Understand Sustainable Procurement


12/9/20234 min read

Sustainable Procurement

Many large corporations are sourcing their components mainly from China. Geopolitical shifts and the impact of Covid-19 have underscored that depending solely on one country is no longer the optimal choice for international companies' supply chains. Consequently, in Asia, countries such as India and Vietnam have earned the designation "China +1" by Financial Times. These nations, along with others countries in Asia, are increasingly viewed as highly favorable for the future of international business.

This shift doesn't imply a complete relocation from China, where supply chains have been deeply entrenched for years. Rather, companies are exploring the concept of dual sourcing for components that were previously single-sourced in one country.

Simultaneously, the significance of sustainability has surged in recent years, emerging as a crucial avenue for countries and companies to achieve their environmental and social sustainability targets for 2030 and 2050, aligned with the Paris Agreement. Notably, this pertains to the emissions and waste generated within companies' own operations and their supply chains, as well as the conscientiousness with which products and services are delivered.

When discussing the environmental impact of companies, we often refer to the three different scopes. But what exactly are they?

Here is a brief elaborating of the 3 scopes:

Scope 1: This scope covers emissions from sources that an organization owns or directly controls—such as waste treatment, oil and natural gas combustion from on-site fuel use, and company-owned vehicles.

Scope 2: This scope encompasses emissions that a company indirectly causes, originating from purchased energy sources—such as electricity, steam, heat, and cooling.

Scope 3: This scope addresses emissions not directly generated by the company itself, nor by activities from assets it owns or controls, but for which it bears indirect responsibility within its value chain. Scope 3 comprises 15 distinct categories, categorized into upstream and downstream activities. Examples include goods and services procurement, transportation of these goods from tier 1 suppliers to your sites, and operations of investments not covered in scopes 1 and 2. For instance, all materials used in product manufacturing indirectly fall under your company's responsibility.

Biodiversity, plastic pollution, water pollution, etc., are also crucial environmental sustainability considerations for businesses. However, environmental sustainability is not the only stringent requirement for the future. Social sustainability is equally vital for operating a fully sustainable and responsible company. Ensuring that social issues, such as human rights, health and safety, and labor rights, are addressed throughout the upstream and downstream supply chain is essential 

For manufacturing companies, scope 3 emissions can constitute over 90% of their total CO2e emissions. Considering that some companies have more than a thousand primary suppliers, truly understanding CO2e distributions, whether their sub-suppliers source from disputed or sensitive locations, and assessing the potential for human rights abuses in those locations, can be very challenging. This situation necessitates immediate action and implementation, which must be accomplished through collaboration with partners and suppliers.

Companies, in particular, are at the forefront of this movement, spearheading it by establishing more stringent and enforceable sustainability targets for their suppliers and the overall supply chain

However, setting targets alone is insufficient. A more profound understanding from the bottom up within the supply chain is essential, encompassing improved measurement, reporting, and visibility beyond the first tier of suppliers. This is where the complexity arises. While major corporations are compelling their immediate suppliers to curtail emissions and encouraging a domino effect throughout the supply chain, achieving this goal is challenging. The maturity level in this regard is not yet optimal, especially considering that a significant portion of raw material providers and intermediate processes are concentrated in developing countries, where supplier readiness remains far from ready. To avoid being outcompeted by competitions and comply with customer demands, It is imperative that medium and smaller companies are also prioritising sustainability as part of their business model. Goes without saying that larger companies with limited transparency beyond tier 1 also benefit from having insurance that their sub-suppliers are acting on this.

The path to comprehensive sustainability in the supply chain requires a collaborative and concerted effort, overcoming challenges associated with supplier readiness and fostering a global ecosystem that embraces sustainable practices from top to bottom.

Located in Vietnam, Einvala recognizes the critical importance of this challenge, and we propose to serve as the crucial link for your organisation. Our role is to bridge the gap, educating and empowering your procurement team and suppliers to establish a common understanding of the nuances of your global sustainability strategy - considered the initial step - and collaboratively work with your suppliers to create strategies that ensures sub-suppliers implements effective solutions. Consider us as the extended arm of your company, actively assisting in the formulation of clear and reliable plans. We of course place equal emphasis on social sustainability, ensuring the creation of a genuinely sustainable supplier base.

By entrusting us with this responsibility, your company gains the advantage of freeing up valuable time to concentrate on other areas of your business to increase profitability, without the burden of navigating the intricacies of sustainable practices within the supply chain. This proactive stance minimises the risk of future discrepancies and misalignment between your sustainability strategy and those of your customers.

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