By David Rae

As the global economic turndown continues to bite, there have been many optimistic views expressed over the supposed appearance of ‘green shoots’ of recovery. Whether this is the case or not, we shall have to wait and see, but it is a different kind of ‘green’ that I am relieved to have seen, not just now, but all the way through this economic crisis.

The green I am referring to is, of course, the type which is synonymous with environmental and sustainable business.

Contrary to some commentators’ beliefs, corporate sustainable initiatives were maintained despite the economic downturn. Many were predicting that they would be forgotten about in the scramble to save money, safeguard profits and weather the storm.

Just a couple of weeks ago, the UK’s National Grid won the Procurement Leaders Award for CSR for its SpirIT programme – an initiative conducted in partnership with three major Indian IT partners (Wipro, Tata and Zensar) to help thousands of impoverished Indian children.

Richard Cribb, National Grid’s contract and relationship manager, had visited the region in question and felt he had to do something. But the power of the programme really came into its own when National Grid’s suppliers also became involved. “Using these strategic partners over the last three years, a number of suppliers have joined us on the journey,” said Cribb. “The most deep-seated relationships you can build are the ones where you can go out into the community together.”

It’s a gratifying story about how 3,000 children have been helped by the work of a UK company working in close partnership with many of its global suppliers.

Thankfully National Grid wasn’t the only one. The shortlist for the CSR category was particularly strong with entries from Absa Bank, PricewaterhouseCoopers, Sainsbury’s and Transport for London making life extremely difficult for the judges.

Although there was only one winner of the Procurement Leaders CSR award, the fact that the shortlist was so strong (and, come to think of it, all of the entries we received) is testament to how ingrained it now is in corporate psyches.

Like it or not, sustainability is here to stay – global recession or not.

Iain Ritchie, UK managing director of industrial engineering company Brammer, argues that inefficiencies in power consumption and compressed air control is leading to manufacturers overspending

Motors and compressed air are vital to a multitude of manufacturing processes – yet for a variety of reasons end up costing far more than they should to run.

In the UK, industrial electric motors and drives account for more than two thirds of power consumption in industry. Yet many motors are unnecessarily oversized for the machines they power. The annual energy cost of running a motor can be up to ten times its purchase cost. A 10kW motor operating at 87% efficiency could cost £1,500 more over its lifetime than one that is just 5% more efficient.

Automated process controls, such as variable speed drives, regulate motor speed, ensuring the motor does not run any faster than it needs to, minimising energy use. Indeed, lowering motor speeds by 20 per cent can save up to 50 per cent in energy.

It’s clear, then, that getting expert advice on specifying the correct motor and drive combination for each application will rapidly pay for itself in terms of reduced energy costs.

Meanwhile, more than 10% of electricity supplied to industry is used to compress air – whether for cooling, drying, removal of scrap product, removal of contamination, or vacuum generation. In some cases, it is up to 30% of total energy usage, yet of the total energy supplied to a compressor, as little as 8–10% may end up being converted into usable energy to power equipment, making it a highly costly energy source.

Leaks, poor maintenance, misapplication and poor control are all areas where compressed air is commonly wasted, yet historically many companies have failed to address these areas and take the necessary steps to optimise efficiency – and have ended up facing higher energy bills as a result.

Compressed air audits can help manufacturers improve energy efficiency – by removing leaks, using less energy to create the same amount of air, providing practical advice and ensuring compressed air is used efficiently, all potentially
amounting to thousands of pounds per year in reduced energy costs.

Developing a compressed air usage policy in conjunction with an expert equipment supplier, combined with regular planned maintenance based around comprehensive audits, can dramatically reduce compressed air usage – and energy costs, with significant impact on the bottom line.

Ian Ritchie is managing director, Brammer UK

Graham Roberts, until recently the regional director for indirect procurement at Motorola, has had a bit more time to think of late. And while some of that has been taken up with decorating, the vast majority has been spent on understanding the vast array of sustainable procurement opportunities out there.

