According to a 2015 World Economic Forum study, organisations can improve revenues by up to 20 per cent and increase brand value by 30 per cent by investing in sustainable supply chains, a strategy also known as Green Procurement.
Sustainability is becoming one of the central themes in the operation of global companies and supply chains, and its adoption is not an easy task that can be achieved by a single individual or operational area. Today’s consumer does not only question whether a company’s financial returns are adequate but is also interested in the origin of the materials used, the production methods and the working conditions of the workers who produced them.
This new vision exposes the organisation to a myriad of social, environmental and economic risks. A company’s supply chain partners can expose it to risks that can quickly destroy the entire reputation built up over its history.
It must be understood that the supply chain interacts with the entire environment of an organisation: customers, suppliers, workers, shareholders, regulators and financial organisations. By managing the flow of materials, information and money, the supply chain also connects with almost all areas of the organisation, becoming an integrator and driver of business strategies.
Green procurement: designing and managing sustainable chains
Designing and managing sustainable supply chains requires a paradigm shift in what constitutes a successful business. If companies are aligned to the idea that the most important thing is only short-term financial gain, without assessing the benefits of working collaboratively with the entire ecosystem of a chain, change will not be possible.
A sustainable chain is one that operates within the limits imposed by nature and society, but also considers the objectives set by the owners/shareholders.
The sustainable chain fits the circular economy, a business strategy that separates production from the use of primary resources, because it relies on renewable, recyclable, rebuildable or biodegradable materials for its operation.
Building a sustainable chain must be the product of a well-structured strategy and action plan comprising two main phases: internal and external.
In the internal phase, the following actions are required:
- Declare sustainability as one of the company’s core values, with the same level of importance as customer service and financial performance.
- Align the organisation’s policies and processes with sustainability commitments, market demands and applicable regulations.
- Operate with maximum transparency.
- Establish clear performance indicators accompanied by actions to reinforce good behaviour.
- Create an organisational position responsible for promoting, measuring and monitoring these objectives, e.g., the CSO (Chief Sustainability Officer).
- If necessary, engage experts in the field. Circularity can support your company in developing green procurement strategies.
Once the company accepts and organises itself to face the new challenge, it must be extended along the entire chain. As in the design of supply chain strategies, the lead company must take responsibility for driving sustainability efforts.
In other words, the company that has the most influence on the rest of the organisations must set priorities that all of them must pursue together, both about labour issues, such as quality of life or wages, and regarding environmental issues, such as water consumption or greenhouse gas emissions.
The core company must constantly strive to ensure that its chain partners stay within the set limits and take appropriate actions on an ongoing basis and not only with temporary efforts.
The three most relevant actions of the external phase to drive a green procurement strategy are:
1) collaborate with customers and suppliers committed to sustainability and define common actions and indicators;
2) undertake actions that support traceability to ensure transparency;
3) build a circular economy together with them.
How to be sustainable according to the company’s possibilities?
There is no ideal model of sustainability; each organisation and each supply chain must find it according to the availability of resources and the characteristics of its processes and materials.
To declare sustainability as a value, more than 10,000 companies worldwide have signed the UN Global Compact, publicly recognising their commitment to society in the areas of human rights, labour rights, environment and anti-corruption.
Values must be lived and embodied in everyday actions. The actions and decisions of top management must be consistent, facilitating operations inside and outside the organisation and allowing end consumers to assess and judge the technical and moral quality of the organisation. The commitment to transparency towards customers and consumers must be part of the organisation’s daily ethical conduct and must therefore be defined within the policies and standards that guide the organisation’s conduct.
The indicators that the company defines may be taken from standards such as those proposed by the Global Reporting Initiative (GRI) or from some common ones such as those listed below:
(a) In relation to processes:
- ISO 14001 certification.
- Compliance with environmental laws, permits and regulations.
- Receipt and management of penalties, fines, warnings or violations of environmental regulations.
b) In relation to materials and inputs:
- Gas emission.
- Water management.
- Reduction, replacement or elimination of hazardous materials.
- Energy management and generation.
- Use of sustainable materials.
Suppliers and sustainability
On the external front, the company must take responsibility for managing supplier performance when their failure risks damaging or destroying the company’s image. Among the most important actions to take with suppliers are:
i. Include new criteria associated with sustainability and crisis management in the selection process.
ii. Establish systems to monitor the reputation and image of critical suppliers.
iii. Conduct audits to ensure compliance with all contractual terms.
iv. Establish clear communication channels so that any risk of image damage is known as soon as possible.
v. Design strategies to mitigate such risks and have formal mechanisms in place to respond to events.
vi. Work directly with suppliers to eliminate sources of waste and contamination.
The impact of sustainability on customers’ purchasing decisions must be understood and evaluated in relation to the company’s revenues and profits.
Commitment to sustainability is critical to the health of the organisation, to avoiding legal or image problems in the community, but also to the well-being of our society. Developing a green procurement strategy, respecting human rights, ethical behaviour and working according to fair trade models are key principles for sound decision-making with a long-term vision.
Chains are built day by day, but if they are not based on sustainability values, their life will be very short and their good results only a mirage.