What Does It Mean When Procurement Goes Green?
What Does It Mean When Procurement Goes Green?
Green purchasing by companies is up in a down economy. Our recent October 2009 survey of more than 450 companies found that over the past 12 months there was a 63 percent increase in green purchasing, from computers to chemicals to cleaning supplies. Perhaps even more encouraging, none of the respondents from large companies (those with revenues over $1 billion) identified any decrease in buying green.
But when it comes to businesses buying green, what do they really mean?
Last year, we formed the GreenBiz Intelligence Panel to take a regular pulse of the green business world. Each month, we ask the 2,550-member panel questions about a wide range of issues and trends. And each month, several panel members point out that while our survey questions are absolute, there is still a lot of gray when it comes to corporate sustainability initiatives. They're right, of course, and nowhere is this more apparent than for those responsible for purchasing and procurement at companies large and small.
As if to illustrate this challenge, one panel member posed the following question to highlight the lack of tools when making a purchasing decision. "Is it better to buy a 'compostable' product shipped all the way from China or a recycled Styrofoam product produced in the USA (that will be recycled after use)? Always buying a 'green' product may not necessarily be a 'green' practice." While conducting a survey of businesses who are grappling with these issues can't solve them, they can tell you what your peers are doing. For the members of the GreenBiz Intelligence Panel, the need for useful information is an ongoing interest.
Leading the Way: Office Supplies, Cleaning Products, and Computers
As Joel Makower noted in the 2009 State of Green Business report, Information technology "is one industry experiencing a ‘race to the top,' in which companies are both cooperating and competing to create high standards of performance." During our recent survey, we asked panel members to identify all products that they are purchasing based upon green criteria. Cleaning products and office supplies lead in their respective categories (78 percent and 57 percent respectively). Computers and other IT hardware were called out by 55 percent of the companies responding.
Office supplies led all product categories by a long shot, with 78 percent of survey respondents reporting that they evaluate these as part of their green procurement standards. It turns out that size matters: Only 53 percent of companies with revenues over $1 billion consider office supplies when buying green. We've seen similar findings from other surveys, where fewer than 5 percent of companies with revenues under $10 million flatly stated "I will not pay a premium for a green product" compared to 19 percent of companies with revenues over $1 billion. In fact, there's good news for those companies targeting small business buyers: 70 percent say that for some products they would pay a premium that exceeds six percent of a comparable product's cost.
Fifty-seven percent of healthcare companies surveyed placed computers at the top of their lists, with office supplies and cleaning products a distant 29 percent. There's more good news for green computing as half of the 140 professional services companies who participated in this survey evaluate hardware using green criteria.
None of this was particularly surprising as there are a number of popular certifications and ratings for these product categories, such as the Forest Stewardship Council's certification for paper and wood products, Green Seal for cleaning products, and the EPEAT standard for computers.
An encouraging development is the number of large corporations evaluating material inputs for manufacturing by identifying green criteria. Seventy-three percent of the basic materials firms (this includes chemicals, metals, oil and gas, and specialty chemicals) responded that they screened their inbound material supplies for green attributes. Consumer goods companies identified material inputs (53 percent) second most important just slightly behind office products (58 percent). Approximately half of technology companies (48 percent) and Industrial Goods manufacturers (52 percent) also evaluate green attributes for manufacturing inputs.
Measuring The Green They Manage
Beyond looking at what people were buying, we also wanted to find out how they went about their green purchasing. Nearly three-fourths (73 percent) of companies have informed vendors that green criteria are important in their purchasing decisions. Overall, 59 percent of companies said they have a green procurement policy and approximately the same number of respondents include green criteria in requests for proposals (RFPs) and provide training to staff regarding green procurement practices. In fact, respondents mostly replied to all three of those questions with the same consistent answer.
Beyond internal measures, companies are starting to get more rigorous in communicating their green criteria to their suppliers and evaluating results. Just over a third of all companies surveyed publish a code of conduct for their suppliers. A larger impact in terms of scale can be seen among companies with revenue above $1 billion: 49 percent of these big guys publish a code of conduct for their suppliers where compliance is mandatory while another 16 percent note that compliance is voluntary.
These same large companies are also measuring performance using supplier scorecards, with 44 percent of large companies grading supplier performance and 36 percent auditing their suppliers' environmental performance. When we asked how companies were evaluating their suppliers, companies with revenues over $1 billion identified ISO 14001 as a leading factor in their evaluations, whereas published CSR or sustainability reports topped the list for smaller companies.
Selling Green in the Future
Overwhelmingly, 84 percent of companies responding believe there is a need for some type of third-party standards or certifications for green products. If your company is planning to compete in a greener business-to-business marketplace, our research provides some interesting data to consider as you design your new products and services.
• Tell your green story to your customers. While 35 percent of those surveyed said that a supplier's poor environmental performance had caused a contract to be canceled or not renewed, 50 percent identified positive environmental performance as a reason to award or renew a contract. While individual consumers may be slower to buy green, companies of all sizes are making it a part of their buying criteria.
• Get your greenhouse gas emissions data in order. While only 13 percent of companies surveyed currently ask some or all of their suppliers for GHG emissions data, more than 62 percent of large companies plan to ask for this information within the next three years.
• Green provides opportunities to partner. While 61 percent of buyers prefer independent certifications, self-declaration (45 percent) and references (33 percent) are used by companies to evaluate their suppliers. While having the green conversation won't necessarily lead to higher average sales prices, it does provide a platform to discuss strategy and innovation.
About the GreenBiz Intelligence Panel
A total of 19 percent of GreenBiz Intelligence Panel members participated in the GreenBiz Purchasing Survey. Of those, 29 percent of the companies reported revenue greater than $1 billion, 47 percent of respondents reported revenue below $10 million, and the remaining 24 percent had revenues between $10 million and $1 billion. While professional services (at 34 percent) was the largest sector represented from an overall perspective, the demographics shifted dramatically for companies with revenues greater than $1 billion. For these large companies, 24 percent were consumer products manufacturers and another 15 percent were industrial goods manufacturers.
If you are interested in becoming a part of the GreenBiz Intelligence Panel, please click here. There is no cost or other obligation other than to respond to monthly polls.
John Davies is vice president of GreenBiz Intelligence, which provides independent and unbiased research regarding green strategies and business operations. John also leads the GreenBiz Executive Network, a member-based, peer-to-peer learning forum for sustainability professionals.
Photo CC-licensed by Flickr user JamesH. is now Near Earth.