Sustainable sourcing is more than a procurement trend — it’s a competitive advantage, a way to mitigate risk and an avenue to cost savings. Unfortunately, while most businesses and procurement practitioners want to support sustainable sourcing, many don’t know where to start or how to manage the process.
A quick google search will yield dozens of articles about the benefits and challenges of embracing sustainable sourcing. Indeed, you’ll also find countless companies that make their sustainable procurement policy available online. Understandably, the wealth of information can be overwhelming.
Fortunately, this post will offer an easy to navigate guide to sustainable sourcing. To start, you’ll see key definitions along with the types of sustainability that procurement impacts. Then, you’ll discover quick tips to support sustainability in your procurement practices. Finally, you’ll explore sample sustainable procurement policies so you can see it in action.
- Sustainable sourcing basics
- Tips for supporting sustainability in procurement
- Sustainable procurement policy examples
- Additional resources for further procurement sustainability research
Sustainable sourcing basics
What is sustainable sourcing?
Sustainable sourcing, also called sustainable procurement, is the practice of buying materials, goods and services from suppliers who operate using environmental, social and economic best practices.
Generally speaking, sustainable sourcing helps organizations influence positive change by awarding contracts to businesses that are good stewards. The focus on procurement sustainability is relatively new, starting around the 1990s when the idea of corporate social responsibility (CSR) first gained traction.
At first, businesses mostly focused on their own direct impact on sustainability. However, through the decades, the scope of sustainability has expanded and is measured on dozens of factors. Now, organizations explore the sustainability of vendors, contractors, suppliers and so on — all the way down to the source component parts of everyday goods.
3 types of sustainability in procurement
When you think of sustainability, you likely think of the environment. In procurement, environmental sustainability considers factors like the use of natural resources, pollutants, animal habitats and land.
Fair wages and the safety of the workplace are elements considered in social sustainability. Essentially, social sustainability is measured by the positive or negative impact of an organization on people and communities.
At the end of the day, one of procurement’s core tenants is, and always has been, economic sustainability. However, when applied to sustainable sourcing, it means that businesses seek out suppliers that follow economic and social best practices while still delivering a strong return on investment (ROI).
Why do sustainable procurement practices matter?
Occasionally, sustainability policies are a matter of regulatory compliance. An article from EY discusses sustainability regulations saying,
“Beyond the small print and possible implications of these tightening regulations lies an overarching principle: governments worldwide will continue to actively push the sustainability agenda through the application of new rules. Clearly, businesses that can get ahead of emerging regulations and demonstrate greater transparency will avoid last-minute scrambling and fines as the new rules are fully enforced.”
In addition, often initiatives within an organization are voluntary — driven by customer demand. Indeed, consumers are more conscientious than ever and their spending habits reflect their values. A study from EY indicated that 84 percent of consumers believe sustainability is a key buying factor. Also of note, a recent study from Nielson reported that 66 percent of people would pay more for a product provided by a socially responsible company.
Benefits of sustainable sourcing
- Improves brand awareness and reputation
- Mitigates supply chain risks with improved visibility
- Increases customer acquisition and retention
- Supports revenue growth
- Influences wide-reaching change among suppliers and vendors
- Improves community relationships, local economies and recruiting efforts
Tips for supporting sustainability in procurement
Align your sustainability goals with the larger organization
Ideally, sustainability is already something your organization is invested in. But, if it’s not, there are still ways to start small. Either way, it’s important to align your efforts with company-wide goals. If your company has a sustainability initiative, you can review your existing sourcing process for opportunities to improve.
Even without goals set by the company, you can still align your procurement sustainability efforts with the business. For example, are you looking to cut costs? Explore using suppliers who are local to reduce shipping costs. Want to reduce supply chain risk? Add a question about social sustainability practices to your standard vendor profile.
Set goals and measure your progress
No matter how small you start, set goals and track your progress. First, explore your current procurement process. The goal is to establish your baseline sustainability spend. From there, you can set milestones and goals.
Also, remember to gather data for procurement analysis. It is incredibly valuable when justifying changes and evaluating the effectiveness and impact of your spend. Indeed, it’s important to track and analyze information from every step of the process so that you can optimize and incorporate your findings into your overall sourcing strategy.
Engage with your current suppliers
Chances are you have long-time vendor relationships that have been mutually beneficial for years. Even in these partnerships, you have the opportunity to encourage sustainability. To start, send existing vendors and suppliers a request for information (RFI) or vendor risk assessment focused on sustainability. If you use an RFP management system, create a sustainability questionnaire template to make reviewing the responses simple.
Hopefully, you’ll find that your vendors are already following best practices, so you’re ahead of the game. If not, review the results with your vendor contact and discuss incremental (but impactful) changes that you expect to see. Work with your vendors to create a clear and collaborative plan. Then, follow up regularly during your vendor performance evaluation to ensure progress.
