In today’s evolving business environment, sustainable sourcing has emerged as a critical element, underpinning the success and ethical standing of organizations worldwide. Heightened awareness of environmental issues such as climate change and habitat destruction have led consumers to prioritize products sourced and produced sustainably. This demand extends beyond environmental concerns to encompass social responsibility, including fair labor practices and human rights standards throughout the supply chain.
According to a recent study conducted by Coleman Parkes and Ivalua, 91% of UK businesses say sustainability-led innovation has become more important to consumers, while 90% say that joint innovation and collaboration with suppliers are critical for achieving sustainability.”
This blog post provides an overview of Sustainable Sourcing, including the “what”, “why” it’s important, and strategies for implementing best practices. It also explains the role of Procurement in sustainable sourcing efforts and how technology can be used to facilitate and enhance sustainable sourcing initiatives and unlock new possibilities for businesses committed to environmental and social responsibility.
What Is Sustainable Sourcing?
Sustainable sourcing refers to the procurement of goods and services in a manner that prioritizes environmental and social sustainability goals, as well as economic considerations throughout the supply chain. The goal is to meet present needs without compromising the ability of future generations to meet their own needs.
Sustainable sourcing principles include:
- Environmental Responsibility: Seeking to minimize the environmental footprint of sourcing activities by promoting resource conservation, reducing pollution and mitigating climate change impacts. This involves selecting suppliers who employ sustainable production methods, use renewable resources and minimize waste generation.
- Social Equity: Prioritizing fair labor practices, human rights and community well-being throughout the supply chain. This includes ensuring safe working conditions, fair wages and respect for workers’ rights, as well as supporting local communities and indigenous peoples’ rights.
- Economic Viability: Recognizing the importance of economic sustainability for all stakeholders involved. This involves fostering long-term partnerships with suppliers, promoting economic development in local communities and ensuring the profitability and competitiveness of businesses while balancing the interests of shareholders, employees and other stakeholders.
- Transparency and Accountability: Emphasizing transparency and accountability in supply chain management, enabling stakeholders to understand and evaluate the social and environmental impacts of sourcing decisions. This involves disclosing information about suppliers, sourcing practices and performance metrics, as well as engaging in dialogue with stakeholders to address concerns and improve performance.
By adhering to these key principles, organizations can promote responsible sourcing practices that contribute to a more sustainable and ethical global economy.
What Does Sustainably Sourced Mean?
“Sustainably Sourced” refers to products or materials that have been procured or obtained in a manner that prioritizes environmental and social responsibility. This term signifies that the product’s raw materials sourcing process involves the systematic integration of social and environmental considerations into the supplier selection process with careful consideration of its impact on the environment, communities and workers involved in its production.
Sustainable sourcing encompasses practices such as:
- Minimizing environmental degradation
- Promoting biodiversity conservation
- Respecting human rights
- Ensuring fair labor conditions
- Supporting local economies
Essentially, when a product is labeled as sustainably sourced, it means that it has been acquired through a process that aligns with principles of sustainability and ethical stewardship.
By selecting partners committed to environmental and social responsibility, organizations collaborate to implement initiatives like reducing emissions and promoting fair labor practices. Transparency and accountability are of paramount importance, because they encourage open dialogue and the sharing of information to improve sustainability performance.
Sustainable procurement practices encompass a range of strategies aimed at promoting environmental and social responsibility throughout the supply chain. These practices include:
- Ethical sourcing, where companies prioritize suppliers that uphold fair labor standards, safe working conditions and human rights.
- Adoption of Fair Trade products ensures that producers receive fair compensation for their goods, fostering equitable trade relationships and supporting marginalized communities.
- Organic sourcing involves procuring sustainable products cultivated or produced without synthetic chemicals, reducing environmental impact and promoting biodiversity.
- Local sourcing is another sustainable practice, emphasizing the procurement of goods from nearby suppliers to minimize carbon emissions from transportation and bolster local economies.
