Why does engaging the cheapest supplier no longer makes good business sense? Dr Keith Whitehead, Senior Environmental Audit Consultant at the British Safety Council, answers these questions.

Modern consumers are interested, if not committed, to everything green. They believe that their sustainable behaviour is helping to save the planet and that qualifies them as progressive and responsible citizens. Companies which value their reputation are open to public scrutiny about their environmental credentials in terms of their manufacturing processes, supply chain management and their carbon footprint.

Some small and medium-sized enterprises (SMEs) may feel daunted by the task, or even by the concept, of life cycle thinking and greening their supply chain. Many businesses in the UK still adhere to the age-old fall-back practice of engaging the cheapest supplier or contractor, and making no assessment of the full lifecycle cost of such a decision.

A supply chain embraces all activities associated with the process and transformation of goods from raw materials, including extraction, through to the end user, as well as information and material flows both up and down the supply chain. The concept of supply chain management was created in the manufacturing industry in the 1990s with the ‘just in time' (JIT) delivery system which was implemented in the automotive sector. It was aimed at reducing inventories and regulating supplier's interactions with the production lines. Since its inception, supply chain management has evolved into a full range of disciplines, including closer customer-supplier relationships.

Meanwhile, product life cycle is defined as the consecutive and interlinked stages of a product or service system, from raw material acquisition or generation, through design, production, transportation/delivery, use, end-of-life treatment to final disposal of the product.

By re-evaluating its supply chain, a company can identify various savings as a benefit of implementing sustainability policies.

Most SMEs are able to embrace the following three approaches to greening the supply chain:

  • Procuring ecolabelled products or services
  • Implementing environmental management systems and carrying out life-cycle evaluations to ensure that a company's choices are environmentally sound at every stage of the product /service cycle;
  • Responsible outsourcing and offshoring - controlling or influencing outsourced processes.

Procuring eco-labelled products and services

The procurement of eco-labelled products and services is about taking social and environmental factors into consideration - alongside financial factors - in making purchasing decisions. It involves looking beyond the traditional economic parameters and making decisions based on the overall cost, the associated risks, measures of success and the implications for society and the environment.

Most ecolabels have one thing in common: the goods and services have been internally assessed from an environmental or sustainability perspective. The products would have been subject to a formal life cycle assessment (LCA) using ISO 14040 series as guides

For example, the British Safety Council ensures that the paper on which the organisation prints its magazines and uses in its offices, has a Forest Stewardship Council (FSC) or Programme for the Endorsement of Forest Certification (PEFC) certification logo.

A company may wish to begin the process of greening its supply chain by using products which are not the greenest on the market, with the lowest environmental impact, but which are an improvement on the previous product last procured, in a general bid to consider more ethical purchasing.

Implementing environmental management systems

Many businesses choose to implement an internal environmental management system (EMS) to improve their performance and be protected from unnecessary liability. This system may or may not be externally certified, but will probably follow the structure of ISO 14001. ISO 14001:2015 sets out the criteria for an environmental management system which features a structured plan-do-check-act style framework that an organisation of any size or sector can follow. ISO 14001:2015 can provide assurance to an SME that environmental impact is being measured and improved upon, no matter how big or small those changes are. Over 300,000 companies in 171 countries have already implemented ISO 14001 globally. There are many reasons why a company would implement such a standard, but one often cited by manufacturers is to win, or at least be in a good position to win contracts. 

ISO 14001 is based on the Plan-Do-Check-Act methodology which is the same as that for ISO9001 (quality management system) and the forthcoming ISO45001 (occupational health and safety). In a nutshell, a company is expected to understand the internal and external pressures, such as regulatory, customer or client requirements, as well as wider stakeholder-related factors, that require an organisation to manage their environmental performance. The organisation should then be able to identify which of their operations, including contractors and outsourced services in the supply chain, has the most significant environmental impact and identify where opportunities exist to reduce this impact. This can be done by setting SMART objectives and targets, as well as having a system in place that can monitor and measure them. This relies on leadership from senior management and engagement from staff and other relevant stakeholders.

ISO 14005:2010 has been developed to help small and medium-sized enterprises. It provides guidance on the phased development, implementation, maintenance and improvement of an environmental management system.

Responsible outsourcing and offshoring

Many organisations outsource or offshore certain aspects of their business such as information technology, customer services, security and general facility management services. Outsourcing of these operations to specialist organisations can bring many benefits, including lower overall costs, access to the latest specialist technology and more qualified staff.

However, as a significant portion of a business' environmental footprint lies outside of the organisation, it needs to establish a degree of control and influence over the outsourced services and link them to their own environmental risks, liabilities and performance. In other words, outsourcing should not mean transferring your sustainability liabilities to companies known to have weaker environmental, health and safety control.

Although there might be some financial and operational benefits in doing so, outsourcing to countries with weaker environmental, health and safety legislation and implementation, could be very detrimental to the company's business and reputation in the long term. In fact, ISO14001:2015 states that the organisation shall ensure that outsourced processes are controlled or influenced. A new standard published in April 2017 (ISO 20400:2017) on Sustainable Procurement Guidance will guide organisations, regardless of their activity or size, on integrating sustainability within procurement.

Benefits of greening of the supply chain

Although many small companies remain unconvinced about the potential benefits of reducing the environmental impact of their business operations, other have proved that improved environmental performance produces substantial financial gains for them.

They make savings by re-evaluating and analysing their supply chain. For example, reduced costs of waste-disposal can result in lower material costs and fewer environmental-permit costs. Moreover, removing hazardous substances from the supply chain can reduce the cost of handling and disposing of the materials. Importantly, those efforts and arguments usually find support among a company's board of directors and its shareholders, leading to further long-term gains.

Some companies are also able to translate their customers' interest and environmental concerns into financial gains, by successfully advocating that the cheapest products are not necessarily the best for them. Their sales are proof of this.

Demonstrating an environmentally responsible attitude to the management of its supply chain also gives a company various reputational gains. Being able to present a business as environmentally caring and socially responsible has great value for both internal and external communications.

Finally, the argument that the company's activities are helping to save the planet and its limited resources earns it ‘moral' brownie points in the eyes of its customers and business partners. 

For most organisations, it should be relatively easy it to take the business decision to procure in an environmentally responsible manner and consider even basic life-cycle thinking during the purchasing process. An environmental procurement policy does not normally require any structural changes. However, putting a policy into action calls for some strategic planning,

including appropriate training for staff, access to relevant environmental information and prioritisation of products, services and operations to find the most suitable options for greening the supply chain.