As our recent series on predictions 2021 from the procurement and supply chain market tells us, sustainability, social value and environmental themes are only going to become bigger and more important drivers for procurement (and business) over the next decade — and beyond.
In a recent article, we gave an introduction to the Sustainable Procurement Pledge (SPP), a global forum of more than 2,500 industry, academic and third-sector procurement professionals who are committing to sustainable practices and ethics, and we featured an interview with one of its ambassadors. We spoke to the co-founding member of that group about what sustainability means to him and his organization, and to understand how he translates what he pledges, into what he does.
Thomas Udesen is CPO at Bayer, a life science company with a more than 150-year history and core competencies in the areas of healthcare and agriculture. He is passionate about the important role procurement can play in helping businesses achieve their sustainability goals, and therefore in helping society to create a more sustainable future.
“In order to do that,” he says, “it is vital that we share our experiences, learnings and opinions and the tools to help make that happen” — hence the role of the SPP.
How we think about sustainability
Before delving into how Bayer employs sustainable methods in its day-to-day procurement operations, we asked Thomas about the more general assumptions made about sustainability in the workplace that might be hindering its adoption, and why it’s important for organizations to do something about it.
By acting responsibly, applying economic, environmental, social and corporate governance standards in collaboration with suppliers and partners, it stands to reason that any firm can minimize risks, create stable, long-term business relationships, and safeguard its supply of materials and services and hence its competitiveness.
So what’s holding them back?
“Sustainability is an amazing business,” Thomas says, “but there is an underlying misconception that becoming sustainable incurs a cost, which, if you think about it more comprehensively and with a longer-term view, it doesn’t. It is fundamentally about eliminating waste and converting it into a resource, which of course caries a value — less waste, more efficiency, better business results. The main thing is, with governments and society putting more pressure on companies, it’s something no firm can ignore. You have to see it as total cost of ownership; there is a material benefit to pursuing what is bio-based and manufactured in a sustainable way, and at Bayer, we get that.”
Having the commitment to do something about it
“Commitment has to come from the top,” Thomas says.
Bayer is among the 100+ companies worldwide that have signed up for the science-based targets initiative that helps firms transition to a low-carbon economy.
“That means we have huge targets when it comes to reducing carbon emissions for scopes 1, 2 and 3. Because our whole business model is based on how we provide more food and medicine to a world that is increasing in population yet with less available land, it’s really not difficult for me to argue why we have to do this. It also means that what I do with the SPP is completely in alignment with what the company is doing, and it’s liberating for me that I don’t have to apply different standards inside and outside of my job.”
Although about 15,000 firms have signed up to the UN Global Compact principles, when you really look under the hood of their supply chains or procurement organizations to see what’s really going on, Thomas finds it “disheartening … many organizations admit to taking a very defensive approach, and thus do the bare minimum, even when agreed at the CEO level.”
And why is that?
“Often it’s regulators or NGOs making non-commitment punitive. Sometimes it’s that frontline practitioners don’t realize they have a mandate, or don’t believe their leaders are really engaged. In my experience most CEOs and CFOs really do get it, particularly when the CPO is effective at explaining the business case. So the mandate is often more about up-skilling ourselves to be able to do that, but in some cases practitioners simply don’t have access to the tools and practical steps they need to do this in a collaborative and pragmatic way.”
That is of course where the SPP comes in: It encourages individuals to commit — not the procurement function or the organization, but the person. And it ensures knowledge and tools are shared freely across a community of peers, whether practitioners, students or recruiters.
“It’s where we can be honest and have a more collaborative dialog,” he explains.
Walking the talk
Bayer seems to have nailed it, but the firm is very honest in how it goes about achieving good sustainable practices.
“The key is not to try to address sustainability in the supply chain in isolation,” Thomas says. “It’s not possible for one company to solve all the issues on its own — you have to be realistic. At Bayer we partner with associations in a united approach to have a much bigger impact.
“Ten years ago, we joined the industry Pharmaceutical Supply Chain Initiative (PSCI) and co-founded Together for Sustainability (TfS). Along with five other companies we have grown to 29 member companies that control a total spend of €320 billion with 10,000 supplier assessments going on at any one time — so we have created a large machine to bring transparency into the lengthy and complex chemical supply chain.”
Not everyone can aspire to that, but what we can all do is weave sustainability into our supplier processes, for example at Bayer:
“We recognized that for supplier sustainability assessments we could be spending time on tens of questionnaires rather than getting things done and allocating that resource more efficiently. So the assessments and audit results are exchanged through IT platforms, meaning that duplication efforts for our suppliers have been eliminated. It also means that time, resources and costs are significantly reduced, and sustainability standards in our chemical and pharma global supply chains are mutually improved.
