The Importance of ESG in Modern Procurement Practices

Purchasing goods and services is a necessity for any business, whether that’s simply stocking up on office supplies, or looking for someone to manage your IT environment.

Procurement has a key role to play in keeping things running smoothly, along with facilitating the core values of businesses as priorities change, such as a commitment to ESG compliance.  

In this episode, Ian is joined by Philip Ideson, Founder & Managing Director of Art of Procurement, to discuss procurement’s role in ESG compliance, the challenges procurement faces with ESG, and learn about their mission to 10X the impact of procurement.

You’ll learn

·      Who is Philip Ideson and the Art of Procurement?

·      What are the current trends in procurement?

·      What is procurement’s role in relation to ESG?

·      How do ESG deliverables fit in with the other results procurement is expected to deliver?

·      What are the greatest challenges procurement currently faces with ESG?

·      What is Art of Procurement’s mission to 10X the impact of procurement?

·      What are the 6 principles of this mission?

Resources

·      Art of Procurement

·      Art of Procurement Podcast

·      The Art of Procurement philosophy

·      ESG Compliance

In this episode, we talk about:

[00:25] Episode Summary – We welcome today’s guest, Philip Ideson, Founder and Managing Director of the Art of Procurement, to discuss the role procurement has in ESG compliance. Additionally we will dive into Philip’s mission to increase the impact of procurement.

[03:00] Who is Philip?: Philip has been in the procurement space for almost 25 years now!

He started at Ford Motor company, in direct Procurement where he was purchasing parts for car manufacture. He later moved into indirect Procurement, which is essentially everything you need to operate on a day-to-day basis i.e. office supplies, childcare facilities ect.

Philip has worked in the UK, Europe, India and has been based in the US for the past 19 years.

To get a perspective on the other side, he joined a Service Provider who provided outsourced procurement, that company later got bought out by Accenture, which was when Philip decided to go out on his own and started ‘Art of Procurement.

His podcast has been running for 9 years, and has the aim to share inspiring stories of companies who think differently about procurement.

[06:05] Hard Truth: Inside the Football Industry Podcast – Philip also co-hosts another podcast in his spare time, which was awarded the EFL podcast of the year in 2023!

Hard Truth delves into the behind the scenes aspects of football, co-hosted by the owner and Chairman of Peterborough United, it also gives an owner perspective of the football season.

[07:05] What are some of the top trends and priorities in procurement currently?

Digitisation: Procurement was an area where technological change happened relatively slowly, at least up until around 5 years ago there weren’t many tech solutions built specifically for procurement. However, a lot of money has been poured into the space, so now there’s the challenge of ‘How can we digitise?’

The problem with a lot of technology solutions is that they often become obsolete quickly, and with the rise of AI it’s trickly to keep up, let alone get ahead.  

[08:10] What is something about procurement that might surprise people who don’t work in the field? Procurement gets a bad rep for trying to save every last penny at the cost of bullying suppliers. However, they are a lot more passionate around the role that suppliers can play in the growth of a business.

It’s all about marrying together the capabilities of supply chains with the needs of a business, rather than trying to squeeze every last penny’s worth out of suppliers.

[09:15] Procurement put into a box: In a lot of businesses, procurement kind of professionalised the profession based on an ROI which was tied to cost savings, because procurement sold that value proposition to get the investment, it means that that's the only thing businesses think they can do.

Procurement gets put in this box within a business of when I need to save money, you know break the glass, bring out procurement and they can do that.

Where you actually get a much better result by working more collaboratively with your procurement team. There’s a lot more tied to business objectives than with procurement objectives, instead of focusing on what procurement can do to save you money, look at what other objectives they can help you achieve.

[10:35] What is procurement’s role with regard to ESG? – Philip was involved in a  research study that was done by The Economist, where they surveyed approximately 2300 C-Suite executives, procurement and non-procurement individuals. It was revealed that ESG was the number 2 priority right now, specifically where sustainability was concerned.

Modern slavery is also becoming more of a concern.

[12:00] A fad or long term change? Priorities like this for any business are subject to the politics of the day. They are important now as that’s where a lot of focus in from many different sources, but they are likely temporary and will be dependent on geographical location and available investment.

However, the impact of emissions reporting as a result of ESG will have a longer term affect as scope 3 emissions include supply chains. More businesses will be expecting their supply chains to meet their emissions reporting requirements going forward.

