Overcoming Key Challenges of Sustainable Procurement Practices

Written by Khoo Chai Luan, DPSM

by Khoo Chai Luan, DPSM

Overcoming Key Challenges of Sustainable Procurement Practices

Written by Khoo Chai Luan, DPSM

by Khoo Chai Luan, DPSM

by Khoo Chai Luan, DPSM

Companies are increasingly placing more emphasis on sustainability procurement. A global study conducted by EcoVadis revealed that 97% of 120 supply chain professionals are placing a higher level of importance on sustainable procurement than before. In addition, Fortune 500 companies who have taken the lead in sustainable procurement have experienced great returns. Sustainable procurement is also an increasing trend in many developed countries, with European countries and the United States having put in place regulations that encourages sustainability in a company’s operations. Examples of such regulations include the Dodd-Frank Act on Conflict Minerals and the UK Environmental Liability Directive.

However, much can still be done to encourage the adoption of sustainability practices in many organisations and developing countries. Many studies have found that there is a lack of understanding and awareness of sustainable procurement concepts in many of these organisations and countries. Public organisations, being the biggest and most influential customers within a country, should continue to take the lead on sustainable procurement to encourage the adoption of such practices in private organisations. This will also allow for more focus to be placed on “mega sustainability” trends that will shape the markets of the future and the achievement of sustainable development goals.

Adopting Sustainable Practices in Procurement

Sustainable procurement is a process that takes into consideration sustainability issues throughout the procurement process, while ensuring value for money. Sustainable procurement differs from traditional procurement in that decisions made when practising sustainable procurement encompasses the environmental, economic and social impact of the Triple Bottom Line, as shown in the diagram below.

When implementing sustainable procurement, an organisation will need to assess their impact on the environment, the community in which the organisation is based in, employees and consumers. It is a combination of being “green” and being socially and ethically responsible. Organisations implementing sustainable procurement should aim to minimise damages to the environment while delivering economically sound solutions. Some measures adopted by such organisations include the use of sustainable raw materials in their supply chain, engaging minority, women and small businesses, as well as reducing particulate matter and greenhouse gases emission.

Importance of Sustainable Procurement

Sustainable procurement is an important process that all organisations should undertake, in order to ensure the continuous growth of their business, the community in which they are based in, and the economy.The environmental aspect of sustainable procurement addresses alternative solutions to tackle environmental degradation, climate change and resource depletion.

The rapid growth of the human populace has led to the depletion of natural resources and pollution, which resulted in issues such as water shortage, famine, smaller economies and soil erosion. On top of that, carbon dioxide emission from the burning of coal and fuel has contributed to climate change. Not only does climate change affect ecosystems and agriculture, it has a detrimental impact on human health and energy. All these negative environmental impacts need to be addressed by organisations as they could cause an economy downfall and societal instability. According to the United Nation Convention to Combat Desertification, land degradation could bring about a loss of $23 trillion in the global economy by 2050.

Sustainable procurement also provides organisation an opportunity to address one of the largest societal issues of all time – persistent global poverty. Out of 7 billion people in the world today, almost 50% of the population live on less than $2.50 per day. Moreover, 22,000 children die per day due to poverty. As global poverty is fundamentally associated with welfare, organisations that adopt sustainable procurement is inevitably contributing to the sustainable development of the society.

Drivers of Sustainable Procurement

With the rise in awareness of resource scarcity and increased stakeholder pressure for greater corporate responsibility and accountability, organisations are driven to rethink the production process, taking into account the possible damages done to the environment. A clean and sustainable production process should produce less waste and less environmentally harmful discharges.

End-of-life collection of products and materials recycling is also an alternative solution to reduce wastage of the Earth’s finite resources.Organisations are also motived to make decisions during the procurement process leading to socially responsible goods, services and works, while ensuring the maximisation of any economic impact.

There is a special interest placed in addressing social issues such as unemployment, child welfare and human rights by creating local job opportunities and contract opportunities for local SMEs. Procurement processes are designed to select suppliers that uphold universal human rights towards their employees and their communities, which include the protection of labour rights and avoidance of child labour and indecent working conditions.

