How can sustainable innovation meet the current challenges of the procurement function?

April 2nd, 2024
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In light of the growing awareness generated by the current environmental and climate crisis, businesses no longer have a choice but to integrate CSR (Corporate Social Responsibility) at the heart of their strategy and, in particular, their procurement decisions. This is why procurement departments have a prime role to play in contributing to the effort. Among the various courses of action available to them is sustainable innovation. A tremendous lever for competitiveness and differentiation, this approach aligns perfectly with the current challenges facing the procurement function.

Sustainable innovation: Definition

In such a complex, uncertain, and competitive environment, innovation appears as a tremendous opportunity to adapt in the face of the environmental crisis, with the goal of ensuring business sustainability across all sectors in the future. It is an ever-changing process, synonymous with creativity, progress and dynamism, which takes into account the limits of our planet and nature.

In the OECD report "Measuring Environmental Innovation" (MEI), René Kemp and Peter Pearson share their definition: "[Sustainable] innovation is the production, assimilation or exploitation of a product, production process, service or management or business method that is novel to the organisation (developing or adopting it) and which results, throughout its life cycle, in a reduction of environmental risk, pollution and other negative impacts of resources use (including energy use) compared to relevant alternatives".

Also known as eco-innovation, sustainable innovation is different from other types of innovation because it is in line with the principles of sustainable development. This concept makes it possible for companies to address major environmental challenges while improving their profitability and reputation.

The different types of sustainable innovation

There are many ways to innovate for sustainable development. However, there are three main categories of green innovation, whether mandatory or voluntary.

Product or service innovation

This involves designing and marketing a product or service that is new to the market or whose characteristics and/or use are significantly improved (components, raw materials, technical specifications, functional attributes, etc.).

In this case, sustainable innovation results, for example, in the development of new products made from recycled materials, the creation of an alternative to plastic made from cassava, corn starch or sugar cane, or the launch of a new service that will help improve waste management in a given sector.

Process innovation

This refers to the implementation of a new or significantly improved method of production or distribution. In other words, it involves creating a new process by introducing new equipment, techniques or technologies. A company can, for example, robotise its assembly line or use artificial intelligence (AI) technology to assist in managing its calls for tenders.

Organisational innovation

This involves implementing a new organisational method in business practices, in work organisation or in relationships with the company’s stakeholders. It is a new way of collaborating internally or externally to improve overall effectiveness. For example, a company can put into action an environmental management system according to the ISO 14001 international standard, which provides companies with tools to manage their environmental responsibilities, or a pollution prevention programme.

While product and service innovation stimulates demand, process and organisational innovation boosts productivity.

What role does sustainable innovation play in procurement?

According to the latest Deloitte survey, CSR is among the top priorities for companies as well as for procurement departments. And for good reason: The procurement function plays an essential role in managing environmental risks (climate change, plastic pollution, resource use, waste management, etc.) and promoting sustainable practices within companies. This is why sustainable business models and procurement policies are gradually developing. However, the environmental commitment of organisations, together with a structured action plan, is relatively recent. Thus, many solutions have yet to be invented.

In many ways, innovation appears to be a response to the many environmental challenges.

Ideas are almost limitless:

  • Eco-design of products;
  • Use of bio-based and/or bio-energy materials;
  • Technology to track and manage greenhouse gas and carbon emissions…

Therefore, procurement departments have every interest in combining innovation and ecology in a value creation perspective.

Because they are at the heart of the company’s operations, interacting with all stakeholders, buyers are ideally placed to promote the adoption of green innovations. Especially since they can support sustainable innovation internally and go and source it externally from their suppliers. As such, many large organisations are integrating start-ups into their ecosystem to benefit from their advances in environmental innovation.

What are the benefits of sustainable innovation?

In addition to supporting the CSR strategy, sustainable innovation meets the various challenges faced by the procurement function, from cost reduction to improving corporate reputation.

Reducing costs

Through environmental innovations, companies can achieve significant long-term savings. This is the case, for example, when they adopt more energy efficient technologies or when they manage to reuse rare and expensive resources.

Managing risk better

By choosing innovative suppliers committed to environmental issues, organisations reduce their exposure to all kinds of risks (capacity shortages, inflation, etc.). This can avoid costly supply chain disruptions.

Achieving compliance

Many countries around the world are strengthening their environmental regulations on carbon footprint, energy consumption, waste treatment methods, etc. Sustainable innovation enables companies to comply with these constantly changing regulations, or even stay ahead of them.

Improving reputation

Companies that incorporate environmental innovations into their procurement practices demonstrate their commitment to sustainability, which can enhance their brand image and attractiveness to customers, investors and new talent.

There is no doubt that the procurement function must boost its ability to innovate in order to contribute to the Corporate Social Responsibility (CSR) strategy. This is how it will contribute to its own challenges, but also, more broadly, to strengthening competitiveness, differentiation and business sustainability. By reconciling ecology and economy, sustainable innovations make it possible to change the world, one step at a time.

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