How performance-based supplier collaboration can improve procurement and maximize benefits for both purchasers and suppliers.
Procurement: accelerator or brake on sustainability?
By Oliver Knapp, Marcus Schüller and Hannah Zühlke
Why the road to a sustainable company goes through Procurement and how Procurement itself can contribute
After years of people seeing sustainability – and talking about it – as just the latest buzzword, it is very obvious that we have now reached a tipping point. Companies in increasing numbers no longer see sustainable thinking and sustainable actions as something that's "nice to have" but as "must haves" – and not just to make them look good. Especially customers of the younger generations are showing a greater willingness to pay for sustainable brands and products, but industrial companies, too, are placing increasing value on sustainability in the goods and services they purchase. Looking at investors and asset managers as well, environmental, social and governance (ESG) issues have established themselves as an important category in their investment decisions.
Even if the majority of companies have now committed themselves to sustainability, there are still substantial differences in their motives for doing so. Clarifying the motivation is one of the key requirements for being able to put your business on the road to sustainability and at the same time offering guiding principles for Procurement to follow. In our experience, there are four different archetypes depending on how companies answer the big question: How do you feel about sustainability?
- Rule keepers focus on the basic legal standard, i.e. they do the bare minimum. They also try to anticipate what rules and regulations could apply in the future to avoid facing disadvantages such as penalties down the line.
- Risk avoiders mainly seek to meet the expectations of their key stakeholders, who may be customers, investors, employees, NGOs, etc. Their primary concern is to rule out legal and reputational risks.
- Opportunity seekers do all they can to keep up with their key competitors on sustainability – or better yet, outperform them – in order to grow their brand, their sales and their profits.
- True believers want to be a responsible company, and some of them even build their business model on that, because they really care about the ESG goals that come with sustainability.
Procurement as a multiplier inside and outside the company
How can Procurement itself contribute to bringing a company's sustainability strategy to life? Does it act as a brake or an accelerator to sustainability efforts?
Often referred to as being at the "center of the spider's web," Procurement's role is instrumental in three ways. First, because Procurement is master of the entire supply chain, managing and controlling it via its supply chain governance role. Second, because Procurement actively drives the issue of sustainability into the supplier base through its direct interface with suppliers. And third, because Procurement is able to actively take sustainability innovations from out of the supplier base and feed them into the product development process. In doing that, Procurement makes a significant contribution to the product's design, the product's differentiation, and ultimately even the company's success.
Procurement is therefore neither a brake on sustainability nor an accelerator of it: If Procurement fulfills its role to the full and does it right, it can serve as a sustainability multiplier and a value generator for the entire company!
If you look at it from an end-to-end perspective, the job of sustainability multiplier is very extensive:
- Procurement is the function that makes the biggest contribution to a sustainable business through its supply chain governance. It does so by taking the requirements and objectives from the corporate side and building them into the criteria for supplier selection, contract awarding or supplier evaluations, for example.
- Procurement takes sustainability and multiplies it into the supplier base by conveying the requirements and targets to the supplier base and specifying, demanding and enforcing their implementation and compliance with them, or by supporting suppliers with their implementation.
- The most important of the roles of a multiplier, however, lies in stimulating and identifying sustainability innovations (such as through environmentally friendly or circular materials) on the part of suppliers so that these can then be systematically incorporated into the company and its products.
The road to sustainability
So, how best to prepare Procurement for its role as a sustainability multiplier?
To set the scene, you need to take an honest look at where you stand in the market: Are you a B2B or B2C business? That will go some way to determining how willing your customers are to pay for that little bit more sustainability.
Then you need to understand your sustainability starting point: Which of the above archetypes does your company most closely resemble? Are you more of a rule keeper or a true believer – or are you somewhere in between?
On that basis, you can configure your way forward along the four building blocks of philosophy, content, approach and partners (see box feature).
• Think big, start small, scale fast
• Try, fail fast and try again
• Conquer three dimensions: Address procurement, supplier and product
• Extend your view: Apply a value chain and extended TCO view
• Change the perspective: Iteratively look through the eyes of the customer and the supplier
• Get your hands dirty: Start pilots and create early success stories
• Turn on the seat light: Create a vision, create visibility and adjust/synchronize KPIs
• Drop anchor: Gradually embed the procurement operating model and make it count daily
• Look outside: Look what others are doing in procurement and beyond
• Find "partners in crime": Seek out like-minded people in other functions and teams
• Rally your team behind you: Together you can make it happen
• Go beyond: Capture the interest of stakeholders beyond "just" the management
• Redefine perseverance: It's worth it – for Procurement, for the company, for society
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How companies can benefit from sustainable procurement
Companies are under massive pressure in procurement due to supply chain problems, rising energy prices, sanctions and so on, factors that are an expression of a much more uncertain world. Sustainable procurement is the answer with its focus on resilience, risk mitigation and other so far neglected topics.
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Procurement is in a phase of disruptive change across all industries. Learn more about the procurement of the future here.