May 31, 2023 | Sourcing Strategy
Sustainability has become an imperative for corporations, but many procurement functions still hesitate to fully embrace it.
According to Mark Pagell, professor of sustainable supply chain management at University College, Dublin, “Procurement’s real message to suppliers is often ‘faster, and cheaper'."
This viewpoint, however, may need to shift in response to the growing demand for sustainable operations.
Recent regulatory changes such as Germany’s new Supply Chain Act and the U.S. Securities and Exchange Commission’s sustainability rules are setting the standard for increased transparency and accountability in supply chains. These moves are costly and complex but are significant steps towards sustainable sourcing and can bear positive results in the long run.
Although traditional procurement objectives such as cost and quality sometimes hinder the full acceptance of these regulatory demands, working to meet accepted regulatory standards paves the path to sustainable sourcing.
That said, the regulations also might lead to negative consequences.
Julia Hartmann, professor of sustainable supply chain management at EBS Business School in Wiesbaden, Germany, expresses concern that such regulations might discourage businesses from engaging with 'risk-prone' suppliers, particularly smaller ones in developing countries because it could lead to bad outcomes for these suppliers and their regions.
Despite these challenges, Heather Skipworth, associate professor of logistics and supply chain management at Cranfield School of Management’s Centre for Logistics, Procurement and Supply Chain Management, argues that sustainability offers a unique opportunity for procurement.
By considering sustainability in supplier selection and long-term engagement, procurement functions can promote better environmental and social practices without compromising on cost, quality or performance.
There is a need for a focused, goal-oriented approach to sustainability. To make a meaningful impact, procurement must focus, prioritize, and set specific goals. Contextual factors and specific business-related data are crucial for making informed decisions about which sustainability efforts would have the most impact for a particular organization.
Striking a balance between commercial profitability and sustainability can be challenging. Using the following three critical success factors for sustainability initiatives can help organizations on their path to sustainable sourcing:
Set 'top down' targets executed from the ground up, being mindful of local and national differences in sustainability priorities.
Ensure that suppliers meet specific cost, quality, and quantity requirements to retain the support of internal stakeholders.
Good data is crucial for managing sustainability programs and understanding supply chain links. Investing in data-gathering and data-analysis tools should be viewed as an exercise in cost avoidance. Non-compliance can be expensive and the reputation damage to a company from sustainability failures can be significant.
By harnessing these, procurement organizations can make a strong case for investing in sustainability.
The journey to truly sustainable sourcing requires a proactive approach that balances commercial interests with sustainability goals. It's about using good data, maintaining focus on core procurement principles, and working actively with suppliers towards a common sustainability goal. This way, sustainable sourcing is not just an afterthought, but a strategic move towards a more responsible and resilient future.
Go deeper into the topic, download this white paper The Procurement Professional’s Handbook to Sustainable Sourcing