Following on from our Top Procurement Influencers on Twitter 2017, we are launching an InstaSupply Insights series showcasing some of the content these great authors produce. Each week, we will be bringing you a different opinion piece from the top influencers' list on everything from Blockchain to digital transformation and AI. This week, it's Sara Walsh Evans talking about sustainability and its implications for spend control.
For years, those of us in procurement have been successfully managing cost and risk; controlling spend. But increasingly we’re asked to do more – to think about "irksome" things like sustainability. It’s reasonable to ask ‘what on earth….?’
It’s tempting to imagine a narrow construction of the term ‘sustainability’ – and many do. But the whole idea is to ensure that something can be sustained in its current form or as near to it as possible. For an audience concerned with spend control intelligence (such as InstaSupply's readers), or those interested in procurement more broadly, what does that mean?
Sustainability is spend control
It means the:
All of which relate to spend control.
Are these new concepts? No. So why do I write this today, in 2017?
Our world is challenging
Because we are confronted with a changed focus, evolving expectations, increasing consequences (regulatory and reputational), and more frequent impact.
A study by the British Standards Institute found that global supply chains incurred an extra $56 billion of costs caused by disruptive events in 2016 alone. Since then, the news has contained a resurgence in protectionism, several powerful weather events in quick succession, power outages, product returns, and continued terrorism.
Though we may sometimes tell ourselves we can (as we put out yet another (metaphorical) supplier fire), Procurement can’t save the world. But we can influence how our companies relate to it.
Most days as procurement pros, we engage in what the academic Pankaj Ghemawat calls arbitrage, aggregation, and adaptation, in varying degrees. We find ways to maximise economies of scale through bundling, or using the same supplier across markets (aggregation). We build a common platform that supports the majority of a category’s requirements but allows flexibility through local procurement or use of social entrepreneurs (adaptation). And arbitrage has always been at the core of the role – making the most of differences in labour costs, tax policy, and logistics across different regions and countries.
But, as Ghemawat cautions, the success of this AAA approach relies on finding cultural, administrative / political, geographic, and economic affinities, the idea being that affinity breeds competitiveness, and thus profitability. That is, if we try to pursue any of the three As without considering non-market factors such as social and environmental impact, political risk, and economic change, our strategies will fail.
Profitability, then, involves more than money. It involves our relationship to the world around us and its continued ability to support that profitability.
“ADAPTATION boosts revenues and market share by tailoring products and services to suit local tastes and needs.
AGGREGATION delivers economies of scale by expanding operations into regional or global markets.
ARBITRAGE exploits differences in labor costs, tax regimes, and other factors between national and regional markets.”
Pankaj Ghemawat, Redefining Global Strategy, 2007
Since we deal in the realm of profitability, we need to understand our suppliers’ ongoing relationship with the world as well as we do our own. That is: our continued and combined ability to operate profitably. So our continued ability to purchase goods and services; the total cost and risk of doing so; how vulnerable we are to external events; and the regulatory, reputational and other impacts of social and environmental factors, are the essence of a procurement’s role: to control external spend.
What to do:
Previous articles in this Influencer series have discussed trust – the human and digital kind, procurement’s role as unapologetic governor of the commitment of resources, and change. All those factors are connected to what I’ve talked about here, for trust is the root of all relationships, and relationships are needed to understand sustainability. And, as Kelly Barner said in her article, we have a responsibility to influence, correct, drive, be bold and unapologetic, and govern. And to collaborate and comply too (#sorrynotsorry, Kelly!). Why?
Sustainability is spend control. It is procurement. What good are we if we can’t secure supply, and manage cost and risk?