When did you last strip the wallpaper? In my case, it was 20 March 1999 – I know, because the date was neatly written on the dining room wall by my son who, aged four, first recorded for posterity his height, age and latent artistic skills.

As I sat back and reminisced I recalled the saying “whatever you’re doing now it won’t be the same in five years time”. Well, if we take those ten years since I last did this most mundane of jobs, procurement as a profession has developed beyond most people’s imagination.

Since the turn of the Millennium, we have witnessed revolutions in eSourcing, eProcurement, eInvoicing, reducing year-on-year costs and now carbon emission reduction, corporate responsibility policies and the rise and rise of the green agenda. How, though, has the background to these initiatives changed and our thinking changed with it? Does it really matter anyway?

It was by scraping back these layers that I began to understand a new world of opportunity in sustainability which to this point had been obscured by a thin covering of rather dull wallpaper…

So, for those of us in procurement, maybe now is our time.

There is a growing trend to drive sustainable procurement by compelling suppliers to adhere to an even more comprehensive set of terms that already existed by requiring them to sign up to environmental, antidiscrimination, humane treatment of workers, anticorruption and unfair business practice clauses?

While this is an excellent start, why not consider a new level of interaction with suppliers? For example did you realise that several local governments offer free advice? Or that there are new startup’s which specifically aim to produce goods from recycled products or waste, which can be ideal for those green marketing gifts. And why not save money by buying back your own recycled paper?

When, as a procurement professional, one starts to think about it, the opportunities for improving the sustainable procurement practices of your organisation start to jump off the page. Did you realise that there is multimillion-euro market in recycled PC’s? There are suppliers who are compliant with the European Waste Electrical and Electronic Equipment directive (WEEE) and meet reuse standards set out by European governments.

In a recessionary environment small to medium, as well as many large, suppliers are struggling to survive and maintain positive cash flow because large corporates get into the habit of paying later and later in order to sustain their own cash flow. Is this sustainable? Some UK government local authorities are endeavouring to pay invoices of £2,000 or less on immediate terms to help struggling businesses through these difficult times. Is it right for large corporates to do the opposite?

Just as stripping off wallpaper reveals a wealth of opportunity, so too does the green revolution. Sustainable procurement will hold out hope, not only of saving your company money and helping the planet, but to open a new way of thinking about how we interact with suppliers in the future.

So, I’d like to set a challenge. Strip away the thinking of the past and decide on three things that you will do in procurement during 2009 to help advance the green revolution in your organisation.

Myself? I’m going to save cost and reduce my cycle time by heading to the local DIY store to source a steam stripper – hopefully they source recycled carrier bags!

To contact Graham visit his website at www.migreenmachine.com

By Heather Rodgers, head of group procurement and supplier management, Centrica

To extend Centrica’s business principles into the supply chain, the corporate responsibility committee supported the creation of a new group-wide policy, the responsible procurement and supplier management policy, to explain the conduct that Centrica expects of itself and its business partners. The Centrica procurement team has been at the heart of driving the policy in the last 18 months and is now working closely with its supplier partnership community to roll this out.

The policy outlines commitments to reduce environmental impact, respect human rights, ensure business integrity and focus on health and safety. It places procurement at the centre of executing the policy.

After the board endorsed the policy in December 2007, key milestones were created to implement the policy across 2008 and 2009. We undertook a number of steps to introduce and embed the policy into our procurement processes:

