Why Should Procurement Get More Involved in Sustainability?
Fighting climate change and sustainability – there’s no more time to waste. It’s time for procurement to get more involved and lead from the front.
When someone with the reputation, knowledge and experience of Bill Gates talks about fighting climate change, you pay attention. When he talks about elements of this fight that procurement could directly influence, professionals everywhere sit up and take notice.
That’s exactly what he did earlier this year at a virtual summit of world leaders, hosted by President Biden. During the event, Gates delivered an address on the three key things we collectively need to do to avoid a climate disaster. At the same time, Procurious and Ivalua launched a new survey to gather data on how procurement leaders are driving sustainability improvements across their supply chains right now.
The link between the two events may not be immediately obvious. However, once you review Gates’ address through procurement’s eyes, you’ll be able to see why this was not only a call to action to world leaders, but also a roadmap for procurement to make a real difference on global sustainability.
The Green Premium
Not for the first time, Gates used his address to shine a light on what he views as one of the biggest blockers to tackling climate change – the ‘Green Premium’. This is a measure of how much more expensive zero-carbon technologies are compared to existing fossil-fuel technologies.
In order to successfully fight climate change, we require major advancements in technologies that are still affordable for everyone. The Green Premium makes it much easier to justify continuing to use old, less environmentally-friendly technologies. Gates argues that the Green Premium needs to be a zero value factor, something that sounds relatively simple, but requiring huge investment in innovation and infrastructure.
The address was intended to be a call to action for world leaders. Within procurement, it serves to highlight three key areas where the profession, with greater focus and involvement, can make a tangible difference. Not only this, but it would also allow procurement to deliver sustainable, long-term, green growth and value for its organisations.
Studies from leading organisations, such as Morgan Stanley, Ivalua and the World Economic Forum have shown compelling evidence on the benefits of having a sustainable supply chain. These studies have shown that a green supply chain can deliver huge benefits, from better operational performance and reduced costs, to increased brand value and competitive advantage.
So let’s consider these three areas, understand where procurement is now, and what it has to do to deliver in the future.
1. Collaborative partnerships
When it comes to delivering value for an organisation, procurement should be focusing on forming collaborative partnerships with suppliers. It’s no different when it comes to sustainability either. As Bill Gates alluded to in his address, take too much of a cost focus on sustainability and the numbers don’t add up. When it comes to lowering the Green Premium, it’s a path to failure.
Procurement is in a unique position to reduce the Green Premium through leveraging their existing strategic procurement processes and supplier relationships. Half of respondents to Procurious and Ivalua’s recent survey believe investing in platforms and initiatives that would enable greater collaboration with suppliers is key to the success of sustainability initiatives.
However, of the same respondents, only 28% are investing accordingly, highlighting a huge opportunity for procurement to be more involved in sustainability activities. Through investment and collaboration with key suppliers, procurement can champion sustainability in the supply chain, but also leverage these relationships to reduce the cost of zero-carbon technologies and products.
2. Supply chain innovation
Can you truly say that your organisation’s products and services couldn’t be improved by a new, unheralded idea from a supplier? Procurement needs to give its suppliers the freedom to innovate and bring new ideas to the table. Organisations with more advanced sustainable procurement and supply chain programs are reporting more ROI across a range of areas, including innovation, a benefit seen by almost a quarter of survey respondents.
Providing this freedom to suppliers by removing the risk or fear of failure – for example, loss of future business, reduced margins and clawbacks – innovation in the supply chain can be allowed to thrive. It may sound riskier, but if the increased ROI can be achieved, then these new ideas will eventually reduce costs and lower the Green Premium again.
3. Green supply chains
The underpinning logic of Gates’ address was that an increased use of new technology will support sustainability activities. For procurement, this means using technology and best practice to help with greening its supply chains, not just in the first and second tiers, but across every level.
And this is where one of the real issues lies for procurement – the visibility and monitoring of sustainability across all levels of the supply chain. Nearly 70% of survey respondents’ organisations are monitoring less than half of tier-one suppliers for sustainability performance. The numbers are more stark across sub-tiers, where the majority of organisations are monitoring the sustainability performance of less than 5% of suppliers.
Technology platforms, such as those offered by companies like Ivalua, offer procurement a solution to increase supply chain visibility and traceability, and will play a key role in success. They will also allow procurement to access suppliers with genuine green credentials and reduce the risk of falling victim to ‘greenwashing’, where sustainability is part of the process in words only.
Look to the future
Sustainability is a key motivator for organisations, not only because it’s the right thing to do and has a positive social impact, but also because of the benefits resulting from ROI and cost reduction that come as part of the package. However, it’s clear that for many organisations, sustainability initiatives and practices are still in their infancy and maturity is a long way off.
The areas seen above are just three of many that procurement should be prioritising in its own activities. It’s time for procurement to lead on sustainability, or face being shut out of the decision-making process and left behind. There’s a lot of work to do, but by collaborating and sharing best practices, there is a possibility of a brighter future ahead.
We know sustainable procurement has big pay-offs.
That’s why this year’s Big Ideas Summit Chicago will focus on sustainability. We’re ready to empower businesses to lead the charge to establish greener supply chains and procurement processes.
Our Big Ideas will be delivered by internationally renowned speakers to our fully digital event. And did we mention that this is a FREE event?
So what are you waiting for? Register today to secure your place!
