Sustainable Sourcing: Sustainability integrated within the Value Chain
Sustainable sourcing is a new approach to outsourcing services that prioritizes not only the financial impact, but also the social and environmental impact of outsourcing. Compared to conventional corporate social responsibility policies, sustainable sourcing involves mapping out the social and environmental impact of outsourcing starting from the value chain of the company itself, and not as a parallel activity that is unrelated to the business or market in which the company operates. Human development is significantly affecting the planet. One of the main drivers of this change is our growth-based model of economic development. Moreover, society is increasingly concerned about troubling environmental issues coming to light such as, for example, the rise in global warming.
In line with this new growth model, the private sector must see sustainability as a priority and not as an issue external to the business, thus moving away from the type of company that focuses only on profits. Nowadays, corporate social responsibility (CSR) departments – which in the past attempted to make an impact mainly through donations – are evolving, trying to go beyond the simple goal of “donating to a cause”: they are now incorporating social and environmental responsibility within the company strategy, considering the impact on people and the planet above potential financial benefits. They are suggesting strategically integrating sustainability and social responsibility within the company value chain.
a new approach
In this new approach, sustainability is integrated in the value chain and plays a key role in companies becoming truly sustainable. This is easier to implement in the primary (agriculture, livestock, fishing, etc.) and secondary sectors (industry, construction, energy, etc.) of the economy. In the tertiary sector (services, trade, communications, etc.), and particularly in the knowledge economy, the provision of services by third parties makes it more difficult to control sustainability across the value chain, due largely to the relocation and intangibility of services. How do we manage sustainability if a large part of a company’s operations is outsourced?
All outsourcing processes have associated environmental and occupational risks, which sustainable sourcing attempts to mitigate. The impact of these risks is not readily visible and may increase depending on location. In the IT sector, an IT Service Management company can outsource maintenance to another company that may, for example, have a team operating in a country such as India, where environmental and labor standards are different. This is where sustainable sourcing comes in—a tool that helps us select suppliers with values and policies that are in line with our company’s definition of sustainability as concerns environmental and labor issues. Reducing these risks, in conjunction with aligning social responsibility and sustainability policies, will have a direct impact on the quality of outsourced services – it has been proven that better working conditions lead to greater customer satisfaction – and, consequently, will help enhance the reputation of our company. Moreover, sustainable sourcing increases the impact of our social and environmental policies, benefiting many more people. If my organization believes that certain labor standards and environmental conditions must be met in order to provide a quality service, does it not make sense to ask that the companies to which we outsource services meet the same requirements? Sustainable sourcing increases the impact of social and environmental policies
We have included sustainability as one of the aspects to consider when developing our sourcing strategy, taking it into account at all stages of the process: strategy, initiative and management. Naturally, when implementing this tool, we will always bear in mind the main objective of the sourcing processes: improving the efficiency of the organization. A first step during the sourcing initiative stage is to prepare a business case that incorporates sustainability as a key principle. Based on this, we move forward with the sourcing process, using sustainability as an important criterion in the selection of suppliers. Additional sustainability requirements can also be introduced during the RFP (request for proposal) processes. Once the sourcing initiative has been completed, the concept of sustainability is also present at the management stage, when it should be implemented during the service transition or transformation. We must also ensure that the objectives of the contract have been met and monitor supplier performance from the point of view of sustainability. The implementation of a sustainable sourcing model at all stages of the process (sourcing strategy, initiative and management) ensures that this is not only a tool for transformation, but that it also becomes a way of integrating sustainability principles into our value chain, thus maximizing the impact of our sustainability strategy. In addition, it is very possible that this will result in our suppliers providing better services in the future.
Company policy and ethics
Many of the sourcing decisions of a company have a key ethical component that ends up resting with those who take the final decision. This is especially relevant when speaking, for example, of outsourcing processes where a service is outsourced to a company located in another country. In these scenarios there are always people and organizations that benefit from these decisions, as well as people and organizations that are harmed by them.
A recent study conducted by Quint Wellington Redwood shows that, when it comes to taking sustainability into account, managers or employees responsible for making sourcing decisions are more influenced by their personal beliefs than the sustainability policies of their company. This shows that conventional sustainability policies are not delivering the expected results. It’s time to opt for sustainable sourcing as a means of ensuring that the sustainable values of a company are transmitted through its value chain. Sustainable sourcing goes beyond providing tools for facilitating decision making and mitigating the risks arising from the lack of visibility in the processes of third-party service providers. Taking sustainability issues into account requires a re-evaluation of sourcing processes to ensure that we maximize the positive impact we can have on society and the environment through our value chain. This will, in turn, pay dividends in the future by increasing the quality of outsourced services.
By Ignasi Prado, sourcing consultant at Quint Wellington Redwood
Published in IT Sourcing Magazine