• Across Centrica, a group project team was initiated in 2008 to lead and roll out the corporate responsibility and responsible procurement strategy across Centrica’s businesses. Participants include group and business unit procurement teams, legal representatives and members of the corporate responsibility team. The two people who are driving this across the company are Trevor Boyce and Hulya Akal.
• We began by speaking with other CPO’s to capture the lessons learned during their experience in rolling out responsible procurement policies for their companies. This saved a huge amount of time because it ensured we did not tread the same path and meant that we had feedback for areas that weren’t successful in other companies. In April 2008, we then held a meeting with our strategic suppliers to share ideas and begin the journey of communicating Centrica’s messages of corporate responsibility. The attendance was excellent and the next session is planned for April 2009. The team have received very positive feedback from suppliers who indicated that they have similar policies for themselves. DHL’s UK Procurement representative for CR policies and initiatives, said, “I welcomed the opportunity of getting together with like-minded individuals, representing a broad range of organisations, sharing common themes and sets of goals. The workshop proved to be an excellent and productive day, brainstorming ideas, scenarios and sharing current working practices, I certainly took away with me some ideas and ways forwards”.
• One of the exciting initiatives during 2008 was when we worked with one of our key suppliers, Worcester Bosch, to map out the supply chain from its beginning to it arriving at our customers’ doorstep. This exercise benefited both of us as we gained a greater understanding of how transparent supply chains can be. We will continue to address this with our suppliers going forward.
• Our research did not stop there, because in talking with other CPOs at roundtable events we were pointed in the direction of companies like SEDEX (the Supplier Ethical Data Exchange) and First Point Assessment Limited, which is a division of Achilles Information, and other external bodies to capture best practice for supplier audits and to understand how this is being tracked and audited by other blue-chip organisations. The supplier audit is being utilised with some of our outsourced partners to ensure we get the balance of capturing the evidence with the practicalities of making the request for information relevant to the policy. They have provided some useful feedback which we have built in as part of the experience. This demonstrates the team’s desire to ensure that any supplier audits that are undertaken encompass an internationally-recognised corporate code of good practice.
• We worked with the legal and corporate responsibility teams to create new contractual clauses that would embed the policy’s principles into supplier contracts.  The procurement team ensures that these clauses are included in contracts in upstream and downstream businesses for those suppliers who supply goods and services, including supply chains across the world and our outsourced operations. This is initiated when new categories are opened up, new suppliers are signed on and with renewal of contracts.
• To measure and report performance at board level, we developed key performance indicators to track the number of suppliers signing up to the policy. These KPI’s are incorporated across the procurement teams’ annual targets. These measures demonstrate confidence that the policy roll out is on course and reportable to the Centrica executive committee. 
• The website is our window to the suppliers and we are talking with other companies on how we can lever this portal to exchange information. Just recently, Centrica has been voted one of the best companies in Europe for communicating its corporate responsibility programme, according to communications consultancy Hallvarsson & Halvarsson (H&H). We want to carry on evolving our communications with our suppliers and will be talking with them at our supplier forum next April on ways in which we can take it to the next stage. 

Good progress has been made and strong foundations have been laid for carrying forward and further embedding responsible procurement into Centrica’s procurement and supplier management processes. November last year saw a successful re-certification audit from the Chartered Institute of Purchasing and Supply, where the team highlighted how impressed they were with the environment and sustainability section for policies and procedures and it was regarded as being in the upper quartile of all companies audited.

What is great is that companies are coming to talk to us and we are happy to share our experiences – like the people who helped us at the beginning of our journey. Nevertheless it remains a journey and there will be plenty more lessons to learn as we carry on going forward.

Centrica is a top 30 FTSE100 company with growing energy businesses in the UK, North America and Europe. It secures and supplies gas and electricity for millions of homes and businesses and offers a distinctive range of home energy solutions and low-carbon products and services.

By Francesca Wakefield

The buzz around sustainability and corporate social responsibility has been gathering pace for some years now, but in the current climate companies need to ask how much it really contributes to the bottom line.

The reality is that 2009 will a be a year of reckoning for the sustainability agenda, forcing companies to ruthlessly assess which policies and sourcing decisions actually deliver shareholder value and which are simply an extension of the company’s CSR programme. A potential solution is demand management. A strategy that is based around reducing consumption and corporate spend on external products and services, demand management could become the new face of sustainability.

In the current climate cutting costs is the name of the game. Indeed, a survey conducted in February by the Procurement Leaders Network identified cost reduction as the overwhelming priority for respondents in 2009, with over 96% ranking it as either their highest priority or a high priority.

