ESG & Sustainability: Shaping A Digitised, Environment-Friendly Procurement Value Chain

This article is authored by Ashwani Narang, Vice President and Country Head, Intelligent Spend Group, SAP Indian Subcontinent, and published in partnership with BloombergQuint Brand Studio.

The turn of the new decade saw the rise of ambitious sustainability goals. Products with sustainability labels received increased traction. Around the same time, social media influencers were voicing their support for ethical work practices and security for frontline supply chain workers. As a result, sustainable procurement became a priority in enterprise strategic agendas. But in 2020, when Covid-19 rocked the world economy, new challenges emerged.

The impact of the pandemic on supply chains was disruptive. Many feared that the crisis would dampen growing enthusiasm to invest in sustainable procurement practices. But it did the just the opposite.

After an initial slump, sustainable procurement was back on the radar. In a recent survey report by SAP, powered by the Indian Institute of Materials Management (IIMM), a majority of respondents ranked sustainability as a top procurement priority in the next two years. This collective confidence to drive supply chain sustainability initiatives is a direct result of several recent events and developments. For example, weather disasters in 2020 saw businesses around the world suffer losses in the billions. This, in turn, brought climate change issues to the forefront of sustainability discussions.

On the regulatory side of things too, 2020 proved to be definitive year for the sustainability movement. New regulations urged organisations to look at procurement from the sustainability perspective. In one such recent example, SEBI published a circular on Business Responsibility and Sustainability Reporting (BRSR) for India’s top 1000 companies by market capitalisation. The circular is as a welcome change from the erstwhile Business Responsibility Reporting (BRR) regime which had several gaps in reporting requirements. The BRSR will help regulatory authorities create a single source of sustainability data that shareholders, investors, and the public can use.

Towards green procurement—Technology makes the difference

With 2021 adding greater momentum to sustainability targets, the future will likely bring more investments in green procurement. Pressure from stakeholders on companies to deliver on their sustainability agendas is also expected to increase. To meet these demands, companies must increase supply chain transparency. This includes providing disclosure of their procurement activities and practices.

As supply chain sustainability gains traction, more procurement professionals will have to rise to the occasion as sustainability champions. To help drive progress, they will need to create more anti-fragile and greener supply chains. And this is where technology can help them create a difference.

Technology provides an opportunity to advance and empower a company’s sustainability agenda. Emerging tech such as AI, IoT, cloud, and robotics play a critical role in ensuring a sustainable supply chain. They enable seamless data transfer, real-time supplier visibility, and sustainability forecasts. Here are a few examples of how technology can drive a sustainability revolution in procurement.

E-Procurement

Healthy supply chains rely on seamless flow of information. Cloud and analytics-driven e-procurement can help provide supply chain professionals with the right information, at the right time. An e-procurement platform provides end users with the liberty to request for any service or item from catalogues. In this model, the onus lies on procurement teams to ensure that catalogues are always updated with information on product components, sourcing methods used and green ratings. In India, the government and several public sector enterprises have started digitalizing supply chains with e-procurement applications. This includes using solutions for e-procurement, e-tendering, e-billing, e-payments, and e-receipts to:

· Collect supplier information

· Evaluate supplier performance

· Track supplier development

· Manage and mitigate supplier risk

· Vet and qualify suppliers

Besides helping companies streamline procurement as a process, e-procurement solutions such as e-invoicing can help companies reduce paperwork, which directly enhances carbon footprint reduction and helps in environmental conservation.

Digital Contract Management

Sustainability-related risks are scattered across the supply chain, and they are often difficult to identify. In such a situation, businesses must rate the sustainability practices of their supply chains by monitoring individual suppliers across industries and geographies for better risk management and supply chain resilience. Moreover, language barriers, regional regulations and industry certifications further complicate accurate sustainability reporting.

An advanced contract management solution can help implement mandatory supply chain sustainability and ESG clauses in the contract. Such a solution can also allow companies to track sustainability milestones associated with the contract. For instance, with a contract management solution, a company can implement a standard code of conduct for its entire supplier base. This code of conduct can include reporting data such as impact of materials procured, working conditions for suppliers, and sourcing information. This information can be verified to provide remedial guidance for suppliers that do not meet the code. Suppliers continuously breaching the code can also be removed, if required.

Digital Sourcing

The SAP survey highlights that companies in India consider key parameters like supplier performance and sustainability while evaluating procurement functions. To negotiate best-value sourcing agreements and drive sustainable procurement savings, companies need to create a healthy strategic sourcing environment. Here, digital sourcing is key.

It can help companies create a network of suppliers with a strong focus towards ESG, sustainability and diversity with the right tools and information. With digital sourcing, companies can leverage cloud-based collaboration platforms to increase spend and work seamlessly with multiple tiers of diverse suppliers and drive efficiencies across supply chain planning and execution processes. For instance:

· Share information related to order forecasts, quality requirements and inventory with suppliers and capture their response in real-time.

· Predict and address supply assurance issues with collaboration dashboards that notify about demand-supply gaps.

· Seamlessly onboard suppliers with proper sustainability due diligence and approval.

There’s a saying that an organisation is only strong as its supply chain. And its high time that sustainability is brought into this equation as well. Technology can be a boon for companies looking to create sustainable and resilient supply chains. But only if technology is embraced incrementally through change management. As a sustainability enabler, technology can allow companies leverage information, enforce ESG compliance through policy making, track spend for visibility and drive sustainable business outcomes.