Sustainable sourcing is turning out as the most important function of supply chain management. And the reason why sustainable sourcing may very well become the single most important aspect of supply chain management, is because of how it grounds itself in future-proofing supply chains.
What does it mean to future-proof supply chains? Future-proofing supply chains means protecting your organizations performance in the future against a multitude of potential problems. Whether the future involves loss of access to key production ingredients or logistics providers, future-proofing attempts to mitigate potential dangers.
Trending in the environment towards future-proofing supply chains is sustainable procurement. Sustainable procurement has proven that it improves efficiency, effectiveness, and transparency for organizations (Rennie & Salandiak, 2013). Furthermore, sustainable sourcing not only improves employee & supplier relationships, it also improves an organizations reputation amongst their community and their customers. Lastly sustainable sourcing can dismantle poor waste disposal practices and reduce energy waste, improving company spend management.
Beyond the business case towards sustainable sourcing, ecologically friendly procurement practices are necessary for maintaining our environment.
This article will first begin with an overview of the benefits provided through sustainable sourcing and how e-procurement impacts sustainable supply chain management. Following that, the article will offer a brief analysis of how sustainable sourcing is achieved in Germany. The article will then conclude with a brief capstone from an interview with Eartheasy CEO, Ben Seaman.
What benefits can sustainable sourcing provide?
Amongst the numerous benefits sustainable supply chain management (SSCM) can provide, the more important benefits include competing with a green strategy and improving market competitiveness.
Green strategy involves reducing waste management costs, trading ethically to attract ethically-conscious customers, and reducing energy resource waste.
Improving market competitiveness involves reducing procurement delays by adequately projecting future sourcing activities against potential environmental hazards, government regulations, shift in customer attitudes towards environmental concerns, and changes in supplier relationships.
In fact, sustainable sourcing practices can enhance buyer-supplier relationships through increased transparency (Rennie & Salandiak, 2013).
Why is E-procurement often considered the best step towards SSCM?
Before we get into why most organizations are choosing to optimize their supply chain consider this single piece of info: “One manual purchase order can cost a company as much as $150 to process, even if the purchase order was issued to buy a $25 part” (Chien & Ahrens, 2001).
The cost of issuing manual purchase orders add up when considering the time spent sending documents back and forth between approvers, buyers, and receivers. E-procurement systems have become significantly more popular as a means of removing the tedious travel time of documents.
In fact, according to Tony Chien & Daniel Ahrens (2001) there are three significant ways that e-procurement improves the purchasing process.
- Goodbye paperwork. E-procurement systems eliminate paperwork by generating electronic purchase orders which can be immediately routed to the appropriate person. Resulting in less paper cost from purchasing paper and disposing of it, as well as less time spent between key personal.
- Commitment to vendors. E-procurement systems can be used as a means of compelling end users to only purchase from company approved vendors. This commitment to approved vendors is one way of mitigating the possibility of corporate fraud within the organization. An example of such would include a fake vendor where funds can be funnelled into.
- Spend visibility. Although spend visibility may sound like a generic buzzword, spend visibility is an integral function of e-procurement systems. Spend visibility allows managers full control and their company and department spending.
So how are we currently tackling SSCM in Germany?
German Sustainable Development Strategy
How is Germany alone approaching SSCM? In fact, the German government has made a formal commitment towards SSCM through the German Sustainable Development Strategy (GSDS).
The purpose of the GSDS was to classify procurement activities and find a means of attaching measurable aspects to them. The five procurement activities that are accountable within the GSDS are; 1) reducing logistics and freight intensity, 2) reduce land use, 3) implications against partners because of sustainable aspects, 4) quality of employee working conditions, and 5) enhancing quality of employment (Large, Kramer, & Hartmann, 2013).
Within reducing logistics and freight intensity, the GSDS measures greenhouse gas emissions, use and disposal of truck tires, and measuring driver behaviour according to environmentally conscious driving standards (Large, Kramer, & Hartmann, 2013).
The purpose of measuring land use falls on the dimensions of reducing energy waste, increasing renewable energy for warehouses & factories, and actively considering the environment in property choices (Large, Kramer, & Hartmann, 2013).
Under the GSDS, sustainable partner activities used for measurement include whether they use rail or ship cargo, whether partners use environmentally friendly transport services which does fall into the first activity above, and whether partners use combined transport to reduce freight intensity (Large, Kramer, & Hartmann, 2013).
For a long time, the procurement industry was overrun with allegations of poor working conditions and low access to essential services. However through the GSDS, German firms are observing whether employees are given services during the day and on weekends. German firms are also attempting to maintain a standard level of pay and minimize the use of temporary workers (Large, Kramer, & Hartmann, 2013).
And the final activity dimension measurable under the GSDS involves education and enhancing qualified employment in all levels of supply chain operations.
The GSDS is indeed a highly ambitious effort in attempting to measure sustainable practices within the German procurement industry.
The case for Eartheasy
Eartheasy was built on the philosophy that we need to protect our natural environment if we want to keep the things we love. Eartheasy is a go-to website that focuses on providing eco-friendly products, guides, and articles to its visitors. Eartheasy is a case where sustainable sourcing and procurement became an important enough issue, which the founders decided to share their culture with their customers (Kolenko, 2014).
Sustainable procurement is incredibly important for the future success of an organizations supply chain, but also for our environment and planet. The difficulties are not unheard of when considering green procurement strategies, however the strategic advantage that one could attain can last well into the future. And that’s what they mean when someone talks about future-proofing their supply chain.
Chien, Tony, and Dianne Ahrens. “E-procurement the future of purchasing.” Circuits Assembly 12.9 (2001): 26-32. Print.
Large, Rudolf O., Nikolai Kramer, and Rahel Katharina Hartmann. “Procurement of logistics services and sustainable development in Europe: Fields of activity and empirical results.” Journal of Purchasing and Supply Management 19.3 (2013): 122-133. Print.
Kolenko, Sean., “The value of sustainability: An interview with Ben Seaman, CEO of Eartheasy.com.” Procurify. Posted June 14, 2014. Web. Accessed July 17, 2014 http://blog.procurify.com/2014/06/04/importance-sustainability-interview-ben-seaman-ceo-eartheasy-com
Rennie, David, and Trudy Salandiak. ” Sustainable sourcing for competitive advantage .” Keeping Good Companies 65.11 (2013): 652-656. Print.
………the future proofing is limited with challenges of unstable economy and geographical distribution of peace. The counter argument, however is, we shall future proof to as much of aspects of procurement as possible, mainly the “raw materials” and logistics. we may not be able to limit currency fluctuations or timelines.