Marks & Spencer: Improving Supply-Chain Sustainability

Introduction

Over the past decade, Marks & Spencer (M&S)—a major British retailer of household items, food products, and clothing—has increased its focus on fostering sustainability throughout its supply chain. In response to both business needs and a growing customer demand for sustainable practices, M&S has aimed to show leadership in minimizing its environmental impact.

Founded in 1884, M&S is now a public limited company with over a thousand stores across the world, 852 of which are located in the United Kingdom. It has over eighty thousand employees and revenues of over £10 billion. In the United Kingdom, there are 368 firms that supply directly to M&S and employ over 119,000 people. These sites include 302 food factories and thirty-eight drinks factories. With the goal of increasing transparency, product quality, and worker well-being throughout its supply chain, M&S instituted a Sustainability Scorecard system in 2010 to measure impact and incentivize best practices. This metric continues to help M&S achieve positive performance by promoting good relations with suppliers and customers.

Ecosystem Pain Point

Over 90 per cent of M&S’s social and environmental impact occurs within the supply chain and outside its own operations. Even though 98 per cent of M&S products are sold under its own brand, M&S does not manufacture any products itself and relies instead on its suppliers. For this reason, M&S has to take a special interest in developing relationships with its suppliers and collaborating with them in the area of sustainability.

This collaboration can yield a range of benefits for M&S. For example, sustainability-based innovations such as optimized packaging design, a reduction in transit packaging, and load-sharing during transportation can lower costs. Alternative product designs or formulations can create improved products. Environmental and social risks can be reduced through better sourcing of materials and high labour standards in supplier factories. And supply and reputational risks are lowered when there is greater transparency across the whole supply chain.

However, there are challenges associated with implementing new approaches to supply chain sustainability. As an industry report explains:

Most companies in the grocery sector initially approached supply-chain sustainability from a need to ensure compliance and to minimize supply and reputational risks from across the supply chain. Whilst some industry-wide initiatives, such as Sedex (Supplier Ethical Data Exchange) have been successful in providing an effective framework for this risk management approach, this can result in defensive behaviour by suppliers and can reinforce relationships that are characterised by a ‘tick-box’ process for ensuring compliance.1

In order to offset potential risk, M&S needed to create new ways in which to align suppliers with M&S’s broader sustainability goals.

Business Strategy: The Sustainability Scorecard

The supply chain forms a critical part of the overall M&S Sustainability Programme—which they call Plan A. In 2010, M&S established a Sustainability Scorecard that aims to align suppliers with the company’s sustainability objectives by tracking the progress of their own sustainability activities.2 This scorecard enables M&S to award Provisional, Silver, Bronze, and Gold ratings to participating suppliers. The scores are calculated based on three pillars: environment, human resources and ethical trade, and lean manufacturing.

Overall, M&S aims to ensure that there are good working conditions throughout the supply chains and that products are sourced with integrity. Resource efficiency is associated with supply efficiency and reduced costs associated with raw material, energy, and waste. And M&S aims to incentivize and facilitate better and leaner practices amongst suppliers.

At least once a year each of the direct suppliers’ sites works through the scorecard’s framework and completes self-assessment questionnaires.3 As a case study by the Financial Reporting Council describes, suppliers take the process of generating and auditing these scorecards seriously:

A critical part of the process is audit and assurance where it must both satisfy itself that the required standards are being met and avoid alienating its suppliers by being too strict . . . The company has opted to give a window for when audits will take place, so that the suppliers know that the assurance team will arrive at some point within the space of, say, a month. The period is short enough to limit the disruption but long enough to prevent bad practice being temporarily hidden.4

In this way, M&S addresses the need to collect excellent data without overburdening suppliers. The practice of providing suppliers with a ‘window’ during which the audit will take place helps foster goodwill and promote accountability, without disrupting production.

Buyers take these scores into account. Furthermore, only products from Silver and Gold factories are eligible for recognition as having ‘Plan A product attributes’ for sale to consumers. By 2020, M&S plans to source 100 per cent of products from sites that are scored Silver or Gold. In recognition of their efforts, Silver and Gold suppliers are awarded certificates at the M&S annual commercial conference.5

Environment

The first element of the scorecard considers the environmental measures. These measures focus on energy use, water use, waste, and carbon outputs. This part of the scorecard includes environmental impact assessment, risk assessment of key raw materials. It also shows a sustainable procurement plan and tracks the percentage of renewable energy at site.

