Will Unilever start a supply chain revolution?

Unilever made headlines in January when it became one of the first multinationals in the world to demand that all members of its supply chain providing goods and services directly to them pay their employees a living wage.

The progressive plan, which was put in place with the international charity Oxfam and goes into effect in 2030, has garnered much praise as a way to try to reduce social inequalities and poverty in the world, a situation which has only worsened due to the pandemic.

Dave Ingram, Unilever’s purchasing director, explains the reason. “Paying people a living wage is a very important step towards building a more equitable and inclusive society,” he says. “It’s not just about giving families enough money to cover their basic needs and a bit of protection, but it also has clear and indirect benefits for the economy by stimulating spending and the creation of jobs, if done the right way.

But if James O’Neill, senior consultant at procurement consultancy Proxima, believes Unilever is “genuinely trying to do good,” he points to the business benefits to be gained. Not only are consumers who can afford to increasingly base their purchasing decisions on ethical criteria, there is also the “macro context” of government regulation in the “increasingly stringent faster” world. .

[a living wage] also has clear and indirect benefits to the economy by boosting spending and job creation, if done the right way

“It’s a mix of trying to do good and the reputation value it brings, plus a business view of customer demand and regulation, which means now is the time to act,” he said.

Abe Eshkenazi, CEO of the Association for Supply Chain Management, agrees. In his view, “getting ahead of the curve before being hit by regulation” is a key “motivator” for many companies that have active policies in place.

Walking a tightrope

But Dr Mark Johnson, professor of operations and supply chain management at Warwick Business School, also points to “interesting historical parallels” with Henry Ford who, from 1914, paid his workers twice as much. salary of any other Detroit automaker.

“Ford did this for two reasons: it was able to retain talent without fighting for it and it also allowed it to create a new group of consumers to buy its products,” says Johnson. “So it’s about building a loyal supply chain and resilience when something goes wrong.”

But there are challenges to follow down this path, especially for a company the size of Unilever, which works with 60,000 direct suppliers in 190 countries around the world. The biggest challenge, O’Neill believes, will be to “walk a tightrope of ambition to do good and commercialize.”

“I don’t think Unilever or any other organization will have the luxury of just paying people more and bearing all the costs themselves,” he says. “Instead, he’ll have to look at how he collaborates with his supply base, come up with innovative ideas on how to manage these costs in partnership, find ways to reformulate specifications to keep margins that work for both parties. and reconfigure the order profiles to make things more competitive. “

Ingram of Unilever recognizes that the challenge is certainly complex and, as it is in its infancy, there is still work to be done to create effective policies and mechanisms. For starters, to tackle the thorny issue of setting different wage standards across the world, the company is collaborating with the Global Living Wage Coalition (GLWC), which uses the Anker methodology to estimate regional or regional living wages. realistic national values ​​for each country.

Ultimately, however, achieving its goals will involve Unilever “creating systemic change,” he says. To this end, a dedicated internal team has been set up to explore the state of affairs and understand how to best move forward with the help of local subsidiaries, NGOs and partners.

How to create systemic change

In terms of costs, for example, while adaptations in areas such as manufacturing and services are likely to be “a simpler cost for Unilever”, it should also be possible to increase the efficiency of farming systems by educating partners on the use of more sustainable systems. practical, says Ingram.

Collaboration will be the key. Even before the company announced its living wage policy, a group of committed supplier partners were brought together to provide input and help set direction. Their key message was not to go too fast due to fears of possible unintended consequences on employment, which is why “it takes us ten years to mitigate the impact from one year to the next,” explains he does.

However, all new contracts signed with third parties will stipulate the respect of the living wage and any organization found in violation will have the arrangement terminated. The company will also update its responsible sourcing policies and supply chain audit mechanism, while setting clear goals and ensuring that appropriate measurement systems are in place.

We want to bring about systemic change in the countries and sectors in which we operate, which means advocating for change bigger than ourselves.

In terms of supply chain auditing, Donald Moore, president of school clothing supplier Rowlinson Knitwear, recommends using the established social methodology, the Supplier Ethical Data Exchange (Sedex) member ethical trade audit, in combination with Net Promoter surveys to understand employee satisfaction levels. B Corp, which is owned by its 58 UK employees, requires its own Tier 1 suppliers in Bangladesh and Egypt to pay a living wage, as defined by GLWC, by 2026 and Tier 2 partners to ‘by 2030.

But Unilever’s ambitions run deeper and broader than its own supply chain. “We want to bring about systemic change in the countries and sectors in which we operate, which means advocating for change bigger than us by pushing governments and sectors to move in that direction as well,” says Ingram.

Whether Unilever is likely to be able to kick start this global living wage revolution or not, Proxima’s O’Neill at the very least believes his landmark move will help build momentum behind broader sustainability efforts. , leading other organizations to follow suit.

“Fundamentally, however, it is the broader macro environment of changing customer demand and regulations that will be the real force for change,” he concludes.

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