Although the U.S. has pulled out of the Paris climate agreement, many U.S. companies are redoubling their efforts to reduce carbon emissions, which are linked to global warming. Procurement professionals can play a leading role in such efforts, experts say.
Sourcing managers are already playing a key role in reducing the carbon footprint through sustainable procurement policies, according to procurement consultancy Beroe. Although the importance of sustainability is gaining visibility, the biggest question among procurement organizations is how to adopt such practices without taking a hit on the operating and net profit. Certain organizations view it as an extra burden to their balance sheet, whereas others view it as a competitive advantage.
For example, a 2015 U.S. proposal for stricter ozone standards could cost manufacturers as much as $250 billion per year, according to the National Association of Manufacturers (NAM). At the same time, electronics companies such as Apple are trying to associate their brands with environmental-friendliness.
Procurement operations can have the greatest impact on sustainability efforts through rigorous supplier evaluation, experts say. The following factors can improve the chances of success:
- Choosing a supplier with same or positive caliber is vital for sustainable sourcing to be effective. This will help create the right synergy between the buyer and supplier
- In terms of improvement, sustainability certifications and periodical targets should be included as key parameters in assessment of the supplier
- Process improvement
- Working closely with the supplier is equally as important as choosing the supplier. Assess whether the supplier can adopt the technical know-how, which the buyer provides, or by an external consultant
Managing supplier evaluation is a tedious task, especially when sourcing activities are done at a global level. Most procurement organizations do not approach supplier assessments with sustainability in mind. Moreover, visibility towards supplier compliance declines as companies move beyond their tier-1 suppliers. Supplier evaluation at frequent intervals is key to maintaining sustainability standards throughout the supply chain cycle, experts say.
Best-in-class organizations utilize the following tools and practices to improve supplier compliance:
- Sustainability scorecards, which are considered as an integral part of sourcing decisions
- Assessing all suppliers according to sustainability parameters and tracking supplier sustainability performance frequently either in-house or using a third-party risk assessment platform provider
- “Sustainability Meetings,” which are held regularly with key suppliers to encourage and improve on sustainability metrics
- A supplier code of conduct, which is included with all sustainability metrics on which suppliers can be audited objectively
Apple Inc., arguably the world’s best-known electronics brand, audits its suppliers against the Apple Code of Conduct. Apple auditors perform on-site evaluations, scoring suppliers on 500+ data points. The corporation also partners with independent third-party auditors to review documents, interview management and line operators, and perform onsite inspections.
Contract management plays a crucial role in facilitating suppliers to undergo audits and be compliant, according to Beroe. Procurement organizations should include requirements relating to supplier audits during contract renewal. This will help supply management professionals in identifying only those suppliers who are willing to submit audit certificates whenever required. Non-compliance should have consequences: In 2016, Apple reduced its business with 13 suppliers due to inadequate performance toward its code of conduct and cut ties altogether with three suppliers.
Apple works with its suppliers toward improving energy efficiency. In 2016, Apple tripled the number of supplier sites participating in energy efficiency programs, resulting in the reduction of more than 150,000 metric tons of carbon emissions. A number of large suppliers have already committed to power all Apple manufacturing with renewable energy by the end of 2018. These commitments will reduce carbon emissions by 7,000,000 metric tons per year, the equivalent of removing 1,500,000 cars from the road for a year, Apple reported.
Sustainability strategies, like most corporate initiatives, must be integrated and closely coordinated with business strategies, according to Beroe. Executive leadership should drive the commitment toward sustainability, provide support and oversee the initiatives for better results. The key to the sustainability initiatives lies with the supply management professionals who implements the initiatives. Business managers can facilitate the cross-functional coordination in sustainability initiatives to achieve greater results.
However, the task is not without challenges. Ineffective supplier management; lack of internal alignment; lack of tools and techniques; and high implementation cost and time are most commonly cited as barriers to progress. According to Beroe, there are evaluation tools and techniques available to improve supplier performance. Apparel and retail organizations utilize the Higg Index in evaluating their supplier performance toward sustainability targets; and management firms such as Sedex, EcoVadis, Ecodesk and Cr360 can also assist with assessment.
While procurement can control certain sustainability initiatives, a corporation’s manufacturing, packaging and delivery operations also contribute to carbon emissions. Since the year 1751 just over 400 billion metric tons of carbon have been released to the atmosphere from the consumption of fossil fuels and cement production, according to a report published by Carbon Dioxide Information Analysis Center (CDIAC). Half of these fossil-fuel CO2 emissions have occurred since the late 1980s. Many operations that are working toward sustainability are examining issues such as better packaging materials – paper versus plastic—and electric- versus fossil-fuel-powered transportation options.