M&S has identified waste as a specific issue, both in production and in packaging. The current goal is to source 25 per cent of food from suppliers who operate zero-waste factories. As the company’s Plan A Commitments report describes:

Different parts of M&S supply chain face different challenges on waste. Food supply chains create more waste, but much of this is currently recycled. M&S works with food suppliers to help them recycle their remaining volumes that still go to landfill, by using the most carbon-efficient approach available, for example anaerobic digestion or composting. We’ll also work with our suppliers to minimize food packaging write-offs.6

As this example of the food supply chain demonstrates, there are many opportunities for increasing sustainable business practices all along the supply chain. Offering increased access to recycling helps M&S align its suppliers with its ongoing sustainability goals by tackling the challenges of food waste.

Human Resources and Ethical Trade

A second key aspect of the scorecard is human resource management and ethical trade. This section includes employee representation, staff turnover, workforce cohesion, and external accreditation for employee bodies. As the company reports: ‘We want our food to only come from factories demonstrating leading standards in training, workforce and community engagement, health and safety and employment practices.’7

The scorecard system helps advance M&S’s human resource and ethical trade goals.

The company’s Global Sourcing Principles draw from key international documents and standards, including UN Universal Declaration of Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, the UN Guiding Principles on Business and Human Rights, the UN Women’s Empowerment Principles, the UN Human Right to Water and Sanitation, the Children’s Rights and Business Principles, and the UN Global Compact. By aligning the company’s requirements with these international standards, M&S is able to encourage engagement and streamline the compliance burden for its suppliers.8

Lean Manufacturing

The third element of the scorecard is lean manufacturing. Here, the scorecard tracks whether suppliers use formal tools for cross-functional problem solving, employ value-stream mapping to illustrate and analyse the manufacturing process, and identify key suppliers for improved relationships.

Participatory Approach

M&S seeks to encourage suppliers to take ownership of the sustainability agenda. Rather than imposing targets and monitoring compliance, it has chosen to collaborate with key suppliers and to work with them to create a number of model factories. Although some of the lessons from the model factories initiated supplier changes through Plan A commitments, the larger focus was, and continues to be, demonstrating the business case for action. M&S views this as a powerful incentive for galvanizing change across the supply chain.

In addition, M&S encourages its suppliers to use an online knowledge platform which provides advice, case studies, and toolkits for making practical changes within factories and on farms.9 These materials also highlight the business benefits of implementing those changes.

The scorecard framework is supported by a Supplier Collaboration Programme. This has three main areas of focus: facilitating supplier exchange meetings, where suppliers can share their learnings; providing skills training and development opportunities for suppliers; and delivering financial benefits and improved ways of working.

There is further encouragement through other incentives and collaborative programmes such as the annual supplier awards programme and networking sessions. The ‘awards recognize and showcase suppliers that have made tangible and demonstrable improvements in areas such as process innovation or product sustainability’ and the supplier networking sessions take place every two to three months. These sessions focus on areas of the performance scorecard in which suppliers experience difficulties. In these sessions, suppliers that have made progress on specific challenges are encouraged to share experiences and outcomes with their peers, and M&S technical experts are also on hand to share operational knowledge and expertise. M&S also makes a point of not requiring suppliers to share how much they have saved and how much of the savings results from M&S’s involvement. This approach stems from the belief that suppliers may be concerned that M&S’s buying departments would use the information to negotiate on price. Moreover, since the relationship between supplier engagement and decisions to adjust business practices is not always clear-cut, these sessions function primarily as opportunities to identify best practices. The networking sessions help provide a platform for discussing challenges, free from the concern that such disclosures would have a negative impact on the supplier’s relationship with their buyer.

The Benefits of the Scorecard Approach

The scorecard enables M&S to understand and manage its supply chain better. This approach helps incentivize best practices. As summarized by Hazel Culley, Sustainability Manager, the programme brings to the fore many previously unnoticed aspects of the supply chain:

It’s great to be able to see the real change that’s happening; for example, when we started out only seventy of our sites had staff surveys—now more than two hundred do. We’ve also seen great environmental improvements including over 40 percent of our sites sending no waste to landfill and 25 per cent volume is now from sites that have reduced energy by 20 per cent.10

More broadly, through the suppliers’ self-reporting M&S gains insights on the energy, material, waste, and carbon performance measurements for those factories; suppliers’ risk assessment of their raw materials; suppliers’ employee representation, gender ratio, employee turnover, and employee survey results at those supplier sites; and the production capabilities of its suppliers. These insights allow M&S to better select and interact with its suppliers for product innovation and other improvements in its products.

Performance

Overall, the Plan A programme, of which the scorecard is a component, has delivered significant saving through waste reduction and environmental efficiency. In the 2014/15 business year, these savings totalled £160 million. The programme has saved £625 million since 2007.

