Corporate Sustainability: Why Procurement Should Pave the Way
Posted by Georg Roesch, VP Direct Procurement Product Management in Supplier Management / Supply Chain on February 25, 2020
Talk of corporate sustainability and responsibility is higher than ever. According to a recent New York Times article, 181 CEOs jointly released a statement on “the purpose of a corporation.” In it, they redefined the role of business away from simply supporting shareholders, instead stating that a company has an obligation to “protect the environment,” and “deal fairly and ethically with suppliers.” This shift is just one indication that businesses are increasing emphasis on corporate sustainability amid social and market pressures.
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Why Corporate Sustainability Starts with Procurement
Procurement is at the core of many companies’ efforts to increase green practices. With such strong influence over company operations, purchasing teams have the opportunity to maximize impact. According to our partner EcoVadis’s Global CSR Risk and Performance Index report, depending on their industry, 50% to 80% of a company’s sustainability impact is in their supply chain.
“Businesses saw over $1 trillion in financial impacts as a result of environmental risks as reported by suppliers.”
For many organizations, green procurement is something of a wouldn’t-it-be-nice idea. Sure, there’s room to improve, but what about the costs? Thankfully, many companies actually find significant savings in building a sustainable supply chain. As far back as 2011, Material Handling & Logistics reported that more than 50% of large businesses and 25% of their suppliers found that carbon reduction activities actually reduced costs. With green technologies consistently decreasing in cost, those numbers are likely to have risen in the years since. In fact, in 2017 Supply Chain Dive found that “The green alternative is frequently the low cost alternative.” The piece cites efficient energy sources as a large cost saver for many companies, and points to the increasing costs of trash disposal as an incentive to reduce waste.
In the end, it simply may be too costly not to look at sustainable practices. According to the Carbon Disclosure Project’s (CDP) 2019 Supply Chain report, businesses saw over $1 trillion in financial impacts as a result of environmental risks as reported by suppliers.
It’s Not Easy Being Green
Assessing and improving the sustainability practices of your supply chain isn’t a single step approach. There are numerous challenges you might encounter in measuring your suppliers, and you may have hundreds of them across dozens of industries and regions. This means you may encounter varying regional regulations that you have to evaluate them against.
Sustainability requirements can vary greatly from the United States to the EU, and even more so in APAC or MENA. Trying to keep up with them without an organized system can be disheartening. Similarly, language barriers can pose challenges when communicating with international suppliers about such specific topics.
Even once those logistics are handled, effective supplier management without the proper tools can be extremely time consuming and is often not scalable. Looking at suppliers as individuals may prevent you from seeing the forest for the trees. Instead, evaluating categories of suppliers, or establishing a system that can compare and contrast similar suppliers quickly, becomes essential.
So How Can You Ever Achieve the Sustainability You’re After?
An effective supplier management tool is necessary to dramatically increase the sustainability of your supply chain. With automated updates for regional legislation and features like item tagging for green suppliers, a dedicated tool can greatly ease the process. However, technology cannot solve all of your problems; there are process investments that must be made, too.
Achieving Corporate Sustainability
The path to corporate sustainability may appear long and winding, but with some basic principles you can take the most efficient route without getting off track.
First and foremost, communication with your suppliers is key. CDP’s Supply Chain report states that 95% of surveyed companies believe environmental leadership makes a supplier a better business partner. One of the most significant things you can do is make it clear to your suppliers that environmentalism is a large priority for your team. In many cases this will allow suppliers to self-select based on their green efforts, and in others it will encourage partners to propose their most ecofriendly options.
Following on communicating goals, it’s essential to help train your suppliers to stay up to date with sustainability innovation. Leading companies like Johnson & Johnson and Roche provide supplier sustainability toolkits and training programs to help their current key business partners train up on ecofriendly practices. This practice can help prevent the need to overhaul your supply chain entirely. Doing so can often be extremely costly and minimize, if not eliminate entirely, the bottom-line value of going green.
Sustainability databases and scorecards provided by 3rd parties
Strategic supplier management processes are also vital to establishing an end-to-end environmentally friendly supply chain. Supplier auditing and scorecarding are two major areas of discrepancy between industry leaders and non-leaders. According to EcoVadis, 76% of industry leaders leverage scorecarding data from 3rd parties, while only 20% of non-leaders do the same. By tracking your suppliers in depth, and especially the risks that they pose based on environmental factors, you can minimize disruptions and provide more business to those that comply with your sustainability policies.
The journey to sustainability may seem daunting, but it is certainly worth it, both in terms of financials and public optics.