Spend Matters welcomes this guest post from Katie LoFaso, Senior Content Manager at Fairmarkit, a sourcing provider.
Last month, French cosmetics powerhouse L’Occitane became the latest to join the movement for sustainable procurement by signing the Responsible Beauty Initiative, which counts among its signatories household names like Coty, L’Oréal and Louis Vuitton.
Signing the pledge was the company’s way of highlighting the business imperative of a sustainable supply chain and procurement function.
L’Occitane operates in a competitive sector in which reputation is increasingly coming under pressure. Historically strong brands in the beauty industry — which for decades held luxury and premium as its dominant marketing strategy — now lose market share if their customers perceive the brand isn’t acting responsibly in areas like product testing, the environment, diversity and myriad other social matters. It’s crucial for companies to show their customers, employees and other stakeholders that they operate a responsible business when it comes to social, environmental and governance issues.
Among a multitude of challenges for procurement leaders, this new stance has meant a thorough vetting of suppliers for fair labor practices, a rethinking of packaging and logistics to maximize the use of recyclables, and taking quantifiable measures to minimize their carbon footprint.
The retail clothing sector has known about the link between sustainable sourcing and reputation for decades, with many brands over the years finding themselves the targets of public fire for sourcing materials from suppliers accused of child labor and other exploitative practices. To combat such claims — and to genuinely improve their business — many of these brands increasingly work to source more ethically and sustainably.
Just last month, PVH — owners of the Van Heusen, Tommy Hilfiger and Calvin Klein brands — proudly announced that in 2019 it sourced around 50% of its cotton footprint sustainably, halfway to its goal of reaching 100% by 2025.
A procurement strategy for cost savings, risk mitigation and value-add
While corporate reputation is critical to a company’s bottom line, reputation alone isn’t the driving force for the sustainable procurement movement. Studies show that over the long term, sustainable procurement brings cost savings and efficiencies to the business. Supplier diversity alone — sourcing from suppliers owned and operated by people from socially or economically disadvantaged groups — has shown to substantially reduce purchasing costs: $45 million in the radio spectrum industry, a 10% reduction in expenditures for the logging industry and a 12% cut in government procurement expenditures.
In addition to cost savings and protection of reputation, a sustainable procurement program also improves a company’s overall risk mitigation and procurement metrics, making it yet another valuable tool for CPOs to add value to their business and provide input to a company’s overall business strategy.
The idea that sustainability is in conflict with profits and a company’s fiscal responsibility to its stakeholders has time and again been disproved. Take Swedish furniture giant IKEA, which reported sales of $37.6 billion in 2016 — the same year it turned a profit by recycling waste into some of its best-selling products. Previously, its waste had cost IKEA over $1 million a year.
The formula for future-proofing — in COVID-19 and beyond
In a world where change is more frequent and more pronounced — geopolitical conflict, natural disasters, social movements — companies are using sustainability strategies to future proof themselves from supply scarcity risks and to improve their ability to cope with emerging market demand, cost pressures, energy consumption and waste reduction regulations. Businesses are finding that a focus on sustainability helps them create new business opportunities with the development of innovative and sustainable products and services that are more relevant to their markets and customers.
And sustainability goals haven’t fallen by the wayside with the onset of the COVID-19 pandemic. The early pandemic may have caused panic buying and extreme pressure on supply chains, but even amid such chaos, consumers are paying attention to the provenance of the products they buy.
Thomas Udesen is a co-founder of “The Sustainable Procurement Pledge,” which aims to enroll procurement professionals into the cause of “procurement with purpose.” He’s also CPO of the giant global life sciences company Bayer, with more than 1,000 procurement staff and a nearly $28 billion procurement function in over 70 countries.
Udesen says the companies and procurement professionals that responded best to the COVID-19 crisis were those that had already invested in “sustainable supply chains.”
In the case of his own employer, Udesen says of the pandemic, “We are not being slowed down in our efforts to implement big changes. On the contrary, we get strong backing to continue driving these initiatives.”
As a new normal begins to take shape — one where uncertainty is the only real certainty — sustainable procurement is increasingly becoming the solution to reconciling the operational issues of supply chain management and consumer demand with financial growth and stability. And it also happens to have social and environmental benefits too.