Raising performance together - Westpac Case Study

Founded more than two centuries ago as the Bank of New South Wales, Westpac Banking Corporation is one of Australia’s oldest companies .It was initially established in 1817 to support and strengthen the nation’s emerging economy and then expanded rapidly during the gold rush of the 1850s. At that time, staff and gold-buying agents would travel by horseback to reach remote locations. Some even lived among the miners and offered their services from ‘tent branches’.

Today more than 36,000 employees serve around13 million personal, business and corporate customers across Australia, New Zealand and the Pacific Islands, with services including accounts, loans, investments, insurance, credit cards and more.

As the company continues to adapt and change, so too does procurement. CPO Brian Hagen joined the business two years ago and says the function has been very much in “head-down driving-change-mode” as it undergoes a digital and operational transformation.

Supplier management is embedded in point two of procurement’s four-point vision for the function with the aim to ‘connect preferred and diverse suppliers with the right opportunities and buyers’. While work continues on establishing an overall SRM structure and strategy, procurement is already using its management of suppliers to support Westpac with two of its strategic imperatives: sustainability and risk management. Centre-led approach Westpac’s procurement function follows a centre-led strategy where it sets the policy and framework for the business to safely procure goods and services of around $4.6bn annually, leveraging its economies of scale.

The supporting operating model is a front, middle and back-office structure of 124 resources. The front office is the primary engagement point for the business’ category management and sourcing needs; the middle office supports the source-to-pay process; and the back office covers systems, analytics and reporting. “We are continually assessing and applying strategies to further digitise and apply efficiencies to drive more value for the business,” says Hagen. “Under a centre-led model, procurement partners heavily with the business and other stakeholders such as legal, risk and finance to ensure we are collectively vested in the problems we are trying to solve for our customers.”

The procurement function doesn’t manage supplier relationships, which instead sit within the business. Procurement provides expertise and a framework to help the company manage its own relationships. “We provide the foundation for relationship management and try to make it simple to partner with us, ”says Hagen.

“Often we’ve looked at our overall response to an issue, such as climate change or human rights, and recognise we need our suppliers’ help.”

“Our north star,” he says, “is that group procurement will be the first choice for our people and suppliers because we make it easy to partner with; to do business safely; and to succeed.”

Building resilience

Like many financial institutions, Westpac works in a highly regulated environment, which means much of its focus on suppliers covers risk and resilience.

“We work with suppliers and teams directly on anything that requires action, be it modern slavery, environmental impact, inclusion,” says Hagen. “Our minimum standards go far beyond current legislation: We don’t only assess the risk, we take action on it.”

Procurement’s work links directly to a strategic pillar of the bank, sustainability, and to Westpac Group’s overall purpose: to “create better futures together”.

And now additional incoming rules are requiring Hagen’s team, as well as the wider business, to give risk management even greater attention.

Any company regulated by the Australian Prudential Regulation Authority (APRA), which is responsible for ensuring that the country’s financial system is stable, competitive and efficient, must soon adhere to a new standard for operational risk management. The Prudential Standard CPS 230, which comes into force in July 2025, aims to ensure that businesses are resilient to operational risks and disruptions.

“It’s a massive shift hitting Australia in terms of the obligations for banks around business resilience and the role service providers play,” says Hagen. “While we have always governed our supplier relationships to regulatory standards, we are going to go deeper into the end-to-end supply chain. That means beyond our direct supplier relationships to those relationships our suppliers have (we call this 4th party) in order to provide critical services, which if interrupted could impact the bank’s critical operations.”

Key requirements of the standard are for companies to:

• identify, assess and manage operational risks, with effective internal controls, monitoring and remediation

• be able to continue to deliver critical operations within tolerance levels through severe disruptions, with a credible business continuity plan

• effectively manage the risks associated with service providers, with a comprehensive service provider management policy, formal agreements and robust monitoring.

ESG risk management

As a result of procurement’s close working relationships with suppliers, strides have already particularly been made in the areas of environmental, social and governance (ESG) risk management, supplier diversity, and sustainability partnerships.

Westpac suppliers are considered according to a number of risk classes, one of which is responsible sourcing. Part of the company’s commitment to its customers and their communities means ensuring Westpac is conscious of any risks its supply chain might represent in terms of environmental and/or social harm. As such, it’s important the bank assesses, and actively manages, any such risks with its suppliers. It does this in a number of ways. The first step is a self-assessment. These have so far focused on the Industries, countries and business practices with the highest inherent risks. Suppliers are judged against predetermined benchmarks to identify any areas where the bank thinks there could be shortcomings.

Where issues and gaps are identified, Hagen says the company prefers to work with that supplier to make improvements. The team that oversees responsible sourcing works with category managers, the business, and the suppliers to drive action plans to bring about change.

“Simply saying: ‘You don’t measure up, out you go’ does nothing to reduce the risk of harm to vulnerable groups,” says Hagen. “Taking a cooperative approach means thatthe risk is reduced across the whole operation of that supplier, not just for the parts of their business that deal with Westpac.”

It began this work in early 2022 as one of the first steps in its digital transformation. It has since assessed more 1,100 suppliers and closed more than 800 actions with them.

