How will the drive for sustainability and digitalisation impact procurement and supply chain?

The quest for sustainable solutions is a priority for increasing numbers of businesses. But what are the challenges when it comes to procurement and supply chain? And how can the process of digitalisation help to move the dial when it comes to sustainability?

Ross Dawson, Operations, Procurement and Supply Chain Practice Lead, at Eton Bridge Partners and her colleague Ivan Bates, Associate Partner within the Board Practice, share their insights from an intriguing discussion between a group of senior executives in the sector:

Our attendees:

  • Jacob Gorm Larsen: Director of Digital Procurement, Maersk Group
  • Arnaud Lafontaine: Supply Chain Director, Red Bull
  • David Loseby: Chief Procurement Officer, Rolls Royce
  • Philip Molnar: Supply Chain Transformation Director, Costa Coffee
  • Howard Pearson: Supply Chain Advisor to a fourth-party logistics provider and a fashion retailer
  • Hari Sundaresan: Vice-chair, NHS London Procurement Programme
  • Philip Usherwood: Former Chief Procurement Officer, BP Upstream
  • David Medori: CPO, William Hill
  • Keith Hallam: Senior Supply Director, Europe at ASR Group
  • Lance Younger: CEO, ProcureTech
  • Alex Muir: Former CPO, BP Downstream

Time is running out for our planet. The need to use business solutions that preserve the environment has never been more urgent.

However, the drive for sustainability has merely scratched the surface so far. The response to issues such as the deforestation of the Amazon and the damage done by palm oil production is still too slow. How can procurement and supply chain play their part in creating eco-friendly methodologies?

The ‘Sustainable Procurement Pledge’

Founded by Thomas Udesen (Bayer) and Bertrand Conquéret (Henkel) in late 2019, the ‘Sustainable Procurement Pledge’ has grown rapidly and hopes to increase to one million people involved in procurement.

The group is in the process of introducing specific tools, templates and frameworks to create a unified response to the sustainability challenge from what remains an extremely fragmented sector.

One of the group’s targets is to create new supply chain finance models that motivate and incentivise people to use sustainable procurement techniques.

Its progress is expected to accelerate when digital applications are brought to bear in the space, either directly contacted to procurement or from other areas advocating sustainability too. As Lance Younger, one of the Pledge’s Ambassadors, said: “It’s a microcosm of where we’re at with digital in the procurement space.”

How do you measure sustainability?

Business leaders understand dollars, sterling and yen, but there is no common currency around carbon that can be shared across multiple businesses in a way that might motivate their leaders.

Many multi-national organisations have decided that it is important to display green credentials. But the logistics of identifying a target against which that organisation can deliver progress can be hugely complex.

One of the most pressing challenges for delivering appropriate and authentically sustainable solutions is this lack of clarity around the issue.

Hari Sundaresan illustrated this issue from his experience at BT, where it soon became clear that two-thirds of the carbon footprint was produced by the supply chain. The process of collating all the relevant information took five years as hundreds of people around the world addressed the issue of sustainability.

Philip Usherwood said that in his days at BP, once an evaluation of embedded carbon was put into a project, the definition of a carbon footprint could be incredibly elastic. “One or two big providers asked for time to review and came back with drastically reduced carbon numbers, with no impact on cost.”

Buy-in from senior leaders and consumers is key to progress

The sustainability agenda is easier to advance if it has the support of senior leaders in a business. Once a board decides that green credentials are important, and there is a need for progress to be included in an annual report, everything moves more swiftly – however hard it is to measure those credentials.

“That cultural change from the top down is the way to do it; you need that support from beyond the procurement team,” Hari concluded.

Another key driver for change is consumer attitudes. If buyers begin to demand sustainable products, that will motivate a change in behaviour.

Without such motivation, publishing end-of-year green credentials can simply be a marketing ploy without much real substance behind it.

However, in many businesses pressure comes from suppliers rather than consumers. Arnaud Lafontaine reported that many retailers want to prove their supplier has a stance on sustainability and to set targets around recyclable plastic. He added: “I don’t think the customer really minds… but the grocer wants to tick a box.”

