Making Sustainable Procurement Work
Now, more than ever, it’s important for the profession to put sustainable procurement at the front and center of business.AYA images/ Shutterstock
Daniel Perry, Global Alliances Director – Ecovadis believes that the role of procurement is evolving. Evolving from being “primarily focused on cost savings and operational efficiency, to a more strategic and central player in risk management and value creation.”
Now, more than ever, it’s important for the profession to put sustainable procurement at the front and center of business.
“Stakeholders, including end consumers, B2B customers, shareholders etc. are demanding that businesses take responsibility for practices all the way into their value chain. They’re driving transparency and, ultimately, a positive impact by working with high-integrity partners. And it’s procurement teams that are in the ideal place to meet these higher stakeholder demands.”
“The power of the spend that procurement controls (often between 50-70 per cent of turnover) puts procurement at the crossroads of not only risk management and brand protection, but also as internal partners for driving value creation. Of course they want the value chain to be resilient – to avoid interruptions or damage to their company’s reputation – but they also want to provide supplier-driven innovation and support for transformative business models and offerings. –
“Procurement teams focused on sustainability do this by selecting and working with the best suppliers in a way that goes far beyond price, quality and delivery, to include performance around environmental, social and labor and ethics practices.”
The value-add of sustainability programs
It’s all too common to hear an organisation defend their lack of commitment and lack effort in this space. “It’s too expensive”, “it’s too difficult”, “it’s too time consuming” or “we’re just not ready” are typical refrains.
“The benefits and ROI of sustainability include not only operational savings, but strategic outcomes. A well-developed Sustainability and Corporate Social Responsibility (CSR) program that is integrated into the company values, and is driven with executive support, can drive key business performance metrics such as:
- Sales and reputation: A burgeoning wave of consumer sentiment is cresting. More and more customers are comparing the sustainability details of products and services, and it is changing their purchase decisions. Companies making the right sustainability investments can realise a possible increase in revenue of up to 20 per cent.
- Employee morale and productivity: Sustainability programs can do wonders to improve employee satisfaction, reducing a company’s staff turnover rate by up to 50 per cent and increasing employee productivity by up to 13 per cent. Integrating CSR practices in your company and brand also has a hugely positive impact on recruiting. If your company has a better sustainability reputation, it often generates more interest from applicants, allowing you to be more selective and choose higher quality candidates.
- Increased market value: Sustainability programs can increase a company’s market value by up to 6 per cent.
- Innovation: With more power comes more responsibility…and more options. Many companies are pursuing sustainable procurement strategies in order to find innovative suppliers that will help them differentiate their product or service offering.
Dupont, for example, changed its innovation strategy to embrace a “sustainable growth” mission, saying “If we bring the solutions to the market sooner than our competitors do, we will be more successful in continuing to grow the company.”
Making sustainable procurement work
“One of the biggest challenges companies face in sustainable procurement is measuring and understanding current performance within their supply base, in the context of global standards and benchmarks. It can also be challenging to engage suppliers as collaborators in their mission. And to get there requires a mix of expertise, the right technology, change management and process integration backed by executive commitment.
“First, the organisation needs a clear mandate from the executive team, which makes the sustainable procurement program an integral part of the function’s mission and values. This is embodied by investing in change management and communication programs and taking steps towards implementation and company-wide adoption.
“Success also requires reliable, agreed-upon indicators for sustainability performance that both buyers and suppliers can understand, and that are actionable. Many companies collect lots of unvalidated data, but buyers rarely have the CSR expertise or time to validate or interpret it – and this is where a standardised, evidence-based, and analyst-generated rating – like EcoVadis provides – comes into play.
“Additionally, CSR criteria and performance indicators must be integrated across the procurement function and include the use of clear and enforceable codes of conduct, contract clauses and tender criteria. Buyers need to believe in and leverage these criteria in their supplier development and sourcing activities., And, procurement groups should agree on, measure and reward on the critical CSR / sustainability KPIs in the same way they track cost savings or other key metrics. These all drive adoption in the organisation and make sustainability inherent to the procurement role.
“Increasing the benefits to a single company, a mutualised platform can make it much easier for suppliers to share the same scorecard results with all their customers, enhancing transparency and collaboration to drive network effects for maximum improvement and impact.”
Daniel Perry will be speaking at Big Ideas Chicago on 27th September. To hear more from him and to follow the action LIVE from wherever you are in the world, register as a digital delegate (it’s free!)
Read more on this subject from EcoVadis in Beyond Compliance – The 5 Pillars of sustainable procurement value creation