The Environmentally Sustainable Procurement Policy

With “greening your business” being a fashionable corporate catch cry these days I thought I would put together my thoughts on what could be involved in an environmentally sustainable procurement policy. I think it would be fairly obvious to everyone that you won’t become carbon neutral by policy issues alone, for that you will need to purchase carbon credits in some form, preferably from a reputable and certified carbon trader. I think there are lots of people buying credits for trees that will never be planted out there.

The initial steps most organisations will take in “greening up” are well covered in the media and elsewhere and include recycled paper, low energy light bulbs, water aerators on the taps, waterless fresheners in the gentleman’s urinals (yes, really – see them here), auto sleep on the photocopier, switching off all the computers and monitors, time controlled lighting, removing all those light bulbs beside the building windows that are there just for show and the like. These are all tactical responses to address specific areas within the business environment and I wholeheartedly support them.

What I wanted to address was the policy and practice around “what we buy” and “where things are sourced from” that could result in some major improvements to buying behaviour within the business.

What are you sourcing from geographically distant locations? Do you need to buy from that supplier or can you source the goods from a more local vendor to drive down carbon emissions from transport? Do you really need those exact goods or will a similar but not quite identical alternative of acceptable quality available from a closer distribution point be acceptable?

Where are the goods that we are buying originally made/sourced and how much effort has gone into transporting them to our geography in the first place? Do we really need South American cherries on the boardroom fruit platter?

Have you made a purchasing decision based purely on price rather than holistic value? Would you be willing to pay a little more to reduce the carbon cost of shipping the cheaper goods to us? What level of premium would you be comfortable with? 5%? 10%? 20%? (My swift Google based research of research suggests around 10% is the tipping point for the majority) What if you went to a more local supplier and negotiated a contract with guaranteed volumes that shared the difference between the two organisations in support of a greener outcome?

What about the overall total cost of ownership? If there is only a modest purchase cost differential and the more expensive option comes with a better warranty and maintenance package then the total lifetime of the product will be longer and time to replacement will be extended. That has a green benefit as well as a commercial one.

What products are you buying that are environmental plunder? Warning – rant approaching - My personal hobby horse here is bottled water. Since when did we need to drink water from a PET bottle in preference to a tap? Disregarding what is a ridiculous markup on the raw material – my local water supplier pipes fresh, clean and cold water to my door for $1.339 per thousand litres whilst 500mls of, for all intents and purposes, the same product in a bottle in the fridge at the local convenience store is $3.00 or more – how can it be more expensive than milk for goodness sake? – and what makes it seem like a good idea to have a fresh bottle every time we need a drink? That plastic doesn’t grow on trees you know. End of rant.

Where purchasing involves paper and wood based products have we assured that all orders are fulfilled with materials from sustainable sources? If you are getting new chairs in the boardroom do they really have to be from Indonesian old growth teak forests?

A dreaded by-product of purchasing is waste. Have you published a waste management policy that supports and encourages waste avoidance/minimisation, product reuse and materials recycling? Can you work with the building management company to improve waste recycling within the whole building if there are not already sufficient services available?

Where chemicals are used in the business can efforts be made to select bio-degradable and lesser toxic alternatives than those with the harshest agents in them?

Are there areas where commercially recycled products are available as an alternative to new? – I am thinking here of photocopier toner cartridges and the like.

When looking for ideas on where to green up the business look no further than your own workforce – send out a call for ideas and suggestions – you could well be swamped.

Is there a place in the business for a “green team”? A group of motivated individuals from throughout the business whose goal is to reduce and improve the company carbon footprint on an ongoing basis. There will be a surprising amount of people willing to volunteer for such a remit. Give them a target and make them accountable. Advertise their existence and celebrate their successes within the business (without flying in a crate of French champagne!). This volunteer responsibility should be acknowledged as career resume enhancing.

Have you communicated to your suppliers that you are interested in and have a preference for goods that can be shown to have a lower carbon footprint? Don’t expect to be able to make sensible decisions on your own – push the responsibility and motivation out to your supply chain – publish a policy that assures preference in your buying contracts to environmentally conscientious suppliers.

What about preferential agreements for suppliers that have initiated and can demonstrably display/disclose their own environmental management and waste reduction policies and programs.

Some things are not going to change easily in the business. You can’t easily cancel existing supply contracts, however you can encourage suppliers to improve their own behaviour within existing contracts.

