Develop Purpose, Ambition Level, and Strategy

Abstract

Starting with a new purpose for procurement sets the North Star. If people ask for a purpose, give them one, and let them know what the level of ambition is. An ambitious sustainability strategy is key pillar for a future-proof procurement organization.

1 Defining a Meaningful Purpose

There has to be purpose at the center of a business that needs to be authentic to the company. You can’t just copy and paste it from another organization. It is the purpose that gets the hearts and minds of employees, customers, or shareholders involved.

Mark Perera, Chief Executive Officer, Vizibl

It all starts with creating a purpose. It is a clear, well-defined purpose that gives companies direction and drives them forward, and it is a purpose that guides management and employees. “Starting with why” is the best way to ensure commitment and employee motivation (Sinek, 2009).

It is important for a company to define its purpose and to find good answers to why things are done the way they are. However, purpose should not be confused with vision, mission, or values. In fact, the purpose of a company describes why it exists in the first place, rather than the goals or principles needed to drive that purpose. This is where mission, vision, and values become relevant.

Purpose describes the bigger picture. It is something that is defined to inspire staff and to express an organization’s impact on its customers, clients, or investors. In effect, a company’s purpose expresses its external impact, or what it does for the people it is trying to serve (Kenny, 2014).

1.1 Having a Purpose Is Key to Success

The COVID-19 pandemic has reinforced the importance of purpose-driven activities. In fact, a 2021 study found that “63% of global consumers prefer to purchase products and services from companies that have a purpose,” (Western Governors University, 2021). So, those companies that represent more than what they are selling, that properly communicate their purpose to stakeholders, and that show commitment to their purposes, can influence customers’ purchasing decisions. On the other hand, customers may boycott some companies if their purpose is ill defined or unclear in favor of competitors that are purpose driven.

The same is true for employees. Over the past years, as generations Y and Z have taken more prominent roles in the corporate world, employees are actively questioning management decisions and behaviors. They monitor corporate activities, and it is vital for them to be proud of, and to stand behind, what their employers are doing. They have started to actively scrutinize their daily tasks and are craving to see that the work they do has visible and positive impacts on society. If formulated well, a solid purpose can at least partly fulfill these needs and play a key role in keeping employees motivated.

1.2 Sustainability: An Integral Part of Company Purpose

Sustainability in Action

Sustainability is at the core of our company purpose: we’re in business to create a more responsible society by fostering both sustainability and prosperity, which are closely interlinked.

We see ourselves as change agents for the logistics industry. We’ve already turned the industry upside down once by providing more transparency through digital solutions—even though people did not clearly express demand for what we’re offering. The same thing could and will happen with sustainability.

Nina Göntgen-Voss, Director of Sustainability, Forto

Forto delivers a highly transparent, frictionless, and sustainable digital supply chain. Their platform addresses the entire process stream, supporting customers with greater visibility, insight, and control.

It is no secret that there is increasing demand coming from customers, investors, and employees for companies to be sustainable. These demands have been reinforced by the already significant and growing amount of legislation around corporate sustainability. But sustainability does not have to be a burden that is driven by external forces—it can be a powerful lever in developing new business opportunities. Sustainability could be the exactly the right anchor with which companies can formulate their purpose and make it an integral part of their business models.

Sustainability in Action

We also use sustainability as an opportunity to expand our business model. For example, we have developed a CO₂ dashboard for LBBW based on the demand and consumption information from purchasing, which lowers our CO₂ footprint throughout the organization. Every employee, every organizational unit has the opportunity to see and control their emissions. During the expansion, we now distribute the CO₂ targets for operational emissions in a balanced score card.

Nils Eichberger, Vice President of Procurement, LBBW (Landesbank Baden-Württemberg)

LBBW is a Mittelstand-minded universal bank with deep roots in Baden-Württemberg; a partner for medium-sized companies, listed groups, institutional customers, savings banks, and retail customers.

Before beginning the process of defining a purpose that has sustainability at its core, it is essential to understand just how important sustainability is to the respective stakeholder groups. Sustainability is not new to corporates but since 2020 there has been a marked turning point that has placed sustainability in the spotlight both for consumers and the businesses they buy from. A 2021 study concluded that COVID-19 has led to customers becoming “hyperaware” of the condition of the environment and that they now “seek and champion brands that commit to sustainability” (Forrester, 2021). According to the study, 68% of these “highly empowered” customers will increase their efforts to identify brands that have a positive impact on the environment. But this figure is not only true for customers—employees and investors have similarly high demands. The outcome for companies is clear in that they now have to understand which areas of corporate sustainability carry the most weight and how the essence of the business can help to meet—or exceed—these expectations.

So rather than being a burden, the current emphasis on sustainability has presented companies with the perfect opportunity to take a step back and to rethink why they exist, why they do what they do, and to assess what positive impacts they can have beyond mere profits.

