June 19, 2013
One year after the launch of BSR’s Center for Sustainable Procurement (CSP), our first research paper captures four main insights from projects with AT&T, Best Buy, and Dell that covered a range of product complexities and supplier relationships:
1. It’s crucial to align the sustainable procurement strategy with the nature of the category and supplier relationships.
2. It’s essential to involve the right players in the sustainable procurement discussion.
3. Companies pursuing sustainable procurement must establish a clear business case for purchasing more sustainable products.
4. It’s best to start with what is measurable and scale up from there.
The CSP is developing tools and approaches for sustainable procurement that will benefit the wider network of companies interested in integrating this into their overall sustainability priorities.
The pilot projects — conducted with BSR member companies selected based on their existing supply chain sustainability focus and a high level of buy-in for this work — examined how companies can make sustainable procurement decisions in specific product categories covering a spectrum of challenges:
- AT&T’s fan belts for building mechanical equipment: This simple product can be substituted to improve energy performance and thus reduce costs. But in order to perform an upgrade, the company first must be internally aligned and understand the return on investment
- Best Buy’s in-store display units: This moderately complex category composed of several substitutable commodities (such as wood, wood composites, metals and plastics) can be changed to reduce costs if display units ultimately are redesigned for reuse. But doing so requires strategic supplier engagement to identify sustainable substitutions that still meet Best Buy’s needs.
- Dell’s notebook computers: This complex product can be redesigned to reduce embedded energy use over the total lifecycle of the device. But this requires management of long-term strategic relationships with a small number of key suppliers, called original design manufacturers (ODMs).
Lessons from the first year
We learned four main lessons from the three projects in our first year of work:
1. Align the strategy with the nature of the category and supplier relationship. In the case of a simple commodity for which many other options are available, efforts can be focused on establishing preferred business and sustainability specifications for a product, and then finding a supplier through a competitive bid process.
But as products increase in complexity and the specifications become unique to the company, supplier relationships must become more strategic, and the focus should be on partnering with suppliers to build their capacity for producing products with enhanced sustainability characteristics.
2. Involve the right players in the sustainable procurement discussion. Success in sustainable procurement requires alignment and engagement with a range of internal stakeholders who influence the design, specification and use of purchased products and services.
For AT&T, it was critical that the supply chain team engage with experts in facilities and operations who could help assess the business case and implementation requirements related to purchasing more energy-efficient equipment.
Similarly, decisions regarding the specification and purchase of in-store displays at Best Buy required the involvement and support of everyone from store operations to the teams responsible for branding and customer experience.
In the case of Dell, product purchasing needed to work closely with supplier management and third-party ODMs to drive improvements in supplier energy efficiency that will reduce the embedded energy in notebooks.
3. Establish a clear business case for purchasing more sustainable products. To drive meaningful and lasting change, it is critical that the business benefits of buying more sustainable products be clearly articulated.
In some cases, these benefits will be financial, such as direct cost savings or reduced “total cost of ownership.” In other cases, some kind of “indirect” value needs to be attributed to support a company’s sustainability commitments and objectives.
AT&T took a total cost of ownership approach in order to consider the purchase price and switching costs vis-à-vis the savings that would be generated through reduced energy consumption of the new fan belts.
4. Start with what is measurable and scale up from there. Achieving total lifecycle sustainability will take significant time and effort, making it important for companies to start simple and build momentum through early wins.
In the case of Dell notebooks, improvements will require coordination across a highly complex supply chain. To build understanding and support, Dell began with energy efficiency, which is relatively easy to measure and promises tangible benefits for suppliers as well as Dell. AT&T also chose energy efficiency as the best starting point.
The CSP’s goal is to generate both tangible results and a growing body of examples and related methodologies, which we will use to help other companies advance sustainable procurement practices. We will also share ideas and tools through webinars and other content to generate a wider discussion among companies.
In this year’s work, we will focus in particular on product design and development, and we will work with the three companies involved in our pilot projects, as well as others, to develop a deeper analysis of a total cost of ownership procurement methodology that incorporates sustainability data.
We are actively looking for ways to engage a wider audience of companies, both individually and via trade associations, on these challenges.
Editors Note: This article originally appeared on BSR Insight.