The benefits of “common sense” sustainable sourcing

DEFRA defines sustainable procurement as "a process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis in terms of generating benefits not only to the organisation, but also to society and the economy, whilst minimising damage to the environment".

Previous scepticism over the benefits of a sustainable sourcing has given way over recent years to an understanding and appreciation of the value procurement teams can add by adopting such an approach. I don’t always think the word “sustainability” helps in situations like this, being a relatively divisive term which is greeted by some with rolled eyes. In many ways however sustainable sourcing is the “common sense” approach to strategic purchasing.

Here is a sample of the wide spectrum of topics that are usually bracketed under the umbrella of sustainable sourcing:

• Overall security of supply
• Managing carbon and water footprints
• Efficient use of resources
• Right shoring and local sourcing programmes
• Ensuring socio-economic standards
•  Supporting the development of labour standards and human rights

The question is how, in encouraging procurement involvement in this space, organisations will begin to realise long term benefits? I think in addressing each of these topics it is possible to split the potential benefits into three distinct areas.

• Cost savings (where else to start!)
• Increased efficiency of procurement
• Optimised resource use (e.g. energy, water, chemicals)
• Lower price of raw materials
• Reduced logistics costs
• Increased savings through collaboration in supplier performance and relationship management
• Excise appropriate tax breaks e.g. capital and enhanced capital allowances
• Revenue protection and generation
• Increase the overall security and quality of the supply chain.
• Ensure continued product innovation and development – continuous improvement approach
• Reputational management is something that is going to become more important as supply chains become more transparent and the consumer more engaged.
• Potentially further market access. Licenses to operate may be based on certain conditions being understood or met.
• Access to funding and other revenue streams from government, donors, carbon credits etc. from adoption.
• Risk management
• Reduced operational risk
• Reduced foreign exchange risk

Adopting the common sense approach, and as such embracing sustainable procurement, is a way to further procurement’s value to an organisation whilst reducing risk and waste and improving efficiency and the total cost base. Only a short blog this week but hopefully next time I can go into a bit more depth when considering how to adopt a sustainable sourcing model.

Mandatory carbon reporting

A slight change in tact this week for this blog away from technology to a topic I want to try and get more immersed in during the course of 2015, that of sustainability. This week I’d like to briefly explore mandatory carbon reporting and the implications and opportunities for procurement.

In October 2013 the UK Government announced that quoted companies would be required to report their annual greenhouse gas (GHG) emissions in their directors’ report. GHG emissions are categorised into three “scopes” by the GHG Protocol. Scope 1 and 2 cover direct emissions sources such as the electricity that a company purchases or fuel that is used in company vehicles. Scope 3 is more in depth and covers all indirect emissions due to the activity of an organisation.

The UK Government have provided a quick helpful summary guide as to what is included in each “scope” level:

Scope 1	Scope 2	Scope 3
Fuel combustion Company vehicles Fugitive emissions	Purchased electricity, heat and steam	Purchased goods and services Business travel Employee commuting Waste disposal Use of sold products Transportation and distribution (up- and downstream) Investments Leased assets and franchises

It is worth noting at this stage that the term ‘procurement emissions’ or ‘supply chain procurement’ is widely used as a shorthand for elements of scope 3 emissions and it is here that I think procurement can probably get most involved and add most value.

Although scope 3 emission reporting is not yet a mandatory requirement (and there is no expectation that it will be for some time) some firms are reporting on them and I expect more will continue to do so for CSR purposes. It is fair to say that at this stage the private sector is behind the public sector but the expectation is that the government will undertake a review and decide in 2016 whether to extend the regulations to all large companies, potentially adding 24,000 organisations to the already c. 1,100 that have to mandatorily report both on both scope 1 and scope 2.

So how can procurement become more occupied in scope 3 reporting and where can they add value? 

Let’s consider some of the activities that would be involved:

1.       Assess the supply chain for emission hotspots

2.       Identify resources and energy risks

3.       Identify energy efficiency and cost reduction opportunities in the supply chain

4.       Engage with suppliers and assist them to implement sustainability initiatives

5.       Purchase more energy efficient products

6.       Help companies reduce emissions from business travel and employee commuting

7.       Help identify leaders and laggards in their supply chains

At present many organisations that are attempting to report to scope 3 are doing so without procurement involvement and, as you can see from the list, the activities involved would suggest that integration with procurement departments would uncover huge benefits.

