Is sustainable procurement financially sustainable?

Andrew Stroup
March 17, 2020

Recently, I came across these before-and-after satellite pictures showing a sharp drop in pollutant density over China during the COVID-19 shutdown. There are similar images of Italy, too.

This got me thinking about our impact on the environment. Granted, we may not be directly producing these pollutants, but our procurement practices may very well be contributing to them.

Is this the legacy we want to leave behind?

But I get it — we’re running businesses, and profits are one of the most, if not the most, important considerations. We’re accountable to our shareholders, so any plan to do things sustainably has to be financially justified. So, the question is:

Is sustainable procurement financially sustainable?

The short answer is yes — if you do it right.

The World Economic Forum found that companies applying sustainable practices can reduce supply chain costs up to 16%, increase brand value by up to 30%, and increase revenue by up to 20%.

Cost reduction

When you practice sustainable procurement, you stand to benefit from reduced energy costs, reduced consumption of water and other materials, and possibly reduced compliance costs.

A case in point — Dell started working on reducing unsustainable plastics use in its packaging in 2015. Together with non-profit Lonely Whale, they started to collect recycled plastics from beaches and waterways, then moved on to other sources like water bottles and aerospace scrap. In 2017 alone, they prevented 16,000 pounds of plastic from reaching the ocean — and it cost them less, too!

Risk Reduction

Sustainable procurement protects you from the risk to your brand (and its accompanying financial impact) resulting from bad supplier practices.

With 33% of consumers now choosing to buy from brands perceived to be doing social or environmental good, it’s more important than ever to procure sustainably. Remember the horsemeat scandal in the UK in 2013? This kind of scandal is probably not a good look for your brand.

Revenue Growth

Due to the increasing importance of CSR among consumers, there is an opportunity to increase revenue by offering eco-friendly products and services that align with your consumers’ values. Not only can this sway your prospects to choose your brands, but you can also afford to command a premium price.

This study found that 50% of companies with a mature sustainable procurement program have seen increased revenue from sustainable and innovative products and services.

Towards sustainable procurement

What are the key ingredients to unlocking the financial benefits of sustainable practices?

Getting stakeholder buy-in

First and foremost, it is crucial to get your stakeholders on board — senior management, suppliers, employees, government agencies. Basically, your entire value-chain needs to be on board and aligned with your cause.

Some internal marketing to employees and suppliers are in order. You need to communicate and promote the benefits of your sustainability plans both internally and to your suppliers so that everyone is on the same page and committed to your cause.

Supplier assessments

Are we doing enough to make sure that we, as well as our suppliers and their upstream suppliers, are procuring sustainably?

Here are some sustainability areas you can look at:

  • Environmental impact, e.g. CO2 emission, water usage, packaging wastage, etc.
  • Social/human impact, e.g. human rights, labor rights, workers’ health, and safety, treating employees fairly, etc.

Many companies are already maintaining a supplier scorecard system that includes sustainability parameters. Ideally, you should be mapping your entire supply chain, so that you know that all of your suppliers’ upstream suppliers are also compliant.

Overcoming a major obstacle: transparency

Many companies can get the right buy-in and perform detailed supplier assessments. But what’s holding them back is a lack of transparency in the supply chain.

If you don’t know what’s happening with your suppliers’ suppliers, all the way to the supplier of your raw materials, you don’t know if your entire supply chain is truly sustainable.

The statistics are quite sobering: only 15% of organizations have full visibility on the sustainability performance of tier one and two suppliers — and the number drops to 6% for tier three and beyond.

To experienced supply chain professionals like you, this probably didn’t come as a surprise.

With globalization, supply chain networks have gotten extremely complicated, often encompassing thousands of suppliers scattered all over the globe. Auditing and assessing all levels of suppliers require a massive amount of time and resources, and you’ll probably have to analyze millions of data points to have a complete picture.

A robust digital solution is needed

With the advent of advanced technology like AI and Machine Learning, the market is full of digital solutions that can help you cope with this problem.

AI-enabled software can analyze large amounts of data you need to maintain full supply chain visibility. It can also make sense of the data in ways that humans, with the help of standard software, can’t — so it can help you make more intelligent decisions to support your sustainability efforts.

Time to act

Sustainable procurement can be financially sustainable, and can even help you manage risks and reduce costs.

It can be hard to achieve the right amount of visibility in your supply chain, but AI-enabled tools might be able to help. Their data analysis, visualization, and reporting capabilities can go a long way in helping you keep your suppliers on track to achieve your sustainability goals.

I’d love to hear from you! What does sustainable procurement look like in your organization? Do you have any tips to share? Tell me in the comments.