Leading global airlines are in a unique position of market power and influence. Almost 3 billion passengers flew on the world's top 100 airlines last year. In doing so airlines vastly consolidate consumer demand so they can have a big market impact when they pick winners to become their chosen supplier of a specific product type. This market influence includes the end user in-flight food and beverages or jet fuel, right through to the product source such as factories or oil wells in developing countries. Airlines can easily use this market power for commercial, societal and environmental benefit if they choose. This can be facilitated by a sustainable procurement strategy. Adopting such a strategy will also reduce costs and mitigate risks to the airline in the longer term.
Background: Airlines literally have a captive audience onboard and can choose what products and services are presented to them and consumed by them. A large global airline will typically have an annual procurement spend of several billion dollars with over ten thousand different suppliers. Airline procurement teams are increasingly overworked and under-resourced to gather all the detailed information needed to make the good purchase decisions that ensure that every product (and service) evaluation that they conduct accurately judges all cost, time and quality considerations. In the meantime, consumers are becoming increasingly educated and conscious about sustainability matter. Modern 'quality' considerations must go beyond the traditional direct tangible aspects of a product and must now reach up the supply chain to the marginally more complex production performance considerations. Customers no longer find it acceptable for child labor, toxic waste dumping or a plethora of other negative ethical failings to be involved in the production of their products. Each airline has the responsibility to pass on this consumer pressure up thier supply chains to reduce risk and to make good purchase decisions. If they do not evolve with customer and community wishes, airlines can expect to be hit by supply chain public exposures that are risking an increasingly damaging backlash to their reputation and share price. The case study experiences of Nike (child labor), BP (contractor error in Deepwater Horizon oil spill), Nestle (palm oil) and Mattel Toys (lead paint) can plainly evidence this growing risk. It is very safe to say that currently almost every major global airline has at least several ethical ‘time-bombs’ in their supply chains of which they are unaware. Over time the risk simply increases that these 'time bombs' will become exposed in the media with commercially damaging consequences if proactive action is not taken.
The Solution: Airlines purchase a vast array of products that are uniquely consumed by the aviation sector (for instance in-flight headphones, flight crew uniforms, certain chemicals and jet fuel). The Sustainable Aviation Buyers Network will implement consensus based collaborative strategies to weed out the ethical ‘time-bombs’ from their supply chains. These will be prioritized utilising the risk management assessment principles of probability and consequence. Overall these efforts will increase the transparency around airline corporate ethics and create long-term win-win benefits for all stakeholders.
The Sustainable Aviation Buyers Network project will develop:
1) A digital Knowledge Sharing Network (KSN) - An easy to use online airline-only sustainable procurement Knowledge Sharing Network which will facilitate collaboration for shared supply chain sustainable procurement audits (and the sharing of the supply chain sustainable procurement audit results). This KSN will only share the ethical failings of suppliers (such as use of slave or child labour) and recommended responses, will be transparently open to scrutiny by competition regulators and will be specifically designed not to be anti-competitive.
2) A whistle blower service - The creation of a universal airline supplier sustainable procurement whistle-blower tip-off service. This will give whistle blowers in the airline supply chain with ethical concerns the ability to have their concerns investigated and rapidly solved without the need to go to the news media as their only option.
3) An airline sustainable procurement strategy advisory manual - Airline specific sustainable procurement best-practice strategy and policy guidelines including a ‘Supplier Code of Conduct’ template and advice on how best to tighten supplier contract terms around sustainable procurement considerations.
4) An advice service - A specialist sustainable procurement advice service from a pool of international sustainable procurement experts (such as Harvard University's Professor Michael Hiscox) which would be particularly relevant for educating senior airline executives and strategy implementation.
Note: Due to the airline industry’s history with competition regulators (namely the fallout following a major air freight cartel involving US, Japanese, European and Australian carriers in the early 2000’s) this initiative will work delicately, transparently and with solid legal advice to ensure that it only acts ethically and legally. In recent years, airline collaboration around the development of a sustainable aviation fuels industry has shown that airlines have learned from that experience and will now behave in an appropriate manner. It is worth noting that the World Trade Organization, through Article 20 of the GATT (an important multilateral agreement regulating many aspects of international trade through the WTO) permits countries and organizations to take any actions necessary, that may otherwise be perceived as being anti-competitive, in order “to protect human, animal or plant life or health” .
Preliminary Forecast Costs
Operating: US$250k p.a.
Project Duration: Ongoing