The A to Z of sustainable procurement

Posted by Sino SCS

Responsible procurement is the future of the profession – and also its biggest challenge. Here, Supply Management has gathered tools, tips and insight from experts to help leaders turn sustainable strategies into results.

A is for… Accelerators

As the old saying goes, if you want to go quickly, go alone, but if you want to go far, go together. However, in the case of the 100+ Accelerator programme, its founders and members are going pretty far pretty quickly. Established in 2018 by AB InBev, Coca-Cola, Colgate Palmolive and Unilever, the collaboration invests in companies with sustainability solutions. It offers six months of remote programming and training aimed at accelerating the growth of cohort firms, investment of up to $100,000, and the chance to form a commercial alliance with one of the founding partners.

The net result is twofold: it helps the founding behemoths to tackle the many and varied challenges borne out of their sustainability goals, and two, it scales smaller companies to a level where they’re able to offer support to the wider business community. It’s a win-win.

“Collaborative partnerships allow us to harness the scale, speed and transformation necessary to propel sustainable innovation,” says Anna Voronkova, entrepreneurship lead Europe, AB InBev. “Since its inception, the 100+ Accelerator has driven projects globally across a diverse range of sustainability challenges from water sanitation to reducing microplastics.”

From a supply chain perspective, it’s seen a radical shift in the way drinks are manufactured and the role procurement plays in driving change. With sustainable packaging among its primary objectives, the company connects with suppliers to reduce greenhouse gas (GHG) emissions from production and to cut material waste.

“AB InBev is working closely with our suppliers to introduce lightweight cans across the majority of our brands globally over the next three years,” says Italo Verdi, global procurement director – cans and metals. “Our hope is this innovation will have an even bigger environmental impact by becoming a new standard, not just for AB InBev, but the entire can industry.”

B is for… Benchmarking

The reasons for adopting ESG targets vary, but the common position is that you need to understand where you are now in order to plan for where you want to go, which is why benchmarking is essential. McKinsey advises firms to determine their current level and set goals and targets for sustainable procurement in that context.

Benchmarking performance against competitors and companies from other industries will help identify where you meet, outperform and fall short of expected standards – and what you need to do to improve.

C is for… Collaboration (and competition)

Though often considered counterintuitive, partnering with the competition and collaborating with rivals has its benefits. In the maritime industry, procurement at J Lauritzen and DS Norden joined forces with industry body IMPA to launch the IMPA Act, a programme that aligns supplier operations with the UN Global Compact, committing them to responsible supply chain management.

By aligning on common needs, the scheme has engaged more than 300 suppliers and helped members advance their sustainability activities while driving change on a far greater, industry-wide level.

D is for… Data

Data is the bedrock of sustainability. It allows companies to identify, monitor and adjust their social and environmental impacts, underpinning the entire landscape. Whether firms choose digital twins of the physical supply chain to map out the segment between private enterprise, partnerships and public data to provide real-time snapshots, or use autonomous tools to regulate resources, it is data intelligence rather than pure technology driving results.

For most organisations it pays to start gathering information from approved bodies, request data from customers and suppliers to incorporate factual detail instead of averages, and to select a data partner to help. A partner with the right expertise will support the mission for visibility and transparency and may speed up the timeframe. If it comes down to spotting risks, simulating what-if scenarios or searching for alternative suppliers and routes, data informs those decisions, leading to greater resilience.

 Scope 3 emissions are mainly from the supply chain but indirect spend contributes. Via Getty

E is for… Emissions

Scope 3 emissions come from activities you’re indirectly engaged in, mostly in supply chains – but don’t forget the often overlooked indirect spend. Once you have clearly defined your target areas and set the plan into action with board-level backing, use the real data you have from internal sources, suppliers and industry, or refer to sector averages, to estimate your value chain emissions.

There are online calculator tools that may help. Next, evaluate which areas are in your control to change, in your influence to encourage change, or out of both, and use this to prioritise target areas.

Be open about your intentions with internal stakeholders, suppliers and like-minded companies to share techniques on how to reduce GHG. And be open to empowering older suppliers and working more with new ones that are better aligned with your values, or even changing your own products to meet the targets.  

