Moving away from pandemic discussion for a while… we believe that there are four types of initiatives that procurement organisations can undertake with “purposeful” goals in mind. Being clear about these options is key, as some require more commitment than others and all require appropriate action and activity from the organisation.
i. Internal actions within the Procurement with Purpose (procurement with purpose) organisation
In this first case, suppliers and supply chain are not involved at all. The initiative is purely within the organisation (procurement or more widely) and does not even have an impact on suppliers. For instance, actions might include encouraging staff to recycle their lunchtime food waste into compost bins; ensuring that staff from minority groups are treated fairly; or inviting local schools in for careers workshops or other relevant sessions. It also covers work within the organisation on diversity and inclusiveness (for instance, Barclays Bank won a CIPS Award in 2019 for their work in getting more women into procurement).
As well as having merit in their own right, it is important that organisations set a good internal example if they wish to have significant influence on their suppliers. Clearly, there could be allegations of hypocrisy if (for example) the buyer was trying to push suppliers into looking at workforce diversity, or employing more apprentices, but the buyer itself was not taking similar actions.
ii. Principally internal actions that have an impact on suppliers and the supply chain – but don’t involve them actively
These initiatives are driven purely by the buying organisation, but results have some impact on suppliers or supply chain. However, that is in a largely passive sense – no real effort, contribution or collaboration is required from the supply side.
For instance, a manufacturing organisation that implements an energy reduction programme will look to spend less with their electricity supplier, but may not need any input from that energy firm, which would purely observe the outcomes of the exercise and be affected by them in some way. A total move away from plastic packaging to paper – whether in terms of coffee cups, packaging or even components – may not need involvement from the supplier of the plastic product.
iii. Actions taken principally by suppliers or supply chain that are encouraged, facilitated or mandated by the Procurement with Purpose organisation
In such cases, the buyer does not take any direct action itself but encourages or even legally obliges actions to be taken by suppliers. A London based public sector organisation might insist that all suppliers pay the London living wage to their own staff. A buyer might seek an energy supplier that guarantees a minimum percentage of its power is generated from sustainable sources, or require a timber supplier to show it actively supports re-forestation.
Suppliers might be encouraged to bring more diverse firms into their own supply base, or the buyer might include legal conditions in the contract around modern slavery or other human rights issues. The buying organisation does not necessarily take any action in terms of how it runs its own business, although as above, it could be accused of hypocrisy if it does not “walk the walk” in terms of what it is doing internally.
The ability to introduce initiatives of this type does depend to some extent on the relative power balance between the buyer and supplier. In negotiation terms, the buyer needs to consider what it will do if the supplier refuses to comply with the request or demand. If a firm refuses to sign up to your human rights statement or charter, will you remove them as an approved source of supply?
That power is linked to how much you are spending, but that is not the only factor. Spending a million a year with Microsoft does not in all truth make you very influential or important in their eyes. Spending a million with a local facilities management firm may well make you their most important customer, one that they will want to keep happy at almost any cost.
iv. Actions that require collaboration between the Procurement with Purpose organisation and suppliers / supply chain
Such initiatives require genuine collaboration between buyer and suppliers or a wider supply chain or market in order to deliver change and success. That can make such initiatives challenging; but equally success can lead to very significant positives in terms of Procurement with Purpose.
Looking at how factory equipment can be made more energy efficient will almost certainly require collaboration with the manufacturers of the equipment or other external technical experts. A desire to use more smaller or local firms, or charities and social enterprises as suppliers might affect some current suppliers negatively but will require identifying, verifying and onboarding new suppliers – we might describe this as collaboration with the market. Many changes to packaging will be driven by both buyer and seller working together to find alternatives to reduce plastics volume or increase recyclability. Eliminating human rights abuses in the supply chain will again require collaborative working and the cooperation of suppliers.
This categorisation is also helpful when we think about the actions that need to be taken. Category three takes us into questions of compliance, and which mechanisms you can best use to drive supplier behaviour. Do you use evaluation techniques in the supplier selection stage to drive the desired goals? Do you contractualise the requirements, perhaps with penalties / incentives? And how do you manage compliance as part of a contract management regime? Category four actions are often about working together and have a link to wider strategies around SRM and innovation capture.
All these options can have a place in a procurement with purpose programme, but they are implemented in different ways – and we’ll look at some of those in more detail in future articles here.