When Walmart sent out its pioneering sustainability survey in 2009, Procter & Gamble was on the receiving end. Now P&G and health-care giant Kaiser Permanente — with a combined annual purchasing power of $121 billion — are issuing their own mandatory sustainability scorecards to their supply chains. Both Kaiser and P&G say that over the next few years, suppliers' ratings on energy and water use, recyclables, waste, and greenhouse gases will be factors in procurement decisions, especially as it becomes possible to measure improvements over time.
"We're sending a message to vendors loud and clear," says Dean Edwards, VP and chief procurement officer at Kaiser Permanente. The message: Green up your act today, lest you lose a huge client tomorrow.
P&G's effort could affect millions of households and some 75,000 suppliers worldwide. The Cincinnati-based maker of Crest, Pantene, Pringles, Tide, and dozens of other iconic brands has the most to gain — or lose — from conscientious customers. The company set up a Supplier Sustainability Board, including the likes of Dow Chemical and Hewlett-Packard, to create a form based on standards defined by the World Resource Institute and the Carbon Disclosure Project. It's headed first to the company's top 400 vendors, then to the rest of its supply chain.
Oakland, California-based Kaiser Permanente's Sustainability Scorecard for Medical Products also addresses energy and waste, but it gets more nitty-gritty, asking for the amount of lead, mercury, and PVC — as well as the percentage of postconsumer waste — in every medical product sold to Kaiser. The company says it has been using the results since early this year; if there's a tough choice among suppliers, the vendor with the best score gets the nod. Broadlane, a group purchasing organization, is now issuing the same survey for its own supply chain. Together, the companies' medical purchases amount to $10 billion a year.
What neither P&G nor Kaiser will do is attempt to verify these reports. That's not necessary, they assert, since many of their largest suppliers are public companies that already report environmental impact. Plus, says Larry Loftus, P&G's director of purchases, capability, and strategy, it's in suppliers' best interest to take good measurements and increase their own efficiency.
Everyone concedes that the scorecards are works in progress. They could compare apples and oranges — water in Florida, say, to water in India or Malaysia. And suppliers could face conflicting standards from different clients. "One of the biggest challenges is having a common level of expectations across the supply chain so everyone understands what is expected of them," says Joe Jansen, VP of environmental, health, and safety at Covidien, one of Kaiser's biggest vendors.
Jeff Erikson has seen this movie before. He's SVP of SustainAbility, a consultancy that has helped companies such as Nike and Starbucks with their supply chains. As in the sweatshop scandals of the '90s, companies often have to manage practices overseas with no help from local governments. How do you control distant suppliers and enforce new standards? There are no easy answers, says Erikson, "but asking the questions is a positive change in behavior."
A version of this article appeared in the November 2010 issue of Fast Company magazine.