Sustainable Procurement — Just Good Procurement

Submitted by Shaun McCarthy

This is the most recent article in our series on Supply Chain Sustainability. For more articles, go to
http://www.csrwire.com/blog/series/75-supply-chain-sustainability-special-focus/posts

Procurement is not too complicated, it is the delivery of corporate objectives or public policy aims through a supply chain. Traditionally this has been primarily about cost/time/quality/safety but in the past 10-15 years this has increasingly included environmental objectives, social outcomes such as local labour or addressing risks such as those presented by poor labour standards deep in the supply chain, as tragically demonstrated by the Rana Plaza disaster in Bangladesh.

For seven years I had the honour to be Executive Chair of the Commission for a Sustainable London 2012, overseeing the sustainability performance of the London Olympics and providing advice on whether the promise to deliver the “most sustainable Games ever” was actually being achieved through construction of the Olympic Park, staging of the Games and the long term legacy. A quick glance at my archived website will show London 2012 was not above criticism but in the main, exemplary standards of sustainability were achieved that took us to new levels in the way we think about our supply chains. The Olympic Park was likened to delivering two Heathrow Terminal 5 projects in half the time. There is no doubt that, as a public body, the ODA showed that supply chains can deliver ground breaking standards of sustainability whilst still delivering on time, within budget and in compliance with the EU rules. This was done through use of a balanced scorecard approach to selecting suppliers, zealous application of monthly performance reporting that left their contractors with no place to hide and no compromise when things got tough.

The approach taken by the ODA has been replicated by other mega-projects such as Crossrail, Thames Tideway Tunnel and most recently HS2. The recent publication of Government guidance for sustainable food procurement draws heavily on best practice exemplified by the ODA. However, at a level below the mega-project, application is less consistent.

Does it cost more?

Sustainability does not cost more when we consider value in terms of whole life cost (not just to the body buying the goods or services) and factor in the costs related to reputation risk and wider societal impacts. However, bad procurement does add cost and sustainability is frequently blamed for this. Here are four examples of ways in which bad procurement can create the illusion of greater cost of sustainability:

• Allowing suppliers to create the illusion of a premium product. Suppliers will always try to find ways of driving their process up and their costs down. This is how businesses make a profit. Several years ago I was advising a construction contractor on sustainable timber. The timber merchant was able to supply FSC timber at no extra cost but the joinery supplier wanted a 20% premium. There was no extra cost to the supplier, they just wanted more money. Good buyers should challenge these assumptions and not accept them at face value.
• Failure to consider cost in the round. Governments and large corporations continually fail to do this, particularly if the cost is in one department and the benefit is in another. For example, deploying a cleaner vehicle fleet in a city will reduce the incidence of repertory disease in that city, leading to savings in the health budget. It is impossible to prove this to any level of accuracy so rather than employing an army of economists to work it out we sometimes just need to accept it is the right thing to do and get on with it.
• Springing surprises. Supply chains don’t like surprises. If you suddenly impose a new set of objectives on a supply chain they will factor in the risk of working out how to comply and a perceived cost of compliance. This will drive prices up. If supply chains are engaged well in advance and given the opportunity to respond they will compete around the new requirements and the price will be driven down by competition.
• Failure to develop a competent competitive market. Whilst the ODA delivered exemplary standards of sustainability, their work exposed a market failure. Construction supply chains are notoriously deep and wide and the numerous small businesses in the sector simply do not have the knowledge or capability to deliver. This leads to a small number of competent suppliers able to deliver being in high demand. High demand, limited supply, price goes up. I am very proud to chair the Supply Chain Sustainability School, a multiple award winning industry led initiative to address this issue.

Sustainable procurement IS good procurement, they are not different things, if competent procurement professionals use effective tools and adequate resources to manage their supply chains well, sustainable outcomes can be delivered that offer real long term value.

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This is the most recent article in our series on Supply Chain Sustainability. For more articles, go to
http://www.csrwire.com/blog/series/75-supply-chain-sustainability-special-focus/posts