. Environment Perspective
+
Direct Farmer Contracting programs can promote sustainability as companies can enforce their environmental standards directly with the farmers, encouraging and ensuring sustainable farming practices are in place.
","
1. Buyer Perspective
+
Risks
+
Supply Variability: Direct contracts with individual farmers may expose buyers to supply variability influenced by weather conditions and other uncontrollable factors.
+
Dependency on Localized Sources: Relying on local farmers may lead to limited geographic diversity, posing risks in the event of local disruptions.
+
Contract Non-Compliance: Farmers may face challenges in meeting contract terms, leading to potential disruptions in the supply chain.
+
Trade-offs
+
Supply Chain Control vs. Farmer Independence: Buyers may face the trade-off between maintaining strict control over the supply chain through direct farmer contracting and allowing farmers greater independence. Deciding on the right balance involves assessing the level of control needed versus empowering farmers.
+
Quality Assurance vs. Cost Competitiveness: Buyers must balance the assurance of product quality through direct contracts with the need for cost competitiveness. Striking the right balance involves ensuring quality while remaining economically competitive in the market.
+
Risk Sharing vs. Farmer Viability: Buyers may opt for risk-sharing arrangements with farmers to manage uncertainties, but this must be balanced against ensuring the financial viability of individual farmers. Deciding on the level of risk sharing involves considering the economic sustainability of farmers.
+
Sustainability Goals vs. Operational Efficiency: Buyers may prioritize sustainability goals in direct farmer contracting programs, but this could impact operational efficiency. Balancing sustainability objectives with the need for streamlined operations is crucial.
+
2. Supplier Perspective
+
Risks
+
Price Volatility: Farmers may face risks associated with price volatility in agricultural markets, impacting their income.
+
Market Access Challenges: Dependence on a single buyer may limit farmers' access to other markets, reducing their bargaining power.
+
Input Cost Fluctuations: Fluctuations in input costs may affect farmers' profitability, especially if contracts do not account for these variations.
+
Trade-offs
+
Stable Income vs. Market Diversification: Farmers may face the trade-off between securing stable income through direct contracts and diversifying their market exposure. Striking the right balance involves managing income stability while avoiding over-reliance on a single buyer.
+
Access to Resources vs. Autonomy: Farmers must decide on the trade-off between accessing resources provided by buyers in direct contracts and maintaining autonomy in their farming practices. Balancing resource support with the desire for independence is essential.
+
Risk Reduction vs. Profit Potential: Farmers may opt for direct contracts to reduce production and market risks, but this may come with limitations on profit potential. Deciding on the right balance involves assessing risk tolerance and profit expectations.
+
Long-Term Stability vs. Flexibility: Farmers may seek long-term stability through direct contracts, but this could limit their flexibility to adapt to changing market conditions. Finding the right balance involves considering the benefits of stability against the need for adaptability.
",
Direct
,
Indirect
,"
IDH Interview Sessions
+
Nespresso Example, Norwegian & Pakstanian Rice producer
"
+10,Fair Pricing and Flexible Payment Terms,"
Definition
+
Use fair pricing, milestone payments, partial prepayments, or shorter payment cycles to support direct farmer contracting, supplier capability building, and other strategic relationship models.
","
To effectively implement Fair Pricing Negotiation Practices, a procurement organization should conduct thorough market research, maintain transparent cost structures, establish fair and ethical sourcing policies, provide negotiation skills training, utilize data analytics for price trends, implement Supplier Relationship Management practices, ensure legal and regulatory compliance, encourage cross-functional collaboration, define clear contractual terms, establish performance metrics and monitoring mechanisms, and promote supplier diversity and inclusion, fostering a transparent, ethical, and collaborative approach to pricing negotiations.
","
Being cognisant of cash flows and investment needs of upstream supply chain actors may require implementation of fair pricing and flexible payment terms. Implementing such practices may be particularly important where, as a buyer, you have identified strategic priorities and risks to be managed that must be done by upstream actors and need resource from your business to enable initial investments and actions to be made.
+
As a buyer, you must understand the cash flow of upstream supply chain actors and how implementing new sustainable practices might impact this. To ensure these actors have the capability to implement these initiatives, the buyer may need to consider different approaches to financing to ensure upstream actors have healthy cash flows.
+
Similarly, even if not asking upstream suppliers to implement new practices, as a buyer you should be conscious of whether your current payment terms are inhibiting healthy cash flow for upstream suppliers. This could be creating risk in itself by limiting supplier and farmer ability to implement their own improvements.
","
Income Perspective
+
Fair, transparent pricing linked to quality and sustainability premia lifts farm income and rewards good practice. Shorter payment periods and milestone or partial payments smooth cash flow, improve planning, and reduce reliance on expensive credit. Pre finance for inputs enables timely purchase of seed, fertilizer, and services, supporting higher yields and more reliable revenue.
+
Environmental Perspective
+
Stable cash flow and input pre finance make it feasible to invest in soil health, efficient water use, and low impact pest management. When premia are tied to verified outcomes, farmers are paid for reduced inputs and positive environmental results, reinforcing adoption over time.
+
Risk Perspective
+
Predictable payments and advances cut cash flow gaps that lead to distress sales or under application of inputs. Transparent price formulas and floors reduce exposure to market swings. Timely working capital lowers the risk of missing planting windows and supports recovery after weather shocks.
+
Link to Procurement Organizations
+
Procurement partners must be clear on how they are ensuring a healthy cash flow for farmers, with little bureaucracy. Buyers can operationalize this through clear pricing formulas, documented premia for verified practices, prompt payment targets, and payment schedules aligned to the crop calendar. Offering pre finance or input on account, with fair deductions at delivery, plus simple dispute resolution, builds trust and supply continuity while advancing climate and nature goals.
","
1. Buyer Perspective
+
Risks
+
Higher Costs: Strict adherence to fair pricing practices may lead to higher procurement costs for buyers.
+
Supplier Resistance: Suppliers might resist fair pricing negotiations, potentially impacting the buyer's ability to secure competitive rates.
+
Market Competition: Intense market competition may limit the effectiveness of fair pricing negotiations, particularly in situations with a limited supplier pool.
+
Trade-offs
+
Cost Savings vs. Fairness: Buyers may face the trade-off between pursuing cost savings through rigorous negotiations and ensuring fairness in pricing for suppliers. Striking the right balance involves negotiating for favorable terms while respecting fair pricing practices.
+
Competitive Bidding vs. Relationship Building: Buyers must decide between competitive bidding processes that focus on price and relationship-building approaches that consider fairness. The trade-off involves balancing the pursuit of cost-effective solutions with the desire to foster long-term relationships with suppliers.
+
Market Competition vs. Supplier Relationships: Buyers navigating fair pricing negotiations may find that intense market competition limits the effectiveness of such negotiations, particularly in situations with a limited supplier pool. The trade-off involves managing market dynamics while maintaining strong supplier relationships.
+
Timeliness vs. Thorough Negotiation: Buyers may need to balance the desire for timely negotiations with a thorough examination of pricing terms. Striking the right balance involves efficient negotiation processes without compromising the depth of the evaluation.
+
2. Supplier Perspective
+
Risks
+
Reduced Profit Margins: Accepting fair pricing may result in reduced profit margins for suppliers.
+
Loss of Competitive Edge: Strict adherence to fair pricing may limit a supplier's ability to offer lower prices compared to competitors.
+
Financial Strain: If fair pricing practices are not universally adopted, suppliers might face financial strain compared to those not adhering to fair pricing.
+
Trade-offs
+
Profitability vs. Fairness: Suppliers face the trade-off between maximizing profitability and adhering to fair and transparent pricing practices. Balancing the desire for profit with a commitment to fair pricing contributes to sustainable and ethical business practices.
+
Stability vs. Cost Competitiveness: Suppliers may weigh the benefits of stable, long-term relationships with buyers against the need to remain cost-competitive in the market. The trade-off involves maintaining stability while ensuring competitiveness in pricing.
+
Relationship Building vs. Market Exposure: Suppliers may need to balance building strong relationships with buyers against the desire for exposure to a broader market. The trade-off involves fostering collaboration with key buyers while exploring opportunities in the wider marketplace.
+
Innovation vs. Budget Constraints: Suppliers may desire to innovate in their offerings, but budget constraints imposed by fair pricing negotiations can limit these initiatives. Striking a balance involves finding innovative solutions within the constraints of negotiated pricing terms.
Apply relevant certifications where corporate or brand-level commitments exist or where certifications have been identified as strategic levers to achieving goals.
","
1. Enabling Conditions for Fair Trade Certifications in a Procurement Organization:
+
Sustainable Procurement Policies: Development of procurement policies that prioritize fair trade certifications, emphasizing the inclusion of products from suppliers adhering to ethical labor practices, fair wages, and environmentally sustainable production.
+
Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of fair trade principles and certifications, promoting awareness and commitment to ethical sourcing.
+
Supplier Collaboration: Collaboration with suppliers committed to fair trade practices, fostering partnerships, and incentivizing the adoption of socially responsible and sustainable farming methods within the supply chain.
+
Commitment of the procurement organization: Utilization or establishment of recognized fair trade certification standards, ensuring authenticity and compliance in the procurement process, and supporting transparency in supply chain practices.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers holding fair trade certifications, promoting stability and incentivizing continued commitment to fair and ethical trading practices.
+
2. Enabling Conditions for Fair Trade Certifications on a Farm Level:
+
Fair Labor Practices: Implementation of fair labor practices, including fair wages, safe working conditions, and protection of workers' rights, contributing to social sustainability and fair trade certification eligibility.
+
Environmental Sustainability: Adoption of environmentally sustainable farming methods, such as organic farming or agroecological practices, to align with fair trade certification requirements that emphasize environmental responsibility.
+
Community Engagement: Active engagement with local communities, ensuring their participation and benefit from fair trade practices, promoting social inclusivity and responsible business conduct.
+
Transparent Supply Chains: Implementation of transparent supply chain practices, including traceability and documentation, to facilitate fair trade certification processes and demonstrate adherence to ethical standards.
+
Technical Support: Access to technical support and extension services to assist farmers in meeting fair trade certification requirements, optimizing their ability to comply with the necessary standards.
+
Successful implementation of fair trade certifications requires a commitment to ethical practices, collaboration, ongoing education, and the integration of fair trade principles into the core of farming and procurement strategies.
","
Fair Trade or Organic Certification is most likely to emerge as an action for implementation through selection of Selecting a Sustainability Certification as a strategic choice.
+
These certifications can provide assurance that the supply chains involved are mitigating certain risks and negative impacts, e.g. ensuring living incomes are met for farmer and avoiding environmental damage through excessive use of agrochemicals. If these have been identified as significant risks in the value chain, certification can be a strategic lever to minimising these risks in your supply chain.
+
This will mean an increase in cost of goods for the certification premium. It may also impact availability of the product, both volume and possible sourcing locations. For some commodities, sufficient certified volumes may be readily available. For others, this may require working with suppliers and upstream farmers to build certified volume, increasing costs even further. These impacts on costs should have been accounted for during the strategic choice selection process.
","
Environmental Perspective
+
Both certifications encourage practices that build soil health, conserve biodiversity, and reduce chemical use. This improves ecosystem resilience, lowers pollution, and supports long term farm productivity.
+
Income Perspective
+
Certification can secure premium or minimum prices, providing farmers with higher and more predictable income. Reduced dependence on synthetic inputs in organic systems can lower costs over time, while Fairtrade often channels funds into community development that creates additional livelihood opportunities.
+
Risk Perspective
+
Price floors and premium markets reduce exposure to volatile commodity prices and create stable income streams. Organic production reduces environmental risks such as soil degradation and water contamination, while Fairtrade networks strengthen social resilience and provide support during market or climate shocks.
+
Link to Procurement Organizations
+
Procurement partners must be clear within their business that this is a strategic choice for the long term. By recognizing and rewarding certified products, procurement organizations open access to differentiated markets and signal long term demand for sustainable production. Incentives, technical support, and clear sourcing commitments help farmers maintain certification, aligning farm level practices with company goals on ethical, sustainable supply.
","
1. Buyer Perspective:
+
Risks
+
Higher Costs: Buyers must evaluate the potential impact on the procurement budget due to the higher production costs associated with fair trade products.
+
Supply Chain Complexity: Buyers need to anticipate and manage complexities introduced into the supply chain by fair trade certifications to ensure logistics efficiency.
+
Market Competition: Buyers may encounter challenges in markets where consumers prioritize lower prices, potentially affecting the competitiveness of fair trade products.
+
Trade-offs
+
Cost vs. Ethical Sourcing: Buyers must make decisions that balance the potential cost implications of fair trade products with the desire to support ethical labor practices, fair wages, and environmentally sustainable production methods.
+
Consistency vs. Diversity: Achieving a balance between a consistent supply from traditional sources and the diverse range of fair trade products requires strategic decision-making in procurement offerings.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers adhering to fair trade certifications need to address potential financial strain resulting from higher production costs.
+
Certification Costs: Suppliers must manage additional administrative and certification-related costs associated with obtaining and maintaining fair trade certifications.
+
Market Access Challenges: Suppliers may face difficulties accessing markets that prioritize lower-priced products over fair trade certifications.
+
Trade-offs
+
Cost vs. Market Access: Suppliers should carefully weigh the costs and challenges of fair trade certifications against potential market access and premium prices associated with ethical and sustainable practices.
+
Innovation vs. Tradition: Allocating resources to adhere to fair trade certifications may divert attention and resources from traditional production methods, requiring suppliers to find a balanced approach.
+
Short-Term Costs vs. Long-Term Benefits: Suppliers need to balance the short-term financial implications of fair trade certifications with the potential long-term benefits in terms of brand reputation, market access, and social responsibility.
Group certification programmes allow a number of small-scale farmers to become certified together, with a single certificate covering the group rather than individual farmers. All farmers in the group must adhere to the same set of controls to ensure compliance with the certification’s standards. Using group certification reduces costs for the individual famer making certification more accessible.
","
Enabling conditions and prerequisites in a procurement organization to effectively and successfully implement Sustainable Agricultural Certification Premiums include:
+
1. Clear Sustainability Criteria
+
Prerequisite: Establish clear and well-defined sustainability criteria aligned with recognized agricultural certifications.
+
2. Engagement with Certification Bodies:
+
Prerequisite: Collaborate with reputable agricultural certification bodies to align premium criteria with industry-recognized standards.
+
3. Supplier Education and Training:
+
Prerequisite: Provide education and training programs for suppliers on sustainable agricultural practices and certification requirements.
+
4. Transparent Premium Structure:
+
Prerequisite: Design a transparent premium structure outlining the criteria for receiving sustainable agricultural certification premiums.
+
5. Monitoring and Verification Systems:
+
Prerequisite: Implement robust systems for monitoring and verifying supplier adherence to sustainability criteria.
+
6. Financial Capacity:
+
Prerequisite: Ensure financial capacity within the organization to fund sustainable agricultural certification premiums.
+
7. Legal and Ethical Compliance:
+
Prerequisite: Ensure compliance with legal and ethical standards in premium structures and supplier engagement.
+
8. Promotion of Certification Benefits:
+
Prerequisite: Actively promote the benefits of sustainable certifications and associated premiums to suppliers.
+
9. Stakeholder Collaboration:
+
Prerequisite: Collaborate with stakeholders such as farmers, certification bodies, and industry groups to build support for sustainable agriculture.
","
Group Certification Programmes is most likely to emerge as an action for implementation through selection of Selecting a Sustainability Certification as a strategic choice.
+
Implementing a group certification programme may be necessary if sustainability certification has been identified as a strategic choice, but sufficient supplies of certified commodities are not readily available in your current, and future, supply chain. Group certification programmes can be a cost efficient way to create a supply of certified commodities by allowing small-scale farmers and producers to obtain certification with lower costs required individually.
+
The buyer and supplier should assess the opportunities for group certification programmes, the expected up-front investment cost and the expected cost avoidance and risk mitigation opportunities that come from its implementation. Such investments should be captured in the Cost of Goods model.
","
1. Income Perspective
+
Group certification can open up access to premium markets, leading to higher sales and income for farmers. Reduced individual costs of certification mean more funds are available for other operational investments, potentially increasing productivity and income.
+
2. Environment Perspective
+
Group certification programs often require farmers to adopt sustainable practices to meet certification standards. This encourages environmentally-friendly farming, which can lead to better environmental outcomes in the farming community.
","
1. Buyer Perspective
+
Risks
+
Complex Coordination: Coordinating multiple suppliers for a group certification program may introduce complexity in logistics and communication.
+
Dependence on Group Compliance: Relying on group compliance may pose a risk if individual suppliers fail to maintain the required standards, impacting overall certification.
+
Challenges in Group Alignment: Achieving alignment among diverse suppliers in terms of practices and commitment to certification may be challenging.
+
Trade-offs
+
Cost Efficiency vs. Customization: Buyers may face the trade-off between achieving cost efficiency through group certification programs and providing customization to individual suppliers. Striking the right balance involves optimizing group benefits without compromising the unique needs of each supplier.
+
Risk Mitigation vs. Supplier Independence: Buyers using group certification programs may seek risk mitigation through standardized processes, but this could affect the independence of individual suppliers. The trade-off involves managing risks while preserving the autonomy of suppliers.
+
Supplier Collaboration vs. Competitive Edge: Buyers promoting collaboration among suppliers through group certification programs may need to balance this with the potential loss of a competitive edge for individual suppliers. The challenge is to foster collaboration while maintaining a competitive marketplace.
+
Long-Term Sustainability vs. Short-Term Goals: Buyers must decide between pursuing long-term sustainability objectives through group certification and achieving short-term procurement goals. Striking the right balance involves aligning group efforts with broader sustainability goals.
+
2. Supplier Perspective
+
Risks
+
Loss of Autonomy: Suppliers may feel a loss of autonomy in adhering to group certification requirements, potentially affecting their individual brand image.
+
Free-Rider Phenomenon: Some suppliers within the group may benefit from certification without actively contributing to sustainable practices, creating a ""free-rider"" scenario.
+
Complexity in Adherence: Adhering to group certification standards may be challenging for suppliers with diverse operations and practices.
+
Trade-offs
+
Group Benefits vs. Individual Recognition: Suppliers may face the trade-off between benefiting from group certification programs and seeking individual recognition for their sustainability efforts. The challenge is to leverage group benefits while showcasing unique contributions.
+
Compliance Costs vs. Group Support: Suppliers may incur compliance costs for group certification, but this must be balanced against the support and resources provided by the group. The trade-off involves managing costs while leveraging the collective strength of the group.
+
Market Access vs. Autonomy: Suppliers participating in group certification programs may gain enhanced market access, but this could impact their autonomy in decision-making. The challenge involves accessing markets collaboratively while preserving individual business strategies.
+
Resource Allocation vs. Certification Standards: Suppliers may need to allocate resources effectively to meet group certification standards, but this must be balanced against the potential impacts on overall resource allocation. The trade-off involves optimizing resources for both group compliance and individual operational efficiency.
",
Indirect
,
Indirect
,
How Much Does Rainforest Alliance Certification Cost? | Rainforest Alliance (rainforest-alliance.org)
+13,Integrated Pest Management (IPM),
Definition: Integrated Pest Management is an approach to the management of pests on farms in an ecologically sensitive way. The approach combines knowledge of pest lifecycles and natural pest control from beneficial predator insects or disease resistant crops. Synthetic pesticides are only used when required.
,"
1. Enabling conditions in a Procurement Organization:
+
Clear Policies and Guidelines: Establishing comprehensive policies and guidelines that prioritize the adoption of IPM practices in the procurement of agricultural products.
+
Supplier Collaboration: Collaborating with suppliers to ensure their adherence to IPM principles, promoting sustainable and environmentally friendly pest control methods.
+
Education and Training: Providing education and training programs for procurement staff to enhance awareness and understanding of IPM practices.
+
Monitoring and Auditing: Implementing regular monitoring and auditing processes to assess supplier compliance with IPM principles and identify areas for improvement.
+
Incentives for Sustainable Practices: Offering incentives or rewards for suppliers who demonstrate effective implementation of IPM and sustainable pest management practices.
+
2. Enabling conditions on the farm level:
+
Integrated Pest Management Plan: Developing and implementing a comprehensive IPM plan tailored to the specific characteristics and challenges of the farm.
+
Crop Rotation and Diversity: Incorporating crop rotation and diverse plantings to disrupt pest cycles and create less favorable conditions for pests.
+
Biological Control: Utilizing natural predators, parasites, or pathogens to control pest populations and reduce reliance on chemical pesticides.
+
Monitoring Systems: Establishing regular monitoring systems to detect pest populations early and assess the effectiveness of control measures.
+
Community Engagement: Engaging with the local community, neighboring farms, and agricultural extension services to share knowledge and collectively address pest management challenges.
+
Continuous Improvement: Emphasizing a commitment to continuous improvement by regularly reviewing and updating IPM strategies based on monitoring results and emerging pest threats.
+
Both in a procurement organization and on a farm, a holistic and collaborative approach that integrates sustainable and environmentally friendly pest management practices is key to successful implementation of Integrated Pest Management.
","
Integrated pest management is most likely to emerge as an action for implementation if you have identified the following strategic choices: Regenerative Agriculture, Smallholder Crop Production, Selecting a Sustainability Certification, Precision Agriculture, or Supplier Capability Building.
+
Implementation of integrate pest management can bring the following benefits:
+
• Improve farmer gross margin and income through the avoidance of expensive synthetic agrochemical inputs
+
• Improve yield and minimise disruption of supply due to pests
+
• Allow better yields for longer on the same land through avoiding environmental damage to soil and the wider ecosystem through excessive application of synthetic agrochemicals
+
Implementing this requires a long-term commitment to upskilling and capability building either with direct suppliers to cascade up the supply chain or, if pursuing Direct Farmer Contracting, directly with farmers. The resource requirements for this training and capability building must be clarified with suppliers as part of the Cost of Goods model, developed as part of the procurement strategy.
","
1. Environmental Perspective:
+
Biodiversity Preservation: IPM emphasizes the use of diverse and ecologically sustainable pest control methods, promoting biodiversity by avoiding the negative impact of broad-spectrum pesticides on non-target species.
+
Soil and Water Conservation: Reduced reliance on chemical pesticides in IPM practices contributes to the conservation of soil quality and water resources, supporting environmental sustainability.
+
2. Income Perspective:
+
Cost Savings: While implementing IPM practices may require initial investment in training and monitoring, farmers can achieve long-term cost savings by reducing expenses on chemical inputs and potentially benefiting from government incentives for sustainable practices.
+
Access to Premium Markets: Farmers adopting IPM may gain access to premium markets that prioritize products produced using environmentally friendly and ecologically sustainable pest control methods, contributing to increased income.
+
3. Risk Perspective:
+
Reduced Dependency on Chemicals: IPM reduces the risk of developing pesticide-resistant pests, addressing a significant challenge in conventional agriculture. This enhances the long-term effectiveness of pest control strategies for farmers.
+
Health and Safety: IPM minimizes the health and safety risks associated with the handling and exposure to chemical pesticides, creating a safer working environment for farmers.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are crucial in providing access to inputs and resources. By supporting and incentivizing the adoption of IPM practices, procurement organizations contribute to the sustainable farming practices of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Potential Supply Chain Disruptions: Buyers must carefully manage the implementation of IPM to avoid disruptions in the availability of agricultural products, ensuring a stable and reliable supply chain.
+
Higher Costs: Buyers need to strategically navigate higher production costs from IPM practices, balancing sustainability goals with efficient procurement to manage overall expenses.
+
Limited Product Availability: Implementing IPM practices requires buyers to assess potential impacts on product availability, making informed decisions that maintain a balance between consistency and variety.
+
Trade-offs
+
Cost vs. Sustainability: Buyers should strategically navigate the trade-off between cost considerations and supporting sustainable pest management practices, ensuring both economic efficiency and environmental responsibility.
+
Consistency vs. Variety: Balancing a consistent supply with a diverse range of products necessitates compromises, requiring buyers to find an optimal mix that meets both supply chain stability and product variety.
+
2. Supplier Perspective:
+
Risks
+
Financial Impact: Suppliers adopting IPM practices must strategically manage initial cost increases, ensuring the financial impact doesn't compromise their stability during the transition.
+
Competitive Disadvantage: Suppliers practicing IPM must focus on mitigating competitive disadvantages, emphasizing the added value of environmentally friendly practices to counterbalance potential higher costs.
+
Transition Challenges: Suppliers transitioning to IPM should address challenges effectively to minimize disruptions and maintain productivity during the adaptation period.
+
Trade-offs
+
Cost vs. Environmental Impact: Suppliers must strategically navigate the trade-off between managing costs and minimizing the environmental impact of pest management practices, ensuring a balance between financial efficiency and ecological responsibility.
+
Innovation vs. Tradition: Suppliers adopting IPM practices must integrate innovation efforts with traditional methods, ensuring a harmonious coexistence that doesn't compromise established workflows.
+
Market Access vs. IPM Adoption: Suppliers targeting environmentally conscious markets must weigh the benefits of market access against the costs and challenges of adopting and maintaining IPM practices, aligning their strategies with evolving consumer expectations.
Use long-term contracts to mutually provide financial stability and the basis to encourage suppliers to invest in sustainability improvements across environmental and human rights areas.
","
Enabling conditions for the effective implementation of long-term contracts in a procurement organization include establishing robust risk management strategies, ensuring clear performance metrics and key performance indicators (KPIs), fostering strong relationships with suppliers, conducting thorough due diligence on contractual terms, maintaining flexibility to accommodate changes, and implementing advanced contract management technologies to facilitate monitoring and compliance over extended periods.
","
When is this a strategic choice?
+
When you need to give your supplier the confidence to invest in the transformative practices for the long term. For example, the supplier investment required in building their capability to ensure living income is achieved for smallholder farmers in their upstream supply chain. This can be a means to enable and support supplier capability building to perform actions that meet a buyer’s identified strategic needs.
+
What it means:
+
• This requires a mind-set shift on your part as a buyer; moving from short-term transactional activities, to long-term, e.g. 5 year plus, cost horizons for strategic activities.
+
• Ensure as a buyer you have engaged with your supplier and identified a genuine opportunity for mutual value creation. For example, implementing a longer-term contract will remove volatility for you as a buyer and provide more secure income to the supplier.
+
• Watch out: Do not engage your supplier in this strategic choice if you are not certain that you can deliver, i.e. you are pushed internally to take advantage when markets are favourable. If you pull out of the contract in twelve months, this will damage trust and your reputation as a buyer.
","
1. Income Stability:
+
Long-term contracts provide farmers with a stable pricing structure, reducing income volatility and offering financial stability for their households.
+
2. Risk Mitigation:
+
By mitigating the impact of market price fluctuations, long-term contracts protect farmers from sudden downturns, preserving their income levels and ensuring financial security.
+
3. Investment Confidence:
+
The confidence provided by long-term contracts encourages farmers to make investments in technology, equipment, and sustainable practices, ultimately leading to increased productivity and income.
+
4. Financial Planning:
+
Long-term contracts enable effective planning for farmers, both in terms of crop cycles and financial management, contributing to better financial planning and increased farm productivity.
+
5. Incentive Alignment:
+
Aligning incentives in long-term contracts creates a collaborative environment where both farmers and buyers benefit from the success of the partnership, encouraging investment in sustainable and efficient farming practices.
+
6. Negotiation Empowerment:
+
Long-term contracts grant farmers greater negotiation power, allowing them to secure favorable terms and pricing structures that positively impact their income.
+
7. Trust Building:
+
The continuity of long-term relationships builds trust between farmers and buyers, fostering reliability, transparency, and mutual understanding, positively influencing income-related negotiations.
+
8. Sustainable Farming Practices:
+
Long-term contracts create a conducive environment for the adoption of sustainable farming practices, aligning with environmental stewardship goals and enhancing the quality of the farmers' products.
+
9. Financial Access:
+
The more secure financial outlook provided by long-term contracts makes it easier for farmers to access credit and investment opportunities, supporting increased productivity and income.
+
10. Crop Diversification:
+
Long-term contracts encourage crop diversification, allowing farmers to experiment with different crops and potentially increase their income through diversified revenue streams.
","
1. Buyer Perspective
+
Risks
+
Market Volatility: Long-term contracts may expose buyers to market fluctuations, impacting the competitiveness of pricing and terms over time.
+
Technological Obsolescence: Advancements in technology may render contracted goods or services outdated, leading to potential inefficiencies or obsolete solutions.
+
Changing Requirements: Evolving business needs could result in misalignment with the originally contracted goods or services, requiring modifications that may be challenging.
+
Trade-offs
+
Cost Certainty vs. Market Flexibility: Buyers may seek cost certainty through long-term contracts, but this can limit their ability to take advantage of market fluctuations or negotiate lower prices during periods of market decline.
+
Supplier Commitment vs. Competitive Bidding: Long-term contracts often require supplier commitment, but this can reduce the opportunity for competitive bidding, potentially limiting cost savings.
+
Risk Mitigation vs. Innovation: Long-term contracts provide stability and risk mitigation, but they may hinder the buyer's ability to quickly adopt new technologies or benefit from innovations in the market.
+
Relationship Building vs. Supplier Diversity: Developing strong relationships with a few suppliers in long-term contracts can enhance collaboration, but it may limit the diversity of suppliers and potential innovation from different sources.
+
2. Supplier Perspective:
+
Risks
+
Resource Commitment: Suppliers may face challenges adapting to changing market conditions or technology, potentially affecting their resource allocation and profitability.
+
Contract Inflexibility: Long-term contracts may limit a supplier's ability to adjust pricing or terms in response to unforeseen circumstances.
+
Dependency: Suppliers may become overly dependent on a single buyer, leading to vulnerability if the buyer faces financial issues or changes in strategy.
+
Trade-offs
+
Stable Revenue vs. Market Opportunities: Long-term contracts offer stable revenue, but suppliers may forego opportunities to take advantage of higher market prices or more lucrative contracts.
+
Production Planning vs. Flexibility: Long-term contracts allow for better production planning, but they may restrict a supplier's flexibility to adapt quickly to changing market conditions or technological advancements.
+
Cost Efficiency vs. Price Negotiation: Suppliers may achieve cost efficiency through long-term relationships, but this could limit their ability to renegotiate prices upward in response to increased costs or inflation.
+
Collaboration vs. Market Exposure: Building a collaborative relationship with a buyer in a long-term contract is beneficial, but it may limit a supplier's exposure to a broader market and potential new customers.
Shorten the supply chain when current purchasing practices limit influence over sustainability improvements. Closer relationships with upstream suppliers improve effectiveness, reduces costs (removing value chain actors that are not value adding), and reduces risk.
","
1. Strategic Alignment with Organizational Goals
+
Prerequisite: Ensure alignment with overall organizational goals and strategic objectives.
+
Enablement: Strategic alignment guides decision-making towards choices contributing to long-term success.
+
2. Internal Capability Assessment
+
Prerequisite: Evaluate the organization's internal capabilities, expertise, and capacity.
+
Enablement: Understanding internal strengths and limitations aids in determining the feasibility of in-house production.
+
3. Market Assessment and Supplier Evaluation
+
Prerequisite: Conduct a market assessment and evaluate potential suppliers.
+
Enablement: Comprehensive supplier evaluation ensures alignment with organizational needs and goals.
+
4. Comprehensive Cost Analysis:
+
Prerequisite: Conduct a thorough cost analysis for both in-house production and external procurement.
+
Enablement: Detailed cost insights facilitate informed decision-making and resource allocation.
+
5. Cross-Functional Collaboration:
+
Prerequisite: Encourage collaboration between procurement, production, and other relevant departments.
+
Enablement: Cross-functional collaboration enhances information sharing and a holistic approach to decision-making.
+
6. Risk Identification and Mitigation Strategies
+
Prerequisite: Identify potential risks associated with both options and develop mitigation strategies.
Prerequisite: Assess and ensure compliance with relevant regulations and standards.
+
Enablement: Compliance safeguards against legal issues and ensures ethical procurement practices.
+
8. Contract Management Expertise
+
Prerequisite: Have expertise in contract management for effective supplier relationships.
+
Enablement: Strong contract management ensures that external partnerships align with contractual expectations.
+
9. Scenario Planning
+
Prerequisite: Conduct scenario planning for various market conditions and internal capabilities.
+
Enablement: Scenario planning helps in anticipating potential changes and making adaptable decisions.
