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    Building a Sustainable Supply Chain

    Source to Contract

    Challenging the Traditional Procurement Agenda

    I was recently joined in a discussion with Shazia Hussenbux, Global Sustainable Sourcing Lead at Oatly, and Laure Hellin, Manager at BearingPoint. We explored the changing role of procurement in the light of society’s sustainability agenda. It was a lively discussion, so I wanted to bring you some highlights.

    Shazia is originally from Mauritius in the Indian Ocean, but she has been living in Sweden for the past ten years, working in various areas of corporate sustainability. Over the past five or six years she has been specifically focused on sustainable supply chains, and sustainable procurement. She works for Oatly, whose mission is “to make it easy for people to eat and drink what’s good for them without recklessly taxing the planet’s resources”.

    Laure is likewise a procurement specialist. She is based in Frankfurt-am-Main, Germany, and has been focused on sustainable supply chains for the past few years. A new German law for supply chains recently passed requiring companies to ensure high environmental, social and governance (ESG) standards are in place. It is expected that similar legislation will be implemented at EU level. My co-speakers were asked to address the question of what ESG, and sustainability in particular, means for procurement.

    It is an important question, which procurement and supply chain professionals are asked a lot these days. Shazia said that for Oatly, “it’s really about creating value, it’s creating the value beyond the traditional procurement Key Performance Indicators, which are very much focused on cost savings … how do we maximize the impact we have upstream with our suppliers, beyond tier 1 suppliers.”

    She went on to explain that it is not about disregarding the financial or economic aspects but rather bringing environmental, social and governance issues into the equation, i.e. how we define success. It’s a lot broader than simply solving one particular environmental issue or managing environmental risk.

    Shifting from compliance to opportunity

    Laure reported on a BearingPoint study conducted last summer, a global “pulse check” with more than 600 participants. “What’s really interesting is that whereas we might have expected that it is the market and consumers pushing change, in fact, it isn’t. The drivers are at the moment mainly regulatory and legislative pressure. And that is pushing buyers and suppliers to change. That’s good news but we really need to shift this perspective that sustainability is not just something you have to comply with.

    “We need to see it as an opportunity, even though it’s a very broad topic. There are ethical, social and environmental drivers too and these should shift the mindset from mandatory requirements, i.e. constraint, to opportunity and push the idea that there are a lot of things that I can do within my company to improve.”

    I would summarize these positions as moving away from the “tick box” mentality so I asked Shazia and Laure what they considered to be the longer-term goals for sustainable procurement. Shazia emphasized that procurement is a “superpower” in this respect because how an organization spends its money can make a huge difference. Of course, this will not happen overnight, rather it is about creating a long-term strategy and then breaking it down into realistic and achievable milestones.

    Sustainability is for the long term

    A starting point could be doing due diligence on first-tier suppliers in the first year and then developing scorecards and gradually building on progress. Oatly, for example, has set itself longer-term goals for 2029, an aspect of which addresses how and what the company sources. Of course, to move forward on this, procurement needs to be empowered to deliver on the goals, which in turn requires an organization to embed sustainability in its broader business strategy, with the appropriate KPIs.

    A clear correlation exists between good ESG practices and solid financial performance. To understand this correlation better download our eBook How Procurement with Purpose Can Improve ROI. Because investors are picking up on this and putting much more money into organizations that take ESG seriously. But, of course, businesses, like individuals, can be fickle and subject to trends and fads so, I wanted to know, did Shazia and Laure see any dangers or challenges that might throw companies off course?

    For Shazia the important point is that Oatly sustainability is “built-in” to the company culture so there is a lasting commitment. Laure also stressed the practical aspect: it is all very well to have a strategy, but you need to operationalize it. BearingPoint’s report will highlight that there is often a gap between C-level executives articulating a sustainability strategy and relevant goals, and operational managers who lack the resources and commitment to move things forward.

    Creativity and champions needed

    How you approach this depends of course on the business model. In some industries, whether we like it or not, being sustainable is far more challenging. This does not mean you can ignore the issue, rather, on the contrary, it means that you have to be more creative in your approach. Creativity may even go as far as radically changing your business model. For example there is a major oil and gas company in the Nordic region that is pulling out of fossil fuels and putting all its investment into green energy.

    Most companies are not going to make such a strategic shift, but even smaller changes of direction require commitment and resources to make the strategy concrete, to develop plans and a roadmap to achieve whatever needs to be done to make the business more sustainable. A Chief Procurement Officer can, if given the mandate, be the main mover, the champion for change, in this respect.

    The CPO can then in turn mandate the operational managers to move things forward on a day-to-day basis as ambassadors for change. Shazia commented, “In my experience I have seen that having one or two ambassadors within each function really make a difference because people can more easily relate to them and buy into the idea.” You need the expertise, but you also need awareness.

    A generational shift in attitudes

    So, there is a willingness to move the needle on sustainability, but how do we accelerate change? Laure’s view that things need to move faster, but there are grounds for optimism because of the shift in attitudes between generations. “We can see that people working in sustainability are absolutely passionate about it. If you have champions or a sustainability ambassador within your company you will attract people who are eager to make things move much faster,” she said.

    It is going to take some time to get these people into the procurement function though, and this requires a commitment to recruit the right people and give them the right training, so they are in a position to make the right buying decisions and have the confidence to challenge suppliers.

    “Procurement professionals’ primary goal was not supposed to buy consciously. They were supposed to make cost savings. And this means that today there is a general problem that there is a shortage in the job market for those who are trained for buying sustainably.”

    Talent is certainly scarce right now and a very strong sustainability and ESG agenda is one of the ways to attract young and gifted people into the profession. For a company like Oatly, this is clear: the sustainability voice is very powerful in everything it does, everything it communicates, and people want to be a part of the change. That said, communication must be aligned with reality – saying that sustainability is part of your culture but then acting differently is only going to harm your reputation. Not just in terms of talent and recruitment, but your reputation among all your stakeholders.

    And that includes suppliers. “There is an interest from suppliers to partner with Oatly because they want to work customers that are focused on sustainability, especially those that share the same objectives and business values. And I think that’s pretty amazing to be honest.” Shazia said.

    Key partners and stakeholders

    Procurement clearly cannot do all of this alone. Who are the other stakeholders it needs to work with?

    Laure commented, “We need strong CFO buy-in because they need to understand the return on investment on sustainability. They need to understand they need to be patient and also put a value on the soft benefits that sustainability brings.”

    For some firms, the R&D and product development functions have to be a strong partner because they will drive the sourcing requirement. If they are developing products that do not contribute to the circular economy for whatever technical reasons, then procurement’s hands will be tied. R&D, procurement and the suppliers need to be fully aligned and this requires transparency through the entire supply chain.

    With the digital transformation of procurement, this challenge becomes more tractable. The CPO can say, “My next step is to just really embed those sustainable sourcing criteria and supplier management into my tool so that I’m really focusing on discussing with my suppliers, finding ways to co-innovate together and ultimately buy better.

    Check out the full discussion and watch this fireside chat on-demand.

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