By Oscar Limited – Exhibitor
Introduction
This article is the first in a series discussing the importance of sustainable procurement for different roles within a company. This series is being developed by the Oscar team in the months leading up to Cop28 in the UAE. For more information, please visit Oscarsdg.com.
The procurement department will be the most impacted by the implementation of a sustainable procurement approach. Tasked with vetting and onboarding suppliers, the procurement department is directly responsible for the vast majority of a company’s impact, because your supply chain represents around 70% of your emissions. With recent trends forcing companies to become more sustainable, the procurement department must be more sustainability conscious than ever before. This article will explore the problem procurement departments are facing, and how they can mitigate them by adding an additional due diligence step to their current process.
Procurement Departments and ESG
The Role of Procurement Departments in the Middle East’s Sustainability Movement
Procurement plays a crucial role in the emerging ESG (Environmental, Social, and Governance) movement in the Middle East. As companies prioritize sustainability, procurement departments are responsible for integrating ESG principles into their sourcing and supplier management processes. This involves identifying sustainable suppliers, engaging them for positive change, managing ESG risks, transparently reporting on initiatives, and collaborating with stakeholders. Procurement’s pivotal role drives the region’s ESG strategy and fosters positive transformation.
In this transformative journey, the procurement manager faces the daunting task of identifying reliable and sustainable suppliers who align with the company’s ESG goals. The right partners can make all the difference, as they become instrumental in driving positive change throughout the supply chain. A trusted and dependable partner can provide the expertise and guidance needed to navigate the complexities of sustainable sourcing, engage suppliers effectively, and foster a culture of sustainability within the organization.
In the Middle East’s ESG movement, procurement’s role cannot be underestimated. It drives sustainability by integrating ESG principles into sourcing and supplier management, contributing to the region’s development. With a reliable partner by their side, the procurement manager becomes an architect of positive change, forging a sustainable future for the Middle East.
Difficulties Facing Procurement Departments
Procurement departments face the challenge of collecting and evaluating vast amounts of sustainability data points. In large corporations, Chief Procurement Officers (CPOs) handle approximately 150 purchase orders (POs) per month, involving around 10 suppliers per PO. This results in a staggering 50,000 data points to collect and assess monthly. Furthermore, the presence of numerous global standards and best practices, subject to regular updates, adds complexity. CPOs must devise strategies to select applicable standards and stay updated on evolving guidelines.
Procurement departments are likely to encounter challenges stemming from the forthcoming regulations based on COP28. With the UAE government’s aim to bolster its reputation as a sustainability leader, we anticipate the introduction of stringent regulations, where compliance will be non-negotiable. While the specifics of these regulations have not yet been disclosed, it is crucial for procurement departments to be aware of the potential difficulties that may arise. Many companies are currently adopting a reactive approach, intending to respond once the details become public. However, this reactive stance can lead to a hurried scramble and potential compliance issues, often with minimal notice given in the UAE.
To tackle this challenge, procurement teams require specialized manpower and strategies. Investing in qualified professionals with expertise in sustainability assessment and data management is crucial. These specialists can effectively navigate the complexities of sustainability metrics and ensure accurate data collection and evaluation. Additionally, procurement departments must develop robust strategies to select and apply the most relevant global standards and best practices. This involves staying abreast of updates and evolving guidelines to maintain compliance and ensure alignment with industry benchmarks.
Procurement departments are witnessing a notable shift in the risks associated with more sustainable behaviors, highlighting the critical need for effective risk management strategies. Research conducted by IBM demonstrates that companies that implement a suitable sustainability assessment framework for their suppliers can achieve a remarkable 12% reduction in supply chain risks. This statistic emphasizes the significance of integrating sustainability considerations into risk management practices, ensuring a more resilient and responsible supply chain.
To grasp the magnitude of this risk reduction, consider a hypothetical company with a procurement spending of $100 million. Implementing a robust sustainability assessment framework could save our example procurement departments around $8m. Such a substantial decrease in supply chain risks not only protects the company from financial losses but also safeguards its reputation and strengthens stakeholder trust.
Instances of inadequate assessment of supplier sustainability practices can have severe consequences for procurement departments. These incidents serve as stark reminders of the importance of thorough evaluation and due diligence. When sustainability shortcomings are overlooked, procurement may face repercussions such as project delays, financial losses, and damage to the organization’s reputation. In such cases, procurement often bears the brunt of the blame for the situation, highlighting the need for robust sustainability assessment processes to mitigate risks and ensure responsible supplier collaborations.
The shifts in sustainability considerations have significant implications for procurement in the real estate industry. Pressure is expected to escalate from top management, suppliers, partners, sales, investors, and end customers, leading to increased workload and potential disruptions to the standard workflow. This may result in extended working hours and challenges in balancing work and personal life. Real-life examples have demonstrated the negative consequences of late implementation of sustainability requirements, causing scrambling and personal difficulties for procurement professionals. Additionally, government authorities publicly penalizing non-compliant companies can further impact procurement, damaging confidence, career prospects, and reputations within the industry. Taking a reactive approach to regulations can perpetuate a reactive mindset, hindering risk management, innovation, and strategic contributions. Therefore, adopting a proactive and leadership-oriented stance is essential for navigating these shifts effectively.
