Creating sustainable procurement strategies for a resilient business by expanding on spend data

The capacity of a business to deal with supply chain challenges, adapt to change and continue to develop requires resilience. And to be resilient, a business must have the ability to meet the needs of now without compromising the needs of tomorrow, and that requires sustainability. So, resilience and sustainability are intrinsically linked.

As concepts they complement each other, because the implementation of resilience continues to aid sustainability, and we need sustainable strategies to support resilience.

We know that change will occur — that’s a given. But a combination of resilience and sustainability gives organizations a better chance of renewal and growth after a period of disruption, or indeed to face threats as they strike. That, alongside growing pressure from citizens, governments, stakeholders, financial institutions and even employees, means it has become imperative to embed sustainability into business strategies.

So where does procurement fit in? How can it embed sustainability into its processes and how can spend analytics help?

To understand more, we spoke with Heta Ruikka, VP of Product at spend analytics specialists, Sievo, about how combining analytics and processes, by use of intelligent technology, can give organizations not only the insight to ‘see’ supply chain challenges but the agility to overcome them.

How can embedding sustainability into our processes lead to supply chain resiliency?

“Just-in-time operations and supply chains have often been optimized solely for lowest cost and thus often are comprised of many dispersed suppliers,” she explained. “Due to their highly optimized nature, these supply chains are not only fragile to disruptions but also non-optimal in terms of sustainability, especially as deliveries can be long and complex and thus climate-taxing. Furthermore, evaluating and auditing many far-off suppliers’ other sustainability aspects, such as labor and human rights, can be difficult. This leads to even more fragile supply chains, which are not only vulnerable to geological and political disruptions but also human and brand risks – which all ultimately have big financial implications in addition to the obvious risks to keeping your factories running.

“The good news is that sustainable supply chains have proven to be more resilient as well. Sustainable supply chains are often simpler, and as suppliers are closer to you, it enables you to work with them better. As suppliers adhere to environmental regulatory systems, customer response monitoring systems, environmental uncertainty and so, they not only become more sustainable, but also more aware of their surroundings and thus more resilient to the risks they pose. Often, working with suppliers on sustainability topics increases the supply chain’s collective capabilities to overcome the risks of our increasingly volatile environment, as well as to improve both economic and environmental sustainability. Of course, it does take a lot of work, and the most sustainable option rarely has the lowest unit price.”

What data or spend practices can procurement start to address to support sustainability and resilience?

“To drive sustainable actions in procurement, you need to understand where you are today and where you need to go,” she advises. “The starting point for gaining understanding on the sustainability of your supply chain is your purchasing data. Start with what you already have, and in the best case that is spend data well organized in an excellent spend analysis tool. This enhances the quality of the data, as some cleansing and consolidation has been applied to it, and it has been classified into categories. These actions form the important basis for connecting it with sustainability data, as clean suppliers, materials and categories are the glue you need to put the two pieces together. Once you have the data in place, you can start to understand where to make changes and then really act and follow up on it.

“Of course, the action is what counts – and there is a multitude of things procurement can do to drive sustainability: choose sustainably produced materials, work with suppliers on their sustainable practices, choose to work more with sustainability-focused suppliers, figure out with R&D which materials are most problematic and could be swapped for others, and moreover get involved in new product design early on to inform R&D which materials can or cannot be sourced sustainably. Offer this valuable information and insight to your colleagues and stakeholders, and you’ll surely be invited to the table again.”

Once you have the data, how do you make sense of it?

“First of all, you need to understand the problem you are trying to solve, because different data solves different problems, even within a single domain. For example, if you want to understand specifically how to reduce your supply chain’s CO2 emissions, you should first look to get a high coverage by mapping your materials and categories to CO2 data. Once that is done, you can see where your emission hotspots are, and figure out where you could most easily achieve emission reductions – where to focus your efforts with suppliers, with R&D and other business stakeholders.

