Sustainable Procurement Can Lead to Cost Savings

Feb. 18, 2011
Businesses are seeing ROI from embedding sustainable practices into the procurement function

Businesses are now seeing a return on investment from embedding sustainable practices into the procurement function, indicating an emerging trend in supply chain engagement and collaboration. More than 50% of large businesses and 25% of their suppliers have seen cost savings as a result of carbon management activities, according to The Carbon Disclosure Project 2011 Supply Chain Report, produced by management consulting firm A.T. Kearney.

Eighty-six percent of companies participating in the Carbon Disclosure Project (CDP) saw commercial benefits from working closely with suppliers to improve performance and mutual return on investment, up from 46% in 2009. This jump is evidence of how sustainable procurement practices are addressing climate change and could have major impact on the supply chain, which for most companies accounts for at least 50% of carbon emissions.

The CDP is an independent, not-for-profit organization holding a database of primary corporate climate change information. Some 3,000 organizations measure and disclose their greenhouse gas emissions and climate change strategies through CDP, in order to set reduction targets and make performance improvements.

PepsiCo, for example, has uncovered more than $60 million in energy savings opportunities and a 16% reduction in per-unit energy use across its beverage plants, as a result of its carbon management strategy and proprietary energy assessment tool. “With a robust strategy and proven benchmarks in place, PepsiCo set out to engage and educate suppliers about potential opportunities to innovate their own operations,” says Walter Todd, vice president of operations, PepsiCo UK & Ireland. “By providing suppliers access to the same energy assessment tools we use in our own operations, we’ve seen mutual return on investment.”

With more than 79% of CDP supply chain member businesses now employing a formal climate change strategy (up from 63% in 2009), there has been a parallel shift in the key business drivers for action within the supply chain, affecting how large organizations and their suppliers engage and implement carbon management processes, the study indicates.

The increase in strategic awareness in 2010 has created a ripple effect across supply chain operations and processes, which have allowed businesses to more effectively leverage opportunities for top-line growth, savings and new carbon reductions. For example:

  • • More than 50% of large businesses and 25% of their suppliers have seen cost savings as a result of carbon management activities.
  • • More businesses are training procurement staff in this area (up to 41% from 26% in 2009) and incentivizing staff through awards and recognition (up from 11% in 2009 to 25%).
  • • Employee motivation and brand management have increased in priority by more than 50% of businesses; product differentiation has also become an increasingly important objective (60%).

Quality and consistency of reporting processes across the supply chain remain significant hurdles in advancing carbon management practices. However, the development and use of standardized scorecards is emerging, which will enable more informed and strategic supplier measurement and selection:

  • • The percentage of businesses which track and report supply chain emissions more than doubled to 45% in 2010.
  • • 72% of large businesses have their data verified externally, yet only 39% of suppliers do so due to the high costs associated with this process.
  • • Carbon management criteria is increasingly part of supplier selection – up to 17% from 11% and expected to be 29% in five years

“We’re seeing a shift among leading companies in the way they are implementing sustainable, quantifiable climate change policies and practices,” says Frances Way, program director, CDP. “Whereas last year we saw a rise in the number of large organizations embedding climate change policy into the business strategy; now these policies are increasingly being put into practice at an operational level, across the entire supply chain. What’s encouraging is that suppliers and large purchasing corporations alike are starting to realize the commercial benefits as a result of collaboration.”