Procurement is one of the most vital, transactional parts of conducting a business since the beginning of commerce. Though the days of scribes writing and checking the orders on papyrus scrolls, the basic activity involving the selection and purchase of goods and services needed for everyday functioning remains the same.
In light of the increasing environmental degradation and our endless needs, sustainable procurement has become the need of the hour. Sustainable procurement is a method by which we ensure that the goods and services purchased by us are as sustainable as possible, with the lowest environmental impact and highest positive social results.
Sustainable procurement will improve the future of your business with ensured gross profits, increasing sales and better customer experience. This article will tell you all the basics about sustainable procurement.
What is Procurement?
Procurement is a term used to refer to the process or the act of sourcing or obtaining services or goods for the business. Procurement is most commonly associated with businesses as companies need to acquire goods and solicit services on a large scale from a third party vendor. These services and goods are vital for the organization’s operations.
When managed efficiently and carried out effectively, procurement will help in ensuring higher business profits. It is hence important to continuously monitor and assess the procurement process, rectify the mistakes found and strengthen the weak points.
The whole process of procurement starts from sourcing the goods and services, deciding the terms, making the purchase and tracking when the supplies will be delivered. To automate this tracking process and thereby reduce the overhead and administrative costs, technology and software like Deskera play a vital role.
What is Sustainable Procurement?
Sustainable procurement is the act of adopting social, economic and environmental factors alongside the usual price and quality considerations by the organizations handling the procurement process and procedures.
The most common way of having sustainable procurement in place is by making it mandatory to:
- Have compliance with environmental laws and targets
- Removal of hazardous materials and wastes from the supply chain
- Have fair labor practices followed by the suppliers
In the long run, sustainable procurement will ensure a better future for your business with higher profits, improved customer retention, healthier financial statements and bright future prospects.
The 3 Pillars of Sustainable Procurement
Effective sustainable procurement supports sustainable development. Sustainable procurement is hence smart procurement as it takes a 3-dimensional life cycle approach against the one-dimensional, economics focused approach.
The three-dimensional approach does not mean that the sustainable procurement process will take 3 times longer, nor does it necessarily mean that it will be more expensive. Rather, it means that it undertakes the 3 pillars of sustainable development for achieving sustainable procurement. Thus, these 3 pillars of sustainable procurement are:
Examples of Economic Pillar of Sustainable Procurement:
- Economic Regeneration
- Sustainable Economic Development
- Emerging Markets
- Development of SMEs
- Total Cost of Ownership and Life Cycle Costing
- Value for Money
- Poverty Reduction
Examples of Environmental Pillar of Sustainable Procurement:
- Environmental Resource Management
- Urban Planning
- CO2 Reduction
- Alternative Energies: e.g.: solar, wind
- Water Management
- Sustainable Agriculture
- Marine Resources Management
- Protection of Ecosystems
- Pollution and Waste Management
Examples of Social Pillar of Sustainable Procurement:
- Human Rights
- Clean Drinking Water
- Food Security
- Fair Pay and Labor Law Protections
- Anti-Child Labor and Forced Labor Laws
- Fair Trade
- Health and Safety
- Gender Equality including Universal Education
- Child Mortality and Maternal Health
- Healthy Lives and Well-Being for All
Informally, these pillars of sustainable procurement are known as profit (= economic), planet (= environmental) and people (= social).
Sustainable procurement hence incorporates sustainability considerations throughout the procurement process, to achieve optimum value for money in delivering the developmental objectives. Sustainable procurement is strategic procurement at its best.
However, sustainable procurement is used at the borrower’s discretion and the standards it has led down for terming practices as sustainable.
What are Sustainable Procurement Practices?
Sustainable procurement is the adoption of corporate social responsibility into your procurement processes and decisions, while also ensuring that they meet the requirements of your company and its stakeholders.
It is not as simple as not using child labor or illegal chemicals that can damage the environment and people’s health. Rather, sustainable procurement is about integrating requirements, specifications and criteria that are compatible with the protection of the environment and society.
Sustainable procurement is best committed when the core values of your business are integrated through your supply chain such that it is present across the life cycle of your products and services. To increase your company’s sustainable procurement processes and investments’ viability in the long run, it is important to future proof it with sustainable policies.
By committing to sustainable procurement and having the ability to meet the demands of emerging markets, even as you reduce the pressures of costs by the reduction in energy consumption and waste generation, you have these 2 main benefits to look forward to:
- Your brand would be differentiated from your competitors as you procure sustainably to develop innovative products and services as demanded by your customers.
