The Challenges and Opportunities of Sustainable Procurement

March 31, 2009

Victor Bobis
John Staniszewski
IBM Business Consultants

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Sustainable procurement – the belief that a company can benefit by balancing the concerns of economics, the environment and society in its procurement processes and operations – is not a new development.

Companies realized long ago that efficiency in energy usage, waste generation and water consumption could lower costs.

But growing economic pressures, rising expectations of customers and other key stakeholders, and evermore stringent government regulation are increasing the focus on “green” procurement for many companies.

An organization wanting to maintain profitability while taking on responsibility for the environment and looking after its consumers must reach beyond merely using recycled materials and reluctantly complying with government regulations.

Procurement organizations that are deeply committed to sustainability and want to attain the full value from it share common traits and practices:

Transparent, formalized measurement and metrics of sustainability across the entire supply chain;
Focused product and process innovation emphasizing reduction of the overall total cost of ownership;
Sustainability leadership focused on maintaining strong supplier partnerships.

Procurement’s integral role in a company’s operations makes it the central touch point for all stakeholders, customers, suppliers, subcontractors and service providers to effectively collaborate and build sustainability across the entire supply chain.

Using a holistic approach, a sustainable procurement organization addresses the economic, social and environmental elements of every procurement decision. Careful evaluation of the components within these three elements results in outcomes that benefit the rest of the company and creates the framework for sustainable procurement.

Key elements

Numerous studies, including those by independent third party research organizations such as Aberdeen Group, ISM, Forrester, and AMR Research, have all similarly identified common components addressing the economic, social and environmental elements.

Cost-cutting: Best-in-class procurement organizations have realized cost savings of up to 12 percent. These procurement organizations have achieved these savings through various “green” initiatives, including energy, supply, operations and logistics. Sustainable procurement should not only be treated as a vehicle for cost cutting, but above all as an essential dimension of strategic sourcing that provides value, achieves better economics for the company, benefits the environment and enhances the brand image to the customer.

Innovation: Ongoing efforts to increase service levels, cost reductions, and asset utilization must also now incorporate the environmental impact of each decision across all phases of the product life cycle. The concept of waste and the use of design-for-the-environment methodologies have resulted in sustainable procurement organizations delivering more environmentally harmonious manufacturing outcomes while increasing project delivery acceleration, thus reducing the time it takes to get eco-friendly products from the drawing board to market.

Regulation/Governance: A properly designed and implemented governance structure plays a pivotal role by driving performance and providing a structure of transparency for the collection, measurement, management, and public disclosure of key economic, environmental and social performance indicators. It can also identify, understand and manage future environmental risks and opportunities.

Consumer Perception: Sustainable procurement credentials must be founded on hard, verifiable evidence. To develop these credentials, collaboration and communication between companies and all stakeholders is critical. This means educating customers and stakeholders alike as well as engaging and partnering with these groups. The goal is to develop common standards for emerging issues and gather support for progressive regulation designed to drive environmentally sound practices. However, sustainable procurement activities must align with the core business or company values and wider community expectations in order to exploit new market opportunities.

Once a company has established a vision and understands the main drivers for sustainable procurement, it must define a detailed roadmap for implementing such a strategy within the company.

In this current environment of erratic and dramatic escalation of costs for goods and services, further government regulation and greater globalization, procurement organizations should quickly realize the strategic value that sustainable procurement provides.

Best-in-class procurement organizations have accepted the reality that sustainable procurement cannot be ignored and is here to stay. Individually or in combination, regulation, economic realities and social concerns force companies to consider sustainable procurement as an initiative.

The main difference between sustainability in the past and now is the idea that a company must make every action sustainable in a holistic fashion, covering organization, people, process and technology.

Victor Bobis and John Staniszewski are IBM business consultants specializing in procurement and strategic sourcing.

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