+
10. Continuous Monitoring and Evaluation
+
Prerequisite: Implement continuous monitoring and evaluation mechanisms post-implementation.
+
Enablement: Regular assessments ensure the ongoing relevance and effectiveness of the chosen Make vs. Buy strategy.
","
When is this a strategic choice?
+
When the spend category is business critical and the value chain visibility analysis surfaces value chain actors who are adding cost and not mitigating risk. This may also be a strategic choice when there are simply so many steps in the value chain that the ability to leverage influence to address environmental and social risks is significantly reduced.
+
What it means:
+
• Reviewing and repeating the supplier sustainability assessment and supplier segmentation activities for actors in the value chains of interest. This allows you to identify partners who have the commitment and the capability to mitigate the sustainability risks surfaced in the value chain risk assessment.
+
• Once these suppliers have been identified, the next step will be building and developing new supplier relationships with long term commitments.
","
Income Perspective
+
By working more directly with buyers and reducing layers of intermediaries, farmers gain clearer market access and greater income stability. Direct relationships can secure consistent demand, better prices, and access to technical and financial support, reducing reliance on fragmented or uncertain markets.
+
Environmental Perspective
+
Closer integration with buyers can align farm practices with corporate sustainability goals, encouraging reduced chemical use, improved soil and water management, and enhanced biodiversity. With fewer supply chain layers, monitoring and support for environmental improvements become more effective, leading to stronger outcomes on farm.
","
1. Buyer Perspective
+
Risks
+
Operational Complexity: In-house production may introduce operational complexities, including managing additional resources, technology, and expertise.
+
Investment Risk: Investing in production capabilities involves a significant upfront cost, which may not be justified if demand fluctuates.
+
Dependency on Internal Processes: Relying solely on internal processes may limit the buyer's agility in responding to market changes.
+
Trade-offs
+
Cost Efficiency vs. Control: Buyers may face the trade-off between achieving cost efficiency through outsourcing (buying) and maintaining greater control over processes through in-house production (making). Deciding on the right balance involves evaluating the importance of cost savings versus control.
+
Expertise Access vs. In-House Skills Development: Buyers must weigh the advantage of accessing external expertise through outsourcing against the potential benefits of developing in-house skills. The trade-off involves deciding between immediate access to specialized knowledge and building internal capabilities over time.
+
Risk Mitigation vs. Flexibility: Buyers may prioritize risk mitigation by outsourcing certain processes to specialized suppliers, but this could reduce the flexibility to make rapid changes internally. Balancing risk mitigation with the need for adaptability is crucial in the decision-making process.
+
Time-to-Market vs. Quality Control: Buyers may need to balance the desire for a rapid time-to-market through outsourcing against the need for stringent quality control in in-house production. Striking the right balance involves considering time constraints while ensuring product or service quality.
+
2. Supplier Perspective
+
Risks
+
Overdependence on a Single Buyer: Suppliers heavily reliant on a single buyer may face financial vulnerabilities if the buyer changes its production strategy.
+
Market Access Challenges: Suppliers relying solely on external sales may face challenges in accessing certain markets or industries.
+
Limited Control over Production: Suppliers may face risks associated with limited control over production processes and quality standards.
+
Trade-offs
+
Stability through Contracts vs. Market Volatility: Suppliers may face the trade-off between seeking stability through long-term contracts with buyers and navigating market volatility. Long-term contracts offer stability but may limit the ability to respond quickly to market changes.
+
Specialization vs. Diversification: Suppliers must decide between specializing in a particular product or service for a single buyer (making) and diversifying their offerings to cater to multiple buyers (buying). The trade-off involves assessing the benefits of specialization against the risks of dependence on a single buyer.
+
Economies of Scale vs. Customization: Suppliers may weigh the advantages of achieving economies of scale through serving multiple buyers against the customization requirements of individual buyers. The trade-off involves deciding between mass production efficiency and tailoring products or services to specific buyer needs.
+
Cash Flow Predictability vs. Market Dependency: Suppliers may prioritize cash flow predictability through long-term contracts, but this may result in dependency on specific buyers. Balancing cash flow stability with market diversification is essential for supplier sustainability.
Develop shared incentive programs to accelerate strategic implementation, especially when building supplier capability, reducing supplier tiers, or transitioning to direct sourcing relationships.
","
To effectively implement Performance-Based Incentives in procurement, a logical progression includes defining clear performance metrics, establishing transparent contractual agreements, developing robust data analytics capabilities, implementing effective Supplier Relationship Management (SRM), establishing communication and feedback mechanisms, defining performance evaluation criteria, designing flexible incentive structures, providing training and support programs, ensuring financial stability, and ensuring legal and ethical compliance, creating a conducive environment for continuous improvement and collaboration with suppliers.
","
When is this a strategic choice?
+
If it has been identified that effective mitigation of sustainability risks can only be achieved through long-term partnering with upstream supply chain actors, trust must be built to provide the foundation for an effective relationship.
+
What it means:
+
Committing to deep partnering and to genuinely understanding what is mutual for both buyer and supplier. This will require confronting and agreeing a fair balance of value creation and acceptance of risk for both parties.
+
This is important to consider when exploring actions such as Supplier Capability Building, Reducing Upstream Supplier Tiers, and Direct Farmer Contracting.
","
Income Perspective
+
Mutual incentive schemes increase farmer income by rewarding achievement of shared targets agreed with buyers. Aligning incentives to continuous improvement and efficiency creates additional opportunities to strengthen profitability while building longer term partnerships.
+
Environmental Perspective
+
When incentives are jointly tied to sustainability goals, farmers are encouraged to adopt practices that improve soil, water, and biodiversity outcomes. This supports climate resilience, long term productivity, and alignment with buyer commitments on sustainable sourcing.
","
1. Buyer Perspective
+
Risks
+
Financial Strain: Offering performance-based bonuses may strain the buyer's budget, especially if multiple suppliers are eligible for bonuses simultaneously.
+
Potential for Misalignment: There's a risk that the buyer's expectations for performance may not align with the supplier's capabilities, leading to disputes over bonus eligibility.
+
Supplier Dependence: Over-reliance on performance bonuses may create a dependency on bonuses rather than fostering sustainable long-term performance improvements.
+
Trade-offs
+
Cost Savings vs. Performance Quality: Buyers may face the trade-off between achieving cost savings and ensuring high performance quality through incentives. Striking the right balance involves aligning incentives with performance expectations without compromising cost-efficiency.
+
Contractual Rigidity vs. Flexibility: Buyers using performance-based incentives may grapple with maintaining contractual rigidity and allowing flexibility for suppliers to meet performance targets. The trade-off involves defining clear performance metrics while accommodating dynamic market conditions.
+
Risk Mitigation vs. Innovation: Buyers may use performance-based incentives for risk mitigation, but this could impact supplier innovation. Balancing risk management with fostering innovation involves setting incentives that encourage both reliability and continuous improvement.
+
Supplier Accountability vs. Relationship Building: Buyers may emphasize supplier accountability through performance-based incentives, but this may affect the overall relationship with suppliers. Striking the right balance involves holding suppliers accountable while fostering a positive working relationship.
+
2. Supplier Perspective
+
Risks
+
Unrealistic Performance Expectations: Suppliers may face challenges if the buyer sets overly ambitious or unrealistic performance targets.
+
Financial Dependence: Dependence on performance bonuses may create financial uncertainty if bonuses are not consistently achieved.
+
Operational Strain: Intense focus on bonus-driven metrics might strain the supplier's operations, potentially affecting overall service or product quality.
+
Trade-offs
+
Profitability vs. Performance: Suppliers may face the trade-off between maximizing profitability and meeting performance metrics to earn incentives. Balancing the desire for profit with the commitment to achieving performance targets is crucial for supplier success.
+
Resource Allocation vs. Incentive Earning: Suppliers may need to allocate resources effectively to meet performance targets, but this must be balanced against the potential for earning incentives. The trade-off involves optimizing resource allocation for both performance and profitability.
+
Stability vs. Variable Income: Suppliers relying on performance-based incentives may experience variability in income. The trade-off involves managing income stability while leveraging performance incentives as a revenue stream.
+
Long-Term Relationships vs. Short-Term Targets: Suppliers may need to balance building long-term relationships with buyers and meeting short-term performance targets for incentives. Striking the right balance involves aligning performance incentives with broader relationship-building objectives.
Deploy precision agriculture technologies to reduce environmental impacts and input costs on farms.
","
1. Enabling Conditions for Precision Agriculture in a Procurement Organization:
+
Data Integration Systems: Implementation of robust systems for collecting, integrating, and analyzing agricultural data to inform procurement decisions based on precise insights.
+
Technology Adoption: Adoption of cutting-edge technologies such as sensors, GPS, drones, and data analytics platforms to monitor and optimize agricultural processes.
+
Supplier Collaboration: Collaborative partnerships with suppliers who employ precision agriculture practices, fostering a seamless integration of technology-driven approaches throughout the supply chain.
+
Educational Programs: Training procurement staff on the principles and benefits of precision agriculture, enhancing their ability to make informed decisions.
+
Regulatory Compliance: Ensuring alignment with relevant regulations and standards related to data privacy, technology use, and environmental sustainability in precision agriculture.
+
2. Enabling Conditions for Precision Agriculture on a Farm:
+
Technology Infrastructure: Establishment of a reliable and efficient technology infrastructure, including high-speed internet and connectivity to support precision agriculture applications.
+
Data Management and Analysis: Implementation of robust data management systems and analytics tools to process and interpret data collected from precision agriculture technologies.
+
Skill Development: Continuous training and skill development for farm personnel to effectively operate and leverage precision agriculture tools and technologies.
+
Equipment and Sensor Integration: Integration of precision agriculture equipment, sensors, and monitoring devices into farm operations to optimize resource use and enhance overall efficiency.
+
Financial Investment: Availability of financial resources to invest in the initial setup and ongoing maintenance of precision agriculture technologies and equipment.
+
Sustainable Practices: Integration of precision agriculture with sustainable farming practices, considering environmental impact and resource conservation.
+
For both procurement organizations and farms, a holistic approach that combines technological infrastructure, data-driven decision-making, collaboration with stakeholders, and a commitment to sustainable practices is essential for successful implementation of precision agriculture.
","
Precision agriculture technologies are any technologies or practices which optimises agricultural inputs. For example, mapping the soil nutrient levels across a field and then adjusting fertiliser applications across the field to match the required nutrient levels.
+
When is this a strategic choice?
+
When you, as the buyer, have a clear understanding of current and future sourcing origins and are prepared to actively support suppliers in adopting precision agriculture systems.
+
What it means:
+
• As a buyer you are confident that your suppliers have both the capability and commitment to implement and sustain the technology infrastructure required for precision agriculture. This may include Geographic Information Systems (GIS), input optimisation tools, and precision machinery.
+
• As a buyer you are also prepared to provide any additional support needed, including investment capital if necessary.
+
• This strategy depends on suppliers maintaining long-term, trust-based relationships with producers at the farm level.
","
1. Environmental Perspective:
+
Reduced Environmental Impact: Precision agriculture minimizes the environmental impact of farming activities by precisely targeting inputs, minimizing runoff, and optimizing resource use. This supports environmental sustainability and conservation.
+
Soil and Water Conservation: By precisely managing inputs, precision agriculture helps farmers conserve soil quality and water resources, reducing the overall environmental footprint of farming.
+
2. Income Perspective:
+
Cost Savings: Precision agriculture technologies enable farmers to make more informed decisions, reducing input costs and improving overall operational efficiency. This leads to cost savings and increased profitability for farmers.
+
Increased Yields: Improved decision-making based on real-time data can lead to increased yields, contributing to higher income for farmers.
+
3. Risk Perspective:
+
Climate Resilience: Precision agriculture provides tools for farmers to adapt to climate variability by offering real-time data on weather patterns and allowing for more effective risk management.
+
Market Viability: Adoption of precision agriculture practices enhances the market viability of farmers by showcasing their commitment to sustainable and technologically advanced farming methods, reducing the risk of market exclusion.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are vital in providing access to advanced technologies and resources. By supporting and incentivizing the adoption of precision agriculture practices, procurement organizations contribute to the technological advancement and sustainability of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Initial Investment Costs: Buyers should strategically manage the upfront investment in precision agriculture, ensuring the technology aligns with long-term procurement goals without exceeding budget constraints.
+
Dependency on Technology: Buyers must assess and mitigate the risk of overreliance on precision agriculture technology by implementing backup systems and contingency plans for supply chain disruptions.
+
Data Security Concerns: Buyers need to address data security concerns by implementing robust cybersecurity measures, safeguarding sensitive information collected through precision agriculture.
+
Trade-offs
+
Cost vs. Efficiency: Buyers should make strategic decisions on the adoption of precision agriculture technology, weighing upfront costs against expected long-term efficiency gains in procurement and supply chain management.
+
Environmental Impact vs. Productivity: Deciding on the level of technology adoption involves a trade-off between potential environmental benefits and increased productivity, requiring buyers to find a balanced approach that aligns with sustainability goals.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers investing in precision agriculture must carefully manage financial strain, strategically allocating resources to ensure the adoption of technology doesn't compromise their stability.
+
Technological Skill Gaps: Suppliers should address skill gaps by investing in training or recruiting skilled personnel to effectively adopt and implement precision agriculture practices.
+
Market Access Challenges: Suppliers without means to adopt precision agriculture may face challenges accessing markets that prioritize technologically advanced practices, necessitating strategic decisions to overcome barriers.
+
Trade-offs
+
Cost vs. Competitiveness: Suppliers must strategically balance the costs of adopting precision agriculture with the potential for increased competitiveness in the market, ensuring a sound investment in technology.
+
Innovation vs. Tradition: Allocating resources to adopt new technologies involves a trade-off with traditional farming practices, requiring suppliers to find a harmonious integration that maintains productivity.
+
Market Access vs. Technology Adoption: Suppliers need to weigh the benefits of market access against the costs and challenges of transitioning to and maintaining precision agriculture practices, aligning their strategies with evolving buyer expectations.
Invest strategically where required improvements are not yet in place or need acceleration. Incentivise suppliers to adopt sustainability practices aligned with internal and external analysis.
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To enable financially robust and strategically impactful procurement-driven sustainability investments, a procurement organization should prioritize:
6. Strategic Supplier Engagement: Engaging with suppliers aligned with sustainability goals in a strategic manner.
+
7. Technology for Financial Insight: Leveraging technology tools for financial insight and reporting.
+
8. Return on Investment (ROI) Tracking: Establishing mechanisms to monitor and assess the financial outcomes of sustainability initiatives.
+
9. Continuous Improvement Culture: Fostering a culture of continuous improvement within the financial and strategic aspects of sustainability investments.
+
10. Regulatory Compliance Management: Incorporating financial planning to ensure compliance with environmental regulations.
","
When is this a strategic choice?
+
Based on the internal and external analysis – this will have been identified as an investment opportunity to support supplier improvements.
+
What it means:
+
When you need to give your supplier the confidence to invest in the transformative practices for the long term. This investment may take many forms – depending on your needs as the buyer and what is mutual for both buyer and supplier. For example:
+
• Long term contracts: Giving confidence to the supplier to invest in capability building
+
• Pre-financing agreements: Finance provided upfront to enable a supplier or farmer to cover costs needed to start an initiative. Investment comes back to the buyer further down the line.
+
• Cost of Goods Addition: When making a high-value purchase, a supplier/buyer agrees a minor additional percentage of the Cost Of Goods, enabling the supplier to invest in smallholder capability building. The percentage agreed can be decided based on a cost avoidance calculation done to understand the long term cost benefits of the capability building
+
• Performance Cost Model Incentives: Agreeing performance cost model incentives for the supplier, which reduce the buyers total cost of ownership. For example, price indexed to delivering high quality specifications, which brings efficiency by reducing waste for the buyer associated with receiving out-of-specification goods.
","
1. Supply Chain Resilience:
+
Environmental Perspective: Resilient supply chains, supported by sustainability investments, protect farmers from environmental risks, preserving their livelihoods.
+
Income Perspective: Stable supply chains ensure consistent income for farmers, reducing financial vulnerabilities associated with disruptions.
+
2. Quality Assurance:
+
Environmental Perspective: Implementing sustainable farming practices contributes to environmental conservation, ensuring the longevity of farming activities.
+
Income Perspective: High-quality products can command premium prices, positively impacting farmers' income.
+
3. Mitigating Supply Chain Risks:
+
Environmental Perspective: Sustainable farming practices reduce the risk of environmental degradation, safeguarding the long-term viability of farming.
+
Income Perspective: Mitigating supply chain risks ensures stable income for farmers, protecting them from financial uncertainties.
Income Perspective: Ensuring compliance protects farmers from legal issues, preserving their income and reducing financial risks.
+
5. Long-Term Supply Assurance:
+
Environmental Perspective: Sustainable practices contribute to the long-term availability of agricultural inputs, ensuring the sustainability of farmers' livelihoods.
+
Income Perspective: Consistent supply ensures long-term income stability for farmers, reducing the risk of income fluctuations.
+
6. Cost Efficiency:
+
Environmental Perspective: Sustainable practices contribute to resource efficiency and reduce environmental impact.
+
Income Perspective: Cost-efficient practices positively impact farmers' income by optimizing production processes and reducing waste.
+
7. Market Access and Premiums:
+
Environmental Perspective: Sustainability investments enhance the marketability of products, contributing to environmental sustainability.
+
Income Perspective: Access to premium markets and higher prices for sustainable products directly benefits farmers' income.
+
8. Community Engagement:
+
Environmental Perspective: Community engagement initiatives support sustainable and community-focused farming practices.
+
Income Perspective: Positive community engagement contributes to stable income for farmers, fostering a supportive local environment.
+
9. Risk Mitigation Through Training:
+
Environmental Perspective: Training in sustainable practices supports environmental conservation and adaptation to changing conditions.
+
Income Perspective: Risk mitigation through training ensures farmers can adapt to market demands, preserving their income and livelihoods.
","
1. Buyer Perspective
+
Risks
+
Higher Initial Investment: Implementing sustainability initiatives may require a higher upfront investment in eco-friendly products or services.
+
Uncertain Return on Investment (ROI): The long-term financial benefits of sustainability investments may be uncertain, making it challenging to quantify ROI accurately.
+
Market Volatility: Dependence on sustainability-sensitive suppliers may expose the buyer to market fluctuations, impacting the financial stability of the supply chain.
+
Trade-offs
+
Cost vs. Sustainability Impact: Buyers may face the trade-off of prioritizing lower costs versus making sustainable procurement decisions that may involve higher upfront expenses. Striking the right balance is crucial for achieving sustainability goals while managing costs.
+
Supplier Relationship vs. Sustainable Sourcing: Building strong relationships with existing suppliers may conflict with the pursuit of sustainability if those suppliers do not align with sustainable sourcing practices. Buyers must balance loyalty with the need for suppliers committed to sustainability.
+
Short-Term vs. Long-Term Sustainability Goals: Buyers may need to decide between meeting short-term procurement targets and pursuing more ambitious, long-term sustainability goals. Achieving immediate sustainability gains may conflict with broader, transformative initiatives.
+
Standardization vs. Customization for Sustainability: Standardizing procurement processes can enhance efficiency, but customization may be necessary for tailoring sustainability requirements to specific products or suppliers. Balancing standardization and customization is crucial for effective sustainable procurement.
+
2. Supplier Perspective
+
Risks
+
Increased Production Costs: Adhering to sustainability standards may lead to increased production costs, impacting the supplier's financial performance.
Market Exclusion: Suppliers not meeting sustainability standards may face exclusion from contracts, limiting market access and revenue opportunities.
+
Trade-offs
+
Cost Competitiveness vs. Sustainable Practices: Suppliers may face the trade-off of remaining cost-competitive while adopting sustainable practices, which might involve investments in eco-friendly technologies or certifications. Balancing these factors is essential for sustainable procurement partnerships.
+
Market Presence vs. Sustainability Credentials: Suppliers may need to weigh the importance of building a strong market presence against the need to invest in and showcase sustainability credentials. Striking the right balance ensures visibility and commitment to sustainability.
+
Flexibility vs. Compliance with Sustainable Standards: Suppliers may value flexibility in their operations, but strict compliance with sustainability standards may limit their operational freedom. Achieving compliance without compromising operational efficiency is a key trade-off.
+
Short-Term Profits vs. Long-Term Sustainability Investments: Suppliers may need to decide between prioritizing short-term profits and making long-term investments in sustainable practices. Balancing immediate financial gains with sustainable investments is critical for long-term success.
Definition: Adopt regenerative agriculture practices where internal commitments or identified value chain risks point to degradation in soil, nature, water, or biodiversity being priority areas to address. Regenerative agriculture approaches help mitigate risks using natural inputs and support long-term sustainability.
","
1. Enabling Conditions for Regenerative Agriculture in a Procurement Organization:
+
Sustainable Sourcing Policies: Development of procurement policies that prioritize regenerative agriculture practices, emphasizing the sourcing of products from farms employing regenerative principles.
+
Supplier Engagement: Collaborative partnerships with suppliers committed to regenerative agriculture, encouraging transparency and the adoption of sustainable practices.
+
Educational Initiatives: Providing training and education for procurement professionals to enhance their understanding of regenerative agriculture principles and the associated benefits.
+
Certification Standards: Utilizing or establishing certification standards that recognize and verify regenerative farming practices, ensuring authenticity and compliance in the supply chain.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers practicing regenerative agriculture to promote stability and encourage ongoing commitment to sustainable practices.
+
2. Enabling Conditions for Regenerative Agriculture on a Farm Level:
+
Holistic Farm Planning: Development of comprehensive farm plans that integrate regenerative agriculture principles, considering soil health, biodiversity, and ecosystem resilience.
+
Crop Rotation and Cover Crops: Implementation of crop rotation and cover cropping strategies to enhance soil fertility, reduce erosion, and promote biodiversity.
+
No-till Farming Practices: Adoption of no-till or reduced tillage methods to minimize soil disturbance and promote soil structure and carbon sequestration.
+
Agroforestry Integration: Integration of agroforestry practices, such as the planting of trees and perennial crops, to enhance biodiversity and provide ecosystem services.
+
Livestock Integration: Thoughtful integration of livestock into farming systems to mimic natural ecological processes, improve soil health, and contribute to nutrient cycling.
+
Community Involvement: Engagement with local communities, consumers, and agricultural extension services to raise awareness of regenerative agriculture and foster support for sustainable farming practices.
+
Both at the procurement organization and on the farm level, successful implementation of regenerative agriculture requires a commitment to sustainable principles, collaborative relationships, ongoing education, and the integration of regenerative practices into the core of farming and procurement strategies.
","
1. Cost Perspective:
+
Input Cost Reduction: Regenerative agriculture focuses on enhancing soil health and reducing the reliance on external inputs. This can lead to cost savings for agri-food companies by minimizing the need for synthetic fertilizers and pesticides.
+
Operational Efficiency: Improved soil health and biodiversity associated with regenerative practices contribute to operational efficiency, potentially reducing the need for extensive pest control and fertilization.
+
2. Revenue Perspective:
+
Market Differentiation: Agri-food companies adopting regenerative agriculture can differentiate themselves in the market by offering products with improved environmental and ethical credentials. This differentiation may attract consumers seeking sustainable and responsibly produced goods.
+
Premium Pricing: Products associated with regenerative agriculture may command premium prices due to their perceived environmental and health benefits, contributing to increased revenue.
+
3. Risk Perspective:
+
Supply Chain Resilience: Regenerative agriculture practices, such as diversified crop rotations and cover cropping, can enhance supply chain resilience by reducing vulnerability to climate-related risks, pests, and diseases.
+
Reputation Management: Agri-food companies adopting regenerative practices can mitigate reputational risks associated with environmental degradation and contribute to positive brand perception.
+
4. Link to Procurement Organizations:
+
The use of regenerative agriculture practices links back to procurement organizations as they influence the sourcing decisions of agri-food companies. Procurement teams play a role in establishing criteria that encourage suppliers to adopt regenerative practices, ensuring that the entire supply chain aligns with sustainability and regenerative goals.
","
Environmental Perspective
+
Practices such as cover cropping, reduced tillage, crop rotation, and integrating perennials build soil organic matter, improve water retention, and reduce erosion. Greater plant and microbial diversity strengthens ecosystems and enhances resilience. Lower reliance on synthetic fertilizers and chemicals reduces emissions, and regenerative systems can cut energy use through fewer field passes and input applications.
+
Income Perspective
+
Although transition may require upfront investment, long term cost savings come from reduced fertilizer, pesticide, and energy costs, alongside improved soil fertility and productivity. Access to markets that reward regenerative practices with price premiums or preferential sourcing further increases income potential.
+
Risk Perspective
+
Healthier soils and diversified systems improve resilience to drought, floods, and heat stress, reducing yield losses from climate volatility. Lower dependence on purchased inputs and fossil energy buffers farmers against price spikes and supply disruptions.
+
Link to Procurement Organizations
+
Regenerative agriculture approaches need time to implement. Procurement partners must be committed through a long-term sourcing strategy commitment to farmers to enable technical support and financial incentives. Recognizing regenerative outcomes and linking them to clear sustainability goals strengthens supply security while rewarding farmers for building resilient and climate positive production systems.
","
1. Buyer Perspective:
+
Risks
+
Higher Initial Costs: Buyers must carefully manage the potential increase in procurement expenses associated with higher production costs in regenerative agriculture, ensuring a balanced budget.
+
Variable Supply: Buyers need to address challenges related to variable crop yields in regenerative agriculture, implementing strategies to predict and manage supply fluctuations effectively.
+
Transition Period Challenges: Buyers should be aware of challenges suppliers may face during the transition to regenerative practices, taking measures to minimize potential impacts on product availability and consistency.
+
Trade-offs
+
Cost vs. Sustainability: Buyers should strategically balance the higher costs of regenerative agriculture against the desire to support environmentally sustainable and resilient farming practices, making procurement decisions that align with sustainability goals.
+
Consistency vs. Variety: Striking a balance between ensuring a consistent supply of products and offering a variety of goods requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and diversity.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers adopting regenerative agriculture may face initial financial strain, requiring strategic resource allocation to mitigate the impact on competitiveness.
+
Transition Period Challenges: Suppliers transitioning to regenerative practices must address challenges in adapting to new methods, implementing measures to maintain productivity during the transition.
+
Market Access Challenges: Suppliers without the means to adopt regenerative practices may struggle with accessing markets that prioritize sustainability and regenerative agriculture, necessitating strategic decisions to overcome barriers.
+
Trade-offs
+
Cost vs. Market Access: Suppliers must weigh the costs and challenges of transitioning to regenerative agriculture against the potential market access and premium prices associated with sustainable and regenerative products, ensuring a sound investment in regenerative practices.
+
Innovation vs. Tradition: Allocating resources to adopt regenerative practices involves trade-offs with traditional methods, necessitating suppliers to find a harmonious integration that maintains productivity.
+
Crop Yield vs. Sustainability: Balancing the desire for higher crop yields with the commitment to regenerative and sustainable farming practices may require trade-offs, with suppliers finding optimal solutions that align with environmental goals.
Definition: Where value chain visibility reveals reliance on smallholder farmers, support them in improving agricultural practices to manage sustainability risks and find opportunities to improve yield and supply security.
+
such as integrated pest management, soil conservation, and precision agriculture. This requires direct collaboration and supplier capability building.
","
1. Enabling Conditions of Small-Scale Crop Production in a Procurement Organization:
+
Inclusive Sourcing Policies: Establishment of inclusive procurement policies that prioritize the inclusion of small-scale farmers and their products in the supply chain.
+
Local Supplier Networks: Development of local supplier networks to connect with small-scale farmers, fostering collaboration and enabling their participation in procurement opportunities.
+
Fair Trade and Ethical Sourcing Standards: Adoption of fair trade and ethical sourcing standards to ensure fair compensation and ethical treatment of small-scale farmers in the supply chain.
+
Capacity Building: Implementation of capacity-building programs to empower small-scale farmers with the skills and knowledge needed to meet procurement requirements.
+
Financial Support: Provision of financial support or favorable payment terms to small-scale farmers to enhance their financial stability and facilitate their participation in procurement processes.
+
2. Enabling Conditions of Small-Scale Crop Production on the Farm Level:
+
Access to Resources: Provision of access to essential resources such as land, seeds, water, and credit to support small-scale farmers in crop production.
+
Training and Extension Services: Implementation of training programs and agricultural extension services to enhance the technical skills and knowledge of small-scale farmers.
+
Collective Action: Encouragement of collective action through farmer cooperatives or associations to strengthen the bargaining power of small-scale farmers in procurement negotiations.
+
Market Linkages: Establishment of direct market linkages between small-scale farmers and procurement organizations to facilitate the sale of their products.
+
Technology Adoption: Support for the adoption of appropriate agricultural technologies that enhance productivity and sustainability for small-scale farmers.
+
For both procurement organizations and small-scale farms, fostering collaboration, providing support, and implementing inclusive practices are essential for successful small-scale crop production that benefits both parties.
","
Smallholder crop production support can include agricultural practices such as integrated pest management, soil conservation, and precision agriculture. Such practices can help reduce negative environmental impacts, improve farmer crop yields, improve crop resilience to environmental changes and hence improve security of supply. Improving yields and crop resilience can subsequently improve level and stability of incomes for farmers.
+
When is this a strategic choice:
+
When value chain visibility surfaces smallholders as a key characteristic in a business’s value chain and environmental risks or social risks have been identified linked to these smallholders, leaning into supporting smallholders would be a strategic choice.
+
What it means:
+
• Smallholders usually have yield / knowledge gaps – which will need to be closed through training capability, this requires committed and long-term resource of implementing partners to be factored into cost of goods.
+
• Exploring the creation of co-operatives to facilitate capability building for large numbers of smallholders, is a practical management option.
+
• Long term commitments to smallholders through direct suppliers. Buyers must be prepared to create new pricing/cost models accounting for churn/loss of smallholders. Smallholder churn often occurs as smallholders are often ‘price takers’ taking a short term view of buyers, by taking the ‘best price’ the market has to offer.
","
1. Environmental Perspective:
+
Biodiversity Preservation: Small-scale crop production often involves diverse farming practices that support biodiversity and contribute to ecosystem health.
+
Sustainable Agriculture: Small-scale farmers are often more inclined to adopt sustainable and environmentally friendly practices, contributing to overall environmental conservation.
+
2. Income Perspective:
+
Market Access: Collaborating with agri-food companies provides small-scale farmers with broader market access, allowing them to sell their products to a wider audience and potentially increasing income.
+
Stable Incomes: Contractual agreements with agri-food companies can provide small-scale farmers with more stable and predictable incomes compared to traditional markets.
+
3. Risk Perspective:
+
Diversification of Income: Engaging with agri-food companies diversifies the income sources for small-scale farmers, reducing the risk associated with dependency on a single market or crop.
+
Access to Resources: Collaboration with agri-food companies may provide small-scale farmers with access to resources, technologies, and expertise that enhance their resilience to risks such as climate change and market fluctuations.
+
4. Link to Procurement Organizations:
+
For small-scale farmers, procurement organizations are crucial in providing access to markets and resources. By establishing partnerships and contracts with agri-food companies, procurement organizations contribute to the economic viability and sustainability of small-scale farmers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Supply Inconsistency: Buyers must address potential supply inconsistencies from small-scale crop production, implementing strategies to manage and predict procurement demands effectively.
+
Quality Variability: Buyers need to manage fluctuations in crop quality resulting from the variability in farming practices among small-scale producers, ensuring consistent product standards.
+
Limited Capacity: Buyers should be aware of the limitations small-scale farmers may face in meeting large-scale procurement requirements, taking measures to support them during peak demand periods.
+
Trade-offs
+
Cost vs. Local Impact: Buyers should strategically balance potential cost advantages of large-scale production with the desire to support local communities and small-scale farmers, making procurement decisions that align with social impact goals.
+
Consistency vs. Diversity: Striking a balance between ensuring a consistent supply from larger suppliers and offering the diversity of products from small-scale farmers requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and variety.
+
2. Supplier Perspective:
+
Risks
+
Market Access Challenges: Small-scale farmers must address challenges in accessing markets due to competition with larger suppliers, implementing strategies to overcome barriers and establish a market presence.
+
Limited Bargaining Power: Individual small-scale farmers should be aware of their limited bargaining power in negotiations with procurement organizations, strategizing to secure fair terms of trade.
