With the current level of commitment from all major countries for climate change mitigation, the world is on target to warm by 2.7 degree centigrade by end of this century as compared to the pre-industrial levels. Even this rise some climate scientist feel can be disastrous because this may lead to high extreme temperatures, ferocious weather, substantial rise in sea levels and permanent damage to many ecosystems. There is no doubt that going forward the regulations will be more stringent to ensure voluntary commitments are honored. Procurement organizations worldwide can contribute a lot in this effort, they will have to transition into Green Procurement organizations, this is not only crucial but the only way for the coming years.
Sustainable Procurement is looking beyond the traditional financial evaluation, it involves taking into consideration the environmental goals and social benefits. The decision is based after evaluating life cycle cost of a product or service being purchased and its impact on environment and associated social risk and benefits.
In transitioning to green procurement the organization can reap following benefits:
For a typical Procurement Organization it may be difficult to switch to greener product or service, the goal of procurement department should be to improve upon, compared to their current product or service. The path adopted or option selected can be relatively better, it may not be the greenest, but can be greener compared to the product or service being sourced currently.
To start with the first step is to conduct thorough spend analysis, the objective here is to identify and prepare plan for executing sourcing projects with an agenda of improving sustainability goals of the organization. At the end of this exercise the categories are identified that should be executed in 4 – 6 phases, each phase is of 6 month each. The criteria used for identifying these categories are based on the following:
Once the categories have been identified the next step is about executing the sourcing projects. In this part of the text the procurement interventions that are necessary to achieve the goals of sustainability have been elaborated. The below table points out the key interventions for all the major sourcing steps:
|#||Strategic Sourcing Step||Traditional Process||Key Procurement Interventions to achieve Sustainability Goals|
|1||Requirement & spend data collection||Collecting spend data (pricing,|
specifications, terms etc.)Validating, cleansing & classifying data Providing a savings estimate for the project
|Understanding current specification & researching for alternatives: This is the initial planning phase and hence is very important to understand the current specifications and through preliminary market analysis finding out what all other different products or services are available to achieve sustainability goals|
|2||Benchmarking & supply market analysis||Identifying scope – business units and locations|
Identifying current vendors & new vendors to be included in process
Performing industry analysis for an overview of the market
|Shortlisting vendors with strong credentials for sustainability: As part of the sourcing strategy, the important step is to shortlist vendors for the RFP, one of the key criteria that is considered is capabilities of vendors, possession of Ecolabels or Environmental Management Systems (EMS) certifications|
|3||RFP development & sourcing strategy||Developing a detailed RFP that includes supply/service requirements|
Finalizing RFP with key stakeholders (Purchasing, Legal, Finance)
Distributing RFPs to vendors
|Developing sustainability specifications:|
|4||Vendor evaluation (Non Price)||Providing RFP/Process Q&A support to suppliers|
Reviewing & analyzing supplier responses based on evaluation criteria
Shortlisting finalists for negotiations
|Scoring and ranking on sustainability questions: In terms of evaluating vendors on the Non Price parameter, along with other questions their answers to all the sustainability related questions are also thoroughly reviewed and scored to rank vendors|
|5||Supplier negotiation||Developing negotiation strategy, scripts and facilitating online or offline negotiations For online negotiations:||Sustainability related interventions during this phase are very limited|
|6||TCO Analysis, vendor selection||Selecting suppliers based on quality/service and total cost|
Measuring estimated and realized savings
|Life Cycle Cost Analysis: As compared to the traditional approach of evaluating based on TCO; to achieve sustainability goals the bids are evaluated based on Life Cycle Cost analysis, this takes into consideration the following cost components:|
|7||Contracting & Implementation||Developing implementation & transition plan, contracts, & performance metrics||Sustainability related contract performance clauses: During preparation and finalization of the contract all the finer points that are significant to achieve sustainability related goals are included. Some of the examples that the suppliers are asked to perform are:|
We can elaborate on our proposed sustainable procurement strategy applicable for your company.
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