F is for… Foodbuy

Foodbuy has aggressive emissions targets. It has made a public commitment to be net zero in the UK by 2030 and globally by 2050. So far, it’s been an educational journey.

“Early on we had a conversation with our partners that were more advanced than us,” says former managing director Ian Murphy. “We spoke to Nestlé and other organisations to understand what they’ve done to get to where they are, which accelerated the first parts of our journey.”

By working with climate consultant South Pole, the group leveraged data
to identify where their Scope 1, 2 and 3 emissions were. This helped them pick low-hanging fruit – such as switching all new fleet orders to electric vehicles, buying local in-season produce to reduce airfreight, and re-educating their chefs on how to write menus based on lowering carbon emissions.

Much of the change had to come from Foodbuy’s partners, though. But rather than mandating suppliers from the off, the group used its baseline data to assess its position and assumptions so that it could engage them in a more informed way.

“Some clients want to pioneer and lead this journey,” Murphy says. “That enables us to trial and test in their environments with the consumer, which is important because we can’t do this in isolation.” It’s given Foodbuy real data to justify change in the value chain.

“The challenge for us now, which represents 70% of what we purchase, is that we’re having to educate, to influence and corral farmers and growers into changing decades of legacy and family history and growing, changing what’s made them successful and switch them to a new mindset,” he adds.

“We felt that to do that we had to be conscious, that we can’t just ask, that we’ve got to prove that there is a different way to do this.” And indeed, there is.

G is for… Growth mindset

Achieving sustainable procurement relies on company and individual culture. It’s not enough to just establish policies, the business must operate by those values to embed them in the organisation so they filter down from leadership, through to daily working and becomes the factor drawing new talent in to further fuel that journey.

So be prepared to adjust policies in line with market demand and expectation – agility and agile business models are crucial, while a fixed
mindset could hinder process.

Develop and set key themes that will define how you approach categories, suppliers, and collaboration projects. These will set the level of ambition you have at each stage and cement the long-term vision. Monitor and measure against benchmarks and give regular feedback to stakeholders to keep momentum going.  

H is for… Helping hands

“To say the Sustainable Procurement Pledge (SPP) has exploded is an understatement,” says Oliver Hurrey, ambassador and steering group member at the SPP. He’s not wrong. In three short years since its inception, it has united the profession in a singular cause, bringing together 7,000 global members, and is still growing. In March, SPP held its first World Sustainable Procurement Day which saw 6,500 professionals drop into 21 online sessions, providing answers, guidance and a shared platform to move the agenda forward.

There is a clear need for a profession-wide support network and Hurrey has been instrumental in establishing this. “There’s been an underlying issue in procurement as a function for many years, which is that we are not taken seriously. We are underappreciated and our job is just cutting costs. Sustainability has come along and given us an opportunity to evolve, to change and to pursue that elusive shared value we’ve been talking about for ages.”

In that sense, Hurrey says the SPP was the result of a perfect storm, borne out of the notion that procurement could do more and that the needle on the discussion had to move.

But there’s also the sense that it was a case of preparation meets opportunity. Hurrey has spent the past 16 years advising organisations on how to make their supply chains more sustainable, and founded Galvanised and the Scope 3 Peer Group. His knowledge and passion are matched by his desire to help move the profession forward. His strong belief in the power of collaboration is obvious too – indeed he’s currently facilitating a 12-month pilot project into sustainability in indirect categories, led by Amazon and GSK, among others.

One suspects this guiding ethos is part of what makes his contribution to the SPP and to the wider profession so strong. “Sustainability is, by its nature, something you have to collaborate on,” he says. “That’s either with your peers or competitors, your customers or your suppliers. If you have a global supply base, you can’t do it on your own because it’s bigger than one company can sort out. Collaboration is essential.”

I is for… Investment

Change takes time and dedication, but also investment. Despite the many options available for connecting with green investors, it can still be hard to clinch, even when the benefits are understood at board level. The Sustainable Procurement Leadership Council surveyed eight majors on how to secure investment and found the main path to success is making sure stakeholders know what underscores corporate goals – for example boosting profits, minimising risk and reducing costs. Why? Because it demonstrates how procurement is a valued driver of business development.

