Drivers of Incorporating Sustainability in Procurement Organizations

Sustainable sourcing — considering environmental and social impacts in selecting and managing suppliers — can enhance your company’s brand, improve operations and drive efficiency while promoting a healthier environment and stronger community. Regulators, consumer groups and customer demands drive sustainability requirements. Trillions of dollars are being invested in green funds, and companies tout their sustainability initiatives through ad campaigns. Risk management experts know that a company’s reputation can be tarnished by the careless environmental actions of its suppliers. Procurement organizations should have a major impact on meeting the sustainability goals of an organization.

Your customers expect you to know how green your suppliers are and whether they share your values of sustainability, so you must have steps in place to collect this information from each supplier and keep it updated. Here are the Top 5 imperatives for developing a framework for the sustainable sourcing process:

1. Secure commitment across the organization. Show your commitment to sustainability at the highest levels of management through a well-thought-out program aligned with senior level objectives. Create key messages for executive communication and sponsorship. Name highly visible senior leaders as champions of sustainability efforts across the company. And then ensure suppliers have the same commitment.

2. Develop a code of conduct for suppliers. Creating a set of written rules for key suppliers targeted for sustainability initiatives ensures that the key partners have a code of conduct to clearly demonstrate their compliance with your company’s expectations. Prohibiting the prospective supplier/partner from using child labor, for example, or expecting that suppliers follow health and safety standards comparable to your company’s own lays out clear behavioral objectives.

3. Make sustainability a key factor in supplier selection criterion models. A supplier’s ability to meet “sustainability requirements” becomes a key factor in selecting a supplier as a preferred business partner. Does the supplier share your company’s green/sustainability values? Is the supplier willing to work with your company’s sustainability targets by developing new sustainable products or identifying green alternatives? Verify such capabilities by leveraging scientifically based third-party certification programs to separate real solutions from marketing hype.

4. Delineate the key metrics for sustainable Supplier Relationship Management (SRM). Report key performance indicators internally and externally to drive improvement and provide a structure for measurement, management and pub­lic disclosure. For example:

• Demand proof of a “code of conduct” for sustainability, at a minimum, from preferred suppliers.
• Require external certifications, such as Green Seal, C2C (Cradle-2-Cradle) and SMART.
• Evaluate the number of certifiable sustainable products or services developed over a defined time period.
• Examine the supplier’s carbon footprint (e.g., reported as tonnes of CO₂, net emissions).
• Assess the number of their suppliers that practice sustainability.

5. Adapt governance frameworks to incorporate sustainability. As increasingly more companies outsource key functions, making sustainability one of the core platforms in the governance frameworks becomes paramount. Work with the outsourced partners to identify and invest in sustainable initiatives, including joint investment where feasible, that help both partners.

ISG procurement outsourcing experts can help your organization achieve its global sourcing goals through objective advice, knowledge of your industry and experience with arrangements from simple to complex. For more information contact us.

About the author

Shahid is a procurement and supply chain management expert. In his more-than-20-year career, he has led multiple multi-tower outsourcing engagements that included everything from strategy assessments and benchmarking and feasibility studies to RFP development, supplier selection and contract negotiations. His work leading outsourcing and procurement transformation programs has helped generate and sustain more than $3 billion in savings. He also has enhanced clients’ procurement capabilities by leveraging digital strategies across the source-to-pay cycle. Shahid has an electrical engineering degree and an MBA. He has published white papers and taught classes on strategic sourcing methodologies, gainshare approaches and negotiations.