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Sourcing and Procurement

The growth of socially responsible procurement in businesses

From suggesting “any customer can have a car painted any color that he wants, so long as it is black,” to investing $11 Bn in electrifying (electric and hybrid) 40 of their most popular vehicle brands to reduce greenhouse gas emissions, Ford exemplified the transition that businesses have undergone. In earlier days, with only a handful of people driving motor vehicles, Henry Ford envisioned his cars to be affordable, so that more people could access the time-bending invention. However, with cars becoming a necessity today, people are becoming more aware of the side effects that motor vehicles can cause.

Realizing the need to make inventions safe and sustainable for masses, incumbent players have begun to take a few initiatives as part of their Corporate Social Responsibility (CSR), to unite their social and environmental concerns with business strategies. Incorporating CSR activities enable organizations to operate businesses ethically – socially and environmentally – going beyond the chase for higher revenues.

Defining socially responsible procurement

More than a century ago when Ford was established, growth indicators, such as profitability, took precedence over social issues. Unfair means, such as tax avoidance, bribery, plagiarism were part and parcel of doing business. Such practices of unjust entrepreneurship eventually resulted in more destruction, impacting both the quality and reputation of brands. Gradually, with growing awareness, organizations have started incorporating sustainability into the strategic process, benefitting not only the society, but also delivering long-term benefits for a business.

The importance of social responsibility grew further after the unprecedented outbreak of COVID-19. Catching organization off guard, the pandemic highlighted the extent sustainable practices can safeguard the interests of companies. In fact, Deloitte’s 2021 Global CPO survey reported that social responsibility is indeed one of the topmost priorities for CPOs, despite the unexpected challenges faced by supply chains worldwide since 2020, due to the global pandemic.

Adaptability of socially responsible practice

With time, procurement teams have shouldered a greater responsibility in making organizations successful, from merely being a perpetual cost reduction objective. so much so that nearly 67% of them have cited enhanced Corporate Social Responsibility as one of the priorities, which is a 22% increase since 2019 – the biggest increase in all cited priorities. As a result, both public and private sectors have worked in their own way to ensure greater adaptability of social responsibility within their organizations.

> Off late, public authorities have also seen an opportunity in adopting socially conscious procurement practices. Public tenders have become a way to promote ethical products and services, diverse businesses, equality, and social inclusion, while creating new job opportunities.

Entrepreneurs under government funding are also offered incentives to assure a fair and inclusive trade. As an example, most of the public contracts in EU fall under the 2004 Procurement Directives (later replaced by 2014 Public Procurement Directives), where detailed directions are given to incorporate socially responsible considerations in the sourcing process. Some Member States have followed with national supplementary rules and clauses. Moreover, in the US & Canada, public procurement regulations state that any bidder to a government contract exceeding $700k ($1.5Mn for construction), must subcontract a certain portion of spend to a diverse supplier. In some cases, this rule may also apply to tier 2 suppliers.

Meanwhile, in the private sector, supplier integrity has become a must for many companies in the supplier selection process. The biggest companies have several social standards and behavioral guidelines that suppliers are expected to adhere to. A European aerospace manufacturer, for example, has included a clause in their quality control guidelines that allows only items to enter the warehouse only if the manufacturer has a certificate of transparency and compliance.

This sort of screening process may soon be required at a global, or a hyper local level as well, wherein the cultural or political landscape of a region will need to be accounted for. A few organizations in strife-torn Ukraine, for instance, may be mandated against inviting Russia-owned-or-managed businesses to participate in sourcing activities.

Essentiality of supplier diversity in socially responsible procurement

The sudden outbreak of the pandemic highlighted the importance of having a diverse supplier base. Supplier diversity typically applies to businesses that are 51% owned by and operated by traditionally underrepresented individuals or groups demarcated by ethnicity, religion, sexual orientation, or gender. Many Procurement outsourcing service provider companies have promoted supplier diversity by implementing rules, such as inviting at least one diverse supplier for sourcing events or awarding additional points to vendors who collaborate with diverse suppliers.

Adopting supplier diversity is also conducive in instilling a sense of community. Diverse suppliers are mostly small or medium-business enterprises that are local, rather than national or global. In search of savings, procurement also moved from local to global at some point. Now, we are heading towards the glocal. A case in point is Coca Cola, which in 2017 committed to spend $1 Bn on diverse suppliers globally to support local businesses.

If the global trend is anything to go by, social responsibility has all the tools to improve a company’s reputation and make it more attractive to consumers, employees, and suppliers. Enterprises too have ample risk appetite to invest in social responsibility and not only participate in, but also drive sustainable growth of their community.