SUPPLY CHAIN & INFORMATION SYSTEMS AND SUSTAINABILITY
Sustainable Sourcing and Procurement
Sustainable sourcing and procurement is a new dimension for sourcing and procurement professionals who until recently based their decisions primarily on price, quality, and time. According to Chartered Institute of Procurement and Supply (CIPS), sustainable procurement is “the act of adopting social, economic and environmental factors alongside the typical price and quality considerations into the handling of procurement processes and procedures.”
Sustainable procurement goes beyond the traditional economic parameters and involves making decisions based on the full cost not just first cost.
“Full cost” is a key concept for sustainable sourcing and procurement and refers to an assessment of:
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- total cost of ownership: the “gate to gate” full accounting of direct costs to the enterprise (see Purchasing and Procurement Center)
- life cycle costs: the “cradle to grave” full accounting of indirect social and environmental costs (see our discussion of life cycle assessment on Major Sustainability)
- alignment with sustainability/ESG goals and metrics of your firm
Case Example: Sustainable Sourcing at Nestle
Nestlé has many specific commitments as it relates to sustainable procurement. Like many other companies today, they are increasing transparency throughout their supply chains to identify and address issues around human rights, environmental concerns, and community development.
Nestle has a Responsible Sourcing Standard and aim to source 100% of “key ingredients” in accordance with this standard by 2030 (they reported in 2021 they were at 16.3%).
How to Implement Sustainable Procurement
Sustainable procurement must be built on a sound foundation of strategic purchasing skills and knowledge. Within strategic procurement, as the image shows, there are a set of tactics ranging from the basic (e.g. supplier codes of conduct) to the advanced (e.g. multistakeholder collaborations).
Most companies start with the basics and increase their level of sophistication moving forward to intermediate then more advanced tactics.
We provide three examples here:
- Supplier Code of Conduct – IBM’s Supplier Code of Conduct in partnership with the Responsible Business Alliance (RBA)
- Incorporating sustainability into contracts, RFPs – WalMart’s Product Supply Chains
- Multistakeholder collaborations – Roundtable on Sustainable Palm Oil (RPSO)
Case Examples: Engaging with Suppliers for Sustainability
Philips
As a healthcare technology company with a mission to serve 2.5 billion people by 2030, many of whom lack access to reliable healthcare, Philips is reliant on a safe, reliable supply chain.
In technology, this means a reliance on key mineral and metal inputs, some of which are so-called “conflict minerals”. According to Philips, conflict mineral are “minerals mined in conditions where armed conflict and human rights abuses occur.” Conflict minerals most commonly refers to four minerals – tungsten, tantalum, tin and gold (also known as 3TG). Philips’ Responsible Sourcing of Minerals Policy commits them to sourcing minerals responsibly and to “enable responsible sourcing of minerals from conflict‐affected and high-risk regions, thereby supporting the development of the local economy and communities.”
Starbucks
At Starbucks, buyers are trained on supply chain sustainability issues and how to address them, and have access to all supplier sustainability assessment reports performed for Starbucks.
All communication with suppliers comes from buyers. Starbucks’s Ethical Sourcing team, the company’s sustainable supply chain experts, interacts regularly with buyers regarding supplier assessments and remediation matters. Training, information access and communications are all coordinated to equip buyers with the tools to incorporate supplier sustainability into their purchasing decisions.
Herman Miller
Herman Miller has made a name for itself among sustainability leaders with its environmentally innovative furniture materials sourcing and design.
Many years ago when they began, some of their 1,000+ suppliers were unwilling to make the switch to sustainability–which demanded they divulge chemical ingredients. Herman Miller responded by informing suppliers who were unwilling to share chemical ingredients that they would no longer receive business from the company.
Today Herman Miller has a long track record of sustainability innovation made possible by deep engagement with suppliers.
Learn about more sustainability concepts within this major.
ADVANCE YOUR KNOWLEDGE OF SUPPLY CHAIN & INFORMATION SYSTEMS AND SUSTAINABILITY
Learn what sustainable supply chain is all about and its importance
Learn the important things to know in this field
Learn how sustainability fits into your courses
Learn how sustainability relates to your career