Creating Sustainable Value: How to Avoid a “Compliance Trap”

One of the biggest revelations in this year’s Sustainable Procurement Barometer: 66 percent of organizations cite regulatory compliance as a critically important aspect of their sustainable procurement programs. Just 27 percent said the same in 2017.

Experts call a heightened emphasis on legislation a ‘compliance trap’ – meaning organizations are zeroed in on checking boxes to make sure they’ve hit all their key regulation requirements, and often don’t do anything beyond that bare minimum.

While keeping up with the changing and stringent regulatory landscape is important, a limited focus solely on compliance often holds procurement organizations back from seeing the bigger picture and reaping the benefits of more robust and comprehensive sustainable procurement programs. Ultimately, a compliance-only mindset prevents teams from realizing the long-term business benefits – risk reduction, improved procurement metrics, cost savings, innovation and more — that come from truly engaging and collaborating with suppliers on tangible sustainability performance improvements.

Several data points from this year’s study support the compliance trap hypothesis:

• Companies with well-developed sustainable procurement programs (those that go beyond  compliance mandates) saw greater business value across the board compared to the total population – reduced risk (88 percent vs. 58 percent), cost savings (35 percent vs. 30 percent), innovation (29 percent vs. 25 percent) and improved procurement metrics (53 percent vs. 24 percent).
• A common struggle for companies today is tracking supplier performance, which given the growing number of assessment tools available to enable this, could mean too much time is spent on compliance and not on incentivizing suppliers.
• The disconnect between businesses that include supply chain sustainability performance in annual reports (60 percent) and those that proactively use sustainability indicators to drive better practices (26 percent) is likely due to compliance mindsets making it hard to get initiatives off the ground.

Compliance is inherent to business, but following these rules is just the first step in a sustainable procurement journey because this mindset doesn’t always address the root causes or risks that occur within supply chains.

The best way to drive real progress is to build off compliance efforts by proactively integrating sustainability performance deep into procurement practices. This means taking sustainability criteria into consideration when selecting new suppliers or renewing contracts with existing partners, and when facilitating RFP/RFX and tender processes – which only 51 percent and 39 percent of respondents say they do today, respectively. These steps may seem simple, but they are extremely powerful because by making sustainability performance a determining factor of a business engagement, part ownership of sustainable procurement initiatives is pushed to upstream suppliers and partners, making it more likely — and easier – for all participants to collaborate, innovate and deliver mutual value.

Sustainable procurement programs also need to be embedded into corporate strategy to be effective. Honestly assessing what is motivating program investments and the metrics associated with success will ensure procurement’s efforts are aligned with the overall direction of the business – not just on compliance initiatives — and encourage all key stakeholders to get on board.

Procurement organizations know sustainability initiatives within their function have far-reaching impacts on the business, but those benefits are only possible when working in tandem with partners and other key stakeholders – something that is hard to do when teams are heads down with compliance.

Looking for more on avoiding a compliance trap? Check out these five pillars for sustainable value creation.

And if you haven’t yet had the chance to read our 2019 Sustainable Procurement Barometer, you can download the full report here.