Is your company’s procurement ‘responsible’ enough? Which pressures and stakeholders are the most powerful ones for your company?
According to a 2012 study by Procurement Leaders, 61 per cent of organisations are driven by end-customers. Governments and regulations represent the second-most influential pressure that organisations face, followed by 48 per cent of organisations that embed CSR principles in order to meet employee expectations of working for a responsible company.
The above underlines that if you do not have CSR activities in place in the procurement function (and the company in general), then you take the risk that your end-consumer will abandon your brand. Conversely, there is also a business opportunity, as consumers are becoming increasingly willing to pay a premium for CSR labelled products.
What does responsibility mean?
Responsibility, or in procurement terminology Responsible Procurement Management, can be divided into 3 main categories: environmental, social and economic.
Practically speaking, Responsible Procurement is about defining a set of mutually compatible requirements, specifications, and criteria that favour protection of the environment, social progress, and economic development. You do this by identifying resource efficiency, improving the quality of products and ultimately by optimising costs.
In short, you could say that Responsible Procurement is about increasing a company’s profit, improving its strategic supplier relationships, and strengthening its brand, while remaining vigilant towards competitors and revolutionising their procurement strategy.
What does this mean to your company?
From an environmental point of view, your company should ensure that natural resources that are extracted and processed into goods and services are consumed in a more efficient way – getting more out of less. By changing the way we produce and consume goods, we can still limit the impact that climate change is bringing about.
From an economic and social perspective, your company has to ensure basic human rights and economic development, regardless of age, gender, nationality, religious belief or economic status.
How could your company get started with the journey?
Risk in Responsible Procurement is the probability that there will occur violations of the company’s or its key stakeholders’ values and perceptions. Determining a company’s risk profile is specific to each particular company.
Some companies will choose to focus on suppliers where the company has some bargaining power, or suppliers who have a strategic importance to the company. Others choose to target all of them.
Creating the risk profile must then take into account the following:
- Risk level: Is it a strategic or an operational risk?
- Probability: Indicate the probability of the risk occurring. Do you consider this as high, medium or low risk?
- Impact: What impact on the organisation would there be in the event of the risk occurring? Again use high, medium or low.
- Risk treatment: You should indicate the appropriate treatment for the risk. This could be: avoid risk, reduce or control probability, reduce or control the impact, transfer risk or accept risk.
- Owner: The owner is the person who is accountable for taking action or carrying out the risk treatment.
- Current status: Detail the current status of the risk. For example, has vital information been gathered?
Start managing your risks
Following the risk assessment the next natural step will be to look for ways to manage the risks. Risk management options will be particularly affected by the following factors:
- What bargaining options does your company have over your suppliers?
- Is your company a major customer or just one among many?
- Who are the drivers of the value chain; is it producer or consumer-driven?
- To what extent are subcontractors used, and how big a role do they play in the manufacture of products: for example, in situations where the supplier is a wholesaler, it may be necessary to identify the actual manufacturers.
- How many financial and human resources is needed to work with it?
- How far back in the chain will it be necessary to manage the risks?
Don’t give up – though the picture must be right
When Procurement Leaders carried out their research in 2012, they asked participants how important CSR was currently in their respective organisations. 42 per cent of the respondents said it was ‘Very Important’, while 38 per cent said it was ‘Important’.
When asked about how long their CSR policy had been in place, 36 per cent stated 1-3 years, while 30 per cent stated 4-6 years. What was clear from the research was that nobody wanted to be left behind, nobody wanted to be seen as a laggard in this field. Appearances matter.
The most important message is, though, that the actions you take must be equal to the picture you draw to the public.