Mike Arenth, vice president of Europe, Middle East and Africa (EMEA) at spend management software specialist Ariba, argues that basic procurement management principles can be applied to drive green sourcing strategies.
BusinessGreen: How important is the issue of sustainability to procurement professionals? Aren’t they solely focused on value for money?
Mike Arenth: There's no doubt green sourcing is a topic on almost every businesses' agenda. Ariba recently did some research into the attitudes of 300 CPO's [chief procurement officers] across Europe with the HEC [business school] in Paris and found that sustainable procurement is entrenched as one of their top three priorities. But at the same time we recently had a major conference of procurement professionals and over half of attendees said that while green sourcing was key to their corporate strategy they were not really aware of how to achieve it. The implementation is where people are struggling.
So how do you overcome those implementation problems? What best practices should businesses keen to achieve sustainable sourcing be following?
The first thing you need to get is visibility over who you are buying from and that is a huge issue before you even start to think of issues around sustainability. A lot of the time procurement managers only handle a proportion of total spend and areas like marketing spend and fleet spend are managed separately. Only a few CPO's have 100 percent visibility over procurement and it is very tough to get the internal processes in place to ensure full compliance with any sustainable sourcing strategy without full visibility.
But even if you do have visibility over what you are buying what is to stop different departments still buying environmentally harmful products?
Once you have awareness over what you are buying and from whom the next step is to then set up a supplier performance management system where sustainability if a key KPI [key performance indicator]. Without procurement involved setting those KPIs people will just continue to go to the companies they know and internal compliance [with the sustainable procurement policy] will be compromised. With KPI's in place they know their procurement performance is being judged on these environmental criteria.
How will monitoring supplier performance improve environmental sustainability?
By requesting environmental information you are asking your suppliers to become more accountable and then you can put that information into a balance scorecard and measure their performance, creating an incentive for them to improve.
How do you ensure that they are not simply passing environmental problems back through the supply chain to their suppliers? A manufacturer for example could simply pay a sub contractor to make the most polluting components and then tell their customers in all honesty that they had a good environmental record?
The end customers' supplier performance management system has to go several stages back through the supply chain. You need an understanding of your suppliers' supply base and what they are doing to transform their supply base. If you look at Wal-Mart's sustainability strategy they are demanding CO2 reductions right back through their supply chain.
Is it fair to say only the largest companies can afford to set up such green sourcing strategies?
I don't think so. These types of procurement systems and processes can be developed at the largest organisations and at the smallest. It all comes down to procurement having a key role in the business and the ability to assess suppliers correctly. It needs to become an embedded part of how you do business.
How difficult will it prove for firms to adopt these green procurement strategies?
Nothing here is that revolutionary. These types of systems and processes are already applied to cover non-green issues when firms are dealing with their suppliers. You already do a supplier audit to check they are complying with other regulations governing workforce diversity, workplace conditions, etc, so you can bring that same model across to cover environmental standards. If you are a manufacturer buying materials from China, for example, you should already use a third party auditor to check on staff conditions and the like so it is not a huge leap to get an auditor to look at environmental factors.
Procurement has never been regarded as that core by most businesses – will that attitude hamper the adoption of green sourcing?
Procurement is already transforming from a back office function to more of a business partnership and the whole green sourcing agenda is a big factor that will really accelerate that transition. If you are to have an effective green procurement strategy then the procurement professionals really do need to be working in close partnership with all other departments.
About Mike Arenth
Mike Arenth is vice president and general manager for Ariba in Europe, Middle East and Africa.
He joined Ariba in 2002 and before moving to Europe was managing director fo the software vendor's strategy team in North America.
Before joining Ariba Arenth was a senior manager with Andersen Business Consulting. He holds a a B.A. in Economics from The Johns Hopkins University and an M.B.A. in Finance from The George Washington School of Business and Public Management.
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