LECTURE ONE

INTRODUCTION TO GREEN PROCUREMENT

Lecture Outline
1.1 Definition of green procurement
1.2 Principles of green procurement
1.3 Key Success Factors for managing Responsible Purchasing
1.4 Basics Steps In Establishing Responsible Purchasing

1.5 Components and Indicators of Responsible Purchasing

1.6 Revision questions

1.1 Green Procurement

Green procurement is the adoption of ecologically responsible practices in business activities
used to meet needs for materials, goods, utilities and services. The approach is one component of
sustainable procurement along with a dedication to social responsibility and good corporate
citizenship.
Companies sometimes make an individual purchasing decision with an eye to its ecological
impact, realizing the positive public relations benefits that action may bring. Green procurement,
however, is a continuous commitment to start-to-finish process management with consideration
for environmental impact. The product lifecycle and its ecologic impact through production,
operation, maintenance and disposal are all considered in green procurement. Similarly to
choices in products, service providers are chosen with ecological consideration in mind,
including a commitment to the use of less harmful or environmentally friendly products and
practices to provide their services.

Green procurement and the related supply chain sustainability requires coordination and
collaboration with internal and external supply chain partners to reexamine delivery methods,
products and packaging and measurement systems.
Environmentally responsible or green procurement is the selection of products and services that
minimize environmental impacts. It requires a company or organisation to carry out an
assessment of the environmental consequences of a product at all the various stages of its
lifecycle. This means considering the costs of securing raw materials, and manufacturing,
transporting, storing, handling, using and disposing of the product.

Green procurement is rooted in the principle of pollution prevention, which strives to eliminate
or to reduce risks of human health and the environment. It means evaluating purchases based on
a variety of criteria, ranging from the necessity of the purchase in the first place to the options
available for its eventful disposal.

Consumers, investors, shareholders and regulatory agencies are increasingly demanding that
organizations behave in an environmentally responsible manner. Practicing green procurement
demonstrates an organization’s commitment to considering and minimizing the environmental
consequences of its activities. It thus makes both environmental and economic sense.

Green products are generally produced in a manner that consumes fewer natural resources or
uses them more sustainably, as with sustainable forestry. There may involve less energy in their
manufacture and may consume less energy when being used, and they generally contain fewer
hazardous toxic materials.

Green products are also generally designed with the intention of reducing the amount of waste
created. For example, they may contain recycled material or use less packaging, and the supplier
may operate a ―take-back program. Green procurement can also offer cost savings. In
particular, buying green‘ usually involves products that are easily recycled, last longer or
produce less waste. Money is therefore saved on waste disposal. In addition, green products
generally require fewer resources to manufacture and operate, so savings can be made on energy,
water, fuel and other natural resources.

Moreover green products generally involve fewer toxic or hazardous materials, reducing
associated expenses such as permit fees, toxic materials handling charges and staff training.
Organizations often require a green procurement program as part of their environmental
management system, as certified under the EMAS and ISO 14001 regimes. In addition, new
sustainable development act in Manitoba, for example, requires all publicly funded organizations
to integrate procurement guidelines into their daily operating practices. Meeting these and other
environmental regulations is easier for organizations that already practice green procurement.

Green procurement also has benefits for health and safety, both of workplaces and of the wiser
community. Organizations that practice green procurement will also be recognized as good
corporate citizens and influence those around them. As markets gradually change, the availability
of green products will increase and prices will fall.

1.2 Green Procurement Principles

By considering the following green procurement principles, you will have an opportunity to
demonstrate environmental leadership, stimulate demand for environmentally preferred goods
and services, and help an organization make progress on commitment to sustainability.
1. Reduce
Carefully consider whether the product or service is actually necessary prior to initiating the
purchasing by evaluating your needs. Consider whether the product is available in an electronic
format, available used, and if the product is the right size for the job.
2. Recycled Content
Whenever possible, choose products that contain recycled content. When choosing between
products with different ratios of recycled materials, it’s best to go with the product that has the
highest post-consumer recycled content

