December 17th, 2013
Construction contractor Skanska might seem unlikely champions of the sustainability agenda, but they have joined with ten competitors to create a cutting edge sustainability initiative: The Supply Chain Sustainability School. The project aimed to use the group’s combined £6 billion spending power to engage their supplier base with the sustainability agenda by creating a training school. It has achieved impressive results to date: more than a 1,000 participants have attended supplier engagement days and 650 individual supplier action plans have been created collaboratively between supplier and customer that focus on increasing sustainability within the supply chain.
In September, the initiative was the overall winner of this year’s Chartered Institute of Purchasing and Supply (CIPS) Awards, procurement professional’s most prestigious accolade, as well as best contribution to corporate responsibility. The award should bring sustainable procurement into the mainstream of procurement practice – yet detailed consideration of sustainability remains a relative rarity in public procurements I’ve been involved in, even when environmental services are being bought. So what is sustainable procurement, and why should public bodies be viewing it as essential, rather than a “nice to have”?
The nature of sustainability
Sustainable or ‘green’ procurement is the process of acquiring goods and services that meet users’ needs while delivering long term value for money, maximising social and economic benefits and innovation whilst minimising damage to the environment. It isn’t about paying extra for widgets that save the whale; it is about setting good environmental standards, and working together to drive down waste, and so it can help to save money, both in the short and the long term. Commercially savvy organisations have encompassed the idea of ‘whole life costs’ through their supply chain when procuring their goods and services but sustainable procurement goes further.
The application of sustainable procurement can vary dependent on sector and market, but a common strategic thread of increased collaboration, especially between suppliers and customers, runs through it. Sustainable procurement can create efficiencies in the supply chain by reducing the cost of wastage. This saves money, while benefiting the environment and customers. Customers increasingly expect that the products and services they buy have been produced in a socially and environmentally responsible way, and consumer pressure is increasingly able to be mobilised through social media. With increasing globalisation of supply chains, auditing of ethical sourcing practises is becoming a ‘business as usual’ activity to demonstrate that these expectations are being met.
Organisational sustainable procurement is on the rise, but it is proving harder for it to find a foothold in the public sector. Yet government, which should be engaged in issues such as globalisation and climate change, has enormous scope to demonstrate leadership by integrating sustainable approaches and policies into their day to day procurement activities.
Through Defra’s Sustainable Procurement National Action Plan, UK central government has started to explore its role as an influential customer in the UK economy, whose procurement policies can ripple through its substantial supply base. It has also created a new Crown Commercial Service (CCS) to join up procurement. Bill Crothers, the government’s Chief Procurement Officer, told Supply Management Magazine:
“Government should be an excellent customer. We spend around £45 billion on buying goods and services, and need to make the most of this extraordinary buying power…. The result will be more savings, an increase in the quality of the commercial service to government, and a sustainable approach to our commercial procurement activity which will benefit the whole of the public”.
Buying by the book
Yet I do not get the impression that the excellent principles the government has put forward are yet being fully adopted. I suspect the issue is that the meaning and benefit of sustainable procurement still isn’t widely understood – and in the midst of public sector cuts, implementing sustainable procurement feels like a daunting and costly task. However, there are seven simple guidelines, distilled from Supply Management Magazine, CIPS and Forum for the Future, that an organisation can follow to obtain sustainable procurement’s benefits.
1. Keep it simple – Don’t get bogged down with complex supply chain analysis that may not actually achieve any tangible benefits. Identify the areas that are most relevant to your organisation and focus on these. For instance, you might ask your suppliers to focus on carbon emission reduction or use policies such as the living wage accreditation as a supplier section tool. Agree clear targets with key suppliers with meaningful indicators in order to track progress.
2. Build a green team – As with any strategic programme, you need the right sponsorship and governance, skills and expertise to drive and develop sustainable procurement. Senior support is needed to demonstrate to suppliers and customers that sustainability is taken seriously. But the project also needs the input of the commercial/procurement leads and technical leads who will rely on the programme’s results.
3. Create a framework – In order to integrate green criteria into the purchasing process, create an overarching framework/methodology as a best practice procurement tool. The framework should consider the environmental, social and economic consequences of sourcing and the design of the goods or services: for example challenging the “need to buy”, life cycle analysis and whole life costing, recycling options and disposal, developing ‘green’ specification, market engagement, supplier evaluation and selection, contract award and supplier contract management. Alongside the framework, define a ‘roadmap’ setting out key ambitions and goals for the next 1-3 years to stop the initiative from becoming static.
4. Look at the lifecycle, not price alone – Contracts are often awarded primarily on a cost basis. However, life-cycle costing can reveal budget savings, even for initially more expensive items, by focusing on whole life costs. A life-cycle assessment may reveal substantial savings from a slightly higher initial investment, perhaps from energy-saving products that have cheaper running costs, low toxicity manufactured items that don’t require expensive disposal methods, and local suppliers who offer lower logistical costs.
5. Define ‘green requirements’ – Setting well-publicised standards helps to ensure that the organisation attracts the right kind of suppliers. As with any procurement, it is sensible to test the market to understand if it is able to meet your requirements. However, setting a specification can drive change and innovation. The simplest way to specify criteria is to reference relevant eco-labels and accreditations, such as:
- EMAS and ISO14001
- EU Eco-Label
- FSC Certification
- Energy Star
Public bodies, though, need to be careful not to specify a single standard, but to allow any equivalent label or accreditation to satisfy their requirements. Selection criteria can be designed to exclude suppliers that have breached environmental legislation and favour those that demonstrate high environmental performance.
6. Develop a sustainability-focused supplier base – In order for sustainable procurement to work you need to engage with suppliers to help you achieve your goals. Suppliers will not be able to act immediately, particularly where investment of time and resources is required, and need to understand and come on board with your longer term ambitions. It will help if changes can be framed as a partnership or a win/win approach to continuous improvement. Once engaged, suppliers may also be able to suggest innovative solutions. A good starting point is to pick a handful of key strategic suppliers and pilot the application of the sustainability principles identified through your framework, identifying potential ‘quick wins’ that benefit all parties.
7. Track success – From the initiation of any sustainable procurement journey you need to track and measure success. This will help focus efforts, but is also a good tool to secure buy-in from internal stakeholders and to demonstrate success. Circulating successes stories helps to create a ‘feel good’ factor and enhance your corporate image in the market place. A quarterly dashboard with quantitative and qualitative measures can be used for meaningful discussion with suppliers, as a progress update to strategic sponsors, a tool to track progress and a source of positive results that can be publicised to evidence progress and continued commitment.
These are straightforward steps that any organisation can take, and once initiated can help to achieve considerable benefits. Environmental performance improvements are one factor; but stronger partnerships with suppliers can have much wider benefits too. For businesses with extended supply chains, sustainable procurement can bring big savings, not just reputational benefits; and for government bodies facing cuts, sustainable procurement ought to be viewed as an essential part of obtaining value for money, rather than an optional add-on to procurement processes.