By: Annabel Sim at Compleat Software
Hidden among the many moving cogs of business is procurement, which has quickly found itself at the centre of discussions to drive environmental and social change.
Understanding how products are purchased, where they originate from, and their carbon footprint is leading to new, better ways of managing and optimising sustainable procurement processes.
Important, as up to 90% of an organisation’s environmental impact lies in the value chain, according to Carbon Trust.
Detailed analysis that can support decarbonisation plans is therefore a vital piece of the puzzle for businesses looking to become more sustainable and prepare for a net-zero economy.
Procurement has just found another purpose – creating a better, cleaner planet.
What is green procurement?
Green procurement, the purchasing of environmentally friendly products and services, involves evaluating supply chains to analyse factors such as where products originate from, what they are made of, and what happens to them once they have been used.
In today’s environmental and financial climate, one of the most important aspects is considering if the purchase needs to be made at all. If it does, businesses still need to ensure accurate quantities to reduce wastage and look at sourcing more local products to reduce their carbon footprint.
Companies which priorisite more green purchases can lower their own environmental impact while becoming more sustainable – important to customers and employees as well as implementing Net Zero Carbon targets.
And for suppliers or potential suppliers to the public sector, understanding your supply chain and implementing methods to move towards Net Zero is becoming pivotal in securing valuable contracts. More than £559m worth of Net Zero contracts were awarded in 2021 alone – a huge increase from the £90m awarded in 2015.
Green procurement can also offer significant advantages further down the line in data-based decision-making and cost reductions, with more detailed analysis allowing for better comparisons to be made between suppliers, products, and quantity needed.
Driving towards a greener future
Reverting the environmental impact that businesses have is a big challenge. Corporate Social Responsibility initiatives are becoming top priorities in businesses of all sizes, while the rise of conscious consumerism means businesses are having to adapt.
There are three main reasons why business should start to prioritise sustainable procurement, if not already:
- Competitive advantage
When utilised effectively, industry leaders that understand that supply chain sustainability can be a used competitive advantage can bring a wealth of opportunities.
Consumers’ preference for sustainably sourced purchases is not a new phenomenon, with one third (33%) choosing to buy from brands and businesses they believe are doing social or environmental good.
Sharp-eyed companies with a structured approach towards sustainable procurement, should be leveraging this as a competitive advantage by outperforming their less sustainable peers and reaping rewards.
The general view is that companies falling behind on sustainable issues actually run the risk of falling behind.
- Cost reduction
Companies with a sustainable procurement strategy can make cost reductions by improving the efficiency of their supply chains, and reducing the use of unnecessary packaging, energy consumption and minimising waste.
Such financial savings can then be reinvested back into the company to make further efficiencies and make an impact on the bottom line.
One recent study confirmed this, with an overwhelming majority (88%) of companies that focused on sustainability witnessing operational performance improvements which had a direct impact on increasing cash flow.
As well as enhancing regulatory resilience, companies can also future-proof themselves against scarcity and black swan events.
The pandemic highlighted the importance of having a plan B, and if any global or local events of the same scale are to happen in the future, it’s best that businesses have a diverse range of options at their disposal as well as moving towards future trends and greener alternatives.
By planning ahead and reducing dependence on non-renewable resources, businesses are less likely to be affected in the long term by price volatility and shortages – important in the face of fuel and energy crises.
Plus, as more options are researched, businesses may be able to enjoy greater flexibility in terms of supplier selection and purchasing.
How can businesses put this into practice?
Green procurement practices can be as little as purchasing renewable energy or recycled office paper, or be much more involved such as setting environmental requirements for suppliers and contractors.
IKEA for example has established IWAY, a mandatory supplier code of conduct that sets clear expectations for environmental, social and working conditions, as well as animal welfare, for all suppliers and service providers that work with IKEA.
The company invested more than $1.1 billion in sustainable supply chains, including forestry and companies developing recycling technologies, renewable energy, and biomaterials – a shrewd move for the planet and for the business.
Organisations that are still working with outdated procurement processes need to challenge their business leaders to make changes, and recognise the true value of their procurement processes and the value that they can add to businesses.