Can Procurement Align with Sustainability Goals?

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“Survival of the Fittest” is an instinct that motivates us to aspire to be the best. But, being the best by ethical means, best by being empathetic to society is more important than just being the best. This forces us to change our attitude from ‘survival of the fittest’ to ‘Co-Exist in the Eco-System’.

Today there are a good number of studies that show profits become more sustainable if the organizations focus on “People and Planet along with Profits”. Most of the CEOs and board members realize that it is equally important to contribute to society and the environment as is to deliver a good financial performance.

Procurement or Supply Management function of any organization should first align to the goals of the organization. This means it should be aligned to the promise of Corporate Social Responsibility.

Sustainable Procurement, Green Procurement, Socially Responsible Procurement — these give different thoughts in the minds of buyers and sourcing organizations. ‘Do these things exist?’, ‘What are these?’ & ‘How do we practice it?’ were some questions buyers asked few years back. Today the most complex confusion is if we practice these ideologies; Can we meet our goals? – the main one being “COST REDUCTION”. It’s an eminent perception that if we procure sustainable products and services they are not cost-competitive.

Hence this question “Can Procurement align with sustainability goals?”

By adding the word sustainable to our function ‘Procurement’ what do we change – in simple order it means have we taken care of our goals of contributing to the society (People) and our environment (Planet). This can co-exist along with our objective of reducing costs (improving Profits).

  1. Being Responsible to the society (People)

HR functions live up to the goal of “Equal Opportunity Employer.” Its time we incorporate something similar “Equal opportunity Supplier Relationships.” We have the tendency to disqualify the suppliers based on un-related parameters like size, investment in R&D, turnover, profitability and certain other technology parameters. We should try to have these parameters as minimum requirements and make them as “qualifiers” rather than “parameters of measurement.” This will enable us to give a chance to work with ‘Start-ups’. Use the tool of multi-vendor strategy to advantage, where we target to have vendors who are diversity suppliers.

Pay on time – It is our responsibility to pay suppliers on-time. DSO vs DPO – we have a passion to have DPO higher than DSO. Negative working capital should not be our goal, we are suppliers and customers in the larger supply chain. Being un-reasonable creates flux in our downstream supply chain. To meet this objective the downstream will make compromises that might lead to non-compliance. Example: Child labor or cheap non-compliant people practices deployed by our downstream suppliers to reduce costs for meeting the objective or late payment to suppliers who are suppliers to our suppliers. Having the right credit period and by paying on-time, we can reduce the cost buffers built-in which will improve the margins of the whole supply chain.

Supplier Diversity – Sourcing teams should not discriminate suppliers based on various factors and parameters which are based on size, industry, region, religion, type of ownership, etc. Rather sourcing team should be clear in communicating the success criteria of the RFP, which will enable more suppliers. Most of the sourcing teams fail on evaluating alternative proposals from suppliers which are more cost-effective.

 

Influence innovation rather than supporting innovation – Buyers should rise-up to be category experts who I call “Category Killers 😊” who will aid in New Product Development programs. With the advent of supplier collaboration in most of the Manufacturing and Product Life-Cycle Management platforms, it is the responsibility of buyers to bring the innovations of suppliers and the marketplace to have better products. Category experts will always find options that are sustainable and profitable.

  1. Being responsible to the Planet

Sourcing teams should think and perform differently to procure more sustainable products and services while reducing costs.

Look at the overall cost programs rather than transactions – Devising a strategy to increase the percentage of renewable energy in the overall energy procurement will reduce costs where we account for benefits like carbon-credits, taxes, etc. But if we focus on reducing costs of energy per unit from a defined source, we may not be able to reduce costs and not be sustainable as well.

Indigenous procurement – for a large part of direct and indirect materials, buyers should have an objective of promoting indigenous resourcing by means of vendor development. This will avoid moving products from large distances to the plant or place of operations. This saves carbon emissions. It will also promote local employment. This will also give a better view of cost-roll ups providing a better-negotiating advantage. Most buyers miss out on this as they just go by an old catalog of listed suppliers.

Cost of managing a large supplier base has given birth to a standard practice of reducing supplier base. Buyers get into a frenzy of achieving this by throwing suppliers out and not look for new suppliers. But with the advent of technology where the processes are paperless and highly automated, does it cost much to have many suppliers? Larger pool of suppliers provides more options to evaluate greener solutions and alternatives that could be cheaper. The idea of reducing suppliers is a huge deterrent to many initiatives in a procurement organization.

Subscribing to standards – make standards as default qualification criteria for various products and services. Example: All computing devices should be EPEAT certified. At the end of the year log your commitment by participating in the EPEAT purchasing awards to get a certificate for carbon credits. At the same time EPEAT certified products consume lesser electricity; record the savings on electricity as well. Measure and record the benefits of subscribing to standards on a TCO basis.

There could be endless ways to provide sustainable solutions and reduce costs. The key deterrent for the sourcing teams to be innovative are the scorecards that have a standard criterion like savings, supplier reduction and standardized delivery. CPOs should devise inclusive scorecards that focus on sustainability, promoting supplier diversity and promoting environment safety and compliances. This is quite like how a CEO has goals of contributing to society apart from financial performance.

Procurement organizations should make a shift of including ‘People and Planet’ in their sourcing strategy to get the right Price.

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