Why supply chain managers opt for sustainably produced material
This article originally appeared at Ecosystem Marketplace.
More and more companies are incorporating sustainability criteria into their procurement activities, according to new research.
The 2017 Sustainable Procurement Barometer, published jointly by Paris-based sustainability consultancy EcoVadis and the Hautes études commerciales de Paris (HEC Paris) business school, is the first Barometer report since 2013. It shows a sharp increase in sustainability awareness. The findings echo those of the Forest Trends Supply Change project, which shows steadily increasing corporate action to halt deforestation.
The new Barometer report is built on a survey of 120 procurement officers, primarily in the manufacturing and retail sectors. Ninety-seven percent of the respondents listed sustainability it as one of their top five priorities, up from 93 percent in 2013. Sustainability, however, has yet to make the top three overall: cost savings; compliance; and risk reduction.
This increase in intent is also reflected in Supply Change, which tracks corporate commitments to reduce deforestation related to the "big four" commodities responsible for most deforestation — namely, soy, palm, cattle, timber and pulp. It’s seen the number of commitments increase from 307 in early 2015 to 579 last June to 764 now. A new analysis of findings, due in March, is expected to show a dramatic increase in transparency around the implementation of those pledges.
Consumers as king
Barometer authors said consumers are largely driving corporate demand for sustainably produced products, and 76 percent of respondents reported improved brand reputation when adopting sustainable procurement policies.
"Sustainable procurement is no longer a nice-to-have — it’s an integral business function responsible for protecting and improving brand reputation, driving revenue and mitigating business risk," said Pierre-Francois Thaler, co-CEO of EcoVadis.
Sustainability pays – over time
Fifty percent of businesses that started incorporating sustainability into their procurement early reported increased revenue from the sustainable and innovative products and services they have sourced. Authors referred to them as "sustainable procurement leaders" and they meet certain criteria regarding sustainability measures, supply chain visibility and guidance on supplier performance.
"It may take five or more years to reach upside returns from your sustainable procurement program," the authors wrote. "However, as programs mature toward the 'Sustainable Procurement Leader' profile — whose programs are on average older than non-leaders — they begin reporting strategic upside benefits like increased revenue, improved relationships and enhanced brand reputation."
Thaler said these more mature programs are investing in embedding sustainability across procurement operations.
Recognizing environmental risks
Among the report’s other positive findings, 57 percent of respondents placed more importance on environmental risks and impacts although just 18 percent placed significantly more importance. Companies are thinking more about business ethics and labor issues, however, as 33 percent of respondents put significantly more importance on these topics.
Meanwhile, sustainable procurement programs expanded dramatically, as 45 percent of companies reported they covered 75 percent of volume spend with their strategic supplier base. It’s an 18 percent increase since 2013, and among high-risk suppliers, 46 percent of companies covered 75 percent of spend. Also, three-fourths of responding companies use corporate social responsibility data when selecting new suppliers.
Although companies have far to go to achieve sustainable procurement, some of the analysis’ numbers report dismal progress. Supply chain visibility on sustainability remains low. Only 15 percent of respondents have complete visibility into the sustainability performance of both tier one and two suppliers while 6 percent report full visibility into tier three and beyond.
Obstacles to sustainability
The challenges companies reported varied considerably from the 2013 analysis. This year, lack of executive or board support didn’t make the top three challenges while three years ago, it topped the list.
This year’s largest challenges facing sustainable procurement were:
- A lack of internal resources
- Difficulty tracking supplier sustainability performance
- Concerns around cost
- Lack of executive or board support
- Resistance from key suppliers
"While executives are finally on board, procurement teams still report that a lack of internal resources holds them back," Thaler said.
Report authors said this lack of resources could mean a couple things. Perhaps CEOs are simply talking the talk, claiming sustainability efforts, but failing to adequately equip the department with the necessary resources. Or the bosses are indeed championing sustainability and the procurement team is lacking the right combination of technology and people using the best approach.
What do the suppliers think?
EcoVadis also surveyed hundreds of supplier entities and asked them how serious they thought the companies they supplied were about greening their operations. The majority of respondents hailed from the manufacturing sector though there was representation from the chemical and telecommunications spaces. Of the 360 suppliers surveyed, 56 percent said sustainability was not a priority for many of the companies they supplied for.
Essentially, the findings reveal suppliers are most motivated to act through performance targets and collaboration with buyers over best practices.
"The time has come for a new era of supplier relationships," the authors wrote.
Ultimately, EcoVardis’ analysis reassures companies with sustainable procurement programs to stay the course and make plans to scale up while encouraging those who haven’t started to do so.
"The sustainable procurement landscape shows more promise in 2017 than in any previous years," the authors said. "We encourage CPOs around the world: do not wait!"
"The more procurement teams push to integrate sustainability in their daily roles and decisions, the greater — and faster — the trickle-down effect will be on a global scale," said Thaler.