Such a response does not immediately lend itself to supporting sustainability policies which often involve sourcing from more expensive suppliers. At the World Economic Forum in Davos this year, for example, climate change was supposed to be at the top of the agenda but found itself sidelined as discussions were dominated by the economic crisis. Similarly, corporate sustainability agendas will find themselves subject to the tests of short-term cost saving and corporate gain.

Of course this will not be the case for every company, there will be some that will continue to have a stand-alone business case for sustainability (such as those bidding on public contracts or operating in niche areas) as evidenced by Bovis Lend Lease’s recent £2.4bn contract win as reported by Sustainable Sourcing. But for the rest, the worsening economic climate will make it difficult for procurement departments to justify sourcing from a supplier primarily on the basis of green credentials.

A sustainability strategy that fits perfectly with the mantra of cutting costs, however, is demand management. Concerned with reducing consumption and corporate spend on external products and services, demand management can involve reducing waste, corporate travel, number of printouts, the amount of computers and electricity spend – all things that are directly relevant to a company’s sustainability strategy.

The current economic crisis need not wipe sustainability off the table, but it will necessarily redefine how the concept is implemented and how much of a business case there really is for the broader concept of CSR. Instead of simply throwing a bit of money at a school and assuring shareholders of the reputational benefits, companies will be under increasing pressure to move from bolt on to built in sustainability that delivers measurable benefits.

Francesca Wakefield is an analyst at the Procurement Leaders Intelligence Unit

By Meryl Bushell

Talk of sustainability has grown considerably over the last 10 years, but how much of the talk is translated into action, especially in these challenging economic times?

When I first started having discussions about CSR in supply chains I was met with a lot of resistance. It was not easy to convince others that there were business benefits in adopting ethical and sustainable practices in procurement. I can remember many debates where the topic was dismissed as unimportant or “hobbyist”.

Over the years, climate change science has alerted the developed world to the folly of ignoring the impact of CO2 emissions and a huge number of organisations have started to take action to limit their environmental footprint.  But how many organisations have done this in a rigorous and thorough way? Most organisations start by looking at their own usage and introduce programmes to reduce their in-house energy consumption. At the simplest level these are about turning the lights out and reducing the heating a notch or too. We have all seen hotels pleading with us to reuse our towels, and many companies have introduced double sided photocopying or conference calls in place of travel. While worthy, these initiatives are hardly ground breaking and cynics will remark that they smack of self interest as they double as cost saving initiatives.

Some organisations pick a high profile sustainability item and channel all their efforts into their flagship area – many bespoke recycling activities fall into this category.

Few organisations meet best-practice levels of a comprehensive sustainability programme which encompasses all of their activity. I believe that there are three areas that need to be systematically addressed:

Own Use
Ensuring that all in-house production and operating activities are executed with minimum impact on the environment (and this does not mean coming down heavy for items affecting employees, but allowing senior executives to drive around in gas-guzzling company cars).

Bought in Goods and Services
Laying down minimum standards for suppliers and actively selecting only those goods and services which meet environmental specifications. Simply designing a questionnaire and getting suppliers to tick boxes serves only to keep bureaucrats  employed. Sustainability standards should be part of every adjudication process, and given the same level of weighting as other product specification items. Quality checks and audits should take place for sustainability criteria in the same way as they do for other criteria.

Product and Service Design
Developing goods and services which actively help an organisation’s customers and stakeholders improve their environmental impact.

Of course, sustainability should not be constrained to items impacting the environment but should also embrace human factors, diversity and ethics. The credit crunch and the subsequent economic downturn have led many firms to abandon their high ideals and instead drive for short-term cost savings. If they had studied the available research they might have thought twice before embarking on this course of action.