“However, after identifying the hotspots to focus on, you need to complement the view with supplier-based data: not only can you make choices between substituting apples with a lower-emission alternative, or swap apples produced in Chile to apples produced in France, but you might also need to optimize between two specific apple suppliers when a material change cannot be justified. To drive these efforts, you need supplier-specific sustainability data.

“Furthermore, sustainability is not only about carbon emissions but also water usage, waste, ethicality, labor practices and human rights – and how about supplier risk, supplier diversity and so on? To solve this, you must have all this data conveniently available in one place, enabling you to make informed – though tough – decisions efficiently. But even more importantly, you must scope your problem properly in order not to get confused along the way and remember that you don’t have to solve all issues at once, it’s more important to make a start and build on top of that.”

How can procurement teams match internal spend data with external data (from suppliers or third-party risk or environmental firms) to address sustainability?

“As said, the most important thing is to start with what you already should have – good quality spend data, classified into categories with high enough quality. Having spend data in good order is key, as the glue that combines your internal data to external data happens to be the suppliers, materials and categories defined in your data. Data quality doesn’t need to be perfect (you’ll never get there), but it should be good enough to make a reasonable connection between the data sets.

“You should then look into your spend analytics provider, whether they can provide the needed data matching out-of-the-box, which third-party data providers they work with, and whether they suit your needs. Try also to understand whether your spend analytics provider has certified their sustainability solution, when there is a need for that – it might be needed for example for reporting CO2 emissions according to certain standards. Alternatively, you can also extract the spend data out of the system, purchase access to third-party data and try to manage the data matching yourself, but bear in mind that without specialist tools it is an extremely manual task, and difficult to manage on a continuous basis.

“As for data, you should start with third-party data providers to get a reasonable coverage and then identify areas where more in-depth data is needed. In other words, after reaching certain breadth in your analysis, you can identify the suppliers whose specific sustainability data would deepen your analysis, and figure out a way together to get, match and utilize that data.

“Also, keep in mind that sustainability data interests and benefits people outside of procurement – so make sure that you also give your sustainability, R&D and other teams access to the chosen tool.”

If procurement teams are to lead this effort, how do they sell that message to the C-suite and other stakeholders?

“While I do believe in the importance of altruistic pledges of companies to become carbon neutral (65% of FTSE companies – EcoAct 2021), I’m glad there are also forcing factors for this, namely regulations and the looming threat (or opportunity!) of emission taxes. More and more countries, states and cities are setting requirements for companies to report and reduce their emissions, and we are not far from placing actual taxes on those very emissions, at least in the EU. Furthermore, public pressure on reducing emissions is growing faster than ever, creating a very real risk on continuing to do unsustainable business.

“Bringing all of these aspects to senior leadership should help you advance your agenda. You can focus on not only the threats, but also the upsides of being sustainable. As explained, sustainability and supply chain resilience go hand-in-hand, and sustainability can have a major positive impact on brand and thus the business. Furthermore, avoiding the threats of unsustainable business and reaping the benefits of doing it sustainably not only relate to direct monetary benefits, but also impact employee satisfaction, employer brand and many other things – and it is simply the right thing to do.

“Finally, as we know, the majority of a company’s emissions most often come from the goods and services they buy and consume, and thus procurement plays a key part in all of this. In essence, procurement is sitting on top of the key piece of this puzzle – the purchasing data. Offering this up gives you your final leverage: not only are you showing the threats and opportunities related to sustainability, but you are already showing the way forward.”

In part 2 of this series we’ll be digging deeper and speaking with Heta Pirttijärvi, Product Manager at Sievo, about how to analyze and reduce Scope 3 carbon emissions using procurement analytics.

This has been a Spend Matters Brand Studio interview series with the experts at Sievo and Accenture. Look out for more in this series as we cover procurement’s role in driving the enterprise sustainability agenda, creating more sustainable and resilient procurement strategies by connecting spend data with analytics data, and spend analytics enabling sustainable procurement value through closed-loop spend management.