Creating Value with Sustainable Procurement
Sustainability is still seen as a threat and risk to the business model instead of an opportunity by many companies. As a consequence, the topic of sustainability is tackled with risk mitigation strategies. This belief is paired with the assumption that sustainability is a topic for the marketing or public relations department and limited to creating charity funds to showcase good character. This is rapidly changing.
“More has changed in the last 6 months than in the last 10 years. From the circular economy to being lifetime carbon negative and new business models. All the building blocks are there for more change” said Pierre-Francois Thaler, Co-Founder & Co-CEO Ecovadis.
If one thing stood out at the EcoVadis Sustain2020 conference it is the clear message that being sustainable in procurement creates value beyond savings. With companies representing over $2 trillion spend in attendance, it is clear that there is also increasing momentum. Making sustainability a key pillar in procurement helps to increase your organizational performance, to improve the quality of your products and can make your organization more innovative while also mitigating risks.
How can Sustainability be a value driver for procurement?
When it comes to sustainability, buyers need to shift their mindset from risk mitigation to embracing new opportunities.
1. Innovate & increase organizational performance
‘It is interesting to discuss sustainability as an investment offering returns and not to see it as a cost’ said Salah Adebibe Group Procurement Director of L’Occitane during the event. Further, he explains that in his company sustainability is at the heart of the company DNA often creating win-win situations by associating sustainability with efficiency and cost-saving initiatives. He continued that, when they combined both, the result was a faster decision-making process.
Similarly, Vera Yanakieva, Business Intelligence analyst at ICL Group stated that is important not to create a bureaucratic burden by adding sustainability but easily manageable and understandable processes which will lead to less resistance and better integration into the daily operative tasks. To ensure this Ana Meyer the Executive Director of Sustainability at GAF explained that sustainability managers with clearly defined roles and responsibilities are necessary.
2. Understand and fulfill customer expectations & improve the quality of your products
Another important aspect is that consumer buying decisions are increasingly influenced by sustainability. This can be turned into a competitive advantage for your company through enhanced brand reputation.
One way to achieve that is by creating more transparency and visibility within the supply chain. New processes to monitor the supply chain can involve the gathering of new data with the help of software. The data can then be used to create Sustainability scorecards for suppliers. This practice not only creates more transparency but can also detect previously unseen weaknesses in the supply chain which can lead to significant increases in the overall quality of products and services.
For more information about orientation, research and guidelines take a look at the Together for Sustainability Initiative and the Sustainable Procurement Pledge.
3. Create a positive employer brand to motivate & attract top talent
Being sustainable makes your company and department more attractive by creating purpose and meaning. All employees will profit from an enhanced feeling of purpose leading to higher retention and productivity as the results of the 2020 CPO Survey “Procurement Purpose & Impact” suggest. In fact, sustainability can also play a crucial role in creating awareness and interest for young people in your company. Building a positive employer brand by having a purpose beyond the operative business is crucial to be attractive for young professionals and top talents.
4. Be a role model & build stronger bonds with all stakeholders
Brand attractiveness is not only important for customers but all stakeholders and can enable stronger bonds with suppliers. Thereby, larger companies can act as role models to inspire smaller companies to change. To ensure the creation of shared values, sustainability expectations need to be communicated and discussed. One of the suggestions was to use a sustainability code of conduct in combination with KPI’s like the supplier scorecard to assure compliance and to measure progress.
However, assuring compliance is not enough, it is important to involve suppliers in the campaigns. It was mentioned as crucial to listen and incorporate the feedback of suppliers to increase and not threaten the partnerships. These can then be used to create value for customers through product innovation (i.e. use of new bio materials) as Charles-Edouard Vass, Director Purchasing Excellence at Faurecia mentioned. But it does not need the invention of new materials to create value as the following example shows.
Delivering value in practice – Example L’Occitane
Salah Adebibe, Group Procurement Director of L’Occitane, introduced a cost improvement project of a promotional gift jar for loyal customers. His team used three traditional procurement levers for this initiative: Value Analysis and engineering, supplier innovation and global sourcing while taking sustainability factors into account. Initially, the jar was sourced in China and was designed as a heavy wall jar as one piece weighing 26 grams. The result using the three levers with consideration of sustainability was to produce a two-piece jar with their existing supplier in France. They were able to reduce the weight to 9.7grams. The benefit was that they saved 30% on cost, reduced their exposure to exchange rate risks, saved 4-6 week on the lead time and reduced their CO2 footprint by 70 tons. Further, he stated that the average cost saving of similar projects was between 20-30% and as a side effect delivered improvements in quality and compliance.
Time for action: What can you do?
The example of L’Occitane has shown, that taking sustainability into account can not only reduce costs but produce additional value like enhanced quality and customer experiences. Against the paradigm that sustainability is costly, the Sustain2020 conference demonstrates the additional value procurement can have besides saving and cost keeping. The conference has shown that integrating sustainability as the 4th key pillar in procurement drives value through increased organizational performance, positive employer branding and stronger partnerships with all stakeholders. Thus, engaging with sustainability is a great way to change the perception of procurement and to show that it can have a high value add for the whole company.
For the realization of these goals, the motivation of all employees is key. Internal marketing is crucial to show everyone that the role of procurement goes beyond what was historically thought. Our recent study ‘Accelerating procurement’s future’ shows that innovation and sustainability are only present in nearly 20% of purpose statements in procurement. The advice from Astrid Bosten, Global Sustainability Manager Purchasing at Henkel is to make sustainability part of your business purpose and involve the top management right from the start to create a sense of urgency. While Charles-Edouard Vass added that new incentive structures need to reflect both financial and sustainability factors equally in the determination for bonus payments and promotions. In the end, it is much more fun to create savings while also protecting the planet. Sharing this mindset and creating an ecosystem with a knowledge-sharing culture in which each stakeholder is treated as a partner is essential as we enter the 2020s where sustainability is at the center of attention.
Feel free to get in touch with us to chat how you can start creating value through scaling Sustainable Procurement at speed!