What are the implications for public procurement of the Spending Review and sustainability requirements?

  • Author: Laurence Cranmer
Posted on 22-12-2010

SustainabilityProcurement across the UK Government and public sector is a significant part of the economy as a whole. Last year the Office of Government Commerce reported that, ‘The Public Sector spends around £220bn each year on procurement in over 44,000 organisations right across the UK in every sector that government operates. Public sector spend often constitutes a large percentage of a given supply market – often between 10% and 15% ’.

This scale of public procurement suggests that it can play a major role in at least two areas of government policy: to help find the £81 billion savings required by 2014-15; and, to support becoming what David Cameron described as ‘the greenest government ever’.

The recent Spending Review mentions procurement several times. It discusses, ‘a tough new efficiency regime, monitored and supported by the new Efficiency and Reform Group’. This will include as part of its work addressing the key findings of the recent Efficiency Review by Sir Philip Green to ensure that, ‘the Government is using its scale as effectively as possible in common areas of spending such as procurement, property and major contracts’.

The Spending Review also includes as one of its ‘Spending Challenges’, ‘a programme to centralise the procurement of commonly used goods and services, bringing efficiency gains of over £400 million a year’.

One example of the Government approach to sustainable procurement is the publication of the self-assessment ‘Flexible Framework’ that, ‘allows organisations to measure and monitor their progress on sustainable procurement over time’. The Framework is voluntary, although it includes some mandatory requirements.

The website for the Department for Environment, Farming and Rural Affairs (Defra) says that, ‘During these tough financial times, now more than ever, we need to be thinking about balancing environmental, social and economic needs’. In general it seems that Government considers spending reductions and sustainable procurement as complementary areas of policy.

There is much more to say on each of these issues. I will make a few comments.

Public procurement will be aiming to provide value for money as always, but will be looking to make substantial savings to contribute to Departmental spending reductions.

Departments will be seeking to establish collaborative procurement arrangements across Government in order to increase market leverage.

The move to greater centralisation of public procurement for some goods and services may need to be balanced against ‘big society’ ideas of greater local provision, including perhaps contracts with SMEs.

Suppliers will find they will need to meet both current and possibly increasing sustainability requirements, both directly and across their supply chains.

Departments, possibly acting collaboratively, may seek greater engagement and negotiation with suppliers, across all areas of procurement but in particular on costs and sustainability.

I am very interested to know what readers think about this brief sketch of these complex issues.

What are the implications of far reaching company wide sustainability plans?

  • Author: Laurence Cranmer
Posted on 06-12-2010

SustainabilityUnilever has just announced its ‘Sustainable Living Plan’. Their website states that, ‘Unilever unveils plan to decouple business growth from environmental impact’, which I think involves a very interesting and bold claim. The website also makes the more familiar but still significant claim that, ‘Our plan isn’t just the right thing to do for people and the environment. It’s also right for Unilever: the business case for integrating sustainability into our brands is clear’.

Reflecting on this announcement, it seems to suggest an approach to sustainability that seeks to cover the entire range of company activities in a single plan. Other similar plans include Proctor and Gamble’s ‘Sustainability Vision’ and Marks & Spencer’s ‘Plan A’. These whole company plans link multiple strands of sustainability together, and directly tackle all operational and supply chain activities. These plans also seem to aim, implicitly or explicitly, to ‘decouple business growth’ from ‘environmental impact’, as Unilever states. Developing and implementing plans on this scale suggests a number of features of the companies involved. I think some of these features are as follows:

  • The company is a significant agent in global society, including and beyond its commercial activities
  • This agency generates both substantial positive benefits for customers and for economic prosperity more widely, but also substantial negative environmental and social externalities
  • The company is able to act as a single agent, albeit in collaboration with stakeholders, to reduce these negative externalities very substantially, and in some cases to zero
  • To achieve this, the company is able to reduce impacts across it operations but also throughout the entire supply chain from raw materials, through to consumer use of products, and finally to disposal
  • There remains a sound business case for the plan that combines for example revenue opportunities, cost reduction, risk mitigation and brand reputation
  • At the same time, companies may have a global responsibility to act on these issues of sustainability beyond legal requirements and financial return

When considered together, these features of global companies raise both conceptual and practical questions. From a practical point of view we can ask, for example, whether new or improved processes and measures are required to manage supply chains to minimise or remove negative impacts on this scale. We can also ask how companies will translate whole company sustainability plans into positive brand reputation.

From a conceptual point of view we can ask some far reaching questions. For example, do companies in fact have a global responsibility to achieve minimal or zero negative externalities, even if this responsibility exceeds legal requirements and/or reduces financial return. Perhaps this becomes a responsibility for companies beyond a certain size or scale of negative impacts. Alternatively, is this responsibility fully discharged within a more traditional view of the company through responding to customer, investor or citizen preferences; this seems to be consistent with Unilever’s statement that, ‘the business case for integrating sustainability into our brands is clear’.

As company wide sustainability plans are implemented over time, it will be very interesting to see how these and other questions work out.

Are corporate objectives on sustainability and cost improvement complementary or mutually exclusive?

  • Author: Laurence Cranmer
Posted on 28-09-2010

SustainabilityCompanies engaged in implementing sustainability requirements of every kind are confronted by an interesting convergence of ‘practical’ and ‘ethical’ issues. Implementing sustainability necessitates overcoming practical issues, but at the same time, the idea of sustainability raises questions about the principles that establish the boundaries of what the business is responsible for, clearly an ‘ethical’ issue.

I think that ‘practical’ issues raise ‘ethical’ issues – the two are inextricably linked, and the distinction between the two is not as sharp as it first appears. However, for companies, I think this suggests an important distinction: practical issues can be addressed within the broadly accepted current responsibilities of the business; whereas ethical issues may raise questions about these responsibilities, potentially for the business itself and as part of the wider public policy debate.

The idea that applying sustainability requirements may produce cost savings suggests an interesting overlap between practical and ethical issues as they confront the business. If companies both reduce costs and become more sustainable, they can combine an improvement that falls within current responsibilities for improving efficiency to increase overall financial return, and meet a requirement that may fall outside of these responsibilities as defined by current legal and regulatory requirements.

This overlap may become apparent as organisations analyse the procurement environment that confronts them. For example, supply chain analysis involves the systematic mapping of the supply network and the identification of cost drivers, value adding activities and non-value adding activities. The same map can be used to identify the environmental and social impacts of activities across the supply chain and analyse the links between, for example, waste as a cost driver and as an environmental impact.

Empirical research on labour standards in two of Nike’s garment suppliers in Mexico may also suggest this overlap. Research conducted by Richard Locke and Monica Romis from the MIT Sloan School of Management provides a ‘structured comparison of two plants, both located in the same country, producing the same products, and subject to the same code of conduct and monitoring practices’. The authors argue that, ‘through reorganizing the production system and adopting a variety of employment practices, [one plant] could improve labour standards and business outcomes at the same time’.

These examples suggest that cost savings and sustainability requirements may be complementary rather than in conflict at a practical level for the business. Working through these practical issues may of course raise more complex ethical questions about where the responsibilities of companies lie across all operations, including procurement, either at a business level or at the level of public policy. These responsibilities may include sustainability requirements that increase costs at least in the short term.

Laurence Cranmer is a member of the Oxford-Achilles Working Group on Corporate Social Responsibility and Associate Fellow, Saïd Business School, University of Oxford