ESG – C2.0

Steven Poirier

Consultant - Procurement

Recently, a subject has prompted me to reflect: the realm of sustainable procurement practices. In a time when social responsibility takes center stage worldwide, it is not surprising that I have taken an interest in this subject. With over 30 years of experience in the procurement field, I am here to guide you through the complex world of sustainable procurement.

While my journey in procurement has been extensive, it is the recent emergence of sustainable procurement practices that has drawn my attention to their intriguing challenges. I am exploring how to effectively integrate my procurement expertise with sustainability values.

Benefits for Businesses

In my quest to understand sustainable procurement from a business perspective, I have realized that it is not just a trendy buzzword. Its importance cannot be underestimated, as it can lead to numerous advantages, especially in the business and procurement realms. The most tangible, of course, is cost savings. By choosing suppliers that reduce waste, minimize energy consumption, and operate ethically, businesses can enhance their profitability.

Another significant advantage is reputation improvement. In an era where conscious consumers prefer brands committed to sustainability, a robust sustainable procurement strategy can become a powerful marketing tool.

Moreover, we cannot overlook the aspect of risk management in sustainable procurement. It shields companies from potential disruptions in the supply chain, regulatory fines, and public relations crises. A robust sustainable procurement strategy can be a bulwark in an unpredictable world.

Where to Begin?

Understanding sustainable procurement requires adopting the triple-bottom-line approach, where the interests of people, the planet, and profit converge. This comprehensive approach ensures that procurement decisions not only serve financial outcomes but are also aligned with broader global sustainability goals. It requires considering the economic (Profit), social (People), and environmental (Planet) impact of our decisions.

As I delve deeper into my research, I’ve come to understand the importance of a solid structure. It encompasses a series of complex steps: assessment, strategy development, implementation, monitoring, transparency, and continuous improvement. Without this roadmap, one risks getting lost in the process and simply sidelining the project.

So, where do novice organizations start with sustainable procurement? The initial steps involve evaluating current procurement practices. Tools such as supplier surveys, environmental impact assessments, and ethical procurement audits are essential for reconstructing the full picture. Additionally, employee training and education are crucial to building a sustainability-focused corporate culture.

Next, we set clear and SMART goals (Specific, Measurable, Achievable, Relevant, Time-bound). These objectives provide a framework for our sustainability puzzle, guiding us toward a clear picture of what success in sustainable procurement can be and ensuring organizations progress in the right direction. The role of standards and certifications, such as Fair Trade or ISO 14001, is essential to ensure compliance with sustainable practices.

In the procurement puzzle, implementing sustainable strategies is akin to finding the right pieces that fit together. This involves ethically selecting suppliers, responsible sourcing, and analyzing the complete life cycle of products to create a coherent sustainability picture.

Finally, the journey does not end with the initial implementation. Sustainable procurement is an ongoing process, emphasizing continuous monitoring, feedback, and adaptation. The goal is to make sustainability an integral part of the procurement culture, where each procurement decision reflects a commitment to people, the planet, and profit.

In Brief…

Sustainable procurement practices are not just a moral obligation; they are a strategic imperative. By integrating sustainability into procurement strategies, businesses can achieve financial success, enhance their reputation, and safeguard against risks. As a procurement specialist, I am here to advocate for the cause of sustainable procurement, helping organizations in their quest for a more sustainable and prosperous future. If you want to delve deeper into the issue of sustainable procurement and understand how our procurement consulting firm can assist you in navigating this essential field, feel free to contact us. We are here to guide you toward a more sustainable and prosperous future.

Year

2023

Type of Project

Inventory

Savings

274K$

Directed by

Afef bouguerra
Audrey Lépine

Overview

Customer Presentation

Our client is a major player in the tire distribution industry in Canada. Having experienced significant growth in recent years, the company now operates around twenty distribution centers. Due to this rapid growth, our client aims to revisit its processes and operational management methodology to adapt to the new volume of business and operational complexity it faces.

Because of the nature of the product, the client experiences significant bi-annual seasonality in its operations. Furthermore, during these peak seasons, deliveries must be completed in less than 3 hours. Product availability is therefore extremely important during the high season.

Numerous flows existed between each of the depots to ensure tire replenishment or when products from an order are not available at the relevant distribution center. All these inventory manipulations and movements have an impact on the company’s operational performance and, consequently, on product profit margins.

Mandate

Conseil 2.0 was commissioned to assess the operational efficiency of this client’s supply chain. During this mission, after reviewing the processes and analyzing historical data, Conseil 2.0 identified opportunities for improvement and defined recommendations for best practices to be implemented.

Client's goal

The customer wanted to optimize its supply chain to reduce costs while maintaining or even improving service quality. The team wanted to improve operational efficiency across the organization and implement best practices for their needs.

Execution of the project

The customer had defined shuttle routes between warehouses, enabling products to be transferred as and when required. Some warehouses were not linked by a direct shuttle route. In these cases, products would make up to 5 stops before reaching their destination. Two types of product movement exist: “Order transfer” is a product movement triggered by a customer order with at least one product stop in a warehouse during the route, while “stock transfer” is a movement triggered by replenishment (prevention) parameters.

According to our analysis, 27% of orders were met by Order Transfers, with 32% of Order Transfers having more than one stop, and 24% of transfers concerned products later defined as “slow movers”. We therefore concluded that the number of movements needed to be considerably reduced, and that we also needed to review the strategic positioning of stock to meet demand by moving less stock between warehouses.

