SRM, TCO, RFx, risk… this is the language of procurement. Unbeknownst to many procurement professionals, however, these are also each strategies to pursue sustainability. Not only do they achieve high quality goods and services at reduced costs, but they can also be used for better environmental and social outcomes.
ECO-Buy was recently invited to speak at the Oil & Gas Procurement Leaders Forum. I was repeatedly struck throughout the presentations how much of what was recommended as best practice in procurement was the same as what we advocate, just without the word ‘sustainability’. Some of those strategies are discussed below, and how these existing procurement processes can be used to achieve your sustainability goals.
Supplier relationship management (SRM) is the creation of close, collaborative relationships between buyers and key suppliers to achieve a better outcome for both parties. SRM generally includes regular meetings to discuss the supplier’s progress on key metrics as well as signalling the buyer’s future plans and how the supplier can support those objectives. Sustainability should be a key part of the discussion with suppliers, including tracking sustainability metrics such as carbon footprint reductions, delivery of social outcomes, or implementation of action plans. Even without such reporting requirements in place, SRM is a good opportunity to ask suppliers what they are currently doing and ask for input and feedback on sustainability initiatives.
Category management is about consolidating the procurement approach and expertise for similar goods and services, allowing streamlining of contracts, spend optimisation and a consistent risk management approach. Category management involves a long-term strategy, working with the internal customers to understand business needs, and looking for opportunities for improvement. Sustainability should be one of the category manager’s key objectives, working to reduce the environmental and social risks in their category and concentrating work with suppliers who demonstrate strong performance in reducing their impacts. A category view also allows management of demand, reducing unnecessary purchases to minimise cost to the organisation as well as environmental and social impacts in the production of goods.
The procurement cycle, which may also be called contract management or strategic sourcing, is the systematic process of identifying and defining the business need, requesting quotes or tenders, awarding the contract, and managing the performance of that contract. The request for proposal/bid (RFx) phase of a procurement presents the highest opportunity to influence the social and environmental outcomes. It can be used to specify particular attributes of goods, such as energy efficiency or recycled content, or the delivery of services, such as employment of local staff. It can also be used to include sustainability in evaluation criteria, including a preference for environmental and social outcomes to be weighed against other preferences.
Risk assessment is the identification and mitigation of potential impacts to the organisation or successful procurement of a good or service. This is generally achieved by conducting a risk assessment at the start of each procurement to identify the risks that must be managed through specification and contract clauses. Environmental and social risks and opportunities are an obvious inclusion in this assessment alongside things like financial, regulatory, reputation, intellectual property, etc. Risks identified, such as pollution and poor labour conditions, can then be addressed by asking potential suppliers about their management practices rather than presenting an unpleasant surprise later in the relationship.
Total cost of ownership (TCO), similar to whole of life costing (WLC), is the consideration of costs through the life of an asset. It involves looking at not only the up-front purchase price, but also the cost of ongoing maintenance, consumables such and ink and toner for a printer, energy and water inputs, and the cost of disposal or recycling. In many cases, ‘green’ products actually have lower overall costs, as they are designed to be more efficient, last longer, and be upgradeable. This saves the organisation money as well as reducing impact to the environment.
The key for each of these is to not force sustainability as a separate program or add-on, but to embed it in existing procurement processes. When an organisation is just starting to address sustainability in procurement, it is okay to focus on it and have extra processes in place to ensure it is considered. The long-term goal, however, is for sustainability to be part of the standard, business as usual procurement decision.
The above strategies are advisable for any mature procurement function, but this is not to say that you can’t do sustainable procurement without them. Even if procurement in your organisation is decentralised and ad hoc, sustainability can and should be included in the organisation’s procurement policy and all staff who make purchases should be trained how to consider environmental and social aspects.
No matter where you are in your procurement maturity, ECO-Buy is here to help. Contact us to learn more about implementing sustainable procurement in your organisation.
Article provided by Sara Redmond-Neal, Business Program Manager. To see Sara’s slides from the conference, click here.