1.3 Purpose-Driven Companies Outperform Their Peers

Sustainability in Action

One motivating factor is the fear of being left behind. There’s a general understanding that sustainability is rising in importance and if you don’t act swiftly, it’s only a matter of time before you start losing your market share, or regulations catch up and your company becomes obsolete.

Pressure from consumers is also helping to push sustainability in B2C industries. When consumers make up their minds on what’s good or bad, companies within that industry need to adapt quickly to stay relevant.

Fredrik Gustafsson, Senior Manager of Sustainability Transformation, Cordial AB

Cordial is a management consulting firm based in Stockholm, Sweden. Its main focus is strategy, transformation, and business development with sustainability as one of the key areas.

Companies that operate with a clear purpose also perform better financially. A 2021 report by the Havas Group, a French multinational advertising and public relations company, revealed that brands with an active purpose outperformed the stock market by 206% over the last 10 years. In addition, the report showed that companies with an inspiring purpose also benefit from higher customer loyalty and satisfaction as well as more productive employees who have a stronger sense of belonging (Havas Group, 2021).

Today’s companies need an understandable and inspiring purpose if they are to truly stand out and perform well and the same is true for the divisions within an organization, including procurement. Good leaders should define a purpose that inspires their employees and helps them to understand the bigger picture. For procurement professionals, this means thinking beyond price reductions and embracing sustainability. Bearing in mind the current state of our world, there can be no greater purpose than tackling climate change and fighting the injustices too many people are suffering. This is why sustainability should be a priority for everyone who works in procurement.

1.4 How to Define Company Purpose

Defining a purpose is easier said than done. Creating just one inspiring and “on-point” sentence that aims to simultaneously meet the expectations of multiple stakeholders can be an intense and time-consuming process. Flexibility and compromise will be important throughout this process as there will inevitably be the need to accept trade-offs to soothe tensions and disagreements between different stakeholder groups.

But what exactly is needed to formulate an inspiring and on-point purpose statement? Some light can be shed on this by looking at a few prominent examples and trying to understand what they all have in common.

Kellogg’s:

Nourishing families so they can flourish and thrive.

Coke:

Refresh the world. Make a difference.

Dove:

Discovering the value of ‘real’ beauty and improving self-esteem worldwide.

Lego:

To inspire and develop the builders of tomorrow.

The first thing to notice is that none of these purpose statements mentions an actual product or service. They are all concise, centered around the bigger picture and aim to illustrate the company’s positive impact on society—for example, to make sure that families can flourish and thrive, or to improve self-esteem worldwide. Each statement relates to the core activity of what each company does. In the case of Lego, for example, the statement centers on inspiring the builders of tomorrow. Each statement reflects the corporate identity of the respective companies.

However, purpose statements do not necessarily need to be defined on corporate level. In fact, each division in a company could create a purpose statement to motivate employees and to create the required sense of belonging. For this, we suggest following a four-step approach.

Step 1: Understand What Is Important to Your Stakeholders

It is vital to understand what is important to the key stakeholders of a division or department and what they value the most. For procurement, the focus should be on elements beyond purchasing. For instance, providing support to make product or service portfolios more sustainable will in turn help to drive sustainability at a corporate level.

Understanding the core values of stakeholders requires an intense self-assessment that involves measuring current impacts and identifying potential pain and gain points. Take a careful look at the daily activities of procurement and where these activities can have the highest impacts in reducing the pains of stakeholders or adding to their gains. Conducting a self-assessment will reveal if the purpose is going in the right direction.

While focusing on key stakeholders, it is important to keep in mind that a purpose statement for procurement has to be in step with the overarching corporate purpose. Any discrepancies between the two should be addressed and the purpose statement for procurement adjusted accordingly.

Step 2: Focus on Your Key Strengths

Understand where procurement can have the biggest impacts. What is it that procurement is already doing well and how does this support the company in achieving its overall goals and objectives? What steps are needed to ensure that procurement can create value and facilitate the journey to corporate sustainability?

It is important to think beyond costs and to focus on procurement activities that can drive sustainability, such as product innovation, supplier management, waste reduction, and the use of alternative materials.

Step 3: Communicate Your Purpose—Internally and Externally

Once a purpose has been defined, it must be integrated into the core of procurement’s activities. This requires clear and constant communication so that everybody understands why it is being done. Try to find alternative and non-conventional ways to communicate the purpose—treating it as an internal marketing campaign could lead to some creative and compelling communication activities that will help to get people to act according to the new purpose.

In addition, make sure elements such as creativity, enthusiasm, and cross-functional collaboration are encouraged when communicating the new purpose. These elements are crucial when it comes to connecting the corporate or divisional purpose with peoples’ individual purposes. And keep in mind that good communication is a two-way process—it is not just top-down but also bottom-up, so listen to any feedback and act on it when appropriate.

Step 4: Act Accordingly and Reassess Regularly

Defining a purpose in itself alone does not automatically lead to success. Everybody should understand the purpose and act accordingly. Managers should check regularly that their teams truly support the purpose since stringency and compliance with it are crucial for successful operations. Without these checks, there is a risk that the purpose exists as nothing more than a written statement rather than an everyday practice.

