Sustainable procurement

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Environmental impact, labor and human rights, ethical action within sustainable procurement are increasingly the focus of business decisions. It is therefore essential that companies, regardless of their size, implement sustainable business practices in order to avoid being left behind.

In the corporate context, sustainability is no longer just seen as a cost factor, but as an opportunity for sustainable growth. A responsible and ethical supply chain within sustainable procurement plays a key role in the success and reputation of your company.

This blog post looks in detail at the concept of sustainable procurement, highlights the basics, gives you valuable insights and highlights some best practices and examples of sustainable procurement. Our aim is to help you understand the importance and benefits of sustainable procurement in order to identify and implement concrete steps for your company. Join us in tackling the challenges and opportunities of this development for your company and drive sustainable change.

Definition of "sustainable procurement"

The term "sustainable procurement" (also called sustainable supply chain) refers to the entire process from (raw material) procurement to suppliers and production. Social, ecological and economic aspects are taken into account to ensure that the impact on the environment is minimized and socially responsible business practices are guaranteed.

The aim is to strike a balance between the diverse interests of a company and at the same time maintain or increase its competitiveness. Companies are faced with a multitude of new requirements that require sustainable procurement. The complex global supply chains pose considerable risks and challenges for sustainable procurement in companies. Despite the large number of suppliers in a supply chain, violations of human rights or environmental pollution must be avoided.

In addition, fair working conditions must prevail and the carbon footprint of purchased products must be determined. In parallel with the risks, legal requirements and the expectations of various interest groups are increasing. This means that the importance of transparency about the supply chain and the associated risks is also constantly increasing. Our sustainable procurement experts support you in managing the associated tasks (from sustainable purchasing strategies to process development and digital implementation).

Our approach to ensuring sustainable procurement

Our consulting approach to ensure sustainable procurement consists of analysis & evaluation, setting goals, developing a strategy, selecting suitable tools and implementation & monitoring. The consulting approach is modular, which means that we can support you with individual problems or go through the entire process. This modular approach is tailored to the individual needs of your company.

Analysis & evaluation:

Is there a vision for the sustainability of your procurement and supply chain? Where is the company at the moment (maturity level)? Have the right priorities been set? Do the tools used fit your challenges and your company? A comprehensive analysis of current procurement practices is the starting point. The existing organization, process and tool are analyzed, evaluated according to criteria and potential for improvement is identified.

Setting goals:

Concrete and measurable goals are developed and defined together with the company. These are usually directly or indirectly relevant to the sustainability report. The goals are aimed at strengthening the sustainability of procurement.

Strategy development:

Based on the results of the analysis, a comprehensive sustainability strategy for procurement is developed. This includes setting guidelines for sustainable procurement, identifying key areas for improvement and integrating sustainability aspects into procurement decisions. The aim is to establish a long-term and holistic strategy.

Tool selection & integration:

It is checked whether the internal resources, processes and tools are sufficient to achieve the defined goals or whether an external solution is more suitable. Typically, our customers rely on external tool providers who have already achieved a high degree of standardization in the assessment of sustainability aspects of procurement. We are happy to support you in selecting and integrating the tool into your supplier management processes.

Implementation & Monitoring:

The sustainable procurement strategy developed is implemented in the implementation phase. Since this usually involves additional requirements for suppliers, it is important to involve them at an early stage. This includes active communication with suppliers in order to include them in the implementation process without overwhelming them. It is advantageous to coordinate with supplier management and key account management at an early stage in order to increase the impact of supplier measures. The integration of sustainability criteria into supplier and risk management is a crucial and often underestimated step that is essential for long-term sustainable anchoring. At the beginning, mainly quantitative goals are set, but over time, more qualitative goals should be defined and monitored. These include, for example, reaching certain thresholds or concrete measures to improve the sustainability of the supply chain. If there are deviations, appropriate measures are defined and implemented. The goals here control the depth and breadth of the monitoring of sustainable procurement. Accompanying internal or externally supported supplier audits are often the method of choice when anomalies become transparent through supplier and risk management and it is therefore necessary to go a level deeper. This is also necessary to ensure the quality and conformity of the key figures included in the sustainability report and thus to pass the auditors' controls.

