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Assignment about BS3745 Strategic Purchasing & Supplier Management-How sustainability-led procurement can deliver value?

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BS3745 Strategic Purchasing & Supplier Management

Executive Summary

This report is aimed to critically analyze the impact of sustainability-led procurement in delivering value to the firm. It assesses why the business managers need to focus on sustainability practices in procurement to create value to the business. From this report, it can be analyzed that Tesco and Zara both use sustainability-led procurement to get its advantages in form of innovation, quality focus and cost reduction in operations due to the use of energy efficient resources. Apart from this, these firms also conduct audits to effectiveness of the suppliers in retaining sustainable practices and provide training to their employees to adopt sustainable procurement practices. Sustainable practices in procurement enable the firms to develop string brand image among the customers and increase repetitive purchasing due to high brand positioning and loyalty. 

On the other hand, this report also identifies that some issues related to conflicts of stakeholders’ interests, increase in costs of sustainability operations, elimination of suppliers affecting production capacity and failure of adoption of green productsare also faced by the firms while implementing sustainability-led procurement. It can be recommended that it is required for the firms to adopt emotional branding to attach more customers and convey the benefits of this approach to all stakeholders. In addition, the firms need to adopt cost benefit analysis to determine effectiveness of sustainable procurement to add value to the business and execute effective measures to get better results. 

PART I – COURSEWORK TASK

Introduction

In this competitive business environment, the environmental concerns are raising among the businesses and people. The firms are concentrating on the sustainability aspects to fulfill their responsibility towards society and environment. It is mandatory for the firms to focus on social and environmental responsibilities to develop brand image among the customers and achieve competitive edge over the competitors (Jørsfeldt et al., 2016). In relation to this, Dean et al. (2017) pointed out that procurement is a significant part of the business operations and plays an important role in maintaining sustainability within the organization. Sustainability-led procurement is an important strategy adopted by the firms to focus on sustainability aspects while procuring the goods and services. It enables them to procure the materials from suppliers with emphasis on the environmental and social concerns. Through this, the firms are able to make their business sustainable and develop strong brand image among the customers (Perera et al., 2017).  Concerning, this research is based on the significance of sustainability-led procurement to deliver value to the firm. In this, findings related to sustainability practices of Zara and Tesco in purchasing will be analyzed to determine advantage and disadvantage of sustainability-led procurement. 

Research Question

How sustainability-led procurement can deliver value to the firm?

Critically evaluate why business managers need to understand how value can be created through effective implementation ofsustainability-led procurement.

Research Aim and Objectives

Research aim of this study is to determine the significance of sustainability-led procurement in delivering value to the firm with focus on Zara and Tesco. In order to achieve this aim, the following objectives will be accomplished: 

A- To determine the impact of sustainability aspects in purchasing on the organizational value to the firm: in context of Tesco and Zara 

B- To suggest ways toimprove environmentaland social performance of purchasing to enhance value to the firm

Findings and Analysis

Sustainability-led procurement at Tesco

Nowadays, it is important for the firms to consider environmental and social consequences their business activities like purchasing. The consideration purchasing aspects with sustainability plays an important role for the firms to make them sustainable. Tesco also considers environmental and social aspects in its purchasing decisions that contribute to the growth of the business significantly. Tesco is one of the largest retailers of the world and has set green targets to make its sustainable. It addresses the energy efficiency of its entire business and engages the suppliers in reducing own emissions and carbon impact of its supply chain (Annual Report, 2016). The approach of Tesco is based on “doing more to emit less” to address the issue of climate change that results in business growth globally. In relation to sustainability-led procurement, Triple bottom theory also states that it is required for the firms to consider social and environmental aspects with economic concerns while performing business activities. Tesco has developed networks to support the suppliers by solving their problems related to sustainability through sustainability expertise and by hosting events. It also provides a bespoke software solution to facilitate the supply chain sustainability. Through this, suppliers are accountable for sustainability of their business activities. Apart from this, the network enables the colleges of Tesco to connect with the suppliers to enhance transparency and communication within the procurement process (Tesco, 2017).The firm addresses the sustainability issues at three levels including emission produced directly by heating, cooling and lighting stores and moving goods to them, emissions produced by suppliers and emissions produced by customers. It means procurement of the goods by Tesco is considerable while reducing the carbon emission and maintaining sustainability aspects (Annual Report, 2016). Tesco has set a target of reducing carbon emissions in its supply chain by 30% by 2020 in comparison of 2008. The major focus of the firm is on open source collaboration and encouragement of the suppliers to do the same. It helps the suppliers to do energy efficiency savings that also builds strong brand image among the suppliers, employees and customers. By focusing on such sustainability initiatives, the firm is able to reduce the operational costs that add value to its business through cost reduction and price effectiveness over the competitors. The Carbon Trust has developed a collaborative Buying Club for the suppliers of Tesco that enables them to make investment in energy efficient lighting equipment and installations. Such efforts made by the company enable to get sustainable solutions by the suppliers and reduce its carbon emission significantly (Hobbs, 2017).  In procurement process, the Buying Club and Knowledge Hub both play important role in make its purchasing process sustainable. The Buying Club includes over 700 business members of Tesco, while Knowledge Hub, a global online community, encourage the supplier members to share information and best practices in carbon reduction. Tesco has 55 CSR ranking according to CSR Hub. Apart from this, Tesco has committed to eliminate hazardous chemicals from its clothing supply chain as it ensures the transparency and ethical aspects in its procurement process. This supermarket giant has joined Greenpeace's DETOX campaign that is effective to deliver toxic free clothing and avoid any harm to the natural environment and wildlife. In order to bring transparency in its procurement process, it releases a list of suppliers in its clothing supply chain (Tesco, 2017).

