Chapter 4:

1
4.1 Introduction

2
4.1 Introduction …

3
4.1 Introduction …

4
5
4.1 Introduction …

6
 Environmentally Preferable
Purchasing (EPP):
The purchase of products &
services that have less
negative environmental impact
Demonstrates an
organisation’s commitment to
social & environmental
responsibility
Promotes sustainable
consumption!

Involves making decisions

on What To Purchase &
Whom to Purchase From 7
 What to
Purchase ?
Green Products
 Resource Saving
 Low polluting
 Less Wasteful

Products with
Environmental
Consider: Labels / Ecolabels

Transport Disposal

Manufacture Consumption
/ Use
8
Whom to Advise your supplier or contractor not
only of your technical & cost
Purchase specifications, but also of your
From ? environmental criteria!

Suppliers / contractors with good

environmental track records

Check for “Green Directories” or lists of “green”

suppliers

Suppliers / contractors who can provide

information on the environmental
features of their products / services
9
 Greening the Supply
Chain: GSC or SCEM
PRODUCT

Design

Manufacture Internal Standards

on Environmental
Performance
Purchasing

Delivery

Buyer companies require a certain level of environmental

responsibility in the core business practices of their
suppliers and vendors. 10
Collaborative Evaluation and
Partnering with Certification
Suppliers and of Suppliers
Contractors

Strategies for
Greening
the
Supply Chain
Environmental Establishing Environmental
Procurement & Standards, Criteria or
Product Management Systems for
Specifications Suppliers 11
Increased efficiency of Closer ties
suppliers with with buyer &
substantial savings customer
passed on to buyer loyalty
companies & customers
Enhanced
Access to corporate image
markets

Benefits of
Product Greening the
innovation Supply Chain 12
 In summary, there are many benefits to
adopting Cleaner Production and
implementing Environmentally Preferable
Purchasing in any organisation.

Not only is it a response to the current

environmental challenge, it is also the
most sensible and sound strategy to
sustain business and other activities.

13
 4.2 The Role Procurement in Delivering
Sustainable Solutions

• The key role of procurement in

terms of sustainability
• Procurement as a multiplier
• The business case for
sustainable procurement

14
 4.2 The Role Procurement in Delivering
Sustainable Solutions …

Procurement as a multiplier for sustainability - an overview

Sustainable procurement is a multiplier that can help to shape value creation within a company and
for numerous suppliers, in turn making a significant contribution to the environment and society.
Multiplier effect of procurement along the value chain
Raw material extraction/further
Value creation within a company Market/customers End customer use/end of life
processing

• Direct influence on the selection • Establishing a dialogue with • Taking market demand into • Contributing to resource-
of suppliers consumers to plan consideration when procuring friendly products by taking
requirements requirements lifecycle costs into
• Supplier development through
consideration
partnerships and (co-)innovation • Getting involved in product • Proactively organising
development/design requirements by looking for • Accounting for circular
• Involvement in product design
sustainable alternative economy criteria when
• Assisting with the creation of
• Indirect ways to influence the products selecting products
product specifications
selection of upstream suppliers
• Strategic, tactical and
• Increasing transparency across
operational procurement of
the value chain
requirements

15
 4.2 The Role Procurement in Delivering
Sustainable Solutions …

Procurement as a multiplier for sustainability – sustainability issues

The implications of sustainability along the value chain vary depending on the industry in question.
Hot spot analyses can identify the relevant implications and help procurement make decisions.
Distribution of environmental impacts across the value chain (example for vehicle construction)

Vehicle construction
Raw material Upstream
Levels of the value chain Direct suppliers company (firm Total
extraction production
locations)

8% 54% 28% 10% 140

Greenhouse gases
Mega tonnes of CO2
emissions

7% 57% 30% 6% 0.2

Air pollution
Mega tonnes of
NO2

21% 23% 18% 38% 1800

Water consumption
Million m3 of water

91% 4% 3% 2% 3
Land use
Million hectares

Source: Internal diagram according to adelphi/Systain (2017)

16
 4.2 The Role Procurement in Delivering
Sustainable Solutions …

Procurement as a multiplier for sustainability – practical examples

Numerous measures and practical examples that highlight the environmental, economic and social
significance (triple advantage) of procurement and supply chain management exist along the value
chain.
1 Product design 2 Procurement 3 Production 4 Distribution 5 End of life

