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Sustainable Procurement Trade-offs

As sustainability becomes more universal, alignment of corporate and functional objectives can become more difficult.  For example, there may be a perceived conflict between the higher sourcing costs sometimes caused by adhering to sustainable sourcing policies, and the objective to keep costs under control, i.e., selecting the “greenest” supplier may not result in the lowest total cost.  Since procurement is working on behalf of other functions within the business, the entire organization must be willing to commit to the same sustainability agenda.  Below are some of the conflicts or trade-offs that may occur from sustainable procurement decisions.

  • Sourcing materials in “low-cost” countries to meet cost objectives may not fulfill CSR objectives or can increase the risk of the following: intellectual property loss, unstable economics, and a disruption in supply chain.
  • Applying diversity principles by selecting of minority-owned business may impact cost performance.
  • Sourcing from a wider spectrum to ensure supply sustainability may mean not using a favorite, well-known supplier.
  • Sourcing in lower-income countries with the objective of helping develop capacity within them must be weighed against legislative policies, communication and cultural issues; possibly different expectations of quality and performance standards must also be considered.
  • Sourcing with a company that uses unfair labor practices to get a lower price runs the risk of reputation damage, versus using potentially higher price companies that comply with ethical sourcing.
  • Using environmentally-friendly products and processes may impact quality or failure rates, leading to liability claims.
  • Measuring supplier performance against a new range of criteria may prevent some existing suppliers from being awarded contracts.
  • Incorporating sustainability requirements into specifications to achieve objectives may impact cost or appearance.

Challenges

In addition to the trade-offs, additional challenges or barriers to sustainability may come from both inside and outside the organization.  The following table shows typical barriers, as well as possible solutions to overcome them. 

Type

Internal

External

Solutions

Cost

Restrictive budgets, annual savings targets, process costs, focus on short-term profits, fear of new costs, e.g., recycling

Higher costs for sustainable alternatives, e.g., food grown without fertilizers, rules for replanting forested lumber, renewable energy resources, e.g., solar or wind

Include sustainable requirements in specification and sourcing stages to include cost in budget, reduction in usage to minimize waste

Stakeholder attitudes

Profit-oriented rather than improvement, lack of management support or prioritization

Customer’s appetite for lowest cost, negative perceptions on quality of “green” products

Communicating benefits, training, change management, “quick wins”

Policies

Lack of CSR policy or enforcement, conflict with other policies

Free Trade Agreements within trading blocs, governmental regulations

Align sustainability and  corporate policies, include CSR, standardize KPI’s

Culture

Sustainability focus not embedded, priority and rewards for financial performance rather than sustainable behaviors

Perception of certain legal, social, economic, religious, ethical or political standards

Communication, education, inclusion of sustainable principles in everyday tasks, champions, make it a leadership priority

Economic Stability

Reductions in budget driving purchase of cheapest alternative, lack of spending on innovative products or processes

Credit restrictions, inflation, lack of investment

Considering sustainability programs as essential for future success

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