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Spend Matters: 3 ways procurement can drive your company to a more sustainable 2023

Sustainability, ESG, net zero and carbon neutrality have peppered the headlines for the last several years, but post-Covid, procurement is doubling down on its commitment to conservation.

Organizations are feeling the pressure to redefine their own environmental goals and are starting to implement lasting changes that will reshape internal operations.

For example, semiconductor chip manufacturer Intel is recognized by Barron’s as the most sustainable company of 2022 and has set its sights on running 100 percent on renewable energy, being water positive and achieving zero waste in its operations by 2030. Other standouts like Clorox and Best Buy are making waves with their ambitious sustainability goals that will fundamentally change how they operate everything from sales and marketing to production.

Each business division is responsible for employing environmentally responsible practices, but some, like procurement and supply chain, will inherently have a greater impact than others. According to research from McKinsey, two-thirds of the average company’s ESG footprint lies with suppliers, but few companies have judiciously scrutinized their supply chain.

Today, customer preference for building relationships with companies that are concerned about their ESG commitments and stricter global compliance standards means that sustainability will only become more central to the business strategy in the coming years. It’s time for CPOs to embrace their role in shaping an organization’s ESG strategy by bringing clearer visibility to the procurement process.

Properly vet suppliers with procurement visibility

The difficulty (and opportunity) in making the procurement process more sustainable boils down to numbers. With a variety of global stakeholders that abide by different principles and standards, purchasing and shipping goods will never reach sustainable levels without a full picture of what is happening and complete data.

Case in point, according to the same McKinsey report, “80 to 90 percent of greenhouse-gas emissions is ‘Scope 3’: indirect emissions that occur across the company’s value chain, such as embedded emissions in purchased goods and services, employee travel and commuting, and the use and end-of-life treatment of sold products.” Procurement and other functional teams need to see the actual effects of their practices before they can optimize them. A net zero commitment in-house means little if stakeholders are not designing and executing sustainable practices. They must achieve a full picture of what needs improvement.

The ability to access that data massively benefits any attempt procurement teams make to refine their value chain. Unifying your vendors under a single standard — created internally or with the help of an outside expert — brings visibility to your procurement. Your suppliers are your partners, and their environmental risk is your environmental risk, but, now more than ever, CPOs can make decisions with all of the information available. Set up a playbook for screening and have confidence that your suppliers are aligned.

Enable automation whenever possible

Different from increasing supplier visibility in the way that it directly impacts your company’s ESG score, automation brings a different kind of sustainability to your organization — one built on efficiency.

Simple automation, like one-touch invoicing or AI-based inventory management using an ERP, is the most obvious ways to bring efficiency to your procurement teams, but streamlining internal processes and communications can also impact the speed and accuracy of your workflows. At the end of the supply chain crisis, leaders have an opportunity to reinvent the way they do things.

Work to bake automation into your culture as you rebuild and future-proof it. Minimize physical waste by fine-tuning the flow of goods, but don’t forget about wasted time. When your employees are operating efficiently, fewer mistakes are made and there is more opportunity for growth that will directly impact business outcomes. Adding automation whenever possible is a commitment to the future of your business.

Embrace a circular economy mindset

We are in the middle of an economic paradigm shift. Since the industrial revolution, we have operated on a linear economy model, meaning a consumer’s need spawns the creation of a product, which is manufactured, purchased and then, eventually, ends up in a landfill. However, commerce is slowly changing to adopt a circular economy that connects the beginning with the end to eliminate waste.

Decide internally which functions of the circular economy you will embrace. Will you start with product design or focus your efforts on manufacturing with sustainable materials? The Principles for Responsible investment recommend the following:

  • Identify sectors with high linear material use and environmental impact as part of their investment process.
  • Invest in greater use and reuse, product lifetime extension models, increased use of recycled content and increased recyclability or composability of products to address systemic environmental issues, adopting a value chain approach where possible.
  • Engage with stakeholders more widely to address some of the underlying barriers to a circular economy transition, including policymakers.

The opportunity for the enterprise

Though many global task forces like PRI have laid a framework for successful sustainability, ESG standards have not been widely adopted among enterprises. Much of the responsibility to create standards for ESG excellence rests on individual players in the enterprise.

Even today, many companies have not yet established a baseline for themselves or their suppliers. Though time-consuming, companies should feel empowered to set their own standards, determine what “good” means for their industry and stakeholders and track against it.

One thing is clear: the global supply chain is at an inflection point. CPOs and other C-suite leaders should take the opportunity to get ahead on their organization’s ESG goals. Sooner rather than later, they will become not only commonplace but the expectation. Building new procurement standards with ESG in mind will allow your organization to operate more sustainably and meet the rising demands of both customers and investors.

Article originally published in Spend Matters.

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