Sustainable Procurement for the Head of Procurement - Essay Example

• Briefing on sustainable procurement for the Head of Procurement

A company can extract major benefit by balancing its economic concerns with other societal, operational and environmental procurement processes. Long time ago various organizations have realized that management of few things effectively can reduce cost consumption. Slowly and steadily pressures to adopt green procurement is increasing. The key reasons exerting the pressures on organizations to adopt green procurement are stringent policies and regulations of the government and rising expectations of domestic and international stakeholders and customers. With rising environmental awareness, an organization’s success is becoming dependant on the adoption of green procurement method; methods include use of recycled material in packing, et cetera. Organizations which are committed to adopt sustainability in their activities possess some distinct traits. These traits include formalized transparent metrics and measurement of sustainability in the entire supply chain; sustainability leaders maintaining strong partnerships with suppliers and adoption of innovative processes (Meehan & Bryde, 2011). Procurement plays an integral role in an operational activity of a company. These activities work as a touch point for suppliers, customers, stakeholders, service providers and subcontractors in order to establish and integrate sustainability in the whole supply chain. Implementation of sustainable procurement process is much more than cost reduction. If social and environmental factors are incorporated into everyday and strategic purchase decisions, two benefits can be extracted in reduction of risk and revenue growth. There are two categories for reduction of cost in sustainable procurement process, they are namely, compliance costs and reduced internal cost. Internal cost of an organization can be reduced by purchasing fuel efficient vehicles, energy efficient lights, et cetera. These types of methods can provide direct benefit to the bottom line of a company’s finances. Installing certain machineries in an organization can also help to manage various environmental compliances. Moreover, adopting sustainable procurement method can also enhance brand image of a company thereby attracting a wider customer base. Even waste can be managed effectively in green procurement process. A company should choose their suppliers intelligently so that they can take responsibility to safeguard environment in their activities. Moreover, a company can improve its efficiency if they work with their suppliers collaboratively to reduce CO2 emission in entire supply chain. Proper implemented policy and governmental structure also plays a pivotal role to strengthen a green procurement process. Moreover, policymakers of an organization are better equipped to identify potential environmental hazards caused due to improper management in supply chain.

• Identification of range of risks that is underlying in the current system of the organization

Traditional role of procurement is to deal with upstream suppliers. These suppliers are part of supply chain. They also support distribution of goods. Procurement process has the potential to expose a company to various risks. As a result, procurement process is established with inbuilt control to deal with risks effectively. For instance, if purchases are done through selective or public tendering, then it will encourage healthy competition in the market. Procurement risks are sometimes perceived to be appropriate from transactional point of view (Tayur, Ganeshan & Magazine, 2012). Risk management mainly concentrates on the loopholes of procurement process so that they can identify the potential risks associated it. Some events that can suddenly pop up in the procurement process are process breakdown, compliance failure and inadequacy in process in order to carry out commercial activities. These events are direct concern for the key stakeholders or the practitioners in the entire process. Above issues are usually not taken care by senior executives, boards and CEO’s if any project does not hold any strategic importance. The main aspects that are given focus in risk management in relation to procurement process blur the organizational boundaries. The organizational boundaries are blurred in various ways such as increased usage of contingent workforce; outsourcing of operational and transactional functions and establishment of successful relationships with partners. It is important for a company to maintain and establish healthy relation with all the customers and suppliers to fortify the overall supply chain. Logistic services and business processes are outsourced in order to achieve the competitive, strategic and other commercial advantages. In commercial environment, most of the risks are treated and identified as isolated events. From the above perspective, organizational objectives and procurement are considered together to mitigate risks. When best practices are integrated in risk management, procurement professionals are better equipped to manage stakeholders’ expectations (Monczka, Handfield, Giunipero & Patterson, 2015). Procurement professionals have to identify the implementation of treatment plans, procurement environment and cost effectiveness of risk mitigation techniques in procurement process. There are various consequences of not managing the risk in procurement effectively. These consequences include discontinuity of supply of services and goods; avoidable increase in unit costs and total project cost both in terms of immediate and longer period; loss of influences and power in essential business relations; loss of revenue and market share; problems in cash flow; increased opportunity in corruption and fraud; procurement outcomes that cannot meet organizational objectives and needs; negative impact on organization’s name in the market; exposure of officers and directors to litigation and prosecution and last but not the least compliance failure to corporate governance. There are three principal and distinct essential elements associated with any risk; they are circumstance or an event, its likelihood and the potential impact on organizational/project objective. When an organization is seeking social responsibility to reflect on their objectives then procurement practices, policies and procedures should be scrutinized properly. Linking organizational objectives and procurement is always helpful. For example, if an organization’s environmental management objective is to reduce 20 percent of emitted green house gases then they have to encourage use of energy efficient equipment, vehicle and energy purchases. Both the external and internal stakeholders should be considered when risk management is linked with procurement process (Fawcett, Ellram & Ogden, 2014). For example, a purchase of hybrid motor vehicle can contribute to reduction of greenhouse gases. Alternatively, the purchase will satisfy the requirements of the internal stakeholders. Managing risk timely can also make a team communication stronger, lower potential damage of various goods and services, control uncertainty effectively and reduce consequences of risks. Risks can even occur from unexpected sources such as project complexity, external factors, project planning, procurement process itself and unprofessional conduct.

