It is possible and desirable for organisations to act within their own four walls in the spirit of sustainable and purposeful business. If they use natural resources, they can do so in a sustainable fashion. They should treat staff properly, and ensure that modern slavery, discrimination or human rights abuses are not taking place internally. They can look to recruit from disadvantaged or minority groups.
But when we compare the scope for internal action with what can be done through procurement spend, we can see that external focus can in most cases drive more benefits than the organisation can deliver through purely internal efforts.
Let’s take an example. A large firm might spend 50 or 60% of its revenue with suppliers (in one study, the average was as much as 69% for the firms involved). So, consider “Procurement with Purpose Corporation” or PWPC - a firm with a $1B annual turnover. It spends around $600M with other businesses.
That will follow a pareto profile in most cases, so the 20% largest suppliers to PWPC might represent 80% of the total spend. That could mean (simplifying the profile) perhaps 50 firms as key suppliers, each of which is receiving on average $10m a year from PWPC.
That makes PWPC a pretty important customer for these suppliers. Even further down the pecking order, there will be smaller firms, perhaps local businesses, for whom PWPC’s $100,000 or even $10,000 a year spent as a customer is important.
Now consider the influence PWPC has over those suppliers. It has the potential to affect the behaviour of 50, 100 or maybe even 1000 other firms, whose revenues and third party spend in total may be many, many billions or even trillions.
If PWPC works with key vendors to address human rights issues in countries where they have factories, plantations or mines, it can make a real difference. If it helps to persuade those suppliers to commit to carbon neutrality, the effect could be huge. Closer to home, if it looks to spend some of that $600M every year with social enterprises, or minority owned businesses, it can directly affect hundreds or thousands of individual lives in a positive manner.
Then we can consider the power that a group of large firms can have in a particular industry or location. We might look at firms that are substantial cocoa buyers, or those that have major manufacturing sub-contractors in Thailand. Again, pareto tends to apply, so for any raw material, for instance, there will be a relatively small number of buyers who are hugely influential in the market. More than 50% of the total output of the world’s cocoa market finds its way to a handful of firms, including Mars, Nestle, Hershey, Mondelez, Suchard, and Ferrero.
If those businesses work in a co-ordinated manner, they can have a huge impact on issues in the cocoa supply chain, from human rights to land use and sustainable agricultural practices. The same principle applies in most sectors, industries and markets, and that provides an opportunity for large firms to make a real difference by working both with their fellow buyers and with suppliers and supply chains.
Of course, most businesses are not just buyers. Our imaginary firm, PWPC, is almost certainly a supplier in its own right as well as a buyer and will have customers, whether consumers or other businesses. They may well put pressure on PWPC to work in a sustainable and purposeful manner. That’s good news again; it means ideas can be shared and best practice spread around vast supply chains and business networks of buyers and sellers across geographies, sectors and industries.
This all drives the collaborative and multiplicative effect of procurement with purpose. Once a critical mass of firms take action, the ripples from their actions will spread across the business world rapidly. That is the hope; and it seems realistic. No business works in isolation, and as this movement takes off, we should see the benefits growing and multiplying.