In the end, defining a purpose is not a once-in-a-lifetime activity but a series of iterations based on stakeholders’ needs. In this respect, it is important to regularly collect feedback from stakeholders to ensure that a particular purpose still fits with their needs. When this is no longer the case, the process of assessing stakeholder needs should be repeated so that a new purpose can be created.

1.5 Purpose and Sustainability Are the Keys to Success

In the end, defining a purpose is the first big step of a sustainability transformation. It is the exercise of defining a Northstar, a communicable goal that inspires and motivates employees and that addresses the needs of key stakeholders.

Defining a purpose is not something that should be done in isolation. It is a process that should incorporate the needs of as many key groups as possible because it will ultimately redefine the relationships between these stakeholders and unify them behind a common sustainability goal. A procurement department, with a carefully considered and properly communicated purpose, can be a powerful force to drive sustainability throughout the rest of the organization. More and more companies are harnessing and benefitting from this force. It is a trend that is set to continue as businesses will pursue purpose and sustainability like never before, mindful this is the best way to retain talent and customers.

“We’ll start to see a more purpose-orientated approach in business and in working life,” wrote one leading journalist. “The ‘great resignation’ has encouraged many people to seek out work that feels personally meaningful to them, and I expect this trend will continue in 2022. As employees start to realign their working lives around a sense of personal meaning, it will eventually become clear to employers that purpose is a priority. This will encourage business owners and leaders to take a more intentional approach to strategy and management, figuring out what they can offer their employees and stakeholders, and working to make a meaningful impact in the world” (Skinner, 2022).

There are trends in business just as there are in other areas of modern life, but we believe that purpose linked to sustainability is not just a trend, but a concerted movement for positive and lasting change.

2 Set Ambition Level

For the environmental, social and governance parts, our ambition level goes beyond being compliant. It might look like we put a lot of focus on the environmental part since that’s what one can read about in the media, but the social and governance parts remain crucial for our way of working. In the industry and regions where we operate these have always been important topics and we’ll continue to focus on them as much as the environmental part.

Henrik Larsen, Chief Procurement Officer, A. P. Møller-Mærsk

The journey to become a sustainable procurement organization starts with establishing the company’s current situation and ambition level. Before it became the current business zeitgeist, many took the position that sustainability was simply a steppingstone from compliance and risk management and their focus was on external drivers, such as rules and regulations. This is ambition level 1. More recently, many more companies are seeing sustainability for what it truly is—an integrated part of their business that can create real value and a competitive advantage (ambition level 5) (Fig. 3.1).

Fig. 3.1

Define ambition level

The decision to go for one of the lower ambition levels could be risky. With rules and regulations changing faster and faster, the risk of being left behind increases when a company sets out to “only” be compliant and neglects to see sustainability as a chance to create a competitive advantage.

Sustainability in Action

We keep a close eye on existing and upcoming regulations to be a knowledgeable and helpful partner to our clients. But we won’t stop at what is legally required. Our goals and our motivation go way beyond that and double down on our efforts to make supply chains fully sustainable.

Nina Göntgen-Voss, Director of Sustainability, Forto

We have also seen that company representatives become very ambitious once they see that the competition has set up their organizations and suppliers to innovate and implement instead of debating about what needs to happen and why. The long-term ambition level should, consequently, be one where value is created beyond business economics. Of course, there has to be technical advancements to support the ambition level, as well as changes to the way all company stakeholders think about sustainability. Both will require a step-by-step approach, which at the very least will get things moving in the right direction. Procrastination will lead, as ever, nowhere new and should be avoided.

Sustainability in Action

Many companies and countries have ambitious plans and have committed to net zero, but this requires a massive transformation that we’re just starting now. When there are lots of companies in this transformation it makes it much easier because a significant volume of emissions come from the supply chain and many companies have shared supply chains. So, a unified movement is a positive start because it will encourage everybody to achieve their targets. The question is: How can you mobilize companies and countries to be ambitious and take action? Tracking progress is now very important because when investors and ESG professionals look at who is performing better we have good metrics to track them. Then competition is on, and this will accelerate the transformation to a zero carbon economy.

Dr Maria Mendiluce, Chief Executive Officer, We Mean Business Coalition

We Mean Business Coalition is a global non-profit coalition working with the world’s most influential businesses to take action on climate change.

2.1 Two Approaches to Becoming More a More Sustainable Business

As many other companies have already started their sustainability journeys, doing nothing is not an option. The question is, how to begin?

There are two possible starting points. First, company sustainability objectives have already been set, along with specific targets. In this case, procurement can chime in to see how social and environmental issues along the supply chain can be tackled. If this is the case, well done so far. This book provides guidance about how to proceed from this point and the process involved.