Sustainability-led procurement at Zara

 

Zara is one of the leading fashion brands of UK that is committed to sustainability aspects in its business operations including procurement. Inditex, its parent company adopts a CSR policy that is also regulated in Zara to fulfill its environmental and social responsibilities.  In order to make the business sustainable, Zara designs the objectives and actions that are carried out within the sustainability framework by linking it with the stores and customers. Zara makes it supply chain sustainable by making its suppliers more responsible towards their social and environmental aspects of the business (Dowell, 2016). Zara also conducts audit of its suppliers to ensure whether its suppliers are adopting sustainable practices in their operations. Zara has 57 CSR ranking according to CSR Hub as it has started to consider sustainability in its operations with focus on reduction in climate emissions, using sustainable raw materials like organic cotton for its some garments, signing Detox commitment for the elimination of hazardous chemicals and collaboration with different firms like Ethical Trading Initiative, and improvement in the workers’ conditions in its supply chain(Emmanuel, 2017). 

Zara is more concerned towards the energy saving in its procurement operations. It adopts a special eco-efficient management models, which remains supportive for the management to measure and adopt sustainability practices in procurement. It also focuses on recycling process that helps it to reduce the wastage of its operations and make its procurement process sustainable. The major focus of the firm in sustainability-led procurement is on the three pillars of sustainability including social, environmental and economic (Epstein&Buhovac, 2014).  

It processes millions of hangers and security tags annually that reduces wastages and reduce the need of procuring plastic materials. In addition, it also recycles the cardboards as well as plastic materials that reduce the impact of its purchasing decisions on the environment. Apart from this, Zara offer training to its employees regarding the environmental and social aspects of procurement process and waste management that is also significant for maintaining sustainability aspects in its procurement process(Hardcastle, 2014). Zara has focused on more sustainable practices by 2020 as a part of the effort by Global Fashion Alliance. It emphasizes the sustainability and circular production and has submitted individual targets for sustainable designing, garment collection, repurposing and use of recycled materials by 2020. The firm will also report on its progress on annual basis regarding sustainability targets.  It also reduces carbon footprint by focusing on the utilization of green materials. It uses paper bags or biodegradable plastic begs to carry its products. It helps the firm to reduce the environmental pollution caused by traditional plastics(Hoskins, 2017). Its fashion catalogues are printed on paper with the FSC/PEFP MARK that is certified with the sustainable forest management. It also uses ecological fabrics like organic cotton in the production of its products. It also ensures that its raw materials are free from pesticide, chemical agents and bleaches(Inditex, 2015). 

Impact of sustainability-led procurement on business value

Tesco is one of the leading retail companies of the world. The reasons behind its success are quality aspects, pricing, innovation, business values, differentiation, adoption of advanced technologies, etc. The consideration of sustainability in procurement also has significant impact on the business value of the firm and contributes to its success. Sustainability in purchasing decisions enables the firm to reduce the cost of operations that leads to price reduction and allows for charging lower prices to the customers and persuading their buying behavior (Epstein &Buhovac, 2014). For instance, Tesco uses collective purchasing power of suppliers that allows it to negotiate the discounts on energy efficient lighting equipments. With the help of this, the firm is able to reduce the energy costs by 80% and save up to 25% on equipment costs and makes it operations energy efficient leading to reduction in overall cost of operations (Tesco, 2017). Reduction in operational costs results in increase in profitability of the company. Apart from this, sustainability in procurement allows the firm to maintain quality of its goods and services. 

