Procurement leading the sustainability charge

The coro­n­avirus pan­dem­ic sparked a renewed focus on sus­tain­abil­i­ty. A year in and that focus is only becom­ing stronger.

Senior pro­cure­ment exec­u­tives explain how this is play­ing out with­in their sup­ply chain and how they are respond­ing. Top­ics include cap­tur­ing the com­pet­i­tive ben­e­fits of sus­tain­abil­i­ty, how and when to talk to tier‑2 and less­er sup­pli­ers, and the link with resilience, which is anoth­er crit­i­cal sup­ply chain issue of 2021.

Mar­co Philip­pi, head of pro­cure­ment strat­e­gy for car­mak­er Audi, says “I think we’re in the mid­dle of the ‘new nor­mal’ already. You can­not have a sus­tain­able com­pa­ny, or a sus­tain­abil­i­ty strat­e­gy with­in the com­pa­ny, with­out a sus­tain­able sup­ply chain.”

A sig­nif­i­cant impe­tus comes from con­sumers. Alex Jen­nings, chief pro­cure­ment offi­cer of pack­ag­ing com­pa­ny DS Smith, notes a land­mark rise in end-user expec­ta­tions for the prod­ucts they buy. Although this is not the only pres­sure. He says: “It’s also being demand­ed by our investors and by our employ­ees.”

A key strat­e­gy for progress is to move away from a trans­ac­tion­al rela­tion­ship with sup­pli­ers, the round­table par­tic­i­pants agreed. The pre-COVID land­scape was mixed. Some com­pa­nies have long seen key sup­pli­ers as strate­gic part­ners that can help dri­ve inno­va­tion in the end-prod­uct. Oth­ers think the pro­cure­ment team’s main job is buy­ing as cheap­ly as pos­si­ble.

George Booth, chief pro­cure­ment offi­cer of Lloyds Bank­ing Group, says com­pa­nies must recog­nise cli­mate change is one of the biggest issues fac­ing soci­ety. “As the UK’s largest finan­cial ser­vices group, we are com­mit­ted to reduce our own car­bon foot­print and chal­leng­ing our sup­pli­ers to ensure our own con­sump­tion of resources, goods and ser­vices is sus­tain­able,” he says.

There are also real con­nec­tions between sus­tain­abil­i­ty, trans­paren­cy and resilience. Rhys Bush, Europe, Mid­dle East and Africa vice pres­i­dent of Avet­ta, the sup­ply chain risk man­age­ment ser­vice, says com­pa­nies engaged with their sup­ply chain on sus­tain­abil­i­ty ini­tia­tives such as mod­ern slav­ery had repur­posed that knowhow to track the risk of sup­ply dis­rup­tion due to local lock­downs.

“In this instance, there is a clear cor­re­la­tion between sus­tain­abil­i­ty data and the bot­tom line,” he says.

This was in part because they had a real-time view of their sup­ply ecosys­tem below tier‑1 sup­pli­ers. This trans­paren­cy is key, but par­tic­i­pants say it needs to be done selec­tive­ly, based on risk analy­sis rather than attempt­ing an all-sup­ply chain data dump.

Tech­nol­o­gy can be vital in map­ping these depen­den­cies, says Bush, but at heart, it is a chal­lenge of lead­er­ship, know­ing how to col­lab­o­rate with tier‑1 sup­pli­ers and when to sup­port those low­er down the sup­ply chain.

There also has to be an acknowl­edge­ment that the best, most inno­v­a­tive and most sus­tain­able sup­pli­ers may be able to pick and choose their cus­tomers, par­tic­u­lar­ly if they are in a sec­tor with capac­i­ty con­straints.

Car­ol Williams, head of pro­cure­ment at con­struc­tion firm Laing O’Rourke, says: “It’s a very com­pet­i­tive mar­ket and, yes, you have to have a com­pelling rea­son why your part­ners would want to work with you.”

This sup­pli­er dia­logue has to be two-way, Williams notes. The best sup­pli­ers “can bring great insights into our prod­ucts and ser­vices,” she says.

