Great strides are being taken to understand and act on ESG duties to meet increasingly urgent climate goals, but most greenhouse-gas emissions are created outside the organizational boundary.
Up to 80 to 90 percent of business’s greenhouse-gas emissions are “Scope 3”, occurring across its value chain, according to McKinsey.
Many challenges remain in achieving sustainable supply chains. Perhaps the biggest challenge is that most organizations still lack full and crucial visibility of their supply chain and procurement processes.
This is low hanging fruit that new technologies and simple operational changes can quickly address. But many organizations continue to be let down by legacy software, sprawling email chains and rigid spreadsheets, meaning they are missing out on both efficiency and sustainability gains.
So, what’s the big deal about climate-clever procurement and how can technology help organizations achieve it?
Why climate-clever procurement matters
The belief that if you make and keep your own sustainability pledges then you’re conducting ‘green business’ is false. You’re only as green as the other businesses you work with.
The procurement function is vital in shaping and lowering an organization’s ESG footprint. The problem is, too many details within the procurement process and supply chain are hidden from view. This effectively ties a blindfold around management teams and slows the pace of positive change in many industries – even if organization’s have the best intentions.
With tightening environmental regulations and growing responsibility among industry to help reach shared national and international sustainability targets, having a cleaner supply chain will soon become a necessity.
There’s also growing consumer demand for businesses to track their environmental footprint – including across their supply chains.
Although we are not at the stage yet where this more granular level of traceability has impacted mass-consumer purchasing, or is influencing buying decisions on a mass level, it is expected to soon – particularly if carbon impact labelling becomes mandatory.
You can’t change what you can’t see
Historically, very few control mechanisms have existed that support good practice and governance of supply chains. The more archaic procurement processes are virtually unauditable and that has, by default, made procurement an opaque sector over time.
The problem boils down to the fact that you can’t change or improve something you don’t fully understand or can’t accurately measure.
To succeed in delivering on ESG, corporations need to move away from only looking at their own activities and toward scrutinising the supply chains they are reliant on.
Supply chain transparency requires companies to know what is happening upstream and downstream in the supply chain and to communicate this knowledge across the organization.
But to do this, companies must have a complete overview of how, and on what criteria, their procurement department is selecting suppliers, plus ongoing monitoring and management processes.
Thanks to accelerating digital transformation and advancements in procurement technologies, we’re entering a new age where businesses understand the challenges posed by legacy systems and how digitalising the process can drive greater efficiency and open-up a whole new level of visibility.
A new dawn for sustainable supply chains
Supply chain transparency relies on creating a culture of continuous improvement within the organization and across value chains. And the demand for transparency will only get stronger.
Strategic sourcing is fast becoming the dominant way businesses manage risk within their supply chains from the outset. It takes things a step further and includes deeper due diligence and planning to ensure a company always gets the most value from the best suppliers in its supply chain at a reasonable cost.
Strategic sourcing creates a holistic standardization of sourcing requirements, data gathering formats, and information storage. It involves continuous cycles of review, where companies evaluate spend, sustainability goals, supplier relationship management, data gathering approaches, and more.
At procurement stage, high volumes of information are exchanged with suppliers before contracts are awarded. And with crossed wires or lack of due diligence, risk is introduced at supplier selection stage.
Formally defined, supplier selection is the process of discovering, researching, evaluating, and ultimately contracting with third-party suppliers of goods and services. When done right, businesses will see far-reaching benefits such as a lower production cost, greater sustainability, more revenue, and a steady supply chain that doesn’t cause issues. But when done wrong - the results can be utterly disastrous.
To this end, businesses are increasingly adopting digital procurement, namely RFx software, to replace email chains and remove human error and lengthy admin from the process.
This type of software can also help procurement professionals generate and complete supplier scorecards (or vendor scorecards) - a document containing crucial metrics that grade the performance of a third-party supplier, including financial stability and sustainability credentials.
Procurement is also increasingly being enabled by new agile software utilizing artificial intelligence.
AI-powered technology uses very large volumes of data to predict, learn and improve functions. And its accuracy and usefulness only improves as the volume of historical data collected increases.
This will enable teams to move closer to what Gartner has identified as “autonomous procurement,” which has the potential to take efficiency and savings to new heights when the right building blocks are in place to help organizations compete faster, smarter and cleaner.
Labor shortages are helping fuel the rise of AI across business departments, including procurement, making businesses more inclined to look more closely at AI/ML technology tools to augment the workforce and accelerate progress in reaching their sustainability targets.
However, it’s important to stress artificial intelligence will never fully replace human intelligence in procurement decision-making. Insights should always be combined with human-grade thinking to make the very best decisions to move the needle on sustainable procurement.
AI tools can take over repetitive, menial human tasks that are more suited to automation and in turn boost productivity, satisfaction and problem-solving capabilities.
Learning from the leaders
Supply chains are sustainability’s new frontier and those blazing the trail are reaping significant rewards, while ticking off their ESG targets.
According to the latest research by EY, leading businesses have an extreme focus on transparency into Tier 2 and 3 supply networks. Nearly half have also seen improved employee quality of life, compared to 37 percent of companies overall.
Cost-savings are not a significant motivator for these trailblazers, yet they are experiencing financial benefits of greater supply chain sustainability. For example, a quarter have experienced increased revenue attributed to their supply chain sustainability efforts. Moreover, 43% expect increased share price from their efforts in the next one to three years.
So, organizations have much to gain from investing in new technologies and adopting more efficient processes within their procurement function. Not only will their bottom lines and reputation benefit, so too will communities and ecosystems around the world.