Second, sustainability is not yet on the agenda and has to date not been actively pursued by top management, a criterion that is necessary for a successful sustainability transformation. All is not lost if this is the case. Procurement can still take the lead and do all the things within its power to collaborate with team members and suppliers to manage some of the riskiest parts of the business. Again, this book will act as a guide to a journey starting from this point.

Ultimately, whether frontrunner or implementer, the starting point does not matter. Both approaches will drive the required changes. Doing nothing is not an option.

Once the initial hesitation has been overcome and the first successes recorded, working sustainability almost becomes a self-fulfilling prophecy. Depending on how large and influential a company is, there could be political considerations that determine the boundaries that can be pushed by procurement internally and externally. Nevertheless, procurement has a vital role in seeing the bigger picture and advocating change across entire companies and industries; by being bold, thinking big, and joining forces with suppliers and the wider ecosystem, procurement can bundle power and seek real, lasting change on a big scale, and that includes within local authorities, national and international energy providers, and entire countries. It all starts with the right ambition.

3 Assess Current Situation

Everything stands and falls with transparency.

Dr Nicholas Garrett, Co-founder and Chief Executive Officer, RCS Global Group

3.1 The Journey to Sustainable Procurement Starts with Understanding the Current Situation

Taken as a whole, a sustainability transformation journey can seem like a daunting task because this is a decision that affects not just one team or department, but the whole company and eventually its supply chain. After all, a business can only be as sustainable as its suppliers. Whichever way you look at this, it is a huge undertaking, but as with any large project, the key is to take a step-by-step approach. The question now is, where do you begin?

Knowing the starting point is the first step to establishing the route to sustainable procurement and what steps that are necessary along the way. Establishing a baseline involves a combination of internal and external assessments that will provide a clear understanding of the organizational readiness for sustainability, where category-related risks lie, as well as the status of suppliers. Each of these will be looked at in the following sections.

3.2 Organizational Readiness for Sustainability

Several different factors need to be reviewed when assessing organizational readiness for sustainability. We look at this from the standpoint of the operating model—it starts from the strategy and targets, then looks at organization and governance, processes, tools and, potentially THE most important aspect to unleash the power from within, the people within procurement and how the culture lends itself to sustainability.

An organizational maturity assessment can be used to get an overview of the current standing and what gaps must be filled before sustainability is truly integrated. To perform such an assessment, we recommend engaging with a range of stakeholders that includes management and members of cross-functional teams, as well as procurement. Keep regional differences in mind, especially in a multinational corporation, where some regions could be more advanced than others from a sustainability perspective.

The assessment can have different levels and starting points, as the following checklist illustrates:

Strategy and targets

• Is sustainability part of the company’s strategy?

• Is sustainability an integral part of procurement’s strategy?

• Is there a company-wide understanding of how to contribute to a (more) sustainable future, and is cross-functional collaboration being nurtured to achieve this objective?

• Have sustainability goals been defined for each element of the sustainability scope?

• Are sustainability goals tracked using defined KPIs, and are deviations adjusted accordingly?

People and culture

• Has an internal sustainability culture already been established, and can employees advocate sustainability with suppliers or other stakeholders?

• Has a transformation concept already been established that aligns or actively promotes the procurement organization with regards to sustainable procurement goals?

• Are sustainability and sustainability targets part of employee role descriptions?

• Have training activities been planned that aim to develop understanding and skills in relation to sustainable procurement?

Organization and governance

• Does procurement have a suitable organizational setup to cover the different aspects of sustainability?

• Does the sustainability department have a strong mandate?

• Have tasks, roles, and responsibilities been clearly defined and assigned?

• Is there a way to monitor changes in the laws and regulations related to sustainability and sustainability trends?

• Have procurement sustainability targets been properly addressed and reflected in cross-functional collaboration?

• Are internationally recognized regulations for sustainable development being observed and complied with?

• Have the minimum legal standards been met and are there aspirational targets for sustainability to go above and beyond the minimum requirement?

Processes and networks

• Is sustainability anchored in the category management process and a part of the category strategies?

• Have roadmaps been established with suppliers about how to create the required positive environmental and social impacts, and is this anchored in the collaboration model?

• Have sustainable procurement objectives been clearly described and quantified in the awarding criteria?

• Is sustainability anchored in the risk management process?

• Are sustainability criteria part of the supplier on-boarding process?

• Is procurement, or the company in general, engaged in industry or cross-industry networks and panels?

• Is procurement, or the company in general, engaged in national, international, or supranational councils, panels, and standardization bodies?

Tools

• Is there an appropriate IT-system and tools landscape in place to support sustainability and supply chain transparency?

• Are third party providers and platforms being used for (risk) control and monitoring?

• Are analytics and predictive use cases in place to support sustainability?

Do not be put off if the answer to many of these questions is “no.” On the contrary, it shows where attention is required and gives a true reflection of the current status. Overall, this is an activity that should provide an objective assessment of organizational readiness for sustainability and highlight the focus areas.

