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Sustainable approach benefits business

(chinadaily.com.cn)
Updated: 2008-07-09 09:36

"Genuinely sustainable procurement achieves coherence between sustainability and business issues."

Applying our approach to supply risk management, and proprietary methods for sustainable supplier and other business decisions, leads readily from findings and recommendations into an action plan that procurement departments and those with whom they interact can understand, internalise and enact.

Our approach also uncovers the hidden challenges of sustainable procurement, and allows them to be addressed explicitly.

For example, many companies underestimate the difficulties of controlling supplier standards at long distance. The longer and more articulated a supply chain is, the harder it is to control entirely. This becomes especially true when a "low-cost-country sourcing" (LCCS) strategy is pursued. The difficulty is often at least partly due to what we call the "sustainability gap" between producing markets (where goods are manufactured) and consuming markets – with marked differences in expectations about health, safety and the environment. LCCS effects can be even more serious when the strategy involves controlling second tier suppliers, of which the company has little or no visibility. Senior executives often do not realize how big the sustainability gap is in their own supply chain until it is too late – and their business suffers from public exposure by non-governmental organizations or other campaigners.

To address this, companies including Procter & Gamble, Unilever, Imperial Tobacco Group, Nestlé, Cadbury Schweppes and Dell are members of a group called the Supply Chain Leadership Coalition, encouraging suppliers to release reports about carbon emissions and strategies for battling climate change.

Difficulties can surface in a company adjusting its existing procurement processes and organization, and trying to manage the related change. Changing the requirements for procurement of goods and services can have a significant impact in many areas: eg on processes and systems for supplier selection, qualification, verification and performance assessment; on logistics and maintenance processes; and on the skills and competencies required of procurement staff.

Irrespective of any changes decided and planned, challenges can arise due to internal cultural or organizational barriers to adopting a full life-cycle cost perspective so that the external costs of procurement (disposal costs, CO2 implications) are properly internalized.

Having an aligned, motivated and transformed internal organization is no guarantee of success. Market access to the sustainable version of some products can be difficult; and sometimes it is far from easy to discern a sustainable product from its competitors. In such situations, some innovative thinking around procurement procedures may be required – eg inviting suppliers and/or manufacturers to assess the availability of the product on the market, in order to be involved in the definition of the sustainability criteria, and to negotiate collaboration agreements.

Questions to consider

An effective step towards more sustainable procurement is to identify:

What are your stakeholders' expectations – not just clients and customers but also suppliers, NGOs, regulators etc?

What is your business' ambition for this way of doing business?

What are the barriers that prevent your company from adopting a sustainable procurement strategy?

How does your company measure up against other organizations that are leading/lagging the field in sustainable procurement?

Comparing your purchasing strategy against your customers' preferences can help your company to get the best-fit positioning to meet new demand for sustainable products and services.

When it comes to stakeholder – in particular, customer expectations, a "sit and wait" approach is usually not the best. Use of hazardous materials, for instance, or working with suppliers that are not complying with health and safety or labor standards is not only costly (eg costs of legal action and non-compliance with regulation); it can cause serious disruption of trust and loss of customers. Recovering from such a disaster is difficult, as many examples in different industries have demonstrated.

A proactive company knows that aligning corporate values and goals with purchasing policies enhances stakeholder support, builds customer appreciation and ultimately can help win over new customers. An increasing number of retail consumers are shifting their buying preferences towards companies that have visible and valuable corporate social responsibility track records. These environment-minded consumers will support companies that are able to provide sustainable goods and services.

Acting proactively to meet customers' expectations of company social and environmental performance means injecting an "outside – in" approach into the company’s procurement strategy. To ensure their purchasing is consistent with consumer requirements and expectations, proactive companies do not wait for customers to ask; rather they ask customers what their expectations of a sustainable procurement policy are.

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