[13:20] How long has procurement been doing ESG/CSR type work?: Back 14 years ago, when they had to report back on supplier diversity spend, they had very little data. It involved a lot of extrapolating data so that you have something to report back with.

More accurate data reporting has picked up in the last 6 years, and is more on an organisation by organisation basis.

The key driver for procurement involvement in any aspect of sustainability is due to regulatory requirements.

[15:00] Innovation for a better future: The digitisation and other technological advancements will allow for better ESG support, with more accurate data and reporting capabilities.

Back in the day, it may have been a case of sampling some 100 suppliers out of a pool of 10,000 listed on a simple spreadsheet, and then googling them to see which ones would be considered diverse suppliers. It short, it used to involve a lot of manual data gathering, which is rapidly getting replaced by new tech tools.

[26:20] What are the greatest challenges procurement currently faces with ESG? One of the challenges is internal. When ESG is brought to the table, decisions have to be made about selecting suppliers who would align with their ESG requirements, which is a decision that is ultimately made by the budget holder.

Procurement can do everything they can to mitigate any additional cost, but they do not decide who spends the money with who.

A lot of the role procurement can play in supporting ESG is dependent on the organisational focus on those initiatives and how well everything is communicated to all involved.

[17:20] Looking to the future of procurement: Procurement was once seen as a cost management function, now professionals like Philip are looking at how they can demonstrate the additional value they can bring to an organisation, including supporting ESG compliance.

Procurement has shifted more towards risk management, with a greater focus on risk factors such as cost and sustainability.

There’s still a lot of uncertainty around what the next 10 years will look like. Philip predicts that procurement will become a smaller, yet more impactful area than it is today.

The operating model will likely shift to a more service-based approach with a more nuanced approach to supporting businesses. Philip can see a world where sustainability and supply chains merge as third-party suppliers will have an increased effect on an organisations ability to meet its sustainability goals.

[20:30] What is Art of Procurements’ mission to 10X the impact of procurement?: Philip aims to change the mindset of procurement leaders, and get them to think outside of the box.

Procurement can have a significant impact on organisations, in the form of additional support like ESG, but also because they have a much wider field of view regarding potential suppliers.

It’s about going back to basics, asking:

·      What is procurement?

·      How should it operate?

·      How can procurement best support businesses?

Their mission aims to rethink how procurement works, and refining how to best work with organisations to achieve their goals.

[22:25] What are the principles of this mission?: Philip highlights a few that he’s passionate about, including:

Focus on driving business outcomes: How can procurement build their capabilities around what the business truly needs? There can be conflict between an organisation and its procurement, whether that be with stakeholders or selecting suppliers. So, it’s about finding a balance between doing what can be done to further an organisations goals while also saving them money.

Procurement facilitating differentiated decision making: Procurement can offer some crucial insight into potential suppliers for organisations, but they can only do so if they have the correct data to help make those decisions. When it comes to measurable data, like many aspects of how sustainable a supplier may be, this is where procurement can help businesses make smarter decisions.

Overseeing not managing spend: Procurement should not necessarily have complete control over the spend of an organisations, but using technology they should be able to understand what is being spent and with who. It’s keeping an eye on potential risk factors with suppliers and helping organisations decide who to continue to work with.

[28:00] How are the Art of Procurement philosophically different? They see procurement as a journey, where many organisations are on a different part of the maturity curve and may need help bridging those gaps to keep moving forward.

Art of Procurement seek to accelerate that speed of maturity by working smarter with new technology, and in alignment with an organisations goals.

Procurement is facing a battle currently, where if they don’t adapt, they run the risk of losing out to purely AI driven tools. This is of course, not a concern unique to the world of procurement, it’s actively affecting HR, IT support and the creative industry in a huge way.

[30:40] Connect over common goals: Procurement professionals often want to be more collaborative than people may think. Don’t be afraid to reach out to your procurement team to see what common goals you can try to achieve.

They are there to work with you, not against you.

[32:45] Procurement and ISO: Philip has seen a lot of instances where an internal audit finding will lead to procurement success. In some cases, this may be from an identification of a need for investment in procurement, it’s seen as necessary tool for the organisation and so they approach it with that mindset in mind.

Internal Audits, a staple in the world of ISO, offer the opportunity to highlight where improvements can be made. They also compile credible evidence to put a case forward to relevant individuals, who may have not listened to previous grievances.

If you would like to learn more about the Art of Procurement, check out their podcast available on their website.

If you’d like to hear more from Philip, he also co-hosts the hard truth - inside the Football Industry podcast.

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