Executive commitment to sustainable procurement is at an all-time high, but several roadblocks continue to impact organizational ROI.
Despite the growing awareness and commitment to sustainability in the supply chain, our 2019 Sustainable Procurement Barometer uncovered common challenges that limit company success and business value, including:
- Tracking supplier performance (cited as an issue for 39 percent of procurement organizations)
- Internal resources (42 percent)
- Program costs (38 percent)
- Resistance from suppliers (18 percent)
Depth of supply chain visibility also remains a barrier. Nearly half of procurement organizations (45 percent) indicated they only have visibility into tier-1 suppliers. Only 23 percent say they can see into tier-2.
These obstacles persist, despite the fact that executive support for sustainable procurement continues to increase. This year, executive support was only cited as a challenge for 13 percent of organizations, down from 50 percent in 2013.
The roadblocks are limiting sustainable procurement value and ROI. Our Barometer found that “leaders” – companies that meet criteria signifying maturity in their sustainable procurement journey – realize markedly more business benefits than non-leaders including risk mitigation (88 percent vs. 55 percent), cost savings (35 percent vs. 30 percent), improved procurement metrics (53 percent vs. 22 percent) and innovation (29 percent vs. 25 percent). Another 35 percent of leaders said revenue growth for sustainable offerings was greater than the rest of their business, compared to 18 percent of the general population.
Best Practices: Jumping Hurdles to Sustainable Value Creation
To reach higher levels of sustainable procurement maturity, there are several best practices procurement teams should consider:
- Clearly Make the Case for More Internal Resources.
Reaping the business value that’s possible through sustainable procurement requires program investment, including budget to scale current practices, invest in new technology, and grow or train the team. Make the case to senior leaders by communicating the business impact and connecting the program to strategic objectives. Emphasize that sustainable procurement is not just a compliance program. It’s a proven strategy for advancing corporate goals – including sales growth, cost savings, risk mitigation, better supplier relationships, brand value and more. The more you can connect it to their priorities, the easier it will be to secure budget and buy-in.
- Leverage Tools and Technology to Drive Performance.
Technology is a must. Supplier rating and engagement platforms make it easier to benchmark, compare, monitor and measure supplier progress on key sustainability criteria. Proactive engagement motivates suppliers to take ownership over their own performance and gives procurement teams peace of mind that suppliers are either operating at the highest level, or know exactly how they need to improve.
Sustainable procurement leaders consistently use several tools to get the visibility and insight they need to assess and engage suppliers. Over three times as many leaders (75 percent) use external databases and third-party scorecards than non-leaders (20 percent). Corrective action plans are also used almost 2.5 times more by leaders (82 percent) than the general population (34 percent). Category and country risk evaluation models, which prioritize engagement with high risk suppliers, are used significantly more by leaders (65 percent) than non-leaders (36 percent). Leveraging these tools are critical for addressing the transparency, visibility and supplier performance issues teams are facing today.
- Proactively Engage Suppliers to Fight Resistance.
Many organizations are driving urgency for sustainable procurement across the supply base with clear incentive tactics – contract terms (35 percent), collaboration on improvement strategies (22 percent), on-site audits (15 percent), education on sustainable practices (8 percent), and clear performance targets (10 percent). These methods create opportunity for mutual value and encourage suppliers to improve today, instead of finding a reason to postpone implementation.
Taking sustainability performance into consideration when selecting new suppliers and renewing contracts, and refraining from doing business with suppliers that don’t align with procurement’s sustainability policies – which 51 percent and 19 percent of procurement organizations do today, respectively — shows how serious the organization takes sustainable procurement. The risk of losing your business will likely motivate these suppliers to assist, not resist, in driving sustainable change.
Whatever hurdles your team faces, chances are you aren’t alone. Check out our 2019 Sustainable Procurement Barometer – we surveyed global procurement organizations to uncover today’s biggest sustainable procurement trends, challenges, opportunities and more.
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