Sustainable Procurement is pivotal to the green transition

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SUMMARY

Still more companies wish to make their procurement practices sustainable. However, they encounter huge challenges and dilemmas along the way. This is why CBS has initiated “Sustainable Procurement Initiative”, where they, in close collaboration with a number of Danish companies, will generate new, valuable knowledge in this field. The generated knowledge will be channelled on to CBS students – and thus tomorrow’s leaders – through teaching, and to the business industries through continuous interaction between CBS and the companies along the way.
Sustainable procurement is a pivotal motor for the green transition, and the majority of Danish companies’ greenhouse gas emissions can be attributed to their suppliers and sub-suppliers. At the same time, sustainable procurement includes social conditions: for example, by refusing to use child labour and by securing proper working conditions for the people who contribute all along the production chain. Thus, “Sustainable Procurement Initiative” supports a number of the UN’s Sustainable Development Goals.

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Still more companies wish to make their procurement practices sustainable. However, they encounter huge challenges and dilemmas along the way. This is why a group of researchers from the Department of Operations Management at CBS have initiated the “Sustainable Procurement Initiative” (SPI).

The purpose of SPI is to generate new research-based knowledge in this field, aimed at companies as well as CBS students completing a Bachelor of Commerce or an MSc of Economics & Business Administration, and thereby supporting the transition to sustainable procurement, which is a pivotal motor for the green transition.

MATURITY MODEL AND OBSERVATORY

SPI is divided into two main areas. Kim Sundtoft Hald, Professor with Special Responsibilities at the Department of Operations Management at CBS, is in charge of the area that will generate an increased understanding of the factors that can either promote or constrain the transition into higher levels of sustainable procurement practice. Affiliated with the initiative are a Ph.D. student and a number of students from the MSc programme in Economics & Business Administration, who will write their master thesis on sustainable procurement, including experiences in specific companies. The students will gain knowledge from and provide data for SPI.

Concurrently, the researchers will develop and test a so-called maturity model, which is based on case studies from, initially, ten selected companies. Companies will then be able to use the model to make a self-assessment of how far they are in terms of sustainable procurement practices and they will also gain concrete inspiration as to how they can continue their development.

The initiative’s second main area, which is headed by Thomas Johnsen, Professor at Audencia Business School in Nantes, France, and Visiting Professor at the Department of Operations Management at CBS, will focus on developing an observatory, where they gather and analyse data from a number of companies. The main purpose is to uncover where, broadly speaking, Danish companies are at in terms of sustainable procurement.

How far advanced are they? What are they specifically working on? What are they not working on? How do they, for instance, balance environmental and social sustainability in relation to profits? Which methods do they use to measure and control their suppliers’ sustainability performance? These are some of the many questions that will be uncovered. Two to three times a year, we will ask the affiliated companies to fill in questionnaires, and the observatory will then analyse the companies’ CSR and sustainability reports and conduct workshops with company participation. All of which will have the double-focus of gathering knowledge from the participating companies, while also providing them with new knowledge, which they can then use in their internal development processes as they move towards more sustainable procurement practices.

Procurement practices are centrally placed, and can, by way of purchase decisions, contribute markedly to the green transition.

– Kim Sundtoft Hald, Professor with Special Responsibilities at the Department of Operations at CBS
 

PROCUREMENT PRACTICES’ SUSTAINABLE EFFECT

But how does SPI specifically address the green transition? It is indisputable that industrial companies are responsible for a large part of the global greenhouse gas emissions and thus global warming.

“And since as a large part of the production is carried out by companies’ suppliers and sub-suppliers along the supply chain, their procurement practices are centrally placed, and can, by way of purchase decisions, contribute markedly to the green transition,” Kim Sundtoft Hald says.

He emphasises that this is supported by research that shows that the larger part of an average Danish company’s greenhouse gas emissions stems from their suppliers and sub-suppliers, while a comparatively smaller part stems from their production in Denmark. But how, then, should companies approach sustainable procurement?

According to Thomas Johnsen, they must no longer focus solely on the financial effect of their procurement decisions, they must also include environmental and social impact.

“When, for instance, many companies choose to refer large purchases to suppliers in low-cost countries in Asia, this is mainly to gain savings on expenditure. If the companies assume a sustainable procurement perspective, they must also focus on the consequences of their purchases for the environment and humans. For example, what is the cost of producing and transporting the products in terms of carbon emissions? What are working conditions like at the suppliers’? Do they use child or forced labour?” he says.
 

NOT ONLY PROFIT CONSIDERATION

Thomas Johnsen points out that companies who increasingly focus on the consequences of their actions is now a visible trend – and this includes procurement.

“Sustainable procurement entails that as a company, you do not merely consider your own profit, but you also consider the wider consequences for society in general – ‘People, Planet and Profit’ as it is called in triple bottom line terminology.  Today, we often see companies that employ an CSR specialist or a sustainability manager, and naturally, it is a step in the right direction. However, if you really want to initiate a sustainability transformation, also in terms of procurement, you have to go all in and ensure that the companies’ procurement specialists are tuned in to sustainability,” Thomas Johnsen says – and Kim Sundtoft Hald elaborates:

“It is pivotal that companies look at their criteria for choosing suppliers. For instance, are the sustainability criteria on par with or do they trump the cost criteria? In this connection, it is important to acknowledge that the two criteria are far from always in opposition to one another. On the contrary, there will often be synergies if, say, the procurement department enters into a dialogue with the product development department. Perhaps they can then reduce, say, packaging materials, and thus reduce costs and the environmental impact in one go,” he says.
 

