‘Procurement for good’ is widely recognised amongst business professionals, like the 3P’s of People, Planet, Profit (which has been enhanced as the 4E’s in a recent blog by my colleague Joe Gibson). Here you’ll find other priorities like sustainability, social value and corporate social responsibility. Underpinning all of these is the environment. In procurement, we have found different ways to label these issues and create solutions to try and improve the situation. At the same, of course, most companies also strive to make a healthy profit to spur investment and retain stakeholder confidence.
At 4C we have thought about how we provide our services to clients in a sustainable, informed and effective way. Far-reaching climate change is inevitable for many communities on earth, so environmental considerations and commitments are a constantly evolving and increasing focus for business. However, so is the need to deliver cost efficiencies, in the face of often-unprecedented global and national events like conflict, trade barriers and political leadership changes leading to significant market uncertainty. The resilience and sensitivity of global supply chains to these events are also presenting significant challenges. Businesses across industries are experiencing upstream and downstream challenge, keeping costs for consumers down whilst supply costs are increasing, so are looking at ways to make cost efficiencies.
Herein lies the age-old tension: commercial growth or environmental protection? At 4C we have explored the debate on whether sustainability and cost reduction are mutually exclusive (discussed in this recent blog, but in short, no they’re not!). This research contends that cost reduction involves activities to decrease expenditure associated with acquiring goods and services from third-party suppliers. Here, environmental commitments are understood as the recorded policies, agreements and aspirations a business makes in relation to its use, management and disposal of resources (natural or human-made).
Delivering cost efficiencies and environmental commitments
In this blog, we move the debate a step forward, by asking you as a business leader whether you can deliver cost efficiencies in tandem with environmental commitments. Where are the win-win situations, where both cost is managed and environmental commitments are delivered?
Understand the fundamentals
First, assess the current state. You likely know the answers to these questions already, but ask them and involve your peers, your staff and your board members, as you may be surprised by what they say (particularly those from different generations, societal backgrounds or professional disciplines):
- On the environmental commitments, what are these? Who is responsible for delivering them and who verifies their delivery? How is delivery measured? Who are they intended to benefit?
- On your cost base, what are your direct and indirect spend areas? Who are your suppliers and how much do you spend with them, and when? How important are your suppliers? What impact on the environment (positive or negative) do your suppliers have?
Underlying all of this is how connected are your environment/sustainability experts with your procurement and finance teams? Arranging regular check-ins between the teams can be an easy and quick win. Also, consider the use of ‘red reviews’ on your environmental policies by procurement leaders and vice versa on your commercial strategy. Sharing knowledge amongst colleagues and stakeholders is key and will drive engagement.
Get closer to your data
As an amended version of the old saying goes, “data equals information equals power”. Organisations that invest in leading-edge, fit-for-purpose commercial systems have greater visibility of the risks and opportunities in their supply chains. Specifically in this debate on cost reduction and environmental commitments, the key areas to consider are:
- What is your data telling you. Do you have access to robust data on the delivery of your environmental commitments? Who manages and verifies the data, and who delivers the good (or bad) news to accountable officers? Access to robust, verified and accurate information on your spend and supply base is crucial for effective cost management efforts.
- Can your data be improved? It almost certainly can. For example, 4C’s digital business, Anvil, offers comprehensive datasets on carbon management allied to Scope 3 emission tracking. Consider augmenting your data with external expert data and insights so you have detailed visibility of how your spend is helping or hindering your ability to deliver your environmental commitments.
- Are your people comfortable using and analysing the data? Do your leaders trust the information given to them from your systems? Trust and confidence in data is critical to releasing its value. while cost analysis may be strong, you may wish to upskill your staff to understand and analyse environmental datasets.
Identify your leverage opportunities
Next, use the information, leadership capabilities and specialist expertise of your teams to identify the leverage your organisation has with your third-party suppliers. 4C’s service offerings provide frameworks as a starting point to analyse opportunities. Ask this question: do my suppliers care about your environmental commitments?
If you are seen as strategically or operationally important to your third-party suppliers, the use of Balanced Scorecards is one tried-and-tested way of identifying priority delivery areas and ensuring alignment across all parties. When you come to negotiate new terms after your cost efficiency review, you’ll be in prime position to integrate your environmental commitments into the delivery of the work.
If you are of low importance to your suppliers, you’ll need to adapt your approach. For instance, instead of mandating suppliers to adhere to your business’ environmental policy, instead consider creating a one-page overview of your environmental commitments and explain their importance in laypersons language. Engage key stakeholders in your supply base and schedule periodic discussions on your environmental commitments and how joining efforts could help your suppliers achieve their related objectives. Also, consider creating a negotiation checklist for your staff to use when undertaking supplier-facing discussions in negotiations or contract reviews. This means that even if environmental commitments are superseded by economic priorities, consideration is still given.
Take care but act at speed
Finally, the tricky question: go hard and fast, or slow and steady? The rapidly changing environment that we live in means action is required sooner rather than later. However, we must be careful to take care with actions in relation to both our economy and the environment, to ensure trade-offs are recognised and understood before concerted action is taken. Here there is no easy answer, but trust is one of the most important factors for successful businesses, so be accountable to the timings, activities and investments you’ve made in your environmental commitments.
At 4C we have deep expertise in cost optimisation reviews with cost efficiency at its heart: it’s the longest established service we have and we’re proud of our delivery and proven track record across the years. Our methodology is robust, repeatable, reliable and flexible to your needs. We can deploy cost optimisation reviews at pace and at scale; and, as above, we hold sustainability and environmental issues close to our ways of working.
Draw on our expertise and let’s have a conversation about what opportunities exist for you to deliver cost efficiency alongside meeting environmental commitments.
At 4C Associates, we ensure the best practice is observed and applied to projects across all industries and subject matter. Our solution is based on a two-phase ‘ABC’ diagnostic and ‘4C’ implementation methodologies. If you would like to learn more about our Cost Optimisation Service Offering and how we have helped companies achieve their cost efficiency goals, please feel free to get in touch with Allison Ford-Langstaff, Partner; Jon Williams, Lead for Cost Reduction; or Ben Pollock, Consultant in Cost Reduction and Public Sector. We’re always happy to share thoughts, examples of success, and identify practical routes to work together so cost efficiency benefits your environmental commitments.