If you’re convinced that modern businesses are targeting better sustainability over the next decade, it is important to ask whether these companies apply the same focus to their supply chains.
Corporate growth is now closely linked to sustainability. Almost all – 99% – of CEOs in companies with revenues of $1bn or more consider sustainability to be essential to their organisation’s future success, according to the 2019 UN Global Compact-Accenture Strategy CEO study on sustainability. But despite most environmental and social impacts existing in the average multinational’s supply chain, Procurement Leaders’ CPO planning guide shows the issue has failed to be a top priority for CPOs over the last five years – and the same is true for 2020. Improving sustainability might be a new reality for modern businesses, but procurement’s lack of concentration on the topic is, quietly, a big problem.
This raises questions over why procurement functions do not focus on sustainability, particularly after a year in which the environmental movement captured unprecedented interest. “It shows the slowness of procurement to embrace the movement, as well as the size of the task before us,” one CPO at a global pharmaceutical company recently told me. “It is up to us as procurement professionals to figure out what we can do and make changes fast.”
To effect change, leaders need to understand the root problems. Why has procurement been so slow to focus on sustainability? Why is there such a disconnect between the stated sustainability aims of most corporates, and the goals of the function best placed to influence those aims in the supply chain?
The causes are various and complex, but there are three broad reasons often cited by companies Procurement Leaders works with.
Procurement isn’t recognised as a contributor to sustainability
The first is one of perception – either procurement isn’t seen as a function that should be involved in a sustainability strategy or supplier sustainability isn’t seen as the responsibility of the business. This results in either a misalignment between functional and corporate goals or budget constraints for procurement to work on sustainability projects, even where there is a willingness to do so. Both scenarios undermine efforts to improve supply chain sustainability.
Procurement teams do not have an operating model for sustainability
Many procurement teams lack a clear operating structure for delivering sustainability. Targets might exist but it isn’t understood whether responsibility for achieving them rests with a centralised sustainability team or among category managers and buyers. At best, this creates confusion over who is working towards these targets; at worst, staff are unwilling to work on them at all.Procurement functions relying too much on compliance
Where procurement sustainability programmes do exist, teams can fall into a ‘compliance trap’, wherein sustainability is packaged into risk management. Buying organisations rely on third parties to provide supplier scorecarding and data auditing services while procurement largely concentrates on collecting documents. This often results in a lack of urgency to work directly on supplier sustainability projects.
If CPOs and their teams are to realise a more sustainable future, they must:
- Translate corporate sustainability targets into procurement goals.
- Build a clear operating structure for delivering those goals and spread it throughout the function.
- Partner directly with their suppliers to make improvements.
Companies are already realising the benefits of adopting such initiatives. Levi Strauss’s partnership with six fabric suppliers, for example, resulted in a carbon footprint reduction of 20% and more than $1m in operating cost savings. Heineken’s collaboration with its largest glass supplying plant also led to a CO2 reduction of 1%–2%, which caused cost savings to outstrip the initial investment.
Such changes are not simple but procurement teams must take action to align themselves more closely with what is now a strategic imperative for their businesses. In doing so, procurement can have a lasting impact on the sustainability agenda, add value, and help the business meet crucial climate and social targets over the next decade. Failure to act now will only damage company growth in the long-term.