POLITICAL PRESSURE

According to Kim Sundtoft Hald, sustainable procurement is becoming increasingly unavoidable – and for several reasons.

“The majority of companies wish to contribute to the green transition. Because companies represent humans, who wish to make a difference; because they would like to brand themselves by way of a green image; and because of increasing political pressure by way of new legislation, which places the responsibility for the conditions along the entire supply chain on the companies. This includes, for example, no excess pollution, no use of child labour. If you do not act sustainably, it will furthermore increase the risk of you ending up in the spotlight of both NGOs and consumers, which may then lead to a shitstorm on social media with fatal consequences,” he says.

Furthermore, sustainable procurement can also be good business, because it can both reduce costs, which benefits the bottom line, and add value to the products, which benefits the top line. The latter can happen by way of, for instance, a product being labelled as sustainable or environmentally friendly, Thomas Johnsen points out.

“You see examples of this in many industries, including the fashion and textile industry, where labels such as Patagonia and Icebreaker have gone further than most and have gained great success, because an increasing number of consumers want to pay extra for sustainable products, where all links in the production chain are under control. And you see a dissemination of these tendencies, including that more and more companies utilize creative lenses, reflect on their business model and implement green energy as a replacement for fossil fuels,” he says, and adds that research shows that there is often a direct connection between sustainability and innovative behaviour.
 

CONSIDER UN SUSTAINABLE DEVELOPMENT GOALS

But who will have to pay when, for instance, child workers are replaced by adult workers at a supplier’s in Asia, or when a polluting production is replaced by a more environmentally friendly production at a supplier’s in Eastern Europe?

“This is a central issue,” Thomas Johnsen states. “One possibility is that companies utilize their knowledge, power and resources to change their suppliers’ and sub-tier suppliers’ production conditions. And thereby help them initiate a process of change towards greater sustainability. Another possibility is by way of auditing, thereby ensuring that they live up to the sustainability requirements of your company,” he says and then continues:

“However, there are limits to how many audits you can initiate, and for companies with a wide-ranging network of suppliers, it may require an insurmountable use of resources and time. Therefore, you will typically choose a systematic approach, where you only audit those suppliers that represent the biggest risks in terms of sustainability.”

Kim Sundtoft Hald points to the fact that when a company’s procurement practices support their suppliers and sub-suppliers’ ability to act sustainably in terms of both environment and people, they provide what could be termed aid, which is also in line with some of the UN’s Sustainable Development Goals. This could, for example, be by way of contributing to raising the level of education among your suppliers.

“However, I think that many companies will then find themselves in a dilemma: should you shut down production in Asia or find another supplier, or should you invest what is required in order to restructure the production in a sustainable manner for the benefit of the local workers and the global environment? Here, there may be an internal clash between short- and long-term value generation.”
 

RETHINK CONTROL MECHANISMS

According to Kim Sundtoft Hald, companies should also take a closer look at the success criteria they weigh their purchasing managers against, and the motivational mechanisms they work with.

“And there is no quick fix here, because the implementation of sustainable procurement practices requires a change of culture, where among other things, the company will have to rethink its control mechanisms and its overall practices in new ways. Also, because purchasers traditionally are not trained or educated to work with suppliers in relation to sustainability, they often need to acquire new competencies,” he says – and Thomas Johnsen adds:

“And they can access these competencies via SPI, because new knowledge will be integrated into the teaching at CBS. Here, students will gain insight into procurement processes, selection of suppliers, evaluation of suppliers, global sourcing/outsourcing and transparency in the supply chain, etc. Furthermore, new knowledge will be channelled into society by way of the inclusion of a number of companies as well as through our continuing communications efforts.”

The CBS team behind The Sustainable Procurement Initiative at the Department of Operations Management at CBS. Front row from the left: Andreas Wieland, Philip Beske-Janssen, Britta Gammelgaard, Sofia Wiik, Kim Sundtoft Hald og Thomas Erik Johnsen. Back row: Christina Merolli Poulsen (Project Manager) og Carsten Ørts Hansen.

 
A STRONG CBS TEAM

Carsten Ørts Hansen, Head of Department at the Department of Operations Management at CBS, is very pleased about the fact that the department’s engaged researchers by way of targeted research in SPI shed new light on sustainable procurement practices.

“The theme and the specific activities in SPI are a great example of how CBS can gather central players and initiate concrete problem-based research and educational activities,” he says.

The area of SPI headed by Kim Sundtoft Hald also includes Britta Gammelgaard, Professor at the Department of Operations Management at CBS, as well as PhD fellow at the same department, Sofia Wiik. Thomas Johnsen manages his part of the initiative in collaboration with Associate Professor Andreas Wieland and Assistant Professor Philip Beske-Janssen, both from the Department of Operations Management.

SPI was launched at an event at CBS in November, 2021, and it will run until the summer of 2023. Hopefully, they will be able to secure funding for the continuation of the project after 2023. The results that are generated in SPI will continually be communicated in various research articles, articles in trade journals and via the Department of Operations Management’s website and LinkedIn profile.
 

WANT TO KNOW MORE?

Read about the launch of the Sustainable Procurement Initiative at CBS here

If you would like more information, please contact CBS Professors Kim Sundtoft Hald and Thomas Johnsen:

Kim Sundtoft Hald: ksh.om@cbs.dk
Thomas Johnsen: tjo.om@cbs.dk

Follow SPI on the Department of Operations Management’s website here

If you would like to know more about the subject, Professor Thomas Johnsen has published the book “Purchasing and Supply Chain Management – A Sustainability Perspective”.