We support you in ensuring sustainable procurement

For all modules, training and awareness-raising of the employees and suppliers involved is also essential. The successful implementation of sustainable purchasing requires the commitment and cooperation of many different areas, such as procurement, quality, supply chain management and development. It should be mentioned at this point that success depends to a large extent on how much management supports the initiative and how well the sustainable procurement processes are anchored in the organization.

That is why targeted training and awareness-raising measures are developed and implemented to raise awareness and understanding of sustainable procurement among all those involved. You will receive clear information about the benefits of a sustainable supply chain and will be actively encouraged and empowered to contribute to its implementation. Our goal is to support you in such a way that your organization is quickly able to independently meet all the requirements that sustainable procurement entails.

Stakeholders (interest groups)

Below you will find the key stakeholders that play a role in sustainable procurement:

Legislators & overarching regulators

Consumers

Investors & banks

Employees

Business partners

NGOs (non-governmental organizations)

Legislators
The legislature is a key driver for ensuring sustainable procurement. New regulations and laws require companies to demonstrate different obligations or standards depending on their location. In Germany, for example, the introduction of the Supply Chain Due Diligence Act (LkSG) has presented many companies (from 2023 for companies with more than 3,000 employees, and from 2024 for more than 1,000 employees) with the challenge of evaluating their supply chains according to "new" criteria. Companies must demonstrate compliance with further regulatory obligations (e.g. EU Supply Chain Act) for the entire supply chain.
Consumers
Another important driver for sustainable procurement is the increasing awareness among consumers. More and more consumers want to know where products come from and how they were produced. Companies are increasingly expected to make their supply chains transparent and ensure that they are sustainable. In return, more and more consumer groups are willing to pay more for a sustainable product, even though most solutions have a positive impact on product costs in the medium to long term anyway, for example by saving raw materials.
Investors & banks
Investors and banks have an increased interest - also strongly influenced by the EU Action Plan 2018 - in knowing the sustainability of companies as a whole. The EU Action Plan requires banks and investors to prove how high their share of sustainable investments is. This is where the EU taxonomy comes into play, which, put simply, classifies which economic activities are sustainable and which are not. In the future, companies in the real economy above a certain size will have to provide detailed information on how high their share of sustainable activities is.
Employees
Employees are another group that is increasingly interested in working for companies that take environmental, social and governance responsibility. They want to ensure that their employers adhere to sustainable business practices, including across the entire value chain. At the same time, sustainability or corporate social responsibility (CSR) is also an important selection criterion when choosing an employer.
Business partners
Another group is made up of business partners connected across supply chains. Companies with B2C business pass on their requirements throughout the entire supply chain. This means that requirements for ESG criteria reach the raw material manufacturer and the service companies involved. Business customers want to ensure that their supply chains are resilient. They expect their suppliers to identify and assess risks related to procurement and to take measures to minimize them. They are also expected to comply with guidelines and standards that apply to them, as this may pose legal or reputational risks.
NGOs (non-governmental organizations)
Non-governmental organizations (NGOs) promote sustainability and social responsibility. They monitor and evaluate companies on their sustainability performance and can exert pressure through campaigns and public relations to bring about changes in the supply chain.

The collaboration and commitment of all stakeholders is crucial to ensure a holistic and effective implementation of a sustainable supply chain.

Initial situation & challenges

In today's world, establishing a sustainable supply chain is undoubtedly an ambitious goal, especially for companies with high external value creation and a large number of suppliers. The main challenges are:

Dynamic goals

Transparency and data availability

Process integration

Resource efficiency

Collaboration

It's about taking the first steps in the right direction now and not about achieving the perfect state immediately.

