Transforming business through procurement has the potential to serve as a powerful enabler for businesses seeking to compete and win.
Transforming Business Through Procurement
Procurement is a critical function in any organization and plays a crucial role in transforming business. Companies can lower costs, improve efficiency, and increase profitability through effective procurement practices.
Procurement can transform a business by streamlining the sourcing and purchasing process. By using technology and data analytics, procurement teams can identify cost-saving opportunities, negotiate better deals with suppliers, and reduce the risk of fraud and waste.
Additionally, procurement can play a key role in ensuring the sustainability of the supply chain by promoting ethical and environmentally-friendly practices.
Another way procurement can transform a business is by aligning it with the company’s overall strategy. By working closely with other departments, procurement can ensure that its products and services are aligned with the company’s goals and mission.
For example, if the company has a focus on sustainability, procurement can work to source materials and products that are environmentally friendly and sustainable.
Finally, procurement can also transform a business by promoting innovation. Procurement can drive innovation and improvement in the company’s offerings by constantly searching for new and better products and services.
The Green Canvas
With the ESG norms gaining centerstage, many corporations have pledged to work with only those suppliers that adhere to social and environmental compliances. While the statement might seem simple and workable, there are myriad challenges in ascertaining that everyone in the value chain is aligned with a bigger corporate goal of enhancing sustainable expanse.
The complexity further accentuates when there are multiple small sourcing partners spanning global geographies.
Our recently held Webinar, ‘Sustainability & Ethical Sourcing, Supplier Diversity,’ brought forth leading global companies’ strategies towards ensuring sustainability. The panel discussion offered interesting success stories & best practices for others to imbibe and start their sustainability journey. Excerpts.
Cover Story
Holding your organization and its partners to a high standard is not just good ethics, it is good business which fuels customer loyalty and brand building blocks.
What is ethical and sustainable sourcing?
Ethical sourcing can be explained as the process of products being sourced from sources which are manufactured or procured responsibly and sustainably.
It is a component of sustainable sourcing but not the same thing. Sustainable sourcing is a process of selecting materials, products, and services from suppliers in a sustainable way. In applying sustainable sourcing, organizations integrate social, ethical, and environmental factors into selecting their suppliers.
An entire value chain of an organization needs to be committed to the cause of sustainability.
Are these two terms different and is there an inter-play between them?
Yes, this is a very pertinent question and there is no straight answer since one complements the other and only one is not complete without the other.
From the way you look at the words, they do look and feel the same. But just like most words, the difference can be seen in their actual meaning or execution.
Ethical sourcing is the art of selecting the suppliers based on how ethically and responsibly they have produced or procured their products / services as well as their suppliers.
Sustainable sourcing is the process of looking for a sustainable solution to keep up with the demand for a certain product including managing the value chain (life cycle) of those products / categories in a circular manner.
What is the role of supply chain (or sourcing) in this equation?
Sourcing is one function, which is uniquely positioned to contribute to meeting a corporation’s sustainability goals because of their overall control and span of responsibility. Few key elements:
- Sourcing leaders and teams should review their spend and identify categories in which sustainability efforts may achieve success.
- They should build a program that defines and adopts common methodologies and approaches. Focused effort should be made to promote the program and create awareness.
- Sourcing operations group should develop sourcing policies (Governance), which become their SOP (Standard Operating Procedures). These policies should clearly explain the corporation’s sustainability goals and expectations from their suppliers.
- The sourcing compliance group can then govern and score suppliers according to these policies. They can build questionnaires, surveys, reviews, site visit audits, scorecards, and the like to measure how their suppliers are complying with the stated goals and how well sourcing has aligned with the corporation’s sustainability mission.
- Finally, sourcing organizations should benchmark and compare their own mission, policies, and achievements with other organizations/ vendors in the same industry.
What are the silent benefits of Sustainable and Ethical Sourcing?
Primary benefits of sustainable and
ethical sourcing are:
- Reduced environmental impact:
Reduce waste, improve environmental footprint. - Manage Risks: Reduce supply chain disruptions, improve risk management cadence.
