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Larry Lapide, MIT, research director, Demand Management Solutions Group, talks to Kirsten Watson of Kinaxis about Greening the Supply Chain in a video posted October 30, 2008.

Bonn — March 16, 2010 — Value creation characterized by environmental and social sustainability is increasingly key to the very existence of companies, and procurement organizations, as the interface with the company's value creation chain, are being particularly challenged in the emerging social, economic and regulatory environment.

That was the message emerging from the recent "Green Procurement Day" event held at the European Business School (EBS) and focusing on real-life, successful and efficient sustainability management. New research findings and corporate practice were presented and discussed at the conference, jointly organized by the Supply Chain Management Institute (SMI) and Bonn-based procurement consultancy BrainNet.

"At present companies face the challenging job of making their processes environmentally and socially sustainable without weakening their competitive position," said Jan Herrmann, practice head of green procurement at BrainNet and joint organizer of the conference. "Through our conference, we want to speed up the development of the necessary strategies and instruments and put current approaches through a practical and methods-based test."

The conference drew a gathering of senior-level decision-makers from about 20 leading companies. Companies like the chemical group AkzoNobel and Deutsche Telekom AG provided the attendees with insight into their green procurement strategies in "best practice" presentations and workshops. The discussion panels and results of studies presented by SMI and BrainNet also highlighted that "green" procurement is not only a driver for a sustainable transformation of processes in many companies, but a factor with a direct and positive impact on the success of the company.

"As our analyses show, green procurement has already become a key competitive factor," said Herrmann. "Companies [that] have set up their supply chain management in the right way and, more importantly, with a focus on sustainability enjoy a rate of return considerably higher than their competitors. But SCM with real sustainability needs firstly close collaboration with all parts of the company, such as finance and risk management, and secondly the explicit support of senior management."

Supplier Development as a Key Factor

Dick Bartelse, global purchasing director for powder coatings at AkzoNobel, explained how this approach can deliver real success. The world's largest supplier of paints and coatings has formulated and published a clear sustainability strategy with specific goals. In addition, AkzoNobel works with suppliers and individual retailers to improve the "ecological footprint" of the entire value creation chain.

"Including the suppliers in all stages is a key factor in the success of green procurement," said Bartelse. "It is only by thinking beyond the limits of our own company and optimizing the entire chain that we can offer our customers products to satisfy the most stringent sustainability standards. Network management will therefore become a key element of green procurement."

Green Actions — In Several Dimensions

To achieve overall optimization, procurement needs to tackle all relevant dimensions, Herrmann believes, adding that many companies are still struggling with this concept. Constantin Blome, research director for sourcing in emerging markets at the SMI agrees.

"Unfortunately many CEOs accept deficits when it comes to sustainability," Blome said. "Usually this is because they have no experience in the matter and are not prepared to think ahead. But this is the very area where we should be learning from the 'green pioneers' who over the last few years have established joint ventures with sustainable suppliers and secured themselves a distinctive edge over the competition on emerging markets."

Another surprising discovery was that only a few of the conference attendees made the link between green procurement and cutting costs in procurement. Specific business cases, showing the economic input of ecological commitment — for example, in the case of improved travel management, which reduces CO2 emissions and travel costs — may help change this.

Alongside internal hurdles, the biggest challenge for "green and sustainable procurement" is binding and global methods for verifying standards. There are still no internationally binding codes or certification processes, and these are urgently needed for effective supplier and process management. "The subject is far from being clear at all levels. The 'green pioneers' also have plenty of room for improvement," said Herrmann.

Herrmann added that a follow-up "Green Procurement Day" is being planned for the first half of 2010.