J is for… Just-in-time (JIT)

For decades, JIT has been the go-to supply model – until the pandemic ruthlessly exposed its flaws. All over to just-in-case (JIC) then? Well, not quite. For sustainable procurement, JIT still makes sense – lean models can eliminate waste, even if freighting distances may be high. And by building an ecosystem that prioritises local and regional production you reduce the product’s environmental impact over its lifecycle while leveraging the best JIT offers. Within that hybrid context, you can build value, boost innovation at a national level and mitigate much of the risk associated with an exclusively global model.  

K is for… Keystones

By her own admission, Zelia Kranich has always had a desire to change the world. “I’ve always wanted to be ahead of the curve and do things a little bit differently,” she explains. “That’s where this has come from.” Eighteen years ago she was assuredly ahead of the curve and started to carve out a niche, with sustainability as the keystone of her career and, as a result, of the organisations she worked for.

As director of global environmental programmes, she launched the Estée Lauder Companies’ nascent ESG programme for suppliers through its Aveda brand. It was so successful that it was adopted by the group as a whole – which is impressive considering sustainability wasn’t really on the corporate agenda in 2004.

Fast forward to 2022 and she’s driving a similar programme at pharmaceutical giant Merck, having done similar work for tech company Pitney Bowes, among others. She is also on the Pharmaceutical Supply Chain Initiative (PSCI) board and is one of the leads on the SPP’s pharma chapter.

Her success is all the more interesting considering the disparity between the sectors she’s worked in – FMCG, tech and pharma are different in scope and output. At Merck the emphasis is on sustainable sourcing, working on ingredients, raw materials and with communities to limit risk. At Estée Lauder the focus was on packaging; at Pitney Bowes it was about hazardous waste.

So what’s her secret? “You have to make the sustainability programme something that’s core to the company,” she advises. “Figure out what’s important to the board and make sure you’re speaking their language in their way. But what you focus on has to be something they truly value and will buy into because it’s part of what they do anyway. That way you’ll have a lot more success.” You might just change the world in the process, too.

L is for… Levers for change

As part of a government programme called Respond, Reset, Restart and Recover – an economic scheme to kickstart the post-Covid-19 recovery – Scottish Procurement developed a system that works towards not just economic health but national wellbeing.

The Scottish government identified public procurement as a key lever in supporting improvements to public services, economic strength and the best interests of the population. Scottish Procurement aligned its approach to the government’s national performance framework and now procurement and supply agreements between the government and public services are assessed on whether they benefit businesses and their employees, as well as on whether they are good for places and communities, and for the wider society for the long term.

M is for… Mapping the path

Maersk, like other global shipping companies, racks up significant transport-related emissions to keep supplies moving. As such, the company has set equally robust GHG reduction targets, with the goal to achieve net zero by 2040. Associated targets for 2030 aim to realise industry-leading green operations and GHG reductions within this decade. For its part, APM Terminals – the company’s port operation – is set to decarbonise port logistics by 2040, reducing overall emissions by 70% for the period 2020 to 2030. So far so good.

“Looking at our carbon footprint, we want to address both fuel-based emissions, as well as those from the generation of purchased electricity,” explains APM chief operating officer Keith Svendsen. “We will also work with customers, suppliers and partners to involve them in this, because we believe this issue needs to be tackled holistically.”

APM Terminals has developed a decarbonisation roadmap, with a range of focus areas, Svendsen adds. “Through energy consumption optimisation we will continuously reduce fuel and electricity consumption across the entire terminal ecosystem. We will improve our electricity sourcing and change the type of electricity we procure, utilising renewable energy whenever possible. We will also focus on alternative fuels and reduce our direct emission through transition towards emission free fuels.

“Eliminating emissions may help developing green energy alternatives in locations where such options aren’t available,” he says. “Our role is a trusted infrastructure partner rather than just moving boxes, and we will work with our local and national governmental partners to enable the development of necessary infrastructure that will benefit a wide spectrum of players who opt for green energy or fuel alternatives. This will not only drive the local climate agenda, but also create jobs and new business opportunities.”  

