The strategic significance of procurement and its role in sustainable business has changed dramatically due to recent world events. Investors, boards, and executives now prioritize CSR and ESG KPIs in business success measurements. These programs have become increasingly visible in most large corporations as part of a greater trend towards longer-term value generation for all stakeholders. Many have adopted new policies and practices to measure and improve their impact, highlighting the importance of purpose-driven procurement.
Investors are progressively employing non-financial metrics to evaluate the economic value and performance of companies. Morgan Stanley believes quality ESG programmes are one of the best ways to generate long-term sustainable results. Gartner found that ESG indicators improve supply chain reliability, innovative strategy, business ethics, corporate reputation, and risk. Companies with strong ESG programmes are more likely to attract investors since it’s the right thing to do and a sign of a sustainable business strategy and well-run company. According to The Conference Board, “Investing in companies that lead in ESG best practices is no longer niche—it’s one of the strongest ways to help ensure long-term, sustainable returns.”
CEOs are realising that CSR and ESG initiatives boost brand perception and corporate valuation. Project ROI, led by 10 Sustainability and the Babson College Social Innovation Lab, found that CSR practices can generate financial returns on investment (ROI) and other business and competitive benefits. These benefits include a 6% market value increase, $1.28 billion stakeholder value increase over 15 years, and 4% systemic risk reduction.
The PMM 2.0
Procurement might become a board-level strategic endeavour as CSR and ESG goals grow. Too many Chief Procurement Officers (CPOs) still prioritise indirect procurement goals like profit maximisation. According to the Deloitte Global 2021 CPO Survey, “Enhancing social responsibility” ranks 7th, considerably below “Driving operational efficiency” and “Reducing costs.” Only 17% of high-performing CPOs exceeded their sustainability and diversity goals last year, while 88% exceeded their cost savings goals.
The reason is? Many organisations’ procurement strategies and roles were established for an analogue, cost-centric environment. Most procurement measures remain tactical and cost-focused, even as the world becomes digital-first and value-diverse. With cash so readily available, this focus on cost cuts misses the bigger picture. Procurement targets should reflect corporate values to be strategic.
Procurement is increasingly beyond tactical and operational cost savings. Fulton Bank, founded in 1882, offers a wide range of financial products and services throughout Pennsylvania, New Jersey, Maryland, Delaware, and Virginia to give consumers the finest banking experience. Fulton Bank chose Simfoni’s technology to go beyond tactical cost reductions and avoidance and focus on their suppliers and what they buy from them.
According to Fulton Bank Senior Vice President and Chief Procurement Officer Keith Woody,
Three suggestions for procurement directors who seek to link their departments with their companies’ overall strategy:
- Measure ESG effect with procurement data. Businesses are seeking new ways to measure success as they look beyond short-term profit. Setting non-monetary ESG targets, integrating them into procurement procedures, and using tools to track progress is best. Data can reveal your buying and spending habits and provide relevant information. Integrating impact evaluations into the reporting structure and using supplier diversity reporting data can help procurement professionals make meaningful, tangible change.
- Support your goals with balanced resources. Most large companies have mastered sourcing to save money. The next phase is to generate value through company-wide programmes that stabilise, sustain, grow, and encourage business innovation. This is possible with indirect spend Category Management.
- Know Your Suppliers. Supplier performance and delivery greatly impact your company’s profitability. Supply-chain costs might account for 10% to 20% of revenues, depending on the industry. Supplier evaluation cannot be focused exclusively on short-term cost savings if your goal is to develop a strong, long-term business. Your supplier selection process needs long-term study, resources, and delivery tracking. Your providers should mirror your corporate principles, regardless of industry. To manage your supply chain well, you require supplier analysis criteria on variety, sustainability, risk, and other characteristics. This will help you make long-term business decisions.
Even for organisations that cared about CSR and ESG, they were expensive investments. Traditional thinking held that doing the right thing would reduce cost efficiency and profitability. Product and technology innovation has reached a point where organisations can improve their effect and recognise commercial benefits to the point of competitive advantage.
Now is the time to start annual impact assessments as part of your CSR programme or combine your initiatives with your business plan. Smarter purchasing practices that increase environmental and social impact can benefit your entire company.
