The purpose of business in society and our economy is changing and procurement is emerging as a secret weapon. Here, Forum for the Future’s Principal Change Designer, Felicity Butler, highlights the need to rethink traditional procurement processes and buying strategies, whose primary focus on cost-savings and risk mitigation are no longer fit for what will be a radically different future. What’s our alternative and how can we get there?

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Tackling the challenges facing the supply chains of today and tomorrow will mean coming up with new solutions, underpinned by new ways of thinking. 

This won’t be easy, afterall “Our mental picture of a supply chain makes it difficult to imagine progress as anything other than replacing a few bad links with stronger ones”. Historically, visions of improving value chains have meant finding ways to identify “bad links” and making them more efficient and effective in the name of optimization, cost reduction, and driving profits for tier-one buyers. 

Yet, when I think about a value chain, it's not about weak links or optimization, it's about choices. The choices a farmer may make are between feeding their family or purchasing new tools; converting one crop to another to take advantage of an opportunity discussed with a neighbour or to build in climate resilience on their land by growing cover crops. 

The choices a tier-one business may make are to invest in long–term security of supply or to prioritise profit creation for their shareholders; whether to pay a price premium to farmers or pay the market price; to have full visibility of their supplier’s partners, or to turn a blind eye. 

Tiers of business:

• One: suppliers you (a company) directly do business with
• Two: the suppliers of those suppliers
• Three: suppliers of raw or first processed goods

Each choice made by every actor will explicitly or implicitly impact others along the chain - and how those impacts are realised is key to defining what we consider ‘progress’.

Growing public attention

Over the last five years, public attention to value chains has been growing due in large part to both cultural factors (documentaries such as Netflix’s “Rotten” and BBC Worldwide’s Panorama investigation into Kenya’s tea plantations) or common experience (empty shelves in supermarkets and the cost-of-living crisis). 

What follows is an ever-increasing public awareness of labour exploitation, environmental degradation, and just how deep inequality runs in some of the world’s value chains. This in turn has undoubtedly fuelled growing investor demand for greater ESG reporting. 

Businesses are recognising that visibility in their value chains can build supply resilience (especially when sourcing raw materials) and that means better traceability and accountability. This is where procurement comes in; it’s key to achieving long-term resilience, yet long-standing expectations are holding us back from thinking and prioritising differently. 

Right now, those working in procurement are expected to get the best possible price, which creates downstream economic pressures across value chains - often leading to perverse incentives for actors to overlook workplace conditions. Yes, achieving fair prices is important, but if procurement decisions acknowledged that all parties in the value chain deserve fair prices, and that procurement can also drive positive social and environmental outcomes, then suddenly we’re faced with a promising opportunity: procurement as a central ingredient or ‘secret weapon’ to hit sustainability targets and ESG goals. 

So just how can we transform procurement into an engine of environmental, social, and economic value creation?

In two ways. By shifting:

1. Your mindset to consider procurement as a way of creating resilience, replenishment and equity across value chains. Forum’s work with leading businesses, including Diageo and Unilever, has seen us challenge leaders to think beyond ‘doing no harm’; instead aiming to replenish and restore natural ecosystems while working to address inequality. The result is new and innovative thinking fit for a radically different future 
2. Internal resources: Although procurement can account for 50% of a business's total budget, research shows that CEOs spend only 1% of their time engaging with suppliers.

To make value chains fit for tomorrow, we need to rethink how risk and reward are distributed. We need to create models that are regenerative, not extractive, and that share value and opportunity with all who co-create that value.

Resilience - levelling the playing field

Right now, inequality is (unintentionally but undoubtedly) built into supply chains and this inequitable distribution of power, risk and reward eventually impacts every actor in the supply chain. Traditional procurement processes and buying strategies focus on cost-savings and supply risk minimization, with buyers often diversifying risk across different production pathways, which can have advantages. 

During COVID-19, businesses with wide production bases were more resilient and agile.  While the pandemic deeply affected all supply chains both large and small, some parts of the supply chain faced unique and disproportionate challenges. Many actors across tiers two and three — particularly the smaller actors with limited power — experienced reduced demand, cash flow problems, and labour and resourcing constraints. Smallholder farming communities and organisations — whose production capacities businesses and consumers worldwide are so reliant on — were often unable to weather the financial shocks and exposures in the same way. 

The reality is that inequality affects the prosperity and resilience of all actors in the supply chain and the risks of inaction, or resistance to action, are now growing for businesses who also hold larger degrees of procurement power.

Re-configuring value chains through procurement

When Nicholas Hieronimus, CEO of L’Oreal, presented his company’s sponsorship of the 2020 Dubai Expo to Forbes, he actively avoided publicising product innovation, choosing instead to speak of new and ongoing projects on sustainability and circular innovation. He did so as part of a rich heritage L’Oreal has on working to redefine a beauty company’s role within its value chain, highlighted by the “Solidarity Sourcing Programme”, which continues to deliver multiple environmental and social benefits to (among others) the marginalised communities it sources from. 

What Mr Hieronimus and his predecessor recognised is that “an economically successful company must have a positive social and environmental impact”. They recognised re-imagining relationships with suppliers as one of the strongest levers of change for businesses looking to unlock economic advantages, fulfil social and environmental ambitions, and build resilience.

New supplier relationships could also support businesses in fulfilling ESG ambitions and regulations and ensure ongoing viability within the sector. Take Cafedirect’s extraordinary results in improving coffee volume and yields by 90%, and farmer incomes by 50%. It’s an amazing example of how higher levels of visibility and effective bottom-up dialogue can create stronger supplier relationships that lead to better and more equitable information, pricing, more favourable contract terms, and improved quality of goods and services.

Three keys to unlock these solutions

For more than a decade, Forum has been working with actors across value chains to build prototypes and pilots capable of testing and experimenting with new value distribution models and mechanisms.

So whether your organisation is yet to set an ambitious procurement strategy, you need extra space to embed an existing strategy within an integrated approach, or you’re looking to lead on all things thoughtful procurement, we’ll employ three approaches to unlock a fairer, more regenerative future for your business: 

• Developing a future-fit procurement strategy. It’s here we use applied futures to raise awareness of the various pathways that could emerge tomorrow. We highlight the micro and macro trends that may impact you today, and that have done so in the past. And we’ll analyse their collective impact on value chains both globally and regionally.

• Equipping you to navigate complexity. We’ll work alongside you to co-create a more impactful and integrated approach to working with the true complexity of your value chains using systems thinking. This means helping you to understand the connections between multiple issues, and to recognise the powerful role that procurement can play as a catalyst for the development of a just and regenerative economy.
  
  
• Supporting collaboration to enable broader transformation. It’s here we’ll support you to extend your procurement strategy to influence and convene other actors in your system, stimulate co-investment and lead the charge on catalysing procurement into an engine of environmental, social, and economic value creation. 

The clock is ticking and it’s time for procurement to realise its full potential. Why not get involved?

Get in touch

Interested in transforming procurement with us? Keen to understand how the above might apply to you and/or your industry? If so, get in touch with Felicity to explore more.