Economic sustainability – what does it mean for procurement?

Continuing our look at "sustainable procurement" - economic sustainability is probably the hardest of the three headings (environmental and social being the other two) to get your head around. That’s partly because it overlaps with ‘social’, as we’ll discuss below – and it contains some areas of debate and controversy as we'll also see.

The internal facets of economic sustainability seem to be simply making sure the organisation is utilising resources to best advantage. But the outward facing element that is more interesting to procurement usually covers the development of greater economic capacity, capability and robustness in supply markets, particularly those in disadvantaged areas.

It’s particularly interesting for some global companies who operate in developing countries – at the Procurement Leaders event recently, Anglo American spoke about their efforts to develop local business and suppliers in African countries where they operate mines. Now this had an obvious strategic and commercial driver for the firm – taking these actions was often a condition of them being awarded mining rights in a particular country or locality.

But it also had the benefits of helping Anglo in the longer term by developing a stronger, more robust local supply chain, potentially increasing competition, avoiding shipping costs and reducing supply chain risk by using local firms. Anglo stressed the importance of working on both the supply side and the demand – so helping local firms build capability through training for instance, and also making it easier for them to win contracts by ensuring procurement processes were not consciously or unconsciously favouring large firms.

Many countries encourage support for smaller businesses, and in some countries, perhaps principally the US, also minority, female, veteran owned businesses. That support may be legislative or through public procurement actions. Now these arguably cut across both “social” and “economic” sustainability, and in some cases, the arguments for buyers get a little less clear; will it help my supply chain risk profile to buy more from women?

And when we get into ‘buy local‘ initiatives, the water is even murkier. I heard a story about councillors in East Sussex wanting to stop purchases from suppliers based in West Sussex! That did seem a little ridiculous, and not at all the same as the Anglo activities in Africa.

There’s an argument that buying local ploughs money into the local community. I can accept that if it applies to the middle of the Congo; but it really doesn’t work for a council choosing a building firm based in Sussex rather than Surrey! (What if the owner lives in Kent?) And favouring local suppliers in the public sector has legal issues anyway. But giving business to a firm that doesn’t deserve to win it, just on the grounds that they’re local, seems to be a waste of time and economically inefficient in developed countries.

That's a slightly negative note to finish on, but we’ll continue this tomorrow when we’ll look at what procurement can do to drive economic sustainability – and we’ll see that some of the suggestions cross over into social issues as well.

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