The concept of sustainable sourcing, also known as green purchasing or social sourcing, is nothing new. Sustainable sourcing is impacting nearly every area of corporate business and the consumer’s mindset. Everything from sourcing materials, talent attraction and consumer purchasing habits is changing because of sustainable sourcing growth. However, the term gets thrown around in the procurement industry quite often and is often misunderstood or misused. So, here’s a guide with all the basics you need to know about sustainable sourcing.
WHAT IS SUSTAINABLE SOURCING
First and foremost, we have to define the term. Sustainable sourcing is the integration of social, ethical and environmental performance factors into the process of selecting suppliers. It includes purchasing sustainably preferable products and services (products made from recycled or remanufactured materials), as well as green purchasing guidelines that might pertain to certain products or commodities.
Sustainable sourcing is needed because supply chains continue to expand globally into developing countries for lower costs and larger production capacity. This expansion exposes companies to increased risks and heightens the expectations of their stakeholders. Company stakeholders (including customers, shareholders, employees, NGOs, trade associations, labor unions, government observers, etc.) expect corporations to take responsibility for their supplier’s environmental, social and ethical practices. Now companies are increasingly making sustainable sourcing an essential part of their procurement and supply chain management processes.
WHAT IS NOT SUSTAINABLE SOURCING
Sustainable sourcing often gets confused with other industry terms. The most common is ethical sourcing, which is defined as the process of ensuring the products being sourced are obtained responsibly and sustainably. It is a component of sustainable sourcing but not the same thing.
Additionally, sustainable sourcing is not supplier diversity – providing economic opportunities to diverse supplier enterprises like minority-owned or veteran-owned businesses. It is also not sustainable cost savings, which is the concept of recurring savings (you saved 10% last year, and you want to save at least 10% this year, too).
DIMENSIONS OF SUSTAINABILITY
The “Sustainability in the Supply Chain” learning module from SIG University teaches that there are several dimensions of sustainable sourcing:
- Environmental: Biological perseverance, energy conservation, pollution regulations, carbon/water footprint reduction and global warming
- Social: Diversity, local communities and decent working conditions
- Economic: Financial stability, energy demands and reduction
SUSTAINABLE SOURCING BENEFITS
The three primary benefits of sustainable sourcing practices are to manage risks, reduce costs and increase revenue. Each driver has different elements to it that motivate the business:
- Manage Risks: Brand protection, supply chain disruptions, fines and litigations
- Reduce Costs: Vendor rationalization, reduced administration, the total cost of ownership
- Increase Revenue: Service differentiation, access to new markets, competitive advantage