+
Financial Vulnerability: Small-scale farmers need to mitigate financial vulnerability by diversifying their buyer base and reducing dependence on a single buyer or limited market access.
+
Trade-offs
+
Scale vs. Autonomy: Small-scale farmers must balance the potential advantages of larger-scale production with the desire to maintain autonomy and independence, making strategic decisions that align with their values and goals.
+
Efficiency vs. Sustainability: Small-scale farmers may face trade-offs between adopting more efficient practices and maintaining sustainability, requiring strategic decisions to meet procurement demands without compromising long-term environmental goals.
+
Market Access vs. Local Focus: Deciding on the extent to which small-scale farmers want to engage with larger markets while maintaining a focus on local and community needs involves trade-offs, requiring a thoughtful approach that aligns with their overall mission.
Introduce soil conservation practices where soil degradation threatens supply security or where carbon sequestration supports decarbonisation goals.
","
1. Enabling Conditions for Soil Conservation in a Procurement Organization:
+
Sustainable Sourcing Policies: Development of procurement policies that prioritize and support the inclusion of products from suppliers practicing soil conservation, emphasizing environmentally responsible and soil-enhancing agricultural practices.
+
Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of soil conservation practices and promote their integration into sourcing strategies.
+
Supplier Collaboration: Collaboration with suppliers committed to soil conservation, fostering partnerships, and incentivizing the adoption of sustainable farming practices within the supply chain.
+
Certification Standards: Utilization or establishment of certification standards that recognize and verify soil conservation practices, ensuring authenticity and compliance in the procurement process.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers practicing soil conservation to promote stability and incentivize continued commitment to sustainable and soil-friendly farming methods.
+
2. Enabling Conditions for Soil Conservation on a Farm Level:
+
Conservation Tillage Practices: Adoption of conservation tillage methods, such as no-till or reduced tillage, to minimize soil disturbance and erosion.
+
Cover Cropping: Integration of cover crops into farming practices to protect and enrich the soil, reduce erosion, and improve overall soil structure.
+
Crop Rotation: Implementation of crop rotation strategies to enhance soil fertility, minimize pest and disease pressure, and contribute to sustainable soil management.
+
Terracing and Contour Farming: Construction of terraces and use of contour farming techniques to reduce water runoff, prevent soil erosion, and promote water retention in the soil.
+
Technical Support: Access to technical support and extension services to assist farmers in implementing effective soil conservation practices, optimizing soil health and overall sustainability.
+
Successful implementation of soil conservation requires a commitment to sustainable practices, collaborative relationships, ongoing education, and the integration of soil-friendly principles into the core of farming and procurement strategies.
","
Soil Conservation is most likely to emerge as an action for implementation if you have identified the following strategic choices: Regenerative Agriculture, Smallholder Crop Production, Selecting a Sustainability Certification, Precision Agriculture, or Supplier Capability Building.
+
Implementation of soil conservation can bring the following benefits:
+
• Improve farmer gross margin and income through the avoidance of expensive synthetic agrochemical inputs like fertilisers
+
• Improve yield through enhanced soil fertility
+
• Help protect farmers against drought through better soil water retention
+
• Improve carbon sequestration of the soil. If appropriately set up, monitored, measured and accounted, this could contribute to business carbon reduction commitments. If certified, it could also create a secondary income stream through farmers selling carbon credits.
+
Implementing this requires a long-term commitment to upskilling and capability building either with direct suppliers to cascade up the supply chain or, if pursuing Direct Farmer Contracting, directly with farmers. The resource requirements for this training and capability building must be clarified with suppliers as part of the Cost of Goods model, developed as part of the procurement strategy.
","
1. Environmental Perspective:
+
Biodiversity Promotion: Soil conservation practices contribute to biodiversity by creating a healthier and more balanced ecosystem within agricultural landscapes.
+
Water Quality Improvement: Soil conservation helps prevent soil runoff, improving water quality and contributing to environmental sustainability.
+
2. Income Perspective:
+
Cost Savings: Farmers can achieve cost savings through soil conservation practices by reducing expenses related to soil inputs, erosion control measures, and potentially increasing overall income.
+
Diversified Income Streams: Soil conservation practices may create opportunities for farmers to diversify income streams, such as selling carbon credits or participating in conservation programs.
+
3. Risk Perspective:
+
Reduced Crop Failure Risk: Healthy soils resulting from conservation practices reduce the risk of crop failure by providing optimal conditions for plant growth and resilience against pests and diseases.
+
Climate Resilience: Soil conservation practices enhance climate resilience by improving soil structure and water retention, helping farmers adapt to changing weather patterns.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are crucial in providing access to markets and resources. By supporting and incentivizing the adoption of soil conservation practices, procurement organizations contribute to the sustainability and resilience of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Disruptions: Adoption of soil conservation practices may lead to variations in agricultural production and potential disruptions in the supply chain, affecting product availability.
+
Transition Costs: Suppliers implementing soil conservation practices may incur initial costs, potentially impacting product prices and affecting the overall procurement budget.
+
Certification Challenges: Ensuring adherence to certification standards related to soil conservation may pose challenges, requiring rigorous monitoring and verification.
+
Trade-offs
+
Cost vs. Sustainability: Balancing potential cost implications of products from suppliers practicing soil conservation with the desire to support environmentally responsible sourcing practices.
+
Consistency vs. Innovation: Striking a balance between consistent supply from traditional sources and the innovative adoption of soil conservation practices within the supply chain.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers adopting soil conservation practices may initially face higher costs, potentially causing financial strain and impacting competitiveness.
+
Transition Period Challenges: Implementation of new soil conservation techniques may pose challenges during the initial phases, affecting production efficiency and consistency.
+
Market Access Concerns: Suppliers may face challenges in accessing markets that prioritize traditional, non-conservation farming practices.
+
Trade-offs
+
Cost vs. Market Access: Suppliers may need to weigh the costs and challenges of adopting soil conservation practices against potential market access and premium prices associated with sustainable practices.
+
Innovation vs. Tradition: Allocating resources to adopt soil conservation practices may divert attention and resources from traditional production methods.
+
Short-Term Costs vs. Long-Term Benefits: Balancing the short-term financial implications of transitioning to soil conservation with the potential long-term benefits in terms of soil health, productivity, and environmental sustainability.
+
Addressing these risks and trade-offs requires careful planning, collaboration, and a long-term perspective from both buyers and suppliers in the procurement process.
",
Direct
,
Direct
,
Conservation agriculture- Case studies in Latin America and Africa (fao.org)
+22,Supplier Capability Building,"
Definition
+
Build supplier capabilities when internal or external analysis identifies gaps in delivering sustainability outcomes. Direct investment may be the most effective way to manage risks and secure competitive sourcing.
","
Enabling effective implementation of supplier capacity-building initiatives in a procurement organization involves conducting a thorough needs assessment, defining clear objectives, integrating initiatives into the overall procurement strategy, allocating sufficient resources, establishing transparent communication channels, building collaborative partnerships, developing targeted training programs, leveraging technology, implementing robust monitoring and evaluation mechanisms, and incorporating recognition and incentives, ensuring a conducive environment for suppliers' skill development and overall capacity improvement.
","
When is this a strategic choice?
+
When the spend category is business critical, based on the outcomes of the Incorporate Business Strategy intervention, and when a gap in supplier capability, identified in the Supplier Segmentation, has been identified as critical to overcome for optimising costs, ensuring security of supply, or mitigating risks.
+
What it means:
+
This will require resource either directly from a buyer’s business or to support identifying an implementation partner for a supplier.
+
• Direct resource could include providing direct funding through procurement-driven sustainability investments, providing technical know-how, or supporting the supplier to build quality assurance capability.
+
• Implementation partners could include, for example, identifying in-country partners to work directly with smallholder farmers to coordinate smallholder crop production improvement activities.
","
1. Income Perspective
+
All aspects of supplier capacity building will help farmers to increase their income. Enhanced productivity, improved product quality and market access, and access to financial resources all contribute to the potential for increased sales and profits. Additionally, longer-term partnerships can provide more predictable income streams for farmers.
+
2. Environment Perspective
+
Capacity building that promotes sustainable practices and efficient resource utilization fostincs environmentally-friendly farming. This doesn't just benefit the environment but also the farmers, as such practices can lead to healthier soil, increased resilience to climate change, and potential eligibility for certain grants or subsidies.
","
1. Buyer Perspective
+
Risks
+
Resource Intensity: Implementing capacity-building initiatives may require significant time and resources, impacting the buyer's budget and operational efficiency.
+
Dependency on Suppliers: Developing strong supplier capabilities may create a dependency on key suppliers, posing a risk in case of supplier-related disruptions.
+
Unrealized Returns: Despite investments, there is a risk that the expected returns in terms of improved supplier performance may not be fully realized.
+
Trade-offs
+
Short-Term vs. Long-Term Impact: Buyers may face the trade-off between addressing immediate procurement needs and making long-term investments in supplier capacity building. Balancing short-term requirements with the long-term impact on supplier capabilities is essential.
+
Cost vs. Quality in Capacity Building: Buyers may need to decide on the level of investment in supplier capacity building, considering the trade-off between cost considerations and the quality of the capacity-building initiatives. Striking the right balance ensures cost-effectiveness without compromising quality.
+
Speed vs. Thoroughness: Buyers may prioritize swift capacity-building initiatives, but this may come at the expense of a more comprehensive and thorough approach. Deciding between speed and thoroughness involves assessing the urgency of capacity building against the need for a robust program.
+
Focus on Strategic Suppliers vs. Inclusivity: Buyers may need to decide whether to concentrate capacity-building efforts on strategic suppliers or adopt a more inclusive approach. Balancing strategic focus with inclusivity requires assessing the impact on the entire supply chain.
+
2. Supplier Perspective:
+
Risks
+
Resource Strain: Suppliers may face resource strain in adapting to capacity-building requirements, especially if the initiatives demand substantial investments.
+
Dependence on Buyer's Strategy: Suppliers investing in capacity building may become overly dependent on the buyer's strategy, risking vulnerability if the buyer's priorities shift.
+
Competitive Imbalances: Capacity-building initiatives may inadvertently create imbalances among suppliers, impacting competition within the supplier base.
+
Trade-offs
+
Operational Disruption vs. Long-Term Benefits: Suppliers may face operational disruption during capacity-building initiatives, but they must weigh this against the long-term benefits of enhanced capabilities. Striking a balance involves managing short-term challenges for long-term gains.
+
Resource Allocation vs. Day-to-Day Operations: Suppliers may need to allocate resources to capacity building, impacting day-to-day operations. Deciding on the appropriate level of resource allocation involves considering the trade-off between immediate operational needs and building long-term capabilities.
+
Specialized Training vs. General Skills Enhancement: Suppliers may choose between providing specialized training for specific requirements or offering more general skills enhancement. Balancing these options requires assessing the trade-off between meeting immediate needs and building a versatile skill set.
+
Strategic Alignment vs. Independence: Suppliers may need to align strategically with the buyer's goals during capacity building, but this may affect their independence. Deciding the extent of strategic alignment involves evaluating the trade-off between collaboration and maintaining autonomy.
",
Indirect
,
Direct
,"
One of the key learning from IDH Interview sessions
Segment suppliers according to their sustainability commitment maturity and capability to support sustainability goals, identifying those best positioned to deliver strategic outcomes.
","
To effectively implement Supplier Segmentation in a procurement organization, key enabling conditions and prerequisites include establishing a comprehensive category calibration, evaluating business requirements, and developing strategic category strategies. Additionally, integrating supplier lifecycle management, ensuring effective accreditation, streamlining qualification and onboarding processes, and employing a structured segmentation approach based on criteria like performance, risk, innovation potential, geography, product category, and spend size are essential. Utilizing questionnaires, conducting regular segmentation analyses, implementing robust performance and risk management, and fostering proactive supplier development and innovation initiatives contribute to a successful Supplier Segmentation framework aligned with organizational goals.
","
Analyse suppliers based on their public disclosures or those shared in confidence with respect to sustainability commitments, strategies, KPIs, policies and actions. If you have conducted a Supplier Sustainability Assessment, the outputs of this will directly feed into this.
+
Create a simple 2x2 matrix to plot suppliers along two axes:
+
o Capability (e.g. business size, evidence of sustainability knowledge)
+
o Commitment (e.g. sustainability commitments, policies in place, actions to prevent or mitigate risks)
+
Use this segmentation to generate insights beyond cost. This could include risk exposure or risk reduction that suppliers may bring, even in areas not traditionally assessed in supplier evaluations.
+
Prioritise commitment over capability. Highly capable suppliers may lack meaningful sustainability commitments. Understanding this balance is critical to evaluating whether a supplier’s cost competitiveness is outweighed by the sustainability risks they may pose.
","
1. Income Perspective
+
Fair Pricing: Supplier segmentation allows farmers to be categorized based on factors like product quality, yield, and reliability. This enables fair pricing mechanisms, ensuring that farmers with high-quality products receive competitive prices, contributing to increased income.
+
Market Access Opportunities: By segmenting farmers, businesses can identify high-performing ones and provide them with increased market access, leading to expanded opportunities for sales and improved income.
+
2. Environment Perspective
+
Sustainable Practices Recognition: Supplier segmentation can incorporate criteria related to sustainable farming practices. Farmers engaged in environmentally friendly and sustainable methods may be recognized and rewarded, encouraging broader adoption of eco-friendly practices.
+
Environmental Impact Mitigation: By categorizing suppliers based on environmental impact, businesses can work collaboratively with farmers to implement practices that reduce the overall environmental footprint, contributing to sustainable agriculture.
","
1. Buyer Perspective
+
Risks
+
Limited Supplier Diversity: Rigorous segmentation may limit supplier diversity, potentially reducing the pool of available suppliers and limiting competitive advantages.
+
Overreliance on Segmentation Criteria: Overreliance on specific criteria for segmentation may result in overlooking emerging suppliers or failing to adapt to dynamic market conditions.
+
Complexity in Management: Managing multiple segmented supplier groups may introduce complexity and require additional resources for effective oversight.
+
Trade-offs
+
Efficiency vs. Tailored Services: Buyers implementing supplier segmentation may face the trade-off between achieving procurement efficiency through standardized processes and offering tailored services to specific supplier segments. Striking the right balance involves optimizing efficiency while meeting the unique needs of diverse suppliers.
+
Cost Savings vs. Supplier Relationships: Buyers segmenting suppliers for cost savings may need to balance this with the goal of maintaining strong relationships with strategic suppliers. The challenge is to achieve savings without compromising valuable partnerships.
+
Risk Mitigation vs. Supplier Innovation: Buyers may segment suppliers for risk mitigation purposes, but this could impact the potential for supplier-driven innovation. The trade-off involves managing risks while fostering an environment that encourages supplier innovation.
+
Standardization vs. Supplier Diversity: Buyers aiming for standardization in procurement processes may need to balance this with the objective of promoting supplier diversity. The challenge is to standardize processes while supporting a diverse supplier base.
+
2. Supplier Perspective
+
Risks
+
Exclusion from Opportunities: Strict segmentation criteria may lead to the exclusion of certain suppliers, limiting their access to procurement opportunities and potentially hindering their growth.
+
Increased Competition within Segments: As buyers focus on specific criteria, suppliers within a segment may face increased competition, potentially affecting profit margins.
+
Uncertain Market Positioning: Suppliers may face uncertainty in understanding their market positioning within segmented categories, affecting their strategic planning.
+
Trade-offs
+
Fair Access vs. Specialized Opportunities: Suppliers may desire fair access to procurement opportunities but must balance this with the potential benefits of specialized opportunities within specific segments. The challenge involves ensuring equal opportunities while recognizing the value of specialization.
+
Stability vs. Competitive Bidding: Suppliers in segmented categories may seek stability in contracts, but this could conflict with the competitive nature of bidding processes. The trade-off involves pursuing stable relationships while adapting to competitive procurement dynamics.
+
Innovation vs. Compliance Requirements: Suppliers may desire to innovate in their offerings, but strict compliance requirements within segmented categories may limit this. Striking a balance involves fostering innovation within the framework of compliance obligations.
+
Collaboration vs. Independence: Suppliers in collaborative segments may value partnerships, but this could conflict with the desire for independence in certain business aspects. The challenge is to collaborate effectively while respecting the autonomy of suppliers.
",
Indirect
,
Indirect
,"
Based on old procurement framework of IDH and co-developmeent with Mars
+
Iterated by EY and based on interview process within the project
+
Evidence of clear supplier segmentation process in Mondelez Interview with CPO LATAM, more
"
+24,Supplier Sustainability Assessment,"
Definition
+
Assess suppliers' public commitments to sustainability across climate, human rights, biodiversity, and nature. Use this data to inform Supplier Segmentation.
","
Enabling conditions for supplier sustainability assessment in a procurement organization include:
+
Clear Sustainability Criteria: Establish well-defined and comprehensive sustainability criteria that cover environmental, social, and economic aspects, providing a clear framework for supplier assessments.
+
Clear Sustainability Criteria: Establish well-defined and comprehensive sustainability criteria that cover environmental, social, and economic aspects, providing a clear framework for supplier assessments.
+
Collaborative Standards: Engage with industry organizations, NGOs, or sustainability initiatives to leverage established standards and frameworks for supplier sustainability, ensuring alignment with recognized best practices.
+
Data Transparency: Encourage suppliers to provide transparent and accurate data on their sustainability practices, facilitating a more thorough and reliable assessment process.
+
Capacity Building Support: Offer training programs and resources to suppliers, enabling them to enhance their sustainability practices and meet the criteria set by the procurement organization.
+
Supply Chain Mapping: Implement supply chain mapping tools to gain visibility into the entire supply chain, allowing for a more comprehensive assessment of the environmental and social impacts associated with suppliers.
+
Risk Mitigation Strategies: Develop strategies to address identified sustainability risks within the supply chain, incorporating contingency plans and collaborative initiatives with suppliers to mitigate potential issues.
+
Continuous Monitoring: Implement ongoing monitoring mechanisms to track supplier sustainability performance over time, allowing for the identification of trends, areas for improvement, and recognition of exemplary practices.
+
Internal Accountability: Establish internal mechanisms and responsibilities within the procurement organization to ensure accountability for sustainability assessments, fostering a culture of commitment to responsible sourcing.
+
Supplier Feedback Loops: Create channels for open communication and feedback between procurement organizations and suppliers, encouraging a collaborative approach to sustainability improvement.
+
Technology Integration: Utilize advanced technologies, such as blockchain or digital platforms, to enhance transparency, traceability, and the efficiency of supplier sustainability assessments.
+
Diversity and Inclusion: Integrate diversity and inclusion criteria into supplier assessments, considering social aspects such as fair labor practices, gender equality, and community engagement.
+
Benchmarking and Recognition: Implement benchmarking mechanisms to compare supplier sustainability performance within the industry and recognize and reward top-performing suppliers.
+
Performance Incentives: Establish incentive structures that motivate suppliers to go beyond compliance and excel in sustainability, offering recognition, preferential treatment, or collaborative opportunities for high-performing suppliers.
+
Third-Party Verification: Consider engaging third-party organizations or auditors to verify and validate supplier sustainability claims, enhancing the credibility and reliability of the assessment process.
+
These additional conditions contribute to a more nuanced and comprehensive approach to supplier sustainability assessment within procurement organizations.
+
Collaborative Standards: Engage with industry organizations, NGOs, or sustainability initiatives to lever
","
Understanding whether suppliers are internalising sustainability risks is critical to identifying the risks they may expose a buyer’s business to.
+
As part of external analysis, review publicly available supplier information, or information shared in confidence by the supplier, (e.g. sustainability commitments, strategies, policies, codes of conduct) and create a simple table capturing evidence of the following:
+
• Material sustainability risk assessment linked to sourcing practices
• Human rights due diligence in the upstream supply chain, including:
+
o Conducting a human rights impact assessment
+
o Awareness and actions to prevent forced labour
+
o Awareness and actions to prevent child labour
+
o Living wage/income considerations
+
o Consideration of Free Prior Informed Consent regarding Indigenous Communities and land rights
","
1. Environmental Perspective:
+
Promotion of Sustainable Farming Practices: Supplier sustainability assessments encourage farmers to adopt sustainable practices to meet the criteria set by agri-food companies. This leads to environmental benefits such as reduced pesticide use, soil conservation, and biodiversity preservation.
+
Climate Resilience: Aligning with sustainable farming practices contributes to climate resilience, reducing environmental risks associated with extreme weather events and fostering long-term sustainability.
+
2. Income Perspective:
+
Access to Premium Markets: Farmers adhering to sustainability criteria in supplier assessments gain access to markets that prioritize sustainable sourcing. This can result in premium pricing for their products, contributing to increased income and improved profitability.
+
Cost Savings: Sustainable farming practices promoted by supplier sustainability assessments often lead to cost savings over time. This includes efficient resource use, reduced input costs, and increased overall efficiency.
+
3. Risk Perspective:
+
Market Viability: Supplier sustainability assessments ensure that farmers align with market expectations for environmentally and socially responsible practices. This enhances the market viability of their products, reducing the risk of market exclusion or loss of business opportunities.
+
Long-Term Viability: By meeting sustainability criteria, farmers contribute to their own long-term viability. This includes securing market access, adapting to changing consumer preferences, and reducing vulnerability to environmental risks.
+
4. Link to Procurement Organizations:
+
For farmers, the link to procurement organizations lies in their ability to meet the sustainability criteria set by agri-food companies. Procurement organizations play a central role in establishing and communicating these criteria, shaping the practices and behaviors of the farmers within the supply chain. This ensures that the entire supply chain, from farmers to end consumers, adheres to sustainability principles.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Disruption: To mitigate disruption risks, buyers should strategically diversify their supplier base, balancing sustainability criteria with the need for a resilient and varied supply chain.
+
Increased Costs: Buyers can negotiate with suppliers, emphasizing cost-effectiveness while encouraging sustainable practices to manage procurement expenses effectively.
+
Limited Supplier Innovation: Buyers should actively engage with smaller suppliers, fostering innovation by providing support and guidance to help them meet sustainability criteria.
+
Trade-offs
+
Cost vs. Sustainability: Buyers must strategically navigate the trade-off, making informed compromises to achieve both financial and environmental goals without compromising overall sustainability objectives.
+
Supplier Diversity vs. Sustainability: Achieving a balance between sustainability and supplier diversity requires careful consideration, especially in regions or industries where meeting sustainability standards may be challenging.
+
Time-to-Market vs. Sustainability: Buyers need to find a balance between selecting sustainable suppliers and meeting time-to-market goals, ensuring that sustainability efforts do not unduly extend procurement timelines.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers can manage financial strain by seeking collaborative partnerships with buyers, exploring cost-sharing models for sustainable investments to alleviate potential economic burdens.
+
Competitive Disadvantage: Suppliers with lower sustainability scores should focus on improving practices to avoid losing business opportunities, highlighting the value of sustainable offerings to remain competitive.
+
Compliance Challenges: Suppliers facing compliance challenges should engage with buyers to streamline diverse sustainability standards, ensuring a more manageable and efficient adherence process.
+
Trade-offs
+
Cost vs. Sustainability: Suppliers must strategically balance the trade-off, seeking innovative and cost-effective solutions to implement sustainable practices without compromising competitiveness.
+
Innovation vs. Compliance: Suppliers can navigate the trade-off by integrating sustainability into their innovation agenda, demonstrating that both innovation and compliance can coexist harmoniously.
+
Market Access vs. Sustainability: Suppliers targeting international markets must weigh the benefits of market access against the costs of adapting to sustainability requirements, aligning their strategies with evolving global standards.
Establish full traceability back to the origin of materials. This is critical to identifying environmental and human rights risks at the source, particularly at the farm level. Without this visibility, sustainability risks and strategic procurement decisions cannot be fully informed.
","
To implement effective Supply Chain Traceability in a procurement data analytics context, a procurement organization should focus on prerequisites such as establishing a robust data analytics infrastructure, formulating a clear integration strategy (e.g., Blockchain as an example), ensuring data standardization and interoperability, fostering collaboration with suppliers, utilizing transparent and immutable data records, encouraging cross-functional collaboration, investing in relevant education, implementing security and privacy measures, planning for scalability, complying with legal and regulatory requirements, and establishing continuous monitoring and improvement practices.
","
Establishing visibility of the full value chain is foundational to being able to identify risks and opportunities upon which to make strategic procurement decisions.
+
Building this visibility does not have to mean investing immediately in traceability software tools, it can start with the existing relationships you have with your direct suppliers. Questions that it may be helpful to start exploring with your direct suppliers are:
+
• How may tiers are in their supply chain? Do they know the countries these tiers are based in?
+
• Do they know where farm-level production is happening and the characteristics of this farming e.g. small holder, plantation, commercial farming?
+
• Does the supplier know whether and how their value chain is likely to evolve in the next five years? This can help surface whether the supply chain is stable or unstable.
+
Why are these questions relevant?
+
• The country of production and farm characteristics will impact the probability and severity of environmental and social risks
+
• Understanding whether and how a supply chain is expected to evolve in the next five years helps to surface whether there is instability in either the supply chain or the supplier’s approach to it.
+
• If a supplier has blind spots about their supply chain, this flags the possibility of material sustainability risks within their supply chain. The supplier may lack the capability or inclination to understand their own supply chain and take action to identify and mitigate risks within it. If the supplier lacks this ability, it will be harder for actors further down the value chain, e.g. manufacturers and retailers, to understand and mitigate their own risks.
+
Establishing and maintaining value chain visibility can help enable early identification or risks and proactive management of them.
","
Income Perspective
+
Market Access and Premium Pricing: Value chain visibility allows farmers to demonstrate the origin, quality, and sustainability of their produce, strengthening competitiveness. This can open access to new markets and premium pricing, increasing income.
+
Efficient Resource Allocation: Farmers can use visibility data to optimize production processes, reduce inefficiencies, and cut waste, improving profitability.
+
Environmental Perspective
+
Sustainable Agricultural Practices: Greater visibility across the value chain encourages farmers to adopt practices that align with buyer sustainability goals, such as reduced chemical use, efficient water management, and biodiversity protection.
+
Reduced Environmental Footprint: By leveraging data to minimize waste and use resources efficiently, farmers lower their environmental footprint and contribute to more responsible production systems.
","
1. Buyer Perspective
+
Risks
+
Increased Costs: Implementing traceability measures, especially with advanced technologies, may lead to increased procurement costs, impacting the overall budget.
+
Data Security Concerns: Storing sensitive traceability data poses potential security risks, including data breaches or unauthorized access.
+
Supplier Resistance: Suppliers may resist sharing detailed information, fearing increased scrutiny or potential competitive disadvantages.
+
Trade-offs
+
Cost Efficiency vs. Enhanced Traceability: Buyers may face the trade-off between achieving cost efficiency in the supply chain and investing in enhanced traceability measures. Striking the right balance involves optimizing costs while ensuring transparency and traceability.
+
Complexity vs. Simplicity in Supply Chains: Buyers aiming for traceability may need to balance the complexity associated with detailed supply chain tracking and the simplicity required for streamlined operations. The challenge is to implement traceability without overly complicating processes.
+
Supplier Collaboration vs. Independence: Buyers may seek collaboration with suppliers for improved traceability, but this could conflict with the desire for supplier independence. The trade-off involves fostering collaboration while respecting supplier autonomy.
+
Risk Mitigation vs. Agility: Buyers may implement traceability for risk mitigation, but this could impact the agility of the supply chain. Striking the right balance involves managing risks while maintaining a flexible and responsive supply chain.
+
2. Supplier Perspective
+
Risks
+
Increased Reporting Burden: Suppliers may face additional reporting requirements, leading to increased administrative burdens and potential operational disruptions.
+
Technology Adoption Challenges: Suppliers may encounter challenges in adopting the required technologies for traceability, affecting their ability to comply.
+
Competitive Disadvantage: Suppliers may perceive that sharing detailed traceability data could lead to a competitive disadvantage in the marketplace.
+
Trade-offs
+
Investment in Technology vs. Cost Management: Suppliers may face the trade-off between investing in technology for traceability and managing overall costs. The challenge is to adopt traceability measures without significantly impacting the financial aspects of operations.
+
Transparency vs. Confidentiality: Suppliers providing traceability data may need to balance transparency with the need to protect confidential business information. The trade-off involves sharing relevant information while safeguarding proprietary details.
+
Regulatory Compliance vs. Market Competitiveness: Suppliers may need to comply with traceability regulations, but this could impact market competitiveness. Striking the right balance involves meeting regulatory requirements while remaining competitive in the marketplace.
+
Resource Allocation vs. Traceability Standards: Suppliers may allocate resources for meeting traceability standards, and this must be balanced against other operational needs. The trade-off involves optimizing resource allocation for both traceability compliance and overall efficiency.
",
Indirect
,
Indirect
,"
Based on old procurement framework of IDH and co-developmeent with Mars
+
Iterated by EY and based on interview process within the project
+
Evidence of clear supplier segmentation process in Mondelez Interview with CPO LATAM, more
"
+26,Selecting a sustainability certification,"
Definition
+
Choose sustainability certifications that help meet corporate commitments and/or implement procurement goals. For some commodities, certified supplies are readily available.
","
To effectively implement Sustainable Agricultural Certification Premiums in procurement, prerequisites include establishing clear criteria, collaborating with certification bodies, educating suppliers, designing a transparent premium structure, implementing monitoring systems, ensuring financial capacity, complying with legal standards, promoting certification benefits, fostering stakeholder collaboration, and establishing a continuous improvement feedback loop. This systematic approach creates a conducive environment for successful premium programs, encouraging sustainable farming practices and supplier participation.
","
When is this a strategic choice?
+
When the value chain risk assessment has surfaced potential risks in the supply chain of certain commodities, and an existing sustainability certification exists than provides sufficient assurance that this risk is mitigated in the supply chain of certified goods.
+
What it means:
+
Sustainability certifications can provide assurance that certain impacts are being mitigated in the supply chain of a certain commodity. In some instances, sourcing certified goods can be a quicker and less costly alternative to mitigating environmental and social risks in the supply chain from scratch. Additionally, some downstream actors like brand manufacturers or retailers may require certain certifications to purchase from you, creating a commercial need to purchase certified goods.
+
Some commodities have existing certifications that provide assurance for known high-risk impacts. For example, the RSPO certification for palm oil focuses or the Rainforest Alliance certification for Cocoa provide assurance that deforestation is being mitigated in the supply chain. However, it is important to note that these certifications may not cover all risks in a supply chain. For the Cocoa supply chain, for example, more expensive and direct actions may be needed to ensure actions to mitigate against child labour risks.
+
It is important to assess whether the sustainability certification is fit to deliver the desired outcomes. This assessment may include:
+
o Checking the commodities in scope and availability in your current, potential, or future sourcing market of the certification scheme.
+
o Benchmarking and understanding sustainability certification schemes in terms of sustainability impacts addressed. The ITC standards map benchmarks the majority of sustainability standards.
+
o Governance of the standard is a key factor to understand; ISEAL members all have credible governance in place.
+
o Understanding the different chains of custody models; segregated or mass balance.
+
Watch out: As a business to ensure the continued impact of a certification scheme is aligned to delivering the impact identified in your strategic choice, this will require partnering closely with the certification scheme owner.
","
Income Perspective
+
Choosing the right certification can secure access to markets that reward sustainable production with better prices and stronger demand. Certification can also provide more stable buyer relationships and opportunities for higher sales and profits.
+
Environmental Perspective
+
Sustainability certifications guide farmers toward practices that improve soil, water, and biodiversity outcomes. Financial incentives and market rewards help offset the costs of adoption, making it more feasible to implement practices that deliver long term environmental benefits.
","
1. Buyer Perspective
+
Risks
+
Increased Costs: Implementing sustainable agricultural certification premiums may lead to higher procurement costs, impacting the buyer's budget.
+
Limited Supplier Pool: Stringent sustainability criteria may reduce the pool of eligible suppliers, potentially limiting sourcing options.
+
Complex Certification Processes: Suppliers may face challenges navigating complex certification processes, leading to delays or non-compliance.
+
Trade-offs
+
Sustainability vs. Cost Efficiency: Buyers may face the trade-off between supporting sustainable agricultural practices and maintaining cost efficiency in procurement. Striking the right balance involves integrating sustainability without compromising overall cost-effectiveness.
+
Premium Costs vs. Competitive Pricing: Buyers offering sustainable agricultural certification premiums may need to balance the costs associated with premiums against the need for competitive pricing. The trade-off involves supporting sustainability while remaining competitive in the market.
