Consider environmental factors in procurement decisions
The extent to which environmental factors are taken into account in procurement decisions.
One of the key lessons of 2020 for supply chain leaders is that purchasing cannot afford to focus solely on purchasing goods and services at the lowest possible cost. To survive and thrive, large companies think more broadly by considering strategic factors in sourcing decisions and continuing to invest in closer relationships with suppliers. These commitments and investments often cost more upfront, but pay off in the long run with supply chains that are stronger, more flexible and more responsive to change.
The APQC has found that companies that take a more intentional and holistic approach to sourcing, which increasingly includes environmental, social and governance (ESG) considerations, tend to perform better on a range of metrics. ‘key supply. Let’s examine the extent to which companies specifically take environmental factors into account in their sourcing decisions and discuss how environmental considerations provide opportunities for greater value creation through supplier relationships that enhance the advantage. competitive.
For starters, APQC found that just over half of organizations (54%) consider environmental factors to a large extent when sourcing, 36% consider them only to a moderate extent, and 10% consider them little or not at all.
The 54% of companies that are thinking more about environmental factors are part of a growing trend, as global organizations and many of the world’s leading companies attempt to make great strides in this area. The United Nations and the Dow Jones, for example, are challenging companies to disclose emissions data and align with a set of benchmarks that measure sustainability. In response, the procurement teams of many large companies are setting ambitious goals and tracking suppliers to ensure sustainable and environmentally friendly procurement practices.
For example, Unilever is implementing a system for its suppliers to report the carbon footprint of their goods and services to ensure they meet company standards. This system is part of a larger push towards a goal of achieving zero net emissions from products by 2039.
Retailers like Target and Walmart are also monitoring and collaborating with their suppliers to reduce emissions by 30% by 2030.
Sustainable development and supplier relationship management
Suppliers and supplier relationships are a critical part of a company’s efforts to develop more sustainable sourcing practices. Rather than micromanaging suppliers towards the practices they want to see, the best companies use environmental considerations as an opportunity to forge deeper and more collaborative relationships with suppliers.
Investing in deep, long-term supplier relationships is a critical feature of any organization’s approach to supplier relationship management and helps mitigate disruption.
Environmental focus linked to higher performance
Taking into account environmental factors such as sustainability can cost more money in the short run (although in some industries this premium decreases); you have to spend green to be green. But, these investments are worth it in the long run.
Organizations that take environmental factors into account to a large extent typically score better across a range of procurement metrics in APQC’s open standards benchmarking data. For example, these companies may perform procurement processes with significantly fewer full-time equivalent (FTE) employees than those with little or no consideration for environmental factors (169 versus 322 FTE). These environmentally conscious companies also tend to retain more highly skilled and experienced procurement staff and have shorter cycle times to place orders (24 hours vs. 33).
Consideration of environmental factors in sourcing decisions is a hallmark of companies that are more mature and reflect on their staffing and purchasing practices. For these companies, environmental concerns are part of a larger strategic mindset that leads to a more robust risk assessment and deeper relationships with suppliers. When businesses care about these external strategic factors, which also include concerns such as geopolitics and weather events, they make a more deliberate effort to cultivate the people, technology, and supplier relationships needed to keep purchasing going. agile and adaptable in the face of disruptions.
The lowest cost is not everything in the supply. Companies must take into account a series of other strategic considerations, including environmental factors. Companies that are more intentional about sourcing often find new opportunities to forge deeper relationships with suppliers that drive innovation and competitive advantage. They are also investing deeper in the technology, processes and people that help ensure that supply chains remain resilient, no matter what the future.