- Certification programs, such as the Forest Stewardship Council (FSC) or Marine Stewardship Council (MSC), provide assurance of adherence to specific environmental and social standards, offering a reliable framework for sustainable procurement decisions.
Collectively, these programs contribute to building more ethical, resilient, and environmentally conscious supply chains. Read Forrester’s report on social responsibility, which summarizes findings from a survey of 467 decision makers responsible for finance, procurement, and supply chain.
Why Is Sustainable Procurement Important?
Sustainable procurement is vital as businesses face escalating Environmental, Social and Governance (ESG) pressures globally. Increasing consumer awareness of environmental and social issues demands sustainable sourcing practices to maintain market share and reputation. Additionally, tightening regulations compel businesses to comply with stricter environmental and labor standards or face legal consequences. And that’s not all: Investors are now considering ESG performance, emphasizing transparency and accountability in supply chain practices. Considering all of these developments, optimizing sourcing for sustainability is now an imperative.
Procurement teams are at the forefront of driving sustainability initiatives within businesses, recognizing the pivotal role they play in shaping Environmental, Social and Governance (ESG) strategies. It’s not just about meeting regulatory requirements – customers, investors, employees, citizens and governments all have a vested interest in ensuring that businesses establish and execute ESG strategies. The impact of doing so is far-reaching:
- Environmental: Implementing a sustainable procurement strategy leads to significant environmental benefits, including reduced carbon emissions, conservation of natural resources and preservation of ecosystems.
- Social: Ethical sourcing and fair labor practices promote social benefits such as improved working conditions, better livelihoods for workers and support for local communities and marginalized groups.
- Economic: Sustainable procurement can drive economic benefits by enhancing operational efficiency, reducing costs associated with waste and resource consumption and fostering innovation and competitiveness.
- Brand Reputation and Consumer Perception: Businesses that prioritize ESG strategies and sustainable procurement enjoy enhanced brand reputation and consumer perception. Consumers increasingly favor brands that demonstrate commitment to environmental and social responsibility, leading to increased loyalty and market share.
According to Mark Carney of Bank of England, “Companies that fail to adapt to climate change will go bankrupt without question.”
What Are the Challenges and Benefits of Sustainable Sourcing?
Sustainable sourcing presents organizations with numerous benefits, but it also comes with its fair share of challenges. These include higher upfront costs associated with eco-friendly practices, complexities in supply chain management and the limited availability of sustainable sources in some industries. Additionally, ensuring collaboration and transparency across stakeholders—such as suppliers, customers, regulators, and advocacy groups—is essential for successful implementation.
Despite these obstacles, businesses can overcome them through strategic planning, investment in research and sustainable development, innovation and fostering partnerships with suppliers and other stakeholders. By addressing these challenges proactively, organizations can build resilient, ethical and environmentally responsible supply chains that contribute to long-term sustainability and success. And, as stated in a recent McKinsey article, “businesses that get it right stand to gain market share and improve their margins.”
Sustainable sourcing offers organizations significant benefits, including long-term financial advantages by reducing operational expenses and minimizing risks across the supply chain when considering the Total Cost of Ownership (TCO). This approach also drives increased sales and market share as consumers increasingly prefer environmentally and socially responsible products, fostering innovation and competitiveness. Sustainable sourcing enhances supply chain resilience, as well, by mitigating risks from environmental disruptions and regulatory changes, while also cultivating greater customer loyalty and stronger supplier relationships.
Balancing these aspects is essential for organizations committed to integrating sustainability into their procurement practices and ensuring long-term success. You can learn how Ivalua leverages the Source-to-Pay process to empower your ESG and sustainability objectives in this on-demand demo.
Procurement’s Role in Reducing Scope 3 Emissions and Promoting Sustainability
Scope 3 emissions, or indirect emissions, encompass greenhouse gas emissions associated with an organization’s activities beyond its direct control. These emissions include purchased goods and services, transportation, employee commuting and product use and disposal. These emissions can be over ten (10) times greater than direct emissions and represent the biggest opportunity to affect meaningful change.