Booth under­lines the need for dia­logue to be two way: “This will require new ways of think­ing and we must work togeth­er with cus­tomers, gov­ern­ment and the mar­ket to help reduce the car­bon emis­sions we finance.”

Philip­pi adds that it is vital to col­lab­o­rate with sup­pli­ers as expec­ta­tions rise, rather than just sev­er­ing a rela­tion­ship when one falls below a new bench­mark.

“It’s not our goal to just exclude every­body from our sup­ply chain who doesn’t meet our stan­dards yet,” he says. “We want to active­ly help them by train­ing and qual­i­fi­ca­tion.” Audi also relies on arti­fi­cial intel­li­gence to iden­ti­fy sus­tain­abil­i­ty risks with direct busi­ness part­ners and in the tier stages of their sup­ply chain.

But there are dif­fi­cult ques­tions to face bal­anc­ing com­pe­ti­tion and col­lab­o­ra­tion. Sus­tain­abil­i­ty can be a way to stand out in a crowd­ed mar­ket, a point of dif­fer­en­ti­a­tion. Yet, some of the biggest chal­lenges can only be solved by com­peti­tors team­ing up to encour­age change across an entire ecosys­tem. The pro­cure­ment lead­ers around the round­table take prag­mat­ic, case-by-case deci­sions on col­lab­o­ra­tion.

Audi, for instance, has worked with oth­er car­mak­ers on a stan­dard­ised sup­pli­er ques­tion­naire. It is also a mem­ber of the Glob­al Bat­tery Alliance, a con­sor­tium of around 70 organ­i­sa­tions, which includes rivals such as Renault, Hon­da and Vol­vo and aims to pro­duce a glob­al, sus­tain­able sup­ply chain for these crit­i­cal com­po­nents. Yet Philip­pi also believes Audi can attract con­sumers to its brand by stand-out sus­tain­abil­i­ty in areas such as cir­cu­lar­i­ty, reduc­ing reliance on raw mate­ri­als by recy­cling from pre­vi­ous vehi­cles. It is push­ing hard in these areas.

Also push­ing hard on cir­cu­lar­i­ty is DS Smith. The firm pro­duced more than 17 bil­lion box­es in the year to April 2020, yet its sub­stan­tial recy­cling oper­a­tions make it a net-pos­i­tive recy­cler, which means it recy­cles more than it con­sumes. Jen­nings says the firm is look­ing long term.

“How do you design your prod­ucts so they can be reused or recy­cled, that the mate­ri­als stay in use for longer and the man­u­fac­tur­ing invest­ment you’ve made keeps mate­r­i­al val­ue with­in soci­ety for as long as pos­si­ble? I think this mod­el of cir­cu­lar­i­ty is going to become more and more impor­tant as we go for­ward,” he says.

This kind of com­plex re-engi­neer­ing of process­es goes far beyond the remit of pro­cure­ment. It points to a new and wel­come devel­op­ment on the wind­ing road to sus­tain­abil­i­ty. No longer is pro­cure­ment the “green depart­ment”, try­ing to bolt sus­tain­abil­i­ty onto an organ­i­sa­tion oth­er­wise try­ing to run busi­ness as usu­al.

Williams adds that when it comes to sus­tain­abil­i­ty in 2021, “every­body has their part to play”. How­ev­er, with many com­pa­nies cre­at­ing 60 per cent of their val­ue through their sup­ply chain, the chief pro­cure­ment offi­cer must still be “a huge part of how an organ­i­sa­tion deliv­ers out­comes”, she says.

Booth believes that over time sus­tain­abil­i­ty will become the most impor­tant dif­fer­en­tia­tor in sup­pli­ers win­ning busi­ness. “For any­one in the chief pro­cure­ment offi­cer role, you should wel­come the chal­lenge of sus­tain­abil­i­ty. You’re right in the mid­dle of it and that’s fan­tas­tic,” he con­cludes.

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