While consumers are indicating that the financial climate may force them to purchase fewer organic products, demand for Fairtrade and other sustainably-sourced produce is holding up, and if anything the indications are that demand will increase. In studies undertaken by Feel Research, 92% of consumers claim to be willing to pay extra for ethically-sourced products, and a recent PricewaterhouseCoopers report found that 58% of consumers said they are currently buying fewer sustainable products than they would like to.

So, driving comprehensive CSR policies and practices islikely to help organisations to maintain and win market share and revenues even in an overall declining market. The business case for CSR in supply chains is even stronger in times of economic woe, and procurement professionals should be championing sustainability at the board level to help their companies survive and thrive.

Meryl Bushell is an independent consultant and executive coach. She is the former chief procurement officer of BT.

Watch out for Fairtrade Fortnight which runs from 23 Feb to 8 March.

Neil Deverill

I love economic downturns, even better a recession. It’s the time when those dodgy sourcing decisions come home to roost, the time that sorts out the serious players from the also-rans. Every generation of procurement should experience it – it’s only a pity that they don’t always arrive in time for everyone to learn.

The impact of a financial slump is like an urge to spring clean, to reduce working capital and ensure costs are right for the markets. It’s a time to make sure that key suppliers will still be around when most needed – and when competition for supply is fiercest.

The truth of the matter is, however, that these values should be used as benchmarks throughout the business cycle rather than just when the going gets tough. That way we would be better prepared for when the hard times inevitably do come.

But with this comes a problem. You would be hard-pressed to find a procurement leader who has yet to receive a call from the executive management team, asking them to do their bit in the current downturn. Procurement must renegotiate prices, reschedule deliveries to improve efficiencies and pay suppliers later than normal to help squeeze the most out of corporate cash.

For procurement professionals who are on top of their game, however, key suppliers might already be getting paid at exactly the right time in order to minimise working capital while maintaining key strategic partnerships; prices might have already been squeezed and logistics networks made as efficient as they can possibly be. And what then?

The net result is that underperforming CPOs stand a better chance to shine during a downturn than those who have been diligent throughout the business cycle. What happens if, having been challenged by your finance director or CEO, you return empty handed because best practice has already been built into day-to-day operations? It’s not a pretty thought. Thankfully, I suspect that neither is it a common scenario.

The expectation that procurement executives are allowing suppliers to hedge prices and are lax in material planning and payment management is partly a hangover from history, when that tended to be the rule rather than the exception. But I have a suspicion that, while things may have improved, the vast majority of us would be able to find at least some of those extra opportunities the board is desperate to locate.

The cynics might suggest that procurement leaves a little bit in hand for this kind of situation, but that would imply dereliction of duty and a compromise of ethics. So why do we almost always find that little bit extra when pushed? It suggests to me that procurement routinely under-performs (although this might be because targets are too low rather than outright negligence or incompetence).

My question, therefore, is this – if we routinely find sustainable benefits from suppliers when the pressure is applied from executive level, why can we not raise our game and provide those benefits as part of our day-to-day job? And, perhaps more importantly, why do we not routinely inform, educate and advise the same executive team that they can have more than they ask for?

Some will claim that it’s human nature to deliver what is asked for and little else. And perhaps that’s one of the issues holding back some procurement organisations, both in the perception of other business units and in reality.

Only when procurement steps up to the challenge and offers management the big prize in terms of inbound cost, quality, priority, capacity et al and, at the same time, justifies the investment required to capture and sustain it, will the perception of procurement within the business move to a different plane.

Then the questions about varying cost levels in good times and bad can be flushed out, issues about delaying payments and corporate inter-dependencies in the supply chain can be recognised and valued. And, above all, the levels and types of talent required in procurement to deliver all of the above can be discussed and properly understood.

If we have not yet taken the necessary steps to convince the wider business of the potential and competitive opportunities that excellent procurement offers, I propose that now, of all times, is the time. The paradox is that procurement may well continue to promulgate the trompe d’oeil that it can be relied upon in hard times, all the while being resented by the wider business which thinks that we should be doing this as a matter of routine.

It’s better than being fired I suppose.