A New Way Forward
Incorporating a sustainable procurement policy and strategy is essential in navigating the challenges posed by sustainability goals and incoming regulations. By implementing such a strategy, you can effectively address these challenges and transform them into growth opportunities. Imagine establishing a comprehensive framework that delegates sustainability tasks to dedicated personnel, streamlining processes, and providing valuable insights for vendor selection.
Integrating sustainable procurement practices seamlessly into your workflow, you can generate comprehensive reports that showcase your organization’s sustainability efforts to stakeholders. This demonstrates your commitment to sustainability, builds trust with partners and customers, and enhances your reputation. Moreover, a sustainable procurement strategy acts as a safeguard, ensuring compliance with regulations and managing risks associated with environmental and social impacts.
By adopting a sustainable procurement policy and strategy, you can confidently navigate the wave of sustainability, positioning your organization as a leader in the industry. It enables you to seize opportunities for growth and innovation while effectively managing risks and contributing to a more sustainable future.
The Shift Towards Sustainable Purchases and Investments in the Middle East
How Does the Shift in Consumer Preference Affect Procurement Departments?
Sustainability has become increasingly important in the business world, with a recent PwC study revealing its significance for Middle Eastern consumers. According to the study, a remarkable 60% of consumers in the region consider sustainability when making substantial investments, exceeding the global average. This finding highlights the growing awareness and importance of sustainability in the Middle East. As consumer trends continue to shift towards sustainable choices, companies operating in the region must adapt and incorporate sustainability into their strategies to meet the expectations of these values-driven consumers. By embracing sustainability, businesses can not only attract and retain customers but also gain a competitive advantage in the market.
The shift in consumer behavior towards more sustainable options is reshaping the role of procurement managers in organizations. As consumers become more conscious about environmental and social issues, they are increasingly demanding sustainable products and services. This shift in consumer preferences puts procurement managers under growing pressure to source materials and products that align with these sustainability expectations.
To meet these demands, procurement managers are required to adopt a more comprehensive and holistic approach to their procurement processes. Beyond traditional considerations of cost and quality, they must also evaluate the environmental and social impact of the goods and services they procure. This means considering factors such as the carbon footprint, resource usage, waste management, labor conditions, and ethical sourcing practices throughout the supply chain.
Procurement managers need to collaborate closely with suppliers to ensure that sustainability criteria are met. This may involve engaging suppliers in conversations about their sustainability practices, encouraging them to adopt environmentally friendly and socially responsible measures. It may also require working with sustainability consultants or experts to develop criteria and guidelines for sustainable sourcing and supplier management.
Furthermore, procurement managers must stay informed about evolving sustainability standards and best practices in order to make informed decisions. This includes keeping track of certifications, regulations, and industry initiatives related to sustainability. By staying up to date, procurement managers can ensure that their sourcing decisions align with the latest sustainability requirements and industry trends.
Why will your CEO Make this a Requirement?
Sustainability is a crucial consideration for Middle Eastern consumers, with 60% of investors in the region prioritizing sustainability when taking financial decisions, surpassing the global average. This trend highlights the increasing importance of sustainability in the Middle East and the need for companies to adapt their strategies to meet consumer expectations. As a result, CEOs and top executives are placing a greater emphasis on sustainability in their business operations. They recognize that meeting sustainability goals not only aligns with consumer demands but also enhances the company’s reputation, mitigates risks, and contributes to long-term success.
This heightened focus on sustainability by CEOs has a direct impact on procurement departments. As sustainability becomes a top priority for company leadership, procurement managers are under increasing pressure to incorporate sustainability into their procurement processes. They are tasked with sourcing materials and products that meet sustainability criteria, ensuring environmental and social considerations are part of supplier selection and management.
In summary, the rise of sustainable investments in the Middle East and the growing focus on sustainability by CEOs have significant implications for procurement. Procurement departments must adapt their processes to incorporate sustainability criteria, collaborate with suppliers, and stay informed about evolving sustainability standards. By doing so, they contribute to the company’s sustainability goals and cater to the increasing demands of environmentally and socially conscious consumers in the region.
Conclusion
As consumers, investors and management shift towards more sustainable decision making, procurement managers must adapt their processes to meet these demands. This includes evaluating the environmental and social impact of products and services, collaborating closely with suppliers, and staying informed about evolving sustainability standards. By incorporating sustainability into their procurement practices, procurement departments can attract and retain customers, gain a competitive advantage, and contribute to a more sustainable future.
In conclusion, the role of procurement departments in driving sustainability in the Middle East cannot be underestimated. By embracing sustainability and working towards a sustainable procurement approach, procurement managers become catalysts for positive change, positioning their organizations as leaders in the industry. So why not work with a trusted partner like Oscar to navigate the challenges and embrace the wave of sustainability?