Sustainability in Procurement: CPO's 10-Step Guide

Step 1 – Understand organisational objectives

You can’t improve everything, at least not all at once, and this is especially true for a set of ideals as broad as those encapsulated by ESG. Make sure, therefore, that you know what is truly important to your organisation and where you can help.

Sustainability targets range in commitment levels from internal aspirations to being externally reported and audited. Clearly these require different levels of focus and rigour and will help define procurement’s agenda and where to spend its time.

Assess if your business has accurate baselines and target, as well as agreed measures to track against. If not, push for them and then translate them into something meaningful. For example, if there are targets to increase spend in the local economy, agree this definition, understand where you will reliably pull data from, and translate a % improvement into £s that the procurement team can action.

Step 2 – Engage sustainability leads

If your organisation has a sustainability function, then it should be setting the business-level strategy from which the procurement team derives its own strategy. It should also act as the Subject Matter Experts (SMEs) to guide around policy, sustainability approaches, and requirements.

Understand their key themes or ‘capitals’ and then agree those which Procurement is well placed to drive forwards.

Naturally, a dynamic tension will exist with one party favouring ESG objectives and the other cost; however, it’s best to proactively drive this dialogue and agree a rulebook that’s realistic and focusses on prioritised approaches. For example, when looking at facilities services, focus on moving the needle within local economic impact and welfare. When looking at fleet, focus on carbon and GHG emissions. Sometimes the right thing is to focus on cost and service and, in this way, support investment in areas where sustainability returns are greater.

Step 3 – Baseline your approach and capability

As the agents of change, your team needs to be equipped with the right targets, skills, and tools, so make an honest assessment of your current capability. Does the team understand the sustainability agenda and how it can play a part? Do you have a clear policy and playbook to guide and support the team? Do you have agreed tender questions, scoring approaches, and contract terms to hand? Is sustainability built into the fabric of the procurement process, especially in category strategies?

Many of these are quick to establish, and it’s fine to iterate.

Step 4 – Triage your spend categories

A key step is to triage spend against agreed sustainability themes to understand which spend areas can drive which themes. Weight these areas by spend, sustainability opportunity, and ability to impact. Ability to impact can be defined by several things but notably by the complexity or likelihood of change or improvement and the sourcing pipeline.

Where (re)sourcing is not possible, you still have the option to improve through supplier relationship management (SRM) processes, including joint target setting and innovation.

Remember, again, that you cannot improve everything at once. 

Step 5 – Improve your sourcing approach

We believe that sustainable procurement does not require a new skill set, but it does require a new mindset. Train and encourage the team to think in terms of cost, service, and ESG and, as such, to adapt sourcing methodologies to reflect this additional parameter. Implement new tender questions (refined by theme or capital), new scoring and evaluation approaches, as well as effective sign-off governance to ensure ESG is effectively considered and does not become a tick-box.

Review your sourcing pipeline now, and identify where and how you will address sustainability, through what levers, and what opportunities might be available.

Step 6 – Implement an SRM (Supplier Relationship Management) approach

In many ways, sustainability is synonymous with collaboration: macro goals shared by the many, distilled into multiple and sustained changes to behaviour. In a similar way, it mirrors a maturing and more collaborative approach that seeks to deliver long-term value through better engagement with supplier partners. ESG fits neatly into this SRM world of dialogue, target setting, KPIs, and mutual innovation. Make sustainability a core part of SRM approaches. And, if your organisation is weak in this area, use this as the impetus to invest in it.

To repeat the mantra that we can’t change everything at once, ensure that you segment the supply base, for example:

• Top 10 suppliers – joint targets and innovation
• Top 100 suppliers – detailed questionnaires and objective alignment
• Top 1,000 suppliers – data capture

Importantly, set long-term requirements so that the supply base has time to prepare and adapt. Ensure you don’t penalise SMEs, who may have fewer resources to develop their ESG capabilities, but instead give them longer to react. In the UK, the NHS have laid out a strict, but very fair and well communicated roadmap.

Step 7 – Invest in training

Old habits die hard. Whilst there will be motivation in procurement teams to drive change, this will not be universal; it will be all too easy to revert to type when the next cost target lands or performance reviews come and they do not evaluate ESG value delivery. 

Use training to embed change, start with the basics, and move towards a specific toolkit:

1. What do we mean by sustainability? Why is it such an important topic for Procurement? How is Procurement well placed to help?
2. Explore the key themes of People (social), Planet (environmental) and Profit (economic) sustainability, how to measure impacts, and the key opportunity levers.
3. Introduce your organisation-specific methodology and toolkit, likely to comprise baselining methodologies, sourcing, and SRM Support resources are becoming more readily available, including the Supply Chain Sustainability School.

Step 8 – Establish clear KPIs (Key Performance Indicators)

Sustainability improvements are being hindered by an inherent lack of accurate data. Without it, organisations find it hard to make decisions – they lack the objective insight – and they then fail to get the feedback loop that informs them of the impact of their decision making. For Procurement, this is a particularly uncomfortable place to operate.

Each sustainability theme, however, should have a measure and target, even if they are crude at first whilst data improves. Defining sustainable procurement KPIs is crucial for tracking progress across themes. If we consider carbon, we can see a tiering something like:

• Step 1 – use spend multiplied by emission factors to find hotspots in the wider supply chain
• Step 2 – use supplier level reporting data to compare suppliers
• Step 3 – use service or product level calculations to compare procurements

Wherever we can convert the KPI into a currency measure (£/$,€ … ), even better. Cost of carbon dioxide equivalent (CO2e) values really help to normalise sourcing decisions and reduce the question of, “Is it right to pay more to reduce greenhouse gas emissions?”.

Step 9 – Build a playbook

Each of the preceding steps should then be encapsulated in a single source of the truth – a sustainability playbook can act as guide and governance to procurement teams and lay out the boundaries of what Procurement will do, how it will do it, and whom it will engage with to maximise outcomes.

The more this can be built into existing processes and BAU, the better. It also needs to be owned and kept alive. The sustainability landscape is developing quickly, and we all need to absorb best practice as we find them.

Step 10 – Communicate your procurement policy

Finally, make a statement of intent. Make the effort and aspiration real by communicating it broadly within your organisation – both to customers and to the public. By communicating, allow Procurement’s activity to be scrutinised and held to account. Focus on specific commitments that the procurement team can confidently defend and demonstrate. Generalisations and buzz words only add to the growing murkiness of greenwashing. Clear commitments show suppliers, partners, and customers alike that Procurement can and will make a real difference.