Why is Sustainable Procurement Important?
For hundreds of years, most businesses focused primarily on generating profit and value for shareholders. However, at times, this objective has conflicted with other goals, such as being responsible stewards of our communities and environment. Indeed, almost every day, news reports highlight climate-driven droughts causing wildfires or mass ocean pollution disrupting critical ecosystems.
For over a decade, the Business Roundtable CEOs have worked to modernize the purpose of a corporation, showing that environmental sustainability and economic growth in the U.S. can go hand in hand. Their mandate challenges the old rule that a business exists solely to maximize profit. Ultimately, the Roundtable concluded that companies must also protect the environment “by embracing sustainable practices.”
Today, it is Procurement’s turn to lead change. Procurement serves as the control point in the organization, ensuring that third parties conduct business sustainably. In fact, a growing trend shows Chief Procurement Officers taking responsibility for enterprise-wide sustainability efforts.
The Basics of Procurement’s Influence on Sustainability:
First, let’s define procurement: Procurement’s goal at the most basic level is to obtain third party goods or services at the most competitive price and the best quality needed for the everyday functioning of the business.
Second, let’s define sustainability: Avoiding the depletion of natural resources to maintain an ecological balance.
Now, let’s bring it all together: Sustainable Procurement evaluates the impact a purchase or third party partnership has: on the environment, socially and economically rather than solely focusing on price point and quality.
Now more than ever, procurement professionals must re-examine their priorities in accordance with these three pillars:
Understanding the basics will help professionals better evaluate everyday purchasing decisions. However, to have an impact enterprise-wide, organizations must develop a more detailed and holistic approach.
Putting the Basics into Action: A 4-Phased Approach to Become a Sustainable Procurement Organization:
- Spend Analytics: First, analyze your trailing 12 months of spend and categorize your supply base by spend value, category, and transactional volume. Next, apply the Pareto principle and focus on the suppliers that account for the top 80% of total spend. As a helpful tip, start with quick-win categories that deliver sustainable impact without requiring significant resources or expenses.
- KPIs & Best Practices: Start by reviewing best practices for implementing sustainable operations. Then, define key metrics to evaluate your supply base, ensuring they align with corporate sustainability objectives. For example, standard metrics to measure supplier performance include annual carbon footprint, work travel emissions, number of deliveries, percentage of recyclable materials in products, usage of alternative energy, and plastic packaging usage.
- Collaboration: Collaboration with suppliers is a critical component of achieving sustainability goals. Businesses cannot meet these objectives without building strong partnerships with their suppliers.
Start by setting up a meeting with your partners to align on measurable sustainability metrics. Next, develop a baseline for measurement and create an action plan to improve the agreed-upon metrics. Finally, incorporate these metrics into supplier performance management programs and schedule regular reviews. For more guidance, check out our Supplier Performance Management blog.
- Sourcing: If a supplier cannot improve upon the metrics defined, it may be time to evaluate that relationship by conducting a sourcing event and introducing new suppliers that emphasize sustainability.
Driving Impact: How Procurement Leads Sustainable Growth
By grasping the fundamentals of Procurement’s role in sustainability and applying a four-phased, data-driven approach to supplier engagement, your organization can significantly reduce its environmental footprint, enhance brand reputation, and even unlock new opportunities for growth and increased sales.
Sources:
Samani, Nita. “What Is Sustainable Procurement.” Deskera, 1 Jan. 2021
