How procurement impacts the world and will make it a better place

Recently, Schneider Electric announced it would help its largest 1,000 suppliers reduce their CO2 emissions. Schneider Electric Partners with Top 1,000 Suppliers

I found this particularly interesting because, for the first time, I was reading about a company going beyond the usual framework of “understand your suppliers, tell them what you expect from them, and relax.” This approach was saying, “we will help you get there,” embracing the fact that suppliers and procurement could work together to achieve significant results where everyone benefits: Schneider Electric, the suppliers, and the suppliers’ customers.

Sure enough, just getting visibility on one’s supply chain is difficult, tedious, and sometimes costly, but organizations are now understanding that this can be an opportunity to build customer loyalty and make an impact on the world.

Procurement has realized this and has increasingly become the guarantor of Corporate Social Responsibility (CSR) policies within organizations, ensuring their supply chain aligns with the company values and objectives. The range of topics procurement has started to look at includes energy, health and safety, child labor, slavery, embargoed countries, certificates of origin for diamonds or rare earth, etc. When all procurement teams have raised their standards on these topics, the world will be a different place.

Why is procurement uniquely positioned to fulfill this mission?

• Procurement selects the suppliers and ensures they abide by the company’s standards of supply chain and sustainability. If there is no demand for products that do not meet a certain threshold, the suppliers will have no choice but to go out of business or comply with these requirements. This process is exactly the same as for B2C.
• Procurement can create a snowball effect by imposing new standards on their suppliers, who in turn will “greenify” their suppliers generating a vertuous circle.
• Procurement teams are the company’s ears and eyes on the suppliers’ market. As such, they can gain visibility on the latest sustainable innovations within the industry and bring them to their business.

Faurecia’s VP of procurement, Nathalie Saint Martin, understands this unique position and makes procurement a key pillar for their CO2 emission reduction strategy:

“Procurement is essential […] they represent 60% of our total emissions.” She adds that with “their new procurement policies, over 90% of the parts used are sourced within the region they are produced,” reducing their carbon footprint immensely.

What mechanisms can be used to achieve this objective?

CSR and sustainability is a long journey for organizations, which requires having a real discussion with the various business owners to define the objectives and allocate resources to achieve them. In a nutshell, the framework used is the following:

• Define the principles and Supplier Code of Conduct: Done with the business owners, this involves listing the most important topics that matter to the company, documenting them, and sharing them with suppliers. These documents are the backbone of what the organizations stand for and should be signed by any supplier you do business with. They should remain fairly generic, with supplier or category-specific topics addressed separately, in more detail.
• Define the right selection criteria for your purchases: Procurement can set two types of criteria when it tenders: the qualifying and differentiating ones.
  • The qualifying criteria will be the list of things you expect any supplier to meet to even be able to quote: Anti-slavery statement, no fiscal debt, etc. Usually, you would ask for these in the Request for Information.
  • The differentiating ones will be the criteria that are going to be weighted in the award decision: Can the supplier recycle their products? Do they use green energy, etc.? The important point here is to give some weight to these criteria in the decision process.
• Audits: Know your suppliers. Combining on-site visits and technological surveillance (think AI scanning the internet for news mentioning your suppliers, or blockchain to track shipments), procurement now has efficient levers to audit their suppliers and ensure their supply base is complying with the required standards. The most famous example at the moment is EcoVadis, which helps you get an assessment of your suppliers and provides ongoing surveillance to avoid being caught off guard.
• Supplier Relationship Management (SRM): SRM is a powerful tool for procurement to create more value by accompanying suppliers to meet the required standards, like Schneider Electric, or by working jointly with already best-in-class suppliers to co-create new products or services (like the 100,000 custom-made electric van deal between Amazon and Rivian).

There is, of course, a multitude of different solutions to help organizations simplify and digitalize this process, but regardless of how, when all companies have established these processes successfully, the world will indeed be a better place. Stay tuned for more information on the solutions that I’ll share regularly