Better brand protection, fewer supply disruptions, and social awareness are three reasons electronic components buyers should consider implementing sustainable procurement programs.
Sustainable procurement is gaining steam worldwide as companies of all sizes seek to source raw materials as well as finished products from suppliers that rank corporate social responsibility issues—such as fair labor practices and environmental concerns—as corporate priorities. A recent study by business school HEC Paris and supplier sustainability firm EcoVadis underscores the growing importance of sustainable procurement—a buying process that takes into account such broad social and economic concerns—and explains why it is becoming a necessary part of doing business worldwide.
“Purchasing should care about this because awareness is increasing, more private-sector corporate entities care about these issues, and there is a resulting risk to [your company’s] reputation and brand if you don’t pay attention to sustainability issues—especially when it comes to sourcing and labor,” says David McClintock, marketing director at EcoVadis, which provides tools to help companies measure sustainable procurement practices. “Social media and the connected world serve to heighten this issue, making it easier for people to ‘spread the word’ about companies that are doing things wrong or have problems.”
HEC and EcoVadis highlight these and other issues in their most recent report on the subject, the 2017 HEC/EcoVadis Sustainable Procurement Barometer. The seventh edition of the report indicates that the importance of sustainable procurement (SP) continues to grow rapidly and is becoming an important business function “responsible for reducing costs, mitigating business risk, protecting and improving brand reputation, driving revenue, and supporting innovation and growth,” the report authors said in releasing the results earlier this month.
The top three drivers of SP implementation are risk mitigation, brand reputation, and compliance, according to the study.
Companies in the electronics sector are especially vulnerable to these issues, McClintock said in a separate interview about the report. External issues include shortening product lifecycles, which puts pressure on manufacturers to shift to new products quickly, and shrinking margins, which pushes suppliers to cut costs—both of which add risk to the supply channel. Add brand reputation concerns to the mix and you have a recipe for disaster: one mistake in the supply chain or a deal with a bad supplier can quickly affect sales.
Internal factors play into the equation as well, most notably regulatory compliance on a range of topics—think conflict minerals and anti-counterfeit component efforts, for example. As supply chain partners work toward better transparency across the channel, documenting such issues becomes a more important task—and failing to do so can lead to supply chain problems and disruptions.
The HEC/EcoVadis 2017 Sustainable Procurement Barometer points to several bottom-line reasons for adopting SP practices. Here are three that rank high for buyers of electronic components:
Brand reputation remains the primary factor driving SP implementation, with 63% of organizations citing it as a critical factor, according to the SP Barometer. Although once considered the domain of large companies, reputational issues are a growing concern for companies of all sizes, and McClintock points to the need for firms to start developing better practices today.
“The trend—the direction we’re moving in—is that it doesn’t matter how big you are. There is a new breed of [non-government organization] out there advocating for the environment and for workers. They are keeping a strong eye on these issues and enabling themselves and the world to hear about things they never would have heard about just a few years ago.
“If I was a small or medium-sized company, seeing the direction in which this is moving, you must recognize that it’s not just the big brands that have targets on their backs.”
Fewer Supply Disruptions
Twenty-five percent of buyers responding to the 2017 SP Barometer cited a decrease in supply chain disruptions as a result of their SP initiatives. Adherence to local laws and regulations is one way to illustrate this point. Suppliers that pay attention to and stay on top of local regulations are less likely to face fines or pauses in their business due to major violations. McClintock points to a 2016 explosion at a chemical factory in China’s Jiangsu Province as one example.
“They were not observing regulations on where to [properly store] chemicals together,” McClintock explains. “It’s important to try and prevent such disasters by screening suppliers up front, but also on the back end by taking suppliers who score low and helping them improve.
“If you develop a solid procurement program to improve supplier relationships, you will end up with a lower incidence of disruption and better performance.”
Cost reduction plays into the equation as well; 28 percent of the 2017 SP Barometer respondents cited cost savings as a key driver of SP implementation.
Employees want to work for organizations that “do the right thing.” It’s that simple, according to McClintock and his colleagues.
“Everybody wants to feel good about their business,” he explains. “Finding good sources of supply makes people feel good about the business that they are in—at all levels of the organization.”
This is especially true of the newest generation in the workforce, as well as the up-and-comers.
“They are going to emphasize the importance of these issues,” McClintock adds. “If you are sourcing from supplies that aren’t sustainable, you will need to in the future. So you can do it now or catch up later.”
The study also points to a growing sense of urgency on the part of many organizations to get a better handle on sustainable procurement and start making changes. Nearly all of the study respondents (97%) cited sustainable procurement practices as important or critically important to their business.
“We believe that sustainability is an absolutely essential component for your supply chain,” McClintock adds. “In the future, there will be layers deep of this in the supply chain. It’s going to happen, and either you’re ready for it and you’re making the changes now or you’re going to be behind.”