- Your brand awareness would increase and your brand positioning statement would be strengthened. However, this will require proper risk management and addressing weak areas to prevent scandals and bad publicity for your company.
Drivers for Sustainable Procurement
Cost Reduction
Following sustainable procurement practices and decisions will lead to a reduction in the total cost of ownership. This is through reduced energy costs, reduced over-specification, reduced consumption and reduced social and environmental compliance costs.
Risk Reduction
By following sustainable procurement practices and decisions, risks are reduced because you will no longer face the financial impact on your brand value due to bad supplier practices like child labor and local pollution. You would also be saved from the economic costs of sustainable procurement disruptions like noncompliance with environmental regulations.
Revenue Growth
By following sustainable procurement processes, you would be able to earn additional revenue through the innovation of Eco-friendly products and services and price premium or income from recycling programs.
Approaches to Sustainable Procurement
While there is no fixed rule-bound approach towards sustainable procurement that organizations can undertake, the 2 main approaches which are most commonly combined and used are:
Product-Based Approach
Under this approach, your business will examine the movement of products and services along the supply chain and note down your as well as the suppliers’ environmental credentials.
This approach is most commonly used when your business wants to understand the impact of the product or product range for marketing or strategic purpose. This approach also provides a detailed version of the supplier processes.
Supplier-Based Approach
As per the supplier-based approach, your business will analyse the corporate social responsibility (i.e. CSR) system of your suppliers, and whether that system conforms to the law as well as to your CSR standards. By doing this, you will be able to measure the environmental and social risks that your supplier poses to you.
The assessments undertaken through this approach often help in improving the whole supply chain by providing incentives to other businesses to be more sustainable.
Roles and Responsibilities in Sustainable Procurement
Sustainable procurement is the responsibility of the entire organization as well as the supply chain and not only of the procurement department. Sustainable procurement starts with sustainable management wherein the manager sets the goals, which should be committed to by procurement officials and the internal client or budget holder.
It is the internal client or the budget holder who is the final owner of the sustainable procurement and hence gets to challenge the procurement official on the solutions offered. They also inform of the risks associated with the procurement processes and decide how much they will be complying with the sustainable procurement practice.
Importance of Sustainable Procurement
Effective sustainable procurement is important because it means that you are staying true to your brand positioning statement. This helps in building its reputation and trust among its target customers and partners.
For a business to encourage returning customers and have a partnership with the best suppliers, staying true to its goals of sustainable procurement is important. The benefits of sustainable procurement are as follows:
Financial
By resorting to sustainable procurement, you can reduce your total operating expenses and thereby increase your operating income by procuring more efficient and sustainable goods and services.
Sustainable procurement will also develop the market’s capacities to deliver sustainable solutions. This will increase the demand for sustainable solutions, which in turn will increase market competitiveness. Market competitiveness will serve to bring the winning side more revenue.
By applying life-cycle costing to the procurement process, you will also be able to save costs on a long-term basis. Considering that the goods and services obtained would be sustainable too, it would lead to the minimization of disposal costs.
Risk Management
By incorporating sustainable procurement processes, you will be able to engage in the mapping of economic, legal, environmental and social sustainability threats and opportunities. You will also be able to develop approaches to manage them.
Commitments and Goals
By resorting to sustainable procurement processes and decisions, you will be able to reflect your organizational culture, values and ethics in accordance with relevant policies. You will also be able to decide your sustainable procurement process in accordance with the country’s overall strategy.
This will help in creating a positive brand awareness which will lead to increased sales. When your commitments and priorities as stated in policy are implemented in sustainable procurement practices, it will win the trust of your customers as well as your suppliers. You would even be able to access government benefits for following sustainable procurement practices. This can help your cash flow balance considerably.
Response to Increasing Stakeholder Expectations
As times are evolving, and there is a rising awareness for sustainable development, stakeholders have started backing companies who follow sustainable procurement practices.
To meet their demands, it is important to undertake sustainable procurement practices, even as you fulfill the bank’s demands like high returns on investment, healthy income statement and positive cash flow statement.
Attractiveness
Performance in terms of social responsibility and sustainability will impact your potential customers’, suppliers’ and the portrayed image of your project. If you rank high in social responsibility and sustainability, you will have a competitive advantage over your competitors.
Additionally, implementing sustainable procurement will also attract financial investors, boost labor markets, attract the best organizations to bid and further drive development goals. This increase in attractiveness will hence be for your stakeholders, customers and even the government.
Future-Proofing
By developing and implementing sustainable procurement practices, you would be future-proofing yourself against scarcity in supply and changes in social, economic and environmental factors.
