Sustainability and green considerations have garnered increased focus and attention for companies across a wide range of industries. While activities intended to promote a green business agenda span the enterprise, the supply chain—sourcing in particular—is on the front lines of translating often ambitious goals into pragmatic approaches that are both linked to the overall business unit strategy and embedded in the existing operating model.
Sourcing is well positioned to influence green activity across an organization because it sits at the nexus of a number of business units, functions, and external relationships. It is also an area where the impact of a company’s sustainability strategy can be clearly demonstrated. Moreover, a rigorous, best-in-class sourcing function already has the engrained capabilities to evaluate complex trade-offs among price, quality, and service. A fourth consideration—sustainability—can become a natural extension of those efforts.
Any meaningful corporate commitment to sustainability needs to reflect a holistic approach that includes, first, establishing an explicit corporate response to environmental concerns and, second, aligning the organization’s capabilities and strategy with that response. That combination of intent and commitment must then be translated into an integrated, functional sustainability plan—inclusive of key areas like sourcing—that closely ties in with the company’s overarching strategy and with the strategies and operating models of individual business units.
In the sourcing context specifically, that will mean proactively embedding sustainability considerations throughout sourcing processes—including up-front requirements definition and research, structuring RFx events and contracts, and supplier management and value measurement. Over time, these activities will then influence ongoing sourcing strategy development and execution, further reinforcing the sustainability agenda.
Certain green sourcing activities will be fairly easy to ingrain, given the increased commitment to sustainability across the business ecosystem. (A rising tide lifts all boats.) That will be the case with, say, identifying viable, environmentally friendly sourcing options using green catalogs from office supply or MRO vendors. Other activities, such as quantifying near- and long-term trade-offs or assessing return on investment, will take time and diligent effort to accomplish.
Of the many activities inherent in a successful green sourcing strategy, three in particular need to be tackled head-on and will serve as the foundation for future efforts.
I. Define the scope of responsibility and assess supplier risk. Companies need to consider how widely—or narrowly—they view the scope of their responsibility with respect to sustainability concerns. For some, it may encompass (at least initially) only the “four walls” of their plants. For others, it may also include upstream suppliers (e.g., raw material providers) or downstream buyers (e.g., consumer packaging disposal). A company’s goals and scope will determine the size and complexity of its green sourcing mission. Next, the company will need to assess its suppliers based on their relative risk to its sustainability agenda. Specific criteria for the supplier risk assessment may include not just direct environmental and regulatory risks but also the vendor’s overall size and significance to the company, or its potential influence on end consumer perceptions.
II. Develop a tailored approach to supplier monitoring and tracking. The results of the risk assessment can then be used to strategically segment suppliers based on their relative risk to the company’s sustainability agenda. For each supplier segment, the company will determine the appropriate level of monitoring and tracking. This is preferable to a “one size fits all” approach that could unnecessarily overreach with some suppliers while leaving the company insufficiently protected from vulnerabilities exposed by others. Interestingly, risk segments may or may not align with existing preferred or strategic supplier segments. In fact, this analysis often provides useful and surprising insights into where a company’s true vulnerabilities lie. For noncritical suppliers categorized as low risk, a rudimentary level of self-reporting accompanied by cursory monitoring may be sufficient. For critical, high-risk suppliers, on the other hand, the company may seek a more hands-on approach and perform much more rigorous monitoring and tracking. For still others, the company may strive for a collaborative approach to jointly mitigating environmental risks.
III. Pragmatically measure internal and external performance. Companies will need a pragmatic approach to assessing progress with green sourcing. The approach should provide an appropriate level of transparency—giving companies the information and insights they need to track progress—while minimizing the burden on internal resources or suppliers. Internal metrics can be absolute and should be tied to clearly defined goals—each with established baselines and a way to measure progress (e.g., targeted reductions in electricity usage by plant per year). Externally, each supplier should be engaged in a differentiated way based on the risk segmentation. The company will likely have to rely on relative measures (e.g., percentage reductions in carbon footprint based on an established formula), since it lacks visibility into each supplier’s operations. The general rule of thumb is to “trust but verify” through self-reporting accompanied by periodic audits. Both qualitative and quantitative data can then be periodically rolled up into a management dashboard to track and report performance against specific KPIs (e.g., waste, water, and energy).
Through collaboration with internal stakeholders and a tailored approach to supplier engagement, sourcing leaders can reduce their environmental impact while cutting costs and building better relationships with suppliers and customers.
Martha Turner (email@example.com) is a Booz & Company partner based in New York. She co-leads the firm’s North America sourcing team and specializes in driving operational and organizational sourcing transformation with broad experience across geographies and industries—including development of sustainable opportunities and capabilities.