Sustainable Procurement: What You Need to Know
Sustainability is one of the most important trends of our time – and it looks set to dominate business discussions well into the foreseeable future. In fact, studies have made the case for sustainability to be considered a new type of competitive priority, joining quality, cost, reliability, timeliness, flexibility and innovation as one of the core factors for building competitive businesses.
The adoption rate of sustainable practices by public and private sector entities has ranged from rapid, voluntary adoption to slow coercion. A number of factors, ranging from customer purchasing choices and international law to supplier specifications and public demand have meant the drive toward sustainability has progressed at an unequal rate.
When it comes to the public sector, sustainable procurement has been a central part of the agenda for some time. It is in the public interest that hard-earned taxes are utilized in the most responsible manner possible, and currently that means operating in a sustainable way. This has pushed public organizations to build procurement processes that don’t waste taxpayer money, have positive social impacts and protect the environment in a number of ways.
Private sector initiatives, however, have not widely adopted the sustainable procurement framework until recently, instead individually focusing on their own operations and building their own sustainability initiatives. However, consumer demands and global trends are now strongly centered on sustainability, and as a result, the private sector has been forced to shift.
As we enter a new decade, it is vitally important that procurement leaders understand what sustainable procurement means for both public and private sector organizations, and how they can shift their procurement operations toward supporting the planet and its people while operating in a profitable way.
What is sustainability in procurement?
In short, sustainability means avoidance of the depletion of natural resources in order to maintain an ecological balance. If sustainability is the goal, sustainable procurement is when a company balances the need to embed corporate social responsibility (CSR) principles into its procurement processes while also meeting company requirements. Sustainable procurement generally focuses on three key impact areas – environmental, social and economic responsibility.
It is common knowledge that over-consumption and waste are at the core of all practices that are harmful to the environment. Sustainable procurement, therefore, has a clear role to play in lowering the environmental impact of an organizations’ actions and can guide it toward making greener choices. Purchasing energy saving lightbulbs and recyclable materials, shifting toward paperless operations, and cutting down on shipping through document e-signature tools all help organizations become greener.
Responsible sourcing also has the potential to make a positive social impact in organizations and communities. Sourcing that supports different groups of people will open more opportunities for inclusion, and when adopted at scale, this will have a global impact. Equally, sourcing that takes the origins and working conditions under which vendor products and services are delivered into account will also support good practices and force those who do not meet the criteria to change.
This requires a more considered, networked approach, but instead of solely focusing on the profit margins of your own organization, a robust sustainable procurement policy aims to deliver positive economic benefits to as many stakeholders inside – and outside – of an organization as possible. In particular, a strong focus on your down-chain suppliers will increase your positive social impact and will accelerate their development and prosperity.
The key factor in all three impact areas is transparency facilitated by digitalization. Organizations that understand the origin of the goods and services they procure are better equipped to make sustainable procurement choices that meet their tender criteria. They can also ensure these goods and services are utilized responsibly within the organization and waste is reduced. A fully digital approach to procurement is a key driver of an organization's transparency.
Benefits of Sustainable Procurement
Far from impeding an organization’s effectiveness, sustainable procurement has the potential to drive down costs, eliminate waste and build a better brand reputation. It allows an organization to honestly review its processes, learn where it needs to improve, change processes and give training where needed.
Sustainable procurement also future proofs your organization by making it more resilient to supply scarcity and capable of supporting demand in emerging markets. It improves your risk management processes by working with suppliers who are less likely to encounter breaks in production due to environmental issues.
It also holds internal and external stakeholders to high standards by forcing compliance with environmental and social legislature and builds a better understanding of an organization’s local business community and global supply chain. This leads to smarter, more sustainable choices and a competitive advantage in more volatile times.
Key Drivers of Sustainable Procurement in Your Organization
Many public sector organizations feel pressure to operate in a sustainable way. But, as previously discussed, the pressure for private sector organizations to adopt sustainable procurement approaches is high. Most organizations that transition to a sustainable procurement model follow the same steps:
A change in mindset driven by leadership.
From the board to the C-suite, an organization’s leadership is an essential driver of sustainability change. When organizations pivot their business goals toward sustainability targets, procurement needs to adjust its processes to ensure it supports these new demands.
A change to existing KPIs, short-term and long-term objectives, and operational practices is only possible if the procurement team has aligned the department’s objectives with the new strategy – and ensures these changes are implemented at an operational level.
A technology-driven process to ensure sustainable procurement actions.
Robust sustainability policies, codes of conduct and CSR clauses written into supplier contracts are essential pieces of the sustainable operations puzzle, but with ever-increasing volumes of supplier relationships and ever-more demanding supplier criteria, it is essential that your business has an automated process to ensure compliance and monitor execution.
A Contract Management System (CMS) can do a lot of the heavy lifting for you, and advances in Machine Learning and Natural Language Processing will even lead to the tender creation process being largely automated in the future.
Break down internal and external data silos.
The old approach of company departments maintaining and managing their own individual master data sets no longer works. In today’s world, this is essentially like a body where the limbs make choices independently from the head. A sustainable procurement approach would be to integrate with the entire company’s master data, which would in-turn give management a holistic view of the company that helps them clearly understand the impact purchases have on different parts of their business.
In addition, integration with external partners upstream and downstream in a business value chain will help to synchronize efforts and create opportunities to build new, effective sustainable practices.
Increased focus on what brings value.
In many industries, outright ownership of property, inventory and equipment is reducing. The costs of staffing, maintaining and operating business-critical items like transportation fleets go far beyond deprecating vehicle values. Many procurement departments at traditional companies have shifted toward rental services where all vehicles, tools and pieces of equipment are optimally maintained by a service provider.
They focus on what they do best, allowing organizations to focus on their core service delivery. A shift in these services has occurred, too, with many organizations focusing on delivering a smaller range of goods and services that deliver greater impact.