Author – Richard Dormer, Managing Director at BCR Associates.
Sustainable Procurement – What’s New in ‘22
If you repeat a word again and again it starts to lose its core meaning. Is Sustainability beginning to come to the same fate when it means so many things to so many people?
The goal of this piece is not a ‘How to Go-Green’ or ‘Technical Buying Strategies’ but is aimed at organisations where managers and directors are managing everything the messy world throws at us as in 2022 as well as their procurement duties. Larger companies with dedicated procurement specialists may well have this in hand but it becomes more challenging for SME’s when the responsibility is spread across various areas of the business.
What is my definition of Sustainable Procurement? Simply put, it would be a focus on obtaining goods and services, keeping my business profitable, reducing risk, and protecting my, and our wider society’s future in a world that is by any measure ‘rather crazy’.
What are the procurement trends for 2022 and beyond?
In ‘22 the basic criteria for controlling expenditure such as value for money and reliability of supply chain are now framed by the urgent business need to grow businesses sustainably. The four pillars of sustainability are a useful guide in such procurement decisions:
All four are important topics in their own right, however the second, following COP-26, is rapidly evolving and a key focus for the future.
The 4 Pillars in 2022
Basic Economics: In ’22 is your business model still viable?
If profit margins are traditionally low, managing costs will be a challenge in 2022 where internal costs, and those of your suppliers, will feel the effects of Covid induced supply chain issues where three key wholesale costs have rocketed, cardboard 120%+, plastics 133%+ and electricity 476%+ with extreme volatility.
Managing the procurement of your ‘core’ supplies will always have been a cornerstone of your success, however, depending on your sector, non-core costs can be between 15%-35% of total revenue and large increases in non-core (i.e.: 2-400% increase in electricity) can require very significant increases in sales revenue just to standstill. With longer term contracted supplies such as energy, managing that risk prior to renegotiation can make the difference between profit and loss.
Environmental: The world we live in
The environmental impact of our businesses is arguably the most important in 2022. Climate change and COP-26, plastics in the environment, the growing movements of Circular Economy and accreditations such as B-Corp plus mandatory reporting through ESOS and SECR have resulted in environmental, and in particular Carbon reporting being cascaded down through the procurement requirements in supply chains, something that we predict will increase exponentially in 2022 and beyond.
Fortunately, within the procurement process ‘Environmental’ is the simplest (not necessarily easiest) aspect of sustainability in procurement to measure and demonstrate. In the last decade the level of data available from suppliers such as half hourly meter readings of your water and energy to the monthly breakdowns of waste streams allows engaged companies to publish their Environmental credentials.
For those that haven’t engaged with the Environmental aspects of purchasing the 150 page ‘Environmental Reporting Guidelines’ published by the Government, guidance from the GHGProtocol.org gives an excellent starting point for all levels of business to aspire to or comply with, and can be briefly broken down into three areas (termedScopes):
- Scope one: emissions from fuels* you directly purchase and control ie: fuel you burn in boilers, owned vehicles.
- Scope two: emissions from fuel* burned as a consequence of your activity but not controlled by you i.e.: grid electricity
- Scope three: almost everything else you can think of. Particularly upstream and downstream supply chain purchases e.g.: shipping, delivery, travel, business supplies, customer travel etc.
Colin Halsey, Director and Investor at The Natural Fibre Company Limited, Launceston, puts the sustainability question in order of priority for SME’s:
“from our perspective as an SME – (1) buy in from the owners (2) reduction in carbon output/ carbon footprint (3) circular economy credentials culminating in an Action Plan reflecting direct and indirect scopes.”
People: Employee Sustainability Expectations: Arguably recruitment is not commonly a Procurement function, but our people are one of our biggest assets and costs. In 2021-22 there is a widespread skills and labour shortage, how are your recruitment and retention practices informed by your sustainability? Or do you find it an odd question?
In 2020 14 million respondents to a LinkedIn Employee Expectation Survey showed that environmental concerns amongst employees were up +52% globally, 128% in younger employees, 106% in the Consumer sector and an impressive 600% in Manufacturing.
Even before Covid-19 and COP-26, a survey of UK employees by TotalJobs showed 26% of employees would be willing to take a pay cut to move to a company which prioritised the environment, and 50% of 23-38 year olds said they would consider quitting their job to move to a more environmentally friendly one, and 50% of all respondents said they would refuse a job if they considered it harmful to the environment.
For those of us without the vast resources to proclaim a Global Sustainability Plan having an engaged CSR team internally is not simply the ‘right’ thing to do but also promotes engagement across all the business teams promoting a common goal outside of the director’s commercial interests.
Social: Wider Social Impact
Traditionally, a key component of public sector procurement where society’s tax revenue needs to be seen to be benefitting and having value to the wider society and spent ethically and responsibly. In recent years this has become ever more important in the private sector as brands have suffered dire consequences, when chasing competitive costs, only to find their brand associated with modern slavery and environmental mis-management.
Social sustainability value is arguably the most difficult to quantify and assess. Measuring and managing your social footprint includes anything that affects your company-stakeholder relationships: from how much and how reliably suppliers are paid, to how a product affects lives in your supply chain and lives of your customers. Are you focussed on value or transactional price?
The COVID-19 epidemic weakened many of the links in the corporate value chain so building solid trusted supplier relationships can tackle inter-company blockages helping to create the right conditions for business recovery, there have been numerous examples where valued relationships won over ‘price buyers’ in securing supplies of raw materials and equipment providing reliability of business continuity and promoting new ways of value sharing ie: sharing problems and R&D costs
To finish, I’d like to leave you with 5 key actions that should help you to navigate the procurement market sustainably in 2022:
- Your Footprint: Invest in technology that allows you to measure your Carbon Footprint? There are relatively simple methods to develop a detailed insight from applications that sync with your finance software to calculate emissions from purchase ledgers to Artificial Intelligence that watches your metered fuels, calculates emissions, and generates live reports of opportunities to reduce them!
- Supply chain Footprint: This comprises of ‘scope three’ emissions such as shipping, travel etc. It’s worth assessing your supply chain, can you do better with a different supplier or work with your favoured supplier to reduce their emissions?
- Maximise talent: Engage with your staff to build a robust CSR/ sustainability plan for 2022 and beyond, focus on a bottom-up approach encouraging participation. Consider your values and if your supply chain share them?
- Focus on value: Build trusted relationships with both up and downstream supply chains to build value rather than rely on transactional price driven buying.
- Visibility of risk: Where purchasing in markets you don’t fully understand you can reduce significant risk through engaging trusted, knowledgeable third parties to assist in developing forward budgets, risk assessments and fit for purpose contracts.