“New Currencies” in Procurement: Supply Chains and the Emerging Importance of ESG-Criteria
The November edition of the Digital Procurement Club focused on the pressing topic of “new currencies” in procurement. Our moderators Gundula Ullah (Head of Purchasing at Funke Mediengruppe), Sebastian Lücke (Head of Supply Chain Innovation & IT Landscape at E.ON), and Henning Hatje (Co-Founder and Managing Director at Lhotse) discussed the topic of "New Currencies” in procurement together with their guest Susanne Reichhuber (Director Special Finance Corporates at HypoVereinsbank).
Supply chains are changing
The world is changing rapidly and so are supply chains. First-hand, we are observing that the frequency and impact of global disruptions is increasing. The greatest priority for supply chain optimization has historically been cost efficiency, but now it is resilience. Indeed, factors such as ESG compliance and risk management are becoming increasingly more important in procurement. It is for this reason, that we refer to these factors as the “new currencies” in procurement. These new dimensions of value or “procurement currencies” no longer constitute mere monetary value, cost reduction, or even net savings. Indeed, procurement leaders and investors are now also looking at ESG-compliance as an indicator of a healthy supply chain.
ESG criteria and their importance in the banking sector
Susanne Reichhuber began by giving some insights into banks' perspective on ESG in corporate banking.
The topics of ESG and sustainability have generally gained momentum in the last years. This has been caused by regulations, but has often also been required by stakeholders. In addition to 'Net Zero' targets, aspects such as biodiversity and the circular economy are increasingly coming into focus, as of course are 'social' aspects.
At HypoVereinsbank, sustainability is firmly rooted in the culture of the entire business. The bank views itself as 'part of the solution' in that it helps its customers to make sustainable decisions through corresponding advisory services and financial products, such as promotional loans. Yet, this also holds true for ESG or Sustainability-linked loans, as well as green loans. In this sense, Banks can actively contribute to the economy's green transformation by monetarily incentivising those who borrow money from them to act sustainably.
"There is no 'one strategy which fits all'."
This takes into account that a medium-sized clients have differing needs to larger corporations. Therefore, how they are consulted and offered products must be adapted accordingly.
Data is a challenge
In the discussion round, it soon emerged that a universal challenge exists: The market has not yet found uniform solutions and quantifiable measures to compare and evaluate companies’ activities. Similarly, no source of standardised data exist, nor has the problem of data determination been solved in the first place. Indeed, data collection must occur on a scale that has not yet occurred, which poses a great challenge, particularly for procurement. It’s clear: the more it becomes compulsory to report information, the more available data will become. Yet, merely creating the database poses a myriad of issues.
But why is this relevant to procurement?
It is inevitable that the topic of sustainability in supply chains will land on buyers’ tables. But, in concrete terms, what does this mean and how can buyers prepare?
In the future, buyers will be seen as a source of information, creating transparency and knowledge.
Purchasing will be central to enabling ESG compliance, especially when it comes to data collection, aggregation, and analysis. Soon the questions of how sustainable suppliers are and how sustainable they will be in the future will be frequently posed.
Everyone is looking at procurement and asking how emissions can be reduced. The topic of CO2 and supply chain management will certainly end up falling to buyers, if it hasn’t already. However, in the discussion round, the procurement leaders expressed an unanimous fear of tighter bureaucracy.
Buyers are now very much responsible for creating a uniform database which presents the challenges of selecting and accepting a tool for data collection and processing. Because currently, coverage only exists for a a small percentage of possible supplier data. The question of which platform will ultimately prevail is still open.
Warning: Incoming Analysis Paralysis
One thing to avoid in this world which is inherently complex and uncertain is falling into the "analysis paralysis" trap. Over-analyzing the situation and waiting for the perfect solution, which may delay or even prevent a decision, is entirely counterintuitive. What is essential is that companies and their procurement teams take the first steps, gain experience and learn to develop along the way. But of upmost importance is that the projects are begun.
It cannot be forgotten: buyers are impulse generators. They will be pioneers in this topic and have to stay courageous because this company-wide topic will be built on the foundations they have created.
This topic of “new currencies” in procurement is gaining momentum and all stakeholders, regardless of what company they are from and what angle they perceive it, are working together on this and are excited to see how policies, guidelines, and data will evolve.
After this exciting discussion, the decision was unanimous: A future edition of the Digital Procurement Club will certainly revisit this pressing topic!
If you wish to find out more about how Lhotse can help you to improve your procurement processes, book a demo with us today!