3. Reusable
Consider ordering products that are reusable (as opposed to single-use or disposable) or allow
sharing with multiple users.
4. Quality & Durability
Consider purchasing quality products that are designed to last. Durable products may cost more
at the onset, but will require less frequent replacement. Look for products that are well-made,
designed for upgrade, and can be serviced locally or have single parts that are easily replaced.
5. Third Party Certified
Whenever possible, select products with one or more eco-certifications. These products meet
stringent environmental standards set by a reputable and unbiased third party.
6. Efficient
If appropriate, purchase products that make the best use of their energy source. Many newer or
upgraded models use less energy than similar models produced 20 or 30 years ago. Once
purchased, ensure that the operators follow manufacturer’s recommendations for use and service
for maximum efficiency.
7. Materials
Whenever possible, look for products which are made of natural, unprocessed and chemical-free
materials. Choose materials that are ethically sourced, such as wood material from sustainably
managed forests.
8. Packaging
Consider products with the least amount of packaging that will still protect shipped goods, order
in bulk through the university’s Preferred Suppliers’ System and choose packaging that is
biodegradable or compostable, or forms of packaging that can be reused or returned to the
manufacturer or supplier.
9. Choice of Vendor
Consider a vendor that views environmental sustainability as a way of doing business, not as a
cost of doing business. Consider companies that have a policy and an implementation plan to
integrate global environmental commitments into their core business strategy and practices.
10. Order/Supplier Consolidation
Consider consolidating your orders to a weekly or monthly schedule. Consider minimizing your
supplier dealings by using the organization’s Preferred Supplier System.

1.2.1 Principles for Buyers and buying organization

a. Make buyer accountable for delivering sustainable standards accountability supports
effective implementation. Buyers are responsible for reconciling responsibility with
other sourcing priorities, and for working with suppliers to achieve agreed standards
using agreed approaches
b. Build robust sourcing strategy for key categories with complex and high risk supply
chains- souring strategy is an opportunity for cross functional and stakeholder input. it
 brings focus to key priorities, and avoids short-term tactical decisions making which can
have negative consequence on supply chain
c. subject souring strategies to independent review-independent a challenge and
endorsement provide a stronger mandate for change and improve the organizational
accountability for procurement action
d. Give Supplier’s Voice- As key stakeholders, suppliers can provide important input to
strategic thinking, implementation and governance

1.2.2 Principles for supply chain

a. Insist on use of supply and employment contracts and include sustainability
standards- contract protect and promote the interest of individuals and organization
by creating an agreed basis for dealings.
b. Identify, vulnerabilities in the supply chain: apply measures to monitor and manage
them- vulnerability assessment can be used to look at the potential impact the
organization and its supply chain has on the external world. Make this a formal
process and subject it to independent scrutiny.
c. Manage relationships professionally- segment relationships and focus on the more
complex ones, relationship management is a key part of implementing change. Good
practice should be cascaded to suppliers, for their own supplier dealings
d. encourage collective worker representation- encourage worker representation to
protect individuals from exploitation and provide a forum for problematic practices to
be addressed (if necessary take whistle blowers in exposing breaches)

1.3 Key Success Factors for managing Responsible Purchasing

 Leadership and accountability

 Knowledge of consequence of buying actions
 Managing conflicting priorities
 Thinking and acting beyond short-term horizons
 Managing relationships in sup[ply chains
1.4 Basics Steps In Establishing Responsible Purchasing

1. Understand existing legislation- ensure that souring is line with national laws and
international agreement e.g ILO conventions and environmental protocols
2. Establish a senior management champion-the champion role is to review procurement
practices , develop a robust business case for sustainable procurement and divide internal
stakeholder buy in
3. Develop company policies- develop clear and agreed policies, including commitments to
promotion of human rights in the supply chains and key aspects of the treatment of
suppliers
4. Train buyers- train buyers` to understand the impact of purchasing decisions, including
how they might be supporting or undermining better conditions at the site of production
5. Collect data and set benchmarks- indicators of desired behavior can encourage steady
improvement. Supplier’s feedback on the impact of purchasing practices also provides
useful input.
6. Assess and reward buyers and suppliers performance on responsible purchasing-measure
and manage buyer and supplier performance. recognize and reward improvements to
reinforce positive practices and learning

1.5 Components and Indicators of Responsible Purchasing

 Good relationship with suppliers- there should be transparent criteria for supplier
selection, e.g. for 1st tier supplier locations known products bought in a fixed term
ongoing relationship rather than spot purchase
 Clear timely communication-clear terms of trade explaining policies in ordering , poor
quality etc, suppliers are aware of complaints mechanisms regular two way exchange of
information on products and sustainability issues.
 Sustainable price and pricing –indicators include mechanisms for negotiated price
adjustments, use of relevant pricing models e.g. national minimum price or fair trade,
suppliers have collective bargaining agreement in place
 Clear lead times and payments- indicators include time of payment is set in contract,
prompt or early payment made, late, frequent and large changes in volume or price
avoided
  Respect for human rights in the supply chain- indicators include supplier aware of
minimum standards, systems in place to support compliance’ buyers understand the
impact of practices’ improvement include in buyer job descriptions, reviews, rewards etc

