Sustainable procurement (or Green procurement) is a spending and investment process typically associated with public policy, although it is equally applicable to the private sector. It is linked to the wider agenda of sustainable development. Organizations practicing sustainable procurement meet their needs for goods, services, utilities and works not on a private cost-benefit analysis, but with a view to maximising net benefits for themselves and the wider world.
In doing so they must incorporate extrinsic cost considerations into decisions alongside the conventional procurement criteria of price and quality, although in practice the sustainable impacts of a potential supplier’s approach are often assessed as a form of quality consideration. These considerations are typically divided thus: environmental, economic and social (also known as the “triple bottom line”).
There is no single definition of sustainable procurement – not least because sustainability is a contested concept – and applications vary across organisational hierarchy and sector. However, there is a general acceptance that it involves a higher degree of collaboration and engagement between all parties in a supply chain.
Many businesses have adopted a broad interpretation of sustainable procurement and have developed tools and techniques to support this engagement and collaboration. A research by INSEAD Business School has demonstrated that Sustainable Procurement could yield positive economical benefits for private companies in terms of “Risk Management”, “Cost Reduction” and “Revenue Growth”.
Exogenous considerations: the “triple bottom line” Procurement – the letting of contracts for goods, works and services on the best possible terms – has historically been based on two criteria, price and quality, with a view to maximising benefits for the procuring organisation. Sustainable procurement broadens this framework to take account of third-party consequences of procurement decisions, forming a “triple baseline” of external concerns which the procuring organisation must fulfil. Environmental.
Environmental concerns are the dominant macro-level justification for sustainable procurement, born out of the growing 21st century consensus that humanity is placing excessive demands on available resources through unsustainable but well-established consumption patterns. This is a sufficiently influential issue that environment-centric procurement (green procurement) is sometimes seen to stand alone from sustainable procurement.
The most straightforward justification for green procurement is as a tool with which to address climate change, but it offers the broader capacity to mitigate over-exploitation of any and all scarce resources. Examples of green procurement range from the purchase of energy-saving light-bulbs to the commissioning of a new building from renewably sourced timber via organic food being served in a workplace canteen. The ultimate green procurement is the avoidance of the purchase altogether.
In support of Sustainable Development the organization should develop and publish a ‘Sustainable Development Procurement Guidelines and Procedures’. When it comes to purchasing products or services, referral to these guidelines would help make the organization become a leader in environmentally responsible purchasing.
Sustainable procurement is also used to address issues of social policy, such as inclusiveness, equality and diversity targets, regeneration and integration. Examples include addressing the needs – whether employment, care, welfare or other – of groups including ethnic minorities, children, the elderly, those with disabilities, adults lacking basic skills, and immigrant populations. Socially sustainable procurement is sometimes amalgamated with economic issues under a “socio-economic” header and, in a similar fashion to affirmative action in the USA, is frequently met with the criticism that it is subjectively founded social engineering[citation neede.
On a macroeconomic level, it can be argued that there are economic benefits in the form of efficiency gains from incorporating whole-life costing into decision-making. [Note: in contrast to most arguments from sustainable procurement proponents, these can be purely private benefits accrued by the procuring organisation.]
In addition, the creation of sustainable markets is essential for long-term growth while sustainable development requirements foster innovation. There are also potential global applications: sustainable procurement can favour fair trade or ethical practice, and allow extra investment to channelled towards developing countries. On a microeconomic level, sustainable procurement offers the chance for economic redistribution. Targets might include creation of jobs and wealth in regeneration areas, or assistance for small and/or ethnic minority-owned businesses.
In central government, sustainable procurement is typically viewed as the application of sustainable development criteria to spending and investment decisions. Given high-profile socio-economic and environmental concerns such as globalisation and climate change, governments are increasingly concerned that our actions meet the needs of the present without compromising the needs of the future. The UK in 2005 pledged to be a performance-leader in sustainable procurement by 2009 and commissioned the business-led Sustainable Procurement Task Force to formulate appropriate strategy. Broad-based procurement strategies are prominent across the EU while it is an increasingly influential concern elsewhere, most notably Canada.
At market-level, sustainable procurement is typically instrumental: authorities seek to address policy through procurement. Government departments and local bodies can use procurement to address certain chosen agendas in buying solutions that will contribute to community or environmental goals, or to diversity or equality targets. To help local governments improve sustainability and reduce environmental impacts the California Sustainability Alliance, has developed a Green Procurement Toolkit.
Green procurement can help local governments save money, create local green jobs and improve their environmental sustainability. Under sustainable procurement criteria any procuring organisation must therefore take a broad approach to sustainability, reflecting localised economic, environmental and social needs as well as cross-cutting sustainable development targets such as whole-life costing.
