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Sustainable Sourcing Brings Competitive Advantages

Sustainable Sourcing

With almost nine billion people in the world, demand for natural resources is already around 30% higher than the earth can regenerate. And critical elements and metals that only the earth can provide are being consumed at unprecedented rates. This represents a supply risk. 

The challenge of sustainability is in reshaping the relationship between business and society. Companies need to better manage natural resources and significantly lower their global ecological footprint.

To do this, companies need to focus on procurement strategies, which contribute to the business case for sustainability as follows:

Drivers for sustainable sourcing

Only by being leading-edge in procurement can companies be leading-edge in sustainability. Sustainable sourcing is buying goods and services in a way that takes into account the long-term impact on people, profits and the planet.

Integration between Sustainability and Supply Chain

Companies that excel in sustainable sourcing typically have an integrated business model that recognizes the integral connection between sustainability and the supply chain. Sustainable sourcing considers how products are made, whence and from whom they (and their components) come and how they are transported and disposed of. 

In most cases, sustainable sourcing requires calculation of ‘total cost of ownership’ (cost to the company from the start until the product or service is disposed of). This is a much broader perspective than traditional sourcing policies that focus on quantity, quality, price, lead times and suppliers. 

Sustainable sourcing demands full supply chain transparency, insights into the sustainable competences of suppliers, knowledge of commodities used and often cooperation with other companies. This increases companies’ long-term sustainability without affecting their margins.

All business functions, including sourcing, contribute to shareholder value. So procurement is not just about cost cutting; it should drive a comprehensive sustainability agenda that helps to maintain and win market share and revenue. 

The business case for sustainable sourcing is even stronger in times of recession, as any reduction in companies’ demand for commodities such as materials, energy, transport, waste disposal and packaging directly affects the bottom line. 

In addition, focusing on sustainable sourcing usually leads to transparency in the supply chain, which enables future security in terms of volume and quality. Procurement should champion sustainability to help companies survive and thrive. Sustainability is here to stay!

With that in mind, companies need to apply sustainability protocols to all suppliers across all procurement categories, in the form of codes of conduct, assessment and audit processes. Yet, while this helps to manage social and environmental risk, real business value comes from focusing resources on the most important commodities, notably where companies have leverage to influence sourcing market practices. 

This brings numerous benefits, enabling companies to focus on big, exciting goals, to influence changes in the market and to engage with stakeholders to identify sustainability concerns and opportunities. 

What does it mean to be fully sustainable?

Companies need to consider the multiple facets of sustainability including labour rights, materials selection, energy and water use, waste reduction and economic viability. Benefits include:

  • delivering on public commitments towards sustainability;
  • raising procurement’s profile and demonstrating key strategic leadership;
  • reducing costs and increasing productivity;
  • collaborating more closely with key suppliers;
  • identifying supply risk in terms of continuity and cost;
  • accessing supplier innovation and exploiting a rapidly expanding market for alternative materials and lower-cost technologies and products;
  • avoiding reputation risk and negative media exposure;
  • implementing good practice procurement techniques that reduce exposure to financial, regulatory and reputation risk.

Does Sustainability Cost More?

Sustainable goods and services are often assumed to cost more. This perception comes from considering only the upfront purchase price and not the costs associated with running, maintenance, replacement and eventual disposal.
However, incorporating sustainability principles into procurement decisions is not just about ‘feeling good’; it makes sound economic sense. Sustainable products represent value for money in real terms across their life cycles, by being:

  • designed to use fewer materials and less energy during operation;
  • safer to use;
  • more durable, requiring less maintenance;
  • fit to upgrade, reuse, resell or recycle.

Chief procurement officers who adopt sustainable approaches support corporate social responsibility goals and potentially reduce operating costs. 

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