Key Success Factors for Sustainable Procurement

Written by Cynthia Wong Mei Kuen, ADPSM

by Cynthia Wong Mei Kuen, ADPSM

Organizations that seek to integrate sustainability into their business practices and strategies are increasing.  Social and environmental factors are top priorities to be embedded into procurement and buying functions, to create a sustainable procurement strategy.  The procurement strategy will strengthen partnership and facilitate smooth integration. 

To obtain best-value prices, procurement professionals have to provide opportunities for potential suppliers to quote, and to adopt a professional strategy towards negotiation.There is an increase focus on evaluating how a company is deemed to have implemented sustainable practices successfully and voluntarily.  The impact on ecological, social, and economic environment, is now the inevitable focus.

Environment protection
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We work towards a positive impact on people, society and the planet, balancing economic growth and positive social impact with environmental protection and regeneration.  These will, in the long run, be able to meet the needs of people without compromising the needs of future generations.  To do so, it requires changes of thoughts and inspiration in lifestyles and consumption, and to adopt and embrace new ways of working.  Organisation leaders must be committed and to lead the way forward with the employees, customers and suppliers.  This is both a responsibility and an opportunity to attain the impact and to enable a better everyday life for everyone.It is important to understand the key success factors in implementing a strategy that will generate the desired results.

Commitment to a Sustainability Policy

Organisation leaders need to ensure sustainable procurement strategy is aligned with the core business strategy.  Policies developed based on the needs to future-proof, to ensure supply continuity and, the ability to cope with the demand of emerging markets.  The greatest value can arise when a strong business strategy is articulated together with smart supply chain strategy.This can change the focus of supply chain management from simple resource procurement to a set of capabilities that have the potential to generate value for the company.  Regardless if it’s business value is short-term and direct, such as cost reduction, or long-term and indirect, such as innovation and customer loyalty.

Adhering to this strategic approach enables alignment to be built across all levels of the organization so that everyone demonstrates the CSR-focused culture.With a clear and renewed understanding of sustainable procurement, an organization is able to save cost, and to apply these non-value added costs to the right place and product.  This will bring sustainable growth for the organization with enhanced ethical considerations for corporate procurement goals.

Quadruple bottom line
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Understanding the Benefits of Sustainability

Achieved positive publicity may attract other financial inventors, boost labor markets and further drive development goals.  Compliance with environmental and social legislations leads to minimal risk in a company’s business practices.Sustainability creates an opportunity to renegotiate contracts with suppliers, which in turn, offering further possibilities for a long-term cost savings.  It also enables more efficient and effective use of natural resources, reducing the harmful impact of pollution and waste.  The harmful impact of hazardous substances on human health and the environment will be reduced.  It may also create opportunity for new innovations, to create markets for new products and services.

Veg fresh farms startups
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Setting Goals and Targets

Organisation leaders need to have a comprehensive understanding of supply chain influence to create a sustainable supplier road map.  It is essential to engage suppliers’ higher management when developing CSR goals.  Some larger scale suppliers may already have internal objectives that can be leveraged and compliment the their clients company initiatives and activities.Larger, globally acclaimed organizations may consider organizing a summit with key suppliers, to outline commitment for joint goals and targets.  This will promotes collaborative, trusting relationship to begin a community or ecosystems, that contributes and add value to sustainability. Businesses can gain great deal of time and money from technology.  It will help save time, improve efficiency, no printing material and no storage space required for hard copies, when adopting digitalized documentation.  This can be an add-on to the goals to attain sustainability.

Setting Standards that Align with Regulations

Sustainable procurement procedures and policies help to structure and put into practice, the sustainable procurement strategy, once aligned with the core business strategy.It is imperative to understand the product and service well in order to derive the right standards.  These standards are to be aligned with local regulatory requirements to ensure compliance.  They must be reviewed and updated regularly in order to continuously reflect the best practices and account for emerging issues.With the endorsement for organisation’s top leaders, the set standards provide a stabilized and influence which enables values to accumulate.

Eco friendly
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Developing Tools and Guidelines with Dedicated Resources

Organisation leaders need to identify and allocate dedicated resources, and to develop tools which can help to establish the basics a sustainable procurement program.

Some examples are:

  • Supplier CSR codes of conduct which reflect the basic principles of responsible management.  Covering typically on key elements like labor, health, safety, ethics and management systems.
  • Zero-tolerance lists which comprise minimum standards and the expected performance, either for suppliers or employees to attain.
  • Implementing technology software to monitor every move across the organization, especially when restricted by geographical boundaries.

Such tool and guideline provides competitive advantage, and also meets customer and regulatory requirements.  These developed tools and guideline are required to be reviewed and updated for improvement, and for risk mitigation.

