Sustainable Procurement Finally Getting Its Own Standard

A new post discussed the development of a sustainable procurement standard developed by the International Standards Organization.  ISO 20400, Sustainable procurement – Guidance, has just reached a second draft international standard stage, meaning interested parties can submit feedback via their ISO member on the draft before final publication in 2017.

It’s about time that the concept of sustainable procurement has a standard established around it.  There have been many calls for such a standard, but very little has been done that is specifically related to procurement.  Although previous standards for environmental sustainability such as ISO 14000 did have some impact, the role that procurement plays in establishing the environmental and carbon footprint of organizations is significant.

There are many facets to how this can occur, but it is indeed a long time coming, although sustainability has been at the top of many corporate agendas for some time. More and more companies are emphasizing environmental performance as a critical component of business strategy. As such, environmental objectives are often finding their way into the discussion when it comes to setting category strategy objectives. A green category strategy is one that explicitly includes environmental features and actions, including (but not limited to):

• Redesign of the product
• Substitutions of environmentally friendly materials
• Reduction of harmful materials
• Extension of the product life cycle
• Support for giving more business to environmentally conscious suppliers

Examples of differences in traditional commodity strategy objectives, and environmental objectives are shown in the table below:

Commodity Goals

• Reduce cost of purchased commodity by 10 percent in two years
• Reduce defects of purchased commodity from 10,000 parts per million (PPM) to 1000 PPM in one year.
• Improve on-time delivery of purchased commodity to 99 percent with a one day window over the next three years.
• Integrate state-of-the-art components within the next six months.
• Align our company with the leading edge supplier over the next year.
• Create a motivation for Supplier X to work with our engineers in new product development.
• Have suppliers work directly with our customers on specifications.

Environmental Goals

• Reduce content of harmful substance to zero in all products within six months.
• Establish dollar savings goal of X for disposal of old parts.
• Have 10 percent of the supply base ISO 14001 compliant.
• Ensure that no new parts contain the 57 hazardous substances documented in our policies, and that volumes for existing parts be reduced to X PPM.
• Ensure that all new product packing materials comply to recycling goals.
• Ensure that all suppliers are disposing of metal molds for mass production in an environmentally appropriate manner

Moreover, “green” category strategies go beyond “checklists” and rely on environmental management systems that identify procurement specifications, process requirements, and value stream analysis/waste stream impacts. Supplier assessment systems require audits of suppliers’ processes to identify waste streams and environmental practices. Supplier development processes target potential waste areas and create incentives for moving towards a low-waste, mutually beneficial long-term relationship. Government databases are accessed to identify suppliers who have current EPA and government fines, violations, and safety incidents. Finally, environmental objectives are integrated into contractual requirements, raising the environmental performance bar for all new suppliers to meet. This area of supply management will continue to be more important in the future.

the other facet around sustainability has to do with labor and human rights in the supply chain.  The SCRC has developed a set of criteria for evaluating the extent to which companies adhere to their code of conduct in this regard.  The availability of a code of conduct for suppliers is what we consider to be the basis of a good supply chain social program. Many approved codes of conduct exist (e.g., the UN code of Global Compact, the ILO’s convention, and the Global Reporting Initiative). For the basis of our framework we assessed if the code of conduct followed the guidelines specified in these and similar conventions. Since the conventions are very broad we narrowed down in our framework the elements of the various codes of conduct we need to cover.

Having a code of conduct is not sufficient; there should also be a method of ensuring compliance and ramifications for non-compliance. The framework measures the level to which companies ensure that their suppliers comply with the framework, how well suppliers work with the company to fix issues, and exiting relationships if issues persist.

A key mechanism to ensure compliance with the code of conduct is to ensure that it is part of the contract. Companies ideally should modify existing contracts by adding a clause for existing suppliers and update their standard code of conduct for future suppliers.

Having the code of conduct is essential but more important is monitoring companies to ensure that they are indeed adhering to the code of conduct. Most companies put in remediation processes when monitoring exists. A re-auditing process needs to be established to ensure that the remediation measures are working the way they should work. There should also be independent evaluations by reputed monitoring organizations to independently verify the company audits without being biased by results.

Evaluation and monitoring does not add much value unless results are reported. Ideally, detailed results of internal evaluation should be reported on the company’s Intranet. External evaluation should be publicly reported on the company’s website or through a link from the company website to the independent monitoring agencies website. This will provide the transparency stakeholders are looking for.