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Supply Chain News: The Critical Role of Procurement in Sustainability


McKinsey Says CPOs Need to Up their Game, Take CO2 Reduction Lead, Offers Three Key Steps

Sept. 28, 2021
SCDigest Editorial Staff

A large number of companies are aggressively pursuing environmental, social, and governance (ESG) programs, driven by regulation, pressure from investors and others, customer demand and more.

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Continuously train the procurement community on sustainable procurement principles and their application. Track performance against targets.

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Procurement obviously plays a key in such strategies – for the simple reason that the majority of a company’s full CO2 footprint comes from its suppliers. For most products, 80 to 90% of greenhouse-gas emissions are “Scope 3”: that is, indirect emissions that occur across the company’s value chain.

What’s more, a recent article on this topic from a number of consultants at McKinsey notes that “the procurement function has a decisive role to play in shaping an organization’s ESG footprint, both directly through purchase decisions and indirectly by influencing product design.”

McKinsey further says that while most chief procurement officers (CPOs) understand they are uniquely positioned to have an impact on CO2, most are “struggling to turn that understanding into a clear vision or sustainability strategy for procurement.”

Based on discussions with CPOs, McKiney said that it became clear that many felt they lacked the necessary tools, skills, and data to take decisive action.

If fact, 70% of CPOs who discussed this topic with McKinsey said that their organizations didn’t understand where Scope 3 emissions were generated in their value chain. Almost all (90%) said they had difficulty identifying the right actions to move the needle on ESG topics.

So what to do? Naturally McKinsey has some ideas, provided as three steps:

1. Determine your company’s baseline and how far to go: Understand and quantify the organization’s current ESG footprint. Identify the most significant risk areas and improvement opportunities. Determine what matters most in the context of the company’s overall ESG agenda. And set goals and targets for sustainable procurement.

“You can’t start a journey unless you know where you are, and where you want to go,” McKinsey says.

2. Establish the core and drive value-creation initiatives: Define ESG metrics and policies that will be integrated into the organization’s standard supplier selection, procurement, and supply-management processes. In parallel, select a number of top-priority ESG themes and address them via in-depth cross-functional innovation and improvement initiatives, such as collaborating with value-chain partners to decarbonize emissions-intensive areas of the supply chain.

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“Including 'sustainability as standard' in procurement processes is an effective way to reduce ESG-related risks and spot opportunities for incremental improvements,” McKinsey notes.

3. Shift the organization: Scale up and roll out successful initiatives. Integrate sustainable purchasing practices into the organization. Continuously train the procurement community on sustainable procurement principles and their application. Track performance against targets.

“Companies will need to track sustainability alongside other targets, and adapt their incentive and performance-management systems to ensure the efforts of procurement teams and internal customers are aligned with the organization’s sustainability goals,” McKinsey says.

“As companies seek to reduce the negative environmental and social impact of their activities, they are discovering that many of the biggest risks and opportunities are found in the upstream supply chain,” McKinsey concludes, adding “That puts the procurement function at the front line of the transition to sustainable business models. Ambitious CPOs should act now to ensure they have the tools, data, and capabilities needed to support this shift.”

Do CPOs need to do more to lead CO2 reduction efforts? Let us know your thoughts at the Feedback section below.


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