Article

Sustainable Procurement Practices for the Three Es: Environment, Economy and Equity
By Name: Dr. Kishore Pankan, Ph. D, MBA AlHosn University, Abu Dhabi, UAE. .

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Table of Contents:

Table of Figures:
Figure No. Figure 1 Figure 2 Description The three Es of Sustainable Procurement (National Health Services UK, 2005) The framework of benefits that can be derived from sustainable procurement that can finally lead to sustainable development (Jackson and Roberts, Figure 3 2000) Maturity Model to achieve excellence in sustainable procurement (Source: Bobis and Figure 4 Staniszewski, 2009) The four areas that an organisation should consider to achieve Sustainable Procurement Figure 5 Practices (Source: Bobis and Staniszewski, 2009) Five Levels of Sustainable Procurement Maturity (DEFRA, 2006) Link to the Figure Link to the Figure Link to the Figure Link Link to the Figure Link to the Figure

Chapter 1: Introduction

Sustainable Procurement is a framework in which the purchase manager has to follow an organised decision making by thinking beyond the primary benefits of the product under consideration and its cost. The idea was conceptualised in the 1990s and has been the attraction of policy makers in the first decade of the millennium amidst Page 2 of 25

environment protection concerns all over the world. (Erridge and Mcllroy, 2002; Erridge and Murray, 1998) The National Health Services (NHS), UK has formalised the guiding principles of sustainable procurement as the following: (1) To make the lifestyle of human beings conservative to remain within permissible limits of the local, regional and global environment. (2) To contribute to achievement of a sustainable economy of the nation. (3) To achieve good health and well being of the natives of the nation. (4) To develop and promote good governance in the society. (5) To employ good scientific innovations with responsibility. (National Health Services UK, 2005) The NHS UK believes that protection of environment and human health are key factors that drive all the five guiding principles presented above. Hence, as promoted by NHS and supported by United Nations Development Programme (UNDP, 2008), sustainable procurement should be treated as one of the key contributors to the sustainable development of a nation and also of the world. The discussions by Erridge and Mcllroy (2002) and Erridge and Murray (1998) reveals that adoption of sustainable procurement practices requires long term visualisation and contextualisation by the purchase management strategists and may take between seven to ten years for an organisation to achieve maturity in sustainable procurement depending upon the volumes of purchases made by the organisation and the overall size and spread of the organisation. Walker, Gough, Bakker, Knight and McBain (2009) argued that an organisation will have to consistently hold training and workshop programmes to promote sustainable procurement such that purchase managers develop in depth

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knowledge and understanding about the framework. As described by these scholars, the current challenges in sustainable procurement are two-fold: inadequate knowledge and experience in the field and radical cultural shift required to adopt it effectively. A lot of academic research is required in future to promote sustainable procurement such that the benefits can be realised for the nations and the whole world. In this article, the author has presented a literature review on the concept, design and practices about sustainable procurement and a description on how the academic community can help in instigating the practices in public sector organisations and corporations.

Chapter 2: The Three Es of Sustainable Procurement

The detailed framework for strategising and implementing Sustainable Procurement has been documented by National Health Services UK (2005) and the United Nations Development Programme (2008). As per them, sustainable procurement is based on

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three Es that needs to be taken into account when the purchase managers are making purchase decisions: Environment, Economy and Equity, as shown in the figure below:

Figure 1: The three Es of Sustainable Procurement (National Health Services UK, 2005)

Under the three Es principle, the purchase managers are required to take into account three key considerations: (1) The product under consideration should be friendly to the local and global environment. (2) The entire lifecycle of the product, from inception till disposal, is economical to the organisation. (3) The manufacturing process of the product has taken into account equitable distribution of natural resources and has taken into account the factors that can

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support the local communities and eliminate bad practices like child labour, unfair working conditions, poor wages, etc. (National Health Services UK, 2005)

As described by National Health Services UK (2005) and the United Nations Development Programme (2008), the three Es requires multiple considerations by the purchase managers which is evolving gradually. In fact, multiple organisations have started to appreciate the value of sustainable procurement and are contributing on detailed design and know how about the practices. The UNDP and NHS websites branch out to multiple support sites that describe the sustainable procurement practices in detail. These sites can be very useful to the purchase managers in their decision making efforts. But the framework largely has been an outcome of individual efforts and hence the organisations need to follow a maturity model to build reusable knowledge and practices about sustainable procurement. In chapter 4, the author has discussed two models for achieving maturity in sustainable procurement practices in an organisation.

Chapter 3: Benefits of Sustainable Procurement

In the era of serious environmental challenges and economic issues across the world, sustainable procurement may prove to be one of the effective methods to save Page 6 of 25

the mankind from serious aftermaths of the climate instability and the economic setbacks that the world has witnessed multiple times. It is high time that the Value for Money mantra is realised by the purchase managers all over the world by not only negotiating down to the lowest bid possible but also take into account how the product is going to value add to the environment, the community and the purpose for which it is bought. The return on investments are now required to be linked with the total life cycle of the product including its recycling process. (National Health Services UK, 2005) As described by Li and Geiser (2005), the sustainable procurement framework should be viewed as the baseline for the much talked about concept of Economically/Environmentally/Ecologically Responsible Public Procurement (ERPP) that has been conceptualised to achieve the following goals in the world:

(1) Every company is accountable and responsible for environment protection. (2) Every company will take the environmental impacts into account in their product design, development, manufacturing, packaging and delivery efforts. (3) Every company will ensure that practices pertaining to energy efficiency and conservation are implemented. (4) Every company will ensure implementation of best practices in disposal and recycling of wastes. (5) Every company will give opportunities to local communities in their business. (6) Every company will discourage the suppliers that employ bad human resource practices like unfavourable working conditions, inadequate focus

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on occupational health and safety, child labour, poor wages, less or no overtime payments, etc.

Seuring and Muller (2008) further described that the sustainable procurement processes will give rise to end to end sustainable supply chain because once the customers will be adamant to follow the sustainable procurement practices, every supplier will have to follow. This will result fast and effective diffusion of the practices because everyone wants to remain in business. In a relatively older article, Young and Kielkiewicz-Young (2001) described the principle of sustainable supply network management in which they emphasised upon very close partnerships between the suppliers and the buyers. Mapping with the research by Seuring and Muller (2008), it is hereby emphasised that it is important for buyers to actively help their suppliers in adopting the sustainable procurement practices and not just put the demands on them. Hence, it is hereby perceived that sustainable procurement will also result in enhanced relationships between the buyer and the customer in an organised supply chain engagement.

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Figure 2: The framework of benefits that can be derived from sustainable procurement that can finally lead to sustainable development (Jackson and Roberts, 2000)

Further to this, Seuring and Muller (2008) insisted that the local government and regulatory systems need to ensure their support to promote the sustainable procurement practices. If these practices start taking shape in the world, a major change can be evident that shall enhance the sustainability of our planet. In fact, as presented by Jackson and Roberts (2000) in the figure 2 above, the sustainable procurement practices will finally contribute to sustainable development if the end to end systemic changes are evident in the world. A number of socio-economic and socioenvironmental challenges can be addressed effectively by implementing this practice.

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Chapter 4: Sustainable Procurement Maturity Models and Implementation Steps

Tassabehji and Moorhouse (2008) have reiterated that procurement managers in the modern world are expected to exhibit high levels of professionalism and decision

making skills as the impacts on business, economy, environment, communities, etc. are significant. These scholars have emphasised upon some of the modern competencies that the procurement managers should possess knowledge of modern technologies, strategic planning and cross functional co-ordination skills, designing and managing processes, good knowledge and implementation of global best practices, make effective use of benchmarks, listening and interpreting skills, persuasion and influencing skills, excellent behavioural skills, training skills, innovation and creativity skills, skills of using and sharing information, and risk management skills. Their arguments have revealed that the modern procurement managers have much wider roles than just deciding upon a product and negotiating with its supplier to get the lowest possible cost. The level of knowledge and competencies expected from a purchase manager in modern public and private sector companies is probably among the highest required by any profession. But if we take into account the demands implied by sustainable procurement it will appear that the procurement managers are just half way in building their competencies. However, given the immense benefits of sustainable procurement towards protection of Mother Earth, it cannot be avoided. We probably are running out of time in implementing such practices across the globe and going by the arguments presented by Erridge and Mcllroy (2002) and Erridge and Murray (1998), achieving Page 10 of 25

maturity in sustainable procurement takes long time for an organisation typically seven to ten years. Hence, every nation should urgently start promoting this practice and corresponding governance and regulatory frameworks should be established. The author has reviewed few implementation models for achieving sustainable procurement maturity in an organisation. The first model reviewed herewith is designed by Bobis and Staniszewski (2009) that is presented in the figure 3 below:

Figure 3: A Maturity Model to achieve excellence in sustainable procurement (Source: Bobis and Staniszewski, 2009)

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In this model, these scholars have presented five levels that need to be transitioned to achieve maturity in sustainable procurement. The first level is tactical buying which is the most popular mode of purchasing in todays procurement profession. Every organisation will have appropriate policies and procedures to carry out tactical buying with one common goal getting the desired products and services at lowest possible cost. Price leverage is the level where the overall price savings in purchasing the goods is focussed upon. Many companies have achieved this level. Category Management comprises of basic considerations of energy efficiency whereby there are some tactical efforts but no metrics or measurements are in place. At this maturity level, sustainable procurement just begins in an organisation. One example may be: to prefer electrical/electronic products having energy star certifications or to buy electrical products that are certified as green (like, Green Generators). The procurement managers apply ad-hoc efforts to prefer buying products that are energy efficient but there is no organisational framework to support this. At the Strategic Supplier Management level, the organisation has appropriate policies and procedures at place with definite metrics and measurements for sustainable procurement. For example, rather than just asking for a certification or logo associated with a product, the

organisation has whole list of emission and efficiency standards that can be verified for the competing products in the in-house laboratories (equipped with appropriate instruments to validate the compliance with the standards) or with the help of a third party testing company having such laboratories in place. The value chain level is the ultimate maturity level as per this model in which the sustainable practices of suppliers and buyers are totally integrated and multiple declarations by the suppliers are signed

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and multiple on-site assessments by the buyers are carried out. The focus is on end to end production cycle and product life cycle of the products and not just the certifications and test results obtained in laboratories. Bobis and Staniszewski (2009) described that the organisation should consider four distinct areas when adopting and implementing sustainable procurement practices as shown in the figure 4 below:

Figure 4: The four areas that an organisation should consider to achieve Sustainable Procurement Practices (Source: Bobis and Staniszewski, 2009)

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The figure above comprises of four distinct focus areas that the procurement management should focus upon: Cost Cutting keeping in mind the cost of product as well as the cost of entire product life cycle till disposal, Regulatory Compliance related to sustainable procurement practices, Innovations ensuring better sustainability of products and services and Consumer Perception about the sustainability of products offered. Bobis and Staniszewski (2009) further described that the procurement manager should have a separate set of checklist of sustainable practices to evaluate the suppliers before the purchase agreements are signed. The following checklist is recommended by the scholars: (1) To evaluate the end to end manufacturing process of the manufacturer flow diagrams, flow charts, raw materials used, storage of work in progress materials, etc. (2) To evaluate if the supplier is applying genuine efforts to reduce the natural resources that are diminishing from our planet. (3) To evaluate the end to end cost that the company may incur during the product life cycle: like handling costs, maintenance and operating costs, storage costs, technical support costs, and disposal costs. (4) To evaluate the level of conservation of energy that can be achieved in the product. (5) To evaluate the level of compliance to regulatory requirements achieved by the supplier in sourcing raw materials, manufacturing, storing, packaging and delivering.

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(6) To evaluate the level of compliance to global environmental protection standards (like ISO 14001) achieved by the supplier in sourcing raw materials, manufacturing, storing, packaging and delivering. (7) To evaluate the level of carbon and other emissions that the product will generate and tally with the acceptable levels. (8) To evaluate how the product can be recycled or whether if it can be recycled at all. (9) To evaluate if the supplier has violated human rights in manufacturing his products like employment of children in the labour workforce. (10) To evaluate if the supplier have internal processes for sustainable procurement and product development. (11) To evaluate the initiatives taken by the supplier to carry out innovative practices for protection of environment. (12) To evaluate if the supplier has given chance to local communities in his manufacturing process (like employment of labours from local communities or engaging with local suppliers). (Bobis and Staniszewski, 2009)

A paper by World Resources Institute (WRI) (2009) has recommended the following additional checks: (1) To evaluate if recycled products have been used as raw materials by the supplier. (2) To evaluate the sources of raw materials that the suppliers have used.

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(3) To evaluate if the certifications produced by the suppliers are authenticate and are from credible certification bodies (like, British Standards Institution for ISO 14001 certification). (4) To evaluate if the supplier has implemented formal procedures for environmental risk management due to the manufacturing process? (5) To evaluate if the supplier has adequately taken care of health and safety of the labourers. (World Resources Institute, 2009)

The second model of sustainable procurement is by DEFRA (2006) presented in the figure below:

Figure 5: Five Levels of Sustainable Procurement Maturity (DEFRA, 2006)

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The model has a structure that is similar to the model by Bobis and Staniszewski (2009) but the levels in this model have different achievements defined. At the foundation level the vision and mission statements should be defined, the management commitment should be assured and the baseline policies and procedures should be in place (well documented and shared). At the embed stage, the entire procurement team must have achieved trainings and certifications on the sustainable procurement policies and procedures and first hand operating manuals should be in place. At the practice stage, the sustainable procurement practices defined in the operating manuals should be institutionalised across the organisation and all supplier and product evaluations should be carried out in accordance with the established policies and procedures. At this stage, the teams should be generating daily operating logs that can indicate the level of compliance to the established framework. Trainings and workshops, however, should be continuously conducted and MIS reports should be generated for the higher management. At the enhance stage, the organisation should be able to reuse the knowledge of the practices followed by them and should be able to extend the knowledge to the suppliers gradually such that they also implement sustainable procurement practices taking advantage of the experiences of the buyer. At the lead stage, the organisation must have integrated all the suppliers in their sustainable practices through engagement and partnerships whereby the buyer leads the entire framework by conducting training, workshops, certifications, assessments, audits, and enhancements. In the next chapter, the author presents a discussion on these models.

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Chapter 5: Discussions

Young and Keilkiewicz-Young (2001) argued that the sustainable procurement models are designed to put too much of expectations on the procurement managers. The author tends to agree to their concern given that taking accountability of so many aspects in these frameworks is not easy. Probably a large army of testers, specialist consultants, legal experts, field auditing staff, etc. will have to be created. Will this not enhance the procurement costs significantly given that the procurement function is always under significant pressure of budget constraints and timelines for purchasing. Every procurement professional will wonder how so many aspects can be verified in the limited timelines and budgets allocated to them. Hence, it is sure that in the beginning of the maturity cycle, only large scale voluminous purchases can be included in the sustainable procurement framework. In authors view, the sustainable procurement framework requires building of large scale management system and will not be driven by individual efforts. Evaluation of suppliers will be a one-time effort and need not be carried out at the time of purchasing only albeit may be carried out parallel to the routine purchases already in progress. This will be a lengthy but one-time exercise because once the suppliers are qualified under the sustainable procurement framework, they are already part of the system and one just needs to repeat the orders going to them based on one time engagement contracts. But yes, every organisation has a supplier reevaluation system going forward at fixed intervals (like six monthly) to validate if the terms of the engagement contracts have been met adequately or not. In this context, the suppliers will have to be re-evaluated against sustainable procurement practices as Page 18 of 25

well in the periodic re-assessment exercise. This is a mandatory requirement of ISO 9001 and hence an organisation may like to include the checklist pertaining to reevaluation of sustainable procurement practices of the suppliers in the ISO 9001 standard based quality manual. Once such customisations are completed, the sustainable procurement framework can be integrated in the larger scheme of quality management system and everything becomes business-as-usual. In authors view, the organisations that already have implemented best practices can be successful in implementing sustainable procurement effectively. For example, if the organisation is not ISO 9001 certified, there are chances of gaps in supplier and product evaluations and these gaps will get embedded in sustainable procurement as well once the organisation adopts it. Hence, it is important that the rest of procurement function should be perfectly implemented under the umbrella of ISO 9001 standard. Also, it is unlikely that the organisation will be able to effectively conduct trainings and workshops, document and implement policies and procedures and implement knowledge management and reusing systems for sustainable procurement if they do not have all these for the rest of organisational activities. The author believes that the organisation should not try to achieve maturity in sustainable procurement as a standalone framework under pressure of some regulatory requirements because such efforts will not yield the desired results. At the fundamental level, ISO 9001 and ISO 14001 are mandatory pre-requisites to implement sustainable procurement. This should be recognised by all policy makers and statutory and regulatory bodies before they document and publish the standards.

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The biggest challenge in the models reviewed in chapter 4 would be to extend the sustainable procurement practices to suppliers and integrate them through appropriate engagement contracts. This may be easier in dedicated supply chain networks managed by large scale manufacturers but may not be that easy in case of ad-hoc purchases. A supplier would be selling products to multiple customers. If the supplier is under pressure to adopt sustainable procurement practices of multiple customers with conflicting clauses, the management of the supplier will get into deep trouble. Hence, imposing the sustainable practices of customers on suppliers may not be a good idea rather, the government should define and control everything and the customers should simply ensure supplier compliance to governments published standards. Overall sustainable procurement is definitely the way forward to ensure commitment to environment, national economy and local communities. But a lot needs to be done by the national governments in defining the way it should be implemented before making it mandatory for all organisations. As a procurement professional, the author recommends adoption of sustainable procurement framework but the challenges discussed herewith should be taken into account.

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Chapter 6: Research Directions in Sustainable Procurement

This subject is hardly researched by the academic community. In the process of writing this article, the author searched for past empirical studies on sustainable procurement and could only find limited number of research studies among which the few have been included herewith. Hence the scope of academic research in this field is significant. The aspirants may like to address the challenges that the author has presented in chapter 5 and evolve multiple research questions. The studies may include phenomenological and ethnographic studies among procurement professionals, case studies of organisation that have adopted sustainable procurement practices and quantitative studies to evaluate various hypotheses theories to establish correlations between the measures and KPIs. For example, how much the supplier is likely to meet sustainable procurement requirements if the products manufactured are timber based construction materials? What could be the methodologies for the procurement professionals to verify the manufacturing cycles and supply chain management cycles of the suppliers to identify sustainable practices? How can the authenticity of accreditations and certifications be verified? How can the procurement professionals verify if the suppliers have carried out human rights violations? How can the procurement professionals verify if the suppliers have given chance to local communities? These and many such questions can be answered by academic researchers in their future studies.

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Chapter 7: Conclusions

The author has presented an article on sustainable procurement practices, two maturity models to achieve sustainable procurement organisational maturity, and has discussed the challenges and future research opportunities. Sustainable procurement can be viewed as one of the most innovative strategic frameworks prepared recently and is definitely expected to contribute significantly to environment protection, economic development and equity distribution of resources in a country. But the current strategic models are at very nascent stage and a number of questions remain unanswered by these models. There are certain challenges from the perspective of procurement professionals that have been discussed in chapter 5. The author is sure that many more challenges will emerge in a brainstorming session among multiple procurement professionals. Hence, a lot needs to be developed in the future to enable the organisations to successfully adopt the proposed maturity models. The academic researchers have a significant role to play in this subject matter.

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