The concept of sustainable sourcing, also known as green purchasing or social sourcing, is nothing new. Sustainable sourcing is impacting nearly every area of corporate business and the consumer’s mindset. Everything from sourcing materials, talent attraction and consumer purchasing habits are changing because of the growth of sustainable sourcing. However, the term gets thrown around in the procurement industry quite a lot and is often misunderstood or misused. So, here’s a guide with all the basics you need to know about sustainable sourcing.
WHAT IS SUSTAINABLE SOURCING
First and foremost, we have to define the term. Sustainable sourcing is the integration of social, ethical and environmental performance factors into the process of selecting suppliers. It includes purchasing sustainably preferable products and services (products made from recycled or remanufactured materials), as well as green purchasing guidelines that might pertain to certain products or commodities.
Sustainable sourcing is needed because supply chains are continuing to expand globally into developing countries for lower costs and larger production capacity. This expansion exposes companies to increased risks and heightens the expectations of their stakeholders. Company stakeholders (including customers, shareholders, employees, NGOs, trade associations, labor unions, government observers, etc.) expect corporations to take responsibility for their supplier’s environmental, social and ethical practices. Now companies are increasingly making sustainable sourcing an essential part of their procurement and supply chain management processes.
WHAT IS NOT SUSTAINABLE SOURCING
Sustainable sourcing often gets confused with other industry terms. The most common is ethical sourcing, which is defined as the process of ensuring the products being sourced are obtained in a responsible and sustainable way. It is a component of sustainable sourcing but not the same thing.
Additionally, sustainable sourcing is not supplier diversity – providing economic opportunities to suppliers that are diverse enterprises like minority-owned or veteran-owned businesses. It is also not sustainable cost savings, which is the concept of recurring savings (you saved 10% last year and you want to save at least 10% this year, too).
DIMENSIONS OF SUSTAINABILITY
The “Sustainability in the Supply Chain” learning module from SIG University teaches that there are several dimensions of sustainable sourcing:
- Environmental: Biological perseverance, energy conservation, pollution regulations, carbon/water footprint reduction and global warming
- Social: Diversity, local communities and decent working conditions
- Economic: Financial stability, energy demands and reduction
DRIVERS AND BUSINESS OPPORTUNITIES
The three primary drivers of using sustainable sourcing practices are to manage risks, reduce costs and increase revenue. Each driver has different elements to it that motivate the business:
Manage Risks: Brand protection, supply chain disruptions, fines and litigations
Reduce Costs: Vendor rationalization, reduced administration, total cost of ownership
Increase Revenue: Service differentiation, access to new markets, competitive advantage
One company that stands out to me as using sustainable sourcing for a competitive advantage is Toms. You may be familiar with Tom’s One for One® campaign which provides a new pair of shoes to a child in need for every pair that is purchased. They are utilizing the social dimension of sustainable sourcing to promote this charitable cause that supports local communities and it makes their brand stand out from the competition.
Sustainable sourcing also provides the following opportunities to businesses:
Attract new consumers
Develop new markets
Speed up innovation
Predict future earnings
THE SHIFTING MINDSET ON SUSTAINABILITY
According to research in "Sustainability as a Business Strategy" from the SIG University learning module, the mindset of consumers is drastically changing when it comes to sustainability. Consumers are now more aware and conscious of the brands they purchase from and the companies they work for, and they desire to make decisions that support sustainable enterprises.
67% of consumers prefer to work for socially responsible companies
66% of consumers will pay extra for products and services from socially responsible companies
52% of consumers made at least one purchase in the past six months from socially responsible companies
52% of consumers check product packaging to ensure sustainable impact
49% of consumers prefer to volunteer/donate to organizations engaged in social and environmental programs