It has also partnered with some suppliers to conduct deeper reviews into their suppliers. Where it has strong, trusting relationships with its tier one partners, it has been able to more readily explore potential risks at the second tier and beyond. “We are using some technology to support these endeavours but it still relies on building trust and having common goals. We’re still working on this and it’s going to continue to rely on relationships, but we’re definitely making progress.”

Supplier Days: Communicating plans and preferences

Procurement brings together its top 100 suppliers at an annual Supplier Partner Day to update them on the bank’s strategy and key things it is doing. “If we’re transforming the way we do business with suppliers – such as our move to digitise the purchasing and procurement process – we use this forum to communicate directly. We’ll also update them on areas like our sustainability and diversity pillars, ”says Hagen.

He says the event gives suppliers content and context so they can pitch to Westpac at the right level for the right things. He also uses it to outline the dos and don’ts for a healthy relationship and reminds suppliers how best to engage with the business. The event is followed by networking.

Procurement also works closely with Westpac’s technology division to put on three technology-specific partner days to ensure suppliers are well informed. “If you put time into having the right framework, with the right partners and align them to the right people, you can collectively raise their performance and your own.”

“If you put time into having the right framework, with the right partners and align them to the right people, you can collectively raise their performance and your own.”

Supplier diversity

Another key part of Westpac’s approach to sustainability is to help address inequalities and ensure opportunities are more evenly spread. “We can all recognise that there are sections of our society that have historically been denied full economic participation,” says Hagen. “We see that as a chance to actively seek out supplier partners that can first and foremost meet our service requirements, but that are also doing more to create economic equality.” He says this can be as simple as working with businesses owned by Indigenous Australians (who are in turn more likely to employ Indigenous staff) or social enterprises that use profits to finance social programmes and bring about positive community change. It also recognises and partners with lots of other businesses who are doing good in the community.

Making progress in this area requires building strong relationships internally and externally. “It’s as much about bringing the business along on the journey as it is getting the supplier ready to work with a big, heavily regulated business like ours,” he says. “The key ingredient is trust – suppliers have to trust that they are going to get a fair go, and the business needs to have faith that the supplier can deliver on its promises.”

To ensure it is making progress, procurement measures itself against aspirational annual targets, which are reported at the executive level. In markets where options are slim, it encourages its non-diverse suppliers to find ways to incorporate diverse providers into their service delivery. Hagen says this work has achieved a steady trend of increasing its spend with diverse suppliers. He recognises this is an easy metric to track, while “the true measure of success” – the impact on target communities or groups – is harder to determine because it varies from supplier to supplier, and job to job. “We’ll keep measuring spend and aiming to grow there, but we find the stories that accompany the spend are what gets people excited.”

He says one great example of this is its main uniform supplier working with a small not-for-profit that employs refugee women and gives them a start in the Australian workforce. “Developing that relationship between the two parties has given that business the experience of dealing with large corporates, which gives them some scale to expand their social programme. In terms of dollars it’s small, but in terms of impact to that business, it’s huge.” He says because many of these enterprises operate with a social or environmental outcome in mind, partnerships typically deliver on multiple levels. He cites the example of an Indigenous-owned business that removes and repurposes Westpac’s unneeded office furniture. “The work they do for us gives them an opportunity to employ more Indigenous people, reduces our waste-to-landfill, and provides much needed equipment to community support operations.” Despite the extra work and energy required to set up such arrangements, the payoff in employee engagement is fantastic, he says. “There’s a feel-good factor that is really noticeable.”

Sustainability Partner

For some supplier relationships, the opportunities to partner are multi level and more complex, with no one way to make something work.

Hagen says this is especially the case when it comes to paper or plastic or emissions reduction. “As a consumer, rather than a producer, we obviously need to work closely with suppliers to make change.” For instance, he says, a supplier risk assessment may have highlighted an issue they have in, for example, environmental management, which requires them to make changes to their products. Or, it could be an engagement about tier two diverse suppliers that helps them recognise they can be more thoughtful about where they spend their money. “Often we’ve looked at our overall response to an issue, such as climate change or human rights, and recognise that we need our suppliers’ help. In other cases, we are enabling our suppliers’ own programmes.”

The common theme is about fostering relationships. “We have to get on the same page about what we want to achieve before any meaningful steps can be taken. It’s important we are consistent in what we ask for, that we go at a pace that everyone can manage, and resource it appropriately.” Westpac has published targets to reduce its Scope 3 emissions which have so far been tracking to plan but require ongoing attention. It has also made progress on some specific projects. For instance, all the plastic in its credit and debit cards is now 100% recycled, and it is working with a third party on up-cycling obsolete uniforms. In November 2023, it released its first Natural Capital Position Statement, which includes an aim to work with key suppliers on reducing deforestation.

The approach always has to be ‘working together’, says Hagen, which will sometimes require a shift in priorities, or a difficult conversation about cost. “If we’ve done the groundwork of building trust through our words and actions – and being open to hearing suppliers’ needs – we can normally find a path.”

Key facts:

• Westpac Foundation has helped to create 7,204 jobs since 2015

• A tier 2 supplier deep dive is helping to reduce modern slavery risks

• 80% of Westpac’s energy portfolio is renewable