I would expect a move towards a change in procurement strategy in the coming years to reflect the changing focus in the market, both in terms of legislation and general mood towards sustainability. 

Price will continue to be important, however on-going energy costs including carbon credits, as well as the impact of carbon on CSR and reputational risk, are becoming more and more intertwined in procurement decision making.

The steps involved in running a successful eAuctions

 Last week I went through the various forms of eAuctions available to the procurement professional; from the traditional reverse English through to Japanese, Dutch and Multi Stage variations.

Choosing the most appropriate auction for your commodity or category area will help ensure a successful outcome but when it comes to actually setting up an event and seeing it through to completion there are a few simple steps that I would suggest are followed.

1.       In the beginning

·         Make sure there is a single point of contact responsible for the auction. Suppliers don’t like having to deal with a range of different individuals and it ensures that the communication channels are clear. This single point of contact also needs to be reciprocated on the supplier side

·         Choose the right auction type (if it’s applicable at all)

·         Communicate a process plan for the auction both internally and externally

·         Make sure that the specifications for the products or services being auctioned are as clear as possible and there is no room for ambiguity

·         Decide on the selection criteria as to who is going to progress through to the eAuction – assuming that RFI etc. has been run beforehand.

2.      Design

·         Decide award criteria. Does the lowest bidder win in all circumstances? Make it totally clear that the lowest price may not always win.

·         Plan and agree timescales for live auction both with your internal stakeholders and the suppliers.

·         Design and build the auction as well as the bidding strategy including the rules, extensions and award criteria.

·         Ensure that all suppliers are operating on a level playing field (eAuctions are transparent) by standardising the communication and training you provide.

·         Plan in the eAuction to run at a time that will suit you but also allows everyone to fully participate. This may involve considerations of multiple time zones for example or setting an auction to close past standard working hours to speed everyone up.

3.      Communication and Training

·         Make sure that the Supplier is fully briefed on the eAuction process, including both the format of the event and the timings. Timing will include both the actual event and the expected steps post event

·         Train, train and train again. There is nothing more frustrating than having to halt an event because a supplier makes a mistake or doesn’t know what to do. Suitable training ensures that there are no excuses on the day of the event.

·         Run a test eAuction as part of the final training consisting of all the same rules, extensions etc. This gives suppliers an opportunity to familiarise themselves with the format and also gives you a chance to make any last minute changes should they be required.

4.      The Live eAuction

·         Log in in advance to make the eAuction available to all participants and check they are logged in prior to the actual event.

·         Provide contact details for a technical helpline for suppliers during the live event and arrange for a support team to enter buds on the supplier’s behalf on account of any technological issues.

·         Only send out messages that have been agreed and vetted prior to the event

·         Get your stakeholders involved! eAuctions can be good things to watch and drum up some excitement

·         Don’t be afraid to make changes to the event as it happens however ensure that the possibility of those changes was communicated in advance.

5.      Post eAuction

·         The responses should be assessed against the initial criteria agreed with the stakeholder team and the winner selected accordingly.

·         Conduct your post auction negotiation if it is applicable and was specified as a possibility at the outset.

·         Inform participant of results and provide them feedback about their performance in the sourcing process and where they missed out – it can’t hurt and they will want to hear it.

·         Request feedback about the sourcing process from your supplies and your stakeholder team. Anything that can be learned for an improved future performance is useful.

6.      Watch Outs

·         Do not allow suppliers to increase their bids (unless it’s a forward eAuction obviously) and be quite explicit in the rules about this. Suppliers can ‘fish’ by lowering their bids to see where the winning position is and then request that their bids are raised again.

·         Do not allow suppliers to participate who have not been through any prior training or the prior evaluation process – everyone should be on a level playing field at an eAuction

·         It goes without saying really but don’t bid yourself!

·         You may have suppliers in the event that have no intention of honouring their bid and only wish to drive down the price for other participants. You need to be conscious of this before the eAuction but be wary…although a better result may be obtained it may not be sustainable and may also demotivate others in the event and derail any supplier – buyer trust.

·         If you state that the lowest price or the highest score in a multi variable auction will win, do not then pick a different supplier to win the auction if this was not achieved by that supplier.

·         In a multi variable auction, display the position of suppliers taking into account all the criteria, and don’t display price positions only

·         Don’t select an eAuction as the most appropriate route for the sake of it. Consider whether it is appropriate and if so the form of the event.