Realising the benefits of sustainable procurement
Written by: Gary Waylett, CEO, Eclipse Group
Demands for demonstrable sustainability strategies are beginning to filter into many new business relationships. And, with the right approach, sustainability programmes can also result in a cost reduction – from consolidating suppliers and reducing deliveries to removing paper-based processes.
Gary Waylett, CEO, The Eclipse Group, outlines the role of excellent procurement practices not only to ensure adherence to sustainable procurement practices but also to deliver transparency; enabling businesses to track activity and demonstrate sustainability to customers, suppliers and business partners.
Since the onset of the recession, environmental considerations and sustainable business strategies have taken a back seat to the focus on driving down costs. However, for many organisations, sustainable procurement is once again becoming an issue – not least as growing numbers recognise the importance of sound environmental practice to improve corporate image. Indeed, as the recent furore over corporate tax avoidance has revealed, in an era of real-time, social network-enabled global communication, perceptions of poor business practice can have an immediate and dramatic impact on revenue and profitability.
Of course, taking a sustainable approach to procurement requires corporate upheaval; existing supplier relationships need to be reassessed based on each supplier’s green track record; whilst staff will also experience a degree of cultural change.
The challenge for organisations is to balance sustainable strategies against staff experience and productivity: how successful, for example, is a strategy that demands staff always take the train in preference to a plane if the flight would take less than four hours? How can the company balance the value of reducing its carbon emissions against the negative impact on staff productivity and morale? Rather than basing decisions primarily on price, quality and time, sustainable procurement considers the whole life cost of goods and the potential benefit/impact to both the business, society and the economy, whilst minimising damage to the environment.
The good news is that environmentally sound does not necessarily equal more expensive. Indeed, a 2010 study by PwC and EcoVadis in collaboration with the INSEAD Social Innovation Center on the value of sustainable procurement practices revealed benefits in three key areas: cost reduction, risk reduction and revenue growth. In addition to reducing carbon emissions, cutting waste, and lowering energy and fuel consumption, sustainable procurement can also improve health outcomes, deliver more skills, apprenticeships and training, even opportunities for small businesses.
So how does sustainable procurement differ to standard procurement good practice? In addition to verifying the eco-claims of suppliers, procurement strategies must also take into account travel/delivery requirements and packaging and must include opportunities to consolidate orders to reduce unnecessary environmental impact. Companies can also monitor procurement practice – how many contracts are awarded to smaller businesses, for example.
However, one of the biggest barriers to achieving sustainable procurement today is a lack of coherent corporate procedures, systems and approaches. Organisations require supply chain visibility and excellent purchasing control. There is no point in an organisation creating a strong procurement strategy that reflects corporate sustainability goals if employees are able to circumvent procurement controls and the business has no way of tracking/measuring the benefits of sustainability.
In addition, procurement best practice is still relatively immature in this area. There are few sustainable accreditations – aside from those that apply within the food industry – that provide organisations with an easy way of vetting the credibility of potential suppliers. The onus is therefore on each organisation to create its own standards and expectations.
For those organisations that do not have a robust procurement process or purchasing system in place, this must be the first step. Even without considering the sustainability angle, the process of imposing procurement control will inevitably both reduce costs and achieve a far more sustainable procurement model. From supplier consolidation to the reduction of orders - and hence deliveries - and the replacement of paper-based payment processes, including the attendant print and stationery costs, with far more streamlined electronic processes, companies can achieve immediate financial benefits.
Furthermore, with these processes in place, organisations can begin to explore other opportunities for improving sustainability – such as a thorough supplier review. A detailed questionnaire can request information regarding packaging policies, delivery methods and the existence of relevant green accreditations. In addition to flagging up the most sustainable suppliers, this process will also provide an opportunity to renegotiate contracts with suppliers, offering further opportunities for cost savings.
Critically, the procurement system can begin to collect a raft of information that can be analysed to assess the best way forward. Analysis of trends in purchasing behaviour – such as the reduction in orders and drop in delivery numbers – can also be used to demonstrate the improved performance to stakeholders, from investors to potential customers and partners.
Given the environmental targets set by both the EU and UK government, there is no doubt the emphasis on sustainable procurement will increase over the next few years. For most organisations, the concept remains relatively immature and, realistically, this is not a cultural shift that can be achieved overnight. However, the introduction of a robust procurement process and system can deliver value today. As growing numbers of organisations put pressure on the supply chain to demonstrate a sustainable strategy, those with good processes in place and the ability to analyse trends in behaviour will be well placed to gain competitive advantage and reinforce corporate reputation.