Richard Steiner

Dynamic sustainable procurement objectives

Dynamic goals

The Dynamic Targets challenge refers to the fact that the framework for sustainable procurement is constantly changing and as a result the targets are constantly adapting. There are different aspects to this challenge. Dynamic legislation, where laws and regulations related to sustainability and supply chain responsibility are continuously revised and updated, requires a high level of flexibility from companies. At the same time, consumer preferences regarding sustainability and ethical practices are changing. What was sufficient yesterday may no longer meet the requirements today. Consumers are increasingly informed and engaged, and their purchasing decisions are influenced by ethical and sustainable aspects.

Companies must continuously deal with changing consumer preferences and adapt their strategies accordingly. In addition, standards and best practices are evolving. New initiatives, certifications or guidelines are introduced to promote better sustainability practices. Companies therefore need to remain particularly flexible and adaptable in a so-called VUCA (volatile, uncertain, complex and ambiguous) environment and understand the new standards to ensure that they align their supply chains accordingly and meet current requirements.

In addition, there is also a trend in technological innovations that advances in technology and data analytics are enabling new opportunities for sustainable procurement. New tools and platforms are emerging to improve transparency, monitoring and efficiency. Companies need to keep an eye on evolving technologies and decide which solutions are best suited to their specific needs.

Evaluation of data in sustainable procurement

Transparency and data

One of the biggest challenges is ensuring comprehensive transparency and data availability along the supply chain. This includes identifying and monitoring all data that is relevant to sustainable procurement. Often, some data is missing in the required form at the beginning. Therefore, a gap analysis is first carried out to determine which data is already available in the desired quality and which is missing. Only when the data quality has exceeded a certain threshold can it be included in the sustainability report. Often the work does not start with the suppliers, but internally with the company's own purchasing data. In medium-sized and large companies, it often happens that the same suppliers are entered multiple times in the system with different supplier numbers and therefore no immediate statement is possible about the actual sustainable purchasing volume. This can have the following causes:

Lack of control when setting up
Multiple ERP systems
Companies have been acquired and the same suppliers are entered in several subsidiaries

The result is that it is difficult to determine how much purchasing volume is already being procured sustainably. But only precise measurability creates the trust of stakeholders and meets the regulatory requirements that need to be covered.

Process integration

Supplier management of sustainable procurement requires cooperation and commitment from suppliers. It is important to ensure that suppliers comply with the required environmental and social standards and integrate/embed them into the company. This often requires training, audits and cooperation in implementing improvement measures.

Unfortunately, practical implementation often falls short of expectations. Although supplier sustainability is analyzed in detail using questionnaires or tools and comprehensive information is disclosed, these results have little impact on supplier selection. They are sometimes not fully integrated into existing supplier management processes or are given too little weight in decisions.

The lack of integration of sustainability criteria in supplier evaluation refers to the practice of many companies not to sufficiently consider sustainability aspects when evaluating and selecting their suppliers. Here are some reasons for this:

Lack of awareness: Many companies may not be fully aware of the importance of sustainability or have a clear idea of how to include sustainability criteria in their supplier evaluation. As a result, this topic often remains little considered in the evaluation.
Focus on traditional evaluation criteria: Most supplier evaluation systems focus only on cost, quality, product and delivery time. Environmental and social aspects are neglected or considered less important, which leads to insufficient integration of sustainability criteria.
Lack of transparency: Although it is becoming easier to obtain sustainability information from suppliers, it is often challenging to obtain this information in the desired level of detail from smaller suppliers. Many companies have limited insight into their suppliers' sustainability practices because they may not be willing to disclose relevant information. Without sufficient transparency, it is difficult to include sustainability criteria in the evaluation.
Conflicting goals and short-term cost orientation: Many companies prioritize short-term financial aspects and neglect the long-term effects of sustainability-related decisions. If costs are the predominant evaluation criterion, sustainability aspects have a lower priority. For this reason, it is important to define sustainability goals in top management and cascade them top down.

