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Company: Diageo (a member of the UK Network)
Project: Supply Chain Management
| What Principles does this case study address? |
Principles:
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This case study addressses all ten principles of the Global Compact |
Procuring the long list of supplies needed to make and market Diageo’s brands is a complex process. A company Diageo’s size has the capacity to source its supplies locally, regionally, and even globally. Grains for fermentation are typically purchased on global markets whereas other supplies may often be obtained more economically from local suppliers. Last year Diageo’s East African Breweries business bought 76% of its supplies within East Africa.
Diageo aims to develop strong relationships with its suppliers to help ensure that the goods and services it needs are sustainable and that the company can continue to obtain the best value in terms of cost, quality, service and innovation. However, these strong relationships go beyond commercial aspects. They allow Diageo to work with suppliers to encourage them to maintain standards similar to its own in labour standards, health and safety, environmental management and business integrity. Diageo drew up the standards it expects of suppliers by referring to external codes such as the International Labour Organisation core conventions on human rights and the United Nations Global Compact.
Confirming that its suppliers consistently maintain these standards is a substantial task for Diageo. Last year they joined the independent Suppliers Ethical Data Exchange, or Sedex. Through Sedex, participating suppliers post self-assessments on-line and these can be accessed by any of their customers signed up to the scheme, eliminating the duplication of reporting separately to each. Currently, 300 suppliers whom Diageo perceive to represent the potentially highest risk are in the process of registration and self-assessment. The assessments then may be independently audited against Ethical Trading Initiative standards of human rights, labour conditions and health and safety and gaps identified for improvement. Forthcoming developments to the Sedex tool will include sections on anti-corruption, bribery and environmental management.
Diageo is a member of a group of food and drink manufacturers ‘AIM-PROGRESS’, which recognise the importance of ensuring that their supply chains operate to high standards of responsibility. The group is working to achieve this by developing a common approach to evaluating the corporate citizenship performance of suppliers. Responding appropriately to any shortcomings revealed by such assessments presents a number of dilemmas. Simply withdrawing custom from a non-compliant supplier could displace the problem rather than solving it. If it led to layoffs, Diageo’s action could cause hardship to the supplier’s employees as much as to its owners. In a small community, the supplier’s loss of business could have wider economic implications. Diageo’s aim is to balance these possible outcomes and, building on strong relationships, work with suppliers assessed as less-compliant to help them improve. In cases where the supplier fails to move towards compliance, Diageo retains the sanction of seeking alternative sources of supply.
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