Increasing concerns towards the environmental aspects of the business among the people have raised the demand of environmentally friendly products. By adopting green procurement Zara enables to attract the customers towards its green products. It raises the revenues of the firm and also contributes to the profitability. Apart from this, sustainability aspects in procurement help the firm to build strong brand image among the customers (Kim et al., 2015). Nowadays, people are becoming aware of the sustainability aspects as they like to purchase the goods of the firms which adopt environmentally friendly practices in their business operations. 

Tesco and Zara both get benefits from the sustainability-led procurement as it enables both firms to reduce utility costs. The consideration of sustainability practices in the procurement enables to reduce their utility costs by adopting technologies which are energy efficient and less wasteful.  It reduces their electricity bills and increases the profitability through reduction in their operational costs (Barney, 2012). The focus on green procurement enables the firms to produce innovative products. Sustainability leads to the innovation in the products and services. It is a driving force for innovation because it provides a signal to the market to introduce new features into the goods to make them more sustainable and innovative (Kuei& Lu, 2013). Applying sustainability to the procurement process is significant to develop “green” technology and goods. For example, Tesco as well as Zara both offer toxic free products to the customers and develop their brand positioning as the environmentally friendly brands. 

The consideration of sustainability in purchasing decisions adds value to the business through rebates and tax benefits. Going green is supported by the federal and state governments, local municipalities and electric firms because they offer tax incentives and rebates (Zorzini et al., 2015). It not only helps to save the costs but also makes the business more energy efficient. It boosts the value of business and increases the returns on the investment. The focus on sustainability-led procurement is significant in building brand loyalty. Brand loyalty is a major concern of the theory of relationship marketing (Turker&Altuntas, 2014). This theory holds that there is need of managing customer relations to achieve the mutual objectives of business profitability and sustainability. Relationship marketing focuses on commitment, trust, communication and customer centricity to develop brand loyalty. Concerning to relationship development, sustainability-led procurement is also crucial for Zara and Tesco both. Through this, both firms enable to develop trust among the customers regarding the quality of their products and services and enhance brand loyalty. Apart from this, the focus on sustainability practices in procurement helps to develop better link between the firm and customers due to emotional attachment with the brand. In relation to this, the Attachment theory mentioned in Wilson (2015) also holds that best practices of the firms helps to develop customer loyalty behavior due to having emotional attachment. Trust development through sustainable practices enables the firms to influence the emotional attachment of the customers with the brand. High emotional attachment results in strong brand loyalty that increases repurchasing of the products and services of the firm and contribute to the financial performance of the firms. Sustainability practices in procurement in Tesco and Zara are effective to ensure the quality of their products and services because they avoid any hazardous materials in the production of their products and adopt codes of ethics in procurement process (Boström&Micheletti, 2016).  It adds value to their business by satisfying the expectations of the customers in relation to the quality of their products and services. It is significant for developing positive among the customers and to maximize business return. It is because this helps to develop favorable attitude and behavior among the customers and develop strong relationship with the stakeholders. Concerning to the sustainable purchasing, the theory of Triple Bottom line focuses on organizational responsibility to achieve economic performance as well as to engage in activities influencing the society and environment positively (Anghel et al., 2011). Both firms focuses on environmental and social concerns in procurement practices that leads to development of brand image among the customers and encourage them to purchase their products resulting in business growth. However, stakeholder theory mentioned in Arslan et al. (2014)supports creation of value for stakeholders as the key purpose of businesses. Spending on sustainability aspects in procurement has a negative impact on the interests of stakeholders. It is challenging for the firms to maintain the sustainability costs of their procurement operations due to need of investment on the sustainability practices. It affects the overall profitability of the firms and also shareholders’ interests of maximizing the returns (Govindan et al., 2013). High expenses on sustainability-led procurement affects the satisfaction level of shareholders and investors that influence the corporate resolution and brand image in negative manner. 

