Relationships with suppliers are key, not only to our business success but also to achieving our sustainable development priorities in areas such as energy and carbon, water, waste and HIV/Aids.
We recognise that our impact, and therefore our accountability, extends beyond our own immediate operations to include those of our supply chain partners. We not only have an economic impact, spending over US$10,000 million, we also have a social and environmental impact resulting from our purchasing decisions, for example, the jobs created in our supply chain through the sourcing of agricultural raw materials such as barley, hops and sorghum and the procurement of manufactured goods and services.
Smallholder farming projects
The eighth pledge of the Millennium Development Goals, to ’develop a global partnership for development’, is particularly relevant to our supply chain work. One of our key supply chain priorities is to work with local farmers to improve the quality and security of supply of raw materials, to create additional employment and to help alleviate poverty in local communities.
Since 2002, for example, we have been creating long-term relationships with sorghum farmers in northern Uganda. More recently, we have been providing sustained and reliable markets for a smaller number of farmers in Zambia (sorghum) and Tanzania (barley).
In 2005, building on the success of these African initiatives and using the same business principles, we launched a new project in Rajasthan in India to improve the quality of locally grown barley and provide opportunities for small-scale barley farmers to enter our supply chain.
In total we have created or improved 10,500 jobs for farmers working in these countries. The schemes have also provided SABMiller with business benefits. In India, for example, the smallholder sourcing model is an important element of SABMiller India’s procurement policy in this high-potential market.
In Uganda and Zambia, extra duty reductions, achieved through the smallholder sourcing model, have enabled our respective operations to grow the market share of our brand considerably.
Meanwhile the South African programme is part of SAB Ltd’s commitment to the government’s Black Economic Empowerment Programme.
We believe such programmes have important lessons and relevance for other SABMiller operations in developing markets such as Latin America. With this in mind, we are currently reviewing all our small-scale farming initiatives in Africa and India to support the development of similar projects in other countries.
Supplier development
Our regional procurement team in Africa has been working hard to find and work with local suppliers for packaging and other raw materials. Through formal training, country visits and regular meetings, we have been building the team’s competence to help it identify companies with the potential to be further integrated into our supplier partnering and development programme.
There have already been a number of successes with suppliers of cans, malt, hops, sugar, bottles, crowns and labels. In Zimbabwe, for example, we are supporting malt supplier Kwe Kwe Maltings by offering prepayment to assist with foreign exchange and cash flow, up to a value of US$1.7 million. We are also providing technical and commercial support in the form of a study into expanding the company’s production capacity and by extending its customer base to other African states.
We are also working with glass bottle suppliers Vidrul in Angola. As well as placing a significant amount of business with Vidrul, we are offering technical, procurement, logistic and commercial support and working with them to ensure they receive accreditation from Coca-Cola.
In Uganda and Tanzania, we have helped two small label suppliers to establish themselves. Graphic System in Uganda and Tanzania Printers now receive the majority of our business in these countries in place of foreign imports, even though imports were historically perceived as being of better quality. Building on our advice, support and commitment, both companies have now secured business from other customers and become successful enterprises.
We are also helping to secure the future of a hops plant and farms in South Africa by increasing the amount of South African hops used in our African operations and reducing the amount imported from Europe. In addition, Cervejas de Moçambique and Tanzania Breweries Ltd were among the first industrial sugar users in their respective countries to move from imported to locally sourced sugars. We are also promoting Coleus, our supplier of crowns in Johannesburg, securing extra business for the company via our French business partners, BGI – Castel.
Human rights in the supply chain
We recognise that job creation is not the only measure by which stakeholders judge our relationship with suppliers. There are many potentially sensitive areas, not least the working conditions that our suppliers offer to their workforce.
The Responsible Sourcing Principles we outlined in last year’s report comprise eight key principles covering issues such as child labour, freedom of association, environmental management and business conduct. Over the last 12 months we have begun to incorporate these principles into our supplier contracts. In June we trained our European supplier auditors so that they now measure suppliers against the new supplier audit templates which incorporate the principles. We have provided guidance, tools and training so that other parts of our business can now take risk-based approaches to managing their suppliers. During the year we also ran a training workshop on sustainable development issues for our African procurement teams.
In the USA, Miller recognises that relationships with minority owned enterprises are important and aims to increase this expenditure in the coming year.
Black Economic Empowerment (BEE)
In South Africa, SAB Ltd has been actively involved in black economic empowerment for over 30 years. During the 1980s the business embarked on an ambitious preferential procurement campaign to place an increasing portion of SAB Ltd’s business with black suppliers in order to alleviate historical inequalities and foster skills among previously disadvantaged individuals. This work continues today and by the end of the 2008 financial year, the company had engaged with over 4,000 empowerment suppliers, representing 40% of its total suppliers. In terms of the BEE Codes of Good Practice issued by the South African Department of Trade and Industry in February 2007, SAB Ltd achieved a procurement score of 13.7 from a possible 20 points. This ranked it third in the FMCG listed companies and in the top third of the 180 top listed companies on the Johannesburg Stock Exchange.