Ensuring Sustainable Practices in Procurement for Effective Supply Management

Written by Winky Lim, MSIPMM

by Winky Lim, MSIPMM

Ensuring Sustainable Practices in Procurement for Effective Supply Management

Written by Winky Lim, MSIPMM

by Winky Lim, MSIPMM

by Winky Lim, MSIPMM

Today, companies are beginning to realise the importance and impact of sustainability in procurement on the well-being of the organisation. However, there are some that do not fully understand what sustainability in procurement actually entails and how this can be implemented effectively in the organisation.

With a clear understanding of sustainability in procurement, a company can save cost and apply these non-value added costs to the right place at the right time with the right products. This will bring about sustainable growth for the company and enhanced ethical considerations for corporate procurement.

Adopting Sustainability Practices for Procurement

Sustainability is not just a key role as a policy. The concept encourages procurement to make decisions that encompass the environmental, economic and social elements of the Triple Bottom Line.

Contrary to popular belief, sustainability in procurement is actually concerned about cheaper price, better quality and fast service. As a purchaser, this is a basic value to follow and to lead in procurement sustainability, and to facilitate business drivers for supply chain sustainability in this digital generation.

In order that a company can survive longer in this reality market, it needs to know how the company can create sustainable products. For instance, a company can innovate its products for the changing market demand or to meet evolving customers. When business is good, most companies will bring in materials in bulk quantities to realize efficiencies. They reduce cost of input materials, transportation cost, and energy. But are these sustainable in the long term? Procurement professionals must consider the long term implications to ensure sustainability in procurement.

Company also increases labour productivity to meet the market demand. However, a company must know how to protect the company’s reputation and brand value. As an example, Coach Bags registered patents on their branded bags. Thus, the product is protected by law so that no one else can use the same name in the market.
Sustainability in procurement is the process of acquiring goods and services that meets the user’s need, and delivers long term value of money. It also minimizes the damage to the environment and health.

Building Good Supplier Relationship is Key

Companies can ensure sustainability in procurement by building good relationship with their suppliers. This will enable a company to attain better quality of product or cheaper price. When a company has effective suppliers, this will save time to source or re-source from an uncertain market. At the same time, this relationship enable suppliers to know and understand the sustainability in procurement practices of the company. Suppliers will tend to be open and honest about their social and environment impact to customer. This is especially so during the periodical review session that a buyer will conduct with the supplier on the supplier performance and services. Reputation is very important to any company, and an effective buyer-supplier relationship will enhance the reputation. Cost down is an important point for sustainability in procurement. The purchaser has to ensure that their suppliers are fully compliant in business critical areas, and that the suppliers are responsive during times of urgent requirements.

The procurement strategy is to strengthen partnership, measure impact, and facilitate better integration. Purchasers have to give opportunity for potential suppliers to quote, and to adopt a reasonable and professional strategy towards negotiation with supplier to obtain the best-value price.

Five Ways to Achieve Sustainability for Effective Procurement

(1) A purchaser needs to ensure a company system is aligned with the company’s objectives, budget and production timelines.

(2) A purchaser needs to discuss with all key persons to embrace new procurement system in their thoughts.

(3) A purchaser must be pro-active, and set objectives to increase the revenue by boosting the availability of inventory.

(4) A purchaser has to work on a potential strategy through brainstorming, so as to meet the target and determine whether this will shave off enough time in the procurement cycle to be worthy of investment.

(5) A purchaser needs to monitor the new process and to decide how to react due to varying economic conditions.

Competitive Strategy Ensures Sustainability in Procurement

Organisation competing on differentiation must devise actions that enhance its uniqueness on values perceived by customers, be it cost or quality or flexibility or speed, or on any combination of the four. The competitive priorities are importance given to different criteria in procuring material.

Buyer performance measures or reward criteria are other factors that also influence the buying criteria. The competitive priorities define the intended or desired buying criteria, and the reward criteria determine how closely the objectives are met.

Procurement decision-makers must consider the organisation’s competitive priorities in choosing the criteria on which the material is procured. An organisation competing on cost must give high priority to procurement costs. With short lead times, the organisation can be more flexible. It can develop the ability to respond to changing situations quickly.

Suppliers with short lead times and those that are reliable in meeting their due dates minimise the problem of material shortages for the manufacturer. As a result, the organisation’s production can be more dependable in meeting the customer’s due dates. An organisation emphasising speed for superior customer service will need to carry more inventories to buffer against uncertainties if the supplier is unreliable. Buyer’s performance is evaluated can greatly influence the effectiveness of procurement actions and in making the organisation competitive.

Cost can drive procurement decision-makers to take actions that keep material costs low, but other criteria may be neglected, and the procurement actions may end up being inconsistent with the competitive strategy.

Strategic procurement is about the linking of procurement decision-making and actions to corporate business strategies which procurement is involved in the formation of organizational strategies. The most effective uses of resources were in developing a sustainable Procurement Program.

For example, top level supports, creation of cross functional teams and training as a key of ingredients. Purchasers must ensure purchases in a manner that balances social, economic and environmental goals. Procurement must evaluate the significant sustainable procurement issues associated with your organization. Supplier is an important link with purchaser. A good relationship between supplier and buyer are to ensure that supplier performance requirements are in line with your own organizational expectation.

Diagram on Components of Procurement Strategy

Diagram on Components of Procurement Strategy. Adapted from Benton, 2007


References:

Benton, W C Jr. (2007). Purchasing and Supply Management, McGraw-Hill/Irwin, New York, USA, page 21.

http://s3.amazonaws.com/academia.edu.documents/46191154/Sustainable_procurement_practice20160603-17543-slokjy.pdf?AWSAccessKeyId=AKIAIWOWYYGZ2Y53UL3A&Expires=1486906740&Signature=0QIWI%2BpjhY7tN7dDLcXl%2FW8K44w%3D&response-content-disposition=inline%3B%20filename%3DSustainable_procurement_practice.pdf

https://www.bsr.org/reports/BSR_UNGC_SupplyChainReport.pdf

https://www.google.com.sg/search?q=procurement+strategy&espv=2&biw=1366&bih=662&source=lnms&tbm=isch&sa=X&ved=0ahUKEwjMzsrx_J3SAhWJuI8KHe88C8cQ_AUIBigB#imgrc=uHFtAAiWBz_b2M

http://blog.procurify.com/2016/02/25/build-a-procurement-strategy-in-8-easy-steps/

About the Author: Winky Lim has several years of experience in the field of procurement and supply management, in particular the Oil & Gas sector. She is a qualified member of the Singapore Institute of Purchasing and Materials Management (MSIPMM).

Winky is currently completing a course at SIPMM Academy on Advanced Diploma in Purchasing and Materials Management (ADPMM).

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