- Reduced Cost: Develop Vendor quality, reduce errors in operations, increased total cost of acquisition or ownerships with key suppliers.
- Increased top line & bottom line: Differentiated products and service offerings, increased competitiveness with competition, ability to attract / retain new customers.
- Develop / penetrate new markets:
Focused product offerings in specific markets, circular product life cycle management. - Brand management: Brand
promotion / protection, customer
loyalty integration.
Is there a “shifting” mind-set on sustainability and ethical procurement in last 3-4 years?
Yes indeed, there is a clear sign that top class multinationals are moving the needle in the right direction insisting on sustainable and ethical procurement practices with their major vendors, their tier-I and Tier-II suppliers.
This is helping the organizations to change the mindset of consumers who are more aware and conscious of the brands they purchase.
The young cohort (Gen X and Gen Y) make decisions that support environmental and sustainable enterprise in a serious manner.
According to (SIG) Sourcing Industry Group Survey (2021), these are some of the interesting statistics.
%
of consumers prefer to work for socially responsible companies.
%
of consumers will pay extra for products and services from socially responsible companies.
%
of consumers made at least one purchase in the past six months from socially responsible companies.
%
of consumers check product packaging to ensure sustainable impact.
%
of consumers prefer to volunteer/donate to organizations engaged in social and environmental programs
How do customers react to ethical and sourcing strategies by an organization?
In recent years, sustainability has become the front and center for both consumers and brands to reduce the impact and effect of climate change. A big part of these sustainability initiatives includes the use of ethical sourcing.
According to a survey conducted by Software giant OpenText (2021), 81% of customers value and prefer to buy from organizations who embrace sustainable and ethical sourcing.
What is even more interesting is that 25% (of 81%) respondents said that the mindset changed since last 20-24 months, clearly indicating that customers indeed have started to re-evaluate their stance on ethical / sustainable sourcing. Another interesting survey result was 71% of respondents said that businesses have a responsibility to ensure their suppliers abide by an ethical code of conduct.
And this is something that we have seen garnering a lot of attention with F100 organizations. Another survey statistics highlight that nearly 60% of respondents indicated that (Governance) government needs to introduce regulations, which hold businesses more accountable for responsible & ethical sourcing. This can get a bit tricky when considering how consumers feel about governmental oversight into their daily lives.
But, in 2019, the Trump Administration stopped imports of clothing, gold, diamonds, and other items believed to have been produced with forced child-labour by companies based in Brazil, China, and Malaysia, as well as some gold mined in eastern Congo and diamonds from Zimbabwe.
Nearly 88% of survey respondents said when shopping online after the pandemic, they will prioritize buying from companies that make it clear the organizations have ethical sourcing strategies in place not just on paper but in their operations (example – last mile delivery).
What is the next frontier for Sustainable & Ethical sourcing?
The terms Sustainable and Ethical sourcing will continue to evolve in a serious manner. Ethical sourcing is not just like checking a box.
Instead, the phrase represents the culmination of several coordinated efforts, suggesting that an organization is committed to enforcing sustainability, ethical behaviours as well as a serious awareness to social responsibility.
While cynics might once have dismissed sustainability and ethical sourcing as catchy buzzwords, they have become an essential element of any risk mitigation strategy.
Holding your organization and its partners to a high standard is not just good ethics, it is good business which fuels customer loyalty and brand building blocks.
For organizations without the resources or vision to kick off comprehensive initiatives, a more sustainable and ethical approach can begin with something as simple as behaving more transparently with trust and strong operational processes in dealing within their supply base to start with.
Then, on the demand side, they can invite their consumers to provide their feedback, engage more directly within their distribution network, and reach out to competitors as peers to leverage open data which can be shared.
You do not need to change the world (or even the foundations of your company) to make sustainable & ethical sourcing a reality.
Transforming business through procurement is an evolutionary process, which will not happen tomorrow, but it will happen one day if the leadership stays committed and strong in their execution.
Read also: Executive Search Industry Continues to Evolve in 2023
In conclusion
Transforming business through procurement has the potential to play a critical role for businesses by lowering costs, improving efficiency, promoting sustainability, aligning with the company’s strategy, and fostering innovation.