Sustainability is as important as ever in maintenance, repair and operations (MRO) procurement, as customers continue to expect companies to live up to higher ethical standards. Here are some practical tips to make your procurement more socially responsible.
Time was when ethical and sustainable procurement was one of those ideas that was rarely mentioned outside of the corporate social responsibility department. That time is long gone.
The 2020 Indirect Procurement Report – RS Components’ fourth annual survey of the state of maintenance, repair and operations (MRO) procurement, conducted in partnership with the Chartered Institute of Procurement & Supply (CIPS) – found almost two-thirds (60%) of businesses in the UK have a strategy for sustainable and ethical procurement.
Research shows that, even in the B2B world, customers expect suppliers to share their ethical values. Indeed, they are willing to pay up to 10% more for products from companies whose supply chains are transparent, according to a study by the Institute for Operations Research and the Management Sciences.
“In a world where everything is connected, understanding the impact of our sourcing and buying decisions is critical,” says the CIPS guide to Ethical and Sustainable Procurement, which goes on to warn of the “negative and costly impacts” on a business of breaches of ethical standards by suppliers.
Procurement professionals surveyed for the 2020 Indirect Procurement Report agreed that the COVID-19 pandemic would lead to more ethical and sustainable procurement. Here’s how to bring it to fruition.
1. Be clear about what you are trying to achieve
For your team, acknowledging procurement as a key change agent in the decision making process can be powerful in itself, says Kate Davies, Global Head of Indirect Procurement at RS Components.
She says: “It is key to align procurement policy to the wider strategy of the business, including ethical and sustainable practices. Procurement must be involved in all aspects of the initiative, and able to translate strategy into requirements and governance throughout the procurement lifecycle.”
If you haven’t already done so, review your supplier key performance indicators (KPIs), says David Loseby, Director of Procurement at aeroengine maker Rolls-Royce. “You must make sure your KPIs are aligned to the policy so you can be sure that you deliver,” he says.
2. Know your suppliers
It’s all about relationships built on trust. A corporate sustainability failure in your supply chain can have serious consequences for your company’s brand, which can lead to real commercial impacts.
The Reputation Institute says 40% of a company’s market value is down to its ability to be ethical. So being sure that your suppliers are living your values is really important. Your company’s reputation really is in your hands.
The key is to understand the progress your suppliers are making in their journey, both within the supplier relationship and contract management process and also through collaborative forums where suppliers benefit from sharing ideas across industries.
3. Transparency is key
Identifying, collating and tracking progress is an essential component of sustainability and ethics in practice. But, as Davies acknowledges, “it is a significant investment to fully understand the ecosystem of your supply chain beyond first and second tier relationships.”
Increasingly, companies are making their whole supply chain transparent online. Marks & Spencer’s interactive map, for example, allows customers to locate where its food, clothing and home ranges are made.
4. Monitor, measure, report, repeat
Monitoring means setting KPIs and agreeing sustainability standards in your supplier contracts. Your KPIs have to be relevant to your business and robust because, to achieve consistent reporting, you will need to report on them over a long period of time.
“It’s a question of asking intelligently, what KPIs do I need and do I understand the implications of that KPI?” says Loseby.
It also takes courage. Unilever’s annual supply chain reporting system is a warts-and-all affair, reporting missed KPIs as well as success stories. Its KPIs have remained consistent since 2017, so stakeholders get a clear picture of the sustainable sourcing policy over time.
5. Short-term actions can have sustainability consequences
So you have your sustainable, ethical supply chain in place. But what happens when a crisis like COVID-19 occurs and you have to keep MRO supplies flowing? It’s tempting to go for a quick fix, but decisions made in the heat of the moment may have impacts way into the future.
Beware of accepting lower sustainability standards. A recent article in the Harvard Business Review warned that companies often cause their own problems through over-reliance on suppliers who have to cut corners to meet their demands.
“You need to think about the sustainability of short-term actions, work through them and think what the interim supply chain should look like,” says Loseby. “And then beyond that, what should the future supply chain look like. Don’t do something that becomes prejudicial to your future supply chain.”
For in-depth data and analysis on how COVID-19 has impacted indirect procurement, download the 2020 Indirect Procurement Report here.