The fourth dimension in Strategic Sourcing: How Sustainability can drive value

Procurement organizations feel the heat of macro risks—from supply-chain disruptions to labor shortages and natural disasters—but also stand on the threshold as actors who can find a better way to source and insulate their firms from these challenges. Traditionally, strategic sourcing has focused on three aspects: Quality, Service, and Price, but adding in a fourth dimension—Sustainability—gives firms the ability to improve resiliency and footprint without compromising on value.

As procurement organizations mature, stakeholders demand more from them, and expectations move from reputational and supply risk management to capability building. In the process of conducting hundreds of sourcing events for clients, we have found that good strategic sourcing strategies will align naturally with environmental, social, and governance (ESG) goals when the process designs in the right criteria.

Suppliers that excel in quality process accreditations like ISO will tend to have more advanced sustainability programs and better assurance of supply, not to mention find themselves in compliance with new ESG reporting requirements and present lower Scope 3 emission results for their customers. Reduced material usage or more consumer-valued packaging approaches can reduce costs and enhance value propositions. Overall, a well-structured strategic sourcing process will improve margins, boost resilience, and enhance the overall ESG performance of the firm and its suppliers.

Here are five ways to better incorporate sustainability into your Strategic Sourcing process:

• Sustainable supplier selection

Procurement organizations can make a substantial impact by using a weighting rubric valuing suppliers that adhere to 4D procurement thinking, encompassing sustainable practices. By consciously selecting vendors that implement forward-thinking ESG strategies—utilizing renewable resources, minimizing waste, and reducing carbon footprints—procurement organizations can promote responsible and environmentally conscious practices throughout the supply chain.

• Eco-friendly packaging and waste reduction

Another essential aspect of environmental stewardship in procurement is promoting eco-friendly packaging and waste reduction. Recent findings show consumers are 57% “less likely” to buy products in non-sustainable packaging, and 86% of consumers among younger generations said they are willing to pay more for sustainable packaging. By encouraging suppliers to look at innovative and waste-reducing packing in a Request for Proposal (RFP), organizations can significantly decrease the environmental footprint of the products and services they procure—and often increase margin. 

As part of strategic sourcing, AlixPartners often deploys our Design & Source to Value (DSV) approach, which can support the valuation of key cost and attribute drivers of their products, thereby allowing for the removal or reduction of low-value materials or processes, and often leading to new brand-enhancing concepts.

• Energy-efficient products and services

Procurement organizations can play a crucial role in promoting energy-efficient products and services, especially in capital expenses. By proactively selecting items that consume less energy and emit fewer greenhouse gases, such as energy-efficient building materials, smart building technologies, and machinery with energy-saving features, they not only reduce their own environmental footprint but also create a strong market demand for sustainable solutions. This demand encourages suppliers to invest in innovative energy-efficient technologies like renewable energy sources and electric vehicles, further driving progress in sustainability.

Embracing energy-efficient procurement delivers substantial economic benefits for companies, as it results in cost savings, improved operational efficiency, and enhanced competitiveness in a sustainability-driven business landscape.

• Carbon footprint reduction

Procurement organizations wield significant influence through their vast supply chain networks. To support the environment and combat climate change, they need to focus on reducing their Scope 2 and Scope 3 GHG emissions. This involves embracing local sourcing to minimize transportation emissions and promoting the use of clean sources of energy. AlixPartners’ Should-Carbon ^TM methodology and toolkit can support calculating and actioning carbon reduction. Should-Carbon translates carbon measurement into actionable plans at each stage of category planning, procurement, and supplier management processes. This practical and pragmatic approach accelerates cross-business decision-making to mobilize, speed up, and scale carbon reduction initiatives with an organization’s supplier base.

• Collaboration and reporting

Collaboration is a powerful tool for driving environmental change. Procurement organizations can partner with suppliers, industry associations, and other stakeholders to collectively address environmental challenges. By transparently reporting on their progress and achievements in environmental sustainability, these organizations inspire others to follow suit and contribute to a growing movement of responsible procurement. Organizations that learn how to track and report sustainability metrics also tend to be better at managing cost and operational key performance indicators (KPIs) and are overall in better control of their business.

The role of procurement teams has never been more vital. Their decisions directly influence business bottom lines and set the environmental course for entire industries. By enhancing proven strategic sourcing and related toolkits with sustainability principles, procurement can steer businesses toward both profitability and improved stakeholder outcomes.

Embracing ESG-forward approaches can empower procurement to foster innovation, reshape supply chains to be more resilient to shocks, and, most importantly, champion lasting environmental change.