+
Supplier Diversity vs. Certification Requirements: Buyers aiming for supplier diversity may encounter the trade-off between fostering a diverse supplier base and ensuring compliance with specific certification requirements. The challenge is to balance diversity goals with certification standards.
+
Short-Term Costs vs. Long-Term Sustainability: Buyers must decide between incurring short-term premium costs for sustainable agricultural practices and realizing long-term sustainability benefits. Striking the right balance involves aligning short-term investment with broader sustainability objectives.
+
2. Supplier Perspective
+
Risks
+
Financial Strain: Adhering to sustainable agricultural practices for premium eligibility may strain suppliers financially, especially for smaller entities.
+
Competitive Disadvantage: Suppliers not meeting premium criteria may face a competitive disadvantage in bidding for contracts.
+
Risk of Unfair Evaluation: Suppliers may feel unfairly evaluated if certification processes are unclear or subject to frequent changes.
+
Trade-offs
+
Compliance Costs vs. Profitability: Suppliers may face the trade-off between incurring additional costs to meet sustainable certification requirements and maintaining overall profitability. The challenge is to manage compliance costs while ensuring a viable and profitable business model.
+
Market Access vs. Certification Investments: Suppliers must decide between investing in sustainable certifications for access to markets with stringent requirements and balancing these investments with other business needs. Striking the right balance involves meeting market demands while ensuring financial viability.
+
Resource Allocation vs. Certification Standards: Suppliers may need to allocate resources effectively to meet certification standards, but this must be balanced against the potential impacts on overall resource allocation. The trade-off involves optimizing resources for both certification compliance and operational efficiency.
+
Risk Mitigation vs. Market Competitiveness: Suppliers may prioritize risk mitigation through sustainable certifications but must balance this with remaining competitive in the market. The challenge involves managing risks while staying competitive in the procurement landscape.
",
Direct
,
Direct
,
With and beyond sustainability certification: Exploring inclusive business and solidarity economy strategies in Peru and Switzerland - ScienceDirect
+27,Sustainable water management,"
Definition
+
Sustainable water management is the approach and actions taken to ensure that water is withdrawn, consumed and discharged in a sustainable way. It is particularly important in locations of water scarcity to ensure the supply chain, environment and dependent communities are not negatively impacted by water-related issues.
+
Make sustainable water management a strategic priority where water scarcity is identified through internal commitments or traceability to origins with limited water resources, impacting supply security.
","
1. Enabling Conditions for Sustainable Water Management in a Procurement Organization:
+
Sustainable Sourcing Policies: Development of procurement policies that prioritize and support the inclusion of products from suppliers practicing sustainable water management, emphasizing water efficiency and conservation.
+
Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of sustainable water management practices and promote their integration into sourcing strategies.
+
Supplier Collaboration: Collaboration with suppliers committed to sustainable water management, fostering partnerships, and incentivizing the adoption of water-efficient practices within the supply chain.
+
Certification Standards: Utilization or establishment of certification standards that recognize and verify sustainable water management practices, ensuring authenticity and compliance in the procurement process.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers practicing sustainable water management to promote stability and incentivize continued commitment to responsible water use.
+
2. Enabling Conditions for Sustainable Water Management on a Farm Level:
+
Water-Use Planning: Development of comprehensive water-use plans on farms, incorporating efficient irrigation methods, rainwater harvesting, and other sustainable water management practices.
+
Technical Support: Access to technical support and extension services to assist farmers in implementing effective water management practices, optimizing water use efficiency and minimizing waste.
+
Financial Incentives: Provision of financial incentives or favorable payment terms for farmers adopting sustainable water management practices, supporting their financial viability during the transition.
+
Water Conservation Technologies: Adoption of water-saving technologies, such as drip irrigation or soil moisture sensors, to enhance water efficiency on farms.
+
Community Engagement: Engagement with local communities and agricultural extension services to raise awareness of sustainable water management benefits, build support, and encourage widespread adoption.
+
For both procurement organizations and farmers, successful implementation of sustainable water management requires a commitment to efficient practices, collaborative relationships, ongoing education, and the integration of water conservation principles into the core of farming and procurement strategies.
","
When is this a strategic choice?
+
When you, as the buyer, have a clear understanding of current and future sourcing origins and recognise that without sustainable water management, there is a high risk of supply disruption. Water management may feature in internal commitments and/or the value chain risk assessment may have identified locations in the supply chain with limited water resources, negatively impacting supply security.
+
What it means:
+
• As a buyer you are confident you and/or your supplier is capable of engaging farmers and stakeholders at the catchment level to collectively monitor, manage, and invest in water resources to meet shared sustainability goals.
+
• As a buyer you are confident your supplier works with farm-level partners who can implement water management and stewardship actions, supported by appropriate technology and infrastructure for ongoing maintenance. For example, precision irrigation technologies that apply the right amount of water at the right time.
+
• As a buyer you are prepared to provide additional support where required, including investment capital.
+
• This approach relies on suppliers maintaining long-term, trust-based relationships with producers at the farm level.
","
1. Environmental Perspective:
+
Water Conservation: Sustainable water management practices, such as precision irrigation and rainwater harvesting, contribute to water conservation, ensuring the long-term availability of water resources.
+
Ecosystem Health: Responsible water usage supports the health of aquatic ecosystems and biodiversity, contributing to overall environmental sustainability.
+
2. Income Perspective:
+
Cost Savings: Water-efficient practices lead to cost savings for farmers by reducing expenses related to water use, such as energy costs for irrigation and investments in water infrastructure.
+
Market Access: Adopting sustainable water management practices may provide farmers with access to markets that prioritize sustainably produced goods, potentially leading to premium prices and increased income.
+
3. Risk Perspective:
+
Climate Resilience: Sustainable water practices enhance the resilience of farming operations to climate-related risks such as droughts or erratic rainfall patterns.
+
Regulatory Compliance: Adhering to sustainable water practices helps farmers comply with evolving water usage regulations, reducing the risk of legal and regulatory challenges.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are crucial in providing access to markets and resources. By supporting and incentivizing the adoption of sustainable water management practices, procurement organizations contribute to the sustainability and resilience of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Disruptions: Buyers must address potential disruptions in the supply chain caused by changes in agricultural production due to sustainable water management, implementing strategies to ensure consistent product availability.
+
Higher Costs: Buyers need to manage potential increases in product prices resulting from the additional costs for suppliers practicing sustainable water management, seeking cost-effective procurement strategies.
+
Certification Challenges: Buyers should anticipate and address challenges related to ensuring adherence to sustainable water management certification standards, implementing robust monitoring and verification processes.
+
Trade-offs
+
Cost vs. Sustainability: Buyers should strategically balance potential cost implications of sustainable water management with the desire to support environmentally responsible sourcing practices, making procurement decisions that align with sustainability goals.
+
Consistency vs. Resource Conservation: Striking a balance between ensuring a consistent supply from traditional sources and the conservation of water resources through sustainable practices requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and resource conservation.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers implementing sustainable water management practices must address potential financial strain associated with higher initial costs, implementing financial planning strategies.
+
Transition Period Challenges: Suppliers need to manage challenges during the initial phases of adopting new water management practices, ensuring minimal impact on product yields and consistency.
+
Market Access Concerns: Suppliers may face challenges accessing markets that prioritize traditional, non-sustainable products, requiring strategic decisions to overcome barriers.
+
Trade-offs
+
Cost vs. Market Access: Suppliers may need to weigh the costs and challenges of implementing sustainable water management against potential market access and premium prices associated with sustainable practices, making decisions that align with long-term market strategies.
+
Innovation vs. Tradition: Allocating resources to adopt sustainable water management practices may divert attention and resources from traditional farming methods, requiring suppliers to find a balance that aligns with their innovation goals and traditional practices.
+
Crop Yield vs. Water Conservation: Balancing the desire for higher crop yields with the commitment to water conservation and sustainability may necessitate trade-offs, requiring suppliers to prioritize sustainability without compromising productivity goals.
Implement agroforestry, cover cropping, polyculture, hedgerows, livestock integration, energy efficiency, and renewable energy as part of regenerative agriculture and decarbonization strategies to increase resilience and farmer income.
","
1. Enabling Conditions for Agroforestry in a Procurement Organization:
+
Sustainable Sourcing Policies: Development of procurement policies that promote the inclusion of agroforestry products and support suppliers engaging in agroforestry practices.
+
Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of agroforestry benefits and promote the inclusion of agroforestry in sourcing strategies.
+
Supplier Collaboration: Collaboration with suppliers committed to agroforestry, fostering partnerships and encouraging the adoption of agroforestry practices within the supply chain.
+
Certification Standards: Utilization or establishment of certification standards that recognize and verify agroforestry practices, ensuring authenticity and compliance in the procurement process.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers practicing agroforestry to promote stability and incentivize continued commitment to sustainable practices.
+
2. Enabling Conditions for Agroforestry on a Farm Level:
+
Land-Use Planning: Development of comprehensive land-use plans that integrate agroforestry components, considering the placement of trees and shrubs within the overall farming system.
+
Technical Support: Access to technical support and extension services to assist farmers in implementing agroforestry practices, optimizing tree-crop interactions, and addressing challenges.
+
Financial Incentives: Provision of financial incentives or favorable payment terms for farmers adopting agroforestry, supporting their financial viability during the transition.
+
Access to Tree Species: Availability of diverse and appropriate tree species for agroforestry, enabling farmers to select trees that complement their specific crops and enhance overall farm productivity.
+
Community Engagement: Engagement with local communities and agricultural extension services to raise awareness of agroforestry benefits, build support, and encourage the adoption of these practices.
+
For both procurement organizations and farms, successful implementation of agroforestry requires a commitment to sustainable practices, collaborative relationships, ongoing education, and the integration of agroforestry principles into the core of farming and procurement strategies.
","
Agroecological Practices are most likely to emerge as an action for implementation if you have identified the following strategic choices: Regenerative Agriculture, Smallholder Crop Production, Decarbonisation Levers, Selecting a Sustainability Certification, Precision Agriculture, or Supplier Capability Building.
+
Implementation of agroecological practices can bring the following benefits:
+
• Improve farmer gross margin and income through the avoidance of expensive synthetic agrochemical inputs like fertilisers and pesticides
+
• Help enhance yields over the long term through improving the soil and local ecosystem health
+
• Improve carbon sequestration on farms. If appropriately set up, monitored, measured and accounted, this could contribute to business carbon reduction commitments. If certified, it could also create a secondary income stream through farmers selling carbon credits.
+
Implementing this requires a long-term commitment to upskilling and capability building either with direct suppliers to cascade up the supply chain or, if pursuing Direct Farmer Contracting, direct with farmers. The resource requirements for this training and capability building must be clarified with suppliers as part of the Cost of Goods model, developed as part of the procurement strategy.
+
Additionally, if there is an income gap during the transition to new practices, the procurement strategy should identify partners or financial mechanisms, such as blended finance, that can bridge this gap, and ensure these are reflected in the Cost of Goods cost model.
","
Environmental Perspective:
+
Soil Health: A mix of trees, cover crops, hedgerows, diverse crops, and livestock manure builds soil organic matter, reduces erosion, improves water infiltration, and strengthens microbial activity.
+
Biodiversity and Ecosystem Services: Integrating woody perennials, field borders, mixed species plantings, and livestock increases habitat for pollinators and natural enemies, strengthens nutrient cycling, and supports carbon storage.
+
Microclimate and Water: Tree rows and borders provide shade and shelter, lower evapotranspiration, and improve water retention and quality across fields.
+
Income Perspective:
+
Diversified Income Streams: Multiple crops, tree products, and livestock add revenue channels across seasons, reducing reliance on a single commodity.
+
Lower Input Costs: Biological nitrogen fixation, manure, weed suppression, and natural pest control cut spend on synthetic fertilizers and pesticides over time.
+
Yield and Quality Gains: Better pollination and soil function can lift yields and product quality, improving market returns and access to sustainability premia where available.
+
Risk Perspective:
+
Operational Stability: Diversity spreads agronomic and market risk and provides feed and forage buffers when a single crop underperforms.
+
Pest and Disease Pressure: Habitat for beneficial insects and crop diversity disrupt pest life cycles and reduce outbreak severity.
+
Climate Resilience: Improved soils and on farm shelter reduce losses from heat, wind, and intense rainfall, supporting production in variable seasons.
+
Link to Procurement Organizations:
+
Agroecological approaches need time to implement. Procurement partners must be committed through a long-term sourcing strategy commitment to farmers. This can enable adoption through multi year purchase commitments, technical support, and co investment in establishment costs such as seedlings, cover crop seed, fencing, and water points. Clear sourcing standards and premia for verified outcomes align farm level incentives with company goals on climate and nature, strengthening supply security and performance.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Complexity: Buyers must address potential challenges in logistics, quality control, and traceability introduced by agroforestry integration, implementing strategies to streamline the supply chain.
+
Variable Crop Yields: Buyers need to manage uncertainties in meeting consistent procurement demands resulting from variable crop yields in agroforestry systems, implementing strategies for demand forecasting and inventory management.
+
Certification Challenges: Buyers should establish robust monitoring and verification processes to address challenges in ensuring adherence to agroforestry certification standards, maintaining credibility in sustainable sourcing.
+
Trade-offs
+
Cost vs. Sustainability: Buyers should strategically balance potential cost implications of agroforestry with the desire to support sustainable and environmentally friendly sourcing practices, making procurement decisions that align with sustainability goals.
+
Consistency vs. Diversity: Striking a balance between ensuring a consistent supply from traditional sources and offering the diversity of products from agroforestry systems requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and variety.
+
2. Supplier Perspective:
+
Risks
+
Initial Investment: Suppliers adopting agroforestry practices must address the financial challenges associated with initial investments in tree planting and farm restructuring, implementing financial planning strategies.
+
Longer Time to Production: Suppliers need to manage the delay in income associated with the longer time to production in agroforestry systems, making strategic decisions to balance short-term financial needs with long-term benefits.
+
Market Access Challenges: Suppliers engaging in agroforestry may face challenges in accessing markets that prioritize traditional, monoculture products, necessitating strategic decisions to overcome barriers and establish market presence.
+
Trade-offs
+
Income Delay vs. Long-Term Benefits: Suppliers must balance the delay in income associated with agroforestry against the long-term benefits, including diversified revenue streams and enhanced sustainability, making decisions that align with their financial goals and long-term vision.
+
Traditional vs. Agroforestry Practices: Suppliers may face trade-offs between traditional farming practices and the adoption of agroforestry, weighing the potential benefits against the challenges, requiring a thoughtful and strategic approach to implementation.
+
Market Access vs. Agroforestry Adoption: Deciding on the extent to which suppliers want to engage with markets that value agroforestry products and balancing it with traditional market access involves trade-offs, requiring a careful evaluation of market dynamics and supplier priorities.
Evaluate corporate or brand sustainability commitments or targets. Do this to identify whether any of these may be related to and impacted by procurement decisions, and therefore whether they should be considered in strategy development.
","
To implement effective Business Procurement Requirements Planning, a procurement organization should align its strategies with overall business objectives, foster collaborative stakeholder engagement, establish comprehensive data management systems, invest in technological infrastructure, ensure skilled procurement personnel, provide continuous training, maintain clear documentation and standardization, integrate supplier relations, implement effective risk management, foster flexibility and adaptability, and establish performance metrics for continuous improvement.
","
Corporate or brand sustainability commitments may relate to topics such as climate, human rights, deforestation, water, nature, or circularity. The activities and impacts in the supply chain may directly impact these commitments. Therefore, checking whether they exist and which ones may be relevant is important to ensure alignment with the broader business strategy.
+
It may be helpful to consider the following questions:
+
• How critical is the spend category in delivering business objectives and commitments now and in the next 5 years?
+
• Is the spend category a critical driver for business growth?
+
• If the spend category is not critical for driving the business strategy, it is unlikely ‘sustainability risks’ even if identified, will be significantly important for the business to prioritise for direct mitigation.
+
• How might activities in the supply chain of this spend category link to the sustainability commitments or targets. For example, does the spend category carry risk of deforestation and does this impact business commitments relating to deforestation?
","
Income Perspective
+
Market Access and Fair Pricing: Incorporating business strategy needs ensures that farmers understand demand signals and quality requirements. This creates better market access, fairer prices, and improved income stability.
+
Efficient Resource Utilization: With clearer alignment to buyer strategies, farmers can plan production more effectively, optimize resources, and reduce waste, which strengthens profitability.
+
Environmental Perspective
+
Sustainable Agricultural Practices: Strategic alignment encourages farmers to adopt practices that meet environmental expectations, such as efficient water use, reduced chemical inputs, and enhanced biodiversity.
+
Reduced Environmental Impact: Producing in line with actual demand lowers the risks of surplus, cutting food waste and the environmental footprint of unnecessary resource use.
","
1. Buyer Perspective:
+
Risks
+
Misalignment with Business Objectives: Inadequate alignment of procurement requirements planning with overall business objectives may lead to inefficiencies and missed opportunities.
+
Increased Lead Times: Overly complex planning processes might result in increased lead times, affecting the organization's ability to respond quickly to market changes.
+
Supplier Relationship Strain: Excessive demands in procurement requirements planning may strain relationships with suppliers, potentially impacting collaboration and service levels.
+
Trade-offs
+
Cost Efficiency vs. Quality Requirements: Buyers may face the trade-off between achieving cost efficiency in procurement requirements planning and ensuring stringent quality standards. Striking the right balance involves optimizing costs without compromising the quality of goods or services.
+
Flexibility vs. Standardization: Buyers may desire flexibility in procurement requirements to adapt to changing market conditions, but this must be balanced against the benefits of standardization for efficiency. The challenge involves maintaining adaptability while establishing standardized processes.
+
Lead Time vs. Urgency: Buyers setting procurement requirements may need to balance lead times for planning with the urgency of meeting immediate needs. The trade-off involves planning ahead while addressing time-sensitive procurement requirements.
+
Innovation vs. Compliance: Buyers may seek innovative solutions in procurement but must balance this with compliance to regulatory and organizational requirements. The challenge is to foster innovation while ensuring adherence to necessary standards.
+
2. Supplier Perspective
+
Risks
+
Unclear Requirements: Ambiguous or changing requirements may lead to misunderstandings, causing suppliers to deliver products or services that do not meet buyer expectations.
+
Increased Costs: If procurement requirements planning is too stringent, suppliers may face higher production or service delivery costs, potentially impacting pricing agreements.
+
Limited Innovation Opportunities: Rigorous planning may limit opportunities for suppliers to showcase innovative solutions, hindering mutual growth.
+
Trade-offs
+
Consistency vs. Varied Offerings: Suppliers may face the trade-off between consistency in meeting buyer requirements and offering varied products or services. Striking the right balance involves fulfilling standard requirements while showcasing diverse offerings.
+
Long-Term Contracts vs. Market Volatility: Suppliers may desire long-term contracts for stability, but this could conflict with the volatility of market conditions. The challenge is to secure stable contracts while adapting to market dynamics.
+
Compliance vs. Innovation Investments: Suppliers may need to allocate resources for compliance with buyer requirements, and this must be balanced against investments in innovation. The trade-off involves managing compliance costs while fostering a culture of innovation.
+
Customization vs. Standardization: Suppliers may desire customization in meeting buyer requirements, but this must be balanced against the benefits of standardization for efficient production. The challenge involves tailoring solutions while maintaining operational efficiency.
",
Indirect
,
Indirect
,"
Based on old procurement framework of IDH and co-developmeent with Mars
+
Iterated by EY and based on interview process within the project
+
Evidence of clear supplier segmentation process in Mondelez Interview with CPO LATAM, more
",[],[],
+3,Buyer Sustainability Targets,"
Definition
+
Set buyer sustainability targets, supported by performance KPIs, to track and ensure delivery of sustainable procurement outcomes as part of sourcing strategy implementation.
","
To effectively implement Buyer Sustainability Targets in procurement:
+
1. Secure leadership commitment to prioritize sustainability.
+
2. Engage stakeholders, including suppliers, in target development.
+
3. Conduct a baseline assessment to identify areas for improvement.
+
4. Define clear, measurable, and time-bound sustainability targets aligned with organizational goals.
+
5. Foster collaboration with suppliers, evaluating their sustainability practices.
+
6. Provide employee training to enhance awareness of sustainable procurement practices.
+
7. Integrate sustainability considerations into all stages of the procurement process.
+
8. Establish systems for regular monitoring and reporting of sustainability performance.
+
9. Ensure legal and regulatory compliance with relevant sustainability standards.
+
10. Invest in technology and data systems to streamline tracking and reporting processes.
","
Once the strategic choices have been identified, take the time to identify KPIs that will enable tracking of implementation and progress against these choices by buyers. Aim to create as few KPIs as possible to give you the understanding you need while being realistic about data collection capabilities.
+
Include these KPIs on internal business scorecards and dashboards, and consider linking them to buyer remuneration. If the strategic choices have been selected thoughtfully, implementation of them will help drive value for the business and mitigate risks. As such, progress against these should be tracked and owners held responsible in the same way as they would for other business critical actions.
","
1. Income Perspective
+
Incorporating sustainability targets in procurement can guarantee farmers fair trade prices for their products, improving their income. Long-term contracts can offer better income security. Better market access and elevated certification value can also increase sales opportunities for farmers, thereby increasing their income.
+
2. Environment Perspective
+
Buyer sustainability targets often promote sustainable farming techniques, encouraging farmers to adopt practices that have less impact on the environment. By doing so, it not only contributes to environmental preservation but also improves the long-term sustainability of farms by preserving the health of the soil, preserving water resources, and reducing the impact on wildlife ecosystems.
","
1. Buyer Perspective
+
Risks
+
Increased Costs: Implementing sustainability targets may initially incur additional costs for eco-friendly products or suppliers with sustainable practices.
+
Limited Supplier Pool: Stricter sustainability criteria may reduce the pool of eligible suppliers, potentially limiting competitive options.
+
Complexity in Compliance: Ensuring compliance with sustainability targets can be challenging, particularly when dealing with global supply chains and diverse regulations.
+
Trade-offs
+
Sustainability vs. Cost Efficiency: Buyers may face the trade-off between achieving sustainability targets and maintaining cost efficiency in procurement. Striking the right balance involves integrating sustainable practices without compromising overall cost-effectiveness.
+
Supplier Diversity vs. Cost Competitiveness: Buyers aiming for supplier diversity may encounter the trade-off between fostering a diverse supplier base and ensuring cost competitiveness. The challenge is to balance diversity goals with the economic efficiency of the supply chain.
+
Long-Term Sustainability vs. Immediate Gains: Buyers must decide between pursuing long-term sustainability objectives and seeking immediate gains through potentially less sustainable practices. Striking the right balance involves aligning short-term gains with broader sustainability goals.
+
Innovation vs. Established Practices: Buyers may trade off between encouraging innovation in sustainable practices and sticking to established, potentially less sustainable, procurement methods. Balancing innovation with proven practices is essential for sustainable procurement.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Adhering to sustainability targets may require suppliers to invest in new technologies or practices, potentially causing financial strain.
+
Competitive Disadvantage: Suppliers not meeting sustainability targets may face a disadvantage in bidding for contracts, affecting competitiveness.
+
Complex Certification Processes: Suppliers may encounter challenges in navigating complex certification processes to prove their sustainability credentials.
+
Trade-offs
+
Compliance vs. Innovation: Suppliers may face the trade-off between complying with buyer sustainability targets and innovating in their offerings. Striking the right balance involves meeting sustainability requirements while fostering a culture of innovation.
+
Cost of Sustainability Compliance vs. Profitability: Suppliers may incur additional costs to meet sustainability requirements, impacting overall profitability. The trade-off involves managing compliance costs while maintaining a viable and profitable business model.
+
Market Access vs. Sustainability Investments: Suppliers must decide between investing in sustainability practices to access markets with stringent requirements and balancing these investments with other business needs. Striking the right balance involves meeting market demands while ensuring financial viability.
+
Risk Mitigation vs. Market Competitiveness: Suppliers may prioritize risk mitigation through sustainable practices but must balance this with remaining competitive in the market. The trade-off involves managing risks while staying competitive in the procurement landscape.
",
Indirect
,
Indirect
,"
IDH Based Interviews (Frank Joosten)
+
EY Based Interviews
",[],[],
+4,Decarbonisation levers,"
Definition
+
Implement decarbonisation levers where net-zero or climate mitigation is a corporate goal or where external risk assessments highlight climate threats to supply security. Opportunities may include agroforestry or soil conservation for carbon sequestration which in turn can create additional sources of farmer income
","
1. Enabling Conditions for Carbon Sequestration in a Procurement Organization:
+
Sustainable Sourcing Policies: Development of procurement policies that prioritize and support the inclusion of products from suppliers actively engaged in carbon sequestration practices, emphasizing environmentally responsible and climate-friendly agricultural methods.
+
Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of carbon sequestration techniques and promote their integration into sourcing strategies.
+
Supplier Collaboration: Collaboration with suppliers committed to carbon sequestration, fostering partnerships, and incentivizing the adoption of sustainable farming practices within the supply chain.
+
Certification Standards: Utilization or establishment of certification standards that recognize and verify carbon sequestration practices, ensuring authenticity and compliance in the procurement process.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers actively engaged in carbon sequestration to promote stability and incentivize continued commitment to sustainable and climate-friendly farming methods.
+
2. Enabling Conditions for Carbon Sequestration on a Farm Level:
+
Cover Cropping: Integration of cover crops into farming practices to enhance soil health, increase organic matter, and promote carbon sequestration.
+
Agroforestry Practices: Incorporation of agroforestry techniques, such as planting trees on farmlands, to sequester carbon in both soil and woody biomass.
+
Conservation Tillage: Adoption of conservation tillage methods, like no-till or reduced tillage, to minimize soil disturbance and enhance carbon retention in the soil.
+
Crop Rotation: Implementation of crop rotation strategies to improve overall soil health, increase carbon content, and contribute to sustainable soil management.
+
Technical Support: Access to technical support and extension services to assist farmers in implementing effective carbon sequestration practices, optimizing soil health and overall sustainability.
+
Successful implementation of carbon sequestration requires a commitment to sustainable practices, collaborative relationships, ongoing education, and the integration of climate-friendly principles into the core of farming and procurement strategies.
","
When is this a strategic choice?
+
Implement decarbonisation levers where net-zero or climate mitigation is a corporate goal or where external risk assessments highlight climate threats to supply security.
+
What it means:
+
Decarbonisation levers are activities that a business can use to reduce carbon emissions. They can be performed directly by the business or, as is more likely in this instance, in the upstream supply chain. Examples of decarbonisation levers can include:
+
• Switching to renewable energy
+
• Improving energy efficiency of equipment and processes
+
• Agroforestry or soil conservation
+
• Carbon sequestration
+
Some decarbonisation levers are about directly reducing emissions produced e.g. switching to renewable energy. Others are opportunities to capture carbon, offsetting emissions that may occur elsewhere.
+
When offsetting activities are done within your own value chain, it is referred to as insetting. The whole value chain can present opportunities for insetting and materials sourced from agriculture can offer brilliant opportunities. For example, agroforestry, increasing natural habitats for biodiversity or increasing soil organic matter.
+
There are challenges associated with insetting. There are physical challenges in ensuring the permanence of actions taken to inset carbon. There are also accountancy challenges in calculating the carbon benefit achieved through these actions. Both of these require specialist input to ensure they are done properly.
+
Insetting can also benefit farmer income. Insetting actions that produce carbon credits that a farmer can sell is a way of generating additional income. This can be particularly valuable if farmers can use marginal land for actions such as tree planting.
+
Ensuring carbon insetting requires commitment and verification over the long term. A business must be confident that this can be achieved in order to make this a valid strategic choice.
","
Environmental Perspective
+
Practices such as agroforestry, cover cropping, reduced tillage, and improved manure management increase soil organic carbon and strengthen biodiversity. Shifts to energy efficient machinery, irrigation, and cold storage cut fuel use, while on farm renewables reduce reliance on fossil energy. Together, these actions lower emissions, improve soil and water health, and build resilient ecosystems.
+
Income Perspective
+
Improved efficiency lowers spending on fuel, fertilizer, and electricity. Renewable energy systems, such as solar for pumping or drying, reduce long term operating costs and can provide surplus energy for sale. Participation in carbon markets can generate additional income through verified credits, and sourcing programs that reward decarbonisation can deliver access to premiums or long term contracts.
+
Risk Perspective
+
Decarbonisation reduces exposure to energy price volatility, fertilizer shortages, and regulatory pressures on emissions. Practices that build soil carbon and improve efficiency also strengthen resilience to drought, flooding, and extreme weather. By diversifying income through carbon credits or renewable energy sales, farmers reduce dependence on a single revenue stream.
+
Link to Procurement Organizations
+
Procurement partners must be committed to very long-term physical carbon insetting to create value for farmers for low carbon products, co-investing in renewable installations, and supporting measurement and verification of carbon outcomes. Long term offtake agreements, technical support, and access to finance help farmers adopt practices and technologies that deliver both emissions reduction and supply chain resilience.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Disruptions: Adoption of carbon sequestration practices may lead to variations in agricultural production and potential disruptions in the supply chain, affecting product availability.
+
Cost Implications: Suppliers implementing carbon sequestration practices may incur initial costs, potentially impacting product prices and the overall procurement budget.
+
Certification Challenges: Ensuring adherence to certification standards related to carbon sequestration may pose challenges, requiring rigorous monitoring and verification.
+
Trade-offs
+
Cost vs. Sustainability: Balancing potential cost implications of products from suppliers engaged in carbon sequestration with the desire to support environmentally responsible and climate-friendly sourcing practices.
+
Consistency vs. Innovation: Striking a balance between consistent supply from traditional sources and the innovative adoption of carbon sequestration practices within the supply chain.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers implementing carbon sequestration practices may initially face higher costs, potentially causing financial strain and impacting competitiveness.
+
Transition Period Challenges: Adoption of new practices may pose challenges during the initial phases, affecting production efficiency and consistency.
+
Market Access Concerns: Suppliers may face challenges in accessing markets that prioritize traditional, non-carbon sequestration farming practices.
+
Trade-offs
+
Cost vs. Market Access: Suppliers may need to weigh the costs and challenges of adopting carbon sequestration practices against potential market access and premium prices associated with sustainable practices.
+
Innovation vs. Tradition: Allocating resources to adopt carbon sequestration practices may divert attention and resources from traditional production methods.
+
Short-Term Costs vs. Long-Term Benefits: Balancing the short-term financial implications of transitioning to carbon sequestration with the potential long-term benefits in terms of soil health, productivity, and environmental sustainability.
+
Addressing these risks and trade-offs requires careful planning, collaboration, and a long-term perspective from both buyers and suppliers in the procurement process.
Conduct a thorough external risk analysis across climate, biodiversity, nature, human rights, forced labour, child labour, and free, prior, and informed consent. Include regulatory sustainability risks (climate, human rights, supply chain due diligence) linked to sourced materials.
","
Enabling conditions for environmental risk assessment in a procurement organization include:
+
Supply Chain Visibility: Establish comprehensive supply chain visibility to identify key environmental hotspots and potential impacts associated with agri-food procurement activities.
+
Environmental Expertise: Ensure that the procurement team has access to or collaborates with environmental experts who can effectively assess and interpret environmental data and impacts.
+
Data Collection and Monitoring Systems: Implement robust data collection and monitoring systems to track environmental indicators, enabling the continuous assessment of procurement activities.
+
Stakeholder Engagement: Engage with key stakeholders, including suppliers and local communities, to gather insights on potential environmental impacts and foster collaborative efforts in mitigating adverse effects.
+
Sustainability Criteria Integration: Embed environmental sustainability criteria directly into procurement policies and evaluation processes, making EIAs an integral part of supplier selection and product sourcing.
+
Regulatory Adherence: Stay informed about and comply with environmental regulations and standards specific to the agri-food sector, ensuring that EIAs align with legal requirements.
+
Technology Adoption: Leverage innovative technologies, such as satellite imagery or remote sensing tools, to enhance the accuracy and efficiency of EIAs, especially in assessing land use, water consumption, and biodiversity impacts.
+
Risk Mitigation Strategies: Develop strategies to address identified environmental risks within the supply chain, incorporating measures to mitigate issues related to water usage, pollution, deforestation, and other relevant concerns.
+
Benchmarking and Performance Metrics: Establish benchmarking mechanisms and performance metrics to compare the environmental impact of different suppliers and products, promoting competition in adopting sustainable practices.
