CSR Initiatives in Procurement: Factoring Sustainability into Sourcing Awards and Total Cost Models
This series of posts is based on research conducted by EcoVadis and A.T. Kearney (see earlier posts under Related Articles). EcoVadis’s Wim Peeters shared findings from this research during a presentation at the Dutch Sourcing Awards earlier this month.
Regarding the incorporation of CSR and sustainability data in sourcing award decisions, it would appear that there is not yet a center-led approach inside the majority of companies in terms of establishing standards. When asked the “weight of sustainability criteria” in supplier/product evaluations, 62 percent of participants reported that CSR needs to be taken into account but each buyer defines the weight they assign. Another 29 percent of companies have some type of center-led initiative that specifies a minimum weight for CSR criteria in the rating/roll-up of price and non-price factors for awards (with the average being 10 percent relative to other factors such as unit cost). And 9 percent of procurement organizations still do not take CSR criteria into account in sourcing awards decisions.
This data is fascinating on multiple levels, especially since the survey respondents were European centric. This is important, as many UK and EU private and public sector procurement organizations tend to be a bit ahead of their North American counterparts on broad-based sustainability initiatives. Our general observation is that programs in the U.S. tend to be driven by specific regulatory compliance requirements, including supplier diversity, conflict minerals, FCPA, etc.
First, the data suggests to us that procurement organizations are not yet providing full transparency to the business as a general rule (through sourcing optimization approaches) that can quantify the cost of business constraints based on supplier sustainability practices. Otherwise, it’s likely we would see a much greater usage and adoption of programs with at least a set minimum criteria (a baseline scenario) rather than an entirely scattershot decentralized approach without specified targets. In addition, the prevalence of decentralized decision criteria suggests a strong need exists to share best practices and approaches within organizations, as well as to establish industry standards.