Packaging Raw materials and components Production footprint Innovative distribution channels Disposal
•Reduce the weight or size of packaging •Look for sustainable alternative •Take sustainability criteria into •Sell products through crowd shipping •Support eco-friendly disposal
•Design packaging for maximum secondary suppliers consideration when selecting locations •Sell products through small-scale
recyclability and reuse retailers Reversing material flows (products and
Supplier relations Production process packaging)
Products •Introduce supplier audits and checks •Reduce emissions and water Vehicle optimisation •Recycle materials
•Design products for minimal energy and •Buy from local (small-scale) suppliers consumption •Use innovative vehicle technologies and •Reuse materials
material consumption throughout their •Buy from sustainable suppliers •Centralise and optimise waste tyres
lifecycle management •Use alternative fuels
•Design products to have a positive
impact on the health of consumers
•Reduce the weight or size of the product
•Design products for maximum Logistics network and warehouses Transport planning and execution
recyclability and reuse •Consider establishing a decentralised logistics network •Increase vehicle use and capacities
•Use eco-friendly smart buildings •Shorten transport routes
•Shared use of infrastructure and transport •Use more sustainable (intermodal) modes of transport
•Shorten the supply chain

Cross-functional practices

Technology Labour standards

•Improve transparency across the supply chain (availability of data and analyses) •Introduce a fair wage policy and increase the workforce
•Use technology to trace the origin of materials •Implement strict environmental, health and safety standards

Source: Internal diagram according to WEF (2015)

17
 4.2 The Role Procurement in Delivering
Sustainable Solutions …

The business case for sustainable procurement – overview

Sustainable procurement is a driver for economical, social and environmental added value. In this
context, the business case for sustainable procurement is based on three key value drivers.
Cost savings
• Supply chain costs were found to be 9 to 16% lower when sustainability was
incorporated in the company's values.
• Costs were reduced by purchasing efficient products, lower consumption, the
simplification of specifications and avoiding non-compliance.

Minimising risk
• Direct and indirect costs resulting from non-compliance with social and
environmental standards were avoided.
• Costs arising from interruptions in the supply chain, product recalls and a
reduction in market value (roughly 12% on average) could also be reduced.

Revenue growth
• Revenues increased due to the new products/business models/customers and
higher prices.
• Additional revenue could also be generated by end of life products/processes.

Source: WEF (2015)

18
 4.2 The Role Procurement in Delivering
Sustainable Solutions …

The business case for sustainable procurement – cost savings

By incorporating sustainability in their company values, companies can reduce their supply chain costs. The
potential to save costs applies to both internal operating costs and costs for purchased products & services.
Reduced internal costs
• As a result of purchasing more efficient products and reducing consumption.
• Case study: GE managed to save USD 300 million when it reduced its greenhouse
gas emissions by 32% and water consumption by 45% over the period from 2006 to
2013.

Avoiding unnecessary specifications

• Reducing costs by simplifying specifications and removing unnecessary
information.
• Case study: Walmart saved a total of USD 3.4 million and 0.6 million tonnes of
carbon dioxide by reducing its packaging material in 2007.

Reducing non-compliance & capital costs

• Companies can avoid or reduce non-compliance costs arising from non-
compliance with regulations and laws.
• Capital costs can likewise be reduced by improved ESG performance.

Source: WEF (2015), HBR (2016), Ecovadis (2020)

19
 4.2 The Role Procurement in Delivering
Sustainable Solutions …

The business case for sustainable procurement – minimising risk

Non-compliance with social and environmental standards can result in direct secondary costs
and a reduced market value. Sustainable procurement can help reduce these risks.
Reduced direct costs
• Companies can avoid incurring direct costs resulting from interruptions in the supply chain and
product recalls due to non-compliance with social and environmental standards.
• Case study: In 2007, Mattel incurred costs amounting to around USD 119 million for product recalls
as the result of the lead contamination of toys made by a tier-2 supplier.

Avoiding indirect costs

• Companies can avoid direct costs caused by a reduction in market value and
market capitalisation as a result of the socioecological drawbacks.
• Case study: The share value of Baxter International sunk by 13% in Q1 2008 as a
result of the contamination of heparin imported from China.

Focus: The Supply Chain Due Diligence Act

• The LkSG includes sanctions for non-compliance with business due diligence obligations.
• In addition to a ban on public procurement, companies may be required to pay fines and penalties.

20

Sources: WEF (2015), BGBL (2021)

20
 4.2 The Role Procurement in Delivering
Sustainable Solutions …
The business case for sustainable procurement – increased revenues
Innovative, eco-friendly products & services can target new customer groups and generate additional revenues.
As a multiplier, procurement can spearhead this development.
Revenue growth
• Companies can increase revenues by introducing new products/business models,
acquiring new/loyal customers and/or increasing prices; providing revenue stability,
even during crisis periods.
• Case study: Over the past 10 years, Patagonia has increased its revenues four-fold
(over USD 1 billion in 2020).

