SCDigest Editorial Staff

SCDigest Says:

How much price premium will a company pay for goods that are more environmentally friendly than an alternative?  What do you say? Send us your comments here

The headline story last week was that office products retailer Staples had joined competitor Office Depot cutting Singapore-based Asia Pulp & Paper Co. Ltd from its supplier rolls. The larger question may be what criteria buyers will use or be given to makes such decisions in less dramatic cases in the future.

Environmental groups say Asian Pulp & Paper (APP) is involved in illegal logging in Indonesia and China, and that the company’s forest-clearing endangers tigers and other animals. Office Depot and some European companies had previously ceased doing business with APP over these and other eco-concerns.

APP was a significant supplier to Staples, representing about 9% of its total paper procurement, mostly for use in Staples’ private label copy and printer paper line.

Staples had maintained APP as a supplier as others dropped the company, hoping they could convince it to change some of its ways. The biggest source of contention is APP’s use of natural forests in Asia as a major raw material source, rather than its own land in which trees can replanted. APP has said it is moving toward relying for all of its wood from trees on these so-called “plantations,” but that the company needs for now to cut natural forest to maintain production levels until those plantations are fully on-line.

"We decided engagement was not possible anymore," Mark Buckley, vice president for environmental issues at Staples, said about the move. "We haven't seen any indication that APP has been making any positive strides" to protect the environment. Remaining a customer of APP was "at great peril to our brand.”

While obviously losing business in the US and Europe, APP may be protected by the huge growth in the Chinese, Indian and other Asian markets. Many observers have noted that as sales to these markets grow, Asian manufacturers, such as APP, are frequently already operating at or near capacity, and that loss of Western business can in many cases by quickly replaced by new sales within Asia itself. This means they may be less susceptible to Western companies are environmental and other “ethics” issues.

(Sourcing and Procurement Article - Continued Below)

Buyers in the Middle

The Staples case may seem like an obvious move to make, with a supplier already dropped by other competitors, and a highly sensitive issue such as rain forest destruction.

Other situations will not be as clear cut.

It’s interesting that the primary Staples spokesman, Mr. Buckley, is from the environmental office, not procurement. It seems inevitable that procurement professionals will more and more be caught in the middle between sustainability principles on one hand, and business realities on the other.

For example, will a company cease doing business with an environmentally suspect supplier only if there are good alternatives at comparable prices? How much price premium will a company pay for goods that are more environmentally friendly than an alternative?

Procurement managers and executives need to ask for some clarity on these kinds of issues from CEO and other company executives pushing aggressive sustainability programs.

Do you expect to see a lot more supplies dumped for sustainability/eco-issues? Do you agree procurement managers will soon need a lot more guidelines? Let us know your thoughts at the Feedback button below.