October 12, 2015
Our purchasing decisions influence the way that supply chains develop.
Seeking the lowest price at all costs can result in supply chains with layers of hidden costs through damage to the environment and to the communities involved in that supply chain.
However, there are great examples where buyers have changed supply chains in order to deliver positive social outcomes.
One example of this has been in coffee.
When enough consumers chose to buy Fair Trade coffee, roasters altered their supply chain to accommodate demand and in so doing raised the wage levels and working conditions of coffee farmers and the communities that they live in.
As demand for Fair Trade coffee increased, production became more efficient and price declined. Fair Trade coffee now provides good coffee at competitive market prices while generating positive social outcomes.
Whether you buy for government, business or simply yourself as an individual consumer you have the power to change supply chains to generate social impact.
What type of consumer are you?
In 2012, market research organisation Mobium undertook research into values based consumers and found that 10% of the consumer marketplace are ‘leaders’ who actively seek out products and services that deliver social benefit in production or through redistribution of profits.
The same research found that 40% of the market are ‘leaners’ who are likely to make values based purchasing decisions when they are provided with values information; and the remaining 50% of the market are ‘laggards’ who do not consider values in their purchasing decisions.
Positive impact through purchasing
Marketplaces that deliver positive social impact are beginning to emerge in Australia and across the world. While the Fair Trade movement has led the way, we are now beginning to see conscious consumers, businesses and governments choosing to disrupt the way that they traditionally buy to incorporate social benefit into their supply chain.
In 2014, Social Traders published research into social procurement in Australia’s corporate sector. The findings identified that the mining industry had embraced and mandated social procurement as a mechanism for delivering indigenous economic development in the communities where they operated.
Of the 31 companies that were surveyed, it was found that 11 were undertaking social procurement in 2012, and 29 indicated an intention to be socially procuring by 2014.
Likewise, Governments in Australia have also begun to realise the power of social procurement.
The South Australian Government has incorporated clauses into road construction contracts specifying that 20% of the workforce should come from indigenous communities, people re-skilling from the automotive industry and the long-term unemployed.
The West Australian Government has spent over $20 million with social enterprises delivering employment for people with disabilities in the last three years.
Both the NSW and Federal Government have set hard targets for contracts going to indigenous businesses.
Procurement spend across all levels of government in Australia alone equates to over $100 billion. Consumer and corporate spending far outstrips Government procurement of goods and services – consumer spending alone is more than five times greater than government spending.
Put together this amounts to almost one trillion dollars of buying power that has the opportunity to deliver social benefit as well as providing required goods and services.
Purchasing to generate positive social impact through consumer spending together with public and private sector procurement, possibly represents the greatest untapped mechanism for social change in this country.
USA leads Australia
In the US the commitment to buying social has been more significant than in Australia. Government has been the champion of social procurement, utilising legislation to mandate purchasing from minority owned business – those businesses majority owned by communities under-represented in company ownership. This policy, introduced in 1977 now generates over $100 billion per annum in government procurement being spent with minority suppliers in the USA.
Legislation has also been enacted requiring all US Federal Departments to determine if their contract needs can be met by a social enterprise (employing people with a disability) at a competitive price, before going out to open tender.
This has resulted in social enterprises securing $2 billion per annum from government contracts, creating jobs for 50,000 people with disabilities.
The US Government is showing true leadership through its procurement policies by setting procurement targets designed to reduce inequality. This leadership has spilled over to the private sector, where many companies are introducing social procurement policies and targets into their organisations.
We need more public and private sector leadership to Buy Social
Just as improving environmental standards over the decades has been driven by Government leadership, and then adopted by businesses, we are calling for similar commitments to social impact via procurement policies and processes in Australia.
According to the Finding Australia’s Social Enterprise Sector (FASES) research, there are an estimated 20,000 social enterprises operating in Australia.
Social Traders estimates that approximately 2,000 of these social enterprises are committed to the creation of employment for disadvantaged groups and collectively create jobs for 35,000 Australians who were previously long-term unemployed or are at risk of unemployment.
Proactive government and corporate purchasing strategies designed to increase procurement from social enterprise and similar socially focused organisations would increase turnover and allow these enterprises to contribute greater social benefit to Australia, while of course still providing the required goods and services to the purchaser.
If over time government and business committed $10 billion (1-2% of their procurement budget) per annum in spending on social enterprise, this would create up to 150,000 social enterprise jobs, with 110,000 going to the long term unemployed and those at risk of unemployment. Even accounting for displacement of some existing workers we anticipate that over 50,000 more people could become economically active, simply by changing who we buy from.
With 10% of Australians already buying from social enterprises and other organisations that generate positive social benefit, a shift towards socially conscience purchasing is already underway. The time is now ripe to increase the speed of this shift and magnify its potential.
This acceleration can be achieved through Governments embracing the concept and raising the awareness of buying socially across the broader community.Mark Daniels is Head of Market and Sector Development at Social Traders.