Increased earnings
• Companies can also generate extra earnings by introducing end of life processes,
including recycling products and end of life products.
• Case study: In 2006, Walmar generated an additional USD 28 million in earnings
by launching a plastic recycling programme in its stores.

Side note: Sustainable innovations and business models

• Philips: The company's Product-as-a-Service approach involves upgrades,
refurbishment and the reuse of its medical equipment. This led to a 9% revenue
increase in 2016.
• Business models that rely on circular strategies are projected to generate revenues of up to
$4.5 trillion over the next decade.

Sources: enable2grow (2021), EY (2020), Statista (2021), WEF (2015), WBCSD (2017)

21
4.3 Implementing a Sustainable Procurement
Strategy

22
 Phasing in/
Verified
Operations/
Need
scrapping

Specification The Entire Warranty

Control

Purchasing Process

Market Delivery
Research Follow-up

Evaluating Negotiations,
Enquiry Contract
Offers if any
23
 Verifying the Need!
Interact with ID the Need &
Ask the following: the User Performances
Required
Who are the actual
users? The user is the
Determine user
person/persons who
What is the actual conditions
will deal with the
need that has to be product during its
satisfied? service life. Ask revealing
Can the need be questions
satisfied by means You can only satisfy
other than purchasing? users if the delivered Understand the
product satisfies performance that is
Can methods and their conscious & sought by the user
routines be changed? unconscious needs.

How frequently does

such a need arise?

24
Specification

Types: Recommended!
 Detailed
specification • increases the number
 Supplier of potential suppliers
specification
• helps develop new
 Standard suppliers
specification
 Function • covers the other
specification types of
 Performance specifications
specification
25
Market Research

Search the market for solutions that satisfy

the verified needs in the best possible way, or
provide the desired performance

Identify suppliers that can meet the

specifications that have been set.

Don’t be constrained by the following: “But we

have always bought from the corner shop.”

26
 Enquiry: Specifying Product
Requirements

Consider the following: To Assess Product

Quality:
Adopt performance-based
specifications wherever Raw Materials
possible.
Manufacturing Process
Avoid specifications that are
based on a specific brand.
Energy Consumption
Use internationally
recognised standards Water Consumption
wherever possible.
Service Life
Do not hesitate in conducting
your own research or testing.
Packaging
27
 Enquiry: Specifying Supplier
Requirements

Supplier Sourcing Selecting Your Supplier

 Environmental Policy &

 Develop a network
Environmental Reporting
for information
exchange!
 Environmental
 Look for Management Systems
alternatives
 Ask suppliers for  Raw Materials and Energy
information on
environmental  Recycling Schemes
performance
 Transport Systems
28
Evaluating Offers
Economic Environmental Technical
Evaluation Evaluation Evaluation

Based on Life Cycle Based on Product’s

Environmental  Fitness to the
Cost Analysis!
Attributes required
performance
 The unit  Resource
purchase price  Ease of
consumption
operation &
 Operating &  Pollution & maintenance
maintenance hazard
costs  Possibility of
effects
upgrading &
 End-of-life  End-of-life reuse
costs management
29
Negotiations & Contract Delivery
Clarifications Signing Follow Up
Formal:
Include It should be in • Product was what you ordered

requirements accordance with • Invoice represents goods

in the contract the verified need actually delivered

at the lowest • Invoice is based on what you

possible cost ordered
Make necessary • The goods are delivered after
clarifications you placed the order and not
before
about the product
Qualitative /
to be supplied
Quantitative
• You received the correct
number of units

It is good practice to • Delivered goods are in

accordance with specifications
inform bidders who
were not selected • There is a return scheme for
packaging & repossession
why their bids failed. scheme for discarded goods
30
 Warranty Phasing in / Operations /
Control Reversion of User
Experience to Supplier
 With poor warranty  Take note of what the
control, you risk paying users are or are not
for repairs that are happy with
actually covered by the
warranty.  Develop follow-up
 Convey warranties systems that give
applicable & pertinent objective & quantified
conditions to the users reports.
to ensure that
warranties are utilized

31
 Ten Guiding 1. Ensure complementarity between
environmental preferability & your
Principles company’s operational and business
priorities
2. Make Environmentally
Preferable Purchasing a
journey in incremental stages, 3. Take environmental
not as a one-time measure considerations into account early
in the purchasing process & take a
proactive approach.
4. Ensure that environmental
preferability reflects life-
cycle considerations for
products & services, covering 5. Consider environmental
production, distribution, use & performance of products &
end-of-life stages as much as services as a factor for evaluating
possible offers
32
 Ten Guiding 6. You can determine the
environmental preferability of most
Principles of your purchased items on the basis
of the key parameters discussed
earlier

7. Identify your local

8. Understand that environmental
environmental concerns, and
preferability is a function of
base your determination of
multiple attributes of a product or
what is environmentally
service.
preferable primarily on the
basis of these concerns.

