Environmental Responsibility in Procurement: Assessing

Carbon Footprints for Supplier Partnerships

By

NAME

4th OCTOBER, 2023

SCHOOL……………..

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OUTLINE

Title Page

1.1 Introduction ……………………………………….. …………………………………. 3

2.1 Environmental Responsibility as a Supplier Selection Criterion …………………….. 3

3.1 Methods and Challenges Associated with Assessing Supplier Carbon Footprints …. 5

4.1 Integration of Carbon Footprint Data into the Supplier Selection Process ………….. 6

5.1 Recommendations ………………………………………………………………………. 7

References................................................................................................................................. 8

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1.1 INTRODUCTION

It is evident that the concept of “environmental sustainability” has been widely debated,

hence making it difficult to define (Morreli, 2011). However, in the context of procurement,

environmental sustainability denotes “an approach to purchasing products and services that

takes into account the economic, environmental and social impacts of an organisation’s buying

choices, at all times” (Drucker, 2021). Environmental sustainability can deliver significant

benefits to business organisations. For instance, it can help businesses to increase financial base

(Richter and Dow, 2017), improve reputation and brand image (Stroufe, 2003), increase

profitability (Jacobs et al 2010) and create sustainable competitive advantage (Karpoff et al.,

2005).

The use of management systems (such as the BSI, ANSI, SA and ISO) in procurement

has continued to increase based on their utilities. These frameworks have been used to control all

forms of risks in procurement and supply chain. For example, the SA 8000:2014 remains one of

the prominent certification frameworks that businesses could use to secure ethical working

conditions for workers and also improve in all areas of standard including procurement.

Businesses can use the SA 8000:2014 to conduct procurement activities in a way that is fair for

all parties involved. In other words, the SA 8000:2014 has the capacity to protect workers and

suppliers from discrimination based on sexual orientation, sex, race, religion and ethnic

affiliation (Anderson, 2005).

2.1 ENVIRONMENTAL RESPONSIBILITY AS A SUPPLIER SELECTION

CRITERION

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 Manufacturers often utilise different supplier selection criteria or methods to ensure they

acquire suppliers who meet their needs. Supplier selection connotes the process by which

businesses choose prospective vendor or supplier they intend to get into business with (Vasina,

2014). The essence of a supplier selection method is to ensure that firms acquire appropriate

suppliers who “are capable of providing the buyer with the right quality products or services at

the right price, in the right quantities at the right time” (Cengiza, Ozdemirb, Kusanb and

Cabuka, 2017). As indicated by Pal, Gupta and Garg (2013), supplier selection is a major

function of the procurement department which helps to drive a firm’s growth and

competitiveness.

Traditionally, organisations often select suppliers based on selection criteria such as

price, financial capacity of the supplier (Pi and Low, 2005), profitability, reliability (Min and

Galle, 1999), supplier’s proximity, vendor’s image, believability (Stević et. al., 2016), consistent

delivery, communication openness and many more (Handfield, Monczka, Giunipero and

Patterson, 2009). These selection criteria are often used to measure all vendors/suppliers with the

aim to determine whether such vendors have the qualifications to perform the job. As opined by

Frej, Roselli, Araújo de Almeida and Teixeira de Almeida (2017), the aforementioned supplier

selection criteria allowed companies to make right choices that can prevent the supply chain

from suffering losses. This means that the following supplier selection criteria help to reduce

purchase risk and maximise overall value to the purchasers (Frej, Roselli, Araújo de Almeida and

Teixeira de Almeida, 2017).

However, in the recent time, the supplier selection criteria have become more complex as

scholars have argued that environmental, social and political factors are also modern criteria for

supplier selection (Cristea and Cristea, 2017). Fundamentally, environmental sustainability has

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been regarded as an essential supplier selection criterion in the recent past (Zimmer, Frohling,

and Schultmann, 2016). According to Govindan, Rajendram, Sarkis and Murugesan (2015), there

are four sub-criteria of environmental sustainability which include environmental efficiency,

pollution reduction, green image and green competencies. These criteria are fundamental to

improve businesses’ economic and environmental performance within the entire supply chains

(Zhu et al. 2011). Also, the environmental sustainability criterion enables manufacturers to

measure supplier’s capacity to reduce environmental issues that are capable of influencing their

operations (Cifci and Buyukozkan, 2011). As noted by Bai and Sarkis (2010), the environmental

sustainability criterion improves company’s image and help to mitigate risk. This environmental

sustainability criterion has been used by various Iranian automobile manufacturers such as Saipa,

Iran Khodro, Azhitechs, Kerman Motors and so on (Zhu et al. 2011).