• Appropriate selection of sustainable suppliers

It is one of the important tasks of an organization to select their suppliers appropriately so that they can meet the social and environmental issues head on. They should also be capable enough to reduce negative impact of outside influences in the entire supply chain. An organization should be smart enough to reward their suppliers so that they are encouraged to adopt sustainable methods. Pre-qualification is important before giving the supplier any type of reward. It is the process of checking the activities of a supplier that whether he is complying with the organizational culture or not. Pre-qualification questionnaire can be made to evaluate a supplier’s capabilities to meet social and environmental issues (Walker & Phillips, 2008). Various things should be considers when a supplier competence is judged or evaluated. These parameters include environmental management practices, compliance with legislation related to environment, environmental impact of a product, delivery of social and environmental aims, buying practices of the suppliers and social responsibility practices and policies. It is important to know that whether a supplier is aware about the certified EMS like ISO 14001, et cetera. Moreover, if a supplier has any record of breaking law in the past then he is not competent enough to join any organization. If by any chance a product is harmful to the environment, then the customers will not readily accept that product. Sometimes the packaging may contain any hazardous substance which can negatively impact the health of a customer. It is a dire necessity of suppliers to identify the social and environmental risk associated with buying practices so that they can safeguard the business going down the line (Crespin-Mazet & Dontenwill, 2012). A supplier should know about all the standards of the international labor organization so that they can comply with them in their business practices. Some steps can also be taken to improve the supplier’s performance in order to strengthen the entire supply chain of an organization. These steps include providing advices and guidance to encourage overall improvements; perform training at regular intervals to improve their negotiation skills and train them to identify other competitors who can be future threats. If management of an organization work with the suppliers to improve the services and products then it will be easier to reach the organizational goals and objectives. Previously various criteria such as quality, price, delivery, quality and services played an important role while a supplier was selected and evaluated. Environmental supplier selection has four criteria including current environmental efficiency, green competencies, net cost of life cycle and supplier’s green image. A supplier must have fortified transportation system, product evaluation system and strong process assessment technique. A company’s qualitative and quantitative criteria are evaluated to recruit an appropriate supplier.

• Recommendation to develop sustainable procurement processes

To consider sustainable procurement various factors should be taken into account including value of money, life cycle of the products, environmental aspects, recycled products or material and social aspects. When value of money is evaluated quality, price, functionality and availability are considered. Traditionally procurement mainly focused on value of money. Sustainable procurement aims at reducing negative impacts on social occasions, health and environment. It saves valuable cost of the community and public sector organizations. Potential benefits of sustainable procurement are long term efficiency; encouraged innovation; more effective and efficient use of natural resources; reduced harmful impacts of wastes and pollution and reduced impact on human health and the environment. Various areas are positively affected because of procurement process like labor rights, human rights, local entrepreneurship, empowerment women, governance and poverty eradication. Sustainable procurement process can be developed by evaluating, proactively engaging with the personnel of supply management, spawn a sustainably favorable culture and connect with non-profits. It is important to open communication with various vendors and step away from the negative public perception (Walker, Miemczyk, Johnsen & Spencer, 2012). An entrepreneurship is highly benefitted when he start at the end line and gradually retrieve back to the original raw material producers and equipment manufacturers. A company’s primary energy use, corruption rate in foreign countries and labor practices should be evaluated to understand the supplier’s distribution channel. The environmental practices should be equally encouraged in the organization like profit making objective. Companies should establish healthy relations with socially cognizant entities so that their image is fortified in the long run in both domestic and international market. Gaining favors of the customer base is very important for any organization especially if their target market is international market. There are various societal issues existing which need to be mitigated by a socially responsible organization. For instance, an organization can adopt green packaging so that they can gain the customer’s favor. There are many non-profit organizations and charities which are willing to get some help from the profit making organizations. Profit making organizations should shake hands with them in order to establish their brand image in the market. By following the above practices an organization can reach the zenith of success amongst its key competitors in the market.

• Conclusion

In the above coursework it is discussed that how risk analysis and management is kept in the background to identify the potential risks associated with current procurement system in an organization. Apart from this, it is also written that how a practitioner can select an appropriate supply for an organization. Later the organization is recommended that how sustainable procurement process can be developed effectively in an organization. Benefits of sustainable procurement are cost control, creation of new market, compliance with societal and environmental legislation, achievement of external and internal standards, risk management and safeguarding the reputation of an organization. Barriers to achieve sustainable procurement development are lack of appropriate suppliers who possess sustainable assets; difficulty in changing traditional mindset; complexity in evaluation of financial assets; difficulty in inclusion of broader environmental attributes, etc.