N is for… Negotiation

Negotiation isn’t an obvious starting point for ESG strategy – just like it isn’t an obvious candidate for automation. Pactum has changed all that. The platform uses data and AI to automatically negotiate the long-tail spend contracts of Fortune 500 firms, such as Walmart and Maersk, reaching Pareto-efficient agreements while embedding energy efficiency and environmental criteria into purchasing contracts. This allows parties to maintain profit margins and work towards ESG targets. As a means for creating integrated and decarbonised supply chains, it is as unique as it is ingenious.

O is for… Over and above compliance

Merely aiming at compliance in responsible procurement programmes inevitably leads to diminishing returns – compliance varies the world over and standards are often raised or adjusted, adding to the workload. This constant redrawing can be avoided by maintaining a performance mindset. According to EcoVadis, this can be achieved in five steps:

  • Fully align your procurement strategy with the company’s ESG mission
  • Use measurement tools to incentivise partners rather than penalise them
  • Push ownership for targets upstream to buyers and suppliers
  • Integrate systems and processes to make it easier to reach targets
  • Collaborate to drive improvements and innovation
  • Remember, compliance isn’t a corporate box tick – it is the minimum standard to which you aspire.

P is for… Principles

Ikea’s guiding principles are as elegant as they are pragmatic, so it’s little wonder that the company’s approach to sustainability reflects this. The notion of improving the lives of many imbues their product range through what it calls ‘democratic design’ and unites the company under a singular vision. Just ask Lena Pripp-Kovac (above).

As chief sustainability officer for the Scandinavian retailer, her remit covers company values, circular supply, responsible sourcing, being climate positive and developing a supplier code of conduct. She has a wide and varied reach across the organisation, though it is grounded in the essence of what makes Ikea what it is.

“I inspire, enable and challenge the Ikea business to become people and planet positive,” her bio reads. “Sustainability enables us to deliver the Ikea vision, to create a better life for the many people.” As you might expect from someone with 25 years’ experience in delivering sustainability programmes, Pripp-Kovac leads from the front.

In an interview on the firm’s Youtube channel broadcast in November 2021, she outlined Ikea’s stance for the rest of the decade. They believe that while it is ambitious, it is also perfectly achievable.

“Ikea is committed to becoming climate-positive by 2030. We will achieve this by reducing more greenhouse gas emissions than our value chain emits, at the same time as we continue to grow our business. Ikea’s climate footprint covers the entire lifecycle of our products, from extraction of raw materials, to how our products are used at home, until their end of life.”

It is, in many respects, an unenviable task because it is so gargantuan. Yet, it underscores perfectly the need for coherence when embarking on this kind of project. Ikea’s success is thanks in no small part to its authenticity, in knowing who it is and what it wants to achieve. And that runs through the grain of the company because of those guiding principles.

Q is for… Quality assurance

Consumer demand increasingly dictates that a quality product or service must be sustainable as well as economically viable. That means those values should be endemic in the organisation’s culture, and in that of its suppliers. To help matters, sustainability requirements are creeping into voluntary quality assurance standards and frameworks such as the ISO MSS, EFQM and BCorp. Such frameworks go a long way towards fostering sustainable procurement, not least by embedding traceability upstream and committing suppliers to quality and ethical standards throughout their business.

R is for… Regenerative sourcing

Agriculture has a major impact on ecosystems and climate, leaving them depleted or damaged. Regenerative agriculture redresses that balance by replenishing soil, protecting water sources and increasing biodiversity, among other benefits. It also sequesters carbon from the atmosphere, making it a powerful tool to reach climate and sustainability goals.

Several firms, including Danone, Unilever and Foodbuy, are partnering with suppliers on regenerative methods, either educating or incentivising these practices. It takes a far deeper commitment and relationship with suppliers than the norm, but enables procurement to drive change and accelerate sustainability strategies, and meet climate and ESG targets in the process. While it represents a major investment, for the food and drinks sector, these drives for mutual good will become increasingly necessary, as farmers seek to improve the quality, fertility and productivity of their resources in the decades to come. 

S is for… Science-based targets

Science-based targets (SBTi) is a partnership between the CDP, the United Nations Global Compact, the World Resources Institute (WRI) and the Worldwide Fund for Nature (WWF) that is driving ambitious climate action in the private sector. By helping organisations set climate targets based on scientific evidence and not arbitrary information, the SBTi provides them with a clearly defined path of how to reduce emissions in line with the Paris Agreement. More than 2,000 businesses around the world are already working with the SBTi, including Mastercard and Colgate Palmolive.

