Building Responsible and Sustainable Supply Chains
The pressure is increasing on organizations to contribute to a more sustainable future. The bar is set high and positive collaborations across supply chains are key to success.
Just 10 years ago, the vast majority of organizations treated Corporate Social Responsibility (CSR) as supplementary or even window dressing. Fast forward to the 2020s and all that has changed. Solid strategies and actions are now a must in order to stay aligned to today’s increasingly ethical consumers, employees, and investors. Not to mention regulators. More importantly perhaps, being a good corporate citizen is a moral imperative.
The reasons for this evolution in attitude are clear and paint a grim picture. According to IMS and UNICEF, about 160 million children were exploited through child labor in 2020. This is one out of every 10 children worldwide.
From an environmental perspective, the Intergovernmental Panel on Climate Change has highlighted that many of the climate change effects, such as rising sea levels and changing rainfall patterns, are already irreversible. Therefore, faster and sustained reductions in carbon emissions are needed to mitigate potentially devastating impacts on people and the planet. There is an undeniable awareness that the climate crisis needs a meaningful response, and this is driving a commitment to science-based targets.
But what does that mean for the CPO team and for you as a procurement professional?
How to make sustainable procurement a catalyst for change
Today, sustainability is a clear call to action for the procurement function to embrace responsible sourcing. This can be done relatively simply by engaging in developing suppliers’ safety and labor standards, and by requesting that suppliers calculate, declare, and reduce their carbon emissions. And there are many more options that enable procurement to be the key driver for change.
There are three key areas to think about when looking at responsible and sustainable procurement.
The first is the drive to Net Zero, which is becoming carbon neutral in the products and services you procure.
The second is becoming a trusted procurer and reducing social risk in the supply chain. This means dealing positively with headline issues, like human rights, modern slavery, and safe working conditions. Procurement can directly help your organization create positive social impact by building a resilient and transparent supply chain that is inclusive, diverse, and enables local sourcing opportunities.
The third key area is the circular economy. This is more than simply repeating the three-word mantra of reduce, reuse, recycle — it’s about being truly resource efficient. It’s about remanufacturing, repairing products, and reintroducing these into supply chain and service flows.
Sustainable procurement leading the drive to net zero
Becoming Net Carbon Zero is the challenge that most companies place at the top of their list of sustainable strategies. This is tied in with the terms Scope 1, 2, and 3 emissions, which first appeared in the Greenhouse Gas Protocol of 2001 and which are now mandatory for Greenhouse Gas (GHG) reporting in the UK for example.
Scope 1 covers the GHG emissions that a company makes directly, for example heating buildings and fuel for transport. Scope 2 are the emissions it makes indirectly, such as buying products (like electricity) that are being used on its behalf. Scope 3 is a little more complicated as it covers emissions that are not associated with the company itself, but that the organization is indirectly responsible for throughout its value chain.
Historically, decarbonization strategies began with organizations and their procurement teams thinking about dealing with Scope 1 and 2 emissions. However, over recent years, we’ve seen an increased focus on Scope 3 emissions which, for industries like retail and consumer goods, can account for seven or eight times the emissions a company directly emits itself. About 40% of this is in the purchasing of goods and services, so procurement has a significant role to play in meeting Scope 3 requirements.
Clearly, Scope 3 presents the greatest challenge for organizations and their procurement teams. If something is outside of their physical operations, how can they quantify that component, and then how can they undo or make changes so that they can reduce that carbon footprint?
Technology can help. With the right tools in place, it is possible to provide a baseline that allows organizations to assess the impacts of different elements of their operation — and this is essential to starting on a journey of improvement.
And with around 80% of emissions in most organizations coming from their supply chain, it really is one of the most vital functions to get on top of.
Being trusted: The key to corporate social responsibility (CSR) initiatives
Today’s consumers and partners are looking for trust — not just in the delivery of a solution, product, or service, but in terms of their ethical, social and environmental credentials. For many brands, that means thinking about how to create more local sourcing options, supplier inclusion, and diversity to remove ‘social risk’ throughout their supply chains.
This is a high priority because, in many cases, trusted brands are growing faster than low trust ones. The key is understanding which elements of social risk and social impacts customers are really interested in.
But this cannot be the only reason to change. Customers also value corporate authenticity and honesty. True CSR must go deeper than simply responding to the ethics of your audience or acting responsibly to gain PR points. That’s when companies fall prey to charges of ‘greenwashing’ and similar. The business must believe in its actions too.
Importance of your partners in a sustainable supply chain
To a large degree becoming truly sustainable and/or responsible comes down to what you know about your partners. What structures are being applied to assess how ethical the companies that you choose to do business with are? Similarly, how easy are you making it to expose them, and what is the framework for when you should stop doing business with them?
Companies are feeling the pressure from several risk areas that they never considered when they built their procurement structures. There is continually emerging legislation to consider and ever-changing consumer sentiment to acknowledge. Constant vigilance is required to ensure sound procurement structures.
For example, do you know simple things like: Are your customers or suppliers on screening lists? Have they been flagged by social tracking organizations or by government regulatory watchdogs? And as an organization, are you structured so that this information can be easily conveyed to your procurement professionals at the point they are making key decisions about who you're going to be doing business with?
Our goal is to make sure that we have ethical supply chains as well as the goods that flow through those supply chains. We need a technology foundation that makes it easy to assess exactly the amount of risk that you are exposed to as your supply chain evolves.
Procurement’s part in a circular economy
The reduce, reuse, recycle message drives most organizations’ focus on being resource efficient and drives developing a circular economy for their business. Within a circular economy, procurement is key to unlocking new business models.
For example, we are seeing products or machinery as a service, where you are paying to have products and services available to you on demand rather than buying in bulk. Similarly, if there are recycled or reused products that are available in a particular category, proactive procurement teams are reaching out to design teams in other organizations to influence what those businesses ultimately produce.
Sources of recycled or reused material are, by definition, more variable than traditional materials, so procurement teams need dynamism and agility to adapt to these new ways of sourcing. They need visibility of what's available so they can harness circular waste flows and create new revenue.
Building the procurement process
As partners, the goal of Accenture and Coupa is to help our joint customers get programs, goals, and KPIs in place for the different categories that we've outlined. We know that we can't own all aspects of the solution and we don't have all the specialists, but we can bring it all together into one backbone.
We're not prescribing a technology solution on its own, but rather an ecosystem. It's all tied together, bringing everything from supply chain design and planning to form a solid backbone from which companies work seamlessly together to deliver sustainable solutions.
Working with clients to adopt the Coupa Business Spend Management procurement network and platform helps ensure every dollar you spend is spent responsibly. It drives ethical operations and helps you work positively with and within your community. Through integrated processes based on one integrated dataflow in connection with suppliers, we provide solutions with the governance, controls, and visibility that make responsible buying easy and, if desired, the default behavior.
With our help and commitment to creating a clear, end-to-end procurement backbone, organizations save money, which can be reinvested back into sustainable business transformation programs. It also influences a cultural change within supplier bases and helps bring a more ethical and sustainable approach to doing business.
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