Ethical Procurement – Do we really care about Provenance?

Its been a while so I think you may enjoy this blog

We talk a lot in the procurement world about ethical procurement and how important it is to all the buyers in the modern era. Provenance is an element that can assist with the transparency of how the goods and services are manufactured and delivered by a supplier from any Industry.

How does Provenance work and do we really care about this when we buy something?

Lets start with a definition – what is Provenance?

Provenance (from the French provenir, ‘to come from/forth’) is the chronology of the ownership, custody or location of a historical object.[1] The term was originally mostly used in relation to works of art but is now used in similar senses in a wide range of fields, including archaeologypaleontologyarchivesmanuscripts, printed books, the circular economy, and science and computing.

The primary purpose of tracing the provenance of an object or entity is normally to provide contextual and circumstantial evidence for its original production or discovery, by establishing, as far as practicable, its later history, especially the sequences of its formal ownership, custody and places of storage. The practice has a particular value in helping authenticate objects. Comparative techniques, expert opinions and the results of scientific tests may also be used to these ends, but establishing provenance is essentially a matter of documentation. The term dates to the 1780s in English. Provenance is conceptually comparable to the legal term chain of custody.

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Provenance was designed to gain trust through authentication and transparency. Since the 19th Century it has been a key part of the art world both from an ownership and collection function. It is second nature for Museums, Galleries in the Art world and has expanded to other sectors within these markets.

Researching the provenance of paintings — The principles of archival provenance were developed in the 19th century by both French and Prussian archivists, and gained widespread acceptance on the basis of their formulation in the Manual for the Arrangement and Description of Archives by Dutch state archivists Samuel Muller, J. A. Feith, and R.

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There is a great article on “How provenance affects the value of art & collectibles ”  and it explains why in this world it is so important.

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So how important is the adoption of Provenance in the Procurement and Supply Chain World?

Harvard that explains “the why as”

“The origins of a company’s products used to be pretty murky. Beyond the supply chain function, virtually no one cared. Of course, all that’s changed. Consumers, governments, and companies are demanding details about the systems and sources that deliver the goods. They worry about quality, safety, ethics, and environmental impact. Farsighted organizations are directly addressing new threats and opportunities presented by the question, “Where does this stuff come from?”

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Remember the iPhone factories and suicides’ of staff, what about modern slavery and poor working conditions in the fast fashion industry to name a couple of relevant examples of why it is import to have transparency in our supply chains.

Safety has also been a criteria for Provenance in the supply chain.

Food safety has been see as high risk world wide due to many stores of contaminated products. Who can forget in late 1980s Bovine spongiform encephalopathy BSE or commonly know as Mad Cow disease in the U.K? I still cant give blood here in NZ!

New Zealand has a reputation for having rigorous food safety standards and high-quality produce. Consequently, there is a high risk of food fraud, and food contamination incidents around the world are driving the need to protect this reputation.

We are even more interested now on paddock to plate provenance of our food. A nice rack of lamb on are plate and I can hear someone thinking! Was it from a lamb that was fed on grass grown organically – without pesticides? Was it ethically slaughtered in an abattoir ? How was it package? ( no plastic ) and how was it transported? ( emissions ). Does the supermarket I bought it from pay the living wage?

Listen to this Radio New Zealand article about a Dunedin-based company Oritain uses chemical fingerprinting of produce to verify the origin of foods another form of provenance stamping.

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We all know the issues about Bangladesh and fast fashion – This is a great article from NPR and another from NY times that really opened up the issues with fast fashion ethical manufacturing of fashion items and not only the conditions of workers but the impact the dumping of waste on our environment.

I hope you have enjoyed this quick insight – my aim is to give you some examples to read and enlighten you about how provenance has become one of the most important aspects of goods and services that we procure today. The Buyer is making decisions based on Ethical Sourcing! I think we do care about provenance and it will only increase.

With the advent of COVID 19 traceability in the supply chain has become a far more important exercise and topic not only due to risk of late or non delivery by many other factors either positive or negative. See the Boston Consulting Group model below and the many factors that could influence the supply chain;

BCG Traceability in Supply Chains

The Future of Procurement and Supply Chain

Artificial Intelligence, robotics, digitisation of tools and systems will replace the procurement and supply chain functions within many organisations over the next decade or so. There has been gloom and doom touted over the past few years for a profession that has not always been seen as a significant function within organisations.

