Yesterday, I introduced Spend Matters readers to a joint Ecovadis, Insead and PWC study that looked at quantifying the costs (and returns) of supply chain and procurement CSR programs, initiatives, and disruptions. Today, I'll share a quick quantitative model that looks at the costs of implementing programs to drive both cost savings and risk/cost reduction through green/CSR supplier management programs. In short, the authors suggest that for a €20 billion company, a program should cost "approximately .01% of company revenue" which is a number representing "less than 1% of the total procurement operating budget."
How do the numbers work out in this hypothetical model based upon the costs of internal sustainable procurement teams, third party costs for supplier audits, evaluations and follow-up and change management (including training, communication and process re-design, among other areas)? The authors suggest that for a €20 company with €10 in annual spend, the expense of an internal team, based on the total costs to hire and staff five full-time equivalents, is €500,000 annually. Add in "supplier implementation and remediation costs" based on "annual assessments of 500 suppliers and 100 on-site audits" and the costs climb another €600,000 per year.
CSR procurement tools including technology (e.g., supplier information management) and third-party content will add an additional €150,000, according to the study. And training will add another €150,000, assuming that 300 staff are trained. This total comes to €1,500,000 annually, a number representing .75% of a typical annual operating budget for a procurement organization with the spend profile presented above.
Spend Matters analysis suggests that some companies may spend materially more on the technology and content components of green programs, especially if they're tied into global supplier management initiatives that also track broader supply risk, supplier diversity and related initiatives through a variety of internal tools and third-party content enrichment and validation. Yet in general, the financial model that Ecovadis, Insead and PWC propose makes sense as a starting point as part of building a business case in the area.