Essential Strategies for Alignment of Sustainable Procurement

Written by Jackson Tin, DPSM

by Jackson Tin, DPSM

Essential Strategies for Alignment of Sustainable Procurement

Written by Jackson Tin, DPSM

by Jackson Tin, DPSM

by Jackson Tin, DPSM

Today, companies are increasingly recognizing the importance of sustainable procurement. According to a global study, 2017 Sustainable Procurement Barometer, conducted by EcoVadis and HEC, 97% of the surveyed supply chain professionals from a total of 120 companies regard sustainable procurement as highly important. Global think tanks and analysts expect upcoming trends towards companies being pressured to take responsibility in addressing environmental and social issues.

Being aware of the importance and trends is one thing, however, actually taking actions towards sustainability is a step that companies should be undertaking if they have not already begun to do so after being aware. Procurement plays a key role in the business activities of the company. Aligning sustainability with the company’s business goals and purpose is important for sustainable procurement to be practical.

Engage and Communicate with Relevant Stakeholders

Alignment occurs when all relevant stakeholders are clear about the company’s purpose, and decisions are made in accordance with it. This involves first defining clearly the actual purpose of the company itself. For example, a specialty chemical company’s purpose would be to produce innovative advanced materials to meet the constantly changing needs of the market. This purpose would then involve sustainability that is being increasingly in demand globally.

Next, the company has to engage relevant people at all levels to communicate the company’s purpose so that they know the right direction to move towards. As illustrated in the PP Organogram below, procurement involves a host of processes, where people involved in each of the processes have to understand the purpose of alignment. This allows them to have a clearer sense of what to do at any given time to achieve the company’s sustainability goals.
In the interaction with external suppliers in the post-contract phase, it will be in the company’s interest as well to be able to leverage its power to influence suppliers’ and other external stakeholders’ decisions or behaviors towards sustainability. This allows them to better understand and align with the organization’s sustainability goals and practices.

PP organogram

Picture extracted from Poh, Philip. (1988), “Defining and Clarifying the use of Terminologies”, International Federation of Purchasing and Materials Management Conference, Brisbane.

Authority for Procurement Department

One of the common setbacks is that procurement executives within the company do not possess the authority to influence key sustainability decisions for internal customers within the company. Between procurement and internal customers, success may be measured differently from each other where it can be difficult to make the case to prioritize environmental initiatives.

To achieve alignment, there needs to be a proper budget and resource allocation in the company. Procurement department should not be limited by resources and authority to drive collaboration between sustainability and financial teams, growing the business while reducing environmental impacts.

Clear Metrics to Measure Sustainability Performance

Sustainability performance should be measured to evaluate the progress and effectiveness of current strategies. In addition to the traditional bottom line that measures profits, the environmental and social impact of procurement actions should be incorporated into the picture to account for the full cost of business. This framework is commonly referred to as the Triple Bottom Line.

Both internal and external stakeholders will be looking to gauge concretely with clear metrics. Internally, companies will be able to better allocate budget and resources for alignment, prioritizing which actions will generate the most benefit to the company and its value chains partners, such as suppliers and customers. Externally, concrete results will have an impact on branding and image where customers are increasingly conscious about sustainability.

Natura, a cosmetics company, has accounted for environmental costs by working with suppliers to put a price on externalities like greenhouse gas emissions, water use, and waste generation. This approach allows Natura to select suppliers based on both pricing and environmental impact with tangible indicators, improving the economic and environmental performance of its supply chain while also generating cost savings.

Incentivising Sustainability

Sustainable procurement can bring in significant cost savings for the company amongst other advantages, however, the company has to make sure that its workforce is motivated to undertake environmental strategies and achieve sustainability goals for the company. Altruistic values aside, the company’s workforce can potentially be pushed further when monetary incentives are linked to the achievement of value and good environmental performances for the company. This reflects a sharing of gains between the employer and the employee, as well as reinforces alignment through influencing procurement or other business decisions made in accordance with the company’s purpose.