+
Collaboration with Certification Bodies: Collaborate with recognized environmental certification bodies to align EIAs with established standards, providing credibility and assurance of environmentally responsible sourcing practices.
+
Education and Training: Provide ongoing education and training for procurement professionals on the latest methodologies and tools for conducting EIAs, ensuring a well-informed and skilled team.
+
Continuous Improvement Framework: Implement a continuous improvement framework based on EIA findings, fostering a culture of learning and adaptation to evolving environmental challenges.
+
Transparent Reporting: Communicate EIA results transparently to internal and external stakeholders, demonstrating the organization's commitment to environmental responsibility and accountability.
+
Incentivizing Sustainable Practices: Develop incentive mechanisms for suppliers that actively engage in reducing their environmental impact, encouraging a proactive approach to sustainability.
+
By focusing on these targeted pproaches, procurement organizations can enhance the effectiveness of their EIAs, leading to more sustainable and environmentally conscious sourcing practices.
","
Conducting a value chain risk assessment enables identification and assessment of the sustainability risks in your value chain. This is key to enabling effective risk management in procurement decisions. To do this effectively, it is helpful to have a good level of Value Chain Visibility first. However, a high-level assessment can still bring value to the business by identifying the most likely and severe types of risks associated with different categories.
+
The lenses through which you may want to consider a risk assessment include:
+
• Country of Origin: The country defines the macro risks based on its environmental, social, political and economic situation.
+
• Commodity/category/product of interest: The processes involved in the production of different commodities, categories and products impact the risks associated with them
+
• Risks to Assess: The most important risks to assess may be associated with the countries and commodities of interest, or they may come from reviewing your business strategy and sustainability commitments. The risks of interests may include:
+
o Environmental: Climate, Deforestation, Water, Nature
+
o Social: Human Rights (inc. Child Labour, Forced Labour, Indigenous Rights), Living Wages and Income, Gender Equality, Health and Safety
+
If you have engaged with your suppliers as part of improving Value Chain Visibility and have a sense of whether supply chains are likely to be stable or unstable over the next five years, consider potential changes that could occur and, if possible, incorporate this flexibility into the risk assessment approach.
+
If you are starting from scratch review the IDH focus areas, which will help surface the material sustainability risks. If you need further help, useful resources may include;
+
• Search WRI for environment risks like climate, deforestation, water and nature
+
• Search by commodity at Verite for human rights risks
+
At this stage you are simply understanding the ‘sustainability’ risks the business is exposed to, from the current value chain, due to the current procurement strategy.
","
Environmental Perspective
+
Sustainable Farming Practices: Comprehensive risk assessments help farmers identify and adopt practices that reduce negative impacts across the value chain, such as conserving soil, lowering pesticide use, and enhancing biodiversity.
+
Climate Resilience: By highlighting vulnerabilities to climate change, these assessments support actions that build resilience to extreme weather and strengthen long term environmental sustainability.
+
Income Perspective
+
Access to Premium Markets: Farmers who align with value chain risk assessment findings can access buyers and markets that prioritize sustainable and resilient sourcing, often linked to premium pricing.
+
Cost Savings: Efficiency gains identified through assessments, such as reduced input use or better resource management, can lower costs and improve overall profitability.
+
Risk Perspective
+
Market Viability: Assessments strengthen market viability by ensuring farmer practices align with buyer expectations, regulatory standards, and consumer preferences, reducing the risk of exclusion.
+
Long Term Stability: By addressing environmental, social, and operational risks across the value chain, farmers position themselves for continued access to markets and long term business resilience.
+
Link to Procurement Organizations
+
Procurement partners play a central role by communicating risk and sustainability criteria to farmers and the opportunities in rewarding alignment. Supporting risk assessments and providing guidance ensures that sourcing is consistent with company commitments, while helping farmers strengthen practices that secure market access and supply continuity.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Disruption: To minimize disruption risks, buyers should strategically diversify their supplier base, balancing sustainability criteria with the need for a resilient and varied supply chain.
+
Increased Costs: Buyers can strategically negotiate with suppliers, emphasizing the importance of cost-effectiveness while encouraging sustainable practices to manage procurement expenses.
+
Limited Supplier Innovation: Buyers can actively engage with smaller suppliers, fostering innovation by providing support and guidance to meet sustainability criteria.
+
Trade-offs
+
Cost vs. Sustainability: Buyers must strategically navigate the trade-off between cost-effectiveness and sustainability, making informed compromises to achieve both financial and environmental goals.
+
Supplier Diversity vs. Sustainability: Balancing sustainability with supplier diversity requires careful consideration, especially in regions or industries where meeting sustainability standards may be challenging.
+
Time-to-Market vs. Sustainability: Buyers need to find a balance between selecting sustainable suppliers and meeting time-to-market goals, ensuring that sustainability efforts do not unduly extend procurement timelines.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers can proactively manage financial strain by seeking collaborative partnerships with buyers, exploring cost-sharing models for sustainable investments.
+
Competitive Disadvantage: Suppliers with lower sustainability scores should focus on improving practices to avoid losing business opportunities, emphasizing the value of sustainable offerings.
+
Compliance Challenges: Suppliers facing compliance challenges should engage with buyers to streamline diverse sustainability standards, ensuring a more manageable and efficient adherence process.
+
Trade-offs
+
Cost vs. Sustainability: Suppliers must strategically balance the trade-off between implementing sustainable practices and managing production costs, seeking innovative and cost-effective solutions.
+
Innovation vs. Compliance: Suppliers can navigate the trade-off by integrating sustainability into their innovation agenda, demonstrating that both innovation and compliance can coexist.
+
Market Access vs. Sustainability: Suppliers targeting international markets must weigh the benefits of market access against the costs of adapting to sustainability requirements, aligning their strategies with evolving global standards.
Crop rotation and diversification are core practices considered under regenerative agriculture strategies. These practices involve alternating different crops on the same land over time to improve soil health, reduce pests and diseases, and increase farm resilience.
","
1. Enabling Conditions for Crop Rotation and Diversification in a Procurement Organization:
+
Sustainable Sourcing Policies: Establishment of procurement policies that prioritize products sourced from farms practicing crop rotation and diversification, promoting sustainable agricultural practices.
+
Supplier Collaboration: Collaboration with suppliers committed to crop rotation and diversification, encouraging the adoption of diverse farming methods within the supply chain.
+
Educational Initiatives: Providing training and education for procurement professionals to enhance their understanding of the benefits of crop rotation and diversification and the associated impacts on agricultural sustainability.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers implementing crop rotation and diversification, fostering stability and incentivizing the continued commitment to sustainable practices.
+
2. Enabling Conditions for Crop Rotation and Diversification on a Farm Level:
+
Holistic Farm Planning: Development of comprehensive farm plans that integrate crop rotation and diversification strategies, considering soil health, pest management, and overall sustainability.
+
Crop Rotation Plans: Implementation of systematic crop rotation plans that involve alternating the types of crops grown in specific fields over time to break pest and disease cycles.
+
Cover Crops Integration: Incorporation of cover crops during periods when main crops are not grown to enhance soil fertility, prevent erosion, and provide additional benefits to the ecosystem.
+
Polyculture Practices: Adoption of polyculture practices, including the simultaneous cultivation of multiple crops in the same area, to increase biodiversity and enhance ecological balance.
+
Agroecological Approaches: Integration of agroecological principles that mimic natural ecosystems, promoting resilience, reducing reliance on external inputs, and enhancing overall farm sustainability.
+
Community Engagement: Engagement with local communities, consumers, and agricultural extension services to raise awareness of the importance of crop rotation and diversification for sustainable agriculture.
+
Both at the procurement organization and on the farm level, successful implementation of crop rotation and diversification requires a commitment to sustainable practices, collaborative relationships, ongoing education, and the integration of these principles into the core of farming and procurement strategies.
","
Crop rotation and diversification is most likely to emerge as an action for implementation if you have identified the following strategic choices: Regenerative Agriculture, Smallholder Crop Production, Selecting a Sustainability Certification, Precision Agriculture, or Supplier Capability Building.
+
Implementation of soil conservation can bring the following benefits:
+
• Improve farmer gross margin and income through the avoidance of expensive synthetic agrochemical inputs like fertilisers and pesticides
+
• Improve yield through enhanced soil fertility
+
• Minimise pest and disease build-up associated with continuous cropping
+
Implementing this requires a long-term commitment and capability building with suppliers to enable implementation at the farm level. Farmers must understand which crop combinations make the most business sense for sustained income, while buyers need to assess how competitive their crop is within the farm enterprise system. The resource commitment for farmer training must be clearly defined with suppliers and embedded in the Cost of Goods cost model as part of the overall procurement strategy.
","
1. Environmental Perspective:
+
Soil Health: Crop rotation and diversification contribute to improved soil health by preventing nutrient depletion and reducing the risk of soil-borne diseases.
+
Biodiversity Preservation: Diversified farming practices support biodiversity by providing different habitats for various plant and animal species.
+
2. Income Perspective:
+
Risk Mitigation: Farmers adopting crop rotation and diversification reduce the risk of crop failure due to pests or diseases affecting a single crop. This can lead to more stable and predictable incomes.
+
Market Access: Diversification allows farmers to access a broader range of markets, catering to diverse consumer preferences and potentially increasing sales and income.
+
3. Risk Perspective:
+
Reduced Input Costs: Crop rotation and diversification can lead to reduced input costs as they minimize the need for external inputs like pesticides and fertilizers.
+
Adaptation to Climate Change: Diversified crops provide resilience to changing climate conditions, allowing farmers to adapt and continue generating income even in the face of climate-related challenges.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are essential in providing access to markets and resources. By supporting and incentivizing the adoption of crop rotation and diversification, procurement organizations contribute to the sustainability and resilience of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Fluctuations: Buyers must address potential variability in crop yields due to crop rotation and diversification, implementing strategies to manage and predict supply chain fluctuations.
+
Higher Initial Costs: Buyers need to manage higher initial production costs resulting from diverse farming methods, ensuring procurement decisions align with budget constraints and efficiency goals.
+
Transition Period Challenges: Buyers should be aware of challenges suppliers may face during the transition to crop rotation and diversification, taking measures to minimize potential impacts on product availability and consistency.
+
Trade-offs
+
Cost vs. Sustainability: Buyers should strategically balance the higher costs of diverse farming methods against the desire to support environmentally sustainable and resilient agricultural practices, making procurement decisions that align with sustainability goals.
+
Consistency vs. Variety: Striking a balance between ensuring a consistent supply of products and offering a variety of goods requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and diversity.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers adopting crop rotation and diversification may face initial financial strain, requiring strategic resource allocation to mitigate the impact on competitiveness.
+
Transition Period Challenges: Suppliers transitioning to diverse farming methods must address challenges in adapting to new methods, implementing measures to maintain productivity during the transition.
+
Market Access Challenges: Suppliers without the means to adopt diverse farming practices may struggle with accessing markets that prioritize sustainability and diversification, necessitating strategic decisions to overcome barriers.
+
Trade-offs
+
Cost vs. Market Access: Suppliers must weigh the costs and challenges of transitioning to crop rotation and diversification against the potential market access and premium prices associated with sustainable and diversified products, ensuring a sound investment in diversified farming.
+
Innovation vs. Tradition: Allocating resources to adopt diverse farming methods involves trade-offs with traditional methods, necessitating suppliers to find a harmonious integration that maintains productivity.
+
Crop Yield vs. Sustainability: Balancing the desire for higher crop yields with the commitment to crop rotation and diversification may require trade-offs, with suppliers finding optimal solutions that align with environmental goals.
Creating sustainability KPIs to be implemented within procurement. These KPIs can help to track the impact of actions implemented through a sustainable sourcing strategy, and progress towards business and procurement sustainability commitments and targets.
","
To effectively implement Data Management in a Procurement Data Analytics context, a procurement organization should establish a comprehensive data governance framework, implement robust data security measures and privacy compliance, form clear collaboration agreements with suppliers/farmers, promote cross-functional collaboration, ensure high data quality standards, prioritize interoperable systems and integration capabilities, develop a scalable infrastructure, conduct regular audits for compliance, and invest in training programs for procurement professionals, creating a foundation for secure, collaborative, and strategic data use throughout the procurement value chain.
","
Once the strategic choices have been identified, take the time to identify KPIs that will enable tracking of progress and impact through implementation of the strategic choices. Aim to create as few KPIs as possible to give you the understanding you need while being realistic about data collection capabilities. There are a few levels that you could consider implementing KPIs at:
+
• Individual supplier/project level: Track progress of specific activities
+
• Category level: Track progress across a full category of interest e.g. tracking deforestation across the cocoa sourcing category
+
• Cross-category level: Tracking progress holistically across multiple categories
+
Aim to create KPIs that are a mix of:
+
• Leading KPIs: Activities that build towards positive impacts e.g. number of suppliers trained, or number of gender dis-aggregated farmers trained
+
• Lagging KPIs: Actual outcome measures that the procurement strategy will deliver e.g. % carbon mitigation, % farmers making living income
+
Ensure these KPIs are part of the procurement strategy tracking and implementation in combination with the usual procurement KPIs e.g. savings, inflation, OTIF. Consider including the sustainability KPIs in supplier scorecards and quarterly supplier business reviews.
","
Income Perspective
+
Market Access and Fair Pricing: Using data to report on quality, sustainability, and compliance allows farmers to meet evolving procurement KPIs, improving market access and supporting fairer pricing. Greater transparency can strengthen trust with buyers and contribute to higher income.
+
Efficient Resource Utilization: Data-driven insights enable farmers to allocate resources more effectively, lowering costs and improving profitability.
+
Environmental Perspective
+
Sustainable Agricultural Practices: Data on soil health, water use, and chemical applications helps farmers identify opportunities to adopt practices that reduce environmental impact while meeting buyer expectations.
+
Resource Conservation: Tracking KPIs beyond spend encourages efficient use of inputs such as water and fertilizer, leading to lower waste and a more sustainable production system.
","
1. Buyer Perspective
+
Risks
+
Data Security Concerns: Inadequate data security measures may lead to breaches, compromising sensitive procurement information and exposing the buyer to potential legal and financial consequences.
+
Increased Costs of Implementation: Implementing robust data management practices may entail significant upfront costs, impacting the buyer's budget and potentially leading to budget overruns.
+
Supplier Collaboration Challenges: Suppliers may face difficulties in adapting to collaborative data sharing, potentially affecting the buyer-supplier relationship and hindering information flow.
+
Trade-offs
+
Data Security vs. Accessibility: Buyers may face the trade-off between ensuring robust data security measures and providing easy accessibility to relevant stakeholders. Striking the right balance involves safeguarding sensitive information while facilitating necessary access.
+
Customization vs. Standardization: Buyers implementing data management systems may need to balance customization for specific needs and standardization for efficiency. The challenge is to tailor data solutions while maintaining standardized processes.
+
Cost of Technology vs. ROI: Buyers investing in data management technologies may face the trade-off between the initial cost of technology adoption and the expected return on investment (ROI). The challenge is to manage costs while realizing long-term benefits.
+
Data Analytics vs. Privacy Compliance: Buyers utilizing data analytics for insights must balance this with compliance with privacy regulations. Striking the right balance involves leveraging data analytics for informed decision-making while protecting individual privacy.
+
2. Supplier Perspective
+
Risks
+
Increased Reporting Burden: Suppliers may experience an increased reporting burden, potentially impacting operational efficiency and leading to resistance in adopting new data management practices.
+
Technology Adoption Challenges: Suppliers may struggle to adopt and integrate new technologies for data sharing, resulting in potential disruptions to their operations and compliance challenges.
+
Data Security Risks: Suppliers may face risks related to data security, especially if the buyer's data management practices do not meet industry standards, potentially exposing the supplier to cyber threats.
+
Trade-offs
+
Data Transparency vs. Confidentiality: Suppliers providing data may face the trade-off between transparency and confidentiality. The challenge is to share necessary information while protecting proprietary and confidential business details.
+
Resource Allocation vs. Data Requirements: Suppliers may need to allocate resources for meeting buyer data requirements, and this must be balanced against other operational needs. The trade-off involves optimizing resource allocation for both data compliance and overall efficiency.
+
Technology Adoption vs. Operational Impact: Suppliers adopting new technologies for data management may need to balance this with the potential impact on day-to-day operations. The challenge is to adopt efficient data management tools without disrupting regular business processes.
+
Data Quality vs. Timeliness: Suppliers must balance providing high-quality data with the need for timely delivery. Striking the right balance involves ensuring data accuracy while meeting the required timelines set by buyers.
",
Indirect
,
Indirect
,"
Based on old procurement framework of IDH and co-developmeent with Mars
+
Iterated by EY and based on interview process within the project
",[],[],
+8,Direct & Indirect Pre-Finance,"
Definition
+
Pre-financing options can support key strategic choices and help to catalyse sustainable sourcing initiatives. Typically used to help those upstream, who are implementing sustainable practices, access sufficient finance needed to start these actions. Direct pre-finance goes directly to the actor implementing the changes, e.g. direct to the farmer, while indirect pre-finance may go towards bank guarantees, development funds or NGOs that then support actors.
","
To implement direct and indirect finance interventions effectively in a procurement organization, it is crucial to have well-defined procurement objectives aligned with comprehensive financial planning, utilize advanced financial systems, ensure robust budgeting processes, establish a comprehensive risk management framework, maintain strong supplier relationship management practices, understand and adhere to financial regulations, implement stringent data security measures, continuously monitor performance using key indicators, and foster collaboration between procurement and finance teams.
","
Direct and Indirect Pre-Financing is an action for implementation that could emerge from many of the strategic choices selected, as it is about supporting capability building in the upstream supply chain. Choices it is most likely to be linked to include Mutual Supplier-Based Incentives, Upstream Supplier Tier Reduction, Supplier Capability Building, and Long-term Contracts.
+
If cash flow is limited and investment is needed in upstream supply chain actors, pre-financing may be required to enable action. Implementing such practices may be particularly important where, as a buyer, you have identified strategic priorities and risks to be managed that must be done by upstream actors and need resource from your business to enable initial investments and actions to be made.
+
As a buyer, you must understand the cash flow of upstream supply chain actors and how implementing new sustainable practices might impact this. To ensure these actors have the capability to implement these initiatives, the buyer may need to consider different approaches to financing to ensure upstream actors have healthy cash flows.
+
Examples of direct pre-financing:
+
• Advanced payments: Paying suppliers, farmers, or cooperatives a proportion of the cost of goods in advance to cover costs
+
• Providing inputs: Buying inputs needed, e.g. seeds, fertilizers, technology, to initiate actions that are then deducted from end costs
+
Examples of indirect pre-financing:
+
• Bank guarantees: Acting as a guarantor to a local bank, allowing farmers to access loans and reducing risk for the bank
+
• Partnerships with NGOs or development agencies: Collaboration and support for organisations that help farmers access financing and resources they need
","
1. Income Perspective
+
Farmers often face cash flow challenges due to seasonal variations and market uncertainties. Direct and indirect finance interventions can provide farmers with the necessary capital to invest in their operations, purchase seeds and equipment, and withstand economic fluctuations.
+
Improved access to finance allows farmers to make timely investments, leading to increased productivity, higher yields, and ultimately, improved income. It also provides a financial safety net during periods of low agricultural income.
+
2. Environment Perspective
+
Sustainable farming practices are essential for environmental conservation. Finance interventions can support farmers in adopting environmentally friendly technologies, implementing conservation practices, and transitioning to more sustainable agricultural methods.
+
Access to financing for sustainable practices, such as precision farming, organic farming, or water conservation, can contribute to soil health, biodiversity, and reduced environmental impact. It aligns with the global push for sustainable agriculture.
","
1. Buyer Perspective:
+
Cost of Capital:
+
Risk: Depending on the financial arrangements, the cost of obtaining capital through finance interventions may pose a risk. High-interest rates or fees could increase the overall cost of procurement for the buyer.
+
Tradeoff: The tradeoff involves finding a balance between securing necessary funding and managing the associated costs to ensure competitiveness and profitability.
+
Trade-offs
+
Cost of Finance vs. Procurement Efficiency: Buyers may face the trade-off between managing the cost of finance and optimizing procurement efficiency. Striking the right balance involves securing favorable financial terms without compromising the speed and effectiveness of procurement processes.
+
Risk Mitigation vs. Supplier Relationships: Buyers utilizing finance interventions for risk mitigation may need to balance this with the desire to maintain strong, collaborative relationships with suppliers. The challenge is to manage risks while fostering positive supplier partnerships.
+
Customization of Financial Solutions vs. Standardization: Buyers may seek customized financial solutions for different procurement scenarios but must balance this with the benefits of standardization for consistency. The trade-off involves tailoring financial approaches while maintaining standardized processes.
+
Long-Term Financial Planning vs. Short-Term Goals: Buyers must decide between focusing on long-term financial planning for sustainable procurement practices and addressing short-term procurement goals. Striking the right balance involves aligning financial strategies with both immediate needs and long-term sustainability.
+
2. Supplier Perspective
+
Access to Finance:
+
Risk: Suppliers may face challenges in accessing finance if they do not meet the buyer's financial criteria or if the financing process is complex.
+
Tradeoff: Tradeoffs involve meeting financial requirements while maintaining independence and ensuring that financial arrangements are supportive rather than restrictive.
+
Cost of Compliance:
+
Risk: Complying with the financial and contractual requirements set by the buyer may result in additional costs for suppliers.
+
Tradeoff: Suppliers need to evaluate the tradeoff between securing business from a particular buyer and the associated compliance costs. Negotiating fair terms is crucial.
+
Trade-offs
+
Cost of Finance vs. Profitability: Suppliers may face the trade-off between managing the cost of finance and maximizing profitability. The challenge is to secure financing options that contribute to financial stability without significantly impacting profit margins.
+
Cash Flow vs. Financing Terms: Suppliers may prioritize maintaining healthy cash flow but must balance this with the financing terms offered by buyers. The trade-off involves managing cash flow while accommodating the financial terms set by buyers.
+
Risk Management vs. Independence: Suppliers utilizing finance for risk management may need to balance this with the desire for financial independence. The challenge is to mitigate risks while preserving autonomy in financial decision-making.
+
Long-Term Financial Partnerships vs. Diversification: Suppliers may desire long-term financial partnerships with buyers, but this could conflict with the need for financial diversification. Striking the right balance involves pursuing stable financial relationships while diversifying funding sources.
",
Direct
,
Direct
,"
Based on old procurement framework of IDH and co-developmeent with Mars
+
Iterated by EY and based on interview process within the project
",[],[],
+9,Direct Farmer Contracting,"
Definition
+
Establish direct farmer contracting programs where they offer the fastest, most cost-effective way to implement sustainability strategies and manage risk, bypassing multiple supply chain tiers.
","
To effectively implement Direct Farmer Contracting Programs, a procurement organization must establish transparent communication channels, ensure legal compliance, conduct educational initiatives for farmers, integrate technology for monitoring, develop risk management strategies, establish fair pricing mechanisms, define quality standards, provide capacity-building for farmers, offer flexible contract terms, and collaborate with agricultural experts, fostering fair, transparent, and sustainable relationships in the agricultural supply chain.
","
When is this a strategic choice?
+
When the spend category is business critical and the value chain visibility analysis surfaces value chain actors who are adding cost (e.g. middle men, traders) and/or developing a greenfield site as a buyer. Depending on the outcome of the internal and external analysis, this may be the most competitive cost approach to secure supply and engage directly with farmers to mitigate identified risks.
+
What it means:
+
This is linked to other strategic choices such as Reducing Upstream Supply Tiers and Supplier Capability Building.
+
This will require resource either directly from a buyer’s business or to support identifying an implementation partner for a farmer.
+
• Direct resource could include providing direct funding through procurement-driven sustainability investments, providing technical know-how, or supporting the farmer to build professional skills such as business planning and accessing finance.
+
• Implementation partners could include, for example, identifying in-country partners to work directly with smallholder farmers to coordinate smallholder crop production improvement activities.
","
1. Income Perspective
+
Direct contracting often provides farmers with guaranteed prices, reducing uncertainties and ensuring more stable income. Also, establishing direct relationships with businesses opens up opportunities for capacity building and development, contributing to increased productivity and income.
+
2. Environment Perspective
+
Direct Farmer Contracting programs can promote sustainability as companies can enforce their environmental standards directly with the farmers, encouraging and ensuring sustainable farming practices are in place.
","
1. Buyer Perspective
+
Risks
+
Supply Variability: Direct contracts with individual farmers may expose buyers to supply variability influenced by weather conditions and other uncontrollable factors.
+
Dependency on Localized Sources: Relying on local farmers may lead to limited geographic diversity, posing risks in the event of local disruptions.
+
Contract Non-Compliance: Farmers may face challenges in meeting contract terms, leading to potential disruptions in the supply chain.
+
Trade-offs
+
Supply Chain Control vs. Farmer Independence: Buyers may face the trade-off between maintaining strict control over the supply chain through direct farmer contracting and allowing farmers greater independence. Deciding on the right balance involves assessing the level of control needed versus empowering farmers.
+
Quality Assurance vs. Cost Competitiveness: Buyers must balance the assurance of product quality through direct contracts with the need for cost competitiveness. Striking the right balance involves ensuring quality while remaining economically competitive in the market.
+
Risk Sharing vs. Farmer Viability: Buyers may opt for risk-sharing arrangements with farmers to manage uncertainties, but this must be balanced against ensuring the financial viability of individual farmers. Deciding on the level of risk sharing involves considering the economic sustainability of farmers.
+
Sustainability Goals vs. Operational Efficiency: Buyers may prioritize sustainability goals in direct farmer contracting programs, but this could impact operational efficiency. Balancing sustainability objectives with the need for streamlined operations is crucial.
+
2. Supplier Perspective
+
Risks
+
Price Volatility: Farmers may face risks associated with price volatility in agricultural markets, impacting their income.
+
Market Access Challenges: Dependence on a single buyer may limit farmers' access to other markets, reducing their bargaining power.
+
Input Cost Fluctuations: Fluctuations in input costs may affect farmers' profitability, especially if contracts do not account for these variations.
+
Trade-offs
+
Stable Income vs. Market Diversification: Farmers may face the trade-off between securing stable income through direct contracts and diversifying their market exposure. Striking the right balance involves managing income stability while avoiding over-reliance on a single buyer.
+
Access to Resources vs. Autonomy: Farmers must decide on the trade-off between accessing resources provided by buyers in direct contracts and maintaining autonomy in their farming practices. Balancing resource support with the desire for independence is essential.
+
Risk Reduction vs. Profit Potential: Farmers may opt for direct contracts to reduce production and market risks, but this may come with limitations on profit potential. Deciding on the right balance involves assessing risk tolerance and profit expectations.
+
Long-Term Stability vs. Flexibility: Farmers may seek long-term stability through direct contracts, but this could limit their flexibility to adapt to changing market conditions. Finding the right balance involves considering the benefits of stability against the need for adaptability.
",
Direct
,
Indirect
,"
IDH Interview Sessions
+
Nespresso Example, Norwegian & Pakstanian Rice producer
",[],[],
+10,Fair Pricing and Flexible Payment Terms,"
Definition
+
Use fair pricing, milestone payments, partial prepayments, or shorter payment cycles to support direct farmer contracting, supplier capability building, and other strategic relationship models.
","
To effectively implement Fair Pricing Negotiation Practices, a procurement organization should conduct thorough market research, maintain transparent cost structures, establish fair and ethical sourcing policies, provide negotiation skills training, utilize data analytics for price trends, implement Supplier Relationship Management practices, ensure legal and regulatory compliance, encourage cross-functional collaboration, define clear contractual terms, establish performance metrics and monitoring mechanisms, and promote supplier diversity and inclusion, fostering a transparent, ethical, and collaborative approach to pricing negotiations.
","
Being cognisant of cash flows and investment needs of upstream supply chain actors may require implementation of fair pricing and flexible payment terms. Implementing such practices may be particularly important where, as a buyer, you have identified strategic priorities and risks to be managed that must be done by upstream actors and need resource from your business to enable initial investments and actions to be made.
+
As a buyer, you must understand the cash flow of upstream supply chain actors and how implementing new sustainable practices might impact this. To ensure these actors have the capability to implement these initiatives, the buyer may need to consider different approaches to financing to ensure upstream actors have healthy cash flows.
+
Similarly, even if not asking upstream suppliers to implement new practices, as a buyer you should be conscious of whether your current payment terms are inhibiting healthy cash flow for upstream suppliers. This could be creating risk in itself by limiting supplier and farmer ability to implement their own improvements.
","
Income Perspective
+
Fair, transparent pricing linked to quality and sustainability premia lifts farm income and rewards good practice. Shorter payment periods and milestone or partial payments smooth cash flow, improve planning, and reduce reliance on expensive credit. Pre finance for inputs enables timely purchase of seed, fertilizer, and services, supporting higher yields and more reliable revenue.
+
Environmental Perspective
+
Stable cash flow and input pre finance make it feasible to invest in soil health, efficient water use, and low impact pest management. When premia are tied to verified outcomes, farmers are paid for reduced inputs and positive environmental results, reinforcing adoption over time.
+
Risk Perspective
+
Predictable payments and advances cut cash flow gaps that lead to distress sales or under application of inputs. Transparent price formulas and floors reduce exposure to market swings. Timely working capital lowers the risk of missing planting windows and supports recovery after weather shocks.
+
Link to Procurement Organizations
+
Procurement partners must be clear on how they are ensuring a healthy cash flow for farmers, with little bureaucracy. Buyers can operationalize this through clear pricing formulas, documented premia for verified practices, prompt payment targets, and payment schedules aligned to the crop calendar. Offering pre finance or input on account, with fair deductions at delivery, plus simple dispute resolution, builds trust and supply continuity while advancing climate and nature goals.
","
1. Buyer Perspective
+
Risks
+
Higher Costs: Strict adherence to fair pricing practices may lead to higher procurement costs for buyers.
+
Supplier Resistance: Suppliers might resist fair pricing negotiations, potentially impacting the buyer's ability to secure competitive rates.
+
Market Competition: Intense market competition may limit the effectiveness of fair pricing negotiations, particularly in situations with a limited supplier pool.
+
Trade-offs
+
Cost Savings vs. Fairness: Buyers may face the trade-off between pursuing cost savings through rigorous negotiations and ensuring fairness in pricing for suppliers. Striking the right balance involves negotiating for favorable terms while respecting fair pricing practices.
+
Competitive Bidding vs. Relationship Building: Buyers must decide between competitive bidding processes that focus on price and relationship-building approaches that consider fairness. The trade-off involves balancing the pursuit of cost-effective solutions with the desire to foster long-term relationships with suppliers.
+
Market Competition vs. Supplier Relationships: Buyers navigating fair pricing negotiations may find that intense market competition limits the effectiveness of such negotiations, particularly in situations with a limited supplier pool. The trade-off involves managing market dynamics while maintaining strong supplier relationships.
+
Timeliness vs. Thorough Negotiation: Buyers may need to balance the desire for timely negotiations with a thorough examination of pricing terms. Striking the right balance involves efficient negotiation processes without compromising the depth of the evaluation.
+
2. Supplier Perspective
+
Risks
+
Reduced Profit Margins: Accepting fair pricing may result in reduced profit margins for suppliers.
+
Loss of Competitive Edge: Strict adherence to fair pricing may limit a supplier's ability to offer lower prices compared to competitors.
+
Financial Strain: If fair pricing practices are not universally adopted, suppliers might face financial strain compared to those not adhering to fair pricing.
+
Trade-offs
+
Profitability vs. Fairness: Suppliers face the trade-off between maximizing profitability and adhering to fair and transparent pricing practices. Balancing the desire for profit with a commitment to fair pricing contributes to sustainable and ethical business practices.
+
Stability vs. Cost Competitiveness: Suppliers may weigh the benefits of stable, long-term relationships with buyers against the need to remain cost-competitive in the market. The trade-off involves maintaining stability while ensuring competitiveness in pricing.
+
Relationship Building vs. Market Exposure: Suppliers may need to balance building strong relationships with buyers against the desire for exposure to a broader market. The trade-off involves fostering collaboration with key buyers while exploring opportunities in the wider marketplace.
+
Innovation vs. Budget Constraints: Suppliers may desire to innovate in their offerings, but budget constraints imposed by fair pricing negotiations can limit these initiatives. Striking a balance involves finding innovative solutions within the constraints of negotiated pricing terms.
