Climate-clever supply chains: How to make sustainable procurement decisions

Why is sustainable procurement so important? And how can organisations use technology to accelerate their efforts?

One of the biggest challenges companies face is designing and implementing sustainable procurement policies and overcoming a lack of crucial visibility across their supply chains.

As global communities continue to tackle the climate crisis, greater focus has been placed on ESG standards and how organisations can lower their carbon footprint.

According to McKinsey, between 80 to 90% of greenhouse-gas emissions from businesses are “Scope 3,” meaning they occur indirectly across the value chain.

Limited visibility is typically caused by sprawling email chains, ineffective software, and rigid spreadsheets, which also reduce efficiency and sustainable outcomes, but this is easily rectified with the right technology.

What’s holding back more sustainable procurement?

Adopting sustainable procurement practices may seem straightforward, but this isn’t always the case. And while many believe that if you make and keep your own sustainability pledges, you’re conducting green business, in truth, you’re only as green as your suppliers.

One of the largest impacts on an organisation’s ESG footprint is its procurement function. Yet barriers to change often stem from smaller steps within the process that are hidden from view, essentially blindfolding management teams.

One of the largest impacts on an organisation’s ESG footprint is its procurement function

The complexity of modern global supply chains limits visibility, making it difficult to assess supplier sustainability efforts and make the right decisions.

Without proper assessment, businesses will continue to struggle to measure and track the impact of their current operations and improve supply chain sustainability.

Only recently have good practice regulations and governance begun to be enforced as cleaner supply chains become a priority across industries striving to reach national and international sustainability targets.

Plus, regulations vary across different countries and sectors, complicating the process of developing consistent and effective eco-policies. Pressure is also growing from consumers who are demanding change from the companies they choose to buy from.

Whilst this pressure has not significantly shifted consumer behaviour, it will soon influence buying decisions and loyalty.

Invisible problems can’t be solved

Visibility is the most essential component that allows organisations to deliver on their ESG targets. But the previous lack of governance and regulations for supply chains and dated processes rendered unauditable has held progress back.

If the end-to-end process cannot be fully evaluated, it cannot be accurately measured.

The digitisation of the procurement sector is helping businesses overcome this lack of visibility and reach a new level of clarity about their supply chain – and help with the sustainable procurement process.

Not only are new solutions proving useful in reviewing the criteria by which procurement companies select and manage their suppliers, also they can identify the faults of legacy systems and driving greater efficiency, saving on costs in the process.

Embracing climate-clever procurement

The supplier selection process, which includes the discovery, research, evaluation, and contracting of third-party suppliers of goods and services, allows businesses to achieve lower production costs, increased revenue, better sustainability measures, or more supply chain stability.

The end-to-end supply chain process depends on increasing visibility and a culture of consistent improvement within a company and across its value chains.

Strategic sourcing is a reliable supply chain risk management strategy for most businesses, as it includes more detailed due diligence and planning to maximise the value of top suppliers at an attainable cost. Done well, it requires continuous review and evaluation to ensure that costs, sustainability targets, supplier relationships and data-gathering approaches are attained.

As a result, before contracts are awarded, high volumes of data are exchanged with suppliers. But without full interrogation, risk can creep into supplier selection and undermine sustainability efforts.

To mitigate these risks, businesses are adopting digital solutions, namely RFx software and artificial intelligence (AI), to replace email chains and remove time-consuming admin or human error from the process.

Replacing human error with digital solutions

For example, this type of software can generate and complete supplier scorecards – documents containing essential metrics to grade things like third-party suppliers’ financial and sustainability performance.

New agile software which utilises artificial intelligence also enables organisations to improve procurement processes.

To predict, learn and improve functions, AI technology can analyse and interpret vast amounts of data, which only gets more accurate and useful as it collects more historical data.

This method can move businesses one step closer to ‘autonomous procurement’, increasing efficiency and savings.

AI presence in the industry is also growing in the face of enduring labour shortages in departments such as procurement – forcing businesses to become more open-minded toward digital processes to augment the workforce.

AI can never completely replace the human intelligence of decision-making in procurement

However, despite concerns about the long-term impact of AI on skilled jobs, it can never completely replace the human intelligence of decision-making in procurement.

Instead, businesses should use digital solutions and human thinking in tandem to make the best decisions to progress with sustainable procurement.

Put into practice, AI and software can make menial tasks more efficient by automation, which will help boost employee productivity and satisfaction and allow for additional time spent problem-solving.

Leading by example with sustainable practices

Industry leaders embracing new technologies and sustainable practices are already reaping the benefits.

As well as meeting ESG targets, a survey of supply chain leaders found leading businesses focusing on tier 2 and tier 3 supply network visibility have seen improved employee quality of life, increased customer loyalty, and enhanced operational efficiency.

Whilst cost reduction is not a significant priority for these leaders, supply chain sustainability has proven financially beneficial for them. A quarter of those companies attribute higher profits to more sustainable operations, while 43% anticipate increased share prices within the next three years.

Therefore, organisations investing in new technologies and adopting more efficient processes within their procurement function can not only benefit from increased revenue and reputation, but can also play a vital role in improving ecosystems globally.

This piece was written and provided by Jack Macfarlane, CEO and Founder, DeepStream