Analyst Insight: Procurement organizations and buyers need to adopt a "big-picture” view of how their purchasing decisions are changing lives.
Time and again, it’s been proven that diverse and inclusive supply chains are more sustainable, more innovative and deliver a higher value, in the form of cost savings, access to new and diverse markets, process improvements, and the kind of innovative insights that lead to product enhancements.
Over time, the role of procurement has evolved and broadened. Efficient procurement results in cost savings that improve the bottom line. In addition, there’s been increased emphasis on greater transparency throughout the supply chain.
While historically, diversity and sustainability efforts have been managed separately in many organizations, leading companies are bringing these two together under the roof of responsible sourcing. The continuing evolution of procurement, especially as it relates to responsible sourcing, mandates a focus on what a responsible procurement organization looks like.
Often, responsible sourcing is brought into an organization as a reaction to criticism, changing pressures or investor requirements. These efforts are the least effective, because they’re imposed on top of systems and processes that are already in place. Stronger responsible sourcing efforts, by contrast, are proactive, not reactive. They’re baked into the framework, part of the process, and therefore more effective and enduring, even as pressures and influences change. When thrown on top of an organization that was built without it, responsible sourcing can be unstable, creating the misconception that it’s an added cost for the organization. However, when built into the foundation of an organization, as part of the culture, efforts to enhance inclusiveness and sustainability within a corporate supply chain will drive social and economic benefits to the top of the organization — and the bottom line.
Responsible sourcing begins with spend. The goods and services that a company purchases to run the business and deliver products to customers form the organization’s foundation. This drives the types of suppliers and supplier capability needed in the supply chain. The procurement team should, of course, aim to competitively purchase materials at the least possible cost without compromising quality. Organizations with the best procurement efforts aim to attract a diverse set of suppliers and increase levels of diversity and inclusion each year. Those same companies also demand supplier diversity commitments from their suppliers.
Direct suppliers are the those that sell materials, goods and services to the corporate buying organization. Items are typically provided across multiple spend categories. Depending on the industry, they include specialty chemicals; packaging; construction; maintenance, repair and operations (MRO); information technology and legal services.
Indirect suppliers serve the needs of the direct suppliers, and may be subcontractors on a specific project or engagement. It’s a best practice for organizations that value responsible sourcing to require that direct suppliers actively report detailed activity with their own diverse suppliers. This enables the company to capture a key element used to calculate the total impact of procurement dollars, directly and indirectly, on local markets, and enhance that impact by choosing suppliers that also value responsible sourcing. It also enables the identification of direct suppliers of the future.
Technology plays an important role as well. Corporations that are committed to building a foundation of responsible sourcing, with attention to diversity, inclusion and sustainability, are spurring the rise of software that provides increased supply chain visibility. It enables tracking and measurement of the activity of direct suppliers, their supplier’s suppliers, and entire ecosystem. With the help of such software, organizations can draw the link between their global corporate spend and its socioeconomic impact, in the form of job creation, local community development and consumer spending. All of this provides procurement organizations and buyers with a "big-picture” view of how their purchasing decisions are changing lives.
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