Integrating CSR in sourcing decisions
- 1. MAiNTENANcE AND ASSET MANAGEMENT Challenges in Asset Management Making Deliberate and Responsible Sourcing Decisions Topics such as “sustainability” and “Corporate Social Responsibility” (CSR) are no longer new issues on asset managers’ agendas. But how do you integrate these CSR challenges with necessary sourcing decisions? In this article we describe the environmental challenges that organizations are facing and the model that can be used to incorporate sustainability targets into sourcing alternatives. Sustainability challenges formulated (up to 10–50 %). Without going GILLES TENHAEFF in assetmanagement into detail we can conclude that these ob- MSc., consultant Let’s take a better look at the group asset jectives turn partly into regulations for com- Asset Management Sourcing owners. The assets vary from technical plants panies. Other stakeholders than authorities and Sustainability (e.g. chemical industry) to property owners support this direction and pressure compa- Kirkman company (e.g. government), networks (e.g. Telecom) nies as well. This force field started already G.tenhaeff@ or production sites (e.g. FMCG). Most of years ago; it is now also pushing the slow kirkmancompany.com the time, these companies are listed on the starters to change their business drastically. LU UK TER WELLE stock market and have several important The low hanging fruits are gone, it is now MSc., consultant stakeholders such as local or national au- time to look together with suppliers at the ySE powered by Kirkman thorities, customers and environmental or- fundamental processes and improve the way company ganizations. The companies are partly de- of working. l.ter.welle@yseprogram.com pendent and need to maintain a good rela- Based on our experience with customers The Netherlands tion with these organisations if they want we see two key places where strategic sus- to do business successfully, both from a le- tainability targets get concrete and involve A t first sight, it looks like the main gal and CSR perspective. operational processes. In the first place, or- drivers for this phenomenon are the The European Union and its members ganizations are formulating sustainable selec- different environmental regulations have formulated sustainability targets in the tion criteria when setting up new supplier re- from several national governments. We held long and short run. The percentages of re- lations. In the Netherlands, the government an extensive survey among various asset duction of energy and CO2 vary among the plays a role model in tendering suppliers for owners and contractors in the Netherlands countries but are significant and ambitiously work. The better you incorporate sustainable (April 2011). This survey showed that com- panies are still primarily looking for oppor- tunities to increase profit by lowering costs and optimizing asset utilization over oppor- tunities in CSR. However, asset managers underline the rising motivation and possi- bilities for incorporating CSR. Both asset owners and contractors state that environmental targets can also be aligned with targets of reducing operating costs, for example through energy reduction and recycling. In addition, companies tend to investigate more extensively what their core business is and how to utilise the core competencies of other companies. Therefore, important challenges arise for sourcing deci- sions in asset management and ways to in- tegrate CSR targets. Figure 1. Sourcing scan. 20 Maintworld 3 • 2011
- 2. BUY ALLY MAKE Divestment Spinoff Outsourcing Preferred Relationship Co-sourcing Managed Network Franchise Co-branding Consirtium Strategic Alliance Joint Venture Participation (minority) Participation (majority) Merger Acquisition Greenfield Inhouse into different functions and responsibilities (i.e. domains of distinct activities). Consider, for example, the different utilities of a com- pany, divided by ownership, operations and maintenance of the concerning assets. We now guide you through the decision-mak- ing process, using the seven-step sourcing Figure 2. Sourcing options. scan, to define the best sourcing option for each activity: operations in your company and your busi- ers must first ensure that the corporate strat- 1. The first step is to examine the current nesses, the more points get awarded to your egy and sourcing strategy are aligned. More- sourcing situation. A useful insight in- proposal. Having sustainability incorporat- over, with an increasing focus on CSR the to the current sourcing situation in- ed in your processes may even compensate a impact of People, Planet and Profit should cludes an assessment of processes, re- higher price. It is not only about offering the be included in the decision-making proc- sources, responsibilities, quality indi- lowest costs anymore; it is about offering the ess concerning the optimal sourcing strat- cators, costs, social & environmen- best integral proposition where sustainabil- egy. The main trend is that companies are tal impact and overall contribution to ity offers a significant opportunity. making both more conscious and more re- company goals. The second important place where we see sponsible decisions about what to “Make, 2. Secondly, we advise you to carry out a sustainability targets touch the operational Buy or Ally”. situational analysis based on the cur- and tactical level is in the Key Performance In order to make a conscious and re- rent sourcing situation. You should Indicators (KPI) dashboard of the asset own- sponsible decision we advise asset manag- take into account the strategic value ers. Let’s discuss the owner of a chemical site ers to ask themselves to run through the sev- and complexity of the activity, as well producing components for paint. We identi- en-step approach presented in the sourcing as implications for competitive advan- fy strict regulations onsite where contractors scan (Figure 1 ). In case certain activities are tage and relations with (core) process- work for technical maintenance and con- handed over to a partner (or are hosted in es. While doing this, continuously re- struction work. Asset owners tend to close some kind of alliance) the people, planet and flect on strategic objectives – including contracts on a higher responsibility level and profit objectives of your company should be CSR goals – and the stipulated sourc- expect contractors to pro-actively come up