Clear metrics measuring sustainability performance can be brought into the picture for transparency to justify how much of an incentive is deserved. Alcoa, one of the world’s giants in aluminum production, has linked up to 20% of compensation to its senior employees, to incentivize and motivate their decision-makers who are responsible for validating large capital budget requests to ensure sustainability criteria are incorporated into new projects for the company.

Design Specifications and Requisition with Sustainability in Mind

Companies should evaluate their production process, and plan right at the beginning to take into account possible impact to the environment. Planning and designing the specifications and requisition should keep in mind and be in consideration of the company’s purpose and sustainability goals for alignment.

A sustainable production process should result in less waste and less environmentally harmful discharges. For instance, companies can optimally select materials and components that can be easily recycled or reused at the end of product life to minimize wastage and disposal cost. Use of hazardous materials that are dangerous and costly to dispose of can be minimized to a reasonable extent as well.

In their commitment to reduce plastic in the environment and deliver circular economy solutions through innovation, Dow has carried out initiatives to recycle plastic waste to build roads in India, Indonesia, and the United States. These improved roads with recycled plastics have no visible difference from conventional roads but have contributed to sustainability by reducing wastes and usage of natural resources.

With the rising trend in green and renewable energy sources, companies can also utilize waste-to-energy plants that incinerate wastes to produce energy and reusable resources. Materials that will enable compatibility with incineration can be incorporated into the design specification and requisition.

Conclusion

Aligning sustainable procurement within the company requires balance and has to be practical. The company has to keep in mind its purpose in the business world, while at the same time, embrace the importance of sustainability and deploying strategies that are essential. It is encouraging to see the corporate world valuing the importance of sustainability, though companies have to continue to strive towards efforts to protect both the planet and their bottom lines.


References

Clinton, Nancy. (2017). “Sustainable Procurement – Becoming More Widespread and More Important”. Retrieved from http://spendmatters.com/uk/sustainable-procurement-becoming-important-widespread/, accessed 17/06/2019

Foong, MeeKeat Mickie. (2019). “Key Considerations for Sustainable Procurement”. Retrieved from SIPMM: https://sipmm.edu.sg/key-considerations-sustainable-procurement, accessed 10/06/2019

Kenton, Will. (2019). “Triple Bottom Line (TBL)”. Retrieved from https://www.investopedia.com/terms/t/triple-bottom-line.asp, accessed 10/06/2019

Khoo, Chai Luan. (2018). “Overcoming Key Challenges of Sustainable Procurement Practices”. Retrieved from SIPMM: https://sipmm.edu.sg/overcoming-key-challenges-sustainable-procurement-practices, accessed 10/06/2019

Kinsey, Anne. (2019). “Business Alignment Definition”. Retrieved from https://bizfluent.com/info-8385599-business-alignment-definition.html, accessed 23/06/2019

Poh, Philip. (1988), “Defining and Clarifying the use of Terminologies”, International Federation of Purchasing and Materials Management Conference, Brisbane.

Steer, Andrew. (2013).”Aligning sustainability and profit: what are the barriers?”. Retrieved from https://www.theguardian.com/sustainable-business/aligning-sustainability-profit-barriers-companies, accessed 24/06/2019

SustainAbility. (2019).”Citizen Power – Sustainability Trends 2019”. Retrieved from https://trends.sustainability.com/citizen-power/, accessed 24/06/2019

Volkman, Sarah. (2017). “Sustainability: Alignment of CSR with business strategy is key”. Retrieved from https://www.globalreporting.org/information/news-and-press-center/Pages/SustainAbility-Alignment-of-CSR-with-business-strategy-is-key.aspx, accessed 24/06/2019

Zafar, Salman. (2019). “Trends in Waste-to-Energy Industry”. Retrieved from https://www.bioenergyconsult.com/trends-in-waste-to-energy-industry/, accessed 24/06/2019

About the Author: Jackson Tin has several years of experiences in the field of procurement, specifically in the chemicals industry. He holds a life sciences degree from the National University of Singapore (NUS). He is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). He completed the Diploma in Procurement and Supply Management (DPSM) on June 2019 at SIPMM Institute.

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