Measuring the value of sustainable procurement

This article is a summary of our recent members-only webinar. Members can access the slides and recording in the members’ area.

The drivers for sustainable procurement are changing. While once in the realm of “it is the right thing to do”, sustainable procurement and supply chain management have become essential elements of any risk mitigation strategy. But increasingly, there is a new driver – needing to understand and measure the outcomes of sustainability initiatives and their contribution to the organisation.

Understanding and articulating the value created is essential to secure ongoing internal support for investment in sustainable procurement. It is also essential to continually assess and measure the impact of sustainable procurement initiatives in order to improve performance. If you’re not measuring value, how else will you know whether your investment is actually creating value and what you could be doing better?

Many organisations measure their sustainable procurement investment using basic metrics that can be easily collected like dollar spend and percentage of suppliers who meet certain criteria (local, sustainable, small). They measure inputs and outputs, but not outcomes.

But really, so what? Do those indicators tell us whether we’ve created value for anyone? Are these the reasons why companies pursue sustainable procurement? Arguably not.

Dollar spend and other implementation metrics are really the starting point for measurement rather than the end point. The real value is found in measuring outcomes – the new and additional value created as a result of your sustainable procurement activities. These impacts may be social, environmental or economic. They could be as diverse as reducing resource depletion, increasing employee engagement or improving financial security for marginalised communities.

To calculate a complete picture of the value created or the return on investment for your procurement spend, we need go beyond the narrow financial measures and simple metrics that we have used in the past. Holistic cost-benefit analysis can provide a wider understanding of economic, social and environmental outcomes.

For example, if the outcome you want is improved staff engagement, you could measure staff turnover and rate of new idea generation. If the outcome you want is reduced greenhouse emissions, you can measure the emissions avoided by comparing purchases against business as usual. The focus is on the value generated.

This does require additional data collection beyond what many organisations currently have in place, so will require some time to set up. It is key to identify the aspects that are central to understanding the creation of value, and then determine the appropriate metrics to measuring against. If the metrics chosen require supplier data, this will also need long-term engagement to help suppliers develop the capacity to collect and report that data. Wherever possible, data collection should be embedded in existing roles and activities, to ensure that it is sustainable over time.

And remember that Rome wasn’t built in a day. Build your approach over time, slowly progressing a more holistic measurement approach across your portfolio or across the various stakeholders that are affected by your expenditure. But the sooner you start your journey, the sooner you will reach the destination – being able to tell a powerful story of economic, environmental and social outcomes to your internal and external stakeholders, and providing that all important business case to ensure that sustainable procurement remains a priority.

Article provided by Rebecca Cain, Net Balance Senior Associate.