If you think sustainable procurement costs more - you're doing it wrong
Failure to observe a simple economic principle is at the heart of the myth that sustainable procurement costs more. It shouldn't. But bad procurement will cost you more.
There's been much talk about school examinations getting more difficult in the UK. Not being a scholar, I suspect I would've struggled, but here are two very basic economics questions that even I can cope with:
Q: What happens when there are a large number of buyers and a small number of sellers?
A: Price goes up
Q: What happens when there are a small number of buyers and a large number of sellers?
A: Price goes down
Failure to observe these simple principles is at the heart of the myth that sustainable procurement costs more. It shouldn’t. But bad procurement will cost you more.
Back in the 90s, the fashion was to evaluate a suppliers’ sustainability credentials and select suppliers with the best rating, usually as part of a balanced scorecard exercise. There was nothing wrong with this method, but over time this reduced competition. Perfectly competent suppliers would become excluded and disinterested, leading others to start considering sustainability as a premium product, akin to designer jeans, and therefore driving the price up.
My advice to buyers (which is often unpopular within sustainability circles) is to follow the money but invest in the capacity for more sustainable outcomes. Another simple example for simple people like me:
Supplier A has better sustainability credentials, but Supplier B is 10% cheaper than supplier A, all other evaluation criteria are equal. Do you:
1. Select Supplier A
2. Select Supplier B
3. Select Supplier B but make it a condition of the contract that they improve on their sustainability objectives
Procurement can be a complex thing and sometimes, any of those answers can be the right ones.
However, I urge you to consider Option 3. Supplier A would complain that it is unfair, they have invested in being sustainable and those Nasty Buyers are just choosing the cheapest. "They know the price of everything and the value of nothing, boo hoo, woe is me," etc. etc. However, this is not necessarily the case. Nasty Buyer is investing in keeping their supply chain competitive. By encouraging and supporting Supplier B to up their game, they are creating a competitive market for sustainable products and services. Next time you go out to bid, Supplier A will think twice before charging a 10% premium.
Scale this up to a sector level and this is what we try to do in the Supply Chain Sustainability School. We are working with over 75 industry Partners and nearly 30,000 members to upskill an entire industry supply chain, not only in sustainability, but also management, offsite construction, BIM, lean construction, and much more. By collaborating as an industry and each Partner investing a small amount of money and some of their time, they will achieve a competitive supply chain that is fit to meet tomorrow’s challenges.
Our recent impact survey shows it does make a difference; of the 600+ respondents, 45% said the School has helped them to reduce costs, 58% said it helped them to be more collaborative and 46% said it helped them win more business.
So, how do you do sustainable procurement right?
- Invest in the competence of your supply chain
- Collaborate – you can’t do it on your own
- Keep your suppliers competitive and support them
Procurement is not all 1+1=2.
By Shaun McCarthy OBE Director, Action Sustainability Chair, Supply Chain Sustainability SchoolAction Sustainability