Spend Matters: Procurement with purpose (ESG)

Events that impacted procurement in 2020/2021

While COVID-19 is an obvious impact, other events have been affecting the procurement industry in the last two years including extreme weather, social and political change, and supply chain shortages. 

“The impact of these events shows how our modern world is volatile, uncertain, complex and ambiguous (VUCA),” said Bertrand Maltaverne, Senior Analyst, Supplier Management and Sourcing, Spend Matters, who believes that globalisation of top of these events, has acted as a catalyst. “Interdependence of the world economies, cultures and populations created the ‘ideal’ conditions for a catastrophic domino effect,” he added. 

The outbreak of COVID-19 has highlighted a significant flaw in being dependant on a limited number of suppliers, restricting many organisations’ capacity to operate. 

“The race for hyper-efficiency created a ‘perfect storm’ as organisations reduced their inventories to the bare minimum (if they existed) and put just-in-time (JIT) processes in place. All of this created an almost zero tolerance for glitches by suppliers and/or on routes from suppliers, especially on such a global scale,” said Maltaverne. 

Is it too late to change?

Maltaverne doesn’t believe this to be the case. Organisations should take these events as a wake-up call that steps need to be taken in order to reduce the likelihood and the severity of future disruptive events.

But where should organisations start?

“It's about changing today to create a sustainable future for us and the next generations,” said Maltaverne. “Sustainability can be a source of value creation for an organization [...] it is not just about the bottom line of an organisation.”

The three ‘Ps’ of sustainability:

• Planet: Lessening the impact on the environment.
• People: Encompassing employees, customers, suppliers, and local communities.
• Profit: Generating economic value not just for the organisation but the environment and society.

Social value and procurement

What is ‘social value’?

CIPS defines ‘social value’ as a way of thinking about how resources should be allocated and used. ‘Social value’ looks beyond the individual prices, instead, it looks at the collective benefit to a community.

Circling back to this change in mindset required in organisations, Maltaverne emphasised that this involves assessing the true cost/benefit of an activity by taking a broader perspective rather than just looking at it from an internal point of view. “It is about the impact of that activity on all stakeholders, primary and secondary,” he said.

“Several studies have shown that the main source of a company’s impact comes from its supply chain. Therefore, procurement has a major influence on an organisation’s social value. It explains why topics like working conditions and environmental impact are getting more and more attention in procurement and competing with other more traditional value drivers (price, quality, etc.).”

ESG is good for business 

“Sustainability can create value for an organisation, and it is an opportunity for procurement to increase its value proposition and improve its brand,” said Maltaverne.

Adopting a sustainable ROI (S-ROI) approach benefits the broader ecosystem, but relies on creating virtuous supply chains and value. As the demand for sustainable products and services increase, organisations will need to reflect this in their buying decisions and downstream supply chain in order to:

• Better manage shared resources and environment 
• Increase revenue injected into the local economy
• Improve resilience 

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