Add sustainability to your RFP process
After you’ve reviewed your existing suppliers, it’s important to update your RFP process to reflect your sustainable sourcing goals. From vendor selection and RFP questions to evaluation criteria and RFP scoring, you can incorporate sustainability into each step.
The process will be slightly different for direct vs indirect spend. For direct spend on goods and products, environmental sustainability will likely be your primary focus. In addition, you may dig deeper to find out how your tier two or tier three suppliers support sustainability. On the other hand, indirect spend tends to involve more intangible services. Therefore, your RFP questions should focus on social sustainability. A recent article on Procurious provided helpful examples of sustainability questions to ask in your next RFP.
General sustainability questions
- Do you have a corporate responsibility policy? If so, please provide it.
- What sustainability accreditations and certifications do you hold?
- Who in your business monitors, manages and reports sustainability efforts and impacts?
- Do you measure the sustainability performance of your vendors and subcontractors?
Environmental sustainability questions
- Do you track, report and manage your use of energy, water and chemicals?
- How can we partner with you to enhance environmental sustainability in our mutual supply chain?
- Do you use renewable energy?
Societal sustainability questions
- Does your company track its diversity makeup by job level?
- How does your organization give back to or serve your community?
- Do you enforce a supplier code of conduct? If so, please provide it.
Economical sustainability questions
- How does your company’s innovation impact your customers?
- What business value have you seen from your sustainability efforts?
- How do your organization’s hiring practices affect local economies?
Create a public-facing sustainable sourcing policy
Depending on your business, you may find it helpful to share your sustainable procurement policy both internally as well as externally. In large organizations, it’s now common to see sustainability statements published on a procurement hub along with the business’s vendor code of conduct and vendor intake form. There are a few benefits to publishing your sustainability goals. For example, you’ll encourage your vendors to adopt best practices. In addition, you’ll reassure your customers that the company shares their values and is paying attention to sustainability while spending responsibly.
Sustainable sourcing policy examples
Food giant General Mills has a tremendous ability to impact and influence change. Fortunately, they use their position to improve working conditions and protect the environment. Their sustainable and responsible sourcing website provides a lot of detailed information about their practices. For example, you can learn how they source ingredients as well as how they support the farms that provide them.
As a firm that offers procurement consulting, it makes sense that Bain and Company would have a public-facing sustainability statement. On their website, you’ll find a lot of excellent resources. Bain & Co. break their goals into four categories including, environment, business ethics, labor and human rights and community development. Additionally, you can download their supplier code of conduct and sustainable procurement policy.
As the parent company of brands like Ben and Jerry’s, Dove and Seventh Generation, Unilever is a massive organization. Additionally, most of their companies create a physical product, which means they source a lot of goods and materials. Accordingly, they have an in-depth procurement sustainability policy that includes information on their environmental policies, supplier diversity, human rights, climate change and more.
Additional resources for further procurement sustainability research
Explore examples of what businesses find when they start looking deeper into their supply chain sustainability. This in-depth article offers a look at real-world supply chain challenges as organizations seek to improve.
“[Corporations] should send their suppliers a more consistent message that economic, social, and environmental requirements are all important. They should make the same message clear to their procurement officials and create incentives for them to pursue not only economic goals but also environmental and social goal … The danger of not acting is clear: A supply chain is only as strong as its weakest link.”
Which vendors and suppliers your organization uses has the biggest impact on your organization’s ESG efforts — but there are dozens of considerations, if not hundreds. This article from McKinsey offers advice and examples for businesses looking to make a change.
“CPOs accept that significant work is required to create the sustainable procurement organizations they need. We believe, however, that many organizations, especially those with mature procurement capabilities, already have robust foundations in place.
Most importantly, procurement functions already have rich data on the upstream value chain. They know exactly how much a company buys, where it comes from, and who makes it. A procurement organization can build on these foundations by taking a holistic approach to the development of new ESG-focused data, processes, and capabilities.”
Knowing where to focus your efforts when embarking on or improving your procurement sustainability policy is a challenge. Luckily, this helpful article from EY provides advice and insights. The introduction of the article includes this quote and just gets better from there.
“We are fast approaching a key inflection point where supply chain sustainability becomes a powerful competitive differentiator for companies that acknowledge their consumers’ aspirations. Companies can achieve this by fully embracing sustainability in the broadest sense of the term; connecting with customers by offering truly sustainable products and services; and backing up their rhetoric with innovative investments that deliver top and bottom line benefits.”
Ultimately, sustainable sourcing is here to stay. It’s already become a key consideration for consumers and businesses. While procurement practitioners won’t be able to solve sustainability by themselves, they can certainly be a force for good. So, start taking steps now and you’ll find yourself ahead in no time.