Managing Scope 3 emissions is crucial for understanding an organization’s full environmental impact and is an essential practice for organizations committed to reducing their carbon footprint and demonstrating corporate responsibility.
Procurement plays a crucial role in reducing Scope 3 emissions by engaging with suppliers to promote sustainable practices and lower carbon footprint across the supply chain. This involves understanding baseline product and service impacts, sourcing raw materials and services from environmentally responsible suppliers, optimizing transportation and distribution networks, and collaborating with stakeholders to set emission reduction targets, implement strategies, and report results. By prioritizing sustainability in procurement decisions, organizations can effectively mitigate their indirect emissions and contribute to overall environmental stewardship.
In Ivalua’s episode 4 of their #LoveProcurement podcast series, Thomas Udesen and Oliver Hurry discuss the significant pressures and opportunities facing procurement, particularly with sustainability.
Oliver described a “perfect storm” driven by high expectations, consumer demand for sustainable brands, and imminent regulations that position sustainability as a competitive advantage and pivotal area for procurement’s impact. Thomas emphasized the growing urgency across all organization sizes, driven by awareness of upcoming sustainability regulations. The widespread motivation for sustainability, they said, stems from government regulations, business goals, consumer preferences, and personal values, underscoring that action is necessary regardless of personal beliefs about climate change due to the looming disruptions in business and supply chains.
Listen to the entire Ivalua podcast episode here. You might also be interested in reading this blog post, which summarizes the main points of the podcast episode.
Strategies for Implementing Sustainable Sourcing
Procurement technology enables organizations to track, measure, and optimize their sustainability performance across the supply chain, providing visibility into factors such as carbon emissions, resource usage, and ethical sourcing practices. Additionally, sustainable procurement technology facilitates collaboration with suppliers, streamlines data collection and analysis, and supports informed decision-making, ultimately driving efficiency, innovation and competitive advantage.
By harnessing the power of technology to embed sustainability into procurement processes, companies can enhance their brand reputation, meet regulatory requirements and create long-term value for stakeholders.
However, in addition to technology, a strategic approach to sustainable sourcing is necessary. By following these steps, organizations can effectively reduce their carbon footprint, mitigate environmental risks and contribute to a more sustainable future:
- Develop baseline insights on emissions, supply, demand and pricing for every material input. This entails conducting thorough assessments of the current sourcing practices and understanding the environmental impact of each material or product.
- Chart a sourcing strategy to reduce impacts over multiple time frames. Set clear goals and targets for reducing emissions, prioritize sustainable suppliers and identify opportunities for optimization and efficiency improvements in the supply chain.
- Collaborate with suppliers on opportunities to drive solutions through collaborative levers. Sustainable design and packaging for example. Leverage the collective knowledge of the supplier network.
- Focus on implementing low-emissions sourcing plans at speed. Leverage technology and data analytics to identify and onboard sustainable suppliers quickly, negotiate contracts that prioritize environmental considerations and continuously monitor and evaluate supplier performance against sustainability metrics.
Within the Procurement function, implementing sustainable sourcing practices involves a variety of essential approaches:
- Applying Environmental, Social, and Governance (ESG) criteria to supplier discovery and onboarding processes. By prioritizing suppliers with strong ESG credentials, organizations align their procurement activities with sustainability goals and encourage suppliers to prioritize sustainability.
- Managing due diligence requirements through improved information management and workflows ensures compliance with sustainability standards. Streamlining procedures enhances transparency and reduces administrative burdens.
- Monitoring supplier performance against and collaborating with suppliers drives continuous improvement in sustainability outcomes.
By adopting these strategies, organizations can seamlessly weave sustainability into their procurement protocols, thereby driving meaningful environmental and social change. This proactive approach not only contributes to building a more sustainable and resilient future but also sets a new standard for responsible business practices in the modern world.
