Ticking boxes and collecting documents does not drive suppliers to embrace long-term performance improvement

Ticking boxes and collecting documents does not drive suppliers to embrace long-term performance improvement

Businesses are getting stuck in a kind of compliance trap, whereby they under-invest in programmes – which essentially come down to ticking boxes and collecting documents – but do not drive suppliers to embrace long-term performance improvement, a new  survey suggests.

Tracking supplier sustainability performance is one of the biggest challenges facing firms when it comes to implementing sustainable procurement practices – with a lack of internal resources and concerns around costs also hampering efforts. 

The findings are released in the 'Sustainable Procurement Barometer 2019: From Compliance to Performance,' which offers insight into how sustainability is evolving in procurement priorities, and the tools and processes being used to drive tangible improvements and business results. 

Developed by EcoVadis and NYU Stern's Center for Sustainable Business, it analyses data from 210 buying organisations across all industries and geographies, along with an independent study of suppliers conducted among 399 companies. 

Depth of supply chain visibility is still a major challenge, with 45% of organisations saying this insight remains with tier-1 suppliers

The research defines sustainable procurement as the adoption and integration of sustainability principles into procurement processes and decisions, while also ensuring they meet the requirements of the company and its stakeholders. It encompasses both product/ materials sustainability as well as the sustainability of supplier practices.

Against the backdrop of an increasingly stringent regulatory landscape and growing pressure from stakeholders, it is not surprising that sustainability awareness is expanding among both buying and supplying organisations. 

This year's Barometer survey suggests organisations are placing greater emphasis on business ethics and labour and human rights practices compared to three years ago, with the commitment to sustainable procurement increasing among the vast majority of buying organisations (81%). Executive board support has also risen in the past six years and is now seen as a challenge by only 13% of the respondents. 

In terms of sustainability themes, for 34% of procurement organisations, labour and human rights practices have become significantly more important over the past three years and 33% say business ethics have become more important. Only 22% observed the same shift in environmental concerns.

Yet depth of supply chain visibility is still a major challenge, with 45% of organisations saying this insight remains with tier-1 suppliers. Nearly a quarter have a line of sight into tier-2, but just 4% say they have visibility past tier-3.

Compliance trap

With a growing number of assessment tools available, the struggle to track supplier sustainability practices this is somewhat surprising, the authors say. 

"We can hypothesise that businesses get stuck in a kind of compliance trap, whereby they under-invest in programmes, which essentially come down to "ticking boxes" and collecting documents, but do not drive suppliers to embrace long-term performance improvement. 

The compliance mindset misses the opportunity to drive supplier improvement and incentives

"This compliance mindset misses the opportunity to drive supplier improvement and incentives. It thus fails to realise the full potential of initiatives which could otherwise return positive net value to the organisation. 

"This is evident in the results of the 'Sustainable Procurement Leadership' analysis, which shows that organisations with significantly more mature and well-developed programmes are able to harvest considerably more value from them." 

The compliance trap hypothesis is further supported by the fact that as many as 39% of suppliers see their customers' sustainability commitment as being important "only on paper."

"The importance placed on regulations is quite striking, but not surprising given the global awareness and growth in supply chain due diligence and reporting laws," says Pierre Francois Thaler, co-CEO of EcoVadis. "While keeping up with compliance is important, a compliance-only approach could compromise the business benefits awaiting companies that move beyond "checking boxes" to truly engage suppliers.

"Embedding programmes into corporate strategy, leveraging external databases and integrating them via a balanced scorecard approach will inherently address compliance concerns while also delivering long-term value."

When it comes to the tools, policies and best practices used by buying organisations to encourage responsible behaviour, most (64%) have a supplier code of conduct. Contract terms are the most common method (35%) to engage suppliers on performance improvements, with 42% of organisations having a specific contract clause relating to sustainability. An encouraging 22% of procurement organisations collaborate on sustainability improvement strategies with suppliers and 38% say they have a sustainable procurement policy in place.

Collecting information about suppliers' sustainability performance and keeping track of it is one thing but implementing this information into the procurement process is a different story. 

When asked how businesses use the information they have in their work with suppliers it turns out that half of them (51%) take sustainability performance into consideration when selecting new suppliers and renewing contracts with existing ones and 39% include sustainability criteria in RFP/RFX (Request for Proposal/ Request for Quote) and tender processes. Less than a fifth of respondents (19%) discontinue cooperation with suppliers who fail to improve their sustainability performance.  

Results and benefits

In terms of results and benefits from sustainable procurement investments, more than half of respondents (58%) say they are better able to mitigate risks thanks to their sustainable procurement programme, whereas 30% have been able to save costs. 

A quarter of respondents found that their sustainable procurement programmes contributed to innovation and enabled access to new categories and price premiums from differentiation. A similar proportion of respondents said they benefited by way of improved procurement metrics and increased sales revenue. 

At the same time, companies generally do not measure these benefits in any quantifiable way, which became apparent in the follow-up interviews. This raises the question: What is the threshold for beyond-compliance investment which will result in positive net return – and how to quantify these results, especially if they may be noted by other departments, that is, outside of procurement? 

The NYU Stern Center for Sustainable Business and other leading research institutions believe successful sustainability initiatives can be effectively tracked through financial metrics – and that sustainability-related issues should no longer be siloed as special projects or limited to efficiency-related sustainability efforts. 

With solid examples of how such metrics work in practice already in place it remains to be seen how soon they may be implemented on a wider scale. 

For a deeper look at the key trends and issues in the sustainable procurement landscape, click on the following link to download the 2019 Sustainable Procurement Barometer.