M&S views the value of the programme as extending beyond these savings. As reported in a case published by the Financial Reporting Council:

The company does not seek to measure the financial impact of Plan A in terms of margin, corporate earnings, and brand value. It considers this is a number that cannot be calculated, but it believes that the impact of Plan A in terms of the trust it generates with customers, as well as on the morale of its workforce and that of its suppliers, will make the company more resilient and more adaptable, enhancing its sustainability in a rapidly changing world.11

As the report indicates, putting an increasingly sustainable supply chain into practice creates benefits for both M&S and its suppliers. The Sustainability Scorecard initiative bolsters brand value by enhancing relationships among the main business, suppliers, and customers.

Examples of Supplier Achievements

As a result of the Sustainability Scorecard programme, M&S created value and savings across its supply chain:

• Through the introduction of vacuum packing for fresh meats, an unnamed company calculates it saved £16.3 million in 2011/12.

• Worldwide Fruit, an M&S food supplier, was named supplier of the year in 2012 for its achievements in reducing electricity consumption by 14 per cent a year and water demand by 75 per cent.

• Brandix, a designated M&S eco-factory, was named clothing supplier of the year in 2012 for reducing carbon emissions by 80 per cent, energy usage by 46 per cent, and water consumption by 58 per cent.

• AMC Grupo Alimentación Fresco y Zumo, a fruit supplier, introduced a closed-loop manufacturing methodology for fruit squeezing. This led to zero fruit waste, with 90 per cent of fruit waste being used elsewhere in the business.

• Courtauld, a clothing supplier, developed a new bra made from 100 per cent recycled polyester, with improved durability and guaranteed non-yellowing.12

As these supplier achievements show, the scorecard initiative has the potential to align suppliers with M&S’s sustainability goals in mutually beneficial ways.

Prognosis

Looking ahead, M&S aims to source 100 per cent of products from at least Silver-level suppliers by 2020. In addition to meeting its internal standards, the company plans to have a sustainability story for each M&S product. This way, it can demonstrate the origins of its products and highlight the benefits of its new supply-chain model.

Additionally, M&S plans to expand its Plan A initiatives to include a wider range of sustainability programmes. To this end, M&S will launch a five-year, £50 million Plan A innovation fund to support new ideas in the business.13 An additional future goal will be to help suppliers create 200 Plan A factories and have ten thousand farmers join the initiative.14 Taken together, these programmes aim to catalyse innovation along M&S’s sustainable supply chain and to continue fostering good relations between the company and its suppliers.

___

Notes

1. Stanley (2013).

2. Bhattacharya (2016).

3. ‘Sustainability Scorecard: Capacity Building Initiatives’, corporate.marksandspencer.com, https://corporate.marksandspencer.com/plan-a/our-approach/food-

   and-household/capacity-buildinginitiatives/sustainability-scorecard.

4. ‘Our Plan A Commitments 2010–2015’, Marks and Spencer Group, March 2010,

   http://corporate.marksandspencer.com/plan-a/

   85488c3c608e4f468d4a403f4ebbd628.

5. Hazel Cully, ‘Silver and Beyond––Foods Sustainable Factory Programme’,

   https://corporate.marksandspencer.com/blog/stories/silver-beyond-food-factory.

6. Plan A, corporate.marksandspencer.com, 25, http://corporate.marksandspencer.

   com/plan-a/85488c3c608e4f468d4a403f4ebbd628j.

7. Plan A, corpororate.marksandspencer.com, 28, http://corporate.marksandspencer.

   com/plan-a/85488c3c608e4f468d4a403f4ebbd628j.

8. ‘Global Sourcing Principles,’ Marks and Spencer Corporate, November 2016,

   https://corporate.marksandspencer.com/documents/plan-a-our-approach/

   global-sourcing-principles.pdf.

9. Ibid.

10. Hazel Cully, ‘Silver and Beyond––Foods Sustainable Factory Programme’, https:// corporate.marksandspencer.com/blog/stories/silver-beyond-food-factory.

11. ‘Case Study: Marks and Spencer––Supply Chain Standards’, Financial Reporting Council, https://www.frc.org.uk/Our-Work/Corporate-Governance-Reporting/ Corporate-governance/Corporate-Cultureand-the-Role-of-Boards/Case-Study-Marks-and-Spencer-%E2%80%93-Supply-chain-stand.aspx.

12. Stanley (2013).

13. ‘Our Plan A Commitments 2010–2015’, corporate.marksandspencer.com,

    March 2010, https://corporate.marksandspencer.com/plan-a/85488c3c608e4f

    468d4a403f4ebbd628.

14. Ibid.

Case Study Contributors

• Sudhir Rama Murthy, University of Oxford

• Mike Barry, Marks & Spencer

• Justine Esta Ellis, University of Oxford

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