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Transforming your Supply Chains with Sustainable Sourcing
Transforming your Supply Chains with Sustainable Sourcing

December 15, 2022

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Sustainability- From ‘good-to-have’ to a ‘must-have’

Increasing impact of climate change and strict environmental regulatory standards imposed by governments have made sustainability a top priority for businesses around the globe. Customers across the globe are also sending clear signals that sustainability is increasingly a expectation from brands. Some examples of upcoming legislation around sustainability are the German Supply Chain Act (LkSG) as well as the EU Corporate Sustainability Reporting Directive (CSRD).

 It's possible that when you think about sustainability, procurement may not be the first thing that comes to your mind. However, as explained in a recent McKinsey report, a company’s supply chain is responsible for more than 80% of greenhouse emissions and more than 90% of the impact on natural resources such as air and water. Procurement being an entry point to the supply chain of an organization plays an essential role in its sustainability footprint.

What is Sustainable Sourcing?

Sustainable sourcing, also called responsible sourcing is the practice of incorporating environmental, social, and governance (ESG) principles into sourcing wherein while selecting suppliers, the procurement organization also considers social, ethical and environmental factors apart from the typical cost and quality factors. Companies need to monitor compliance of their suppliers to sustainability factors and work with them to address sustainability issues.

According to a recent Gartner research report, 93% of respondents to the survey are planning to invest in sustainable sourcing initiatives.  The survey also revealed that while 79.5% of respondents are considering sustainable sourcing to meet regulatory requirements, 11.5% of respondents said they consider it for market differentiation, and 5.5% said they consider it for societal or environmental welfare.

Advantages of sustainable sourcing

Establishing a sustainable procurement strategy and using more environmentally friendly purchasing techniques may help your company in a variety of ways:

  1. Minimize supplier risks

As soon as you start thinking about sustainability objectives, you not only evaluate your supplier on the consistency and pricing of the products but also their resource sourcing and waste management practices.

  1. Protect brand reputation

When using sustainable procurement methods, businesses make sure to deal with suppliers (whether they are new or existing) that have a full understanding of environmental impact and ESG parameters. This can protect an organizations from any legal disputes and protect brand reputation or image.

  1. Improve brand perception

Sustainability not just protects brand reputation but also helps in building the reputation and gains customer trust. A sustainable brand image makes a company be perceived as more caring and thoughtful about the environment. In the Global Sustainability Study by Simon-Kucher & Partners, 50% of consumers rank sustainability as a top purchase criterion and a key differentiator in a brand’s overall value proposition and 34% of respondents said they are willing to pay more for sustainable products/services.

  1. Ensure your supply chain gets future-proofed by creating a positive impact on the environment

Companies can rapidly minimize their carbon footprint by establishing a strong emphasis on sustainability. Even though you might not see benefits right away, the influence on the supply chain solely justifies its implementation.

  1. Reduce costs

Companies can collaborate with suppliers to develop a sustainable procurement strategy that employs a smaller workforce and minimum resource requirements in order to generate higher returns. According to a Mckinsey report, organizations that effectively use ESG may save costs up to 10% by focusing on operational effectiveness and waste minimization

Challenges in adopting sustainable sourcing

Sustainable procurement calls for a major shift in a company’s overall sourcing strategy, focus and workflows. Thus, bringing sustainable procurement into practice comes with its own challenges. Some of the major challenges organizations face while taking their first steps to sustainable sourcing are:

  • Insufficient knowledge of sustainability

All levels of an organization may suffer from a lack of awareness about sustainable measures. Uncertainty about how to obtain products responsibly or how to make a process more environmentally friendly might cause a hindrance in the implementation of a sustainable sourcing strategy.

  • Limited resources

Many businesses believe they don't have the time, money, tools & technologies or other resources to wait for sustainability to gain traction when there are other, more practical options available.   But just like other resources, time and various technologies can be used as a resource to help your procurement team develop and implement more environmentally friendly techniques and methods.

  • Cost of adopting sustainable procurement

The cost of sustainable supply is often high. As per research, 38% of businesses saw cost hikes after they transitioned to sustainable buying. There will always be a transitional time when businesses modify their practices. Companies need to consider switching to sustainable buying techniques as a commitment to the long-term success of both business and the environment.

  • Availability of options

In certain industries, it can be quite difficult to get reliable suppliers that meet sustainability criteria. Additionally, sustainable raw matrials and even sustainable source of energy and water could also be a challenge, especially is you are managing a relatively smaller enterprise.

How can you bring sustainable sourcing practices into your organization?

Transforming your supply chain into a green procurement process might be a time-consuming and laborious task. Sustainability sourcing initiatives are difficult to monitor and if you have a large supply base, assessing and managing it for sustainability parameters can become a nightmare without the right tools.  Fortunately, you can make it a lot easier by utilizing capabilities included with several automated procurement solutions today.

Several products in the market may help you with your attempts to source responsibly by aiding businesses in collecting and evaluating supplier data. For example, with the help of sourcing and supplier management software, organizations can integrate sustainable sourcing using bid management, contract management, and supplier lifecycle management processes. Supplier sustainability and ESG risk monitoring solutions can help businesses to track and evaluate suppliers' compliance with ESG-related responsible sourcing standards, survey tools may be used to collect supplier data and so on. Read more about the different types of solutions that can help businesses implement and ramp up their sustainable sourcing initiatives in my blog ‘A Guide to Sustainable Procurement.

Conclusion

Achieving sustainable procurement is not an easy task. The key to its success though is to integrate one element of sustainability at one time and then continue creating sustainability measures throughout the process as it evolves. As a initial step, procurement professionals should empower themselves with the technologies & solutions, resources, and skills that are required to facilitate the transition to sustainable business models.

 

 


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