Tracing the evolution of sustainable procurement | by Xavier J Greyling

Xavier Greyling PhotoAs is the case with any social sciences discipline, the only constant is change. The discipline of procurement is no exception, and has not escaped the process of evolution. In fact, evidence of this in procurement is probably one of the most striking and palpable of all the social sciences. I would argue that procurement – a relative new discipline that was conceptualised a mere handful of decades ago – has transformed drastically since its first recognition.

Strategic sourcing
The first clear evolutionary advancement in procurement is characterised by the introduction of ‘strategic sourcing’ which can be defined as “a formal approach that results in the optimal selection of supplier(s) and alignment of the supply chain to deliver best value to the organisation and its requirements. The strategic sourcing process is reproducible, analytical, and leads to an increase in value, either by reducing total cost or increasing the service and quality provided.” (McKinsey, AT Kearney).

This was so revolutionary that it resulted in the (incorrect) use of ‘procurement’ and ‘strategic sourcing’ as synonyms. Strategic sourcing is a process that has its origin in the ‘Kraljic Model’ and consists of a myriad of methodologies to secure supply on a continuous basis. It is aimed at ensuring a sustainable supply of goods and/or services and establishes the basis from which other operational and functional procurement activities follow, namely, the physical activities of buying. For the procurement professional, it entrenched the need to be well-versed in the process of strategic sourcing.

However, a further development placed the responsibility upon procurement professionals to not only be responsible for demonstrating financial benefit from securing product/services at a lower price, but also to ensure ‘value’ to the operations. It necessitated the considerations of ‘continuity of supply’ to prevent (or limit) the negative financial implications of loss of production: to ensure that the re-designed supply chain delivers to sustain the business.

Risky reputations
Many company’s successes, even their profits, can now be directly linked to reputation. The benefits achieved from a well-designed strategic sourcing intervention are negated and, in the majority of the instances, overshadowed by any unethical conduct.

This, in part, has given rise to the concept of “sustainable procurement”: the pursuit of sustainable development objectives through the purchasing and supply process. Sustainable procurement ‘is consistent with the principles of sustainable development, such as ensuring a strong, healthy and just society, living within environmental limits, and promoting good governance’. (p.128) (Walker & Brammer, 2009).

The next noteworthy evolution can be found within the changes in the sub-discipline of risk management. A clear example of this is the development of the ‘PEST’ -model (an acronym standing for political, economic, sociology, and technology), and in turn the ‘STEEPLE’ model (standing for socio-cultural, technological, economic, environmental, political, legal and ethical. This was formerly PESTLE – further evidence of that continuing evolution).

Here two significant risk elements have risen to increasing prominence:Evolution

1) Environment: entities are expected to procure goods whose origins have little to no environmental impact. It requires considerations of “re-use” and “recycle”   options in the strategic sourcing process. It has given rise to the concepts of ‘carbon footprint’ and ’reversed supply chains’; and

2) Social Responsibility: in considering not only the environment but also people (society). The ENRON debacle placed the onus on organisations to ensure   adherence to due process and internal governance. A further evolution of ‘social responsibility’ places an obligation on organisations to act responsibly towards   society, to refrain from adversely and negatively impacting the environment for current and future generations but also to act ethically in respect of labour practices.

Accordingly, it has become fundamental for purchasing professionals to ensure their practices are above reproach. Practitioners need to have awareness of the signs of unacceptable practices in the supply chain (such as fraud, corruption, modern-day slavery, human trafficking and wider issues such as child labour).

Here at home

Turning to the South African context, the duty of social responsibility has been legislatively entrenched in respect of non-discriminatory employment, economic transformation, and addressing the race and gender inequalities in workplaces.

Though the laws herein are applicable to the public sector and state-owned enterprises, many private sector industries have adopted strategies in line with the Employment Equity Act (Act No. 55, 1998) and the Broad-based Black Economic Empowerment (Act 53, 2003 as amended by Act 46, 2013).

It now requires from the CPO to not only correctly identify the appropriately skilled, competent and experienced manpower needed to fill the strategic structure of the procurement department, but also to ensure that these individuals are retained through skills development and succession planning.

These are just some of the headwinds and influences that have contributed to the evolution of sustainable procurement. We must be cautious, however, to take intentional, strategic steps, rather than being blindly directed by prevailing trends. Experienced independent practitioners can help in providing additional procurement excellence assistance when needed. Though sometimes costly, it affords the CPO a platform to continuously inject the much-needed impetus over an extended period of time, to support an upward curve in the maintenance of a sustainable procurement department.

Xavier Greyling is a Associate Director at Bespoke CfSD Group, an attorney, and an MCIPS-accredited procurement and commercial specialist - www.bespoke.co.za

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Posted on August 19, 2019

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