5 signs you need to level up your sustainable procurement programme
Sustainable procurement focuses on including sustainability principles into an organisation’s procurement processes and decisions, whilst still meeting the requirements of the business on cost, quality, and performance. The term itself might hopefully disappear soon, as sustainability becomes a foundational element of Business as Usual (BAU) practices.
There’s a strong reason why sustainable procurement has become a topic of great interest today as it is increasingly viewed as a tool to build competitive advantage, mitigate organisational risks (i.e., reputational, financial, and regulatory) and build supply chain resilience. Consequently, most global organizations have, or are, looking to start sustainable procurement programmes. And while clear leaders are reporting significant benefits from these programmes, procurement organisation maturity levels vary significantly when it comes to sustainability practices.
Here are 5 tell-tale signs that you need to level up your sustainable procurement programme to enable your organisation to move up the maturity curve.
- Your sustainable procurement programme has no clear objective
- The impact of your procurement sustainability programme is not shared internally and externally
- Your sustainable procurement processes have become a “box-ticking” exercise
- You don’t have a clear ESG data strategy
- Your suppliers are not seeing value-add from your sustainable procurement programme
Your organisation has implemented sustainable procurement activities, however, there are no formal measures and sustainability objectives at the function level. This results in an unfocused effort, reduced impact, and diluted value of a function’s contribution to your company’s sustainability strategy.
For example, organisations could be favourably scoring RFP responses from local suppliers. But not having an overall local supplier spend target (at the city, region, or country level), doesn’t establish an effective mechanism to ensure local suppliers get selected in significant numbers.
Mature procurement organisations have sustainability targets at the function level, which are also closely aligned with Corporate Sustainability objectives. Organisations that are only starting their sustainability journey now, struggle to define the right targets for their business. Science-based targets are the gold standard, but making a start with ambitious but achievable targets (e.g. switching to renewable electricity across all plants and offices) can deliver a positive impact before defining a long term strategy. Long term strategy should focus on achieving Net Zero by 2050.
Your sustainability outcomes might be communicated within the rigid container of corporate ESG (environmental, social, and governance) reports that are prepared mainly with investors in mind; connections back to the supply chain are not clearly visible and the effort from procurement might not be articulated.
Although not a proxy to progress, sustainability reporting allows companies to communicate their performance and impact on the ESG outcomes they are tracking and wanting to achieve. It enables companies to be more transparent, build trust with stakeholders (employees, consumers, customers), and provide greater insights into performance, beyond the bottom-line consideration.
Sustainability leaders also relay procurement sustainability outcomes through news, corporate websites, and social media. These will include details on procurement sustainability targets and initiatives delivered through collaboration with the supplier base.
Such communication allows companies to strengthen the legitimacy of a function that delivers on the sustainability agenda with internal stakeholders and external stakeholders, and with your extended supply base. Your sustainable procurement programmes need to contribute to fostering a culture of transparent information-sharing, and collaboration at all levels.
For organisations in the nascent stages of implementing procurement sustainability, responsible sourcing and/or procurement programmes struggle to mature beyond a compliance checklist that is not tied to delivering value-added and sustainable outcomes.
A supplier qualification questionnaire and a code of conduct are good starting points, but these are typically only applied and tested at sourcing, and may only be monitored yearly or in the lead into an audit.
Sustainability leaders use sophisticated measures to drive both sustainability compliance and performance. These might range from sustainability indicators in supplier performance frameworks, sustainability value levers forming an intrinsic part of category management plans, Total Cost of Ownership models that include sustainable criteria (e.g. Lifecycle analysis), or incentive programs (e.g. supplier awards or long term investments) for the most mature organisations.
Your suppliers are bombarded with requests for information on their sustainability credentials, both from different teams within your organisations (Procurement, Quality, Engineering) and from their other customers.
Your team also spends a lot of time manually maintaining spreadsheets, trying to join several data sources together, like supplier self-assessment questionnaires and third party sustainability ratings. Your sustainable procurement programme soon ends up looking like an administrative burden and not a lot of time is spent learning from data-driven insights.
Leading organisations are embarking on an ESG “data 2.0” era, where improvements are being sought in centralizing, simplifying, automating, and using ESG technology intelligently to harmonize ESG data requests over the supplier lifecycle. ESG data should then be leveraged to support agile and accurate decision-making not just in procurement functions, but also in finance, sustainability departments, and R&D, through insights-driven sustainability analytics.
You are collecting a lot of data from your suppliers to tick the corporate and reporting boxes (if any). But questions are being raised. Does your sustainable procurement programme deliver value for your suppliers? Does your organisation incentivise sustainability-related improvements that are delivered with, and by suppliers?
Sustainability leaders effectively analyse the collected data and share actionable business intelligence back to the suppliers on ways to improve and grow. Sustainability leaders today are increasingly driving supplier engagement and collaboration to increase value – across all value drivers. To truly level up to the challenges and opportunities offered by sustainability going forward, procurement teams will need to invest in strong capabilities in Supplier Relation Management, to efficiently collaborate, add value for suppliers, and deliver a positive impact on the sustainability agenda.
To know more about how we can help your organisation on the sustainable procurement agenda, please get in touch with us at Infosys Portland.