The triple bottom line of sustainability — economic, environmental, and social — has taken center stage in the efforts to develop new policies and programs that address how organizations allocate their spend based on renewable and green strategies. Traditional spend management focuses on driving cost efficiencies in procurement areas and reigning in uncontrolled spend throughout the organization. With a slow economic recovery in the works, commercial and public sector organizations are reviewing policies and practices to address sustainable procurement, particularly in environmental and social areas, to realize new economic gain.

SAP has created a forum called the Sustainability Executive Advisory Council (EAC) for its customers and other sustainability thought leaders. The Sustainability EAC enables participants to collaborate and share best practices with peers, learn from SAP solution experts and thought leaders, and gain access to the very latest on business and technology strategies and content from around the globe. One of the areas the Sustainability EAC is driving discussion and co-innovation opportunities with its customers is sustainable procurement. I’ll give you an inside look at the current thinking of the Sustainability EAC concerning its embedded process approach to sustainable procurement, where this may lead in future roadmaps of products such as SAP SRM and SAP Sourcing and how to tie in financial analytics using SAP BusinessObjects Spend Analytics.

Sustainable Procurement Policies

Figure 1 illustrates the key components of typical green practices that many organizations consider part of developing a sustainable procurement policy:

1. Energy efficiency: Purchasing or leasing capital equipment and facilities that reduce energy use and operate more efficiently
2. Buy recycled materials: Using components, packaging, and supplies that are made from renewable or recycled materials
3. Reduce toxins: Using supplies (e.g., cleaning agents or dyes) that contain fewer toxins
4. Do no harm: Working with supplier companies that take into account their own sustainable initiatives, do not develop toxins or weapons systems that could harm humans or the environment, and actively contribute to the communities in which they operate
5. Buy local: Purchasing from organizations that provide materials locally, reducing their carbon footprint due to reduction in transportation costs and energy expenditures

Figure 1

Sustainable procurement practices affecting the triple bottom line scorecard

The development of a sustainable procurement policy takes into account these practices and puts them into the context of the organization and its operating model. Many of the metrics used to define, track, and monitor objectives stemming from policy and practice are quantitative — for example, the amount of water used during the manufacturing process or the amount of pollutants expended into the atmosphere. However, some of the metrics are qualitative and may be difficult to articulate in either Web-based or spreadsheet-driven environments. In larger, more complex organizations, the amount of real-time information used to drive decision-making creates the need to look at enterprise systems to gather and aggregate this information.

Based on the market orientation of the organization, sustainability initiatives may occur through a number of different points of view (or lenses). These lenses are based on the operational nature of the organization and the frameworks and methods their industries tend to follow for sustainability programs. In general, there are five lenses:

1. Manufacturing of hard products (assembly focused)
2. Manufacturing of soft products or agriculture (e.g., apparel, food and beverage, and textiles)
3. Associations and institutions (including higher education)
4. Not-for-profit and charity groups (NFPCs)

5. Public sector (local and state governments and agencies)

Position Your Sustainable Procurement Strategy Using SAP SRM and GRC Processes

According to a survey conducted by the University of Oregon Sustainability Leadership Program, more than 90 percent of today’s sustainability reporting, tracking, and monitoring processes currently handled by basic spreadsheet tools. As a result, enterprise-wide sustainability programs suffer from many of the management headaches other compliance and strategy programs face. These challenges include:

• Disparate and static data sources
• Erroneously defined key performance indicators (KPIs)
• Absence or poor definition of key risk indicators (KRIs)
• A lack of manageable ways for roll-up and reporting of value chain progress toward supply chain goals

Through the Sustainability EAC, SAP customers have visibility to the roadmap of key practices for sustainable procurement. Three strategies have emerged for companies to use individually or in combination:

• Embedded processes: SAP believes that sustainable business practices should be a part of day-to-day operating processes particularly in the area of procurement and sourcing. Development of management characteristics for use in SAP SRM and SAP ERP transactions — for example, including specific attributes and characteristics when creating vendors, assessing suppliers, and creating product definitions — provides this capability.
• Online sourcing: For companies using SAP Sourcing either as a software as a service (SaaS) or in-house model, purchasing managers can view metrics associated with suppliers that contribute to the materiality — or what is important and relevant to the organization — of sustainability KPIs.
• Sourcing community: SAP believes that sustainability extends beyond one specific industry segment in most supply chains. For example, most automobiles today have a higher percentage of computer processing content than steel. By developing a community of self-reporting companies, suppliers can connect not only to each other but also to their customers. Original equipment manufacturers (OEMs) can link to their suppliers. The information is also available across multiple interlocking supply chains.

Embedded processes transcend multiple solutions and functions based on the nature of how business is conducted within the enterprise. This can be accomplished through multiple initiatives. First, you could enable master data fields in SAP ERP (for example, the define material [M01] function and material master data or the define vendor [V01] function and vendor master data) for use in purchasing functions so that the data is resident inside SAP ERP and users do not have to customize these fields. Because there are many different needs for materials based on component information (e.g., basic data such as size, shape, and serial number, or additional information on scrap and toxin content percentage) these can be helpful in making consumption-driven sustainable decisions, for example in the order-to-cash process. One possible approach is to provide a graphical progress of vendors against sustainability requirements as an augment to the vendor master record, as shown in Figure 2.

Figure 2

Development mock-up of vendor sustainability master data sources (Source: SAP Sustainability EAC)

More detailed management is provided in SAP SRM, which actively assists purchasing managers on the content and application of suppliers across particular programs, product portfolios, and enterprise operations. A triple bottom-line approach to summarize and categorize suppliers based on social responsibility in manufacturing operations, for example, can be added to the full supplier summary, as shown in a proposed mock-up in Figure 3. One development consideration is to make these elements configurable just as other fields and cells are configurable today. The Sustainability EAC is in the process of describing a base set of characteristics to be part of the next generation of a sustainability-friendly release of SAP SRM, which would provide suggestions and guidelines for what best practice elements should be considered.

Figure 3

Development mock-up of SAP SRM illustrating social responsibility elements, such as labor standards in supplier operations (Source: SAP Sustainability EAC)

Online sourcing is another area of sustainable supply chain development. These areas are driven by four primary requirements in the sustainability field:

1. Need to collect and report on sustainability vendor information
2. Expose this information in sourcing and purchasing functions
3. Improve enterprise supplier information (e.g., through request for information [RFI] events)
4. Overall improvement of supplier management capabilities in the field of sustainability (e.g., value chain assessments, development, and programs)

Two modes of procurement enablement exist. First, the on-premise SAP Sourcing application provides detailed purchasing event and performance history, which is important to the monitoring of sustainable performance in the value chain (Figure 4). Additionally, the SaaS (on-demand) model of SAP Sourcing is also in consideration for development for sustainable purchasing enablement.

Figure 4

Development mock-up of SAP Sourcing product catalog, box highlight added for emphasis (source: SAP Sustainability EAC)

William Newman

William Newman, MBA, CMC is managing principal of Newport Consulting Group, LLC, an SAP partner focused on EPM and GRC solutions. He has over 25 years of experience in the development and management of strategy, process, and technology solutions spanning Fortune 1000, public-sector, midsized and not-for-profit organizations. He is a Certified Management Consultant (CMC) since 1995, qualified trainer by the American Society of Quality (ASQ) since 2000, and a trained Social Fingerprint consultant in social accountability since 2012. William is a recognized ASUG BusinessObjects influencer and a member of SAP’s Influencer Relations program. He holds a BS degree in aerospace engineering from the Henry Samueli School of Engineering and Applied Science at UCLA and an MBA in management and international business from the Conrad L. Hilton School of Management at Loyola Marymount University. He is a member of the adjunct faculty at both Northwood University and the University of Oregon with a focus on management studies and sustainability, respectively.

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You may contact the author at wnewman@newportconsgroup.com.

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