Sustainable procurement is as applicable to the private sector as the public sector, and certainly its proponents aspire to seeing its application across all areas of the economy. Influencing procurement practice within a private-sector firm is not straightforward for governments, meaning that the companies themselves often have to be self-motivated to embrace sustainability. The UK’s Sustainable Procurement National Action Plan argues that it is “something the best of the private sector is already doing – whether through enlightened leadership or shareholder pressure”. It also argues that government purchasing power (circa £150bn in the UK alone) can apply sustainable procurement principles to present a persuasive case to those in the private sector resisting sustainable procurement practice.
On December 8, 2006 the Greater London Authority became the first public-sector body to publish a sustainable procurement policy, promising to award a “distinct competitive advantage” to those companies which demonstrated a commitment to sustainable procurement concerns. The policy reflected the Mayor’s enthusiasm for public procurement as a tool for fostering social inclusion, equality and environmental objectives. The GLA also stated that their policy was “very much as a model for broader government procurement” but this expectation was not fulfilled in the UK Government’s Sustainable Procurement Action Plan, published on March 5, 2007.
The Action Plan, which incorporated answers to the Sustainable Procurement Task Force, was explicitly environment-oriented in approach (Ch 4.3) with wider social issues scarcely addressed. This was perhaps surprising, as was press disinterest in the publication. Despite its acknowledged importance among senior politicians and business leaders, publication of the Action Plan received only one national newspaper report, and that was markedly flippant in tone.
This is where an organisation examines a products movement along the supply chain and assesses the environmental credentials of themselves and of their suppliers. This path is commonly used when an organisation wishes to understand the impact of a product or product range for strategic and marketing purposes. This approach can also provide a vivid picture of supplier processes.
An organisation may analyse the CSR management systems of a supplier and whether its practices conform with law and with the CSR standards of “buying” organisation. Thus, the organisation measures the environmental and social risk a supplier may impose upon them. Implemented effectively, this method will show whether a supplier meets the environmental standards of the organisation, along with whether suppliers are meeting the requirements of law. In order to assess the CSR Management systems companies can use a variety of tools : self-assessment questionnaires on site audits programs managed internally or through 3rd parties. specialized CSR suppliers database such as the ones operated by EICC, FLA or EcoVadis.
The United States Environmental Protection Agency (EPA) defines sustainable procurement as the purchasing of “products or services that have a lesser or reduced effect on human health and the environment when compared with competing products or services that serve the same purpose.”
The Question Isn’t Why Sustainable Procurement, But Why Not Poor procurement practices hinder sustainable development and have a negative impact on economic growth. The waste governments emit and the environmental risks they create are directly linked to the quantity and quality of the goods and services they purchase. Sustainable procurement is a way of adding environmental considerations to the price and performance criteria used by procurement officers to make purchasing decisions.
The goal of sustainable procurement is to select products with environmental attributes that minimize the environmental impact of the government’s activities and maximize the efficiency of the goods or services procured. Some of the environmental attributes to consider are: energy efficiency, recycled content, recyclability, water efficiency, resource conservation, greenhouse gas emissions, waste prevention, renewable material percentages, adverse effects (to workers, animals, plants, air, water, and soil), toxic material content, packaging, and transportation. In addition to being a public policy objective, sustainable procurement is an economic development tool which can be used to shift the entire market towards the supply of more sustainable goods and services.
At its most basic, a sustainable procurement policy can be simply requiring that governments only purchase recycled paper. However, the benefits of recycled-contentpurchases (which I will go into in the next section) have led state and local governments to purchase a wide variety of recycled-content products. In addition to paper, some commonly purchased recycled-content products are: carpet, concrete, engine coolants, office products, parking stops, plastic lumber, re-fined motor oil, retread tires, toner cartridges, traffic cones, and trash bags.
Procurement officers are making the shift towards more sustainable products because they understand the connection between broader social and environmental issues and their purchasing decisions. Sustainable procurement policies have a positive effect on both the local environment and the health of local citizens. These positive effects can also be felt by the global community. For example, using less toxic cleaning supplies can improve the health of those who work with them every day and reduce the amount of employee sick days.
Using less toxic cleaning materials will also minimize hazardous environmental impacts of the products during manufacture and transportation; such as water or air pollution and the damage caused by accidental spills and improper disposal. State and local governments may also see significant financial savings from purchasing more sustainable products. By using energy, water, and resource efficient products and services, governments can significantly reduce utility bills and operating costs. Purchasing sustainable products can also lower waste management fees and reduce the cost of pollution prevention.