3.3 Materiality Assessment: The Key Topics of Sustainability for Your Company

In addition to understanding organizational readiness, it is important to understand how sustainability will impact the overall business. This is where a materiality assessment comes into play. In sustainability reporting, materiality refers to “those topics that have a direct or indirect impact on an organization’s ability to create, preserve or erode economic, environmental, and social value for itself, its stakeholders and society at large” (Unknown, 2021).

A materiality assessment is a method of identifying, assessing, and prioritizing the environmental, social, and governance issues that could affect businesses and their stakeholders. The assessment summarizes the issues into a short list of topics that can then be used to guide company strategy, targets, and reporting. Identifying these issues involves reaching out to internal and external stakeholders to get their input, which can be time-consuming, but is also a valuable opportunity to solicit input on strategy.

Sustainability in Action

We started with a materiality assessment that involved discussions at Group management level from different functions to determine which topics are important to WS Audiology. Once we’d decided on these topics, we then aligned with the team members one level below management and assigned program managers for specific initiatives. The teams below them in turn assigned activity managers who manage part of an initiative. We in the sustainability team are the overall owners of all initiatives—sustainability is one of the three drivers to deliver our ambition to become a clear industry leader.

Chaojun Li, Global Head of Sustainability, WS Audiology

WS Audiology develops, manufactures, sells and distributes hearing aids. WS Audiology’s ambition as a global leader is to unlock human potential by making wonderful sound part of everyone’s life.

A quick look on financial materiality provides a useful comparison to get a better understanding of why a materiality assessment is needed for sustainability. Financial statement items are considered material (large enough to matter) if they could influence the economic decisions of investors. All material matters are to be disclosed. If a public corporation fails to do this, and losses occur, they open themselves to shareholder lawsuits (Banker, 2015). Similarly, those sustainability topics that are considered material could have a major impact on a company and its partners if not dealt with properly.

The Benefits of a Materiality Assessment

• 1. Engaging in strategy development: Identifying the company’s most pressing sustainability issues is the foundation of creating the right strategy.

• 2. Justifying resource allocation: A methodical and robust process to identify priority issues allows companies to make informed decisions about how to allocate people, budgets and other resources.

• 3. Enhancing engagement: A materiality process requires internal and external stakeholder engagement, so it is a valuable opportunity to gather opinions that can be a springboard for on-going conversations about sustainability. Improved two-way communication with suppliers will lead to a better understanding of the sustainability strategy and improve and strengthen supplier relationships.

• 4. Building buy-in: Involving key stakeholders in the materiality process, and the improved communication that is inherent in that, helps build trust in the outcomes and can lead to better buy-in.

• 5. Influencing reporting content and structure: The materiality process leads to better reporting on the issues that matter most to both the business and external stakeholders (Smith, 2016)

3.4 Assessing Category Risks

Another important step towards establishing a sustainability baseline comes from assessing the different categories and the supply chain. There are a variety of different criteria to consider. Some categories are more significant than others when it comes to sustainability, so it is important to find out where the biggest risks are and where the company is most exposed to these risks.

Bear in mind that categorization based on spend alone is not enough to reveal the full extent of potential risks and where they might lie. There could be multiple categories with a large number of low-value transactions that lie hidden in tail spend that would be considered high risk in the context of sustainability. One approach to this is to use a method such as the sustainability category radar from H&Z to map out category exposure against sustainability impacts (H&Z, 2021) (Fig. 3.2).

Fig. 3.2

Sustainability category radar

The sustainability category radar takes into consideration traditional measures such as spend volume and strategic relevance, as well as the environmental, social, and economic impacts of each category. With access to the right data, supplemented by interviews with suppliers and other stakeholders, it should be possible to conduct this kind of assessment in-house. Alternatively, a dedicated sustainability solution provider could help by organizing the data for each category and measuring their impacts against the three elements of sustainability.

Indirect categories, such as IT, logistics, packaging, or engineering services, should not be overlooked in these assessments. Even though direct categories will undoubtedly be more prominent on the radar, indirect categories can also be significant. Where direct categories might require individual or industry-specific approaches, the impacts of indirect categories could be assessed by looking at other companies of a similar size.

3.5 How Sustainable Are Your Suppliers?

A company is only as sustainable as its entire supply base. Many global brands have faced some sort of supply chain liability over the years, from coffee to diamonds, and from sports shoes to furniture, and high finance (Kunhardt, 2020). This has heightened awareness of the challenges of tackling sustainability in supply chains, which is good, but many companies have suffered severe blows to their reputations before getting to this point. In the age of social media and a connected world where news spreads like wildfire, the evidence of that reputational cost appears regularly in the news, via intense public scrutiny, and sometimes via consumer boycotts of brands and products. In recent years, some multinational corporations considered to be sustainability leaders came under embarrassing scrutiny because their social and environmental standards were not applied beyond tier 1 suppliers. Apple, Dell, and HP came under fire for sourcing electronics from overseas companies where employees worked in hazardous conditions, and both Nike and Adidas suffered blows to their reputations for using suppliers that were dumping toxins into rivers in China (Villena & Gioia, 2020).

