Regenerative Procurement is the new Procurement
Elvire Regnier, September 18, 2023
The Best Procurement Practices that have been followed by procurement departments for decades are based on a few relatively simple principles:
- Procurement budgets to be systematically negotiated downwards each year by a percentage set by the finance department.
- Consolidation of spending with a minimum number of suppliers
- Systematic competition between suppliers through increasingly complex tenders
- Low-cost country sourcing
Procurement performance is assessed primarily on the basis of price reduction. Cost reductions and avoided costs are, in the vast majority of cases, not recognized by finance departments.
These methods have been the roadmap for procurement, and the basis for assessing its performance, for many years. These approaches have resulted in the desertification of the Western industrial network we see today, with value chains stalled and weakened by the two recent health and geopolitical crises.
The fact is that the search for solutions to reduce the environmental footprint and protect society has not been, until recently, part of the corporate agenda, pushing procurement departments towards mainly economic choices. Yesterday’s methods have dug the bed of the problems we face today, from which it is very difficult to extricate ourselves.
Take, for example, the subject of GHG reduction. Peter Smith, in an excellent article posted on LinkedIn on September 15, 2023, takes elements from the latest extra-financial reports of Schneider and Unilever, two companies known and recognized for their commitment to the environment:
Page 83 of Schneider 222-page sustainability report :
“… the emissions from the supply chain upstream emissions, have increased by 5%. This increase is mainly due to the increased volume of purchased goods and services driven by the growth of the Group’s activity, despite the efforts to support suppliers’ decarbonization with the Zero Carbon Project, and to source green materials. Indeed, the outcome of these programs are not yet reflected into the Group’s corporate carbon accounting due to necessary methodology and emission factors updates that are not yet implemented. The Group is working on the reconciliation of the data in 2023”.
Unilever on page 35 of the corporate annual report :
“… we see that whilst there was a reduction in product volumes in the measured period, our GHG emissions increased by 2%. The progress we have made in reducing GHG emissions from our operations, packaging, logistics, and our retail emissions, was offset by an increase in emissions from raw materials and ingredients and an increase in direct consumer use emissions.”
The Regenerative Procurement method, whose aim is to contribute to the repair of supplier ecosystems, aims to change the procurement operating model. The objective is to propose an alternative approach to the application of an ESG “layer” on methods that have led to yesterday’s economic successes, but also to today’s environmental and societal disasters.
PS: In future publications, I’ll be taking up yesterday’s Best Procurement Practices and proposing ways of developing their operational model so that they can contribute to the regeneration of supplier ecosystems.
Overcoming the Unexpected, Shaping the Future: Building Resilience through Procurement
RGN Advisory
Embedding ESG and AI into Procurement