In fact, many sustainable products available for purchase are less expensive than their conventional alternatives. For example, remanufactured toner cartridges cost thirty to sixty percent less than those produced by the original manufacturer. Lastly, purchasing sustainable products can have the residual benefit of advancing social and policy initiatives. When companies look to comply with required environmental preferences, their efforts lead to better work conditions and greater productivity.
Government agencies have a responsibility to stimulate demand for environmentally safe and sustainable products and services through public procurement. There is no question; however, that establishing standards and procedures for sustainable procurement can present many significant challenges.
Most notably, state and local governments must first define what “green” or “sustainable” means in the context of procurement, design, and construction. It is important that any sustainable procurement policy ensures the suppliers of products and services are not causing environmental impacts that tarnish the tarnish the reputation and credibility of the entire program. Also important is the development of a policy that encourages good environmental standards in the supply and disposal chain and working with the suppliers of products and services to improve overall environmental performance.
Sometimes sustainable products can cost more and, thus, contradict policy requiring agencies to acquire goods at low prices. The question for purchasers, then, is how to define “best.” The concept of “Life Cycle Cost” is a method for determining the best product by considering performance, durability, affirmative market participation, local production, environmental and human health matters, and social responsibility issues. Life cycle costing offers a means of assessing the true cost of purchasing sustainable technologies, products, and services. As a result of considering the life cycle cost, a slightly higher purchase price can easily represent the “best” value if it provides an opportunity for significant cost avoidance throughout the total product life.
A focal firm is “the initiator of an International business transaction, they conceive, design and produce the offerings [goods or services] intended for consumption” (Cavusgil, Knight and Riesenberger ,2008, International Business). Basically their are many firms that help in the making of a car (lets say a VW Golf) a firm may assemble the car and another may provide the means of distribution but the focal firm is still VW it is for all intents and purposes ‘their car’.
The need to consider a product’s entire life cycle in order to analyze its positive and negative, as well as its social and environmental impacts, raises the first questioning regarding the contributions to sustainability that may be achieved through SCM. Even though parts of the supply chain may not be managed upstream or downstream by the focal company, which coordinates the supply chain, the chain exists and consequently, so does all of its impacts.
For example, upstream, a focal company in the textile sector may judge it unnecessary to monitor or integrate the supply of cotton with the farmers that plant the cotton. Similarly, an automobile manufacturer may prefer to not extend its integration efforts to the mining company. Downstream, the delivery of a product or service to the client may be the end point of the SCM; however, impacts relative to the use and post-consumption of the product continue to occur.
This convergence process gained significant momentum during 2008, catalyzed by the publication of two conceptual SSCM frameworks. Based on prior research on sustainability within the intra-organizational scope, Carter and Rogers (2008, p.368) define SSCM as: “the strategic, transparent integration and achievement of an organization’s social, environmental, and economic goals in the systemic coordination of key interorganizational business processes for improving the long-term economic performance of the individual company and its supply chains”.
The emphasis on economic outcomes is part of the conventional practice of companies with respect to their innovation. Typical performance indicators of innovation in the business environment are estimated economic results, which include: increase in revenues, profits, market share, etc. The insertion of environmental concerns into innovation processes is an important step. For Kemp and Arundel (1998) environmental innovation consists of new or modified processes, techniques, systems and products to avoid or reduce environmental harms and can be classified into 6 types:
- Pollution control technologies (end-of-pipe technologies),
- Clean-up technologies to remedy damages that have already occurred,
- Waste management technologies,
- Recycling technologies,
- Clean technologies related to production processes
- Clean products or products that have a small environmental impact throughout their life cycle.
Type 1 through 4 innovations, in general, are performed by what is called the environmental industry, consisting of equipment manufacturers, facilities and products intended to resolve environmental problems generated by other corporations, as well as service corporations in consulting, transport, storage, etc. In general, they are innovations that resolve environmental problems created by current products and processes and, as such, have a corrective function.
Type 5 and 6 innovations are preventive, that is, they alter products and processes or substitute them with the intent of preventing the emergence of adverse environmental impacts or of reducing their intensity. Note that for Type 6 innovations, there is a mention of the product’s life cycle, a needed provision, as the impacts of the product occur in all tiers of the supply chain, from the extraction of the raw material to the use of the product to post-consumption. As such, from an environmental perspective, it does not make sense to transfer the negative impacts between the tiers of the chain as the final result will be the same since the problems would simply change places.
