Sustainable Procurement, Securing Supply Chains Within the Industrial World
A Context for Sustainable Procurement
Following legislation, companies have become responsible for their upstream value chain in many countries (including Europe). Doing so, Sustainable Procurement is gradually establishing itself as a necessity for the company. It also constitutes a good operational practice and because the movement is still in its early stages, it currently represents an opportunity to create value both for the procurement departments and for the company as a whole.
4 Reasons why Companies should Adopt a Sustainable Procurement Plan
Responding to Stakeholders’ Request
- Consumers integrate sustainability into their procurement decisions: a wider share is ready to pay more
- Alignment with sustainability requirements in tenders
- Shareholders scrutinize extra-financial reports
Ensuring Business Continuity
- Protect brand image and reputation – by anticipating alerts from the media, consumers or third parties
- Ensure the long-term availability of materials and components by strengthening the supplier relationship
- Reduce price volatility, with Fair Trade type agreements allowing prices and volumes to be validated over several years
Creating Marketing Opportunities
- Anticipate customer needs and trends
- Stimulate supplier innovation through better technical knowledge of its supply chain
- Increase brand value through inspiring story-telling
Guaranteeing Regulatory Compliance
- Respect the duty of vigilance applied in an increasing number of countries
- Avoid prosecution for undetected vendor breaches
Conviction: An Essential Ingredient for the Success of Any Sustainability Process
A Sustainable Procurement process must emanate from General Management and be widely distributed internally to be effective.
- The role models in this area most often benefit from an impetus from the CEO himself and supported by the entire organization
- Management’s commitment must relate to the areas of application and set a quantified ambition as well as a deadline for achieving it
- The realization of this ambition is facilitated by the presence of a Sustainable Development Department among the Best-in-Class
The Three Pillars of Sustainability and Some Examples of Secured Risks
Sustainable Procurement aims to increase the environmental, social and ethical performance of the upstream supply chain and to secure the associated risks.
Environmental Performance
- Impact on biodiversity – threatened and endangered species, deforestation
- Contribution to climate change
- Use of chemicals
- Water consumption
- Waste treatment
- Toxic gases & particulate emissions
Social Performance
- Human rights – child labor and forced labor,
- Decent wages,
- Safety at work,
- Equal opportunities at work,
- Empowerment of women,
- Freedom of association.
Ethical Performance
- Price transparency and fair prices,
- Corruption & money laundering,
- Impact on local populations – public health, community rights, forced displacement,
- Scarcity of resources.
Sustainable Procurement : Not Just a Matter of Sourcing
A Sustainable Procurement policy is intended to extend to all stages of the upstream chain , including in particular:
- The origin of the materials
- The different stages of transformation
- The supplies (energy, equipment, products, etc.) necessary for the transformation process
- Transportation
The media risks linked to a selection of suppliers that are not very rigorous in terms of human or environmental rights now concern all players in the economic sphere. The monitoring of Tier 1 suppliers is no longer sufficient, the entire chain must now be secure.
Beyond Supplier Labels and Ratings: How to Cover Every Upstream Risk?
Some labels are well known in the procurement world, in particular those positioned on the rating of suppliers such as EcoVadis, for example. Their methodologies are both proven and efficient.
If the adoption of such a label constitutes a good first approach to Sustainable Procurement, it is important to emphasize that at the end of our missions on the subject, we have noticed that purely “supplier” approaches are not able to cover all the risks associated with securing the upstream chain.
KEPLER Procurement Consulting teams advocates an approach focused on “Products”, the aim of which is to define the strategy to be pursued upstream before classifying, downstream, the suppliers on the basis of sustainability or non-sustainability criteria.
Such an approach constitutes, in our opinion, a guarantee of increased security and efficiency, allowing coverage of all the issues to be addressed, in order to guarantee a very robust Sustainable Procurement policy.
The approach proposed here does not preclude the use of labels, based on scoring grids and evaluation processes that are now universally recognized. On the contrary, it reinforces it.
Sourcing sustainably according to objectives and risk levels
1 / Mobilize the Community of Suppliers
- Letter of ethical commitment & certificates of origin : ask partner companies to guarantee traceability
- Communication & live events
- Self-assessment and development methodologies & tools, shared with suppliers
2 / Evaluate and Measure Sustainable Performance
- CSR / ESG supplier scorecards
- Evaluation of extra-financial reports : CDP, SBT trajectory, UNSDG contribution
- Standardized ratings : ratings EcoVadis
- Social audits
3 / Co-develop Sustainable Supply Chains (Advanced Mode)
- Secure? Existing sources : certification, field audits, design and implementation of field projects
- Relocate to source sustainably: switch to a certified source or to low-risk countries
- Redesign to source sustainably: removal / replacement of ingredient or component
In the most advanced organizations, Sustainable Procurement is one of the key pillars, just like price competitiveness or the ability to innovate. This is a particularly marked trend in the FMCG sector, with repercussions throughout the upstream supply chain.
The KEPLER Approach to Sustainable Procurement Deployment
Our approach revolves around a clear definition of the Strategy: 5 steps carried out by deadline or by category with tangible and immediately actionable deliverables.
Upstream Validation of the Strategy or Vision
- Define Sustainable Procurement priorities among your procurement categories – based on your strategy, consumer trends, media alerts, volumes
- Establish a Vision (What long-term goal?), A Mission Statement (How to achieve this vision?) And Deadlines (What steps to achieve it?)
- Set up the organization and internal governance to achieve this vision
Deliverables
- Vision, Mission Statement, Sustainable Procurement Deadlines
- Principles of organization and governance
Definition of Perimeter or Scope
- Map the scope by product (reference code level) and by supplier
- Identify known sources and current projects, if applicable
- Evaluate the current traceability and supply requirements of the company and its customers
- Identify sector initiatives and existing benchmarks
Deliverables
- List of suppliers and reference codes + visualization within the overall procurement portfolio
- Mapping of industry initiatives and existing certifications vs business needs
Definition of Risk Criteria
- Characterize the sustainability and inclusion risk criteria relevant to the deadline or category worked – by drawing on internal knowledge, ad hoc expertise and public data studies
- Quantify risk factors: accessible data sources, objective scores
- Create or adapt risk assessment tools
Deliverables
- List of sustainability criteria by pillar (environmental / social / ethical) – with detailed definitions
- Mapping of internal and external data sources by criterion
Risk Assessment
- Develop industry knowledge: origins, manufacturing process, value chains,
- Evaluate the sources on the defined risk criteria – according to the information available or to be acquired – and create the risk profiles by sector,
- Note the maturity of suppliers in terms of sustainability
Deliverables
- Sustainability identity cards by sector
- Sustainability identity cards by supplier
- Comprehensive risk assessment matrix: all sources × all criteria
Prioritization of Actions
- Develop a rating system to prioritize the sources or channels to be secured
- Validate a differentiated approach for the deployment of sustainable procurement:
- Criticality classification of sources or channels
- Recommended action plans by criticality class: field projects, audits, control
Deliverables
- List of sources to be secured, classified in decreasing order of priority
- Toolbox of recommended action plans by criticality class
Roadmap Follow-up
- Define a timetable for the implementation of initiatives
- Sizing of required resources: FTE needs & budget
- Validation by management or by the steering committee
Deliverables
- FTE scenarios and multi-year budget, validated with Management
- Multi-year initiative roadmap, validated with Management
- Communication and engagement supports for suppliers, third parties and internal collaborators
The largest groups can establish transformation plans of up to ten years to secure their entire Procurement portfolio. This illustrates the scope of the approach when it is taken seriously.Fabien Lepère, Senior Manager