Challenges of Sustainable Procurement
With the evolution of procurement practices and the inclusion of sustainability in the same, it is no longer as simple as just sourcing services and products and reducing costs. Now, it is also about corporate and social responsibility and sustainability. The challenges faced by sustainable procurement are:
Reputation and Brand Image
If not taken care of, you could become the blame for the violation of child labor laws and environmental regulations through your suppliers’ lack of compliance.
Such blames could ruin your brand and public image which directly impact your sales and bring about a reduction in your profits. You will also lose your customers and your future will become uncertain. This will harm your balance sheet and profit and loss statement.
Corporate Social Responsibility
While it is easier to ensure sustainable practices indirect procurement, it is more complex to ensure this during indirect procurement.
The level of auditing required to ensure that the practices followed are sustainable, including first and second-tier suppliers is labor intensive and time-consuming. While there are methods like,
- Self-assessment questionnaires
- Science-based target assessments
- On-site audit programs managed internally or through third parties
The main challenge still lies in acceptance and application in the practical supply chain.
Becoming a Customer of Choice
The best way to help your suppliers innovate is by becoming their customers of choice by wanting sustainable products and services. However, only demanding for it does not help if your practices involve discouraging factors like late payments.
Hence, abiding by agreed payment terms and demonstrating a partnership approach by listening and responding to suppliers’ ideas is the key to have sustainable procurement practices. This is easier said than done in the practical world and is where the challenge yet the necessity lies.
Stakeholder Engagement
Stakeholder engagement is important for the success of your business. CRM tools can be used for tracking relationship-building activities and supplier on-boarding. Credibility can be gained by having the proper knowledge base of the terminologies, categories, suppliers and market trends.
By aligning your sustainable procurement practices to the stakeholder’s business objectives, and thereby highlighting the benefits of collaboration, the overall result would be more beneficial and cost savings alone.
Risk Management
Risk management is one of the most important parts of every business activity. Procurement is no exception here. The primary focus should be on the suppliers’ financial status, abiding by health and safety and industry practices.
Engaging only with tier-1 suppliers is no longer sufficient, as there needs to be an emphasis paid in controlling the approach taken with tier-two suppliers to ensure that the necessary obligations are passed down to the subcontractors.
How Can Deskera Assist With Sustainable Procurement?
Deskera is an all in one platform for all your business needs. In case of assisting you with sustainable procurement, it is well equipped to be the perfect guide during your sustainable procurement processes and decisions.
It is Deskera CRM which is the product equipped for assisting you with your sustainable procurement. Through its contact and deal management, activity management, knowledge base management and tracking of communications, it becomes the platform with all the real-time updates for your sustainable procurement processes.
Deskera CRM helps in maintaining comprehensive supplier and vendor contact profiles with custom fields to record all the data that you will be needing. It also facilitates categorizing and linking contacts to their organization for easy tracking. Contacts can be added or imported from the existing databases easily through Deskera CRM.
Through the Deskera CRM dashboard, you can view all the communication history, notes, contact information, open and close deals and much more at a glance.
Deskera Books will assist in inventory management, automate inventory tracking and their insights. It also have backorder management which will ensure that you never fall short of any inventory. Deskera Books will also help you to keep a track of your outstanding account receivables and account payables, hence ensuring you have a healthy cash flow.
Additionally, you can even accelerate your productivity by viewing all your activities in calendar view and planning it effectively. Activities, tasks, meetings, emails and such contacts can be planned through this calendar with reminders and notifications being given out for overdue activities.
Key Takeaways
Sustainable procurement can no longer wait and has become the need of the hour if you want to ensure the long term benefit for your organization. The importance of sustainable procurement is as follows:
- Financial
- Risk Management
- Commitments and Goals
- Responses to Increasing Stakeholder Expectations
- Attractiveness
- Future-Proofing
The challenges involved with sustainable procurement are:
- Reputation and Brand Image
- Corporate Social Responsibility
- Becoming a Customer of Choice
- Stakeholder Engagement
- Risk Management
The 2 approaches to sustainable procurement are:
- Product-Based Approach
- Supplier-Based Approach
The drivers for sustainable procurement are:
- Cost Reduction
- Risk Reduction
- Revenue Growth
The 3 pillars of sustainable procurement are:
- Economic (i.e. profit)
- Social (i.e. people)
- Environmental (i.e. planet)
Sustainable procurement practices and decisions are more complicated than the traditional procurement practices but it comes with its benefits which you will be able to observe through your key performance indicators and customer metrics.
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