The CPO's 10-Step Guide to Sustainable Procurement
Whether you’re a passionate supporter of driving sustainability improvement or a skeptical follower, chances are you’ve been drawn more deeply into the sustainability debate over the past 12 months.
As the interface with the supply chain and an engine room for tangible improvements within sustainability, it’s wise to be on the front foot with your procurement function.
In this guide, we share our accumulated guidance on working with clients to drive measurable sustainability improvement through procurement practices. Be this your survival guide or support for your 2022 strategy and beyond, we hope you find it useful.
Step 1 – Understand organizational objectives
You can’t improve everything, at least not all at once, and this is especially true for a set of ideals as broad as those encapsulated by ESG. Make sure, therefore, that you know what is truly important to your organization and where you can help.
Sustainability targets range in commitment levels from internal aspirations to being externally reported and audited. Clearly these require different levels of focus and rigor and will help define procurement’s agenda and where to spend its time.
Assess if your business has accurate baselines and target, as well as agreed measures to track against. If not, push for them and then translate them into something meaningful. For example, if there are targets to increase spend in the local economy, agree this definition, understand where you will reliably pull data from, and translate a % improvement into $'s that the procurement team can action.
Step 2 – Engage sustainability leads
If your organization has a sustainability function, then it should be setting the business-level strategy from which the procurement team derives its own strategy. It should also act as the Subject Matter Experts (SMEs) to guide around policy, sustainability approaches, and requirements.
Understand their key themes or ‘capitals’ and then agree those which Procurement is well placed to drive forwards.
Naturally, a dynamic tension will exist with one party favoring ESG objectives and the other cost; however, it’s best to proactively drive this dialogue and agree a rulebook that’s realistic and focuses on prioritized approaches. For example, when looking at facilities services, focus on moving the needle within local economic impact and welfare. When looking at fleet, focus on carbon and GHG emissions. Sometimes the right thing is to focus on cost and service and, in this way, support investment in areas where sustainability returns are greater.
Step 3 – Baseline your approach and capability
As the agents of change, your team needs to be equipped with the right targets, skills, and tools, so make an honest assessment of your current capability. Does the team understand the sustainability agenda and how it can play a part? Do you have a clear policy and playbook to guide and support the team? Do you have agreed tender questions, scoring approaches, and contract terms to hand? Is sustainability built into the fabric of the procurement process, especially in category strategies?
Many of these are quick to establish, and it’s fine to iterate.
Step 4 – Triage your spend categories
A key step is to triage spend against agreed sustainability themes to understand which spend areas can drive which themes. Weight these areas by spend, sustainability opportunity, and ability to impact. Ability to impact can be defined by several things but notably by the
complexity or likelihood of change or improvement and the sourcing pipeline.
Where (re)sourcing is not possible, you still have the option to improve through supplier relationship management (SRM) processes, including joint target setting and innovation.
Remember, again, that you cannot improve everything at once.
Step 5 – Improve your sourcing approach
We believe that sustainable procurement does not require a new skill set, but it does require a new mindset. Train and encourage the team to think in terms of cost, service, and ESG and, as such, to adapt sourcing methodologies to reflect this additional parameter. Implement new tender questions (refined by theme or capital), new scoring and evaluation approaches, as well as effective sign-off governance to ensure ESG is effectively considered and does not become a tick-box.
Review your sourcing pipeline now, and identify where and how you will address sustainability, through what levers, and what opportunities might be available.
Step 6 – Implement an SRM (Supplier Relationship Management) approach
In many ways, sustainability is synonymous with collaboration: macro goals shared by the many, distilled into multiple and sustained changes to behavior. In a similar way, it mirrors a maturing and more collaborative approach that seeks to deliver long-term value through better engagement with supplier partners. ESG fits neatly into this SRM world of dialogue, target setting, KPIs, and mutual innovation. Make sustainability a core part of SRM approaches. And, if your organization is weak in this area, use this as the impetus to invest in it.
To repeat the mantra that we can’t change everything at once, ensure that you segment the supply base, for example:
- Top 10 suppliers – joint targets and innovation
- Top 100 suppliers – detailed questionnaires and objective alignment
- Top 1,000 suppliers – data capture
Importantly, set long-term requirements so that the supply base has time to prepare and adapt. Ensure you don’t penalize SMEs, who may have fewer resources to develop their ESG capabilities, but instead give them longer to react.
Step 7 – Invest in training
Old habits die hard. While there will be motivation in procurement teams to drive change, this will not be universal; it will be all too easy to revert to type when the next cost target lands or performance reviews come and they do not evaluate ESG value delivery.
Use training to embed change, start with the basics, and move towards a specific toolkit:
- What do we mean by sustainability? Why is it such an important topic for Procurement? How is Procurement well placed to help?
- Explore the key themes of People (social), Planet (environmental) and Profit (economic) sustainability, how to measure impacts, and the key opportunity levers.
- Introduce your organization-specific methodology and toolkit, likely to comprise baselining methodologies, sourcing, and SRM Support resources are becoming more readily available, including the Supply Chain Sustainability School.
Step 8 – Establish clear KPIs (Key Performance Indicators)
Sustainability improvements are being hindered by an inherent lack of accurate data. Without it, organizations find it hard to make decisions – they lack the objective insight – and they then fail to get the feedback loop that informs them of the impact of their decision making. For Procurement, this is a particularly uncomfortable place to operate.
Each sustainability theme, however, should have a measure and target, even if they are crude at first whilst data improves. If we consider carbon, we can see a tiering something like:
- Step 1 – use spend multiplied by emission factors to find hotspots in the wider supply chain
- Step 2 – use supplier level reporting data to compare suppliers
- Step 3 – use service or product level calculations to compare procurements
Wherever we can convert the KPI into a currency measure ($/£/€ … ), even better. Cost of carbon dioxide equivalent (CO2e) values really help to normalize sourcing decisions and reduce the question of, “Is it right to pay more to reduce greenhouse gas emissions?”.
Step 9 – Build a playbook
Each of the preceding steps should then be encapsulated in a single source of the truth – a playbook that can act as guide and governance to procurement teams and lay out the boundaries of what Procurement will do, how it will do it, and whom it will engage with to maximize outcomes.
The more this can be built into existing processes and BAU, the better. It also needs to be owned and kept alive. The sustainability landscape is developing quickly, and we all need to absorb best practice as we find them.
Step 10 – Communicate your procurement policy
Finally, make a statement of intent. Make the effort and aspiration real by communicating it broadly within your organization – both to customers and to the public. By communicating, allow Procurement’s activity to be scrutinized and held to account. Focus on specific commitments that the procurement team can confidently defend and demonstrate. Generalizations and buzz words only add to the growing murkiness of greenwashing. Clear commitments show suppliers, partners, and customers alike that Procurement can and will make a real difference.
Driving the sustainability agenda
Alongside board-level commitment, we believe that procurement is the key enabler for organizations to successfully achieve their ESG objectives, and we explain this in detail in our upcoming annual thought leadership research report, for which we surveyed more than a thousand procurement leaders and interviewed prolific experts. Sustainability-related issues present a key opportunity for procurement to rebrand itself as more than a business function for delivering cost optimization, and instead one that can be a meaningful driver of the sustainability agenda – one of total value, rather than total cost.
We are here to help
If you need help to operationalize sustainability within your procurement function and your supply chain, please contact us. Our accumulated knowledge and data through billions of dollars of addressed spend over the last 22 years stand us ready to help you to take sustainable action.