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Align Procurement Practices

Key Findings

  • Forty-seven percent (291 companies) consider environmental and/or social criteria in procurement, up from 46 percent in 2012.
  • The eight percent (47 companies) in Tier 1 have formal policies in place for aligning procurement practices with corporate sustainability values.

 

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While establishing a supplier code of conduct with clear expectations for social and environmental performance is an essential first step, implementation is even more critical. Suppliers must be monitored, and incentives and programs established to encourage and assist suppliers with compliance and performance. In short, companies must ensure their supplier codes aren’t just documents in binders, but effective tools for achieving social and environmental objectives.

One effective way to leverage the impact of a supplier code is by aligning procurement and purchasing processes with corporate sustainability objectives and standards. This creates a financial incentive for suppliers, and establishes sustainability as a priority for procurement managers and the company as a whole.

As in 2012, all companies were evaluated for their consideration of environmental criteria in procurement decision-making. This year, as noted, we expanded our performance assessment for nine sectors with particularly complex supply chains to determine if they are also establishing systematic procurement practices that also take social considerations into account. Though this expansion raised the bar for company performance, we nevertheless saw improvement across each of the performance tiers.

Forty-seven percent (291 companies) demonstrated at least some inclusion of environmental and/or social criteria in the procurement decision-making process, thus putting them in Tiers 1, 2 or 3, up slightly from 46 percent in 2012. Only 8 percent (47 companies) are in Tier 1 for having formal procurement policies systematically implemented and aligned with stated sustainability values and objectives, up from six percent in 2012.

These results show that even among companies with supplier codes, implementation is lagging. Until companies elevate sustainability as a core value in procurement, comparable to quality and price, suppliers will not be adequately incentivized to meet the environmental and social expectations set forth in their customers’ supplier codes of conduct.

The Technology Hardware sector had the strongest results on this expectation, with a third of the sector (8 of 25 companies) in Tier 1 for integrating social and environmental considerations into procurement. For example, 64 percent (16 of 25 companies) have formal policies that incorporate environmental criteria in purchasing decisions.

    • Dell requires its suppliers to be in compliance with ISO 14001 environmental management standards. Suppliers are also expected to act in accordance with the EICC code of conduct, which provides guidance on reducing operational environmental impacts and addresses core labor and human rights. Dell has established minimum environmental criteria, which suppliers must meet, especially regarding inclusion of hazardous substances and chemicals in the design and manufacture of Dell-branded products and packaging.
    • Cisco’s procurement policy gives preference to qualified suppliers that are socially and environmentally responsible in areas such as GHG emissions, water use and discharges, solid waste, and hazardous materials management. In 2012, the company introduced sustainability related metrics in its suppliers' business scorecards and reported that 100 percent of its contract manufacturers, 80 percent of its components suppliers and 93 percent of its global transport providers responded to the Carbon Disclosure Project’s annual survey.

 

Footwear & Apparel companies also showed leadership on this expectation, with 43 percent (6 of 14 companies) in Tiers 1 and 2. For example:

    • Several years ago, Gap recognized that an internal lack of information about working conditions at many of its suppliers, insufficient emphasis on labor standards in sourcing decisions, and expectations regarding cost and speed might be contributing to poor working conditions in garment factories it was using. In 2011, Gap created a Brand Integration and Vendor Performance team to improve procurement decision-making and conditions for its supply chain labor force. Gap managers and executives meet regularly with leaders in its sourcing department to examine how issues related to working conditions may have stemmed from decisions made by the company. The company now trains all employees working in inventory management, merchandising, production, and sourcing on the importance of responsible purchasing practices. It is also developing a new training tool to be used by employees globally to understand how Gap’s purchasing decisions can impact local communities around the world.
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Download the full report here.