Just as is the case for categories, the supply base also has to be differentiated. The category radar is helpful in identifying those categories most urgently in need of attention, and in turn points towards sources in the supply base that should be prioritized for action.

Even though the category radar will give a first hint about which parts of the supply base should be prioritized, they still need to be reviewed through the lens of sustainability to ensure the right actions can be applied where they are needed. This is an exercise that many companies may already have done already as part of their general supplier relationship management (SRM) practices. However, in this case it must be done with sustainability in mind rather than spend or strategic preferences.

The segmentation can be based on the outcomes of category radar and materiality assessments together with each supplier’s strategic importance and potential. The classification needs to be agreed with the relevant cross-functional stakeholders to ensure buy-in from the organization.

The tier 1 supply base should be looked at first, but the lower-tier suppliers are almost always at a higher risk of increasing exposure to potentially serious risks.

Sustainability in Action

What you don’t get on the Internet is how does the midstream actually function. How do European traders, Japanese cathode producers or Chinese refiners link together, and how does the midstream construct link to treatment units and different types of mines in the Democratic Republic of Congo or other high-risk jurisdictions like Indonesia? These parts of the supply chain are more complex and comprise many smaller players that handle far bigger volumes than a Tesla or a BMW would do by securing part of its supply through a direct deal with a mine. At this point there was a massive transparency gap and that’s why you needed a more forensic process to gain visibility and to create engagement levers.

Dr Nicholas Garrett, Chief Executive Officer, RCS Global Group

RCS Global Group is a proven leader in data driven ESG performance, responsible sourcing, and responsible mining assurance.

It is therefore vital that procurement teams also work towards creating more visibility into the extended supply chain, where 50–90% of environmental, social, and governance (ESG) impacts are found (Jacques, 2020). Consequently, taking a good look at lower-tier suppliers should be a priority as this will provide an understanding of the sub-supply situation all the way down the chain. A digital tool can be of great help once there is this level of transparency, and there are many providers out there in the market that offer a variety of solutions for increasing transparency and tracking sustainability performance.

Sustainability in Action

Reputation is absolutely key, and the other factor was to offer companies really clear and constructive solutions to dealing with these issues. We break it down for our customers and make an extremely complex set of issues accessible and understandable, we tackle certain elements of it at a time and we isolate certain problems and design out specific processes for these problems or challenges.

We built a unique traceability audit methodology that we still apply widely today which ultimately enables companies to gain visibility over the entirety of their supplier ecosystem, from the auto manufacturer to the mine or recycler. We feed the data into our responsible sourcing technology platform, Vine, which translates the data into dynamic supply chain maps, which include risk scores that are linked to risk data sets derived from our audit process and other sources. The output is “risk heat maps” of companies’ entire supply ecosystems, disaggregated by sub-supplier, with a performance score for each supplier. This transparent overview of supplier linkages and performance ultimately enables corporates to conduct risk based due diligence and engage in a risk-based analysis and development of solutions. It’s important to take a risk-based approach, as different risk exposure and performance scores call for a variety of approaches to effect continuous improvement. This includes focusing initial attention and effort, often in partnership with the tier 1 supplier, on the worst performers, which can, for example, be 50 sub-suppliers out of 300 identified sub-suppliers in a particular raw material. This ability to manage risk ecosystem wide is new to many downstream companies, as historically their risk management efforts was more directly targeted on their tier 1 suppliers. With our help, improvement can now be achieved with structured corrective action plans also at the tier 4 or tier 5 levels of the supplier ecosystem and we’ve received a lot of appreciation from companies for this leap in practice. Why? Because the integrity of the entire supplier chain is at risk, when the issues at those tiers of the supplier ecosystem are not adequately addressed and you cannot address them adequately if you only engage your tier 1 supplier.

Dr Nicholas Garrett, Co-founder and Chief Executive Officer, RCS Global Group

RCS Global Group is a proven leader in data driven ESG performance, responsible sourcing, and responsible mining assurance.

4 Develop Targets, Strategy, and Roadmap

Most recently, we have a much more systematic and strategic approach to embedding sustainability in our procurement strategy. The main driver for that is Roche’s 10-year ambition with regards to human rights. A 10-year ambition is a powerful anchor. We have to do things differently. It has to be about driving outcomes and actions. Small bets—start small and show the successes. Create some excitement and grow the community.

Marielle Beyer, Head of Global Procurement, Roche

4.1 Strategy and Objectives

The information gained from the analysis of the current situation has revealed the organizational readiness for sustainability, what the category risks are, and the state of sustainability among suppliers. In other words, a baseline has now been established, which means a realistic sustainability ambition can be set. The baseline and ambition levels are used to develop or modify the sustainability strategy and to set targets, including financial metrics. However, there is an important interim step that needs to be taken before moving on to the strategy.