Apply relevant certifications where corporate or brand-level commitments exist or where certifications have been identified as strategic levers to achieving goals.
","
1. Enabling Conditions for Fair Trade Certifications in a Procurement Organization:
+
Sustainable Procurement Policies: Development of procurement policies that prioritize fair trade certifications, emphasizing the inclusion of products from suppliers adhering to ethical labor practices, fair wages, and environmentally sustainable production.
+
Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of fair trade principles and certifications, promoting awareness and commitment to ethical sourcing.
+
Supplier Collaboration: Collaboration with suppliers committed to fair trade practices, fostering partnerships, and incentivizing the adoption of socially responsible and sustainable farming methods within the supply chain.
+
Commitment of the procurement organization: Utilization or establishment of recognized fair trade certification standards, ensuring authenticity and compliance in the procurement process, and supporting transparency in supply chain practices.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers holding fair trade certifications, promoting stability and incentivizing continued commitment to fair and ethical trading practices.
+
2. Enabling Conditions for Fair Trade Certifications on a Farm Level:
+
Fair Labor Practices: Implementation of fair labor practices, including fair wages, safe working conditions, and protection of workers' rights, contributing to social sustainability and fair trade certification eligibility.
+
Environmental Sustainability: Adoption of environmentally sustainable farming methods, such as organic farming or agroecological practices, to align with fair trade certification requirements that emphasize environmental responsibility.
+
Community Engagement: Active engagement with local communities, ensuring their participation and benefit from fair trade practices, promoting social inclusivity and responsible business conduct.
+
Transparent Supply Chains: Implementation of transparent supply chain practices, including traceability and documentation, to facilitate fair trade certification processes and demonstrate adherence to ethical standards.
+
Technical Support: Access to technical support and extension services to assist farmers in meeting fair trade certification requirements, optimizing their ability to comply with the necessary standards.
+
Successful implementation of fair trade certifications requires a commitment to ethical practices, collaboration, ongoing education, and the integration of fair trade principles into the core of farming and procurement strategies.
","
Fair Trade or Organic Certification is most likely to emerge as an action for implementation through selection of Selecting a Sustainability Certification as a strategic choice.
+
These certifications can provide assurance that the supply chains involved are mitigating certain risks and negative impacts, e.g. ensuring living incomes are met for farmer and avoiding environmental damage through excessive use of agrochemicals. If these have been identified as significant risks in the value chain, certification can be a strategic lever to minimising these risks in your supply chain.
+
This will mean an increase in cost of goods for the certification premium. It may also impact availability of the product, both volume and possible sourcing locations. For some commodities, sufficient certified volumes may be readily available. For others, this may require working with suppliers and upstream farmers to build certified volume, increasing costs even further. These impacts on costs should have been accounted for during the strategic choice selection process.
","
Environmental Perspective
+
Both certifications encourage practices that build soil health, conserve biodiversity, and reduce chemical use. This improves ecosystem resilience, lowers pollution, and supports long term farm productivity.
+
Income Perspective
+
Certification can secure premium or minimum prices, providing farmers with higher and more predictable income. Reduced dependence on synthetic inputs in organic systems can lower costs over time, while Fairtrade often channels funds into community development that creates additional livelihood opportunities.
+
Risk Perspective
+
Price floors and premium markets reduce exposure to volatile commodity prices and create stable income streams. Organic production reduces environmental risks such as soil degradation and water contamination, while Fairtrade networks strengthen social resilience and provide support during market or climate shocks.
+
Link to Procurement Organizations
+
Procurement partners must be clear within their business that this is a strategic choice for the long term. By recognizing and rewarding certified products, procurement organizations open access to differentiated markets and signal long term demand for sustainable production. Incentives, technical support, and clear sourcing commitments help farmers maintain certification, aligning farm level practices with company goals on ethical, sustainable supply.
","
1. Buyer Perspective:
+
Risks
+
Higher Costs: Buyers must evaluate the potential impact on the procurement budget due to the higher production costs associated with fair trade products.
+
Supply Chain Complexity: Buyers need to anticipate and manage complexities introduced into the supply chain by fair trade certifications to ensure logistics efficiency.
+
Market Competition: Buyers may encounter challenges in markets where consumers prioritize lower prices, potentially affecting the competitiveness of fair trade products.
+
Trade-offs
+
Cost vs. Ethical Sourcing: Buyers must make decisions that balance the potential cost implications of fair trade products with the desire to support ethical labor practices, fair wages, and environmentally sustainable production methods.
+
Consistency vs. Diversity: Achieving a balance between a consistent supply from traditional sources and the diverse range of fair trade products requires strategic decision-making in procurement offerings.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers adhering to fair trade certifications need to address potential financial strain resulting from higher production costs.
+
Certification Costs: Suppliers must manage additional administrative and certification-related costs associated with obtaining and maintaining fair trade certifications.
+
Market Access Challenges: Suppliers may face difficulties accessing markets that prioritize lower-priced products over fair trade certifications.
+
Trade-offs
+
Cost vs. Market Access: Suppliers should carefully weigh the costs and challenges of fair trade certifications against potential market access and premium prices associated with ethical and sustainable practices.
+
Innovation vs. Tradition: Allocating resources to adhere to fair trade certifications may divert attention and resources from traditional production methods, requiring suppliers to find a balanced approach.
+
Short-Term Costs vs. Long-Term Benefits: Suppliers need to balance the short-term financial implications of fair trade certifications with the potential long-term benefits in terms of brand reputation, market access, and social responsibility.
Group certification programmes allow a number of small-scale farmers to become certified together, with a single certificate covering the group rather than individual farmers. All farmers in the group must adhere to the same set of controls to ensure compliance with the certification’s standards. Using group certification reduces costs for the individual famer making certification more accessible.
","
Enabling conditions and prerequisites in a procurement organization to effectively and successfully implement Sustainable Agricultural Certification Premiums include:
+
1. Clear Sustainability Criteria
+
Prerequisite: Establish clear and well-defined sustainability criteria aligned with recognized agricultural certifications.
+
2. Engagement with Certification Bodies:
+
Prerequisite: Collaborate with reputable agricultural certification bodies to align premium criteria with industry-recognized standards.
+
3. Supplier Education and Training:
+
Prerequisite: Provide education and training programs for suppliers on sustainable agricultural practices and certification requirements.
+
4. Transparent Premium Structure:
+
Prerequisite: Design a transparent premium structure outlining the criteria for receiving sustainable agricultural certification premiums.
+
5. Monitoring and Verification Systems:
+
Prerequisite: Implement robust systems for monitoring and verifying supplier adherence to sustainability criteria.
+
6. Financial Capacity:
+
Prerequisite: Ensure financial capacity within the organization to fund sustainable agricultural certification premiums.
+
7. Legal and Ethical Compliance:
+
Prerequisite: Ensure compliance with legal and ethical standards in premium structures and supplier engagement.
+
8. Promotion of Certification Benefits:
+
Prerequisite: Actively promote the benefits of sustainable certifications and associated premiums to suppliers.
+
9. Stakeholder Collaboration:
+
Prerequisite: Collaborate with stakeholders such as farmers, certification bodies, and industry groups to build support for sustainable agriculture.
","
Group Certification Programmes is most likely to emerge as an action for implementation through selection of Selecting a Sustainability Certification as a strategic choice.
+
Implementing a group certification programme may be necessary if sustainability certification has been identified as a strategic choice, but sufficient supplies of certified commodities are not readily available in your current, and future, supply chain. Group certification programmes can be a cost efficient way to create a supply of certified commodities by allowing small-scale farmers and producers to obtain certification with lower costs required individually.
+
The buyer and supplier should assess the opportunities for group certification programmes, the expected up-front investment cost and the expected cost avoidance and risk mitigation opportunities that come from its implementation. Such investments should be captured in the Cost of Goods model.
","
1. Income Perspective
+
Group certification can open up access to premium markets, leading to higher sales and income for farmers. Reduced individual costs of certification mean more funds are available for other operational investments, potentially increasing productivity and income.
+
2. Environment Perspective
+
Group certification programs often require farmers to adopt sustainable practices to meet certification standards. This encourages environmentally-friendly farming, which can lead to better environmental outcomes in the farming community.
","
1. Buyer Perspective
+
Risks
+
Complex Coordination: Coordinating multiple suppliers for a group certification program may introduce complexity in logistics and communication.
+
Dependence on Group Compliance: Relying on group compliance may pose a risk if individual suppliers fail to maintain the required standards, impacting overall certification.
+
Challenges in Group Alignment: Achieving alignment among diverse suppliers in terms of practices and commitment to certification may be challenging.
+
Trade-offs
+
Cost Efficiency vs. Customization: Buyers may face the trade-off between achieving cost efficiency through group certification programs and providing customization to individual suppliers. Striking the right balance involves optimizing group benefits without compromising the unique needs of each supplier.
+
Risk Mitigation vs. Supplier Independence: Buyers using group certification programs may seek risk mitigation through standardized processes, but this could affect the independence of individual suppliers. The trade-off involves managing risks while preserving the autonomy of suppliers.
+
Supplier Collaboration vs. Competitive Edge: Buyers promoting collaboration among suppliers through group certification programs may need to balance this with the potential loss of a competitive edge for individual suppliers. The challenge is to foster collaboration while maintaining a competitive marketplace.
+
Long-Term Sustainability vs. Short-Term Goals: Buyers must decide between pursuing long-term sustainability objectives through group certification and achieving short-term procurement goals. Striking the right balance involves aligning group efforts with broader sustainability goals.
+
2. Supplier Perspective
+
Risks
+
Loss of Autonomy: Suppliers may feel a loss of autonomy in adhering to group certification requirements, potentially affecting their individual brand image.
+
Free-Rider Phenomenon: Some suppliers within the group may benefit from certification without actively contributing to sustainable practices, creating a ""free-rider"" scenario.
+
Complexity in Adherence: Adhering to group certification standards may be challenging for suppliers with diverse operations and practices.
+
Trade-offs
+
Group Benefits vs. Individual Recognition: Suppliers may face the trade-off between benefiting from group certification programs and seeking individual recognition for their sustainability efforts. The challenge is to leverage group benefits while showcasing unique contributions.
+
Compliance Costs vs. Group Support: Suppliers may incur compliance costs for group certification, but this must be balanced against the support and resources provided by the group. The trade-off involves managing costs while leveraging the collective strength of the group.
+
Market Access vs. Autonomy: Suppliers participating in group certification programs may gain enhanced market access, but this could impact their autonomy in decision-making. The challenge involves accessing markets collaboratively while preserving individual business strategies.
+
Resource Allocation vs. Certification Standards: Suppliers may need to allocate resources effectively to meet group certification standards, but this must be balanced against the potential impacts on overall resource allocation. The trade-off involves optimizing resources for both group compliance and individual operational efficiency.
",
Indirect
,
Indirect
,
How Much Does Rainforest Alliance Certification Cost? | Rainforest Alliance (rainforest-alliance.org)
,['rainforest-alliance.org'],[None],
+13,Integrated Pest Management (IPM),
Definition: Integrated Pest Management is an approach to the management of pests on farms in an ecologically sensitive way. The approach combines knowledge of pest lifecycles and natural pest control from beneficial predator insects or disease resistant crops. Synthetic pesticides are only used when required.
,"
1. Enabling conditions in a Procurement Organization:
+
Clear Policies and Guidelines: Establishing comprehensive policies and guidelines that prioritize the adoption of IPM practices in the procurement of agricultural products.
+
Supplier Collaboration: Collaborating with suppliers to ensure their adherence to IPM principles, promoting sustainable and environmentally friendly pest control methods.
+
Education and Training: Providing education and training programs for procurement staff to enhance awareness and understanding of IPM practices.
+
Monitoring and Auditing: Implementing regular monitoring and auditing processes to assess supplier compliance with IPM principles and identify areas for improvement.
+
Incentives for Sustainable Practices: Offering incentives or rewards for suppliers who demonstrate effective implementation of IPM and sustainable pest management practices.
+
2. Enabling conditions on the farm level:
+
Integrated Pest Management Plan: Developing and implementing a comprehensive IPM plan tailored to the specific characteristics and challenges of the farm.
+
Crop Rotation and Diversity: Incorporating crop rotation and diverse plantings to disrupt pest cycles and create less favorable conditions for pests.
+
Biological Control: Utilizing natural predators, parasites, or pathogens to control pest populations and reduce reliance on chemical pesticides.
+
Monitoring Systems: Establishing regular monitoring systems to detect pest populations early and assess the effectiveness of control measures.
+
Community Engagement: Engaging with the local community, neighboring farms, and agricultural extension services to share knowledge and collectively address pest management challenges.
+
Continuous Improvement: Emphasizing a commitment to continuous improvement by regularly reviewing and updating IPM strategies based on monitoring results and emerging pest threats.
+
Both in a procurement organization and on a farm, a holistic and collaborative approach that integrates sustainable and environmentally friendly pest management practices is key to successful implementation of Integrated Pest Management.
","
Integrated pest management is most likely to emerge as an action for implementation if you have identified the following strategic choices: Regenerative Agriculture, Smallholder Crop Production, Selecting a Sustainability Certification, Precision Agriculture, or Supplier Capability Building.
+
Implementation of integrate pest management can bring the following benefits:
+
• Improve farmer gross margin and income through the avoidance of expensive synthetic agrochemical inputs
+
• Improve yield and minimise disruption of supply due to pests
+
• Allow better yields for longer on the same land through avoiding environmental damage to soil and the wider ecosystem through excessive application of synthetic agrochemicals
+
Implementing this requires a long-term commitment to upskilling and capability building either with direct suppliers to cascade up the supply chain or, if pursuing Direct Farmer Contracting, directly with farmers. The resource requirements for this training and capability building must be clarified with suppliers as part of the Cost of Goods model, developed as part of the procurement strategy.
","
1. Environmental Perspective:
+
Biodiversity Preservation: IPM emphasizes the use of diverse and ecologically sustainable pest control methods, promoting biodiversity by avoiding the negative impact of broad-spectrum pesticides on non-target species.
+
Soil and Water Conservation: Reduced reliance on chemical pesticides in IPM practices contributes to the conservation of soil quality and water resources, supporting environmental sustainability.
+
2. Income Perspective:
+
Cost Savings: While implementing IPM practices may require initial investment in training and monitoring, farmers can achieve long-term cost savings by reducing expenses on chemical inputs and potentially benefiting from government incentives for sustainable practices.
+
Access to Premium Markets: Farmers adopting IPM may gain access to premium markets that prioritize products produced using environmentally friendly and ecologically sustainable pest control methods, contributing to increased income.
+
3. Risk Perspective:
+
Reduced Dependency on Chemicals: IPM reduces the risk of developing pesticide-resistant pests, addressing a significant challenge in conventional agriculture. This enhances the long-term effectiveness of pest control strategies for farmers.
+
Health and Safety: IPM minimizes the health and safety risks associated with the handling and exposure to chemical pesticides, creating a safer working environment for farmers.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are crucial in providing access to inputs and resources. By supporting and incentivizing the adoption of IPM practices, procurement organizations contribute to the sustainable farming practices of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Potential Supply Chain Disruptions: Buyers must carefully manage the implementation of IPM to avoid disruptions in the availability of agricultural products, ensuring a stable and reliable supply chain.
+
Higher Costs: Buyers need to strategically navigate higher production costs from IPM practices, balancing sustainability goals with efficient procurement to manage overall expenses.
+
Limited Product Availability: Implementing IPM practices requires buyers to assess potential impacts on product availability, making informed decisions that maintain a balance between consistency and variety.
+
Trade-offs
+
Cost vs. Sustainability: Buyers should strategically navigate the trade-off between cost considerations and supporting sustainable pest management practices, ensuring both economic efficiency and environmental responsibility.
+
Consistency vs. Variety: Balancing a consistent supply with a diverse range of products necessitates compromises, requiring buyers to find an optimal mix that meets both supply chain stability and product variety.
+
2. Supplier Perspective:
+
Risks
+
Financial Impact: Suppliers adopting IPM practices must strategically manage initial cost increases, ensuring the financial impact doesn't compromise their stability during the transition.
+
Competitive Disadvantage: Suppliers practicing IPM must focus on mitigating competitive disadvantages, emphasizing the added value of environmentally friendly practices to counterbalance potential higher costs.
+
Transition Challenges: Suppliers transitioning to IPM should address challenges effectively to minimize disruptions and maintain productivity during the adaptation period.
+
Trade-offs
+
Cost vs. Environmental Impact: Suppliers must strategically navigate the trade-off between managing costs and minimizing the environmental impact of pest management practices, ensuring a balance between financial efficiency and ecological responsibility.
+
Innovation vs. Tradition: Suppliers adopting IPM practices must integrate innovation efforts with traditional methods, ensuring a harmonious coexistence that doesn't compromise established workflows.
+
Market Access vs. IPM Adoption: Suppliers targeting environmentally conscious markets must weigh the benefits of market access against the costs and challenges of adopting and maintaining IPM practices, aligning their strategies with evolving consumer expectations.
Use long-term contracts to mutually provide financial stability and the basis to encourage suppliers to invest in sustainability improvements across environmental and human rights areas.
","
Enabling conditions for the effective implementation of long-term contracts in a procurement organization include establishing robust risk management strategies, ensuring clear performance metrics and key performance indicators (KPIs), fostering strong relationships with suppliers, conducting thorough due diligence on contractual terms, maintaining flexibility to accommodate changes, and implementing advanced contract management technologies to facilitate monitoring and compliance over extended periods.
","
When is this a strategic choice?
+
When you need to give your supplier the confidence to invest in the transformative practices for the long term. For example, the supplier investment required in building their capability to ensure living income is achieved for smallholder farmers in their upstream supply chain. This can be a means to enable and support supplier capability building to perform actions that meet a buyer’s identified strategic needs.
+
What it means:
+
• This requires a mind-set shift on your part as a buyer; moving from short-term transactional activities, to long-term, e.g. 5 year plus, cost horizons for strategic activities.
+
• Ensure as a buyer you have engaged with your supplier and identified a genuine opportunity for mutual value creation. For example, implementing a longer-term contract will remove volatility for you as a buyer and provide more secure income to the supplier.
+
• Watch out: Do not engage your supplier in this strategic choice if you are not certain that you can deliver, i.e. you are pushed internally to take advantage when markets are favourable. If you pull out of the contract in twelve months, this will damage trust and your reputation as a buyer.
","
1. Income Stability:
+
Long-term contracts provide farmers with a stable pricing structure, reducing income volatility and offering financial stability for their households.
+
2. Risk Mitigation:
+
By mitigating the impact of market price fluctuations, long-term contracts protect farmers from sudden downturns, preserving their income levels and ensuring financial security.
+
3. Investment Confidence:
+
The confidence provided by long-term contracts encourages farmers to make investments in technology, equipment, and sustainable practices, ultimately leading to increased productivity and income.
+
4. Financial Planning:
+
Long-term contracts enable effective planning for farmers, both in terms of crop cycles and financial management, contributing to better financial planning and increased farm productivity.
+
5. Incentive Alignment:
+
Aligning incentives in long-term contracts creates a collaborative environment where both farmers and buyers benefit from the success of the partnership, encouraging investment in sustainable and efficient farming practices.
+
6. Negotiation Empowerment:
+
Long-term contracts grant farmers greater negotiation power, allowing them to secure favorable terms and pricing structures that positively impact their income.
+
7. Trust Building:
+
The continuity of long-term relationships builds trust between farmers and buyers, fostering reliability, transparency, and mutual understanding, positively influencing income-related negotiations.
+
8. Sustainable Farming Practices:
+
Long-term contracts create a conducive environment for the adoption of sustainable farming practices, aligning with environmental stewardship goals and enhancing the quality of the farmers' products.
+
9. Financial Access:
+
The more secure financial outlook provided by long-term contracts makes it easier for farmers to access credit and investment opportunities, supporting increased productivity and income.
+
10. Crop Diversification:
+
Long-term contracts encourage crop diversification, allowing farmers to experiment with different crops and potentially increase their income through diversified revenue streams.
","
1. Buyer Perspective
+
Risks
+
Market Volatility: Long-term contracts may expose buyers to market fluctuations, impacting the competitiveness of pricing and terms over time.
+
Technological Obsolescence: Advancements in technology may render contracted goods or services outdated, leading to potential inefficiencies or obsolete solutions.
+
Changing Requirements: Evolving business needs could result in misalignment with the originally contracted goods or services, requiring modifications that may be challenging.
+
Trade-offs
+
Cost Certainty vs. Market Flexibility: Buyers may seek cost certainty through long-term contracts, but this can limit their ability to take advantage of market fluctuations or negotiate lower prices during periods of market decline.
+
Supplier Commitment vs. Competitive Bidding: Long-term contracts often require supplier commitment, but this can reduce the opportunity for competitive bidding, potentially limiting cost savings.
+
Risk Mitigation vs. Innovation: Long-term contracts provide stability and risk mitigation, but they may hinder the buyer's ability to quickly adopt new technologies or benefit from innovations in the market.
+
Relationship Building vs. Supplier Diversity: Developing strong relationships with a few suppliers in long-term contracts can enhance collaboration, but it may limit the diversity of suppliers and potential innovation from different sources.
+
2. Supplier Perspective:
+
Risks
+
Resource Commitment: Suppliers may face challenges adapting to changing market conditions or technology, potentially affecting their resource allocation and profitability.
+
Contract Inflexibility: Long-term contracts may limit a supplier's ability to adjust pricing or terms in response to unforeseen circumstances.
+
Dependency: Suppliers may become overly dependent on a single buyer, leading to vulnerability if the buyer faces financial issues or changes in strategy.
+
Trade-offs
+
Stable Revenue vs. Market Opportunities: Long-term contracts offer stable revenue, but suppliers may forego opportunities to take advantage of higher market prices or more lucrative contracts.
+
Production Planning vs. Flexibility: Long-term contracts allow for better production planning, but they may restrict a supplier's flexibility to adapt quickly to changing market conditions or technological advancements.
+
Cost Efficiency vs. Price Negotiation: Suppliers may achieve cost efficiency through long-term relationships, but this could limit their ability to renegotiate prices upward in response to increased costs or inflation.
+
Collaboration vs. Market Exposure: Building a collaborative relationship with a buyer in a long-term contract is beneficial, but it may limit a supplier's exposure to a broader market and potential new customers.
Shorten the supply chain when current purchasing practices limit influence over sustainability improvements. Closer relationships with upstream suppliers improve effectiveness, reduces costs (removing value chain actors that are not value adding), and reduces risk.
","
1. Strategic Alignment with Organizational Goals
+
Prerequisite: Ensure alignment with overall organizational goals and strategic objectives.
+
Enablement: Strategic alignment guides decision-making towards choices contributing to long-term success.
+
2. Internal Capability Assessment
+
Prerequisite: Evaluate the organization's internal capabilities, expertise, and capacity.
+
Enablement: Understanding internal strengths and limitations aids in determining the feasibility of in-house production.
+
3. Market Assessment and Supplier Evaluation
+
Prerequisite: Conduct a market assessment and evaluate potential suppliers.
+
Enablement: Comprehensive supplier evaluation ensures alignment with organizational needs and goals.
+
4. Comprehensive Cost Analysis:
+
Prerequisite: Conduct a thorough cost analysis for both in-house production and external procurement.
+
Enablement: Detailed cost insights facilitate informed decision-making and resource allocation.
+
5. Cross-Functional Collaboration:
+
Prerequisite: Encourage collaboration between procurement, production, and other relevant departments.
+
Enablement: Cross-functional collaboration enhances information sharing and a holistic approach to decision-making.
+
6. Risk Identification and Mitigation Strategies
+
Prerequisite: Identify potential risks associated with both options and develop mitigation strategies.
Prerequisite: Assess and ensure compliance with relevant regulations and standards.
+
Enablement: Compliance safeguards against legal issues and ensures ethical procurement practices.
+
8. Contract Management Expertise
+
Prerequisite: Have expertise in contract management for effective supplier relationships.
+
Enablement: Strong contract management ensures that external partnerships align with contractual expectations.
+
9. Scenario Planning
+
Prerequisite: Conduct scenario planning for various market conditions and internal capabilities.
+
Enablement: Scenario planning helps in anticipating potential changes and making adaptable decisions.
+
10. Continuous Monitoring and Evaluation
+
Prerequisite: Implement continuous monitoring and evaluation mechanisms post-implementation.
+
Enablement: Regular assessments ensure the ongoing relevance and effectiveness of the chosen Make vs. Buy strategy.
","
When is this a strategic choice?
+
When the spend category is business critical and the value chain visibility analysis surfaces value chain actors who are adding cost and not mitigating risk. This may also be a strategic choice when there are simply so many steps in the value chain that the ability to leverage influence to address environmental and social risks is significantly reduced.
+
What it means:
+
• Reviewing and repeating the supplier sustainability assessment and supplier segmentation activities for actors in the value chains of interest. This allows you to identify partners who have the commitment and the capability to mitigate the sustainability risks surfaced in the value chain risk assessment.
+
• Once these suppliers have been identified, the next step will be building and developing new supplier relationships with long term commitments.
","
Income Perspective
+
By working more directly with buyers and reducing layers of intermediaries, farmers gain clearer market access and greater income stability. Direct relationships can secure consistent demand, better prices, and access to technical and financial support, reducing reliance on fragmented or uncertain markets.
+
Environmental Perspective
+
Closer integration with buyers can align farm practices with corporate sustainability goals, encouraging reduced chemical use, improved soil and water management, and enhanced biodiversity. With fewer supply chain layers, monitoring and support for environmental improvements become more effective, leading to stronger outcomes on farm.
","
1. Buyer Perspective
+
Risks
+
Operational Complexity: In-house production may introduce operational complexities, including managing additional resources, technology, and expertise.
+
Investment Risk: Investing in production capabilities involves a significant upfront cost, which may not be justified if demand fluctuates.
+
Dependency on Internal Processes: Relying solely on internal processes may limit the buyer's agility in responding to market changes.
+
Trade-offs
+
Cost Efficiency vs. Control: Buyers may face the trade-off between achieving cost efficiency through outsourcing (buying) and maintaining greater control over processes through in-house production (making). Deciding on the right balance involves evaluating the importance of cost savings versus control.
+
Expertise Access vs. In-House Skills Development: Buyers must weigh the advantage of accessing external expertise through outsourcing against the potential benefits of developing in-house skills. The trade-off involves deciding between immediate access to specialized knowledge and building internal capabilities over time.
+
Risk Mitigation vs. Flexibility: Buyers may prioritize risk mitigation by outsourcing certain processes to specialized suppliers, but this could reduce the flexibility to make rapid changes internally. Balancing risk mitigation with the need for adaptability is crucial in the decision-making process.
+
Time-to-Market vs. Quality Control: Buyers may need to balance the desire for a rapid time-to-market through outsourcing against the need for stringent quality control in in-house production. Striking the right balance involves considering time constraints while ensuring product or service quality.
+
2. Supplier Perspective
+
Risks
+
Overdependence on a Single Buyer: Suppliers heavily reliant on a single buyer may face financial vulnerabilities if the buyer changes its production strategy.
+
Market Access Challenges: Suppliers relying solely on external sales may face challenges in accessing certain markets or industries.
+
Limited Control over Production: Suppliers may face risks associated with limited control over production processes and quality standards.
+
Trade-offs
+
Stability through Contracts vs. Market Volatility: Suppliers may face the trade-off between seeking stability through long-term contracts with buyers and navigating market volatility. Long-term contracts offer stability but may limit the ability to respond quickly to market changes.
+
Specialization vs. Diversification: Suppliers must decide between specializing in a particular product or service for a single buyer (making) and diversifying their offerings to cater to multiple buyers (buying). The trade-off involves assessing the benefits of specialization against the risks of dependence on a single buyer.
+
Economies of Scale vs. Customization: Suppliers may weigh the advantages of achieving economies of scale through serving multiple buyers against the customization requirements of individual buyers. The trade-off involves deciding between mass production efficiency and tailoring products or services to specific buyer needs.
+
Cash Flow Predictability vs. Market Dependency: Suppliers may prioritize cash flow predictability through long-term contracts, but this may result in dependency on specific buyers. Balancing cash flow stability with market diversification is essential for supplier sustainability.
Develop shared incentive programs to accelerate strategic implementation, especially when building supplier capability, reducing supplier tiers, or transitioning to direct sourcing relationships.
","
To effectively implement Performance-Based Incentives in procurement, a logical progression includes defining clear performance metrics, establishing transparent contractual agreements, developing robust data analytics capabilities, implementing effective Supplier Relationship Management (SRM), establishing communication and feedback mechanisms, defining performance evaluation criteria, designing flexible incentive structures, providing training and support programs, ensuring financial stability, and ensuring legal and ethical compliance, creating a conducive environment for continuous improvement and collaboration with suppliers.
","
When is this a strategic choice?
+
If it has been identified that effective mitigation of sustainability risks can only be achieved through long-term partnering with upstream supply chain actors, trust must be built to provide the foundation for an effective relationship.
+
What it means:
+
Committing to deep partnering and to genuinely understanding what is mutual for both buyer and supplier. This will require confronting and agreeing a fair balance of value creation and acceptance of risk for both parties.
+
This is important to consider when exploring actions such as Supplier Capability Building, Reducing Upstream Supplier Tiers, and Direct Farmer Contracting.
","
Income Perspective
+
Mutual incentive schemes increase farmer income by rewarding achievement of shared targets agreed with buyers. Aligning incentives to continuous improvement and efficiency creates additional opportunities to strengthen profitability while building longer term partnerships.
+
Environmental Perspective
+
When incentives are jointly tied to sustainability goals, farmers are encouraged to adopt practices that improve soil, water, and biodiversity outcomes. This supports climate resilience, long term productivity, and alignment with buyer commitments on sustainable sourcing.
","
1. Buyer Perspective
+
Risks
+
Financial Strain: Offering performance-based bonuses may strain the buyer's budget, especially if multiple suppliers are eligible for bonuses simultaneously.
+
Potential for Misalignment: There's a risk that the buyer's expectations for performance may not align with the supplier's capabilities, leading to disputes over bonus eligibility.
+
Supplier Dependence: Over-reliance on performance bonuses may create a dependency on bonuses rather than fostering sustainable long-term performance improvements.
+
Trade-offs
+
Cost Savings vs. Performance Quality: Buyers may face the trade-off between achieving cost savings and ensuring high performance quality through incentives. Striking the right balance involves aligning incentives with performance expectations without compromising cost-efficiency.
+
Contractual Rigidity vs. Flexibility: Buyers using performance-based incentives may grapple with maintaining contractual rigidity and allowing flexibility for suppliers to meet performance targets. The trade-off involves defining clear performance metrics while accommodating dynamic market conditions.
+
Risk Mitigation vs. Innovation: Buyers may use performance-based incentives for risk mitigation, but this could impact supplier innovation. Balancing risk management with fostering innovation involves setting incentives that encourage both reliability and continuous improvement.
+
Supplier Accountability vs. Relationship Building: Buyers may emphasize supplier accountability through performance-based incentives, but this may affect the overall relationship with suppliers. Striking the right balance involves holding suppliers accountable while fostering a positive working relationship.
+
2. Supplier Perspective
+
Risks
+
Unrealistic Performance Expectations: Suppliers may face challenges if the buyer sets overly ambitious or unrealistic performance targets.
+
Financial Dependence: Dependence on performance bonuses may create financial uncertainty if bonuses are not consistently achieved.
+
Operational Strain: Intense focus on bonus-driven metrics might strain the supplier's operations, potentially affecting overall service or product quality.
+
Trade-offs
+
Profitability vs. Performance: Suppliers may face the trade-off between maximizing profitability and meeting performance metrics to earn incentives. Balancing the desire for profit with the commitment to achieving performance targets is crucial for supplier success.
+
Resource Allocation vs. Incentive Earning: Suppliers may need to allocate resources effectively to meet performance targets, but this must be balanced against the potential for earning incentives. The trade-off involves optimizing resource allocation for both performance and profitability.
+
Stability vs. Variable Income: Suppliers relying on performance-based incentives may experience variability in income. The trade-off involves managing income stability while leveraging performance incentives as a revenue stream.
+
Long-Term Relationships vs. Short-Term Targets: Suppliers may need to balance building long-term relationships with buyers and meeting short-term performance targets for incentives. Striking the right balance involves aligning performance incentives with broader relationship-building objectives.
