When it comes to procurement, focusing on price or service levels is no longer enough; smart CPOs must build sustainability into their procurement function
“Firms that align their business models to the transition to a carbon neutral world will be rewarded handsomely; those that fail to adapt will cease to exist.” This was the warning given by Bank of England Governor Mark Carney at his annual Mansion House speech on 21 June. While Carney’s focus was on the wider opportunities – and challenges – of transitioning to a carbon neutral economy, his words reinforce the broader message for businesses: environmental, corporate and social responsibility and a focus on sustainability will drive success.
For the procurement function, this is no different. Over the last decade, the role of the Chief Procurement Officer (CPO) has seen increasing time spent on implementing sustainable practices into the procurement function.
“Sustainability is no longer ‘nice to have’, it’s a business imperative,” says Vaughan Lindsay, CEO of ClimateCare, which works with organisations on climate and sustainability issues. For Lindsay, many industries’ most significant impacts are “beyond their four walls, in their supply chain and the use of their products.” A procurement team is uniquely placed, he believes, to act on sustainability as it already provides a framework for evaluating suppliers against more traditional parameters, such as cost or service levels. Lindsay explains sustainability performance must be given the same weight as those traditional parameters, requiring a change in thinking from a ‘do no harm’ approach – which ensures suppliers comply with existing policies – to rewarding against environmental and sustainability credentials.
For most businesses, drivers of sustainable procurement fall broadly under the ‘risk management’ banner: improving internal and external standards, building a sustainable and more efficient supply chain, meeting the demands of increasingly conscientious consumers and investors, screening suppliers that pose a potential risk and facing up to intense focus on brand reputation.
Typically, modern procurement functions leverage a broad range of purchasing and partnering policies. These include new supplier codes of conduct and self-assessment that guide procurement strategies and choice of supplier, drawing on data and technology, such as blockchain, to give a greater overview of supplier and procurement functions. This increases the focus on collaboration – both internally so that every individual within the organisation is working towards the same goals and externally across the supply ecosystem – and investing in social enterprises or philanthropic causes.
Timo Worrall, Director of Supplier Social Responsibility at Johnson & Johnson has been at the forefront of the global healthcare company’s sustainability drive. “First and foremost,” he says, “a successful sustainable procurement strategy needs to align with a company’s core values and culture.” For Johnson & Johnson, that vision is being the most trusted company for transforming lives in underserved communities through its expertise in healthcare, wellbeing and science.” This, Worrall adds, “is the guiding light for our sustainable procurement programme.”
It’s no empty gesture either. To date, the company has spent US$1.5bn with social enterprises across the world and committed 3% of its purchasing spend in the UK on social enterprises to help support 150 jobs. Not only does this meet business imperatives (building diversity in suppliers, gaining access to new innovations), it promotes a positive organisational culture that contributes to wider society. Johnson & Johnson is also a founding partner of the Buy Social Corporate Challenge (BSCC), led by SEUK, which aims to redirect corporate supply chain spending into businesses that deliver social impact for some of the most deprived communities worldwide.
As to the practicalities of successful sustainable procurement, Worrall cites collaboration as “indispensable”. Focusing internally, he says, is an important first step that’s often overlooked: “ambitions will only be realised through a coordinated internal effort involving procurement personnel, category leads, commercial teams and supply chain teams. This is underpinned by support from colleagues in Corporate Social Responsibility, Global Community Impact and Government Affairs.” Externally, the business uses its advocacy of sustainable procurement to build global awareness with the aim of “placing [it] firmly on the business agenda” in growing markets such as China and India.
At a more granular level, a greater focus on data and new technologies is being used to build more trust in the procurement function. The biggest challenge, according to Industries President at IFS, Antony Bourne, is the “ability to acquire and trust the data collated on suppliers”. As a result, he says, emerging technology such as the Internet of Things (IoT), blockchain and artificial intelligence (AI) will play a major role in addressing environmental concerns through “complete traceability to allow sustainability decisions to be made, therefore increasing productivity, lowering costs, while minimising environmental footprint and impact. In a world moving towards a more sustainable future, those which don’t embrace the necessary technologies now risk getting left behind.”
Sustainability continues to be a key driver of the procurement processes for businesses, seeing greater emphasis on the role of CPOs and the teams they work with. In an increasingly global business environment where suppliers stretch across emerging markets that challenge only amplifies. The pay off, of course, is well worth that challenge, as Worrall explains: “our ambition [...] is to put sustainable procurement on the agenda of every single company. It is far from charity work; it serves a specific business purpose, and it serves it well, and this is the type of example that every company should be setting in the coming years”.