Managing sustainability and reducing risk – There’s more to the story
Given all the uncertainty that has surrounded 2020, we can bet that 2021 is going to be a wild ride of a year. If you think you are an agile organisation, next year will really put that to the test. The disruption caused by the global pandemic has brought the issues of sustainability and risk management even more to the forefront, to the point where they can become mission critical for companies of all sizes.
There are certain aspects that companies should address sooner rather than later when it comes to dealing with risk and managing sustainability in the current economic landscape.
During our executive virtual roundtable last week, we discussed some very interesting topics, from sustainability, how it has changed in the current climate and what new challenges companies are facing from this point of view, through to managing suppliers and mitigating supply chain disruptions during Covid-19. You can listen to the whole session here.
The topic is quite complex and there are many angles to be considered when referring to managing sustainability and reducing risk.
In this article we would like to address some of the pending questions that came in from the audience during the event. We were lucky to have 3 amazing speakers on the event that were kind enough to help us continue the debate in writing in the form of a blog.
- How much of sustainability sits with the companies vs the consumers? There are a lot of options open to manufacturers to source more sustainably, but there is a price impact. Will the consumer and big retailers pay for it?
There is no straightforward answer to this as it depends on a number of factors including industry, target customer demographics, consumer and other stakeholder pressure and influence, company leadership’s ambition. Another important aspect refers to how you define 'sustainability'.
In general, there seems to be an increasing expectation from consumers that companies are expected to take a stand on social and environmental issues. Leading and forward-looking companies will view sustainability as an opportunity to drive value and take consumer/stakeholder input and push organisations to innovate and help meet needs – and that might in some cases challenge the organization and their suppliers to look at cost-effective ways and/or an opportunity to have a price premium which customers are willing to pay.
While sourcing may be a big cost input, there may be other places to cut costs if concerned about consumer price. There are various examples out there across industries, that there is a market for more sustainability considerations in consumer-facing products, as evidenced by increased focus on organic, natural, sustainable food, beauty and health products, cleaning supplies and more.
- Remote meetings can be very productive but it is often the more relaxed conversations outside the meeting environment that tell you more about a supplier. How can procurement obtain the same trust and value from suppliers by working remotely?
That is a very true statement, and the fact is that we can’t get the same value from remote meetings. At least, not when it comes to building the same kind of relationships with our partners or suppliers that allow us to get closer to people. It is usually the body language, those subtle interactions and eye expressions that help build human relationships.
Pete Loughlin, one of our speakers on the roundtable wrote a thought provoking article on this topic, which you can read here: Lockdown lessons – putting the meet back into meetings.
Apart from the human side of remote meetings and remote working, most companies have managed to adapt and deliver the same level of service quality. As history shows, humans adapt quite easily.
Having that community data, up to the minute performance data, AI and machine learning technology looking at the ecosystems and risk, things like social media interrogation, or news sentiment or judicial and litigation information, we are able to factor all that into what we call supplier health store.
We’re not only talking to the supplier but also looking outside from a trust standpoint and we can do all that and obtain trustworthy information without in person meetings.
When referring to delivering work remotely, it all comes down to digitization. We had many clients go live with new procurement systems in this climate, where no one was in a meeting room together. Nothing has been disrupted because of the ability to automate and leverage the technology in the cloud.
- In the current climate where most business are struggling and cost cutting might become the 'go to' strategy, do you think sustainable purchases will be compromised?
This is a fundamental question for procurement people and there is a clear apparent conflict between sustainability and cost reduction. But, as always, the reality is more subtle. Cost doesn’t mean price and Total Cost of Ownership often illuminates flaws in simplistic cost thinking. Many businesses are driven by 'short-termism' and they will be drawn into races to the bottom on price which – unless they have limitless capital resources – is never going to end well.
We also need to consider that companies across various industries have different supply chains. When talking about sustainable purchases companies need to be able to answer a few questions:
- What are they purchasing that is considered sustainable and why?
- How much of that spend is relative to their other procurement spend?
- What are the environmental and social considerations of the 'sustainable' goods?
- What are implications if do compromise?
Also, cost and sustainability are not necessarily always in conflict and there is a mindset change that needs to happen. While companies may need to respond to short-term challenges and make compromises, it seems that based on stakeholder expectations for many companies – which can include investors, employees and customers – that they do need to think longer-term and be more strategic and thoughtful vs. reactive.
Technology also plays a big role in solving this challenge. In order to drive Sustainability, and not only make it work in concert with driving savings, but also make it 'stick', you need technology to help digitise and harmonise the two. This should be included in and guided by proper business process, but also operationalized where supplier enablement and spend happens.
Being able to identify suppliers that deliver both savings and sustainability benefits and establish contracts and award the business based on both, you need supporting data and actionable insights. Some examples include sourcing award optimisation based on rules and constraints across capabilities, savings and sustainability impact for proper, integrated what-ifs, as well as insights into supplier risk, performance and sustainability at buy, source and/or pay time. Burning these into policies, templates and workflows as part of a digital platform, like Coupa, help make sustainability sustainable.
There is a lot more to talk about when it comes to sustainability and risk management in procurement. If you want to learn more about this topic, you can listen to the event recording here. We’re sure you're going to come across some very interesting facts.