Supply chain redesign

Three ways procurement can positively impact people, planet and profit

Harry John

“Sustainability is top of mind in all CxO conversions currently, and procurement has a major role to play, to really do something.”

A call to action from Peter Spiller, partner at McKinsey, who spoke on day three of Procurement Leaders’ event, Innovation in: positive growth, which brought together leading procurement organisations to discuss the ways they are helping their businesses to emerge from the pandemic stronger. Here we summarise the key themes from across the three days.

1. Rethink sourcing

The pandemic has highlighted the need for organisations to build greater flexibility into their supply chains. Supply chain agility has become a critical requirement for business continuity.

Mourad Tamoud, chief supply chain officer at Schneider Electric, explained how he is shifting his strategy “from just-in-time to just-in-case”. This means setting up two manufacturing sites for Schneider’s major products, dual-sourcing for tier-1 suppliers, and other actions design to spread the risk of supply disruption. Tamoud called it “the power of two”.

He also acknowledged the pandemic has accelerated the need for businesses to address sustainability more urgently, including in the supply chain.

In part, this means integrating sustainable principles into sourcing processes and decision-making. For Diana Dierks, social and environmental management system programme manager at IBM, it’s about using the power of procurement to influence suppliers’ environmental, social and governance (ESG) performance.

We create impact through setting [sustainability] requirements for suppliers, having it as a condition of doing business. We ask suppliers to have a management system to manage their environmental and social impacts. We do it through a ‘plan, do, check, act’ approach”, Dierks said.

Sourcing practices must also be re-geared to foster greater diversity and inclusion (D&I) within supply chains. As Javette Hines, director and head of supply chain development, inclusion and sustainability at Citigroup, said “you cannot get different results by doing the same thing”.

Critical here, according to Hines, is not just including diverse suppliers in your third-party spend but looking at ways to create strategic opportunities for those suppliers.

2. Step up collaboration with suppliers and other third parties

Most companies’ impacts on the environment and society stem from their value chains – not their direct operations. This means businesses cannot meet their corporate sustainability goals without addressing ESG issues at suppliers.

The role of buying organisations in improving supplier sustainability continues to be debated. Should procurement teams take a hands-off, compliance-led approach, or should they partner with their suppliers to tackle the issues in a collaborative way?

There is a role in comprehensive procurement sustainability programmes for both approaches, but the most progressive businesses are making strides in supplier partnering.

Alexandra Tarmo, head of partnerships and social procurement at Unilever, outlined the company’s Partner With Purpose programme, launched in 2020 and aimed at driving growth for Unilever as well as positive impact on people and the planet.

When looking for potential partners, Unilever’s buyers start by aligning with the business’s needs, then they scout new and existing partners who can help to meet the company’s objectives. But the company is “extremely selective” about which suppliers enter the programme; they must offer “unique, game-changing ideas”, according to Tarmo.

Marco Baren, head of operational excellence, supplier development and sustainability at Philips, spoke of the company’s Beyond Auditing programme, which it established to remedy the failings in its previous approach.

Audits don’t find the real issues”, Baren warned. “We didn’t think we had any zero-tolerances. We found zero-tolerances in 45% of suppliers in the first year of collaboration – child labour and fraud, for example. We say to suppliers, there’s no punishment, we are open, and we want to help you to overcome the issues in structured way“.

It’s the difference between being the sustainability police and being a sustainability doctor”, Baren explained.

Supplier partnering requires a firm commitment from buying organisations. There is risk for suppliers when they changing their practices to be more sustainable. As Patrick Barton, strategic sourcing director, raw materials at Heineken noted, “you need to put time in with suppliers, to really work with them, including from a financial perspective, to make things happen”.

3. Reap the benefits of data and technology

The strength of digital technology is found in the way it gives companies visibility into supply chain ESG issues.

Dermot Corrigan, CEO of AI risk vendor smartKYC, argued businesses need access to smart systems that monitor their supply chains for threats and alert managers in real time, so they can address ESG issues before they blow up.

Corrigan said: “think of a risk system as a sentinel, looking out for your business and allowing you to be proactive rather than waiting for the social media firestorm”.

Katharina Stenholm, SVP, chief cycles and procurement officer at Danone confirmed the benefits of having access to data, which has taken on greater importance since the onset of the pandemic.

It’s really about visibility”, said Stenholm. “CPOs are grateful for data and analytics, especially with Covid, because supply chains were disrupted everywhere simultaneously. The more data you have the better“.

Data structure doesn’t have to be a blocker. There are tools that allow you to make changes quickly. Having visibility allows you to spot risks and put plan-Bs in place. Data-driven decision making is key to improving ESG performance. Anyone not investing in data and analytics should get it on the agenda”.

An image of the future began to take form during the three-day event, in which IT providers team up with a wide range of other companies – buyers, suppliers, specialist sustainability organisations, customers and even competitors – to tackle ESG issues collaboratively.

Consider the problem of CO2 tracking in supply chains. There is no answer to that yet, according to McKinsey’s Spiller. “If I want to make [sustainable] sourcing decisions, I need to know about the embedded carbon in the products I buy from this company and this company. There’s no system for that yet, and it will be solved by alliances of companies working together”.

As Spiller argued, it’s up to CPOs to show their organisations how important procurement is to the ESG agenda. Rather than waiting for the mandate to “trickle down from the CEO,” he said, CPOs must “stick their necks out” and show where they can create impact. The opportunity for procurement chiefs and their teams is there, now they must take it.

‘Innovation In’ is our virtual series to challenge your thinking and inspire your strategy. Visit ‘Innovation In’ website to register your complimentary place for upcoming events in the series.

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