“Through PSCI and TfS, as part of a global supplier engagement program for those that have chosen to collaborate, we access the market and assess and improve sustainable sourcing practices by approaching these topics structurally. We respect any antitrust considerations, and the link between the seller and buyer is never revealed. But it does mean we are aiming for better social, economic and environmental outcomes for all those involved in the supply chain, including its workers and local communities.”
Through its sheer procurement volume Bayer exerts considerable influence on society and the environment, in 2019 it procured goods and services accounting for about €23 billion.
“When it comes to our immediate supply chain of 60,000+ suppliers,” says Thomas, “we have a typical segmentation process that looks at risk profiles, business impact and the nature of the relationship. We use those to promote transparency and drive engagement. We agree and communicate that if a supplier wants to become or remain strategic, and be treated preferentially — and lets use the analogy of gathering air miles for that — they have to show leadership and sustainable practices, which for us means a minimum evaluation of 45 by EcoVadis. Without this, a supplier loses its air miles and becomes transactional, with less access to opportunities. It means for both parties that sustainability is being taken very seriously.
“As part of our regular supplier engagement, we carry out an assessment on the high-risk suppliers. We decide on corrective actions where needed to drive progress, make sure they are ‘walking the talk’ and delivering on expectations. For those not operating at an acceptable standard, the next time the plane takes off they simply will not be boarding — we will disengage over time and make sure we work with companies that take it more seriously.
“We need this level of adherence to help us stay within the 1.5°C global warming target that is part of our science-based targets commitment. To do this we need to make sure our scope 3 inbound carbon emissions are reducing over the next few years. We have tangible maximum limits to work within, so if we are working with suppliers who are themselves not reducing their own carbon targets, then we will simply not be able to make the numbers work. Thus we are serious about shifting business to companies that are generally more responsible, and aiming to move 100% of our energy use towards renewables. Not only does this help our goal to be carbon-neutral by 2050, but shifting from fossil fuel to hydro, solar or wind actually saves in energy costs over a 10- to 20-year period. If you look at sustainability for the long term — it makes good business sense.”
How big a part can technology play in the sustainability agenda?
“I am totally convinced,” he says “that the tech providers are mission-critical in providing the necessary transparency needed to achieve sustainability goals. Today more and more solution providers are creating a data-driven dialog, and it’s really encouraging that so many are coming up with innovative solutions for transparency, tracking, provenance and inclusive business models that help you make sure you are dealing with ethical suppliers. Having that ability captured in the marketplace is highly welcome.
“The challenge for the practitioner is that the tech landscape is still complex and fragmented, by that I mean that the ability of the various providers to provide one comprehensive solution is very low, which might hinder adoption because having 10 different providers focused on one aspect makes it more difficult for the CPO who has all 10 to look after at once. Having said that, the notion of a one-stop shop is not realistic either, and the best-of-breed landscape is also fragmented. So it’s a challenge for the market. In an ideal world, for requisitioners like my company that want oversight of anti-corruption, cybersecurity, sustainability, risk management and so on, there would be one interface for the whole ecosystem of players. Right now, in my opinion, provider choice is very big and specialization too narrow.”
In your organization, how do you make sure the sustainability message is adhered to?
“The aim is to get it hardwired into our processes, so that segmentation of suppliers follows clear rules and oversight is based on good quality master data that encompasses all transactions from all corners of the organization. We need to make sure that our category strategies clearly include the aspects of sustainability, inclusivity, diversity and so on, and that means having checks and balances that they are reflected in who we work with and how we approach the market.
“It takes a lot of work initially to harmonize all your processes globally to obtain real-time access to all transactions, which a lot of procurement teams struggle with, especially those in SMEs with fewer resources. But it is precisely those firms that can make a real difference, since they represent 80% of the world economy and form the backbone of business. So it’s crucial they understand the long-term advantage and that the hard work upfront, which includes fixing taxonomies, data maintenance, process alignment and leveraging digitalization, pays off when you have a real handle on sustainability.
“Of course once you have sustainable supply chains, you have resilience, which is paramount for all companies, and particularly for Bayer, because if supply chains break down, life-saving medicines don’t get delivered, and if seeds can’t get in the ground, people go hungry. So clearly we take this extremely seriously. But I can say with absolute conviction that throughout the whole of the pandemic at no point did we experience any failure in supply due to materials shortage or disruption, and that is because we have spent at least the past 10 years working with the right kind of people who deliver on their promises.
“This is why it’s important to remember that the investment in sustainability is not something you consider from quarter to quarter, or year to year, it’s long-term, and nothing to do with cost — it’s about making sure your firm can live up to its purpose, which for Bayer is ‘Health for All, Hunger for None.’
Many thanks to Thomas Udesen for sharing his considerable insight and passion. The ambassadors of the SPP are increasing in numbers, but in order to reach their target of 1 million procurement professionals, both private and public sector, by 2030, they need to keep doubling year on year.
You can read more about SPP, invite friends and colleagues, and sign up here.
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