Creating a Sustainable Supply Chain Strategy – The IKEA Way
IKEA’s supply chain is a well-oiled machine renowned for its efficiency and innovation with several key features driving its success. The IKEA Way on Purchasing Products, Materials and Services (IWAY) drives and embodies the company’s commitment to responsible sourcing and ethical business practices, to ensure that its products are produced responsibly, with respect for people and the planet.
By embracing lean manufacturing principles, IKEA optimizes production processes to minimize waste and maximize efficiency, employing just-in-time inventory management and continuous improvement initiatives. IKEA’s distribution network comprises strategically located centers handling inventory management and order fulfillment, while its iconic blue-and-yellow stores serve as both showrooms and distribution hubs. Additionally, IKEA has expanded its online sales channels, providing customers with the convenience of shopping from home.
Managing all of the sourcing and inventory data is impossible manually, so IKEA leverages the Ivalua platform, which provides complete transparency across the supply chain along with powerful performance management capabilities.
“Ivalua was instrumental in creating transparency for the whole supply chain.”
– Slawomir Peter, IKEA Supply Chain Development Area Manager
Read the IKEA case study here.
How Sustainable Sourcing Software Can Help Companies Achieve Their ESG Initiatives
Ivalua provides a comprehensive platform that supports sustainable sourcing and helps organizations reduce the environmental impact of their spending. Here’s how:
- Selecting Diverse, Sustainable, and Ethical Suppliers: Ivalua helps organizations find and manage suppliers who align with specific sustainability criteria through advanced supplier databases and risk assessment tools. This process ensures the selection of suppliers who uphold environmental certifications, ethical labor practices, and diversity standards.
- Collaborating with Suppliers to Progress ESG Initiatives: Ivalua’s supplier collaboration portals for sharing ESG goals and co-developing sustainability projects allows organizations to set, track, and manage specific ESG targets with suppliers, enhancing joint sustainability efforts.
- Monitoring Performance and Compliance: Ivalua provides real-time performance dashboards and compliance management tools to monitor and ensure supplier adherence to ESG standards. These features help maintain transparency and drive continuous improvement in sustainability practices within the supply chain.
- Expose Insights and Inform Decisiosn: Ivalua provides users a single data model such that this data gathered from suppliers can be exposed through the source-to-pay process. With these insights, organizations can design complex award scenarios to understand the cost, benefits, and trade-offs of selecting certain products and suppliers. This allows businesses to balance these decisions and drive an effective and repeatable path toward these objectives. .
Through these mechanisms, Ivalua helps organizations reduce their environmental impact, promoting a more sustainable, ethical, and inclusive supply chain. This approach aligns with broader global sustainability trends and consumer expectations, making it a strategic asset for any forward-thinking organization.
Drive Sustainable Sourcing in Your Supply Chain
With Ivalua’s Source-to-Pay software and Environmental Impact Center (EIC), organizations can build meaningful and transparent emission reduction initiatives. By utilizing reliable data to generate emission baselines and collaborating with suppliers, the EIC is committed to creating a sustainable supply chain. This allows Procurement and Supply Chain departments an important opportunity to contribute to corporate sustainability goals.
Conclusion
Sustainable sourcing isn’t just about ticking boxes; it’s about driving real, tangible change for our planet and our communities. Sustainable sourcing software, like Ivalua, empowers companies to select suppliers aligned with their values, collaborate on ESG initiatives effectively and ensure compliance with environmental standards. Investing in sustainable sourcing software is no longer just an option but a strategic imperative for companies committed to long-term success and sustainability.
Ivalua is committed to assisting our customers in minimizing the environmental impact of their purchases by integrating Greenhouse Gas (GHG) emission data across the entire Source-to-Pay process.
Experience the future of sustainability with our latest groundbreaking tool! Watch our latest Demo on The Environmental Impact Center.
