August 3rd, 2007

Green Procurement Ripe for Adding Value

Awareness of procurement’s environmental impact is growing, but few companies are incorporating green strategies into their purchasing habits, according to a Supply & Demand Chain Executive article.

Procurement policies could have a significant impact on a company’s environmental “footprint,” given that somewhere between 50 and 70 percent of a company’s overall costs originate from purchasing according to S&DCE. Yet, purchasing decisions are typically made based only on such criteria as product, quality, coordination or risk costs. A purchase that complies with the principles of green procurement also takes greater account of the costs for environmental damage arising from production, delivery and processing.

According to a BrainNet study cited inthe article, so far only a few companies and official organizations are taking “green” factors into consideration in their purchasing. In Germany, which often leads in these areas, fewer than 20 percent of all companies are actively tackling green procurement, and not even one in 10 companies is taking account of environmental costs as a critical factor when making decisions about its expenditure.

Studies at international levels have confirmed these trends, says Sven T. Marlinghaus, a BrainNet partner.

Yet green procurement can be a great value driver. The partially higher price of “green” purchasing processes is often at least partially offset by an improved corporate rating by the financial markets and enhanced brand perception by customers. Moreover, an ecological orientation can increases companies’ planning security. Fossil fuels, for example, which today cover a large proportion of all energy requirements, harbor considerable geopolitical risks and consequently the risk of a significant price increases. Through greater efficiency and cleaner energy alternatives, these risks are reduced.

“One in three purchasing managers regard rising raw material and energy prices as a major corporate risk”, says Marlinghaus. “Recycling valuable raw materials and using alternative resources will over the next few years decisively influence companies’ profitability.”

Oddly, the article cites one pharmaceutical company’s conversion of its power plant from coal to wood as a smart choice without explaining the source of that wood.