The new Center for Sustainable Procurement, formed by the hotel company Hilton Worldwide and the global sustainability specialists BSR, is trying to build new tools for procurement professionals. The goal: help them bring sustainability data into their everyday purchasing decisions.
In this conversation with David Kiron, executive editor of the MIT Sloan Management Review’s Big Ideas Initiative, Hilton's William Kornegay and BSR's Eric Olson talk about how the two organizations got together, the challenges of driving sustainability down to the level of a purchasing decision, and why AT&T is an early model.
Kiron: I have a picture in my head of suppliers as passive movers in the sustainability movement. Is this about companies like Hilton giving them instructions? Or is there an opportunity for suppliers to be proactive?
Olson: You raise an interesting question. First let’s think about what a supplier is. That depends very much on who the company is. So, for Hilton, Dell is a supplier, it sells them computers. In Dell’s case, it’s going to be innovating and bringing something interesting to Hilton without having been asked by Hilton.
Similarly, Wal-Mart’s suppliers are some of the largest, most innovative branded product manufacturers in the world — Unilever, Proctor & Gamble and what have you — and many of them have their own proactive sustainability programs.
But as you go further and further up the chain, to the suppliers of the suppliers, if you will, in most industries you do get to a point where now you’re facing a basic manufacturing operation. Now we’re talking a middle-market metal-stamping enterprise in China, which will have a different capacity and level of sophistication for this kind of work. When you get that far up, then yes, generally conversations and parameters about sustainability features are flowing from the brand or the customer upstream as a requirement to them.
Kornegay: And, David, from my perspective, that’s why this sustainability metric becomes important. We can determine what the cost of an item is, or, to some degree, the quality of an item, but how do we measure sustainability? The further away you are from the beginning, the more you need a metric that helps you articulate and differentiate between products’ sustainability.
Kiron: Tell us a little about the research that the Center has been doing. You’re about year in, right? What kind of findings have you had so far?
Olson: Like I mentioned, the three companies we’ve been most active with so far and the cases are outlined in the paper are AT&T, Best Buy and Dell. We deliberately chose different kinds of procurement challenges because that is fundamental to the message that there is no one-size-fits-all approach to sustainable procurement.
I’ll tell you a little bit about AT&T’s case. AT&T has a massive, massive real estate footprint and massive related spend on energy, particularly electricity -- it’s well north of $1 billion a year.
We wanted to take a look at one of their equipment buys where we could run the case for an equipment change. In this case, it was related to their HVAC systems, where the cost of the change, switching cost and to some extent component cost, might involve a price increase or at least a one-time expense for switching that would be offset by very substantial savings over time in the form of reduced electricity expense. So, this is not a pure purchasing initiative.
And, indeed, in this case it required getting the right internal stakeholder group together that included the facilities manager, people in purchasing, people in the sustainability team, people responsible for a forward energy strategy at the company -- AT&T had to get all of them together in order to identify the requirements for making this kind of a switch and being able to calculate the relevance to the business case.
So we started with a purchasing problem, and we ended up with a change effort that touched no fewer than five different departments.
What did we learn? We learned that, No. 1, you’ve got to have the right players in the room to scope the problem and to make it happen in order to get to these bigger, broader business cases.
No. 2, I think what this illustrates is the value and the importance of starting with what’s easily measurable and then building from there. What we needed was an approach that would put some value into the system relatively quickly, and then we will build on bigger questions beyond the energy usage, like what are the other attributes of this equipment, its operation, ultimately disposal of the equipment. A total life-cycle approach that would be much broader.
I think that had we started with that, there’s no way we would have gotten traction with AT&T’s energy and facilities teams. It’s just too complicated. The lesson there? A step-wise approach was fundamental.