Conseil 2.0 decided to implement a Pareto classification to apply a strategic positioning of stocks and reduce their movement. In this case, intelligent inventory management increases the availability of fast movers in all warehouses and reduces the number of movements and space occupied by slow movers.

Identification of key business needs

As we saw earlier, there are too many transfers between warehouses, and they take place between each of them. We therefore decided to define Hubs that would be the source of central replenishment. We started with a data analysis. Among the 20 depots, we highlighted 4 major ones that would also serve as Hubs. These Hubs were identified by considering 3 criteria: warehouse capacity, strategic location and sales volume in 2022.

Setting up a general classification

Using Pareto classification, we established 3 categories of items A, B and C to identify fast movers vs. slow movers. The aim of this tool within the project is to reposition stocks more judiciously. This general classification also enables us to compare warehouses and identify the particularities (geographical, demand, supply, etc.) of each one, in order to adapt the inventory management strategy.

Setting up a classification system specific to each warehouse

Due to the wide variation in demand between warehouses and the high number of SKUs, we have also classified by warehouse. This makes it possible to identify SKUs that have very few sales in the depots concerned. Therefore, 3 new categories C, D and E have been added to better represent slow-mover products that will have to be handled differently. Many non-value-added movements were made on these products. Demand being highly volatile and difficult to predict, they generated more handling, which had a significant impact on profit margins.

Adjustment of inventories in the network

In order to optimize the company’s service level, for which availability is very important and seasonal, while limiting non-value-added activities, we proposed a class-based inventory management method. We have removed D and E products from small depots and concentrated them in hubs. C products will be partially stored in small warehouses and the remainder will be positioned in the hubs. This will increase A- and B-graded inventories in the smaller warehouses.

Product classification has also enabled us to review replenishment methods according to product. Fast-mover products will be replenished based on dynamic min/max parameters reviewed frequently according to the product’s season. For smaller demand products, initial replenishment at the start of the season will be carried out according to the above-mentioned stocking rules. In-season replenishment will be carried out through warehouses identified as HUBs only.

Results

Partial centralization of category C and complete centralization of categories D and E in the hubs. Given that these products account for only a small proportion of sales, this frees up space in small warehouses for fast movers.
By centralizing products and defining direct (non-stop) supply routes, the number of tire handling operations will be reduced by 990,576, the number of chain routes will be cut by 55% and this will reduce the distance transported by 15.4 M km annually. Considering that a truck emits 2.8kg of greenhouse gases (GHG) per liter of diesel consumed, our recommendations will reduce GHG emissions by 21,560 tonnes.
Adjustment of service levels for categories A and B (increase in stocks in local depots and consequently service quality).
Modification of replenishment methods by category: Adjustment of dynamic min/max parameters to consider seasonality and replenishment strategy. (Centralized or by warehouse).
Thanks to a balance between increasing the availability of the vast majority of products and reducing stock movements between warehouses, Conseil 2.0 was able to achieve operational savings of $724,000, as well as a significant reduction in GHGs.

Route diagram before the mandate

Route diagram after the mandate

Thibaut Maenner

Consultant - Procurement

Sustainable procurement – ESG approach

Sustainable procurement is closely linked to ESG (Environmental, Social, and Governance) issues. Indeed, corporate priorities have changed, especially over the past five years. Companies no longer see procurement solely as a means of reducing costs, but also as an opportunity to make a positive impact. Irresponsible sourcing practices, such as excessive offshoring or the use of unethical labor, must be abandoned.

To reduce the impact of the supply chain, it is essential to select environmentally-friendly materials, processes and modes of transport. In addition, natural resources must be used responsibly, and human rights must be respected throughout the supply chain.

Collecting and analyzing the data needed to assess the impact of the supply chain was difficult in the past. Not least because of the many suppliers companies work with, the different products that make up their range, and the huge investment required to manage such a mass of information. However, the emergence of new technologies and systems now makes it possible to process this information efficiently and access global data.

Last May, the C2.0 team took part in the Gartner SCM Supply Chain ESG Symposium in Orlando, Florida. One of the key issues discussed at the event was data availability. Despite the evolution of technology, supplier and internal data remains very limited, posing a challenge to accurately assess the impact and benefits associated with ESG criteria related to procurement.

Levers to reduce the impact of our supply chain

It is essential to involve all levels of the organization in ESG objectives, and to set measurable targets. It’s also important to engage suppliers, to strike a balance between costs incurred and impacts avoided, and to implement sustainable programs to guarantee meaningful results. As far as targets are concerned, indicators such as the CO2/km emissions of products purchased, the % of recycled packaging used or the proportion of suppliers certified to an ESG label are all factors on which companies can commit to making progress.

While the financial aspect is an essential lever, applying a sustainability lens in addition to price can deliver a good deal while guaranteeing other results. Case in point: a consumer goods company achieved $0.4 billion in electricity savings and a 12% reduction in carbon dioxide equivalent (CO2e) footprint by using sustainability-based approaches.

Digital tools, such as integrated purchasing solutions (S2P) and purchasing management platforms (P2P), offer opportunities to effectively apply these principles in day-to-day procurement operations. They make it possible to select suppliers committed to sustainable development, track suppliers’ carbon neutrality objectives, and highlight sustainable products.

In conclusion, the use of digital purchasing solutions and the commitment of all employees can help companies to anchor their approach in a virtuous and responsible way, while contributing to a sustainable future for our planet.

Tag: ESG