Will Unilever kickstart a supply chain revolution?

Unilever hit the head­lines in Jan­u­ary when it became one of the world’s first multi­na­tion­al cor­po­ra­tions to require all mem­bers of its sup­ply chain direct­ly pro­vid­ing it with goods and ser­vices to pay their employ­ees a liv­ing wage.

The pro­gres­sive plan, which was put togeth­er with inter­na­tion­al char­i­ty Oxfam and comes into force in 2030, has gar­nered wide­spread praise as a means of try­ing to cut social inequal­i­ty and pover­ty around the world, a sit­u­a­tion that has only got worse due to the pan­dem­ic. 

Dave Ingram, Unilever’s chief pro­cure­ment offi­cer, explains the ratio­nale. “Pay­ing peo­ple a liv­ing wage is a very impor­tant step towards build­ing a more equi­table and inclu­sive soci­ety,” he says. “It’s not just giv­ing fam­i­lies enough mon­ey to cov­er their basic needs plus a bit of a buffer, it also has clear, indi­rect ben­e­fits for the econ­o­my by stim­u­lat­ing spend­ing and job cre­ation, if it’s done in the right way.”

But while James O’Neill, prin­ci­pal con­sul­tant at pro­cure­ment con­sul­tan­cy Prox­i­ma, believes Unilever is “gen­uine­ly try­ing to do good”, he points out the com­mer­cial ben­e­fits to be gained. Not only are those con­sumers that can afford it increas­ing­ly bas­ing pur­chas­ing deci­sions on eth­i­cal cri­te­ria, but there is also the “macro back­drop” of gov­ern­ment reg­u­la­tion around the world “grow­ing more strin­gent more quick­ly”.

“It’s a mix of try­ing to do good and the rep­u­ta­tion­al val­ue that brings, plus a com­mer­cial view of cus­tomer demand and reg­u­la­tion, which means the time to act is now,” he says.

Abe Eshke­nazi, chief exec­u­tive of the Asso­ci­a­tion for Sup­ply Chain Man­age­ment, agrees. In his opin­ion, get­ting “ahead of the game before they’re hit with reg­u­la­tions” is a key “moti­vat­ing fac­tor” for many com­pa­nies intro­duc­ing active poli­cies.

Walking a tightrope

But Dr Mark John­son, pro­fes­sor of oper­a­tions and sup­ply chain man­age­ment at War­wick Busi­ness School, also refers to “inter­est­ing his­tor­i­cal par­al­lels” with Hen­ry Ford who, from 1914, paid his fac­to­ry work­ers dou­ble the wage of any oth­er car man­u­fac­tur­er in Detroit. 

“Ford did it for two rea­sons: he was able to retain tal­ent with­out fight­ing for it and it also allowed him to cre­ate a new tier of con­sumers to buy his prod­ucts,” John­son explains. “So it’s about cre­at­ing a loy­al sup­ply chain and resilience if some­thing goes wrong.”

But there are chal­lenges in going down this route, 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 “walk­ing the tightrope of ambi­tion to do good and com­mer­cial­i­ty”. 

“I don’t think either Unilever or any oth­er organ­i­sa­tion will have the lux­u­ry of sim­ply pay­ing peo­ple more and absorb­ing all the cost them­selves,” he says. “Instead it’ll need to look at how it col­lab­o­rates with its sup­ply base, come up with inno­v­a­tive ideas for how to man­age those costs in part­ner­ship, work out ways to refor­mu­late specs to main­tain mar­gins that work for both par­ties and recon­fig­ure order pro­files to make things more com­pet­i­tive.”

Unilever’s Ingram agrees the chal­lenge is cer­tain­ly a com­plex one and, because it is ear­ly days, work still needs to be done on cre­at­ing effec­tive poli­cies and mech­a­nisms. For starters, to tack­le the thorny issue of set­ting dif­fer­ing wage stan­dards around the world, the com­pa­ny is work­ing with the Glob­al Liv­ing Wage Coali­tion (GLWC), which uses the Anker method­ol­o­gy to esti­mate real­is­tic region­al or nation­al liv­ing wages for indi­vid­ual coun­tries. 

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

How to create systemic change

In cost terms, for exam­ple, while adap­ta­tions in areas such as man­u­fac­tur­ing and ser­vice will prob­a­bly con­sti­tute “more of a straight­for­ward cost to Unilever”, it should also be pos­si­ble to boost the effi­cien­cy of agri­cul­tur­al sys­tems by edu­cat­ing part­ners on the use of more sus­tain­able prac­tices, says Ingram. 

Col­lab­o­ra­tion will be key. Even before the com­pa­ny announced its liv­ing wage pol­i­cy, a group of engaged sup­pli­er part­ners were brought togeth­er to pro­vide their input and help set direc­tion. Their key mes­sage was not to move too quick­ly due to fears of pos­si­ble unin­tend­ed con­se­quences on employ­ment, which is why “we’re tak­ing ten years to soft­en the year-on-year impact”, he explains. 

How­ev­er, all new con­tracts signed with third par­ties will stip­u­late liv­ing wage com­pli­ance and any organ­i­sa­tions found to be in breach will see the arrange­ment ter­mi­nat­ed. The com­pa­ny will also update its respon­si­ble sourc­ing poli­cies and sup­ply chain audit mech­a­nism, while set­ting clear tar­gets and ensur­ing suit­able mea­sure­ment sys­tems are in place.

In sup­ply chain audit­ing terms, Don­ald Moore, chair­man of school­wear provider Rowl­in­son Knitwear, rec­om­mends using the estab­lished social method­ol­o­gy, the Sedex (Sup­pli­er Eth­i­cal Data Exchange) mem­bers’ eth­i­cal trade audit, in com­bi­na­tion with Net Pro­mot­er sur­veys to under­stand employ­ee sat­is­fac­tion lev­els. B Corp, which is owned by its 58 UK staff, is requir­ing its own tier-one sup­pli­ers in Bangladesh and Egypt to pay a liv­ing wage, as defined by the GLWC, by 2026 and tier-two part­ners to fol­low suit by 2030.

But Unilever’s ambi­tions run deep­er and wider than just its own sup­ply chain. “We want to make sys­temic change in the coun­tries and sec­tors we oper­ate in, which means advo­cat­ing for change that is big­ger than us by influ­enc­ing gov­ern­ments and sec­tors to move in this direc­tion too,” says Ingram.

Whether Unilever is like­ly to be able to kick­start this glob­al liv­ing wage rev­o­lu­tion or not, Proxima’s O’Neill believes at the very least its high-pro­file move will help build momen­tum behind wider sus­tain­abil­i­ty efforts, lead­ing oth­er organ­i­sa­tions to fol­low its exam­ple. 

“Fun­da­men­tal­ly though, it’s the wider macro-envi­ron­ment of shift­ing cus­tomer demand and reg­u­la­tions that will be the true force for change,” he con­cludes.