Alignment driving excellence
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Coordinating with Internal Department

To build sustainable procurement capabilities that drive value, it is important to identify and assign capable resources who have the ability to initiate a new culture towards sustainability.There is also the need to grant autonomy the departments to take leadership in fundamental operational changes.Strategic sourcing demands the ability to link every process across the organization.  This will give an overview which enables enhanced coordination between departments and functions, for improved productivity and operation ease.Coordination with other internal groups like finance and operations, will become easy to align financial targets and keep tabs on potential saving opportunities.  This in turn, will contribute to improve customer management.

Engaging Suppliers and Ensuring Compliance

Organisation that communicate their requirements and expectations, track and monitor supplier compliance and performance, will derive greater value from their supply chain.  It is necessary for an organization to ensure their suppliers have a management system in place to safeguard the continuity in supply and improve overall supply chain sustainability.

Engaging and collaborating with their suppliers are not just simply maintaining transactional supplier-buyer relationships, dictating rules and mandating compliance.  To create true competitive advantage, organizations must establish transformation with supplier, in relation to procurement policies and practices, in conjunction with a comprehensive supply chain strategy.  On-job coaching can be set for transfer of expertise and capabilities, sharing of know-how and technology.

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In the event where a supplier is deemed to have not been complying fully with its sustainability standards, an organization can deploy an extensive intervention to help mitigate and re-align.If necessary, provide support to develop a whole new compliance program. This support will create mutual loyalty and enhanced relationship beyond the typical transactional level.  It will certainly develop into a partnership that adds value for all parties and advanced competitive advantage.

Tracking, Monitoring and Improving Performance

Having visibility of your supply chain is utmost important and cannot be understated.  Effectively ensuring the source of products supplied are compliant to requirement and, procured sustainably.Organisation can establish a measuring process through a regular and consistent check with their suppliers.  The measurement processes can be designed collaboratively together with suppliers, to have clearly spelled expectations, track sustainability results and maintain for continued improvement.With a procurement software adopted, it will provide a communication platform and an audit trail of all suppliers’ activities.

Eco
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Conclusion

These factors elaborate the critical requirement to set your sustainable procurement strategy on a good course to success.  Successful sustainability activities demand a very strategic approach.  Taking a proactive approach to improve visibility of your business practices, and accountability of your suppliers is critical to protecting ones organization reputation.These also enunciates the need for regional, cultural and social diversity for accessibility to global skills and markets, and to benefit different communities and economies.  Leadership endorsement and support is most critical to drive towards organizational success.


References

Atamis Ltd, UK. (2019). “The Benefits of Sustainable Procurement for your Business.” Retrieved from: https://www.atamis.co.uk/blog/Sustainable_Procurement, accessed 01/12/2020.

Jagdish Sheth and SuhasApte, (2017). “Seven Steps to Sustainable Procurement.” Retrieved from: https://www.apics.org/apics-for-individuals/apics-magazine-home/magazine-detail- page/2017/11/01/seven-steps-to-sustainable-procurement accessed 04/12/2020.

Oxford College of Procurement and Supply Ltd , UK, (2016). “3 Factors That Make a Sustainable Procurement System.” Retrieved from: https://www.oxfordcollegeofprocurementandsupply.com/3-factors-that-make-a-sustainable-procurement-system/, accessed 04/12/20.

Shruti Agrawal, (2016). “Six Key Steps to Sustainable Procurement Success.” Retrieved from: https://www.scmr.com/article/six_key_steps_to_sustainable_procurement_success, accessed 04/12/2020.

Steven Sin ChoonHeong, DPSM. (2020). “Major Pitfalls for Effective Procurement Practices.” Retrieved from SIPMM: https://sipmm.edu.sg/major-pitfalls-effective-procurement-practices/, accessed 06/12/2020.

Strandberg Consulting, Canada, (2012). “Sustainable Purchasing Strategy: Critical Success Factors” Retrieved from https://corostrandberg.com/publication/sustainable-purchasing-strategy/, accessed 04/12/2020.

Winky Lim, ADPMM. (2017). “Ensuring Sustainable Practices in Procurement for Effective Supply Management.” Retrieved from SIPMM: https://sipmm.edu.sg/ensuring-sustainable-practices-in-procurement-for-effective-supply-management/, accessed 04/12/2020.

About the Author: Cynthia Wong has extensive years of experience in the field of procurement and supply management, and specifically in the semiconductor industry. She is a member of Singapore Institute of Purchasing and Materials Management (SIPMM). Cynthia completed the Advanced Diploma in Procurement and Supply Management (ADPSM) on January 2021 at SIPMM Institute.

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