By Jack Macfarlane, Founder and CEO, DeepStream Technologies
Recent research published in the Harvard Business Review has shown a significant increase in consumer demand for sustainable practices, making sustainability a critical threshold for purchase decisions.
It is now the minimum standard businesses must meet to show their commitment to the environment and secure client or consumer loyalty.
But sustainability is complex, especially when navigating various business, customer, supplier, and regulatory requirements or needs.
So, how can procurement teams successfully and efficiently navigate sustainability in procurement?
In this article, Jack Macfarlane, Founder and CEO of DeepStream, examines the issue of sustainability in procurement, outlining strategies for success and explaining why it is the critical advantage businesses cannot afford to overlook.
Understanding sustainable procurement
Universal climate concerns shape consumer behaviour and commercial objectives and drive efforts towards better sustainability. This is not solely a moral imperative; it is a strategic necessity for businesses in 2024 to attract and maintain positive consumer sentiment and loyalty.
To meet eco-objectives, organisations should assess ways to improve sustainability in procurement to integrate environmental, social, and ethical factors into purchasing decisions.
Defining sustainable procurement involves considering the full lifecycle of products and services, from sourcing and manufacturing to distribution and disposal, thereby minimising environmental footprints, supporting fair labour practices and fostering transparency and accountability in supply chains.
Laying the foundations at the source ensures alignment with goals like reducing environmental impact, promoting social responsibility and adhering to ethical standards throughout all stages of operation.
With increasing pressure to demonstrate sustainability practices, some businesses have fallen foul of accusations of greenwashing. Research suggests global greenwashing cases rose by 70% in 2023, and the problem is intensifying, with questions raised about the value of businesses holding B Corporation certifications when their sustainability claims contradict aspects of their supply chains.
The challenges and benefits of sustainable procurement
As ever, there are challenges procurement teams must overcome to champion sustainability. Research shows that while 97% of supply chain professionals value sustainable procurement, only 67% have implemented it.
This gap highlights the difficulties in integrating sustainability into procurement processes, such as the complexity of evaluating suppliers, the higher initial costs of sustainable options and the need for comprehensive data to support decision-making.
1. Large and complex supply chains
Large multinational corporations will have established and complex supply chains and ensuring sustainability throughout is a major challenge due to the diverse regulations, standards, and practices in different countries and regions. This diversity can create inconsistencies in sustainability practices and compliance.
For instance, a company may face difficulties in verifying supplier environmental and social practices in countries with less stringent regulations. Additionally, variations in cultural attitudes towards sustainability can influence the implementation and effectiveness of sustainable practices.
This complexity requires robust monitoring, transparency, and cooperation throughout the supply chain to ensure sustainability goals are met and nothing falls through the cracks.
2. Initial cost investment
While larger corporations can afford upfront investments in sustainable manufacturing, small to medium enterprises often struggle with the high costs of eco-friendly options.
However, technological advancements are making these alternatives more accessible. For example, innovations like enzymatic recycling enable businesses to use recycled materials in their supply chains, fostering a circular, self-sustaining solution.
Although initially 60% more expensive than traditional recycling, as the supply of recycled monomers increases, costs will decrease for all stakeholders, addressing the concerns of the costs of a sustainable supply chain.
Meanwhile, overhauling an existing supply chain is an extra cost many businesses might struggle to fund. Transition costs include retraining staff and modifying production lines while ensuring compliance with new environmental regulations and certifications adds to the expense. Plus, investing in research and development to find sustainable alternatives is costly.
3. Stakeholders buy-in and employee satisfaction
Stakeholders may be risk-averse, preferring familiar practices over new methods and are wary of transitioning to new suppliers or materials. Concerns about higher initial costs and potential short-term financial impacts can deter those focused on immediate profitability.
Given the shift in consumer views and behaviour, this could be short-sighted and potentially harmful to a business in the long term and is often due to a lack of understanding about the long-term benefits of sustainability, further complicating buy-in.
Plus, more of our global workforce is increasingly concerned with the sustainability policies of current or prospective employers, with research from edie revealing that one in five workers would reject a job at a company with poor sustainability credentials.
Strategies for sustainable procurement
By integrating sustainability into procurement processes, organisations can contribute to long-term environmental and social wellbeing. Procurement teams need well-thought-out strategies to ensure sustainability is stitched seamlessly into each process, not left unforgotten or neglected through oversight.
1. Build sustainably focused policies
Developing sustainability-focused policies is essential for entrenching sustainability into procurement practices holistically. These policies should outline clear sustainability goals and standards suppliers must meet, such as reducing carbon emissions, minimising waste and ensuring ethical labour practices.
Equally, new internal policies should focus on nearshoring or reshoring supply chains to identify suppliers closer to home to reduce carbon footprints, minimise waste and build greater resilience to global disruptions and supply shocks.
Policies should also include adequate strategies for governing this process, monitoring, and auditing suppliers to ensure compliance. By having a robust policy framework, organisations can drive consistent sustainable practices across their operations, making sustainability an integral part of their procurement strategy.
Clear policies also provide guidance and expectations, ensuring that stakeholders are equally aligned and committed to sustainability.
2. Develop transparent processes
Implementing transparent processes is made easy through digitalisation, using online software and smart centralised systems to create a detailed audit trail of all activities, contracts, communications, and transactions, ensuring they are all logged and reviewed.
Such transparency fosters accountability and helps detect inefficiencies or unethical practices through a lens of sustainability, promoting trust and integrity throughout an organisation internally and externally.
3. Pre-evaluate suppliers
Incorporate sustainability criteria into supplier evaluations by assessing suppliers based on their environmental impact, ethical labour practices, and long-term ecological effects.
This consists of evaluating suppliers on criteria such as compliance with environmental regulations, ethical labour practices, and overall sustainability performance.
Using a structured pre-qualification process can identify whether suppliers meet technical and financial criteria and contribute to the organisation’s sustainability objectives.
By doing so, procurement decisions align with the organisation’s sustainability goals, ensuring that all suppliers meet high ethical and environmental standards.
