Sustainability Management
"Some customers buy our products because of our commitment to sustainability." Are these better-informed consumers who take time to think about the sustainability of the value-creation chain, or are they simply idealists going after a "green" vision and paying slightly less attention to cost?
Sustainability management jointly prioritizes economic, ecological, and social sustainability. The aim is to preserve or create an environment fit for the next generation to live in. Summarized by the motto “Go green, get sustainable, and be ethical,” sustainability management espouses long -term thinking and action, as well as respect for ecological and ethical values.
What are the drivers behind this mindset?
Increasing resource scarcity: A growing need for water, energy, land, and soil driven by population growth remind us that resources are valuable and limited; the same is true for many raw materials.
Stronger activism: In the past large corporations could to a certain extent control media and public opinion. But NGOs and society, together with social media, mean public opinion is increasingly difficult to control.
De-fragmented global supply chains: Outsourcing of non-core activities and transfer of value chain steps to low-cost countries made sustainability an increasingly important topic.
Rising consumer expectations: Global customers are becoming more concerned about environmental protection.
Increasing regulations: Stricter national legislation and policies, as well as international environmental agreements, mean sustainability is something everyone has to work with.
So what does all this have to do with procurement? Serious sustainability management is bigger than just saving energy and ensuring good practice. It begins right at the start of the value-creation chain and requires companies to ensure that parts bought from suppliers have been produced in an ecologically compatible and socially acceptable manner. “Ecological compatibility” means that no harmful substances are used in production, and the environment of the supplier country is left undamaged. “Social acceptability” means, for instance, that no child labor is used and that working conditions are reasonable.
Increasing numbers of companies are demanding that these criteria are met by their suppliers. It is important that customers do not simply rely on information provided by a supplier, but that they also carry out their own regular inspections. Companies are increasingly held responsible for all problems along the value chain.
Sustainability management in procurement, in its basic form, means ensuring supplier compliance, actively assessing the risk of certain suppliers, and developing appropriate measures to mitigate risk. This prevents supply bottlenecks happening as a result of statutory restrictions on certain materials or negative impact on brand image.
Leading companies, however, go one step further. They use sustainability management to collaborate with suppliers and differentiate themselves from the competition, save resources, benefit society, strengthen their brands, and create real value. Sustainability management can also be relevant to procurement by monetizing externalities during supplier selection, so besides looking at costs, also putting a price tag on environmental impact (for instance CO2 emission or water consumption) or social benefits (for example workplace safety or wealth generation).