Procurement

Failing to pay attention to wider environmental and social issues is increasingly risky for Chief Procurement Officers.

Sustainability pressures impact the full supply chain, but may be challenging to measure and assess. Key risks may include, for example, the availability of high quality supply of raw materials in the years ahead, rising resource costs, labour standards challenges and supply chain disruption.

Share:

Share:

Share:

Share:

Potential role and responsibilities

Potential responsibilities and questions for the Chief Procurement Officer

Overall role: Integrate corporate sustainability goals into concrete buying decisions, without  losing competitive edge on cost

Responsibilities

Key questions

Security of supply Are our products and services exposed to supply chain risks?
Do we understand the sustainability-related risks in our supply chain?
What plans and strategies do we have in place to manage supply chain risk (such as supply failure or rising prices)?
How can we partner better with suppliers to secure quality materials?
Quality of supply How might changing sustainability trends affect quality of our raw materials?
Do our suppliers meet our own ethical and sustainability criteria?
Minimise costs What benefits can be realised from vertical integration?
What are the trade-offs between securing high quality supply and cost implications?
Consumers What are our customers’ expectations with regard to our supply chain and sourcing?
Source: Accenture, 2013
Areas of opportunity

This section outlines the potential role of the procurement function in delivering on each innovation, and provides key questions to help evaluate and test each in turn.

Innovation area

Role of the procurement function

Example questions

Shared value

Work with suppliers to promote sustainable, ethical work practices to secure resilient supplies

Deploy procurement as a social and economic development tool

How can we better understand societal issues in our supply chain (living wages, forced/ child labour, health & safety and education, etc.)?

What standards or criteria could we enforce to improve social and environmental outcomes in our supply chain?

How can we improve our license to operate and create economic development by procuring from the communities where we have operations?

What are the risk mitigation benefits for our supply chain from these approaches?

More with less

Work with suppliers to improve upstream resource efficiency and minimise environmental impacts

Secure a long-term sustainable source of resources, materials and technology with suppliers

 

What is the upstream use of resources and environmental footprint of our supply chain?

What role could collaboration with industry partners play in sourcing materials in a more sustainable manner?

What are the opportunities for co-investment with suppliers to deliver step-change efficiency gains?

How can we lower the cost of procurement of resources, materials and technology (e.g. trade-offs between flexibility and long-term savings)?

What are the potential benefits / whole life costs from owning vs. leasing clean technologies?

Circular economy

Determine viability of closing the loop on sourcing key materials (e.g. from customers, other industries, collectors)

How could we source materials from existing waste streams?

What infrastructure would need to be put into place to collect and procure raw materials using closed-loop models?

What is the business case compared to sourcing raw materials, and how will this change under different commodity price scenarios?

What partnerships are required?

 

New consumption models

Enable the transition to ‘products-as-a-service’ or ‘collaborative consumption’ models

Procure more durable products and services that are designed for sharing or trading

Support suppliers to deliver lower-impact services to the business (e.g. facilities management or consumables)

What would be the impact on procurement volumes if the business transitioned to ‘collaborative consumption’ or ‘products-as-a-service’ models?

What are the cost saving and unit price impacts?

What changes to processes and procurement specifications may be required to enable the change to new consumption models?

How can we encourage suppliers to provide our company with lower-impact services, rather than products (e.g. for office consumables, facilities management etc.)

 

Transparency and engagement

Implement supplier codes of conduct and a sustainable sourcing policy

Implement technology or programmes to improve visibility over the supply chain

 

How can we evolve our code of conduct and buying decisions to improve supplier performance over time?

How can we drive enhanced visibility to reduce procurement costs and mitigate supplier risks?

What infrastructure or technology would be required to improve supply chain visibility, and how can we best engage with suppliers?

What intangible benefits (e.g. enhanced trust) can be realised from improved visibility and transparency?

Source: Accenture, 2013
Other tools and resources

Economic Input/Output Analysis

Economic Input/Output (EIO) Analysis uses procurement spend data to construct a complete picture of the supply chain footprint of the company and can be used to drive strategic business decisions.

In an ideal world, companies would have an accurate account of all the impacts of their supply chain, but in reality such an exercise is challenging given data availability and time and resource constraints. Life Cycle Analysis has enabled many companies to determine the supply chain impacts of certain goods and services, but can be costly to apply to the whole supply chain.

In contrast to LCA, EIO Analysis has the benefit that a full picture of supply chain impacts is generated top-down, allowing for quick identification of hotspots of (e.g. environmental and resource) impact, and thus critical business risks. EIO depends on a robust underpinning database of average resource use by industry category, which is matched against the company’s procurement ledger. The key outputs includes a top-down view of total supply chain impacts across multiple ‘damage’ categories, such as greenhouse gas, water, energy and toxicity. Businesses can view data on a regional and category basis, as well as by stage in the supply chain (e.g. how far upstream the impacts occur).

EIO can enable procurement teams to cost-effectively identify their most material sustainability risks and impacts and inform the most appropriate strategy.

Track and trace tools

Track and trace tools are being increasingly used by companies to identify where their supplies are coming from, what practices were used in obtaining them (e.g. whether they are sourced using sustainable means), and whether supplies may be at particular risk (for example from disruption). Different technologies are available and most leverage mobile and on-line solutions to obtain supply chain data. Traceability solutions are designed to work with a company’s existing suppliers, and do not necessarily require them to change their day-to-day operations or install software. Typically suppliers will record batch information into an on-line tool that is linked to the corporate HQ to generate an aggregated picture of supply, highlighting potential risks.

 

Case studies

Marks & Spencer: Whole-life costing

From a property perspective, M&S are changing the way they think about and manage their investments, moving away from focusing solely on upfront capital cost, to consider the whole life operational costs as well.

To support this, they have implemented two new evaluation models. The Micro-model is designed to evaluate individual initiatives such as the implementation of LED lighting or new types of refrigerants. The model involves the evaluation of some 35 parameters in addition to the upfront capital cost – such as energy, Carbon Reduction Commitment liability and maintenance.

The Macro-model is designed to evaluate an entire store – it takes into account not only the Micro-model, but makes adjustments because different technologies working in conjunction can impact the results.

For example, if M&S modify the lighting in the store, this affects how much heating or cooling is required and therefore the amount of energy it uses.

This evaluation process means teams now have to think much harder about future costs and their potential impact on the business.

http://corporate.marksandspencer.com/documents/publications/2012/plan_a_report_2012.pdf