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Value of Sustainable Procurement Practices

April 4, 2019

Sustainable Procurement Practices are being adopted more and more on a Global scale. Relationship between sustainability and value creation will be a key issue to be tackled over the long term. The ability to express sustainability benefits in financial terms is one of the key drivers needed to instil sustainability into company business models. Although it is no easy task, PwC, EcoVadis and Insead believe that it should be one of the priorities for research in this field.

Sustainable Procurement is a new dimension for Chief Procurement Officers (CPOs) who until recently based their decisions primarily on price, quality and time. Sustainability was mainly taken into account on a risk-based approach in line with the global movement towards low cost country sourcing. But how can this risk protection be quantified? And what is the impact on cost reduction and the development of new offers/products?

Value of Sustainable Procurement PracticesThe aim of this study is to help Senior Procurement Managers face this challenge by providing strong arguments to build a business case with top management and the CEO on the value of Sustainable Procurement practices. Accordingly we asked ourselves: “Is Sustainable Procurement a true value creation initiative to be welcomed not only by customers but by shareholders and financial markets as well?” To answer this question, we analysed various case studies and interviewed procurement executives. This brought to light strong evidence of value creation, thus bridging the gap and making a first business case for Sustainable Procurement on the basis of three main sustainable procurement value drivers: cost reduction, risk reduction and revenue growth.

The quantitative model was created by the analysis of the three main drivers and their respective impact on the company’s annual procurement spend, market cap and revenue. Their impact was then compared to the implementation cost of a Sustainable Procurement programme.

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