T is for… Transparency

Seeing and understanding exactly what is happening at every stage of the supply chain is the holy grail in the profession. The time of not acknowledging problems to avoid attention is over. For instance, ethical chocolate company Tony’s Chocolonely uses its brand reputation to draw attention to social injustice in global cocoa supply chains. When the company onboarded two new cocoa suppliers in West Africa, it knew they came with child labour rates of around 50%.

Rather than hide the figures, the firm published the facts in its annual report along with intentions to work with the cooperatives, to keep them in business while helping them address the problem. So while transparency can mitigate issues of risk and efficiency, it also shows opportunities for social and environmental upheaval. By mapping the product journey from raw material through to distribution, it helps build a clear picture of the supply chain to discover where to reduce GHGs or redress negative social impacts, for example, in line with ESG strategy. But when you find the results, don’t try to hide them but act on them.

U is for … United Nations Global Compact

An A to Z of sustainability wouldn’t be complete without mentioning the UN’s flagship corporate sustainability initiative – it is, after all, the de facto reference by which organisations can assess their progress. Indeed, the Global Compact acknowledges the massive role supply chains must play in driving change and awareness, citing that adopting the 10 principles into the supply chain can be difficult because of their scale and complexity. Recently, it has developed guidance such as the Decent Work Toolkit for Sustainable Procurement, the Guide to Traceability and the Practical Guide for Continuous Improvement to help companies to develop sustainable sourcing strategies.

V is for… Value models

Value models – or total value models (TVM) as they’re sometimes known – help organisations emphasise decision-making that maximises long-term business value. In so doing, they tie sourcing and supply chain strategy to the overall business strategy, making ESG goals simpler to achieve. For instance, TVMs help companies account for the environmental and social impacts of their supply chains, allowing them to identify opportunities to make improvements. In turn, they can work to find balance between the positive and negative impacts generated across their infrastructure and supply chains.

Procurement could play a big part in reducing waste ©Getty Images

W is for… Waste

Author and consultant Catherine Weetman is one of the UK’s leading authorities on circular supply chains. In an interview with SM, she said procurement has a key role in delivering circular economies with the potential to make a better world for people, the planet and business.

“Circular economies design waste down, for it to be used by other processes. There are many opportunities for procurement teams to recover value from the supply chain, whether that’s assets, equipment, or consumables you’ve bought for the company that aren’t going to be used. Procurement could expand its reach and look at ways to do that, becoming a revenue stream, not just a way of reducing costs.”

X is for… the X-factor

Yes, it’s tenuous – but very few words begin with X, and of those that do, none relate to procurement or the supply chain. But as we know, supply chains are very complex. They’re multi-tiered, span the world and require parts, components and materials from varying partners and vendors. That comes with a lack of transparency, reducing our sphere of influence – bringing with it a broad spectrum of social and environmental risk. You can mitigate that by implementing a supplier risk management framework to drill down on the ethical, environmental and regulatory aspects of your supply chain. While doing so won’t necessarily reduce compleXity, you will get visibility, and in turn help to manage your company’s eXposure.

Y is for… Gen Y (and Z)

As generation X moves closer to retirement, generations Y and Z are becoming more influential employees. With that comes an increased demand for purposeful, meaningful activities in the workplace. For employers in the supply chain, this is pressing. The talent gap is growing, so attracting existing and emerging talent is essential – especially as Gen Y will make up 75% of the workforce by 2025. But while putting the words in place will attract Gen Z, research shows the importance of differentiating by deeds. Firms may have a position on environmental issues, but how they act on this is just as, if not more, important – you must walk the talk.

Z is for… ZeroNorth

ZeroNorth is a start-up on a mission: to make global trade green. Rooted in powerful AI and data, it helps vessels reduce CO2 emissions through optimising voyages, bunker use and dealing with difficult weather. It’s a neat reminder of how data and AI are becoming commercial differentiators for companies up and down the supply chain. Moreover, its services highlight the need to align data with both commercial and climate agendas – and, once again, that you don’t need to go it alone.

Author Sino SCS
中品供应链-Sino Supply Chain Service