Many companies recognize that sustainable procurement is crucial to achieving their own sustainability goals and reducing risks in the supply chain. We are seeing increasing efforts to adapt supplier evaluation systems and to take sustainability aspects more into account in order to promote sustainable procurement. However, the actual practice here varies widely.

Resource efficiency

Often, either the necessary experience or resources are lacking to adequately address all the required topics. Due to differing standards, qualified staff often have to fill out lists and enter the same information into different reports with slightly different focuses. This wastes a lot of time that can then be used for truly effective topics.

Collaboration

Sustainable procurement requires increased cooperation and coordination across the industry. By sharing best practices, developing common standards and working together to solve common challenges, sustainable transformation will be achieved more quickly. All companies are called upon to join initiatives and promote networking.

Tool provider

In order to meet the requirements of sustainable procurement, companies are increasingly using tool providers. Some providers choose the approach that customers invite their suppliers to a platform in order to systematically screen and then evaluate them using guided questionnaires and evidence (ESG scoring).

Here are some examples of tool providers that are currently in use in our industries:

NQC

NQC offers software solutions and an extensive database that enables companies to evaluate their suppliers in terms of sustainability in the supply chain. For example, compliance with sustainability standards along the supply chain is monitored and risks are assessed.

Integrity Next

Integrity Next follows a similar approach. Companies can have their suppliers checked for compliance with sustainability and compliance standards using pre-defined questions. In addition, the provider offers monitoring of social media feeds for relevant terms in order to identify risks at an early stage.

EcoVadis

EcoVadis enables a detailed analysis of the sustainability of companies by offering them the opportunity to evaluate their suppliers based on 21 specific sustainability criteria. The criteria include the environment, labor and human rights, ethics and sustainable procurement. The assessments are carried out on a scale of 0 to 100 and enable you to share and compare your own corporate sustainability performance with other companies. Whether an in-house solution or an external tool is a better fit for you depends not only on your industry but also on your requirements and your sustainability strategy

The field is constantly evolving; those who do not act now will be left behind.

Richard Steiner

Our conclusion

Sustainable procurement is an important prerequisite for environmentally friendly and socially responsible business practices. However, the implementation of sustainable procurement requires holistic thinking and action along the entire supply chain. Data transparency plays a key role in almost all areas of sustainability, as it is often the only way to meet rapidly changing standards. The motto here is: "What you can measure, you can improve." This transparency makes it possible to clearly identify risks related to working conditions, human rights and environmental impacts and to actively and passively minimize them.

In addition, by disclosing sustainability data, companies can also increase the trust of their customers and thus strengthen their reputation on the market. High data quality in the supply chain therefore helps companies make more sustainable decisions, minimize risks, ensure compliance, gain consumer trust and continuously align the supply chain more sustainably, thereby creating long-term, sustainable added value. For more information, see b2earth.

If you would like to know what specific project support could look like for you, please feel free to contact us. LEITWERK Consulting can provide you with significant support in reviewing your status quo, making your supply chain more sustainable, setting the right priorities, selecting suitable tools and partners and thus accelerating the path to sustainable procurement.

We will help you solve your individual requirements. Contact us.

Our collaboration with Richard Steiner

Richard Steiner is an expert in the field of sustainable procurement. With his work experience as a supply chain management and purchasing consultant in various industries and as a purchasing manager for a technology group, he supported us with his extensive expertise in writing this article and is available to you as a possible consultant. You can find more information about Richard Steiner on his Linkedin profile.

Do you have any questions about this topic or are you interested in a consultation?

Please feel free to contact us!

Your contact person

Florian Kröger

+49 89 189 235 96

florian.kroeger@leitwerk-consulting.com

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Estimated reading time: 12 minutesWhat can you expect in this article?