4.2 Define the Scope of Sustainability

Sustainability covers a very broad range of environmental, social, and governance topics and not all sustainability-related topics are relevant and applicable to all companies. It is important to narrow the focus from the beginning and assess which topics are appropriate for a procurement strategy that has the right balance of environmental, social, and governance targets. The illustration below shows the most important sustainability topics to be considered from a procurement perspective. Narrowing the scope of potential topics will ensure that there is a clear understanding of what is meant by sustainability, something that is vital when discussing it with employees and suppliers (Fig. 3.3).

Fig. 3.3

Define sustainability scope

Sustainability in Action

At INNIO, sustainability covers all parts of ESG, including the full scope of the GRI standards and the 17 Sustainable Development Goals. We also conducted a materiality assessment that helped us focus on four pillars.

Products—All engines should be ready to be powered by 100% climate-neutral gases by 2025, they should not emit any climate-relevant methane by 2030, and 100% of the materials used to manufacture the engines should be recycled, renewable or reclaimed.

Environment—Greenhouse gases are the focus here since other environmental aspects are already well established. The target is to have production sites reduce their GHG emissions by 50% by 2030 and we want our suppliers and distributors to commit to the same targets.

Employees—We want diversity to increase by 25% by 2025, diversity and inclusion training should have been held for at least 70% of management annually, and employee engagement should reach 85% by 2025.

Society—Here we’ll continue to support social initiatives and actively engage with our local communities.

Thomas Janvier, Vice President of Procurement, INNIO

INNIO is a leading provider of renewable gas, natural gas, and hydrogen-based solutions and services for power generation and gas compression at or near the point of use.

4.3 Set Long-Term Targets and Work on the Strategy

With clarity and understanding of what sustainability is, and with a realistic ambition in mind, it is time to set some long-term targets. We recommend defining qualitative statements covering all ESG dimensions of what should be achieved first. Is it a case of reducing CO₂ emissions? Or does the product or services portfolio have to be changed to make it fully sustainable? Or should there be an overhaul of the supply chain to make sure suppliers comply with social standards and human rights? Questions like these pave the way to specifying concrete targets, measures, and activities for team members. The examples below provide some initial ideas for a straightforward description of target pictures (Figs. 3.4 and 3.5).

Fig. 3.4

Industry example for key strategy statements

Fig. 3.5

Industry example for key strategy statements

Another industry example for sustainability targets focuses on three main areas:

• Optimize supply chain activities according to clearly defined sustainability criteria and encourage suppliers to do the same.

• Create transparency in the supply chain about potential sustainability risks and assess supplier performance.

• Foster collaboration across the supply chain and work together on improving sustainability.

Sustainability in Action

We don’t yet have specific procurement targets for sustainability but we’re working on that at the moment as part of our revised strategy. What we do know is that we want to have procurement-specific improvement measurements that can show our progress.

Henrik Larsen, Chief Procurement Officer, A. P. Møller-Mærsk

A. P. Møller-Mærsk is an integrated container logistics company and member of the A.P. Møller Group. With a dedicated team of over 80,000 people, they enable global trade for a growing world.

4.4 Develop Actions and Measures to Deliver on the Targets

Once targets have been defined and described, the next step is to develop the objectives and measures to deliver on the targets. Using the same example as before, the next figure shows how concrete objectives can be added by using specific activities and measurements. It is important to add an (ambitious) timeline to develop the implementation roadmap (Fig. 3.6).

Fig. 3.6

Industry example for Supply Chain Sustainability targets

4.5 Align Measures with SDGs

Matching activities to well-accepted frameworks like the UN Sustainable Development Goals (SDGs) is another important step in developing a sound sustainability strategy. The SDG framework is commonly used by companies with an established sustainability strategy because it addresses the full scope of environmental, economic, and social criteria. The strength of this framework lies in its global acceptance and popularity. Using this framework for communications with employees and suppliers helps them to put sustainability into a clear context and therefore leads to better understanding and support for a procurement sustainability strategy.

Sustainability in Action

We’re focusing our attention where we can make a real impact. We base our reporting on GRI and SASB standards, which give us a very detailed reporting method for how we influence the company and society. While SDGs are designed at national level, an individual company can make a meaningful contribution to some of them.

Chaojun Li, Global Head of Sustainability, WS Audiology

WS Audiology develops, manufactures, sells, and distributes hearing aids. WS Audiology’s ambition as a global leader is to unlock human potential by making wonderful sound part of everyone’s life.

4.6 Set KPIs to Measure Progress and Success

The next step involves selecting the right metrics to keep the sustainability strategy on track and then including these into existing targets. Each target and action item will need a concrete and measurable key performance indicator (KPI) against which progress, and success can be tracked and measured. This is often tricky because there is a lack of data and data transparency with respect to sustainability and yet it is this data that is vitally important. That adds another work package to the sustainability roadmap: creating transparency and a data baseline. In the absence of data, work with placeholders until concrete figures can be added once proper data becomes available.