1.6 Evolution of Supply Chain

The evolution of supply chain management has been characterized by an increasing degree of
integration of separate tasks, a trend that was underlined in the 1960s as a key area for future
productivity improvements since the system was highly fragmented. Although the tasks composing
logistics have remained relatively similar, they initially consolidated into two distinct functions related to
materials management and physical distribution during the 1970s and 1980s. This process moved
further in the 1990s as globalization incited a functional integration and the emergence of logistics in a
true sense; all the elements of the supply chain became part of a single management perspective. The
stages to the evolution of such a supply chain management

The Evolution of Supply Chain Management

Figure 1.1: The Evolution of Supply Chain Management

1. Early 1960s- 1970s: Fragmentation stage
In early 1960s the concept of supply chain management was unknown. During these years new
product development was slow and counted only in firm’s own technology and capacity.
Inventory cushioned bottleneck operations in order to maintain a balanced line low, resulting in
huge investment in work in process (WIP) inventory. Logistics cost were high as well.
Furthermore, issues concern with purchasing was neglected by managers at that time, since
purchasing was considered as a service to production (Famer, 1997). As mentioned above
increasing production was the main objective of this period, little emphasis was on cooperative
and strategic buyer supplier partnership. According to Tan (2001), Sharing technology and
expertise with customers or suppliers was considered too risky and unacceptable.

In the 1970s, managers become aware of the huge WIP on manufacturing cost, new product
development, quality, and delivery time. One of the factors of this increased awareness was the
introduction of Manufacturing Resource Planning (MRP). The focus in this period changed; it is
not just increase production through spreading the fixed cost to a bigger output (economies of
scale), rather, to increase performance. The introduction of IT (MRP) in planning the resources
of the firm proofs this.

2. 1980s: Consolidation
During the 1980s firms deal with increased demands for ‘better, faster, cheaper logistical service.
As a result, many manufacturers outsourced logistics activities and their focus transferred to core
competencies. The outside specialist presented an economically viable means of achieving
productivity and efficiency. Therefore, many manufactures went more for a relationship oriented
approach with their supplier and customer. They understood the benefits of cooperative
relationship with the other firms in the different chain levels. The advantages and benefits that
this cooperative relationship had: synergy gain through shared expertise and resources, better
planning and support, exchange of information, and joint problem solving. Another reason that
influenced the partnership between supplier and buyer was the increased global competition.

3. 1990s: Functional integration

In the 1990s was the introduction of Enterprise Resource Planning (ERP), this gave a boost to
the evolution of the SCM and buyer – supplier relationship. While the previous IT resource
planning systems (e.g. EDI – Electronic Data Interchange) used by manufactures were concern
mainly with inter – organizational integration, ERP systems were mainly concern with intra –
organizational integration. Companies extended their supply chain operations well beyond
company walls and entered into supply chain partnerships with externals (vendors) resulted in
vendor managed inventory (VMI) control. Thus managing inventory levels was the sole
responsibility of vendors. The retailer was supposed to send the sales and inventory data to the
vendor via EDI.

4. 2000 to 21st Century: Value capture and automation

The evolution continues in the 2000s with the development of more sophisticated IT systems
(internet – base solution systems) which are concerned for both inter-organizational integration
and intra-organizational integration. Moreover, the relationship buyer-supplier in this period
have gone one-step forward, from normal partnership to long-term relationship and strategic
alliances. Manufacturers and retailers now commonly exploit supplier strengths and technology
in support of new product development, distribution channels, cost reduction etc. The SCM
2000s+ where all the activities are fully integrated leading to cost reduction, shortening of the
new product development process, better flow of information, improved cash flow, faster order
fulfillment, improved shelf availability and last but not least increased customer satisfaction

1.4 Revision questions

1. What is green procurement?

2. Explain different principles of green procurement

3. Highlight Success Factors for managing Responsible Purchasing

4. Analyze basics Steps In Establishing Responsible Purchasing

5. Examine Components and Indicators of Responsible Purchasing

6. Discuss stages in the Evolution of Supply Chain Management