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Effective Practices for Sustainable Procurement

Sustainability is increasingly becoming a requirement for corporations due to a shift in perspectives around the world. It is hence crucial for businesses to bridge the knowledge-to-action gap by implementing sustainable business practices, especially in the aspect of procurement. Companies have to align their sustainability strategy throughout the organisation and ensure that every stakeholder understands the rationale behind the company’s decision towards sustainability. Companies can practice sustainable procurement by adopting sustainable purchasing policy and implementing code of conduct for its suppliers. Collaboration with suppliers is the key to success. Lastly, active monitoring and reporting has to be in place to evaluate the success of the sustainable procurement program.

Strategies Sustainable Procurement
Image taken from SIPMM: https://publication.sipmm.edu.sg/six-essential-strategies-sustainable-procurement/

Aligning Strategy and Action Plan

Companies need to ensure that their corporate strategy and sustainability efforts are aligned. A sustainability strategy can only be implemented successfully when all key stakeholders understand the purpose behind each company’s sustainability efforts and make conscious decisions that are in line with it. Once the environmental, social and governance (ESG) goals are decided, companies should engage the relevant individuals at all levels for them to understand the objective and goals, as well as the company’s direction as a whole. The respective departments in the company will need to review their current internal operations and design sustainable procedures accordingly. Procurement is ideally suited to integrate sustainability in all three ESG dimensions across the entire company due to its high degree of cross-functionality. The procurement team first need to analyse the company’s current purchasing profile and identify the more significant procurement segments through sustainability spend analysis to develop a long-term sustainable procurement strategy and action plan. The purchasing process can be re-designed to incorporate environmental, health and social impact criteria. For example, environmentally sound and resource-efficient practices can be negotiated with potential suppliers during the issuance of requests for proposals (RFPs).

Adopting Sustainable Purchasing Policy

Companies can show their commitment to minimise the negative impact of their purchases on the environment, society and economy by adopting a sustainable purchasing policy. The objectives, procedures and key performance indicators (KPIs) of a sustainable procurement strategy, as well as the various ways this can be achieved should be set down in the sustainable procurement policy. Sustainable procurement policies help companies structure a long-term procurement strategy that is aligned with the core company strategy.

Adopting Sustainable Purchasing Policy
Image taken from SIPMM: https://publication.sipmm.edu.sg/key-policies-tools-successful-procurement/

Policies implemented have to be future-proof to ensure supply chain continuity and equip companies with the ability to overcome various market demands. Procurement practices should also value-add to the firm rather than mindless purchasing, be it long-term indirect values like innovation and consumer loyalty or short-term direct benefits like cost savings. Regular policy reviews and updates are necessary to ensure that companies continue to follow the best practices that reflect current market trends.  In addition, a thorough understanding of the products and services is required to establish the appropriate standards and these standards must be in line with local regulatory requirements to achieve compliance.

Optimising Supplier Collaboration

Supplier is an essential component in companies’ sustainability journey. To be able to contribute effectively, suppliers need to understand the objectives and their relevance. Suppliers can provide support or even inspire the development of innovative solutions through joint research. The supply management team at the British Columbia Institute of Technology (BCIT) for instance, often explore ways to improve sustainability impacts. The team brings up issues like waste reduction strategies in their monthly meetings with 20 to 25 of its main suppliers.

Optimising Supplier Collaboration
Image taken from SIPMM: https://publication.sipmm.edu.sg/key-considerations-sustainable-procurement/

Companies must collaborate with their suppliers in order to achieve their sustainability objectives. This involves granting suppliers access to materials, standards, or technology; jointly designing goods that are more environmentally friendly, and assisting suppliers to implement sustainable production practices. The key to a successful collaboration is open communication with suppliers. Companies have to inform suppliers of their sustainability goals and aspirations, at the same time understand their suppliers’ positions and concerns.  They can gradually expand and transform its supplier base towards the direction of sustainability through communication of its business principles.  Both parties must come to consensus on the quantifiable sustainability metrics before they can create a baseline for measurement. Following which, an action plan will be developed and added to the supplier performance management program for periodic evaluations based on the agreed metrics.

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Terence Chong Yu Yao
Terence Chong Yu Yao
Terence Chong Yu Yao has substantive years of experience in the specialised field of procurement, and specifically in the packaging and distribution sector. He holds a diploma from Temasek Polytechnic and he is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). Terencecompleted the Diploma in Procurement and Supply Management (DPSM) in September 2022 at SIPMM Institute.

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