Ask Joanna

Procurement organizations are classically required to reduce costs. Most companies put procurement teams in place with the expectation that the value-add will largely consist of prices for goods and services going down.

What happens when the same company adopts sustainability measures as part of its corporate strategy?

Sustainable practices consider more than the typical measurements of quality, delivery and price. They factor in the effect on the broader world community as a whole – such as environmental impacts and social impacts. It’s not just about buying labels made of recycled paper. Its about looking across the supply chain at ways to make positive impact or lessen a negative one. Maybe its minimizing carbon footprint by choosing suppliers closer to your points of use and thus reducing inventory and transport. Maybe its identifying spend that can come from an economic empowerment initiative or a diverse supplier. It can also involve qualifying more suppliers as part of a risk mitigation initiative. Or managing demand, like creating an email marketing campaign that eliminates print and mail spend entirely.

When the decision process considers benefits for the wider world community, can procurement still succeed against traditional goals like cost reduction?

Yes, we can. If we act thoughtfully and keep that cost reduction goal in mind.

Let’s face it, changing a supply chain likely requires investment. The “buy local” approach to your raw material acquisition may result in closer but more expensive suppliers being chosen. Suppliers who work hard on environmental risk management are investing in technology and processes that their counterparts may not be. Higher investment costs could mean higher prices, at least initially.

But your firm and your suppliers must be profitable. So we need to be smart about sustainability and remember that all firms compete in markets where not every rival has adopted sustainability initiatives. We must be sure that we don’t take short sighted actions for social and environmental good that will ultimately harm our existing employees because sales decrease.

So what do we do? Some thoughts:

• Remember the need to stay competitive. We procurement professionals cannot allow the products or services our companies sell to be priced out of the market. One way to do that is to focus first on sustainability actions that have a clear economic benefit. Maybe you start “at home” first by changing the fleet to energy-efficient vehicles or embarking on an energy improvement investment program across your buildings. If carefully managed, this can create a buffer against other actions that may be the right thing to do but will cost more.
• Engage the supplier community. The right supplier from an environmental standpoint may be a higher cost option than you’d like. What kind of investment will they make to become more cost competitive?
• Remember to keep the whole supply chain in mind, including Tier 2 suppliers. Your cost mitigation solution may come from someone farther down the chain.

Every comprehensive sustainability initiative I’ve seen has required some leap of faith, some acceptance of a short term hit for a long term gain. In the end, reducing environmental impact and doing social good pays off. But my subset is limited to the companies I’ve worked with and presentations I’ve seen. What is your experience? We invite you to submit your thoughts on the subject and in a future column will publish your comments. Thanks in advance for sharing your ideas here and helping the rest of us learn about this important area.