translated into the agreements and objec- ing strategy. with improvements, e.g. in the field of ener- tives with your partners. Take the contrac- 3. Next, performing a market analysis gy reduction of the plant. Asset owners re- tors in the example above: set a KPI on re- parallel to the internal analysis gives alize great value of contractors in knowing duction of use of chemicals (non-biological) you the required external insights. In- the plant well and have often many thoughts for cleaning purposes. Whereas this triggers vestigate relevant developments out- of how to improve processes. These contrac- contractors to get creative (or more preven- side the organization, as well as inno- tual agreements are formulated in KPI’s and tive) in cleaning processes, it also stimulates vations, trends and possible threats. monitored on a frequent basis. We see here sustainable business. You can integrate these Do not focus exclusively on competi- as well that asset owners push contractors goals into your acquisition criteria. In this tion; also look at companies operating in the position where they have to cooperate way, a wide set of objectives in asset man- in other markets that may be success- more closely to achieve these targets. This is agement and maintenance – such as reliabil- ful examples. a unique situation where competitors need ity, cost-efficiency, innovation and sustaina- 4. You use the above results to define the to share knowledge and resources to jointly bility – can be attained. relevant and feasible sourcing options accomplish targets and gain more successful (see Figure 2 for a basic set of op- business. We call this development of con- Making a conscious decision tions). If, for example, the particular tractors working closely together for one (or We’d like to make a step towards what we domain of activities appears not to be more) asset owners Co-Sourcing. see in the market as a mandatory process for of strategic value, is not that interwo- asset managers in organizations these days: ven with other processes and suppliers Aligning the sourcing strategy implementing a sourcing competence cen- operate in a competitive market, “buy” During the last couple of years, we have seen tre to evaluate business processes and align options can be further investigated. that companies increasingly organize asset them with organizational and environmental The figure shows that the “Make, Buy management activities in cooperation with objectives. You can incorporate different cri- or Ally” question is not the only ques- partners and suppliers. A growing number teria in your steps to get – most importantly tion that needs to be answered – there of companies are examining the possibility – optimal processes while taking environmen- are numerous sourcing options to be of cooperating on, or handing over, tactical tal and social criteria into account. considered within these three catego- – and in some cases, even core – activities. To In determining the optimal sourcing op- ries. be able to define the optimal sourcing strat- tion, we suggest a holistic approach in which 5. These feasible options are each the ba- egy for asset management activities, manag- we split the asset management organization sis for a detailed risk, financial and Maintworld 3 • 2011 21
- 3. sustainability analysis, re- 6. The outcome of the anal- ful sourcing strategy based on Conclusion sulting in a both qualita- ysis in step five provides conscious decision making with More and more companies are tive and quantitative value you with additional under- respect to people, planet and not integrating CSR targets in their case, as well as a maturity standing into which sourc- least profit. By making these de- corporate strategies and use assessment on the current ing options are the most cisions, asset managers can take them as enablers for cost re- situation. In some cases, relevant, responsible and advantage of the core competen- ductions. In addition, manag- it can be wise to first in- feasible. Using this foun- cies of other parties for their op- ers increasingly focus on core crease the maturity level of dation, you can select the erations in order to attain corpo- competencies and explore the your activities before tran- most optimal sourcing op- rate goals most effectively. multiple options in asset man- sition to an external part- tion, i.e. which maximizes The different sourcing op- agement through sourcing. Cor- ner. Moreover, it is evident company goals, including tions shown in figure 2 illus- porate social responsibility there- that your own social and contribution to social and trate that sourcing encompass- fore becomes an integral part of environmental guidelines environmental issues. es much more than just look- a present-day sourcing decision. are evaluated on future at- 7. Finally, when the select- ing at outsourcing alternatives. To succeed in the business en- tainability for each of the ed sourcing option differs Based on our experience we dis- vironment of today and tomor- feasible sourcing options. from the current way of tinguish many different scenari- row, we advise companies to in- The sustainability analysis sourcing, we recommend os for sourcing business process- clude CSR in the sourcing deci- is therefore an additional you to set up a transition es. Varying from Make scenar- sion-making process by adding analysis next to profit (i.e. plan and to start organiza- io’s (in case of critical processes) the impact of people, planet and financial analysis), and is tional change. to Buy scenario’s (when most ef- profit to the value case. Having consequently an important The approach we describe is the ficiently to outsource the activi- considered all relevant sourcing criterion for determining result of best practices and ex- ty) to Ally (when able to create options, a conscious and respon- the most optimal sourcing tensive experience. The sourcing additional value in cooperation sible decision thrives your busi- option. scan is a tool to define a thought- with other parties). ness for the future. Don’t measure the damage. Prevent it. New intelligence for measuring moisture in oil. Online, real-time measurement without sampling Installation through ball valve – no need to shut down the process High stability in extreme conditions Download the ‘Top 8 FAQs - Measuring moisture in oil’ at www.vaisala.com/mioFAQ www.vaisala.com/lubrication sales@vaisala.com 22 Maintworld 3 • 2011