Sustainable sourcing involves weighing environmental, social and ethical factors in the selection of suppliers. It’s an extension of corporate responsibility efforts, and in this regard, different industries face varying degrees of pressure to adopt sustainable practices. Of course, the environmental impact of extractive industries such as petroleum and agriculture has been heavily scrutinized for decades. But with the glut of information available today, no industry can afford to ignore sustainability for long. Consumers want sustainable products, and they’re savvy enough to find them.
Supply-chain sustainability has become much more than reputation management or regulatory compliance. Green and ethical sourcing is a valuable strategy for supply-chain professionals who want to improve performance — 56% of organizations consider environmental factors “to a very great extent” in their sourcing decisions, according to a recent benchmarking report by consulting company APQC. Compared to those that give little or no consideration to the environment, these organizations use 49% fewer full-time equivalent (FTE) employee workload hours and achieve 27% better cycle time for purchase orders. Why? Evaluating the environmental impact of sourcing decisions requires data-driven procurement systems and careful consideration of suppliers. Because these organizations take a more intentional approach, they achieve higher productivity.
Consider the example set by Unilever Plc., which has ambitious corporate sustainability goals. Unilever is building a system for its suppliers to report the carbon footprint of their goods and services to ensure they meet the organization’s standards. This is more than an end in itself: It’s also a data standardization effort that will improve transparency and communication with suppliers.
Sustainable sourcing is key to reducing risk in supply chains. Failure to consider environmental factors is a risk in and of itself, given that many governments have (and others are considering) the ability to levy fines on companies that fail to meet climate change targets. But more broadly, the COVID-19 pandemic made it clear that many organizations don’t have insight into the risks that lie deep within their supply chains. Adopting sustainable sourcing practices requires end-to-end visibility across the supply chain — an enormous asset for mitigating all kinds of risks and disruptions.
In adopting more sustainable sourcing practices, three factors are essential:
Supplier relationship management. Procurement will need to carefully consider and coordinate all interactions with suppliers.
Data. Procurement will need the ability to access clean, real-time data across the supply chain.
Automation. This helps with the second factor (because reducing human touchpoints improves data quality and accessibility), as well as the first (because automation frees up time for critical analysis, relationship building and other value-added work).
Outlook
As we move into 2021, expect to see increased attention on organizations’ sourcing practices. COVID-19 thrust procurement into the spotlight, and as organizations rebuild their post-pandemic supply chains and evaluate the performance of new suppliers, many will re-examine sourcing policies and systems. The smartest organizations will use this as an opportunity to adopt more sustainable sourcing, and in so doing, reap significant productivity and reputational benefits.
