Future-proof procurement

Mark Whitman outlines an integrated approach to sustainable purchasing

Procurement is the process by which an organisation goes about acquiring goods and services. Unsurprisingly, the emphasis within procurement departments is on price and quality – often referred to as value for money.

Most large businesses go through a five-stage procurement process to maximise these benefits. First, someone in the business makes a sourcing decision, contacting the procurement department to initiate a request for information (RfI) procedure. The RfI is used as a filter to identify a shortlist of potential suppliers who are then invited to pitch for the contract based on a detailed specification. Proposals are then assessed against selection criteria before a purchasing decision is made.

The process is tempered by a number of factors, including the level of strategic importance of the purchase, supply and demand constraints and purchasing economies of scale. More recently other factors, such as sustainability, have come to feature prominently on the procurement agenda – leading to the term sustainable procurement (SP).

Sustainable purchasing

Sustainable procurement was initially seen as a public policy initiative. Although there is no agreed definition, in essence the term takes into account both financial and socio-economic and environmental factors in making a purchasing decision. Now, many public and private sector organisations practice SP, albeit with differing levels of success.

SP can drive significant value for a business. The benefits include savings on the bottom line due to whole-life costing, management of legal and reputational risks associated with unsatisfactory suppliers, and access to existing or new markets through improved performance. It can also help an organisation achieve its wider sustainability objectives, as well as being a catalyst for change internally and externally in a business.

Organisations that have adopted sustainable procurement principles have encountered several barriers to implementation, however.

These include:

• Short- v long-term cost: price premiums for sustainable goods and services are often measured against short-term budget targets, which don’t internalise long-term “total” costs.
• Setting a standard: establishing criteria that are challenging yet balanced can prove difficult. Overly taxing criteria tend to constrain purchasing options, whereas basic measures lack integrity and are seen internally and externally as mere “tick box” exercises.
• Valuing sustainability costs and benefits: the tools and mechanisms to demonstrate the economic value of social and environmental costs and benefits are either lacking or not embedded in the procurement process.
• Prioritisation and focus: for organisations procuring thousands of goods and services, knowing where and what to focus on is a challenge.

An integrated approach

An integrated approach to SP covers each stage of the purchasing process, from the sourcing decision and RfI to specification, assessment and supplier engagement. Aligning every part of the business to reinforce and support an SP process ensures that the business can consistently deliver on it.

Focusing effort on a prioritised list of high-impact goods and services can create momentum and quick wins. Often these goods and services map conveniently with an organisation’s key suppliers and therefore existing engagement can be strengthened through the implementation of sustainability principles. A useful way to identify high-impact goods and services is to use a materiality test and assign scores to predefined impact variables. For example, goods and services that account for a large proportion of procurement spend and have high associated environmental and social impacts should be prioritised over less strategic purchases with latent impacts (see example panel, below).

The implementation of sustainability principles should seamlessly align with broader business objectives. In the context of SP, this requires effective collaboration between the procurement department and the wider business. A good way to achieve knowledge sharing and support is by developing a set of pragmatic tools, guides and processes, which can be consistently applied across the business.

Key considerations at each stage include:

• Sourcing decision: the most sustainable decision is not to buy at all – it is also the most economically beneficial. The sourcing decision should be well founded on a qualified need. This can be achieved by directing the sourcing decision through an authorisation process that establishes the need. This seems like an obvious point; however, many purchases in an organisation are made without due consideration to stock levels or indeed the alternatives to purchasing, such as rental, reuse, sharing, temporary use and future use.
• Supplier shortlist: general sustainability criteria should be incorporated across all supplier-selection procedures. At a minimum, policy evidence, standard compliance and legal history should be investigated.
• Specification: engagement with the wider business is critical at the specification stage to ensure relevant criteria are incorporated in the Request for Proposal. Departments with high procurement spend or technical requirements should be engaged at an early date and encouraged to contribute to the specification process.
• Assessment: shortlisted suppliers should be scored against sustainability measures that are specific to the product or service being procured.
• Supplier engagement: suppliers should be engaged at an early stage to help drive continual improvement. An approach that is both collaborative and supportive and not intimidating or threatening is key to success. The carrot instead of the stick approach requires repositioning SP as an opportunity for suppliers to drive business value through their performance improvement.

Focus and fit

Changing an existing process that is tried and tested is challenging. This is particularly true of a process that is built to optimise economic considerations, often at a cost to society and the environment. For many procurement professionals, sustainability adds an additional layer of complexity to what is already a relatively complex process. However, opportunities to drive real long-term benefits in terms of socio-economic and environmental objectives are largely underpinned by the principles of SP.