To paraphrase a timeless Bob Dylan song, “The Times They Are A’ Changin’” is no understatement. You can read the details from across the globe in the news every day and are rapidly happening simultaneously on political, economic and social levels. And business is also making radical changes in the sustainability and corporate social responsibility (CSR) frontier.
One area that appears to be in movement is Procurement. You know, those folks on the third floor in the back that order stuff? Well, wrong! I’ve maintained that the heart of a sustainable supply chain runs through its procurement function. That’s because every product- every single purchase- has a hidden human health, environmental and social impact along the entire supply chain. My previous posts have discussed how the procurement function is a vital cog in product value chain.
Purchasing staff are the “gatekeepers” that can access powerful tools and serve as a bridge between supplier and customer to assure that sustainability and CSR issues are taken into account during purchasing decisions. 2010 was awatershed year for sustainabilityinitiatives and supply chain management and I predicted that2011 would see greater progress.
So I was incredibly excited when I recently got my hands on a relatively new white paper from Ariba, entitled “VISION 2020 -Ideas for Procurement in 2020 by Industry-Leading Procurement Executives”. According to the conveners of the document, the “objective [of the effort initiated in 2010] is to initiate a dialogue on the future of procurement and to create a roadmap for how to get there.” For that, they connected with leading practitioners and executives from around the world and across a variety of sectors to share their ideas, best practices and to read the tea leaves as to where procurement might be in 10 years.
And while the initial report laid out some pretty intriguing and widely varying trends and predictions about the state of procurement in the corporate function, I was unfulfilled. I was all ready to read about how the emergence of sustainability in the marketplace was going to drive procurement decisions. I expected to hear how top flight companies around the world were collaborating with their supply chain, implementing staff training on ‘green purchasing’ practices, and implementing sustainability driven supplier audits and ratings scorecards.
Boy, was I wrong! Only ONE mention of the word “sustainability” (thank you Dr. Heinz Schaeffer, Chief Procurement Officer, Northern and Central Eastern Europe for AXA), and no mentions of “responsible sourcing”, “green supply chain” or “sustainable sourcing”. I would have expected more from chief procurement representatives from the likes of KeyBank, Maersk, Sodexho, and former execs from Hewlett- Packard, General Motors, and DuPont. Most of these companies are generally considered leaders in the sustainability space. So why would there be a disconnect between what companies are doing in design, manufacturing and product life cycle management and the procurement function?
Sustainable Procurement- a Systems Based Approach
Before we go too far, its helpful to define what "sustainable procurement" is. While there is no singular definition for it, I like the definition offered up by the UK-based Chartered Institute of Purchasing & Supply (CIPS). CIPS definition is “a process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis in terms of generating benefits not only to the organisation, but also to society and the economy, whilst minimising damage to the environment.". And what CIPS defines as ‘whole life basis’ is that "sustainable procurement should consider the environmental, social and economic consequences of design; non-renewable material use; manufacture and production methods; logistics; service delivery; use; operation; maintenance; reuse; recycling options; disposal; and suppliers capabilities to address these consequencesthroughout the supply chain"[emphasis added].
It’s a good thing that the authors from Ariba stated that “The [2020 Vision]report is intended not as an end, but rather as a point of departure for much discussion and debate around where procurement can and should be setting its sights for the year 2020 and beyond. In fact, Ariba invites readers to “join the debate and to extend the discussion with new ideas by joining the conversation. I have and I hope you will too. But I think I’ll start right here first. Here were some of the key findings, captured in six major themes:
Procurement devolves-with spend management requirements shrinking, companies are being forced to optimize what resources they have and make better informed decisions. More work at the business line level will occur, possible eliminating the central procurement function entirely. Money and metrics will drive most decisions as companies face leaner profit margins. There will be a need to engage end customers more and more and leverage relationships.
The new supply management emerges- some traditional sourcing functions may become outsourced. Strategy “will tie directly to an enterprise’s end customers and it will be more cognizant of the diversity of desires and requirements within the customer base”.
Skill sets change. The Chief Procurement Officer and staff must have broader skills that allow them to not only create opportunities for revenue enhancement internally and optimized “spend”, but also be more in touch with end customer values-driven needs. Procurement staff need to be tuned into multiple tiers of the supply chain, dive deep “inside the supply chain and bring [issues] forward to the designers within [individual] companies”.
Instantaneous intelligence arrives. Market pricing will become more transparent [the Cloud forces transparency to some degree]. Companies will have to rapidly extract innovation and other value from supplier bases, and build exclusive commercial relationships with leading suppliers that share both risks and rewards.
Collaboration reigns-There will be as the report notes a “big emphasis on driving and taking innovation from the supply base… the supply role will be less ‘person-who-brings-innovation-in’ and more ‘person-who-assembles-innovation-communities-and-gets-out-of-the-way’. Suppliers are being asked more often to participate in early design and product development as a way to leverage risk and control overall product life cycle management risks.
Risk management capacity and demands soar- as companies are already realizing, effective procurement relies on response to risk management variables (financial, ethical, and operational performance). Companies must create “360-degree performance ratings and provide greater transparency into market dynamics, potential supply disruptions, and supplier capabilities”. A few participants noted that there will be a “big expansion in the kinds of risks companies address in their supply chains, considering, for example, such things as suppliers’ sustainability, social responsibility…."
Now if I read in between the lines, I can easily pluck out a number of key procurement trends from the 2020 report that transfer well to sustainability and responsible sourcing. Risk Management. Collaboration. Design phase (life cycle) engagement of multi-tiered suppliers. Key performance metrics. Responding to consumer demands. Supplier performance ratings.
One takeaway for me appears that there may be a disconnect still between the procurement function and other functions within organizations. So is the procurement function still operating in obscurity in most organizations? It all depends who you talk to but also on your skill at reading the tea leaves.
Rest assured that compared to only a few years ago, more companies that are seeking to manage the life cycle environmental impact of their productsfrom design and acquisition of materials through the entire production, distribution and end of life management. They’re finding sustainable procurement to be a valuable tool to quantify and compare a product or component’s lifetime environmental and social impact early on in a products value chain while positioning the company for smart growth in a rebounding economy. We may be at a sustainable procurement "tipping point" and Part 2 will present the results of a very promising benchmark report recently released by HEC-Paris and Ecovadis, which tells a much different story.