We may be at a tipping point between what people believe is the right thing to do in terms of carbon reduction, and the customer who just wants value. As Lance put it: “Many consumers don’t give two hoots about the carbon footprint of the chicken they’re buying, they just want the cheapest chicken.”

Keith Hallam agreed: “The key thing is to still drive the value proposition across the business and sustainability is almost a marker against that.”

In some sectors, however, sustainability is a key element. For instance, if a large defence contractor in the USA requires a supply chain sustainability strategy in order to compete for a contract that might last 25 years; that quickly focuses the minds of business leaders. Situations like this will have a huge impact moving forward.

Philip Molnar said that Costa is catching up quickly with the eco agenda: “There’s a lot of work going on around the sustainability of our packaging; we’re trialling an all-paper cup with a paper lid which is going to be quite innovative.”

Younger generations will inspire organisations to change

Philip also reported that a new generation of workers see sustainability as an attractive facet of an employer; they want to “be part of a forward-looking business”, and we are starting to hear that sustainability is an important issue for the new working generation.

Alex Muir agreed, speaking of his time at BP: “The interview process was genuinely two-way. We were asked by 25-year-olds, ‘I know you say you’re green, but what are your proof points on your supplier diversity and ethical outsourcing?’”

Collaboration and shared knowledge can move the agenda forward

There should be ways in which organisations can share knowledge around the adoption of sustainable practices across their supply chain.

Digitalisation can help here with the construction of a dynamic database that records how different supply chains are operating with regard to sustainability. This would enable the creation of minimum standards and a method of reporting against them, allowing organisations to be assessed in a credible and transparent way.

David Loseby said: “We have some of these in place at the moment but they’re not joined up; it’s a question of creating an ecosphere that connects all these pieces.”

Constructive moves are being made in the right direction. The Green Tech Alliance is working to collate findings from businesses that track and trace and are trying to create universal standards within particular sectors.

The introduction of standards would allow more meaningful progress measurements, both internally and across sectors.

What role does carbon offset play in the drive to sustainability?

One method being used by organisations to improve their green credentials is the use of carbon offset. For instance, a significant proportion of Tesla’s profits, come from other automotive manufacturers buying carbon credits from the leading supplier of electric vehicles, which has a huge surplus.

David Medori reported that William Hill is on a journey to carbon neutrality and has driven consumption down 60 per cent in recent years. “To take that next step, we’ll probably need an offset mechanism,” he said.

“There’s still that stigma that you’ve bought your way there rather than doing it off your own back. But I don’t think any of us could achieve neutrality without some kind of offset.”

How can digitalisation drive to sustainability?

One of the benefits digitalisation brings to the supply chain is transparency and, potentially, the standardisation that is so key to progress.

Jacob Gorm Larsen described how Maersk is aiming to be emission neutral by 2050 – which, for a transportation company, is a big undertaking. “Our next milestone is that within two years we want to launch our first carbon-free vessel.

Procurement will be involved in that because it requires a completely new construction and new types of fuel. There’s a lot to be done on the physical side in addition to the development of digital solutions to provide transparency across the supply chain.”

Digitalisation, however, does not capture hearts and minds in the same way that sustainability does. It is easier to get budget for sustainability.

The digital agenda can be an enabler to release resources and headcount that can be redeployed to power the delivery of a sustainability agenda.

It’s important that digital remains a tool and an enabler, rather than a dominant force. People have to feel there is a strategic element to their function, rather than being treated as purely operational.

Lance Younger described how his firm, ProcureTech, is using digital to help the world of procurement. “Companies can be slow to select procurement solutions – and buyers’ remorse is a common complaint. About 60 per cent of organisations believe they have selected the wrong solution.

ProcureTech is in the process of creating a database that people can use to find the best solution for their organisation.”

Conclusions

  • There is a need for a common currency when talking about carbon
  • There is also a need for standards to allow meaningful measurement of progress
  • Digitalisation can be an enabler of sustainability strategies
  • Sustainability gets more buy-in from businesses than digitalisation
  • Customer demand will be key to the adoption of green policies