Deploy precision agriculture technologies to reduce environmental impacts and input costs on farms.
","
1. Enabling Conditions for Precision Agriculture in a Procurement Organization:
+
Data Integration Systems: Implementation of robust systems for collecting, integrating, and analyzing agricultural data to inform procurement decisions based on precise insights.
+
Technology Adoption: Adoption of cutting-edge technologies such as sensors, GPS, drones, and data analytics platforms to monitor and optimize agricultural processes.
+
Supplier Collaboration: Collaborative partnerships with suppliers who employ precision agriculture practices, fostering a seamless integration of technology-driven approaches throughout the supply chain.
+
Educational Programs: Training procurement staff on the principles and benefits of precision agriculture, enhancing their ability to make informed decisions.
+
Regulatory Compliance: Ensuring alignment with relevant regulations and standards related to data privacy, technology use, and environmental sustainability in precision agriculture.
+
2. Enabling Conditions for Precision Agriculture on a Farm:
+
Technology Infrastructure: Establishment of a reliable and efficient technology infrastructure, including high-speed internet and connectivity to support precision agriculture applications.
+
Data Management and Analysis: Implementation of robust data management systems and analytics tools to process and interpret data collected from precision agriculture technologies.
+
Skill Development: Continuous training and skill development for farm personnel to effectively operate and leverage precision agriculture tools and technologies.
+
Equipment and Sensor Integration: Integration of precision agriculture equipment, sensors, and monitoring devices into farm operations to optimize resource use and enhance overall efficiency.
+
Financial Investment: Availability of financial resources to invest in the initial setup and ongoing maintenance of precision agriculture technologies and equipment.
+
Sustainable Practices: Integration of precision agriculture with sustainable farming practices, considering environmental impact and resource conservation.
+
For both procurement organizations and farms, a holistic approach that combines technological infrastructure, data-driven decision-making, collaboration with stakeholders, and a commitment to sustainable practices is essential for successful implementation of precision agriculture.
","
Precision agriculture technologies are any technologies or practices which optimises agricultural inputs. For example, mapping the soil nutrient levels across a field and then adjusting fertiliser applications across the field to match the required nutrient levels.
+
When is this a strategic choice?
+
When you, as the buyer, have a clear understanding of current and future sourcing origins and are prepared to actively support suppliers in adopting precision agriculture systems.
+
What it means:
+
• As a buyer you are confident that your suppliers have both the capability and commitment to implement and sustain the technology infrastructure required for precision agriculture. This may include Geographic Information Systems (GIS), input optimisation tools, and precision machinery.
+
• As a buyer you are also prepared to provide any additional support needed, including investment capital if necessary.
+
• This strategy depends on suppliers maintaining long-term, trust-based relationships with producers at the farm level.
","
1. Environmental Perspective:
+
Reduced Environmental Impact: Precision agriculture minimizes the environmental impact of farming activities by precisely targeting inputs, minimizing runoff, and optimizing resource use. This supports environmental sustainability and conservation.
+
Soil and Water Conservation: By precisely managing inputs, precision agriculture helps farmers conserve soil quality and water resources, reducing the overall environmental footprint of farming.
+
2. Income Perspective:
+
Cost Savings: Precision agriculture technologies enable farmers to make more informed decisions, reducing input costs and improving overall operational efficiency. This leads to cost savings and increased profitability for farmers.
+
Increased Yields: Improved decision-making based on real-time data can lead to increased yields, contributing to higher income for farmers.
+
3. Risk Perspective:
+
Climate Resilience: Precision agriculture provides tools for farmers to adapt to climate variability by offering real-time data on weather patterns and allowing for more effective risk management.
+
Market Viability: Adoption of precision agriculture practices enhances the market viability of farmers by showcasing their commitment to sustainable and technologically advanced farming methods, reducing the risk of market exclusion.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are vital in providing access to advanced technologies and resources. By supporting and incentivizing the adoption of precision agriculture practices, procurement organizations contribute to the technological advancement and sustainability of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Initial Investment Costs: Buyers should strategically manage the upfront investment in precision agriculture, ensuring the technology aligns with long-term procurement goals without exceeding budget constraints.
+
Dependency on Technology: Buyers must assess and mitigate the risk of overreliance on precision agriculture technology by implementing backup systems and contingency plans for supply chain disruptions.
+
Data Security Concerns: Buyers need to address data security concerns by implementing robust cybersecurity measures, safeguarding sensitive information collected through precision agriculture.
+
Trade-offs
+
Cost vs. Efficiency: Buyers should make strategic decisions on the adoption of precision agriculture technology, weighing upfront costs against expected long-term efficiency gains in procurement and supply chain management.
+
Environmental Impact vs. Productivity: Deciding on the level of technology adoption involves a trade-off between potential environmental benefits and increased productivity, requiring buyers to find a balanced approach that aligns with sustainability goals.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers investing in precision agriculture must carefully manage financial strain, strategically allocating resources to ensure the adoption of technology doesn't compromise their stability.
+
Technological Skill Gaps: Suppliers should address skill gaps by investing in training or recruiting skilled personnel to effectively adopt and implement precision agriculture practices.
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Market Access Challenges: Suppliers without means to adopt precision agriculture may face challenges accessing markets that prioritize technologically advanced practices, necessitating strategic decisions to overcome barriers.
+
Trade-offs
+
Cost vs. Competitiveness: Suppliers must strategically balance the costs of adopting precision agriculture with the potential for increased competitiveness in the market, ensuring a sound investment in technology.
+
Innovation vs. Tradition: Allocating resources to adopt new technologies involves a trade-off with traditional farming practices, requiring suppliers to find a harmonious integration that maintains productivity.
+
Market Access vs. Technology Adoption: Suppliers need to weigh the benefits of market access against the costs and challenges of transitioning to and maintaining precision agriculture practices, aligning their strategies with evolving buyer expectations.
Invest strategically where required improvements are not yet in place or need acceleration. Incentivise suppliers to adopt sustainability practices aligned with internal and external analysis.
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To enable financially robust and strategically impactful procurement-driven sustainability investments, a procurement organization should prioritize:
6. Strategic Supplier Engagement: Engaging with suppliers aligned with sustainability goals in a strategic manner.
+
7. Technology for Financial Insight: Leveraging technology tools for financial insight and reporting.
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8. Return on Investment (ROI) Tracking: Establishing mechanisms to monitor and assess the financial outcomes of sustainability initiatives.
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9. Continuous Improvement Culture: Fostering a culture of continuous improvement within the financial and strategic aspects of sustainability investments.
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10. Regulatory Compliance Management: Incorporating financial planning to ensure compliance with environmental regulations.
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When is this a strategic choice?
+
Based on the internal and external analysis – this will have been identified as an investment opportunity to support supplier improvements.
+
What it means:
+
When you need to give your supplier the confidence to invest in the transformative practices for the long term. This investment may take many forms – depending on your needs as the buyer and what is mutual for both buyer and supplier. For example:
+
• Long term contracts: Giving confidence to the supplier to invest in capability building
+
• Pre-financing agreements: Finance provided upfront to enable a supplier or farmer to cover costs needed to start an initiative. Investment comes back to the buyer further down the line.
+
• Cost of Goods Addition: When making a high-value purchase, a supplier/buyer agrees a minor additional percentage of the Cost Of Goods, enabling the supplier to invest in smallholder capability building. The percentage agreed can be decided based on a cost avoidance calculation done to understand the long term cost benefits of the capability building
+
• Performance Cost Model Incentives: Agreeing performance cost model incentives for the supplier, which reduce the buyers total cost of ownership. For example, price indexed to delivering high quality specifications, which brings efficiency by reducing waste for the buyer associated with receiving out-of-specification goods.
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1. Supply Chain Resilience:
+
Environmental Perspective: Resilient supply chains, supported by sustainability investments, protect farmers from environmental risks, preserving their livelihoods.
+
Income Perspective: Stable supply chains ensure consistent income for farmers, reducing financial vulnerabilities associated with disruptions.
+
2. Quality Assurance:
+
Environmental Perspective: Implementing sustainable farming practices contributes to environmental conservation, ensuring the longevity of farming activities.
+
Income Perspective: High-quality products can command premium prices, positively impacting farmers' income.
+
3. Mitigating Supply Chain Risks:
+
Environmental Perspective: Sustainable farming practices reduce the risk of environmental degradation, safeguarding the long-term viability of farming.
+
Income Perspective: Mitigating supply chain risks ensures stable income for farmers, protecting them from financial uncertainties.
Income Perspective: Ensuring compliance protects farmers from legal issues, preserving their income and reducing financial risks.
+
5. Long-Term Supply Assurance:
+
Environmental Perspective: Sustainable practices contribute to the long-term availability of agricultural inputs, ensuring the sustainability of farmers' livelihoods.
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Income Perspective: Consistent supply ensures long-term income stability for farmers, reducing the risk of income fluctuations.
+
6. Cost Efficiency:
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Environmental Perspective: Sustainable practices contribute to resource efficiency and reduce environmental impact.
+
Income Perspective: Cost-efficient practices positively impact farmers' income by optimizing production processes and reducing waste.
+
7. Market Access and Premiums:
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Environmental Perspective: Sustainability investments enhance the marketability of products, contributing to environmental sustainability.
+
Income Perspective: Access to premium markets and higher prices for sustainable products directly benefits farmers' income.
+
8. Community Engagement:
+
Environmental Perspective: Community engagement initiatives support sustainable and community-focused farming practices.
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Income Perspective: Positive community engagement contributes to stable income for farmers, fostering a supportive local environment.
+
9. Risk Mitigation Through Training:
+
Environmental Perspective: Training in sustainable practices supports environmental conservation and adaptation to changing conditions.
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Income Perspective: Risk mitigation through training ensures farmers can adapt to market demands, preserving their income and livelihoods.
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1. Buyer Perspective
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Risks
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Higher Initial Investment: Implementing sustainability initiatives may require a higher upfront investment in eco-friendly products or services.
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Uncertain Return on Investment (ROI): The long-term financial benefits of sustainability investments may be uncertain, making it challenging to quantify ROI accurately.
+
Market Volatility: Dependence on sustainability-sensitive suppliers may expose the buyer to market fluctuations, impacting the financial stability of the supply chain.
+
Trade-offs
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Cost vs. Sustainability Impact: Buyers may face the trade-off of prioritizing lower costs versus making sustainable procurement decisions that may involve higher upfront expenses. Striking the right balance is crucial for achieving sustainability goals while managing costs.
+
Supplier Relationship vs. Sustainable Sourcing: Building strong relationships with existing suppliers may conflict with the pursuit of sustainability if those suppliers do not align with sustainable sourcing practices. Buyers must balance loyalty with the need for suppliers committed to sustainability.
+
Short-Term vs. Long-Term Sustainability Goals: Buyers may need to decide between meeting short-term procurement targets and pursuing more ambitious, long-term sustainability goals. Achieving immediate sustainability gains may conflict with broader, transformative initiatives.
+
Standardization vs. Customization for Sustainability: Standardizing procurement processes can enhance efficiency, but customization may be necessary for tailoring sustainability requirements to specific products or suppliers. Balancing standardization and customization is crucial for effective sustainable procurement.
+
2. Supplier Perspective
+
Risks
+
Increased Production Costs: Adhering to sustainability standards may lead to increased production costs, impacting the supplier's financial performance.
Market Exclusion: Suppliers not meeting sustainability standards may face exclusion from contracts, limiting market access and revenue opportunities.
+
Trade-offs
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Cost Competitiveness vs. Sustainable Practices: Suppliers may face the trade-off of remaining cost-competitive while adopting sustainable practices, which might involve investments in eco-friendly technologies or certifications. Balancing these factors is essential for sustainable procurement partnerships.
+
Market Presence vs. Sustainability Credentials: Suppliers may need to weigh the importance of building a strong market presence against the need to invest in and showcase sustainability credentials. Striking the right balance ensures visibility and commitment to sustainability.
+
Flexibility vs. Compliance with Sustainable Standards: Suppliers may value flexibility in their operations, but strict compliance with sustainability standards may limit their operational freedom. Achieving compliance without compromising operational efficiency is a key trade-off.
+
Short-Term Profits vs. Long-Term Sustainability Investments: Suppliers may need to decide between prioritizing short-term profits and making long-term investments in sustainable practices. Balancing immediate financial gains with sustainable investments is critical for long-term success.
Definition: Adopt regenerative agriculture practices where internal commitments or identified value chain risks point to degradation in soil, nature, water, or biodiversity being priority areas to address. Regenerative agriculture approaches help mitigate risks using natural inputs and support long-term sustainability.
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1. Enabling Conditions for Regenerative Agriculture in a Procurement Organization:
+
Sustainable Sourcing Policies: Development of procurement policies that prioritize regenerative agriculture practices, emphasizing the sourcing of products from farms employing regenerative principles.
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Supplier Engagement: Collaborative partnerships with suppliers committed to regenerative agriculture, encouraging transparency and the adoption of sustainable practices.
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Educational Initiatives: Providing training and education for procurement professionals to enhance their understanding of regenerative agriculture principles and the associated benefits.
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Certification Standards: Utilizing or establishing certification standards that recognize and verify regenerative farming practices, ensuring authenticity and compliance in the supply chain.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers practicing regenerative agriculture to promote stability and encourage ongoing commitment to sustainable practices.
+
2. Enabling Conditions for Regenerative Agriculture on a Farm Level:
+
Holistic Farm Planning: Development of comprehensive farm plans that integrate regenerative agriculture principles, considering soil health, biodiversity, and ecosystem resilience.
+
Crop Rotation and Cover Crops: Implementation of crop rotation and cover cropping strategies to enhance soil fertility, reduce erosion, and promote biodiversity.
+
No-till Farming Practices: Adoption of no-till or reduced tillage methods to minimize soil disturbance and promote soil structure and carbon sequestration.
+
Agroforestry Integration: Integration of agroforestry practices, such as the planting of trees and perennial crops, to enhance biodiversity and provide ecosystem services.
+
Livestock Integration: Thoughtful integration of livestock into farming systems to mimic natural ecological processes, improve soil health, and contribute to nutrient cycling.
+
Community Involvement: Engagement with local communities, consumers, and agricultural extension services to raise awareness of regenerative agriculture and foster support for sustainable farming practices.
+
Both at the procurement organization and on the farm level, successful implementation of regenerative agriculture requires a commitment to sustainable principles, collaborative relationships, ongoing education, and the integration of regenerative practices into the core of farming and procurement strategies.
","
1. Cost Perspective:
+
Input Cost Reduction: Regenerative agriculture focuses on enhancing soil health and reducing the reliance on external inputs. This can lead to cost savings for agri-food companies by minimizing the need for synthetic fertilizers and pesticides.
+
Operational Efficiency: Improved soil health and biodiversity associated with regenerative practices contribute to operational efficiency, potentially reducing the need for extensive pest control and fertilization.
+
2. Revenue Perspective:
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Market Differentiation: Agri-food companies adopting regenerative agriculture can differentiate themselves in the market by offering products with improved environmental and ethical credentials. This differentiation may attract consumers seeking sustainable and responsibly produced goods.
+
Premium Pricing: Products associated with regenerative agriculture may command premium prices due to their perceived environmental and health benefits, contributing to increased revenue.
+
3. Risk Perspective:
+
Supply Chain Resilience: Regenerative agriculture practices, such as diversified crop rotations and cover cropping, can enhance supply chain resilience by reducing vulnerability to climate-related risks, pests, and diseases.
+
Reputation Management: Agri-food companies adopting regenerative practices can mitigate reputational risks associated with environmental degradation and contribute to positive brand perception.
+
4. Link to Procurement Organizations:
+
The use of regenerative agriculture practices links back to procurement organizations as they influence the sourcing decisions of agri-food companies. Procurement teams play a role in establishing criteria that encourage suppliers to adopt regenerative practices, ensuring that the entire supply chain aligns with sustainability and regenerative goals.
","
Environmental Perspective
+
Practices such as cover cropping, reduced tillage, crop rotation, and integrating perennials build soil organic matter, improve water retention, and reduce erosion. Greater plant and microbial diversity strengthens ecosystems and enhances resilience. Lower reliance on synthetic fertilizers and chemicals reduces emissions, and regenerative systems can cut energy use through fewer field passes and input applications.
+
Income Perspective
+
Although transition may require upfront investment, long term cost savings come from reduced fertilizer, pesticide, and energy costs, alongside improved soil fertility and productivity. Access to markets that reward regenerative practices with price premiums or preferential sourcing further increases income potential.
+
Risk Perspective
+
Healthier soils and diversified systems improve resilience to drought, floods, and heat stress, reducing yield losses from climate volatility. Lower dependence on purchased inputs and fossil energy buffers farmers against price spikes and supply disruptions.
+
Link to Procurement Organizations
+
Regenerative agriculture approaches need time to implement. Procurement partners must be committed through a long-term sourcing strategy commitment to farmers to enable technical support and financial incentives. Recognizing regenerative outcomes and linking them to clear sustainability goals strengthens supply security while rewarding farmers for building resilient and climate positive production systems.
","
1. Buyer Perspective:
+
Risks
+
Higher Initial Costs: Buyers must carefully manage the potential increase in procurement expenses associated with higher production costs in regenerative agriculture, ensuring a balanced budget.
+
Variable Supply: Buyers need to address challenges related to variable crop yields in regenerative agriculture, implementing strategies to predict and manage supply fluctuations effectively.
+
Transition Period Challenges: Buyers should be aware of challenges suppliers may face during the transition to regenerative practices, taking measures to minimize potential impacts on product availability and consistency.
+
Trade-offs
+
Cost vs. Sustainability: Buyers should strategically balance the higher costs of regenerative agriculture against the desire to support environmentally sustainable and resilient farming practices, making procurement decisions that align with sustainability goals.
+
Consistency vs. Variety: Striking a balance between ensuring a consistent supply of products and offering a variety of goods requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and diversity.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers adopting regenerative agriculture may face initial financial strain, requiring strategic resource allocation to mitigate the impact on competitiveness.
+
Transition Period Challenges: Suppliers transitioning to regenerative practices must address challenges in adapting to new methods, implementing measures to maintain productivity during the transition.
+
Market Access Challenges: Suppliers without the means to adopt regenerative practices may struggle with accessing markets that prioritize sustainability and regenerative agriculture, necessitating strategic decisions to overcome barriers.
+
Trade-offs
+
Cost vs. Market Access: Suppliers must weigh the costs and challenges of transitioning to regenerative agriculture against the potential market access and premium prices associated with sustainable and regenerative products, ensuring a sound investment in regenerative practices.
+
Innovation vs. Tradition: Allocating resources to adopt regenerative practices involves trade-offs with traditional methods, necessitating suppliers to find a harmonious integration that maintains productivity.
+
Crop Yield vs. Sustainability: Balancing the desire for higher crop yields with the commitment to regenerative and sustainable farming practices may require trade-offs, with suppliers finding optimal solutions that align with environmental goals.
such as integrated pest management, soil conservation, and precision agriculture. This requires direct collaboration and supplier capability building.
","
1. Enabling Conditions of Small-Scale Crop Production in a Procurement Organization:
+
Inclusive Sourcing Policies: Establishment of inclusive procurement policies that prioritize the inclusion of small-scale farmers and their products in the supply chain.
+
Local Supplier Networks: Development of local supplier networks to connect with small-scale farmers, fostering collaboration and enabling their participation in procurement opportunities.
+
Fair Trade and Ethical Sourcing Standards: Adoption of fair trade and ethical sourcing standards to ensure fair compensation and ethical treatment of small-scale farmers in the supply chain.
+
Capacity Building: Implementation of capacity-building programs to empower small-scale farmers with the skills and knowledge needed to meet procurement requirements.
+
Financial Support: Provision of financial support or favorable payment terms to small-scale farmers to enhance their financial stability and facilitate their participation in procurement processes.
+
2. Enabling Conditions of Small-Scale Crop Production on the Farm Level:
+
Access to Resources: Provision of access to essential resources such as land, seeds, water, and credit to support small-scale farmers in crop production.
+
Training and Extension Services: Implementation of training programs and agricultural extension services to enhance the technical skills and knowledge of small-scale farmers.
+
Collective Action: Encouragement of collective action through farmer cooperatives or associations to strengthen the bargaining power of small-scale farmers in procurement negotiations.
+
Market Linkages: Establishment of direct market linkages between small-scale farmers and procurement organizations to facilitate the sale of their products.
+
Technology Adoption: Support for the adoption of appropriate agricultural technologies that enhance productivity and sustainability for small-scale farmers.
+
For both procurement organizations and small-scale farms, fostering collaboration, providing support, and implementing inclusive practices are essential for successful small-scale crop production that benefits both parties.
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Smallholder crop production support can include agricultural practices such as integrated pest management, soil conservation, and precision agriculture. Such practices can help reduce negative environmental impacts, improve farmer crop yields, improve crop resilience to environmental changes and hence improve security of supply. Improving yields and crop resilience can subsequently improve level and stability of incomes for farmers.
+
When is this a strategic choice:
+
When value chain visibility surfaces smallholders as a key characteristic in a business’s value chain and environmental risks or social risks have been identified linked to these smallholders, leaning into supporting smallholders would be a strategic choice.
+
What it means:
+
• Smallholders usually have yield / knowledge gaps – which will need to be closed through training capability, this requires committed and long-term resource of implementing partners to be factored into cost of goods.
+
• Exploring the creation of co-operatives to facilitate capability building for large numbers of smallholders, is a practical management option.
+
• Long term commitments to smallholders through direct suppliers. Buyers must be prepared to create new pricing/cost models accounting for churn/loss of smallholders. Smallholder churn often occurs as smallholders are often ‘price takers’ taking a short term view of buyers, by taking the ‘best price’ the market has to offer.
","
1. Environmental Perspective:
+
Biodiversity Preservation: Small-scale crop production often involves diverse farming practices that support biodiversity and contribute to ecosystem health.
+
Sustainable Agriculture: Small-scale farmers are often more inclined to adopt sustainable and environmentally friendly practices, contributing to overall environmental conservation.
+
2. Income Perspective:
+
Market Access: Collaborating with agri-food companies provides small-scale farmers with broader market access, allowing them to sell their products to a wider audience and potentially increasing income.
+
Stable Incomes: Contractual agreements with agri-food companies can provide small-scale farmers with more stable and predictable incomes compared to traditional markets.
+
3. Risk Perspective:
+
Diversification of Income: Engaging with agri-food companies diversifies the income sources for small-scale farmers, reducing the risk associated with dependency on a single market or crop.
+
Access to Resources: Collaboration with agri-food companies may provide small-scale farmers with access to resources, technologies, and expertise that enhance their resilience to risks such as climate change and market fluctuations.
+
4. Link to Procurement Organizations:
+
For small-scale farmers, procurement organizations are crucial in providing access to markets and resources. By establishing partnerships and contracts with agri-food companies, procurement organizations contribute to the economic viability and sustainability of small-scale farmers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Supply Inconsistency: Buyers must address potential supply inconsistencies from small-scale crop production, implementing strategies to manage and predict procurement demands effectively.
+
Quality Variability: Buyers need to manage fluctuations in crop quality resulting from the variability in farming practices among small-scale producers, ensuring consistent product standards.
+
Limited Capacity: Buyers should be aware of the limitations small-scale farmers may face in meeting large-scale procurement requirements, taking measures to support them during peak demand periods.
+
Trade-offs
+
Cost vs. Local Impact: Buyers should strategically balance potential cost advantages of large-scale production with the desire to support local communities and small-scale farmers, making procurement decisions that align with social impact goals.
+
Consistency vs. Diversity: Striking a balance between ensuring a consistent supply from larger suppliers and offering the diversity of products from small-scale farmers requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and variety.
+
2. Supplier Perspective:
+
Risks
+
Market Access Challenges: Small-scale farmers must address challenges in accessing markets due to competition with larger suppliers, implementing strategies to overcome barriers and establish a market presence.
+
Limited Bargaining Power: Individual small-scale farmers should be aware of their limited bargaining power in negotiations with procurement organizations, strategizing to secure fair terms of trade.
+
Financial Vulnerability: Small-scale farmers need to mitigate financial vulnerability by diversifying their buyer base and reducing dependence on a single buyer or limited market access.
+
Trade-offs
+
Scale vs. Autonomy: Small-scale farmers must balance the potential advantages of larger-scale production with the desire to maintain autonomy and independence, making strategic decisions that align with their values and goals.
+
Efficiency vs. Sustainability: Small-scale farmers may face trade-offs between adopting more efficient practices and maintaining sustainability, requiring strategic decisions to meet procurement demands without compromising long-term environmental goals.
+
Market Access vs. Local Focus: Deciding on the extent to which small-scale farmers want to engage with larger markets while maintaining a focus on local and community needs involves trade-offs, requiring a thoughtful approach that aligns with their overall mission.
Introduce soil conservation practices where soil degradation threatens supply security or where carbon sequestration supports decarbonisation goals.
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1. Enabling Conditions for Soil Conservation in a Procurement Organization:
+
Sustainable Sourcing Policies: Development of procurement policies that prioritize and support the inclusion of products from suppliers practicing soil conservation, emphasizing environmentally responsible and soil-enhancing agricultural practices.
+
Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of soil conservation practices and promote their integration into sourcing strategies.
+
Supplier Collaboration: Collaboration with suppliers committed to soil conservation, fostering partnerships, and incentivizing the adoption of sustainable farming practices within the supply chain.
+
Certification Standards: Utilization or establishment of certification standards that recognize and verify soil conservation practices, ensuring authenticity and compliance in the procurement process.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers practicing soil conservation to promote stability and incentivize continued commitment to sustainable and soil-friendly farming methods.
+
2. Enabling Conditions for Soil Conservation on a Farm Level:
+
Conservation Tillage Practices: Adoption of conservation tillage methods, such as no-till or reduced tillage, to minimize soil disturbance and erosion.
+
Cover Cropping: Integration of cover crops into farming practices to protect and enrich the soil, reduce erosion, and improve overall soil structure.
+
Crop Rotation: Implementation of crop rotation strategies to enhance soil fertility, minimize pest and disease pressure, and contribute to sustainable soil management.
+
Terracing and Contour Farming: Construction of terraces and use of contour farming techniques to reduce water runoff, prevent soil erosion, and promote water retention in the soil.
+
Technical Support: Access to technical support and extension services to assist farmers in implementing effective soil conservation practices, optimizing soil health and overall sustainability.
+
Successful implementation of soil conservation requires a commitment to sustainable practices, collaborative relationships, ongoing education, and the integration of soil-friendly principles into the core of farming and procurement strategies.
","
Soil Conservation is most likely to emerge as an action for implementation if you have identified the following strategic choices: Regenerative Agriculture, Smallholder Crop Production, Selecting a Sustainability Certification, Precision Agriculture, or Supplier Capability Building.
+
Implementation of soil conservation can bring the following benefits:
+
• Improve farmer gross margin and income through the avoidance of expensive synthetic agrochemical inputs like fertilisers
+
• Improve yield through enhanced soil fertility
+
• Help protect farmers against drought through better soil water retention
+
• Improve carbon sequestration of the soil. If appropriately set up, monitored, measured and accounted, this could contribute to business carbon reduction commitments. If certified, it could also create a secondary income stream through farmers selling carbon credits.
+
Implementing this requires a long-term commitment to upskilling and capability building either with direct suppliers to cascade up the supply chain or, if pursuing Direct Farmer Contracting, directly with farmers. The resource requirements for this training and capability building must be clarified with suppliers as part of the Cost of Goods model, developed as part of the procurement strategy.
","
1. Environmental Perspective:
+
Biodiversity Promotion: Soil conservation practices contribute to biodiversity by creating a healthier and more balanced ecosystem within agricultural landscapes.
+
Water Quality Improvement: Soil conservation helps prevent soil runoff, improving water quality and contributing to environmental sustainability.
+
2. Income Perspective:
+
Cost Savings: Farmers can achieve cost savings through soil conservation practices by reducing expenses related to soil inputs, erosion control measures, and potentially increasing overall income.
+
Diversified Income Streams: Soil conservation practices may create opportunities for farmers to diversify income streams, such as selling carbon credits or participating in conservation programs.
+
3. Risk Perspective:
+
Reduced Crop Failure Risk: Healthy soils resulting from conservation practices reduce the risk of crop failure by providing optimal conditions for plant growth and resilience against pests and diseases.
+
Climate Resilience: Soil conservation practices enhance climate resilience by improving soil structure and water retention, helping farmers adapt to changing weather patterns.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are crucial in providing access to markets and resources. By supporting and incentivizing the adoption of soil conservation practices, procurement organizations contribute to the sustainability and resilience of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Disruptions: Adoption of soil conservation practices may lead to variations in agricultural production and potential disruptions in the supply chain, affecting product availability.
+
Transition Costs: Suppliers implementing soil conservation practices may incur initial costs, potentially impacting product prices and affecting the overall procurement budget.
+
Certification Challenges: Ensuring adherence to certification standards related to soil conservation may pose challenges, requiring rigorous monitoring and verification.
+
Trade-offs
+
Cost vs. Sustainability: Balancing potential cost implications of products from suppliers practicing soil conservation with the desire to support environmentally responsible sourcing practices.
+
Consistency vs. Innovation: Striking a balance between consistent supply from traditional sources and the innovative adoption of soil conservation practices within the supply chain.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers adopting soil conservation practices may initially face higher costs, potentially causing financial strain and impacting competitiveness.
+
Transition Period Challenges: Implementation of new soil conservation techniques may pose challenges during the initial phases, affecting production efficiency and consistency.
+
Market Access Concerns: Suppliers may face challenges in accessing markets that prioritize traditional, non-conservation farming practices.
+
Trade-offs
+
Cost vs. Market Access: Suppliers may need to weigh the costs and challenges of adopting soil conservation practices against potential market access and premium prices associated with sustainable practices.
+
Innovation vs. Tradition: Allocating resources to adopt soil conservation practices may divert attention and resources from traditional production methods.
+
Short-Term Costs vs. Long-Term Benefits: Balancing the short-term financial implications of transitioning to soil conservation with the potential long-term benefits in terms of soil health, productivity, and environmental sustainability.
+
Addressing these risks and trade-offs requires careful planning, collaboration, and a long-term perspective from both buyers and suppliers in the procurement process.
",
Direct
,
Direct
,
Conservation agriculture- Case studies in Latin America and Africa (fao.org)
Build supplier capabilities when internal or external analysis identifies gaps in delivering sustainability outcomes. Direct investment may be the most effective way to manage risks and secure competitive sourcing.
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Enabling effective implementation of supplier capacity-building initiatives in a procurement organization involves conducting a thorough needs assessment, defining clear objectives, integrating initiatives into the overall procurement strategy, allocating sufficient resources, establishing transparent communication channels, building collaborative partnerships, developing targeted training programs, leveraging technology, implementing robust monitoring and evaluation mechanisms, and incorporating recognition and incentives, ensuring a conducive environment for suppliers' skill development and overall capacity improvement.
","
When is this a strategic choice?
+
When the spend category is business critical, based on the outcomes of the Incorporate Business Strategy intervention, and when a gap in supplier capability, identified in the Supplier Segmentation, has been identified as critical to overcome for optimising costs, ensuring security of supply, or mitigating risks.
+
What it means:
+
This will require resource either directly from a buyer’s business or to support identifying an implementation partner for a supplier.
+
• Direct resource could include providing direct funding through procurement-driven sustainability investments, providing technical know-how, or supporting the supplier to build quality assurance capability.
+
• Implementation partners could include, for example, identifying in-country partners to work directly with smallholder farmers to coordinate smallholder crop production improvement activities.
","
1. Income Perspective
+
All aspects of supplier capacity building will help farmers to increase their income. Enhanced productivity, improved product quality and market access, and access to financial resources all contribute to the potential for increased sales and profits. Additionally, longer-term partnerships can provide more predictable income streams for farmers.
+
2. Environment Perspective
+
Capacity building that promotes sustainable practices and efficient resource utilization fostincs environmentally-friendly farming. This doesn't just benefit the environment but also the farmers, as such practices can lead to healthier soil, increased resilience to climate change, and potential eligibility for certain grants or subsidies.
","
1. Buyer Perspective
+
Risks
+
Resource Intensity: Implementing capacity-building initiatives may require significant time and resources, impacting the buyer's budget and operational efficiency.
+
Dependency on Suppliers: Developing strong supplier capabilities may create a dependency on key suppliers, posing a risk in case of supplier-related disruptions.
