As the world approaches what will likely be an unprecedented recession, businesses are talking about “innovating out of the crisis” by working more closely with their suppliers. But what does innovation mean in this crisis and what should it achieve?
During a roundtable with a cross-industry group of procurement teams, participants insisted that while innovation should help business recovery and growth, it must do so in a way that doesn’t compromise environmental, social and corporate governance standards. Although coronavirus has overshadowed the climate crisis in recent months, collaborating with suppliers in the wake of the pandemic must still support the sustainability goals that businesses have committed to. Not doing so would put those goals at risk and could threaten the future growth of those businesses.
This requires structure. Targets and processes must be put in place to ensure innovation and sustainability work hand-in-hand and are not isolated from one another. There are three main learnings that companies attending the roundtable shared to achieve this:
1. Develop your innovation and sustainability strategies together
For procurement innovation and sustainability to work in tandem, their overall strategies must be set together. Misalignment often results in innovation projects that do not contribute to or may undermine any environmental or social targets the organisation is working towards.
There were two methods shared for structuring procurement for this. For one company, a team was formed within procurement jointly responsible for supplier innovation and sustainability, with carbon reduction, water management, and waste reduction its main sustainability focus areas. The team developed an innovation-sustainability strategy and applied it to all sourcing categories, thereby ensuring any supplier collaboration project helps support its sustainability targets.
For another organisation, there are separate procurement roles for both innovation and sustainability, but the strategy setting of these two teams is done together. The two will communicate on any incoming supplier collaboration projects to assess, for example, an innovation project’s carbon dioxide impact before it is approved. In this way, supplier innovation work does not contradict its sustainability strategy.
2. Set sustainable criteria for supplier innovation projects
As well as having a shared strategy around innovation and sustainability, teams should create specific criteria for how they assess supplier ideas and proposals to ensure they support the business’s environmental, social and governance targets.
For one company, a team screens innovation ideas to meet green objectives. If the idea helps further the business’s green targets, it will get approved for collaboration and may receive additional funding.
A similar structure exists within a team at another organisation, but specifically on capital expenditure projects. If a supplier project contributes an innovation that helps reduce carbon emissions, it will be approved for funding. This, they say, is because the company sees decarbonisation of the supply chain as a “competitive differentiator”, underscoring how sustainability is now closely linked with business growth.
3. Segment suppliers by both innovation and sustainability
While some suppliers will come to a buying organisation with ideas for collaboration, it is also incumbent on procurement to engage the supply base to drive better innovation and sustainability. This requires segmentation.
The criteria put into this segmentation process differs by each company. Most factor in the supplier’s impact on different sustainability areas, such as the environment, human rights, and fair business practice – typically obtained through third-party audits – and combine it with innovation criteria. This can include the supplier’s service pipeline, record on new launches and its strategic importance to the organisation. Procurement teams then use this information to identify suppliers best suited for collaboration.
Businesses understand how important supplier innovation is for both growth and better corporate sustainability. It is therefore essential that structures such as those above be put in place that safeguard against the two being separated. “Improving supply chain sustainability by innovating with our suppliers is essential for our organisation,” one company noted. “We have to organised how we work to ensure we make progress.”