In today’s digital age where consumers are becoming more educated on what they want in a product, consumers have bigger influential power on the standards by which goods and services are produced. Where there are compliances to be met and incorporated into the design and specifications of products or services, organisations should engage qualified health and safety officers to ensure the products are of acceptable standards.

By positively contributing to the environment, society and economy, organisations can protect their reputation and brand image. This is especially important as well-informed consumers are placing more focus on corporate responsibility.

Benefits of Sustainable Procurement

Organisations who have implemented sustainable procurement would have realised that the practice not only benefits the elements of the triple bottom line, but also the organisations themselves. As discussed in previous sections, sustainable procurement is beneficial in the minimisation of business risks.

Another benefit of sustainable procurement is cost savings. Contrary to common beliefs, sustainable procurement can be cheaper than traditional procurement and it also upholds the principle of value for money.

There is emphasis placed on whole life costing methodology. The reduction of waste production through the 3 R’s – reduce, reuse and recycle – also ensures maximum utilisation of raw materials and components.

Sustainable procurement also drives innovation in the market, through organisations having the drive to develop and market sustainable products. New innovations would attract consumers who are willing to pay a premium price in order to be early adopters. Furthermore, innovation creates economic and sustainability value, and is critical for green growth.

Challenges of Sustainable Procurement

With consumers driving the demand for ethically sourced, sustainable products, organisations will need to create a unique point of difference in order to attract consumers and encourage sales. To achieve this, organisations can use sustainability as their selling point to draw in consumers. Organisations should also support fellow sustainable businesses to ensure their supply chains are sustainable. In addition, supporting fellow sustainable businesses allow for the sharing of successes to learn from each other and work towards a common goal.

Organisations will also need to focus on protecting their reputation and brand image. In the presence of advocate groups championing for child welfare and labour rights in today’s societies, organisations should avoid allegations of child labour or modern slavery, especially when employing the service of overseas supply chain. Being tangled in such allegations, even if found untrue later, could have a knock-on effect that can disrupt brand and public image, and ultimately affect the organisation’s profitability.

Conclusion

Suffice to say, there is still a long way before sustainable procurement becomes a widespread practice in the business landscape. While public organisations can inspire the private or smaller businesses to make the change, the ultimate push will need to come from legal frameworks imposed and a better understanding of such concepts.


References

Brammer, S. &Walker, H. (2011). “Sustainable procurement in the public sector: an international comparative study”. International Journal of Operations & Production Management, 31(4), pp. 452-476.

Clinton, N. (2017). “Sustainable Procurement – Becoming More Widespread and More Important”. Retrieved from http://spendmatters.com/uk/sustainable-procurement-becoming-important-widespread/, accessed 04/09/2018.

Crawshaw, G.(2017). “The top six challenges facing procurement”. Retrieved from https://www.cips.org/en-CN/supply-management/opinion/2017/september/the-top-six-challenges-facing-procurement-/, accessed 04/09/2018.

Kang, J. (2017). “Importance of Sustainable Procurement Practices in the Maritime Sector”. Retrieved from SIPMM: https://sipmm.edu.sg/importance-sustainable-procurement-practices-maritime-sector/, accessed 04/09/2018.

Lim, W. (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 04/09/2018.

Purvis, K. (2015). “Nine ways to overcome barriers to sustainable business”. Retrieved from The Guardian: https://www.theguardian.com/sustainable-business/2015/jul/08/nine-ways-to-overcome-barriers-to-sustainable-business, accessed 04/09/2018.

Shute, B. (2017). “PART 3: Procurement In The Future – The Triple Bottom Line: Understanding The Sustainability Agenda”. Retrieved from Procurement and Supply Australasia: https://procurementandsupply.com/2017/12/part-3-procurement-future-triple-bottom-line-understanding-sustainability-agenda/, accessed 04/09/2018.

The World Bank. (2016). “Sustainable Procurement: An Introduction for Practitioners to Sustainable Procurement in World Bank IPF Projects”. 1st ed. Washington, DC: The World Bank, 1818 H Street NW, Washington DC 20433, USA.

About the Author: Khoo Chai Luan has substantive years of experience in the professional field of procurement management, and specifically in the public sector. She is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). Chai Luan completed the course on Diploma in Procurement and Supply Management (DPSM) in September 2018 at SIPMM Academy.

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