3.1 METHODS AND CHALLENGES ASSOCIATED WITH ASSESSING SUPPLIER

CARBON FOOTPRINTS

As indicated by Carbon Trust (2007), the concept of “carbon footprint” simply implies

the CO2 and other Greenhouse Gas (GHG) emissions for which businesses are responsible. In

the context of supply chain, carbon footprint denotes the “actions taken by businesses to reduce

emissions and provide a concrete performance measure for the suppliers’ environmental

efficiency” (Carbon Trust, 2007). According to Yin (2003), supplier carbon footprint could be

assessed and calculated using various methods which include direct emissions (Scope 1), indirect

emissions (Scope 2) and emissions from other indirect sources that are not covered in Scope 2.

The direct emissions (Scope 1) are originally from sources that are owned by the reporting entity.

The indirect emissions (Scope 2) are usually a consequence of the activities of the reporting

entity but often occur at sources that are not owned and controlled by the reporting entity but by

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another entity (Yin, 2003). Other value chain emissions (Scope 3) are not usually covered in

Scope 2. This is because none of the reporting entities can control such emissions (Yin, 2003). In

this sense, such emissions include extraction of purchased materials, transport-related activities,

electricity-related activities, outsourced activities etc.

Evidence suggests that collection and verification of carbon foot data across suppliers has

been a difficult task (O’Neal, 2006). Manufacturers are often confronted with a number of

barriers ranging from the supplier evaluation problem (Bhutta, 2003), data inaccuracies and lack

of transparency in data sharing (Bednarz et al. 2018), inefficiency in the exchange of PCFs and

PCF certifications along the value chain (Bednarz et al. 2018), lack of widely accepted cross-

industry performance measurement systems (Bruno et al. 2012), increasing legislative pressures

(do Paço and Raposo, 2009) and many more.

4.1 INTEGRATION OF CARBON FOOTPRINT DATA INTO THE SUPPLIER

SELECTION PROCESS

There are a number of ways to integrate carbon footprint data into the supplier

selection process, but there seven significant steps that businesses can use to integrate carbon

footprint into the supplier selection as suggested by Handfield, Monczka, Giunipero and

Patterson (2009). First, manufacturers need to recognise the need for supplier selection. This

process can be influenced by future purchase requirements. Second, businesses need to

identify the sourcing requirements as they need to identify the requirements that are essential

for purchase. Third, there is need for manufacturers to determine the sourcing strategy.

Fourth, potential suppliers are to be identified in this stage depending on the available

information. Fifth, it is essential to create a selection pool which can be used to reduce the

suppliers’ number. Sixth, here, the manufacturers determine the method of evaluation and

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selection. As indicated by Boosothonsatit et al. (2012), an eco-indicator method is useful to

evaluate the environmental impacts of suppliers in the supply chain. Seventh, manufacturers are

expected to select the supplier and reach an agreement.

There is need for a clear evaluation system as this will enable businesses to determine

whether the suppliers will meet the objective of the companies. This is needful to reduce costs

and impacts, meet investors’ expectations and strengthen company’s reputation. Carbon

footprint data can be weighted and scored through compensatory and non-compensatory

approaches (Rowley et al. 2012). Compensatory approach (weighted average, product, fuzzy

aggregation methods, etc.) and Non-compensatory approach (fuzzy aggregation methods,

outranking matrices) Companies such as Green Mountain Energy, Disney and Cemex have

successfully integrated carbon footprint assessment into their procurement strategies. This has

made it possible for these companies to achieve carbon neutrality and reduce scope 1 and

scope 2 emissions to nearly-zero level.

5.1 RECOMMENDATIONS

Continuous improvement in supplier sustainability practices is essential to fight

against emissions and climate issues. Businesses must ensure to work closely with suppliers to

jointly achieve sustainability targets. There is need for businesses to incorporate sustainability

criteria into their contracts. Companies need to set specific targets and indicators for their

suppliers. This will enable them to measure suppliers’ sustainability performance. Lastly,

companies must come up with policies and procurement standards that will reflect their

sustainability standard. Royal Philips, IKEA, Unilever and ZF have used collaboration to

work together to reduce emissions in their supply chains.

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