Following a groundswell of public support for action on environmental, social and corporate governance issues in the first few weeks of 2020, an almost universally observed pivot on the part of large global enterprises towards incorporating more sustainable strategies into their supply chains was put on ice as the coronavirus crisis gained traction. But while Covid-19 may have initially dampened some sustainability-oriented procurement plans in favor of vital business cost-saving and other survival measures, it has also spurred consumers to be more mindful of the effect globalization has had on the spread of the virus. In turn, this has further boosted the appetite for brands that have proven themselves to be more ethically and environmentally responsible in their approaches to sourcing, manufacturing and distributing goods.
Consumer Sentiment and Sustainability
According to a survey conducted by analysts at McKinsey (December 2020), sustainability is increasingly important for consumers during Covid-19 times. Marine litter and pollution are top of mind concerns globally, while the vast majority of consumers surveyed claim to be willing to pay more for sustainable packaging. Despite this, some 30% of supply chain leaders in 2019 said they have no or low-maturity supply chain sustainability initiatives, according to a report by Gartner. Common obstacles cited range from conflicting priorities to lack of understanding of sustainability concepts and low visibility on early wins.
While there is no one-size-fits-all solution for the transition from sustainability laggard to leader, consumer demand is piling on the pressure for supply chain transparency. Now, as a consequence of awareness around environmental and ethical failings in the fast fashion industry, coupled with country-specific initiatives such as the Climate 21 Project in the USA and the UK's ambitious target to reach net zero emissions by 2050, attention on once sidelined sustainability targets looks likely to return with fervor for many companies throughout 2021.
Procurement’s Shift Towards Sustainable Sourcing
Within procurement specifically, the pandemic has exposed the vulnerability of having complex, interconnected supply chains, an over-dependence on a specific geographic region and the importance of being resilient with a diverse pool of suppliers to pull from during unforeseen, catastrophic events. More sourcing teams are making the transition from the traditional focus on "lowest-cost model wins" to more strategic award decision-making that might favor minority-owned or more environmentally conscious suppliers. To support that shift, best-in-class offerings like Keelvar are aiding that transition by offering features to help companies analyze multiple awarding scenarios based on those criteria and other constraints.
For example, Sourcing Optimizer can help buyers capture supplier innovation in an RFI or even within the bid that might have otherwise gone unnoticed. This means that suppliers can bid strictly according to the buyer's specification but then also provide alternate pricing for a variation of the item, such as offering a different price for a similar item that uses recycled packaging material. Or within the transport category, a supplier bidding on an ocean lane can provide varying pricing for fuel switching or slower speeds.
Further aiding your journey towards more sustainable sourcing, Keelvar’s platform bidding capabilities allow carriers to bundle round-trip lanes and convey efficiencies that reduce emissions, time, and money. Collecting carrier capacity commitments at varying geographic combinations can help mitigate reactive spot bidding when loads are not accepted. This (for example) can ensure that your Smartway Certified carriers are utilized more often, rather than resorting to a non-compliant backup carrier.
Of course, collecting data about suppliers and the products they sell in an RFQ is one thing, but figuring out the right ratio of cost and sustainability mandates becomes a much bigger challenge when dealing with hundreds of suppliers and thousands of line-items. That’s why through our optimization platform, we can provide insight on how best to award business based upon your constraints and preferences, and you also have the option of giving systematic feedback on bid items to help guide suppliers into compliance on things like transit time or the percentage of recycled material.
Some example scenarios for analyzing sustainable awarding include:
- Award at least 50% of the business to Smartway Certified carriers
- Award 100% of these select lanes to slow steaming bids
- Optimize on lowest CO2 possible and compare to the lowest cost possible
- Award 100% of the items to sustainable-certified suppliers unless it costs more than $500,000
- Optimize on the highest sustainability score and compare to the lowest cost possible
- Award as many round-trip lanes as possible to 1 carrier per round trip combination
- Favor recycled material bids by 5%
- Penalize suppliers with SmartWay rating less than .75
In summary, while much of 2020 saw organizations focused heavily on overcoming the inordinate challenges brought on by the pandemic and subsequent economic fallout, they arguably pale in comparison to the challenges humanity faces as a result of inaction around climate change and a failure to create a sustainable future. Procurement professionals have an opportunity to make a significant contribution to positive change through the action taken in the supply chain and lead the way to a better future for all.
Want more details on how Keelvar can transform your sourcing process to favor suppliers that align with your organizations’ sustainability targets? Ask us here.