Procurement’s Role in

Sustainable Business

Andy Richards

General Manager

Procurement

Air New Zealand25 February 2016

Private & confidential

• Air NZ Overview

• Sustainability at Air New Zealand and Supercharging New Zealand’s success

• Procurement’s role to deliver sustainable business outcomes

• Leveraging the value - From “good to great”

• How we “do” sustainable procurement

• Supplier Code of Conduct, its Application and Progress & Learning

• Where to next? Beyond the Supplier Code of Conduct

• Questions

2

Agenda

Private & confidential 3

Air New Zealand Overview

ATW 2016

Eco-Airline of the Year

11,000

Air New

Zealanders

Flying for

75 Years

$5 billion Operating

Revenue

14m +Passengers

carried in FY15

Over

100Aircraft

$496mFY15 normalised

earnings

Private & confidential

• Embedded in corporate strategy, “Go Beyond”

• Launch of Sustainability Framework in September 2015

• Social

• Environmental

• Economic

• Broad consultation with our Sustainability Panel

& industry bodies

4

Sustainability at Air New Zealand

Private & confidential 5

Private & confidential

• Procurement at Air New Zealand

• >5,000 Suppliers

• All areas of the business - from stationery through to jet engines

• Underpinned by four key value drivers

• Commercial Performance

• Sustainability

• Supplier Enabled Innovation

• Operational Excellence

6

Procurement’s role to deliver sustainable business outcomes

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Leveraging the value - From “good to great”

Commercial

Innovation

Sustainability

Operational Excellence

Value

Category Strategy Market EngagementSupplier

Relationship Management

Additional

Value

Creation

Private & confidential

Sustainable Procurement seeks to achieve the appropriate balance between the three

pillars of our Sustainability Framework, i.e. environmental, social and economic.

8

How we “do” sustainable procurement

Sustainable Procurement

Environmental

impact on natural inputs in the manufacture, use and

disposal of goods

Social

community impact, labour conditions in the manufacture

of our goods

Economic

whole of life costs - cost of operations and maintenance

over the life of the goods

enhanced customer experience due to greater

“value”

Private & confidential

• Our goal: to positively influence the supply chain

• Our approach: Identifying opportunities and working with

our suppliers to achieve a common vision

• A way of delivering business objectives by encouraging

innovation and continuous improvement

• Supports a consistent standard across industries, setting

the same level of expectations

9

Supplier Code of Conduct - What

Private & confidential

• Labour and human rights

• Health and safety

• Environmental sustainability

• Ethical business

• Security

• Information security

• Emergency prevention, preparedness, response and business continuity

• Commercial sustainability

10

Supplier Code of Conduct Standards

http://www.airnewzealand.co.nz/sustainable-sourcing

Private & confidential

Supplier Code of Conduct - How

• We were guided by our Sustainability Advisory Panel – internationally renowned

group of external subject matter experts providing advice and guidance on all aspects

of our sustainability journey - chaired by Sir Jonathon Porritt

• Partner of Forum for the Future - international tools, resources and sustainability

expertise

• Collaborate with other organisations and share framework

• Incorporate international and recognised standards (UN Global Compact)

• Pilot internally with direct sourcing (2-year programme)

11

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Application

No. of Suppliers

materiality / risk

FY16 80% spend

(~350 suppliers)

FY17-19 20% spend

(~4,650 suppliers)

Private & confidential

Application

1. SCoCcommunicated

2. Engaged –positive

assurance

3. Assessed 4. Documented5. Non-

compliance6. Ongoing

BAU

Light

Moderate

Full

CI

Scorecard

Audit

IF

required

13

Higher

Risk

Lower

Risk

Corrective Action

Private & confidential

• It is a challenge – but rewarding

• Continuous improvement demonstrated

• Suppliers recognise it’s “good business”; reception has been positive

• Alignment is critical

• Business / Corporate strategy

• Standardised approach with industry leaders

• Forum for the Future (best practice)

• Sustainable Business Network (SBN) / Sustainable Business Council (SBC) peers / networks

• Requires focus / resources

• Senior leader / management support and advocacy

• Share the IP; we are on the journey together of industry transformation! Not a competitive

differentiator but a shared necessity

14

Progress & Learning

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Where to Next?Beyond the Supplier Code of Conduct

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Where to Next?Beyond the Supplier Code of Conduct

• Supplier Relationship Management

• Drive the value: Commercial Performance, Sustainability, Supplier Enabled Innovation,

Operational Excellence

• Partnerships with key suppliers

• Joint Business Plans – shared objectives, including sustainability

• Supercharging New Zealand’s success – some examples

• Villa Maria and Wine consultants (Trade and Enterprise);

• Energy reduction, Renewable energy, ground fleet electrification (Carbon);

• Uniform recycling and working with Altus (Our Communities)

• Taking a leadership role – “be the change you want to see around you”