Eco-innovation combines two dimensions of sustainability, economic and environmental; namely, it refers to eco-effi- ciency, a management concept that seeks to reach economic and environmental benefits simultaneously and in a balanced manner. This type of innovation is aligned with GSCM, as mentioned previously. Nevertheless, it is possible for negative social aspects to be associated with eco-innovation; for example, the replacement of one productive input obtained from a non-renewable source for another obtained from a renewable source may encourage land concentration and child labor as a means of meeting the increase in demand for the input.
The company obtains positive economic out- comes from this innovation and the environment benefits from the reduction in the extraction of non-renewable sources; however, from a social viewpoint, a negative impact was generated. As such, eco-innovation that meets the principles of eco-efficiency is insufficient for the innovation to be considered sustainable.
When the focal company is the object of pressures, such as new legal requirements, client demand or stakeholder demand, it frequently transfers these pressures to its supply chain. If the pressures deal with the product’s life cycle and/or members of the chain with which the company does not have a direct relationship, the focal company will need to evaluate more distant levels of its supply chain in order to offer answers or solutions to those that demand them; this behavior is not justified by a decision founded purely in the economic dimension.
Pressures and incentives for the adoption of sustainability practices affect collaboration with suppliers, from the obtainment of information dealing with social and environmental concerns regarding the production of suppliers in tiers found in the beginning of the chain (ie. production of raw materials) to the search for performance improvements of key suppliers that are closer to the focal company. The main barriers to the internalization of sustainability practices within the supply chain by a focal company are:
- increase in management costs,
- greater coordination efforts in a more complex environment
- insufficient or inexistent communication in the chain.
On the other hand, the main supporting factors for the internalization of sustainability are:
- management systems focused on the environment and on social practices;
- monitoring, evaluation, reporting and implementation of sanction models to suppliers, as a means of encouraging the improvement of social and environmental performance at risk of losing the contract for unsatisfactory performance;
- training of social and environmental concerns for the purchasing department of the focal company as well as of its suppliers;
- communication regarding sustainability throughout the chain;
- integration of sustainability objectives in the policies of the focal company, such as additional targets for social and environmental performance for the purchasing team.
Focal companies deal with such pressures and incentives in different manners, with the most common of these being approaches that focus on turning the productive process greener by means of guarantees that more appropriate social and environmental approaches are being adopted throughout the chain that is the object of the pressures. A second approach is characterized by a focus on a sustainable product, but also reflects positively on the productive process. Accordingly, these two approaches define two types of implementation strategies for the SSCM, as will be shown below.
The supplier management risk and performance (SMRP) strategy by Seuring and Müller (2008) focuses on adapting the production process to more rigorous social and environmental demands than those adopted by the supply chain in a given time. The focal company, in order to prevent reputational risks or to salvage the organization’s image after damage has already occurred, implements and intensifies social and environmental criteria to the supplier evaluation process.
Social and environmental standards, such as environmental management systems, health and work safety systems, social responsibility systems and other third-party certifications, play a crucial role in this approach, which can also elaborated from supplier self-assessment and supplier commitment to the social and environmental impacts of its operations. Among the supporting factors listed, communication and training from the focal company are measures aimed at improving the relationship with suppliers throughout the chain.
The establishment of minimum requirements in the supply chain by the focal company usually surpasses the objective of reducing reputational risk associated with social and environmental problems, also generating positive results with regards to the management of the risk of operational disruptions, such as interruptions in the supply of materials, delivery delays and others commonly treated in conventional literature of supply chain management.
The intensification of supplier evaluation and monitoring activities still results, in various cases, in the improvement of supply chain performance as a whole, due to the exploration of win-win opportunities, frequently presented in management and sustainability literature restricted to the economic and environmental dimensions. Suppliers tend to perceive the social and environmental criteria imposed by the focal company as pre-requisites to continue in the supply chain. This encourages suppliers to act in accordance with the minimum requisites defined, even in cases in which the focal company that establishes the
requisites is not the supplier’s main client (Seuring and Müller, 2008).
The strategy of supply chain management for sustainable products (SCMSP) has as its objective client satisfaction and the obtainment of a competitive advantage for the focal company, and consequently its supply chain, in the market. The aim, in addition to a more sustainable production process, is sustainable products, that for Seuring and Müller (2008, p. 1705) are considered any type of product with an improved environmental and social quality, a different way of defining sustainable innovation.
Joint initiatives between the focal company and its suppliers may be critical for the implementation of a supply chain focused on sustainable products; hence, the collaboration/cooperation between the focal company and the members of the chain, from raw materials to the final consumer, is more demanded in this than in the previous strategy, SMRP. As the authors state, there seems to be a need for cooperation among a wider range of companies throughout the chain than is usually discussed in conventional supply chain management literature (Seuring and Müller, 2008, p. 1705).
