Procurement is changing, which means the way organisations engage with their suppliers, manage their supplier relationships, and make their purchasing decisions is changing. There are multiple factors that contribute to this, such as more global supply chains, perceived efficiencies through digitisation, and the changing way in which services are delivered.
However, the focus on managing supply chains more responsibly, or sustainably, is something that is relevant to all current and future procurement and supplier management activities. Sustainability is a key part of the evolution of procurement and therefore needs to be fully understood and implemented.
According to the 2023 Global Chief Procurement Officer Survey conducted by Deloitte, Environmental, Social, and Governance (ESG) priorities have emerged as a significant focus for procurement executives worldwide, ranking #2 on their priority list. This rise in ESG prominence is a response to mounting regulatory and stakeholder pressures, compelling companies to address sustainability factors across their value chains.
Supply chain responsibility
An estimated 70% of international trade today involves global value chains (GVCs), as services, raw materials, parts, and components cross borders – often numerous times. Once incorporated into final products they are shipped to consumers all over the world. This makes it crucial that organisations respond to an increased level of supply chain legislation, related stakeholder expectations and resultant supply chain risk. Companies are now operating in a world where company responsibility extends beyond the Environmental, Social and Governance (ESG) challenges of its own operations, and into far-reaching global supply chains.
As a result, companies are increasingly seeking to create more sustainable supply chains. This is achieved by improving ESG performance throughout the supply chain and in turn seeking to reduce costs, increase labour productivity, improve current processes, innovate and differentiate, as well as have a positive impact on society. All these factors tend to fall under the remit of different departments within a business, which has led to the evolution of the ‘sustainable procurement’ professional.
This shift in the necessity for a ‘sustainable procurement’ function represents one of the greatest opportunities for business. But how does this change impact businesses? And are businesses currently structured in an appropriate way to take advantage of the opportunities available?
Sustainability and procurement
A key challenge in aligning sustainability and procurement functions and practices is that until recently organisations have not necessarily been structured in such a way that facilitates alignment. The most obvious example of this is the difficulty with which organisations assign responsibility for tackling their supply chain. Even if creating more responsible supplier practices is something that is viewed as important by senior stakeholders, the roles at individual and department levels do not necessarily reflect this.
The most natural area of a business to address supply chain risk and compliance is often seen as procurement, as this is where the relationships with suppliers naturally exist. However, traditionally the success of a procurement function is determined by value and service delivery, meaning anything that diverges from this can be misunderstood or treated with scepticism.
Conversely, the sustainability or legal and risk teams within an organisation are well placed from a knowledge perspective to assess suppliers on relevant metrics, gauge compliance and satisfy reporting requirements. They are not however best placed to leverage supplier relationships or apply their knowledge to the supplier selection processes.
An integrated approach
The increased scrutiny on supply chains represents operational, financial, regulatory and reputational risks to an organisation. Businesses tend to be risk driven, and when faced with such risks involve the relevant operational and knowledge bases within the company to address them.
Addressing supply chain risk, and in turn, creating more responsible supply chains should be no different. An integrated approach is required to embed sustainability into the operations of the company. To achieve this the criteria upon which suppliers are assessed need to combine both sustainability and traditional metrics, such as price and quality. This more holistic approach should not just be applied to the supplier selection process, but also form an integral part of ongoing supplier assessment and performance review.
How to successfully adopt a more integrated approach depends on the structure of the organisation. Creating a sustainable procurement function that sits between sustainability and procurement, providing a link between the subject matter experts, is just one way. The key however, is that the lines of communication are opened between the appropriate areas of the business to ensure good governance practices and positive environmental, social and economic impacts, throughout the entire procurement and supplier management process.
Greenstone provides software and services that enable sustainable procurement and responsible supply chains. Greenstone’s SupplierPortal supply chain sustainability software solution enables the collection, management and analysis of supplier data (including carbon emissions calculation). It consolidates supplier networks in one secure and easy to use platform and provides companies with a comprehensive supplier management solution that can be highly tailored to suit requirements.
Links:
https://www2.deloitte.com/us/en/pages/operations/articles/procurement-strategy.html
https://www.oecd.org/trade/topics/global-value-chains-and-trade/
