Why incorporating sustainability in purchasing is investing in "green equity"
Is sustainable purchasing all about meeting regulations and compliance or does it has any larger objectives as well? To put it simply, is it all about obligations or about genuine social responsibility, which encompasses care about environment and the people.
The answer to this question determines the long term rewards and returns for pursuing sustainability practices. Depending upon the viewpoint, companies adopt their approach to sustainability. A short sighted approach means it becomes only a cost controlling tool. It is looked upon as a mere overhead to meet regulations, rather than an enabler for securing future markets. However, companies which see this beyond meeting regulations are taking a more strategic view of sustainability and developing integrated plans to invest in this process.
Yes, it does cost more to incorporate a greener product or substitute in the supply chain, but it gets rewarded in long term through increased customer loyalty, reduced risk and overall increase in profitability. As per recent surveys, more and more consumers prefer products that are more environment friendly and reduce carbon footprint. In the new age, being viewed as a socially and environmentally responsible company is pivotal for market success.
Purchasing is a critical function influencing implementation of sustainability practices. The primary job of purchasing still remains to minimize cost, but it needs to optimize it with respect to impact on environment. This would entail devising a purchasing strategy to look for alternate suppliers, product substitutes and maintaining a track record of suppliers in sustainability performance.
When it comes to devising a purchasing strategy around sustainability, size does matter. It would really depend upon the size of the company and the type of product business. However a common approach would be to start slow instead of a big bang approach. Otherwise it risks becoming too lofty a vision to be realized. Aim for realistic improvement by identifying non-critical inputs like packaging materials, MRO items etc. as potential candidates for 'quick wins' . Develop new breed of 'green' suppliers by actively promoting and engaging them. This would entail a new supplier onboarding strategy driven by a strategic policy of encouraging 'green' suppliers. Monitor supplier performance by measuring KPI's related to sustainability. Build external intelligence network to capture indicators of various regions to identify risks proactively.
To support these changing purchasing processes, a solid supplier management tool is a must, which would help not only in managing the basic and operational metrics but also cover the strategic metrics concerning the sustainability parameters. It needs to track the performance of suppliers and help purchasers with informed decision on when to phase out and develop new suppliers.
For SAP customers, the recent SAP SLC product from SAP fits the bill by offering a comprehensive supplier management functionality. It features a dedicated scorecard functionality to create sustainability scorecards and ratings. Being integrated into SAP ECC and SRM environment, it provides easy adoption to operational procurement processes.
Overall a successful purchasing strategy incorporating sustainability practices would need commitment from top. Driven by a strategic plan combined with investment in right tools would reap dividends in long run.