In other words, the need for cooperation extends beyond first-tier suppliers, defined as those members of the chain who have a direct relationship with the focal company. It may be necessary, even when there is a development of suppliers prior to the sale of the sustainable product by the focal company, that the company also allocate considerable investments in the structuring of suppliers in periods in which suppliers are not prepared to meet the standards of the production process, even less so, the final product.
A supplier may be trained to improve its performance, including in situations in which the focal company will not purchase more than 10% of its final production. This process still demands a more intense flow of information throughout the supply chain: suppliers need more detailed information regarding the subsequent stages of the supply chain and the product’s life cycle in order to understand why the requirements placed upon them must be met. It should be noted that SMRP and SCMSP strategies are not opposing but rather, ambivalent: although simultaneously distinguishable within an organization, they may support one another, thereby strengthening SSCM by the focal company. Even though the second strategy, due to its greater complexity, may be viewed as the result of a maturity process of the focal company, the opposite scenario must also be found (Seuring and Müller, 2008b).
In summary, in sustainable supply chains, it is expected that environmental and social criteria be met by its members in order for them to continue in the chain and, at the same time, that the company’s competitiveness be maintained through the fulfillment of client needs and related economic criteria (Seuring and Müller, 2008).
The Seuring and Müller (2008) framework focuses on the insertion process of sustainability in supply chains and serves as a basis for the Van Bommel (2011) proposal and the analysis of the insertion of sustainability in supply chains from an innovation perspective. This author incorporates an innovation component into the Seuring and Müller (2008) framework and presents a framework for the insertion of sustainability in supply chains from this perspective.
The innovative power of a focal company and its supply chain influences the manner in which stakeholder pressure regarding innovation is treated and the innovations that result from this process. External pressure and incentives may not find in the focal company or its supply chain a culture of innovation; in other words, there may not be innovation strategies that occur because of external demands for sustainability.
In addition to the focal company’s general characteristics, such as size and bargaining power, two characteristics are recognized in SCM literature: innovation power is affected firstly, by the innovative characteristics of the focal company and secondly, by the cooperative characteristics of its supply chain, which include factors like trust, reputation, joint programs and cooperative informational systems throughout the supply chain. The inter-relationships between these characteristics, the pressures and the incentives lead sustainability implementation strategies.
According to Van Bommel (2011), three implementation strategies are addressed:
- Resign: the focal company decides not to start the process of implementation of sustainability practices in the supply chain because of a low level of innovation power or the perception that pressures and incentives are not representative;
- Defensive: the focal company prioritizes the establishment of environmental requirements throughout the supply chain, equivalent to the SMRP strategy mentioned previously;
- Offensive: the focal company emphasizes cooperation in its supply chain for innovation toward sustainability, equivalent to the SCMSP strategy Using the resign strategy, the focal company seeks to survive by adopting “palliative” attitudes toward sustainability, more focused on social philanthropy, or through greenwashing.
Unlike the other two, this is not a sustainability strategy. The defensive strategy is anchored o The defensive strategy is anchored on supplier evaluation while the offensive strategy is anchored on supplier development and cooperation with the focal company for the development of new, sustainable products and services. The positive impact of these activities can be evaluated with regard to their contribution toward the reduction of adverse social and environmental impacts or to the generation of sustainable value to all members of the supply chain and to society. Van Bommel stresses that defensive and offensive strategies are ambivalent, using an approach similar to that of Seuring and Müller (2008), SMRP and SCMSP, respectively.
The same company is able to adopt the offensive strategy for a line of products and the defensive strategy for another line of products. Both perform a set of activities related to products that lead to innovative outcomes for the supply chain; for example, social and environmental labels that emphasize specific aspects of sustainability, such as fair trade, sustainable management of natural resources, no child labor and others that address inter and intra-organizational matters, able to reach, in certain cases, the entire supply chain.
Sustainability is a word in vogue in the corporate world amidst a scenario in which competition between companies increasingly occurs within their supply chains in a model where goods become obsolete more quickly, or, present a shorter market life-cycle, thereby increasing the consump- tion of materials and of energy and intensifying the quantity of post-consumption waste globally. Not considering the debate about consumption, it is critical to generate solutions in global sustainability; a significant part of the contribution of the productive sector to the more sustainable development model takes place through the incorporation of social and environmental concerns, from the start of a product’s innovation projects to the end of its useful life.
This point of view demands that supply chain management approaches near the lifecycle management of a product, from cradle to grave, and that innovation go beyond the interorganizational environment, reaching direct and indirect members of the supply chain in a collaborative manner in order to seek solutions that reduce negative impacts throughout the chain and, when possible, enhance the business benefits in the three dimensions of sustainability.
