Why Have an Environmental Programme for Purchasing?

Purchasing, sometimes in the guise of "supplier and contractor issues", is one of the first areas into which environmental management strays when the operational issues appear to be under control. In this article we look first at the reasons for this and then at what value environmental purchasing programmes can bring to the organisation.

What is purchasing?

In some businesses, "Purchasing" means the Order Clerk. In others, it’s a large department whose boss sits on the main board and whose staff are involved in many aspects of the business from new product development through to reducing facilities management costs.

To define the Purchasing activity (as opposed to the Purchasing Department), it’s worth repeating one of the standard, textbook definitions. Purchasing is "obtaining the right material, in the right quantity, from the right source, for delivery at the right time and in the right place, with the right service and at the right price".

You don’t actually need a big Purchasing Department to apply this definition, but you do need to go beyond the idea that "purchasing" is simply what the order clerk does.

Price is not the only issue

Once you do start to look at purchasing this way, it’s not long before you ask exactly what the word "right" means throughout the definition. In fact it means different things in different places. For example, we can re-write the definition as follows:

"obtaining material we can use, in any quantity, from any source, for delivery whenever it’s available at any known location with no service and at the lowest price."

With the possible exception of certain traders, few company managers would see it that way. In most of the places it is used in the definition above, "right" is associated with some minimum standard of performance – whether it’s technical performance, logistics performance, level of support, or whatever. In most practical situations the definition becomes more like this:

"obtaining just enough of the material we need to produce our market offerings at the rate that our customers require and to the specifications we agree with them, from a reliable source, delivered where we need it when we need it with the back-up necessary to enable us to get on with our job – all for a price that allows both us and our suppliers to continue as healthy businesses."

So the purchasing activity almost always comes to involve some decisions about non-price factors that are important to the buying organisation.

Where does environment come in?

Environmental issues turn up among these non-price issues in two places.
Firstly there’s the question of what constitutes a reliable supplier: as well as being financially sound and honest, to be reliable a supplier needs to have his/her operations under good control. In many industry sectors, environmental protection legislation defines "under control" as having emissions to the environment below a specified level and minimising the risks of such emissions happening accidentally. Suppliers operating outside their legal compliance envelope, or failing to manage significant environmental risks, can’t really be defined as reliable because there’s always a chance that they will be caught: the ensuing disruption isn’t going to help their customers receive the service they expect.

Secondly there’s the question of the specification, which may well have an explicit environmental dimension – either because there’s a customer requirement to be met, or because of an internal policy commitment. Obvious examples of the first are the substance bans imposed by some automotive and electronics manufacturers, while many organisations have followed the second route in buying recycled paper for the office.

From this, environmental purchasing appears to be about two things: buying from environmentally preferred suppliers or buying environmentally preferred goods.

Where’s the value?

In the last paragraph we talked about a reliable supplier operating within the law and managing risks. Reducing wastes and emissions makes commercial sense too, in that suppliers who lose some of their product to the waste skip or the sewer, and spend time mopping a proportion of their raw materials off the yard are literally throwing money away. Insofar as good environmental management is about good resource management (which to a large extent it is) an environmentally "good" supplier is likely to be an efficient supplier – and efficient suppliers usually have lower costs in the long run.

When it comes to the environmental dimensions of specifications, we have to look a little further than the company commitment to buy recycled paper to find the value. We can identify three sources though:

If your customers impose requirements on environmental grounds, then clearly the specifications you agree with suppliers must enable you to meet these requirements – the value of the environmental dimension is obvious!

Environmental impacts are increasingly linked to rising operating costs, whether through energy taxes, rising waste disposal charges, or licensing fees. Many organisations also have environmental performance targets, often because they’re aware of this link. Looking at the environmental dimension of specifications for appropriate bought-in goods and services can help to reduce environmental costs in-house and contribute to meeting environmental objectives.

Looking further afield, the concept of the ecological product life-cycle that underpins Life-Cycle Assessment reminds us that environmental impacts occur throughout the production, delivery, use and disposal of all goods and services. We can apply the logic of point 2 at all these stages, so that improving environmental impacts upstream and downstream has the potential to reduce costs for you, your suppliers and your customers. While this is the third source of value, working it becomes more than just a "Purchasing" exercise, it needs input from many parts of the business. However, the Purchasing function plays a pivotal role because it is a crucial link to the upstream parts of the "value-chain".

Realising the value

Once you’re sure there’s value in environmental purchasing, how do you go about realising it? You haven’t got the resources to run an environmental assessment on all your suppliers and carry out a full Life-Cycle Analysis on everything you buy in, either in the Purchasing Department or in the Environmental Group.

There are three stages to introducing a value-driven environmental purchasing programme: Firstly, you need to prepare the organisation, so that the Environmental and Purchasing groups are enabled to work together, for example by having objectives that are at least compatible and sometimes shared. At EuGeos we’ve developed our own methods of assessing the "fitness" of organisations to run these multifunctional programmes.
Secondly you need to prioritise – to look at where there’s most advantage, commercially and environmentally. At EuGeos we use a range of tools to set environmental purchasing priorities based on commercial risks and upstream & downstream environmental impacts. A structured approach is very important here to identify areas where you need to act and where your efforts can make a difference.
Thirdly, you need to implement changes. Some gains can be made by people in your organisation acting together, but in many cases you will need further input and collaboration from suppliers or even customers. As with other management programmes, an effective environmental purchasing programme will bring together short-term actions which bring early results with longer-term projects.

At the end of these three stages lies the integration of environmental issues into the purchasing process, with the emphasis they receive reflecting their importance to the business in any particular case. Our experience at EuGeos shows that this approach can also be taken further to introduce social and ethical considerations into purchasing decisions – but that’s another story.

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