The first World Sustainable Procurement Day was quite some event and it was a great privilege to feature on a panel alongside Emma Howcroft from Avantor and Mark Freebairn from Odgers Berndtson. The conversation focused on how procurement and finance could collaborate on sustainability, with much of the talk homing in on the need to look at sustainability through a value lens, rather than a savings lens.
Emma presented some fascinating research that she has undertaken looking at how procurement can make an impact on sustainability within the cost savings paradigm.
As Emma noted, conversations about how procurement can measure value rather than just price savings are longstanding. The first mentions of such thinking date back to before the Second World War and there are measurement models dating back decades. In many ways, with the conversation still raging today, the findings show how far we still have to go, and the scale of the challenge faced.
Within the research, 85% of respondents admitted that their functions prioritized cost savings over other measures. Further, 88% said that not hitting savings targets would cause an issue for them. In this landscape, where procurement professionals feel such pressure to deliver on cost, it should be no surprise that focusing on more transformative issues such as sustainability can present a challenge.
Digging into the research, Emma highlighted that the methods for measuring savings may be a major obstacle to overcome. Emma’s research found that procurement professionals are often tracking savings on a ‘first year’ basis, using previous price as the baseline. However, many sustainability projects are “invest to save”, delivering lower returns, or even requiring investment in the first year, in exchange for longer-term, top and bottom-line impact.
Clearly there is a conflict, and perhaps a need for a more flexible approach to defining value, allowing procurement to focus on and measure the impact of sustainable procurement in a more meaningful way. That requires alignment between CPOs and CFOs, with both parties recognizing that such a shift is in the wider interest of the business. Value is redefined.
The good news from the panel was that it increasingly feels like this alignment between CPOs and CFOs is happening. Mark Freebairn highlighted the huge shift in thinking in recent years as sustainability has risen up the board and executive agenda.
Mark reflected that from his conversations with CFOs many of them understand that investing in sustainability will come at a cost but know that this is a cost that will add value over the long-term and future-proof the business. He speculated that if you told most CFOs they’d need to pay more to get to where they need to be on risk, resilience, and sustainability, then that’s a price they may be willing to pay.
He did however add that willingness to pay more did not, in most cases, reflect a willingness to fund in its entirety from the bottom line. Mark’s reflection, like my own, was that businesses are facing a major decision point when it comes to funding sustainability and resilience. Some can pass on some level of cost increase onto customers, but for others, funding change will mean undertaking more structural re-engineering of costs.
This certainly reflects what we’re seeing at Proxima which is that increasingly CFOs want their procurement teams to think about total cost, but also about resilience, purpose and profit. This is a fundamental shift in business strategy, which in part explains why procurement teams suddenly have this “top table” access; they are at the heart of delivering business strategy, at least within those organizations that are facing up to these challenges head-on.
So what does all this mean for procurement? As Mark put it, now is the time, and if we don’t seize it the time will be gone. We must act now, outlining how we as a function will step up to deliver. We must measure our impact, but in business terms, reflecting the different things the business is asking us to do.
The panel discussion and the chat left me feeling enormously excited about where we can go. It’s time to get closer to our customers and suppliers and demonstrate what we really can do, to create purposeful and profitable change.
The first World Sustainable Procurement Day was indeed quite some event. No doubt it will be the first of many, and no doubt the conversation on if procurement and finance can better collaborate will be evergreen. It always can, and that’s the point.
The session was attended by procurement professionals from around the world, including India, the UK, Germany, Australia, Ghana and Malaysia. Thoughts and questions were encouraged in the chat to reflect the differing opinions of people external to the panel and from a broad and international perspective. The panel used some of the session to address attendee questions and discuss their insights.
Insights and questions raised by attendees highlighted a broad range of issues, including how the procurement function should have greater influence on the prices of business’ products. Further perspectives came from the UK Higher Education Sector and the annual ‘TOMs’ benchmarking it uses.
Others asked how procurement and finance functions can be encouraged to bear the costs in the short term to help cushion the blow for SMEs and emerging economies, especially following the pandemic. Others turned to the public sector, suggesting that governments financially incentivise companies to improve sustainability both through their procurement function and more broadly.