Understanding Suppliers in the B Impact Assessment

Because of the cross-cutting nature of managing a company’s supply chain impact, questions regarding suppliers are included in both the Community Impact Area and Environment Impact Area. The focus of general supply chain management is, however, centered in the Supply Chain Management goal in Community, recognizing that both suppliers themselves (and the impact a company has on them), and their workforces, are members of the broader global community in which a business operates and impacts. 

For the purposes of the B Impact Assessment (BIA), suppliers are vendors of products or services that account for your company’s expenses, including expenses within a company’s cost of goods sold. Suppliers' expenses (in the BIA) exclude pay-rolled salaries and bonuses, rent, and utility costs (water/energy/gas//internet/garbage collection, etc.). 

Costs from labor benefits (e.g. private health insurance supplier), however, should be included. Independent contractors that are not considered workers (do not work indefinitely or greater than 20 hours per week indefinitely or for greater than a 6 month period) should be included. Outsourced staffing service providers are also considered suppliers. 

While the notion of supply chain impact is often associated with companies who buy and sell physical products, all businesses, including service companies, have suppliers, and thus can have a positive impact on their supply chain through management practices. Service companies might have suppliers that include graphic designers, office supplies, public relations, or independent contractors/freelancers. While service companies are still asked about their suppliers in the BIA, however, these questions are less detailed for their circumstances and less heavily weighted in your company’s overall score to recognize that the impact is not as material as other sectors. 

Supplier Terms

Significant Suppliers are vendors of products or services who collectively represent approximately 80% of your company's purchases in currency terms (excluding salaries on payroll and bonuses, rent, utilities, and taxes). Significant Suppliers can include both suppliers of physical items and service providers like accountants and web designers. 

For Service companies with 0-9 FTE workers, Significant Suppliers can be considered as the 5 largest suppliers in currency terms. If your organization is a cooperative, members are not considered as suppliers. 

Local suppliers are owned and operated within the same community of your company or the relevant facilities in which it is used. While the size and distance of a community may vary by context, they should generally be based on a small-scale economically and culturally connected area like a metropolitan area, or in rural settings the county, as well as its surrounding vicinities (usually within 50 miles). This does not include a local branch of a company headquartered elsewhere.

Independent suppliers are privately owned (i.e. not publicly traded), are not a franchise of another company, and are not a wholly- or majority-owned subsidiary of another company.

Individual independent contractors may count as suppliers in the B Impact Assessment. Individual independent contractors who work greater than 20 hours per week for your company over an indefinite period or longer than 6 months count toward your number of workers and should be considered in the scope of workers-related questions in the Workers Impact Area.
Only Individual independent contractors outside these conditions should be regarded as suppliers in the B Impact Assessment.

Outsourced staffing services are functions that a company outsources to an external third party instead of using the company's own employees. Therefore, the workers are not directly employed by the company to which they provide their services. 

In some cases, it might not be straightforward to identify if a company should include certain suppliers as outsourced staffing service providers. Outsourced staffing services fill internal operational functions that a company could hire employees to perform instead of using a multi-party employment relationship. It refers exclusively to staff, therefore usually the service does not involve the provision or use of other physical assets from the supplier (e.g., using a contract manufacturer that owns its own facilities and equipment would not be considered an outsourced staffing service). Typically, workers employed by outsourced staffing providers are dedicated almost exclusively or mainly to the company to which they provide their services. 

Examples: 

• Customer support services outsourced to an external provider; 


• Temporary jobs filled by an agency (where the temporary workers are employed by the agency and not directly by the company); 


• Factory staff hired through a third-party staffing agency that works at your company's own manufacturing facilities; 


• Everyday cleaning and security services outsourced to an external provider;

In the case of workers that are officially on an outsourcing agency payroll (e.g., employer of record or HR back-office that manages administrative functions like payroll and benefits), but are considered part of the company staff (i.e., the company does the recruiting, performance evaluations, career development, etc.), the workers should be count toward the total number of workers and be evaluated within the Workers Impact Area. See Click Defining the Scope of and Completing the Workers Impact Area to learn more about how to define the scope of workers in your company for completing the B Impact Assessment.

Cost Terms

Cost of Goods Sold (COGS) typically appear on the financial statements of your company. The below definition provides an indication of which costs may be included in the calculation: 
Cost of Goods Sold (COGS) represents the direct costs attributable to the production of goods sold by a company. It includes various costs directly associated with the production or acquisition of the goods that a company sells during a specific period. These costs typically include:
- Direct materials 
- Direct costs of production
- Manufacturing overhead
- Direct labor (COGS does not include salaries and other general and administrative expenses; however, certain types of labor costs can be included in COGS, provided that they can be directly associated with specific sales. For example, a company that uses contractors to generate revenues might pay those contractors a commission based on the price charged to the customer. In that scenario, the commission earned by the contractors might be included in the company’s COGS, since that labor cost is directly connected to the revenues being generated.)
- Freight and shipping costs (but not the cost of shipping products to customers)
Source: Investopedia

Total cost of materials include spending on all physical raw materials, components and/or finished products and packaging, for products that the company sells. The transformation (e.g. manufacturing) and transportation costs are excluded.
The total costs of materials must include supplier expenses for all products that the company sells.
The financial concept that captures the inclusion of transformation (e.g. manufacturing) and transportation costs is Cost of Goods Sold (COGS).