+
Unrealized Returns: Despite investments, there is a risk that the expected returns in terms of improved supplier performance may not be fully realized.
+
Trade-offs
+
Short-Term vs. Long-Term Impact: Buyers may face the trade-off between addressing immediate procurement needs and making long-term investments in supplier capacity building. Balancing short-term requirements with the long-term impact on supplier capabilities is essential.
+
Cost vs. Quality in Capacity Building: Buyers may need to decide on the level of investment in supplier capacity building, considering the trade-off between cost considerations and the quality of the capacity-building initiatives. Striking the right balance ensures cost-effectiveness without compromising quality.
+
Speed vs. Thoroughness: Buyers may prioritize swift capacity-building initiatives, but this may come at the expense of a more comprehensive and thorough approach. Deciding between speed and thoroughness involves assessing the urgency of capacity building against the need for a robust program.
+
Focus on Strategic Suppliers vs. Inclusivity: Buyers may need to decide whether to concentrate capacity-building efforts on strategic suppliers or adopt a more inclusive approach. Balancing strategic focus with inclusivity requires assessing the impact on the entire supply chain.
+
2. Supplier Perspective:
+
Risks
+
Resource Strain: Suppliers may face resource strain in adapting to capacity-building requirements, especially if the initiatives demand substantial investments.
+
Dependence on Buyer's Strategy: Suppliers investing in capacity building may become overly dependent on the buyer's strategy, risking vulnerability if the buyer's priorities shift.
+
Competitive Imbalances: Capacity-building initiatives may inadvertently create imbalances among suppliers, impacting competition within the supplier base.
+
Trade-offs
+
Operational Disruption vs. Long-Term Benefits: Suppliers may face operational disruption during capacity-building initiatives, but they must weigh this against the long-term benefits of enhanced capabilities. Striking a balance involves managing short-term challenges for long-term gains.
+
Resource Allocation vs. Day-to-Day Operations: Suppliers may need to allocate resources to capacity building, impacting day-to-day operations. Deciding on the appropriate level of resource allocation involves considering the trade-off between immediate operational needs and building long-term capabilities.
+
Specialized Training vs. General Skills Enhancement: Suppliers may choose between providing specialized training for specific requirements or offering more general skills enhancement. Balancing these options requires assessing the trade-off between meeting immediate needs and building a versatile skill set.
+
Strategic Alignment vs. Independence: Suppliers may need to align strategically with the buyer's goals during capacity building, but this may affect their independence. Deciding the extent of strategic alignment involves evaluating the trade-off between collaboration and maintaining autonomy.
",
Indirect
,
Direct
,"
One of the key learning from IDH Interview sessions
Segment suppliers according to their sustainability commitment maturity and capability to support sustainability goals, identifying those best positioned to deliver strategic outcomes.
","
To effectively implement Supplier Segmentation in a procurement organization, key enabling conditions and prerequisites include establishing a comprehensive category calibration, evaluating business requirements, and developing strategic category strategies. Additionally, integrating supplier lifecycle management, ensuring effective accreditation, streamlining qualification and onboarding processes, and employing a structured segmentation approach based on criteria like performance, risk, innovation potential, geography, product category, and spend size are essential. Utilizing questionnaires, conducting regular segmentation analyses, implementing robust performance and risk management, and fostering proactive supplier development and innovation initiatives contribute to a successful Supplier Segmentation framework aligned with organizational goals.
","
Analyse suppliers based on their public disclosures or those shared in confidence with respect to sustainability commitments, strategies, KPIs, policies and actions. If you have conducted a Supplier Sustainability Assessment, the outputs of this will directly feed into this.
+
Create a simple 2x2 matrix to plot suppliers along two axes:
+
o Capability (e.g. business size, evidence of sustainability knowledge)
+
o Commitment (e.g. sustainability commitments, policies in place, actions to prevent or mitigate risks)
+
Use this segmentation to generate insights beyond cost. This could include risk exposure or risk reduction that suppliers may bring, even in areas not traditionally assessed in supplier evaluations.
+
Prioritise commitment over capability. Highly capable suppliers may lack meaningful sustainability commitments. Understanding this balance is critical to evaluating whether a supplier’s cost competitiveness is outweighed by the sustainability risks they may pose.
","
1. Income Perspective
+
Fair Pricing: Supplier segmentation allows farmers to be categorized based on factors like product quality, yield, and reliability. This enables fair pricing mechanisms, ensuring that farmers with high-quality products receive competitive prices, contributing to increased income.
+
Market Access Opportunities: By segmenting farmers, businesses can identify high-performing ones and provide them with increased market access, leading to expanded opportunities for sales and improved income.
+
2. Environment Perspective
+
Sustainable Practices Recognition: Supplier segmentation can incorporate criteria related to sustainable farming practices. Farmers engaged in environmentally friendly and sustainable methods may be recognized and rewarded, encouraging broader adoption of eco-friendly practices.
+
Environmental Impact Mitigation: By categorizing suppliers based on environmental impact, businesses can work collaboratively with farmers to implement practices that reduce the overall environmental footprint, contributing to sustainable agriculture.
","
1. Buyer Perspective
+
Risks
+
Limited Supplier Diversity: Rigorous segmentation may limit supplier diversity, potentially reducing the pool of available suppliers and limiting competitive advantages.
+
Overreliance on Segmentation Criteria: Overreliance on specific criteria for segmentation may result in overlooking emerging suppliers or failing to adapt to dynamic market conditions.
+
Complexity in Management: Managing multiple segmented supplier groups may introduce complexity and require additional resources for effective oversight.
+
Trade-offs
+
Efficiency vs. Tailored Services: Buyers implementing supplier segmentation may face the trade-off between achieving procurement efficiency through standardized processes and offering tailored services to specific supplier segments. Striking the right balance involves optimizing efficiency while meeting the unique needs of diverse suppliers.
+
Cost Savings vs. Supplier Relationships: Buyers segmenting suppliers for cost savings may need to balance this with the goal of maintaining strong relationships with strategic suppliers. The challenge is to achieve savings without compromising valuable partnerships.
+
Risk Mitigation vs. Supplier Innovation: Buyers may segment suppliers for risk mitigation purposes, but this could impact the potential for supplier-driven innovation. The trade-off involves managing risks while fostering an environment that encourages supplier innovation.
+
Standardization vs. Supplier Diversity: Buyers aiming for standardization in procurement processes may need to balance this with the objective of promoting supplier diversity. The challenge is to standardize processes while supporting a diverse supplier base.
+
2. Supplier Perspective
+
Risks
+
Exclusion from Opportunities: Strict segmentation criteria may lead to the exclusion of certain suppliers, limiting their access to procurement opportunities and potentially hindering their growth.
+
Increased Competition within Segments: As buyers focus on specific criteria, suppliers within a segment may face increased competition, potentially affecting profit margins.
+
Uncertain Market Positioning: Suppliers may face uncertainty in understanding their market positioning within segmented categories, affecting their strategic planning.
+
Trade-offs
+
Fair Access vs. Specialized Opportunities: Suppliers may desire fair access to procurement opportunities but must balance this with the potential benefits of specialized opportunities within specific segments. The challenge involves ensuring equal opportunities while recognizing the value of specialization.
+
Stability vs. Competitive Bidding: Suppliers in segmented categories may seek stability in contracts, but this could conflict with the competitive nature of bidding processes. The trade-off involves pursuing stable relationships while adapting to competitive procurement dynamics.
+
Innovation vs. Compliance Requirements: Suppliers may desire to innovate in their offerings, but strict compliance requirements within segmented categories may limit this. Striking a balance involves fostering innovation within the framework of compliance obligations.
+
Collaboration vs. Independence: Suppliers in collaborative segments may value partnerships, but this could conflict with the desire for independence in certain business aspects. The challenge is to collaborate effectively while respecting the autonomy of suppliers.
",
Indirect
,
Indirect
,"
Based on old procurement framework of IDH and co-developmeent with Mars
+
Iterated by EY and based on interview process within the project
+
Evidence of clear supplier segmentation process in Mondelez Interview with CPO LATAM, more
",[],[],
+24,Supplier Sustainability Assessment,"
Definition
+
Assess suppliers' public commitments to sustainability across climate, human rights, biodiversity, and nature. Use this data to inform Supplier Segmentation.
","
Enabling conditions for supplier sustainability assessment in a procurement organization include:
+
Clear Sustainability Criteria: Establish well-defined and comprehensive sustainability criteria that cover environmental, social, and economic aspects, providing a clear framework for supplier assessments.
+
Clear Sustainability Criteria: Establish well-defined and comprehensive sustainability criteria that cover environmental, social, and economic aspects, providing a clear framework for supplier assessments.
+
Collaborative Standards: Engage with industry organizations, NGOs, or sustainability initiatives to leverage established standards and frameworks for supplier sustainability, ensuring alignment with recognized best practices.
+
Data Transparency: Encourage suppliers to provide transparent and accurate data on their sustainability practices, facilitating a more thorough and reliable assessment process.
+
Capacity Building Support: Offer training programs and resources to suppliers, enabling them to enhance their sustainability practices and meet the criteria set by the procurement organization.
+
Supply Chain Mapping: Implement supply chain mapping tools to gain visibility into the entire supply chain, allowing for a more comprehensive assessment of the environmental and social impacts associated with suppliers.
+
Risk Mitigation Strategies: Develop strategies to address identified sustainability risks within the supply chain, incorporating contingency plans and collaborative initiatives with suppliers to mitigate potential issues.
+
Continuous Monitoring: Implement ongoing monitoring mechanisms to track supplier sustainability performance over time, allowing for the identification of trends, areas for improvement, and recognition of exemplary practices.
+
Internal Accountability: Establish internal mechanisms and responsibilities within the procurement organization to ensure accountability for sustainability assessments, fostering a culture of commitment to responsible sourcing.
+
Supplier Feedback Loops: Create channels for open communication and feedback between procurement organizations and suppliers, encouraging a collaborative approach to sustainability improvement.
+
Technology Integration: Utilize advanced technologies, such as blockchain or digital platforms, to enhance transparency, traceability, and the efficiency of supplier sustainability assessments.
+
Diversity and Inclusion: Integrate diversity and inclusion criteria into supplier assessments, considering social aspects such as fair labor practices, gender equality, and community engagement.
+
Benchmarking and Recognition: Implement benchmarking mechanisms to compare supplier sustainability performance within the industry and recognize and reward top-performing suppliers.
+
Performance Incentives: Establish incentive structures that motivate suppliers to go beyond compliance and excel in sustainability, offering recognition, preferential treatment, or collaborative opportunities for high-performing suppliers.
+
Third-Party Verification: Consider engaging third-party organizations or auditors to verify and validate supplier sustainability claims, enhancing the credibility and reliability of the assessment process.
+
These additional conditions contribute to a more nuanced and comprehensive approach to supplier sustainability assessment within procurement organizations.
+
Collaborative Standards: Engage with industry organizations, NGOs, or sustainability initiatives to lever
","
Understanding whether suppliers are internalising sustainability risks is critical to identifying the risks they may expose a buyer’s business to.
+
As part of external analysis, review publicly available supplier information, or information shared in confidence by the supplier, (e.g. sustainability commitments, strategies, policies, codes of conduct) and create a simple table capturing evidence of the following:
+
• Material sustainability risk assessment linked to sourcing practices
• Human rights due diligence in the upstream supply chain, including:
+
o Conducting a human rights impact assessment
+
o Awareness and actions to prevent forced labour
+
o Awareness and actions to prevent child labour
+
o Living wage/income considerations
+
o Consideration of Free Prior Informed Consent regarding Indigenous Communities and land rights
","
1. Environmental Perspective:
+
Promotion of Sustainable Farming Practices: Supplier sustainability assessments encourage farmers to adopt sustainable practices to meet the criteria set by agri-food companies. This leads to environmental benefits such as reduced pesticide use, soil conservation, and biodiversity preservation.
+
Climate Resilience: Aligning with sustainable farming practices contributes to climate resilience, reducing environmental risks associated with extreme weather events and fostering long-term sustainability.
+
2. Income Perspective:
+
Access to Premium Markets: Farmers adhering to sustainability criteria in supplier assessments gain access to markets that prioritize sustainable sourcing. This can result in premium pricing for their products, contributing to increased income and improved profitability.
+
Cost Savings: Sustainable farming practices promoted by supplier sustainability assessments often lead to cost savings over time. This includes efficient resource use, reduced input costs, and increased overall efficiency.
+
3. Risk Perspective:
+
Market Viability: Supplier sustainability assessments ensure that farmers align with market expectations for environmentally and socially responsible practices. This enhances the market viability of their products, reducing the risk of market exclusion or loss of business opportunities.
+
Long-Term Viability: By meeting sustainability criteria, farmers contribute to their own long-term viability. This includes securing market access, adapting to changing consumer preferences, and reducing vulnerability to environmental risks.
+
4. Link to Procurement Organizations:
+
For farmers, the link to procurement organizations lies in their ability to meet the sustainability criteria set by agri-food companies. Procurement organizations play a central role in establishing and communicating these criteria, shaping the practices and behaviors of the farmers within the supply chain. This ensures that the entire supply chain, from farmers to end consumers, adheres to sustainability principles.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Disruption: To mitigate disruption risks, buyers should strategically diversify their supplier base, balancing sustainability criteria with the need for a resilient and varied supply chain.
+
Increased Costs: Buyers can negotiate with suppliers, emphasizing cost-effectiveness while encouraging sustainable practices to manage procurement expenses effectively.
+
Limited Supplier Innovation: Buyers should actively engage with smaller suppliers, fostering innovation by providing support and guidance to help them meet sustainability criteria.
+
Trade-offs
+
Cost vs. Sustainability: Buyers must strategically navigate the trade-off, making informed compromises to achieve both financial and environmental goals without compromising overall sustainability objectives.
+
Supplier Diversity vs. Sustainability: Achieving a balance between sustainability and supplier diversity requires careful consideration, especially in regions or industries where meeting sustainability standards may be challenging.
+
Time-to-Market vs. Sustainability: Buyers need to find a balance between selecting sustainable suppliers and meeting time-to-market goals, ensuring that sustainability efforts do not unduly extend procurement timelines.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers can manage financial strain by seeking collaborative partnerships with buyers, exploring cost-sharing models for sustainable investments to alleviate potential economic burdens.
+
Competitive Disadvantage: Suppliers with lower sustainability scores should focus on improving practices to avoid losing business opportunities, highlighting the value of sustainable offerings to remain competitive.
+
Compliance Challenges: Suppliers facing compliance challenges should engage with buyers to streamline diverse sustainability standards, ensuring a more manageable and efficient adherence process.
+
Trade-offs
+
Cost vs. Sustainability: Suppliers must strategically balance the trade-off, seeking innovative and cost-effective solutions to implement sustainable practices without compromising competitiveness.
+
Innovation vs. Compliance: Suppliers can navigate the trade-off by integrating sustainability into their innovation agenda, demonstrating that both innovation and compliance can coexist harmoniously.
+
Market Access vs. Sustainability: Suppliers targeting international markets must weigh the benefits of market access against the costs of adapting to sustainability requirements, aligning their strategies with evolving global standards.
Establish full traceability back to the origin of materials. This is critical to identifying environmental and human rights risks at the source, particularly at the farm level. Without this visibility, sustainability risks and strategic procurement decisions cannot be fully informed.
","
To implement effective Supply Chain Traceability in a procurement data analytics context, a procurement organization should focus on prerequisites such as establishing a robust data analytics infrastructure, formulating a clear integration strategy (e.g., Blockchain as an example), ensuring data standardization and interoperability, fostering collaboration with suppliers, utilizing transparent and immutable data records, encouraging cross-functional collaboration, investing in relevant education, implementing security and privacy measures, planning for scalability, complying with legal and regulatory requirements, and establishing continuous monitoring and improvement practices.
","
Establishing visibility of the full value chain is foundational to being able to identify risks and opportunities upon which to make strategic procurement decisions.
+
Building this visibility does not have to mean investing immediately in traceability software tools, it can start with the existing relationships you have with your direct suppliers. Questions that it may be helpful to start exploring with your direct suppliers are:
+
• How may tiers are in their supply chain? Do they know the countries these tiers are based in?
+
• Do they know where farm-level production is happening and the characteristics of this farming e.g. small holder, plantation, commercial farming?
+
• Does the supplier know whether and how their value chain is likely to evolve in the next five years? This can help surface whether the supply chain is stable or unstable.
+
Why are these questions relevant?
+
• The country of production and farm characteristics will impact the probability and severity of environmental and social risks
+
• Understanding whether and how a supply chain is expected to evolve in the next five years helps to surface whether there is instability in either the supply chain or the supplier’s approach to it.
+
• If a supplier has blind spots about their supply chain, this flags the possibility of material sustainability risks within their supply chain. The supplier may lack the capability or inclination to understand their own supply chain and take action to identify and mitigate risks within it. If the supplier lacks this ability, it will be harder for actors further down the value chain, e.g. manufacturers and retailers, to understand and mitigate their own risks.
+
Establishing and maintaining value chain visibility can help enable early identification or risks and proactive management of them.
","
Income Perspective
+
Market Access and Premium Pricing: Value chain visibility allows farmers to demonstrate the origin, quality, and sustainability of their produce, strengthening competitiveness. This can open access to new markets and premium pricing, increasing income.
+
Efficient Resource Allocation: Farmers can use visibility data to optimize production processes, reduce inefficiencies, and cut waste, improving profitability.
+
Environmental Perspective
+
Sustainable Agricultural Practices: Greater visibility across the value chain encourages farmers to adopt practices that align with buyer sustainability goals, such as reduced chemical use, efficient water management, and biodiversity protection.
+
Reduced Environmental Footprint: By leveraging data to minimize waste and use resources efficiently, farmers lower their environmental footprint and contribute to more responsible production systems.
","
1. Buyer Perspective
+
Risks
+
Increased Costs: Implementing traceability measures, especially with advanced technologies, may lead to increased procurement costs, impacting the overall budget.
+
Data Security Concerns: Storing sensitive traceability data poses potential security risks, including data breaches or unauthorized access.
+
Supplier Resistance: Suppliers may resist sharing detailed information, fearing increased scrutiny or potential competitive disadvantages.
+
Trade-offs
+
Cost Efficiency vs. Enhanced Traceability: Buyers may face the trade-off between achieving cost efficiency in the supply chain and investing in enhanced traceability measures. Striking the right balance involves optimizing costs while ensuring transparency and traceability.
+
Complexity vs. Simplicity in Supply Chains: Buyers aiming for traceability may need to balance the complexity associated with detailed supply chain tracking and the simplicity required for streamlined operations. The challenge is to implement traceability without overly complicating processes.
+
Supplier Collaboration vs. Independence: Buyers may seek collaboration with suppliers for improved traceability, but this could conflict with the desire for supplier independence. The trade-off involves fostering collaboration while respecting supplier autonomy.
+
Risk Mitigation vs. Agility: Buyers may implement traceability for risk mitigation, but this could impact the agility of the supply chain. Striking the right balance involves managing risks while maintaining a flexible and responsive supply chain.
+
2. Supplier Perspective
+
Risks
+
Increased Reporting Burden: Suppliers may face additional reporting requirements, leading to increased administrative burdens and potential operational disruptions.
+
Technology Adoption Challenges: Suppliers may encounter challenges in adopting the required technologies for traceability, affecting their ability to comply.
+
Competitive Disadvantage: Suppliers may perceive that sharing detailed traceability data could lead to a competitive disadvantage in the marketplace.
+
Trade-offs
+
Investment in Technology vs. Cost Management: Suppliers may face the trade-off between investing in technology for traceability and managing overall costs. The challenge is to adopt traceability measures without significantly impacting the financial aspects of operations.
+
Transparency vs. Confidentiality: Suppliers providing traceability data may need to balance transparency with the need to protect confidential business information. The trade-off involves sharing relevant information while safeguarding proprietary details.
+
Regulatory Compliance vs. Market Competitiveness: Suppliers may need to comply with traceability regulations, but this could impact market competitiveness. Striking the right balance involves meeting regulatory requirements while remaining competitive in the marketplace.
+
Resource Allocation vs. Traceability Standards: Suppliers may allocate resources for meeting traceability standards, and this must be balanced against other operational needs. The trade-off involves optimizing resource allocation for both traceability compliance and overall efficiency.
",
Indirect
,
Indirect
,"
Based on old procurement framework of IDH and co-developmeent with Mars
+
Iterated by EY and based on interview process within the project
+
Evidence of clear supplier segmentation process in Mondelez Interview with CPO LATAM, more
",[],[],
+26,Selecting a sustainability certification,"
Definition
+
Choose sustainability certifications that help meet corporate commitments and/or implement procurement goals. For some commodities, certified supplies are readily available.
","
To effectively implement Sustainable Agricultural Certification Premiums in procurement, prerequisites include establishing clear criteria, collaborating with certification bodies, educating suppliers, designing a transparent premium structure, implementing monitoring systems, ensuring financial capacity, complying with legal standards, promoting certification benefits, fostering stakeholder collaboration, and establishing a continuous improvement feedback loop. This systematic approach creates a conducive environment for successful premium programs, encouraging sustainable farming practices and supplier participation.
","
When is this a strategic choice?
+
When the value chain risk assessment has surfaced potential risks in the supply chain of certain commodities, and an existing sustainability certification exists than provides sufficient assurance that this risk is mitigated in the supply chain of certified goods.
+
What it means:
+
Sustainability certifications can provide assurance that certain impacts are being mitigated in the supply chain of a certain commodity. In some instances, sourcing certified goods can be a quicker and less costly alternative to mitigating environmental and social risks in the supply chain from scratch. Additionally, some downstream actors like brand manufacturers or retailers may require certain certifications to purchase from you, creating a commercial need to purchase certified goods.
+
Some commodities have existing certifications that provide assurance for known high-risk impacts. For example, the RSPO certification for palm oil focuses or the Rainforest Alliance certification for Cocoa provide assurance that deforestation is being mitigated in the supply chain. However, it is important to note that these certifications may not cover all risks in a supply chain. For the Cocoa supply chain, for example, more expensive and direct actions may be needed to ensure actions to mitigate against child labour risks.
+
It is important to assess whether the sustainability certification is fit to deliver the desired outcomes. This assessment may include:
+
o Checking the commodities in scope and availability in your current, potential, or future sourcing market of the certification scheme.
+
o Benchmarking and understanding sustainability certification schemes in terms of sustainability impacts addressed. The ITC standards map benchmarks the majority of sustainability standards.
+
o Governance of the standard is a key factor to understand; ISEAL members all have credible governance in place.
+
o Understanding the different chains of custody models; segregated or mass balance.
+
Watch out: As a business to ensure the continued impact of a certification scheme is aligned to delivering the impact identified in your strategic choice, this will require partnering closely with the certification scheme owner.
","
Income Perspective
+
Choosing the right certification can secure access to markets that reward sustainable production with better prices and stronger demand. Certification can also provide more stable buyer relationships and opportunities for higher sales and profits.
+
Environmental Perspective
+
Sustainability certifications guide farmers toward practices that improve soil, water, and biodiversity outcomes. Financial incentives and market rewards help offset the costs of adoption, making it more feasible to implement practices that deliver long term environmental benefits.
","
1. Buyer Perspective
+
Risks
+
Increased Costs: Implementing sustainable agricultural certification premiums may lead to higher procurement costs, impacting the buyer's budget.
+
Limited Supplier Pool: Stringent sustainability criteria may reduce the pool of eligible suppliers, potentially limiting sourcing options.
+
Complex Certification Processes: Suppliers may face challenges navigating complex certification processes, leading to delays or non-compliance.
+
Trade-offs
+
Sustainability vs. Cost Efficiency: Buyers may face the trade-off between supporting sustainable agricultural practices and maintaining cost efficiency in procurement. Striking the right balance involves integrating sustainability without compromising overall cost-effectiveness.
+
Premium Costs vs. Competitive Pricing: Buyers offering sustainable agricultural certification premiums may need to balance the costs associated with premiums against the need for competitive pricing. The trade-off involves supporting sustainability while remaining competitive in the market.
+
Supplier Diversity vs. Certification Requirements: Buyers aiming for supplier diversity may encounter the trade-off between fostering a diverse supplier base and ensuring compliance with specific certification requirements. The challenge is to balance diversity goals with certification standards.
+
Short-Term Costs vs. Long-Term Sustainability: Buyers must decide between incurring short-term premium costs for sustainable agricultural practices and realizing long-term sustainability benefits. Striking the right balance involves aligning short-term investment with broader sustainability objectives.
+
2. Supplier Perspective
+
Risks
+
Financial Strain: Adhering to sustainable agricultural practices for premium eligibility may strain suppliers financially, especially for smaller entities.
+
Competitive Disadvantage: Suppliers not meeting premium criteria may face a competitive disadvantage in bidding for contracts.
+
Risk of Unfair Evaluation: Suppliers may feel unfairly evaluated if certification processes are unclear or subject to frequent changes.
+
Trade-offs
+
Compliance Costs vs. Profitability: Suppliers may face the trade-off between incurring additional costs to meet sustainable certification requirements and maintaining overall profitability. The challenge is to manage compliance costs while ensuring a viable and profitable business model.
+
Market Access vs. Certification Investments: Suppliers must decide between investing in sustainable certifications for access to markets with stringent requirements and balancing these investments with other business needs. Striking the right balance involves meeting market demands while ensuring financial viability.
+
Resource Allocation vs. Certification Standards: Suppliers may need to allocate resources effectively to meet certification standards, but this must be balanced against the potential impacts on overall resource allocation. The trade-off involves optimizing resources for both certification compliance and operational efficiency.
+
Risk Mitigation vs. Market Competitiveness: Suppliers may prioritize risk mitigation through sustainable certifications but must balance this with remaining competitive in the market. The challenge involves managing risks while staying competitive in the procurement landscape.
",
Direct
,
Direct
,
With and beyond sustainability certification: Exploring inclusive business and solidarity economy strategies in Peru and Switzerland - ScienceDirect
,[],[],
+27,Sustainable water management,"
Definition
+
Sustainable water management is the approach and actions taken to ensure that water is withdrawn, consumed and discharged in a sustainable way. It is particularly important in locations of water scarcity to ensure the supply chain, environment and dependent communities are not negatively impacted by water-related issues.
+
Make sustainable water management a strategic priority where water scarcity is identified through internal commitments or traceability to origins with limited water resources, impacting supply security.
","
1. Enabling Conditions for Sustainable Water Management in a Procurement Organization:
+
Sustainable Sourcing Policies: Development of procurement policies that prioritize and support the inclusion of products from suppliers practicing sustainable water management, emphasizing water efficiency and conservation.
+
Educational Initiatives: Implementation of educational programs for procurement professionals to enhance their understanding of sustainable water management practices and promote their integration into sourcing strategies.
+
Supplier Collaboration: Collaboration with suppliers committed to sustainable water management, fostering partnerships, and incentivizing the adoption of water-efficient practices within the supply chain.
+
Certification Standards: Utilization or establishment of certification standards that recognize and verify sustainable water management practices, ensuring authenticity and compliance in the procurement process.
+
Long-Term Contracts: Consideration of long-term contracts with suppliers practicing sustainable water management to promote stability and incentivize continued commitment to responsible water use.
+
2. Enabling Conditions for Sustainable Water Management on a Farm Level:
+
Water-Use Planning: Development of comprehensive water-use plans on farms, incorporating efficient irrigation methods, rainwater harvesting, and other sustainable water management practices.
+
Technical Support: Access to technical support and extension services to assist farmers in implementing effective water management practices, optimizing water use efficiency and minimizing waste.
+
Financial Incentives: Provision of financial incentives or favorable payment terms for farmers adopting sustainable water management practices, supporting their financial viability during the transition.
+
Water Conservation Technologies: Adoption of water-saving technologies, such as drip irrigation or soil moisture sensors, to enhance water efficiency on farms.
+
Community Engagement: Engagement with local communities and agricultural extension services to raise awareness of sustainable water management benefits, build support, and encourage widespread adoption.
+
For both procurement organizations and farmers, successful implementation of sustainable water management requires a commitment to efficient practices, collaborative relationships, ongoing education, and the integration of water conservation principles into the core of farming and procurement strategies.
","
When is this a strategic choice?
+
When you, as the buyer, have a clear understanding of current and future sourcing origins and recognise that without sustainable water management, there is a high risk of supply disruption. Water management may feature in internal commitments and/or the value chain risk assessment may have identified locations in the supply chain with limited water resources, negatively impacting supply security.
+
What it means:
+
• As a buyer you are confident you and/or your supplier is capable of engaging farmers and stakeholders at the catchment level to collectively monitor, manage, and invest in water resources to meet shared sustainability goals.
+
• As a buyer you are confident your supplier works with farm-level partners who can implement water management and stewardship actions, supported by appropriate technology and infrastructure for ongoing maintenance. For example, precision irrigation technologies that apply the right amount of water at the right time.
+
• As a buyer you are prepared to provide additional support where required, including investment capital.
+
• This approach relies on suppliers maintaining long-term, trust-based relationships with producers at the farm level.
","
1. Environmental Perspective:
+
Water Conservation: Sustainable water management practices, such as precision irrigation and rainwater harvesting, contribute to water conservation, ensuring the long-term availability of water resources.
+
Ecosystem Health: Responsible water usage supports the health of aquatic ecosystems and biodiversity, contributing to overall environmental sustainability.
+
2. Income Perspective:
+
Cost Savings: Water-efficient practices lead to cost savings for farmers by reducing expenses related to water use, such as energy costs for irrigation and investments in water infrastructure.
+
Market Access: Adopting sustainable water management practices may provide farmers with access to markets that prioritize sustainably produced goods, potentially leading to premium prices and increased income.
+
3. Risk Perspective:
+
Climate Resilience: Sustainable water practices enhance the resilience of farming operations to climate-related risks such as droughts or erratic rainfall patterns.
+
Regulatory Compliance: Adhering to sustainable water practices helps farmers comply with evolving water usage regulations, reducing the risk of legal and regulatory challenges.
+
4. Link to Procurement Organizations:
+
For farmers, procurement organizations are crucial in providing access to markets and resources. By supporting and incentivizing the adoption of sustainable water management practices, procurement organizations contribute to the sustainability and resilience of their suppliers. This integration ensures that the choices made at the procurement level align with environmental and sustainability goals, influencing the practices of farmers in the supply chain.
","
1. Buyer Perspective:
+
Risks
+
Supply Chain Disruptions: Buyers must address potential disruptions in the supply chain caused by changes in agricultural production due to sustainable water management, implementing strategies to ensure consistent product availability.
+
Higher Costs: Buyers need to manage potential increases in product prices resulting from the additional costs for suppliers practicing sustainable water management, seeking cost-effective procurement strategies.
+
Certification Challenges: Buyers should anticipate and address challenges related to ensuring adherence to sustainable water management certification standards, implementing robust monitoring and verification processes.
+
Trade-offs
+
Cost vs. Sustainability: Buyers should strategically balance potential cost implications of sustainable water management with the desire to support environmentally responsible sourcing practices, making procurement decisions that align with sustainability goals.
+
Consistency vs. Resource Conservation: Striking a balance between ensuring a consistent supply from traditional sources and the conservation of water resources through sustainable practices requires trade-offs, necessitating buyers to find an optimal mix that meets both stability and resource conservation.
+
2. Supplier Perspective:
+
Risks
+
Financial Strain: Suppliers implementing sustainable water management practices must address potential financial strain associated with higher initial costs, implementing financial planning strategies.
+
Transition Period Challenges: Suppliers need to manage challenges during the initial phases of adopting new water management practices, ensuring minimal impact on product yields and consistency.
+
Market Access Concerns: Suppliers may face challenges accessing markets that prioritize traditional, non-sustainable products, requiring strategic decisions to overcome barriers.
+
Trade-offs
+
Cost vs. Market Access: Suppliers may need to weigh the costs and challenges of implementing sustainable water management against potential market access and premium prices associated with sustainable practices, making decisions that align with long-term market strategies.
+
Innovation vs. Tradition: Allocating resources to adopt sustainable water management practices may divert attention and resources from traditional farming methods, requiring suppliers to find a balance that aligns with their innovation goals and traditional practices.
+
Crop Yield vs. Water Conservation: Balancing the desire for higher crop yields with the commitment to water conservation and sustainability may necessitate trade-offs, requiring suppliers to prioritize sustainability without compromising productivity goals.
+ 
+ ))}
+