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12 Nov 18

Sustainability in procurement – an integrated approach

victor-benard-570384-unsplash-web-1Procurement 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 key part of the evolution of procurement, and therefore needs to be fully understood and implemented.

In this 3-part series, we will be introducing sustainable procurement, and how organisations can integrate sustainability into their procurement processes. This series will consist of:

 

Supply chain responsibility

With an estimated 80% of global trade passing through supply chains[i], it is now 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 corporate social responsibility (CSR) and environmental 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 environmental, social and governance (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 having a positive impact upon 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 level 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.

Reference:
[i] UNCTAD (2013) Global Value Chains and Development: Investment and Value Added Trade in the Global Economy (United Nations, Geneva).

Coming up:

  • Part 2 - Sustainability in procurement – 5 practical steps to sustainable procurement
  • Webinar – ‘The rise of sustainable procurement – how to integrate sustainability into procurement’ (29 Nov - registration link below)

 

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SupplierPortal , Supply chain sustainability

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