The 2018  Deloitte  CPO survey One in 5 CPO’S thought that cost reduction what is important,  54% new product development and 58% risk management.

So what has changed in the past 35 years?

Peter Kraljic developed  the portfolio purchasing model (Kraljic matrix) where financial impact and supply risk were mapped into a 2 by 2 matrix articulated in 1983;  “Threats of resource depletion and raw materials scarcity, political turbulence and intervention in supply markets, intensified competition and accelerating technological  change have ended the days  of no surprises. As dozens of companies have learned, supply and demand patterns can be upset virtually overnight.”

Looking at our world today, has this changed or are the above issues more prevalent now?

Traditionally procurement has been seen as a cost cutting and savings function in the organisation by CEOs and CFOs. 

However procurement should always be seen as adding value – simply not a process or transactional function.

Letting technology do what technology does best – managing repetitive, standardised tasks is the same outcome that challenged HR, Finance and IT functions. – CPOs must create time to listen to internal / external stakeholders, be they suppliers, customers or internal peers and managers.

Paul Blake, associate director, product marketing at GEP highlighted that the Deloitte survey suggests they certainly need to make time as fewer than one in four respondents thought they were excellent business partners to their suppliers, although 86% aspired to be.

Visibility in the supply chain has also raised as a key issue. A 2017, a survey of 623 supply chain professionals across 17 countries found that achieving full visibility was a top priority – however only 6% believed their organisation had achieved it.

6%  highlights a major risk lying dormant in most organisations! This presents an opportunity to turn supply chains into a proactive network where information is shared in trust for mutual benefit.

Trust requires relationship management and open and transparent supplier relationships -building trust and collaborative partnerships even with past competitors (co-opertition ) is paramount for future success and risk mitigation.

Blake stated that in the world of procurement, there is a real opportunity for CPOs to collaborate in an ecosystem of partners.

Strategically working with internal stakeholders ( customers ) is key to procurements future success. Customising value propositions, alignment to the vision, strategy , operational plans,  tracking levels of satisfaction and setting targets for satisfaction”  is always what procurement has been in visionary led organisations.

Centre-led not centralised ! Centre-led doesn’t infer that you can’t centralise key strategic procurement functions especially around governance, policy, standards and strategy. Embedding resources within the organisation enhances the trust and partnership of the internal relationship.

User and Customer experience “making it easy to do the right thing” is procurement’s future role and function. Tools and systems will enable delivery in simple environments. The “Procurement Value” is enabled in complex and difficult environments.

Talent, skills and competencies are key to developing a procurement function (or functions) that become the trusted advisor in our businesses.

EY in their document Infinite possibilities Procurement in 2025 stated:  “Bottom line: By 2025, procurement risk management will undergo a major evolution, moving from discrete/ qualitative approaches focused on disruptions to a continuous/quantitative function integral to all sourcing and supplier management decisions”.

Most organisations have a spend of between 50-70% attributed to third party suppliers

How do you determine value form a supplier when you have no ownership?  This is usually achieved in some instances through prescriptive and onerous contracts. On these occasions how often is innovation delivered?

“By 2025, the leading procurement organizations will serve as a primary channel for driving innovation ideas to/from a global supply base, and procurement professionals will play a critical role in driving new product development and evolution”  EY

How do you know if the supplier has a propensity to deliver value? This is a key factor when you have never had a previous relationship with that supplier

After 4.5 years of research across New Zealand and Australia, Mike Blanchard has developed a methodology and model to help determine value characteristics from suppliers. 28 factors through research and regression testing were reduced into 6 key areas:

  • Sustainable Partnership Value
  • Shared Vision & Intelligent Information
  • Trusted Relationship & Quality
  • Aligned Value Innovation & Culture
  • Skilled & Specialist Resources
  • Flexible Organisation driving continuous improvement

Paul Blake at GEP highlights all of the above in a simple statement “CPOs who embrace openness, modularity and the quality and ease of user experience – freeing  up time and resource to manage the strategic challenges facing their organisation – are much  better positioned to succeed”

As a CPO where are you on the continuum? Are you still dealing with too many transactional business challenges or are you really helping with the Organisations strategic plan?

Much of the inspiration for this article was taken from the Supply Management Insider and GEP paper the 5 steps to ensure that procurement has a viable future and EY’s Infinite possibilities Procurement in 2025.

Written by Mike Blanchard Chartered FCIPS, Masters in Supply Chain Management and Member of the Australian Institute of Company Directors