Sustainable Procurement: What, Why, and How
The title of Chief Procurement Officer is common among procurement leaders at many companies. As more organizations take into account social impact into their overall mission, "procurement" could be replaced by a more profound sense of purpose through a commitment to sustainability.
To transition their culture to focus on their purpose, companies will be looking for partners and suppliers that share this mission. Procurement plays a leading role in this transformation to align the priorities in the supplier communities with their customers.
ISO 20400 defines sustainable procurement as "procurement that has the most positive environmental, social and economic impacts possible over the entire life cycle."
Research shows that corporate responsibility not only encompasses recognized sustainability objectives but also delivers financial value. Corporate responsibility can take many forms, some of which are driven by national and international regulations, including reduction of greenhouse gas emissions, elimination of slave labor, reducing plastics use, water conservation, use of renewable energy sources and others.
Through sustainable procurement, organizations positively impact the economic, social and environmental development of communities, countries and regions. Customers, suppliers and the broader community all benefit from embedding sustainability principles in the supply chain, according to the 2019 edition of Building The Business Case For Sustainable Procurement In Australia.
Even small companies have procurement supply chains that literally circle the globe. So developing and enforcing standards can have a truly international impact. Because the relationship with the company's vendors resides with procurement, establishing and enforcing benchmarks in the supply chain falls to this department.
Chief procurement officers may control up to 80 percent of a company's spend, which means the office is in a commanding position to define and achieve sustainability targets. Also, on average, an organization spends about 80 percent of its budget, with only 6 percent of its supplier base. Procurement officers have the leverage to engage their suppliers in embracing sustainable sourcing practices. They can have an impact far beyond the reach of their four walls through the supply chain and life cycle management of their products.
While detractors may argue that sustainable procurement costs more, that doesn't have to be the case. Sustainable procurement must be embedded into traditional procurement processes that ensure the supply chain delivers excellent value for items that are fit for the purpose for which they are purchased. One of the critical philosophies of sustainable procurement is taking into account the entire life cycle cost of the product, including social and environmental risks and benefits as well as initial purchase costs. Research shows that a cheaper product is often more expensive in the long-term when all costs and benefits are factored into the equation. Sustainable procurement leaders improve their brand reputation, develop stronger and more reliable relationships with suppliers, and boost sales through innovative, sustainable products and services.
Authentically engaging in sustainable procurement takes diligence and foresight. It shouldn't be about ticking boxes on a list; the goal should be to effect tangible change in the way business is done. For example, if a company detects goods produced by enslaved people in the supply chain, the easy response is to stop doing business with those suppliers. The responsible path and the most difficult is to tackle the issue. " What you do is mitigate the impact by creating standards that become the norm," said Padmini Ranganathan, vice president of Products and Innovation at SAP in Forbes.com. "Integrating supplier risk assessment into the procurement process enables companies to address business challenges and take action using reliable data."
A sustainable procurement strategy must be based on collaboration so that all stakeholders working toward the same goals. Those companies that have succeeded credit an alignment between procurement and the company's core vision for being a leader not only in its market space but among all stakeholders. Sustainability leaders often focus on a vision such as environmental sustainability or reaching underserved communities. Procurement strategies must embody that vision.
Is your organization ready to transition from procurement to purpose? Sustainable procurement trends and more will be the focus at ProcureCon Indirect East 2020, taking place at the Omni Orlando Resort at ChampionsGate in Orlando, Florida, in March. Download the agenda today for more information and insights