You can’t change sourcing of critical or strategic components for the business and jeopardise your operational activities however you can urge strategic suppliers to look within their own businesses for environmental responsibility.

Progressive implementation and continuous improvement

Another week - another iPOS for SunSystems eProcurement client management workshop. This organisation really has its head screwed on:
- senior management level (director) project sponsor
- believes that progressive implementation is the pragmatic way to improve the business
- a focus on continuous improvement "and in our business that improvement means iPOS" (this is an enterprise whose demands for cost control and quality service delivery far outweigh the revenue generation function).

So what are they focussing on improving this year?

Approx 10,000 of their supplier invoices last year - over 30% of their purchasing spend - were generated before the purchase order - oops, plenty of maverick spending there but now at least they have all purchasing going through the one channel. With a single source of truth in the data they now have the opportunity to report and reflect on their users' buying habits and supplier delivery patterns.

Big improvements will be made in contract adherence when the culture of "PO before invoice" for the workforce and "no PO-no payment" for their suppliers becomes business as usual.

Great opportunities for administrative cost reduction and efficiencies in supplier invoice processing when they can be loaded from PO rather than punched in like last year.

Supplier rationalisation is another likelyhood, and while we're at it let's punch-out to the online catalogs of major suppliers and a preferred buying hub, hence outsourcing the administratively demanding catalog management to the suppliers. And maybe some new contract negotiation based on actual volumes.

Good days ahead for this client and a great opportunity for all stakeholders as some potential merger style activity is on the radar.

eProcurement and the dreaded catalogue management

Catalogue management is one of the trials and tribulations of implementing an eProcurement system. There are many reasons why managed catalogues make absolute sense and yet so many businesses fight it off during process design and system implementation workshops - "it's too hard - we won't be able to maintain it - our suppliers can't give us their catalogs electronically" etc etc.

The following is an excellent article on this topic by Debbie Wilson in Cool Tools for Purchasing.

http://www.purchasingautomation.com/articles/articles173.shtml

I particularly liked the section "Maximizing Catalog-Based System Performance" - as always it's all about people and their behaviour rather than systems and their operation. I smiled broadly when I read this bit.

The final line is a cracker - "if someone tells you that in order to successfully implement eProcurement you must normalize your data, offer requisitioners millions of items to choose from, and insist on certain formats from your catalog suppliers, don’t believe a word of it."

It doesn't have to be hard and it doesn't have to be every item on day one (or ever). It's all about mindset - look for the benefits to your business, pick the targets appropriately, keep it simple and remember the 80/20 rule - probably 80% of your spend is with 20% of your suppliers - focus accordingly and turn the heat up in your negotiations.

However let's not forget about online/web catalogues that a supplier maintains themselves. This can be an excellent way to outsource the responsibility of catalogue management to the supplier - "but how does that help me?" you may ask. With a sophisticated eProcurement solution (like iPOS for SunSystems) you can optionally punch-out to online catalogues and allow users to select items for their shopping basket as normal. The "check out" function on the website actually returns the item list back to your internal/buy side system for processing through the normal budget control and delegated approval rules.

In my experience this is most applicable for the classic low value - high volume suppliers such as office supplies etc where once a contract is in place you want the end-user to be able to select and purchase items with the least amount of fuss and effort. There may be "millions of items" for people to choose from but someone else is doing the hard work of managing them.

Punch-out is also the best way to interact perhaps with government or commercial buying hubs where multiple supplier catalogues may be aggregated. The challenge in leveraging these online marketplaces is the lack of real-time integration to the backend financial management system and the ability to overrun budget and approval controls through poor data integrity.

Punch-out comes with some downsides however:
- You rely on the supplier to maintain the currency of the catalogue and also to accurately apply the service levels of your contract.
- It may not be possible for the supplier to build restricted views of their catalogue for different user profiles in your business - it may be a one-size-fits-all approach.
- They may have more detailed views of your buying habits and trends than you do when it comes to contract negotiation.
- There could even be the ability for "push selling" in their catalogue management that leads people to buy upgrades or additional items or volumes based on the choices they make for their shopping basket.

In reality many organisations may decide to live with a combination approach to their purchasing procedures, internal catalogues for critical business purchases and strategic suppliers, online catalogues for "consumables" and free-form item description for those exceptions that invariably exist (controlled by increased levels of supplier selection, review and approval).

The sensible and reasonable wish of the business is for all options to be managed within a common, process-driven purchasing channel that delivers aggregated spend control and reporting with single source of truth in the financial data.