Will Unilever kickstart a supply chain revolution?
Multinational consumer goods giant Unilever now requires suppliers to pay their staff a living wage by 2030. So how will the company achieve its goal and could the high-profile move lead to wider industry change?
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.