10. Relate Environmentally

9. Ensure the accuracy of Preferable Purchasing
the supplier’s product wherever possible to
information and product environmental improvement
attribute claims efforts

33
 Four Criteria: Environmental Sustainability
(OECD)
• Regeneration - Renewable resources shall be used efficiently and their use shall not be permitted to exceed their
long-term rates.

• Sustainability - Non-renewable resources shall be used efficiently and their use limited to levels which can be offset
by substitution by renewable resources or other forms of capital.

• Assimilation - Releases of hazardous or polluting substances to the environment shall not exceeds its assimilative
capacity; concentrations shall be kept below established critical levels necessary for the protection of human health
and the environment.

• Avoiding Irreversibility - Irreversible adverse effects of human activities on ecosystems and on biochemical and
hydrological cycles shall be avoided.

34
35
Step 1: Identify essential
attributes that influence the The Product
economic & environmental
performance of the product Attribute
or product category
Checklist
Step 3: Determine the
relevant minimum/maximum
Step 2: Identify the parameters for each of the
regulatory requirements identified attributes, as
and/or users’ preferences applicable
for each of these
attributes.

Step 5: Evaluate the Step 4: Once you have received

qualitative result of this bids from suppliers, develop a
appraisal checklist and checklist classifying each offer
prepare a list of as low, medium or high in terms
preferred (or not of how well it meets these
acceptable) product parameters
36
offers
 A product can be considered green if, based on its
characteristics or attributes, it has less
environmental impact

 To make a product green we should improve on one

or more of its attributes

We can achieve this by making

use of tools like the Product
Attribute Checklist and
Environmental Performance
Matrix.

37
Step 1: As in the case of the
Product Attribute Checklist,
Step 2: Define the preferred
identify the major
environmental quality for
environmental attributes of
each attribute.
the product.

Step 4: Once you have received

Step 3: Decide on the
the offers from suppliers,
comparative weight for each
prepare the Environmental
environmental attribute, by
Attribute Matrix to compare
giving maximum points to
each offer against each of the
each. These points must add
attributes that you consider
up to one hundred.
important.

The
Step 5: Allocate points to each
supplier’s offer, reflecting the
Environmental
extent to which they comply or Attribute
not with the preferred
environmental qualities. Matrix 38
Factors Affecting Factors Affecting
Product Performance Environmental
Performance
Fitness
Resource
Simplicity of operation Consumption Rate
and maintenance

Durability End-of-Life
Use
Material Conversion
Rate

Upgradability
Disposal

39
Supplier’s Environmental
Performance
An evaluation of your potential suppliers’
environmental performance will help to
focus product appraisal.

Use procedures developed by individual

organisations & third-party certification
groups to verify the claims

Look beyond your suppliers’ products &

services, assess how they operate &
incorporate effective environmental
management practices.
40
 Greening the Supply Chain
is a natural consequence of
Environmentally Preferable Purchasing.

= A process by which buyer companies require a

certain level of environmental responsibility
in the core business practices of their
suppliers and vendors

41
 Evaluation and Environmental
Certification of Procurement &
Suppliers Product
Specifications

Criteria or
Establishing Management
Environmental Systems for
Standards Suppliers

Tools for Collaborative

Greening the Partnering with
Suppliers and
Supply Chain Contractors 42
 Are your inputs or Are your inputs or
products toxic and/or products produced
hazardous in using processes that
themselves? involve toxic and/or
hazardous materials?

Toxic & Hazardous

Substances
Do your inputs or Are your inputs or
products have a products readily
sufficiently long recyclable? Do they
service life? end up as toxic or
hazardous waste?
43
 Toxic & Hazardous Substances
prescription and non-prescription drugs;
food additives; pesticides, herbicides
and fungicides; glues, solvents, oils,
paints and dyes; bleaches and household
cleaning products; etc.

These products require special

approaches to management, use and
disposal because of the hazards that
many of them pose. 44
4.4 Ethics in Procurement

45
 Environmental concerns relevant to purchasing staff

• Recovery, recycling and reusing of materials and waste products

• Safe disposal of waste products that cannot be recycled

• Supplier selection policies to support firms that conform to environmental standards with
regard to air, water and noise pollution

• Supplier and product selection policies that reflect concern for conservation and renewal of
resources

• Safe testing of products and materials

• Concern for noise, spray, dirt and vibration in the operation of transportation facilities

46
Business Ethics

47
Objectives of Business Ethics

48
Benefits and Drawbacks of Behaving ethically in Business

49
Business Ethics Theories

50
A Map of Ethical Theories

51