Here are some examples of sustainability KPIs frequently used in procurement:

• The share of recyclable content in materials/products

• Weight reduction targets for purchased products

• Improvement of material-specific properties

• CO₂ footprint and scope three emissions in the supply chain

• Total GHG/CO₂ emissions from strategic suppliers

• Supplier sustainability scoring (minimum score or targeted average score of the supplier base)

• Spend volume coverage or percentage of suppliers that have signed a supplier code of conduct

• The number of sustainability audits conducted or the percentage of suppliers with a sustainability audit

• The number of corrective action plans with suppliers

• The number of joint supplier collaboration activities

Sustainability in Action

We also have targets related to the overall inclusiveness and resilience of our supply chain, specifically how well we manage potential risks. We measure this by both the coverage rate but also on the ratings and improvement in ratings.

Thomas Udesen, Chief Procurement Officer, Bayer, and Co-founder of The Sustainable Procurement Pledge (SPP)

Bayer is a global enterprise with core competencies in the Life Science fields of health care and agriculture. SPP brings together Procurement professionals to ensure responsible supply chains.

Often procurement organizations measure too many KPIs. It is better to concentrate KPIs around the strategic areas of the company’s sustainability strategy. The sustainability KPIs should cover two areas:

• The impact that procurement is trying to achieve, such as reducing GHG and CO₂ emissions.

• And the tasks procurement undertakes to bring about that impact, such as a supplier code of conduct, audit coverage or collaboration activities.

The KPIs should then be cascaded down to the relevant teams. Including sustainability KPIs in procurement team targets will help to embed them into everyday practices and processes. But be beware of internal ambiguity or very tough targets as a focus on sustainability and a need for operational savings, for example, might not always go hand-in-hand. Consider this example. A procurement organization has a savings target of 100 million euros. However, adding sustainability targets to the overall strategy, such as reducing GHG emissions, might create conflicts. This means that the savings calculation and TCO methods may need to be re-designed to match this new reality and to ensure that different targets do not contradict each other. In these ways, KPIs also help to communicate the impacts and the trade-offs that need to be made when making critical sourcing decisions.

4.7 Derive a Roadmap

The final step is to create a roadmap that visualizes the strategic plan and the implementation sequence based on the objectives. A sustainability roadmap is generally a 3–5-year plan to elevate procurement to its new strategic status. The roadmap shows how long it will take to achieve the desired objectives and what is involved in developing responsible and sustainable sourcing. By giving a good overview of what is involved, a high-level roadmap also helps to communicate the plan. Nevertheless, a roadmap needs to be accompanied by a more detailed plan that shows the different measures and steps, as well as milestones. In some cases, it might be very difficult to make accurate and confident judgment calls on a timeline and its milestones, but that should not be an issue—getting started is more important than delivering the perfect plan. Timelines can be adjusted at a later date once approval to move forward has been granted and the first steps have been taken. The roadmap should also cover the resources that will be required to achieve the objectives. This includes internal resources, external resources, and tools and technology investments (Fig. 3.7).

Fig. 3.7

Example for high-level implementation roadmap

Once the roadmap is ready, organize a procurement strategy day to review targets, actions, and implementation steps. This will give the procurement community the opportunity to become familiar with the sustainability strategy and targets. This sort of team review and discussion could also provide valuable feedback for further fine-tuning of the strategy and roadmap.

4.8 Seek Support for Implementation

One of the most common challenges in developing a sustainability strategy is getting buy-in and support from other functions within the organization. Without this buy-in, the strategy is unlikely to succeed. Therefore, it is important that the sustainability strategy for procurement is reviewed both bottom-up and top-down. Company management needs to agree with the procurement team to get the necessary buy-in and resources that will be needed to execute the strategy. This also, importantly, is a step to aligning with other company functions. This is why we see a clear benefit in engaging colleagues from cross-functional teams—such as a corporate engineering, sustainability department, compliance, and risk management—and aligning with what they are doing. Misaligned targets are one of the biggest headaches for internal collaboration.

It is important to move sustainability from a peripheral activity, mostly aimed at managing risks and protecting the company’s reputation, into a significant source of innovation, productivity, market differentiation, and growth. Procurement can lead the way on this by developing a strong, workable strategy and roadmap, that weaves sustainability into its operational processes and the mindset of its own teams, as well as encouraging suppliers to do the same thing. This will help inform the company’s product and service offering, for example, how its products are produced, marketed, sold, and delivered and to what extent they are reused or recycled.

Develop Purpose, Ambition Level And Strategy: Summary

Starting with a new purpose for procurement sets the North Star. If people ask for a purpose, give them one, and let them know the what the level of ambition is. Once both of these are in place, develop a strategy with clear targets and subsequent objectives and measures that will deliver the targets. Matching activities to a common sustainability framework, such as the SDGs, has for many companies helped in developing a sound sustainability strategy. A good set of KPIs are needed to track progress and communicate achievements. Finally, rather than creating a separate document for a procurement sustainability strategy, integrate it into the overall procurement strategy. An ambitious sustainability strategy is a key pillar for a future-proof procurement organization.