In my article Data & Socially Responsible Procurement, I discussed how data analytics is located at the intersection of corporate social responsibility (CSR) and procurement. In particular, I explored why CSR is an essential component of modern-day procurement practices and the ways in which data can help organizations achieve their CSR goals. As a follow up, this article will dive into socially responsible procurement for small businesses.
Small businesses – defined as companies with less than 500 employees – make up about 99.7% of all employers in the United States, and, as recently as 2008, were responsible for about 46% of private-sector nonfarm output. The prominence of small businesses in the US economy makes it essential to include them in conversations about CSR and procurement. Faced with greater constraints of scale, how can these organizations maintain sustainable procurement practices?
For smaller organizations, allocating dedicated resources to procurement and analytics can be pretty unrealistic. Improving supply chain management, even within small organizations, can not only have a significant impact on business health but can also be an avenue through which companies maintain their triple bottom line. In case you aren’t familiar with the concept, a company that has a triple bottom line has embedded the three Ps into their business model: people, planet, and profits. The philosophy emphasizes that businesses shouldn’t have a negative impact on the people and environments involved in the production and consumption of their products. is an excellent resource for more information on sustainable purchasing standards, supplier sustainability ratings, partner organizations, current events, and industry best practices.
Though at a greater disadvantage in this regard, organizations with less employees, smaller budgets, and fewer resources can still harness smart procurement practices and analytics to ensure a sustainable supply chain. My last article on this topic noted that socially responsible business practices aren’t just ethical but can lead to better brand performance, customer loyalty, and risk reduction. By improving internal procurement practices, small businesses can better ensure that the on-average 45%-65% sales revenue they spend on purchasing goes to ethical and sustainable suppliers. The first step in this effort is to integrate sustainability goals into the mission of the organization. Fortunately, for smaller companies, there is often less red tape and fewer steps required to achieve buy-in from all employees.
One of the best moves small businesses can make when faced with small-scale market constraints is to collaborate with other like-minded small businesses. If the goal is sustainable procurement, small businesses should look for others with similar purchasing requirements that are also committed to their Triple Bottom Line. Purchasing consortia, also known as group purchasing organizations or GPOs, are an excellent example of this collaboration and can give small businesses access to economies of scale, economies of process, and economies of information. For small businesses, participating in consortia can lower prices by pooling negotiating power and can reduce transaction costs by eliminating unnecessary transactions. It can also lower the procurement workload by distributing responsibilities and tapping into the diverse knowledge of all members which can enable small business to purchase high-quality products while simultaneously lowering supply chain risks. Purchasing consortia that prioritize sustainable practices include Kaiser Permanente’s Integrated Managed Healthcare Consortium and the West Michigan Sustainable Purchasing Consortium.
Supplier selection and supplier monitoring are two fundamental elements of maintaining environmentally preferable purchasing practices. Consortium membership can alleviate resource and expertise constraints for small businesses. Supplier selection can be based upon the aggregate knowledge of member businesses, and the responsibility of selecting suppliers that adhere to collective sustainability standards can be distributed across the group. Furthermore, by pooling resources, it may even be possible for the collective to hire dedicated resources to manage the consortium supply chain and to monitor compliance with ethical business and production practices. Finally, consortium membership makes access to supplier relationship management technologies and sustainable data resources much more affordable as, once again, costs get distributed across member businesses.
While the depth of research about sustainable purchasing consortia is limited, the benefits of scale associated with these organizations can be applied to the member organization’s Triple Bottom Line. A well-designed supply chain management group could eliminate a number of resource barriers that make it very difficult for small businesses to practice sustainable purchasing. Of course, like any institution, there are a number of drawbacks for members that can be minimized by adherence to purchasing consortia best practices and success factors. If you have a small business and are interested in sustainable purchasing practices, a purchasing consortium might be an excellent solution for you.