Gone are the days when procurement organizations were focused only on cost savings and spend control. Today, they play an active role in helping businesses to achieve their goals by aligning procurement processes with core business objectives. Sustainability, as a key objective, is undertaken by many organizations through their CSR initiatives and goals. Procurement is a key function driving enterprise-level changes to meet these goals by adopting a set of policies, practices, measures, and technologies under “Sustainable Procurement”.
Sustainable procurement enables organizations to get the maximized value out of their suppliers in implementing the measures targeted at reducing the social, environmental, and economic impact caused by a company’s business activities. To implement these measures towards sustainability, the procurement function has started examining and evaluating many new areas in their supply chain processes such as the carbon footprint, product material compositions, human rights, health and safety, diversity, philanthropy, community development, and so on.
The following procurement processes are evolving with the adoption of new practices to drive sustainable procurement:
Supplier discovery and prequalification process: With sophisticated materials, complex compliance standards, and growing sustainability demands, procurement organizations are constantly endeavoring to identify new potential suppliers who can help them in driving sustainability goals such as green energy adoption, better waste management, and zero carbon transportation. The inclusion of sustainability criteria in the prequalification process is rapidly growing as companies are realizing that a significant percentage of their environmental, social, and governance (ESG) footprint lies with their suppliers.
Sourcing and procurement process: Organizations are driving suppliers to commit to sustainability criteria such as fair working conditions, environmentally responsible processes, and ethical governance during the sourcing and selection process itself. These criteria are enforced through supplier code of conduct or sustainability declaration and become the entry criteria for suppliers to be a part of the supply chain ecosystem. At the same time, companies are setting regulatory and sustainability standards for their supplied materials, product packaging, and material transport in their procurement contracts. Some industries such as chemical, pharma, agriculture, and food are highly regulated and face a lot of new sustainability demands to comply with, where procurement organizations are relying on third-party governing agencies for endorsing a supplier’s regulatory compliance as a part of the evaluation process. As a part of the procure-to-pay process, organizations are mandating suppliers to provide visibility of plastic usage in their catalog items and are also driving for paperless, electronic invoices from suppliers to control their spend toward non-sustainable products and substantially reduce their carbon footprint.
Supplier risk and performance management: After the suppliers are selected and contracted by the organization, it becomes their responsibility to implement internal controls to ensure their commitment to sustainability standards. Procurement organizations help businesses in assessing sustainability risks, monitoring audit findings, and collaborating with suppliers to resolve non-conformities. The supplier sustainability risk is assessed and triggered by various parameters such as the country from which the supplier is operating, materials used in the production process, any unethical incident reported internally or on social media, and other aspects like commercial exposure, sole sourcing etc. To mitigate supplier risks and drive sustainability, large organizations are extending their help in training, and even funding, their suppliers with relevant tools and technologies by engaging with a wide variety of stakeholders like customers, government, NGOs, and investors.
How is technology helping in sustainable procurement?
None of these could be achieved without the intervention of appropriate digital solutions. There is an ecosystem of digital platforms which plays a censorious role at different stages of the supplier lifecycle. There are specific platforms which maintain a catalog of suppliers with their specialty, compliance, certifications, and ESG ratings that help companies to discover new suppliers who can support them in sustainability initiatives. Modern source-to-pay platforms enable customers to assess different sustainability criteria in the source-to-contract and procure-to-pay processes. Supplier risk management systems enable sustainability assessment in the audit and performance management process. Organizations are subscribing to external data to monitor supplier ESG scores and detect any environmental or governance issues. Advanced organizations are seeking to achieve full visibility of suppliers from every possible angle such as economic factors (quality, cost, and price), environmental factors (green design, carbon emissions, and waste management), and social factors (workers’ safety, human rights, and diversity). Modern source-to-pay platforms are progressively building this capability to integrate supplier information and performance data from several internal and external sources, enabling procurement organizations with a 360-degree visibility of suppliers to take data-driven procurement decisions and manage sustainability risks. A procurement organization is the natural collaborator to bridge between businesses and external partners. With the right process and technology, they can play an active role in building a sustainable supply chain per stakeholders’ demands.