In previous blogs, SIG has covered the basic concept of sustainability, including an overview of its various dimensions. In this post, I will touch on the role that sourcing professionals can have in meeting corporate sustainability goals.
Why should sourcing have a role?
Sourcing is uniquely positioned to contribute to meeting a corporation’s sustainability goals because sourcing typically has expertise in:
- Creating alignment to corporate goals
- Building frameworks to measure success
- Researching market conditions and supplier capabilities
- Conducting strategic negotiations
- Designing innovative methods for value creation
- Ranking the priorities of stakeholders with supplier offerings
- Identifying risk and mitigating responsibly
The reduction in costs after implementing a sustainability program can exceed the costs of implementation – in other words, you ‘re spending money up front but in the long run, you save more than you spend. For example, if an organization were to target the spend category of corporate services and facilities management (FM), capital may be invested in working with a supplier to install a new system that reduces energy consumption at the company’s North American headquarters, but in the long run, the reduction in energy costs saves the company money – which of course, can then be reinvested.
In this example, procurement and sourcing are uniquely positioned to make this happen. Most likely Sourcing negotiated the original FM contract, understands the innovative capabilities of suppliers, has heard many recent pitches on new products, and is adept at performing the analysis that proves an investment can have a significant return in hard costs, and even soft costs.
This is a prime opportunity for sourcing to either demonstrate or maintain that “seat at the table” and showcase their ability to apply proven sourcing methodologies to capital improvement and operational spend.
What is sourcing’s role?
Sourcing leaders can implement specific actions in order to address sustainability goals. First, leaders and teams should review their spend under management and identify any categories in which sustainability efforts may achieve success. Second, they should build a program that defines and adopts common methodologies and approaches. Every effort should be made to promote this program and create awareness.
The sourcing operations group should develop and make publicly accessible a supplier code of conduct for any awarded suppliers. These codes, or policies, should clearly explain the corporation’s sustainability goals and its expectations from its suppliers.
The sourcing procurement and contracts groups can develop contract clauses and terms for bid documents and awarded contracts in which these policies are referenced and in which goals and measurements specific to the products or services are included.
The sourcing compliance group can then govern and score suppliers according to these codes. They can build questionnaires, surveys, health checks, site visit audits, scorecards and the like to measure how their suppliers are complying with the stated goals and how well sourcing has aligned with the corporation’s sustainability mission.
Finally, sourcing organizations should benchmark and compare their own mission, policies and achievements with others.
Where to start?
Sourcing professionals should be very experienced with the concept of a 360-analysis, such as the total cost analysis. A similar concept applies when studying sustainability efforts, and it is called Life Cycle Assessment (LCA). This type of analysis can be performed to review the environmental impact of a “product ‘s production, use and end of life“. Sourcing leaders and other stakeholders can apply these concepts to studying the products built and bought to determine the greatest opportunities for gain.
The matrix shown below illustrates how sourcing leaders might take a 4X4 approach to qualifying categories for sustainability efforts. Most indirect spend would be considered “hot” or potential categories. An example is the packaging for products shipped. A corporate goal may be to reduce the amount of waste, so a Sourcing organization may work with a supplier to identify ways to crate products that reduce waste. This policy might be applied across the board to any materials contracts.
Image credit: “Value of Sustainable Procurement Practices,” EcoVadis, Accessed January 2, 2018, https://sig.org/value-sustainable-procurement-practices
How do you govern and measure?
I have already discussed how sourcing can help develop policies based on corporate goals or legislation if you are a public company. The SIG Resource Center has a number of policies for sourcing operations. The University of Louisville is an example of a comprehensive, publicly accessible policy.
During supplier discovery, use databases like the Rainforest Alliance and EcoVadis. After award, benchmark your performance with tools like the Dow Jones Sustainability Index and industries like this one for craft brewers or associations like SIG and the Sustainable Purchasing Leadership Council.
Lastly, turn toward thought leaders in sustainable sourcing like the Global Sourcing Council who have insights into hundreds of case studies and have worked with organizations like the United Nations to develop goals and assist with building business cases for mitigating risk through responsible sourcing.
- The growing demand for sustainability puts companies under pressure to ensure responsible and transparent supply chains. Get started with a white paper that delivers insights on what this means for procurement and how to meet the demands. SIG members just need to sign into the SIG Resource Center to access the template.
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Missed Part One? Get up to speed below!: