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Sustainable Procurement Analysis — The Ultimate Guide
Procurement analysis is used to collect and analyze data for businesses to gain insights and make informed decisions. However, what is it when it comes to sustainability?
In this article, we will discuss what sustainable procurement analysis is. We will show you the key performance indicators (KPIs) that you need to analyze and how you can analyze them.
Once you finish reading this article, you will gain a deeper knowledge of what sustainable procurement analysis is. Thus, enabling you to know if you are ready to integrate sustainability in your procurement effectively.
Defining Sustainable Procurement Analysis
As we told you earlier, procurement analysis is used to collect and analyze data for businesses to gain insights and make informed decisions.
When we talk about sustainable procurement, we are talking about data regarding sustainability to develop actionable insights to drive sustainable value and improve operations through sustainability.
Much like procurement analysis, it is about gathering, cleansing, and enriching large amounts of data from different systems to add sustainable value to the business.
The sustainable value will only come through timely, accurate, and actionable sustainable business insights and the ability to measure the contribution of sustainability in procurement from the top to the bottom line.
One of the common types of sustainable procurement analysis is the spend analysis. Spend analysis enables businesses to assess procurement spending data from internal and external data sources. It can also help drive sustainability initiatives in your supply chain and procurement process.
The Closed Loop Spend Management
Closed loop spend management (CLSM) is an approach geared towards injecting resilience and agility into business operations by optimizing overhead costs and transforming procurement and supply chain processes.
It provides visibility and analysis to help sustain savings and establish resilience and responsibility over the long term.
You may ask yourself, why is closed loop spend management being brought up? Well, the answer is simple. Because the spend analytics that is part of the closed loop spend management can contribute to sustainability initiatives.
CLSM allows businesses to unlock value and drive transformation and growth in business operations through:
- Spend transformation – An approach to extract maximum value through differentiated and new value levers which includes digitalization.
- Innovation – These are new ways for businesses to become agile and resilient through digital accelerators, automation, variable cost structures, and talent acquisition for the future.
- Responsible sourcing – Establishing trust and transparency in the value chain. It also enables the reduction of greenhouse gas emissions and eliminates wasted capacities of products through sustainability.
It is also important to note that the CLSM approach is anchored to 6 key steps which are:
- Establish visibility of the social and environmental impact of the spending
- Articulate value drivers that address cost reduction, and demand management while also considering social and environmental impacts
- Detail the category ownership that turns sustainability into reality
- Allocate budgets that reflect potential social and environmental impacts and levers
- Perform sustainable sourcing initiatives to optimize costs and reduce social and environmental impacts.
- Manage and monitor cost savings and sustainability impact for each initiative
As we told you earlier, the CLSM approach injects resiliency, value maximization, and cost elasticity into your procurement process while addressing and optimizing the sustainability impacts of the spend. Thus, the first step towards this journey is to utilize spending analytics with sustainability in mind.
How Spend Analytics Contribute to Sustainability Agenda
Spend analytics works by leveraging the relationship between money spent and the associated social and environmental impacts. For example, for everything that you procure, there will be a corresponding impact embodied in your purchase such as the water or carbon in its creation. Thus, it relies on two outputs which are spending data and ESG impact factors.
Mapping your spend categories to your ESG impact factors can provide visibility of the estimated footprint of the purchased goods and services of the business. Thus, it generates the following insights:
- Visibility of the company’s impacts across all categories
- Accountability of category managers and suppliers as the core drivers of impact
- Category-level targets and integration into the company’s resource planning software
KPIs to Analyze in Sustainable Procurement
1. Environmental sustainability metrics
Environmental sustainability is the most common area where many organizations track sustainability. This metric covers a wide range of KPIs which include:
- Carbon emissions
- Energy consumption
- Waste reduction
- Plastic reduction
- Noise pollution
- Compliance with environmental standards
2. Social sustainability metrics
Social metrics are focused on the measures regarding the well-being of society involved as stakeholders. This metric covers these areas:
- Human rights
- Work opportunities
- Workers’ welfare
- Improvement of living conditions
3. Governmental sustainability metrics
Governmental metrics are focused on the level of adherence of businesses to policy and regulations within their respective industry sector. The KPIs covered here are:
- Compliance with UN standards
- Compliance with the code of conduct
- CSR standards of suppliers
You may ask why these KPIs are necessary to analyze. The answer is also simple. ESG factors are metrics used to evaluate companies on how far they have advanced with sustainability. To simplify, it is their guide to know if they can be called sustainable.
Together with spend analysis, all the purchases of the company will be evaluated to check if they are up to ESG KPIs. Thus, allowing companies to properly navigate their way to sustainability.
Measuring KPIs in Sustainable Procurement
Now that we know what metrics and KPIs to include in your procurement plan, we will provide you now with indicators that will enable you to measure your performance and identify aspects you need to improve to balance the three areas of action of sustainability which is the ESG framework.
1. Conformity of your sustainable initiatives to international standards
The first indicator to measure the company’s sustainability initiatives is by knowing how good it is at complying with national and international standards when it comes to sustainability.
For example, a measurable indicator will be the number of fines incurred by the company due to infractions. With these, you will know if you are compliant and where you are now in your sustainability goals.
2. Use of materials
The second measure you can use is to know the number of resources and raw materials that you used in their business operation. Also, companies must know the amount of waste and emissions they generate.
By knowing this, companies can evaluate both the environmental, social, and economic parts of a company for defining sustainability. This is due to the fact that a business cannot achieve sustainability when it produces more waste and pollution in the environment.
3. Impact of the company
The impact of the company is a crucial measurement of sustainability. A company must know how it can affect the environment with what it produces. Additionally, it must take into consideration the regulations they have for protecting its employees.
By knowing these things, companies will have a clearer idea of their social and economic impacts. This is due to the fact that you cannot achieve sustainability if you produce too much waste that will severely impact the environment.
4. Business operation
When you want to measure sustainability in your company, it is important to take note of the whole product life cycle. It is crucial to know if your suppliers use renewable energy sources, the ethical standards it abides by in manufacturing what you need, and the number of carbon emissions by producing and moving the products.
All these factors are significant to know if you are meeting sustainability in your company. You must know that your product affects the environment from how you produce it to how you dispose of it.
It is also important to take note that your suppliers must also be compliant with all these measurements. Why? Because they are the ones that support you to achieve sustainability. If the people that surround your company do not care about their impacts on the environment, then the company can never achieve sustainability in its business operations.
+ What is sustainable procurement analysis?
It is about gathering, cleansing, and enriching large amounts of data from different systems to add sustainable value to the business.
+ What is closed loop spend management?
It is an approach geared towards injecting resilience and agility into business operations by optimizing overhead costs and transforming procurement and supply chain processes.
+ What are the ESG factors?
ESG factors refer to the practices of an organization that might impact the environment. These include environmental, social, and governance.
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