Over the years, the concept of ethical consumption has emerged across the world as people awareness of environmental issues is increasing worldwide. According to Time Magazine 2009, 40% of Americans like to purchase the products which are made by the firms having social and environmental values. If the firms do not focus on the ethical consumption, it may cause a reduction in their competitive advantage over the competitors (Crespin-Mazet&Dontenwill, 2012). Therefore, it can be stated that the focus on sustainability-led procurement enables the firms to facilitate the ethical consumption that has a positive influence the buying behavior of the customers and encourage them to purchase the products and services of the firms which follow ethical values in the purchasing decisions. In relation to this, virtue theory of ethics cited in Ruparathna and Hewage (2015) also holds that the person’s inward behavior is major aspect in the ethical activity of the business that highlights the characteristics like kindness, honesty, integrity, trustworthiness and faithfulness, etc. The focus on ethics in procurement helps the firms to make their purchasing decisions sustainable that results in development of positive customer attitude towards the brand and increase revenues of the firms. For instance, Tesco is doing well in procurement process by adopting fair business practices that helps to develop good relationships with farmers and influence the customer buying behavior positively. 

Sometimes, the overuse of sustainable procurement leads to elimination of the suppliers that limits competition and causes increased prices. It may also affect the achievement of standards in design and process (Müller & Stölzle, 2016). Due to this, the firms have to face issues related to production efficiency and capacity. In addition, loss of differentiation because of adopting sustainability practices can affect the product desirability. It may cause bland and monotonous products that lead to reduction in turnover and profits (Grob and Benn, 2014). Sometimes, the green purchasing practices affect the productivity of the firm because it is time consuming to determine the green status of products and services by the purchasing department. It is required for the purchasing department to search for and verify the green aspects of the products and vendors that may affect the production capacity of the firms. In addition, there is possibility of failure of adoption of green products by the customers. It may be wasteful for the firms to adopt green procurement and manufacture the green products because sometimes, customers do not prefer the green products thatmay cause a big loss for the firm (Arslan et al., 2014). 

Recommendations

It is mandatory for the firms to make a proper balance between the interests of the stakeholders as there are conflicts of interests of different stakeholders. It is required for the firms to adopt transparency and clarity in the communication approach to convey the actual returns of sustainability efforts in procurement process. It can be helpful to satisfy the stakeholders regarding the expenses and benefits of the sustainable procurement and retain their trust within the organizational decisions. Zara was accused of getting the supplies from the suppliers who enforced the migrant workers in Brazil to work in unfavorable conditions. Apart from this, some cloth ranges of Zara were positive for harmful chemicals as it uses azo dyes that release cancer causing amines. At the same time, Tesco is accused of not making payment to the suppliers on time (Weaver, 2015).  Therefore, it is mandatory for the firm to avoid such unsustainable practices and select the suppliers who provide quality and sustainable raw materials and provide the payment on time. Apart from this, it is also crucial for the organizations to connect more customers with the brand and its sustainable practices to achieve the desired results. Concerning, emotional branding can be significant for the firms to develop strong brand image and loyalty through sustainable procurement. By highlighting the practices of the firm in relation to sustainability, emotional branding can play an important role in developing strong connection with the customers and realizing its benefits in terms of repeat purchase. In addition, the firms need to provide training and learning programs to the employees to understand the best practices of sustainability in procurement. It can be helpful for them to implement sustainability practices in procurement (Caniato et al., 2012). Moreover, the firms need to adopt effective measures to implement the effect of the sustainability in procurement. For this, they need to conduct cost benefit analysis that can be useful to determine the effectiveness of the sustainable procurement in value addition to the business and adopt better practices to enhance its effectiveness. At the same time, strong supplier network and connectivity can be useful to make fast sustainability purchasing decisions and avoid any adverse impact on the production capacity (Govindan et al., 2013). 

Conclusion

Based on the above discussion, it can be concluded that Tesco and Zara both adopt effective sustainability practices that add value to their business significantly. Both firms adopt green practices in their purchasing decisions that enable them to develop strong brand image among the customers and persuade their buying behavior positively. Furthermore, it can also be concluded that sustainability-led procurement is significant to develop trust among the customers that cause brand loyalty and repetitive purchasing leading to add value to the business. Such practices also cause quality improvement and innovation in the products and services that is useful to attract more customers for the business. Therefore, business managers need to understand how value can be created through effective implementation of sustainability-led procurement. Further, it can also be summarized that the adoption of sustainability-led procurement causes challenges for the firms to meet the interests of all stakeholders and reduce the cost of operations due to high investment in sustainability practices. Apart from this, it may also lead to elimination of the suppliers and time consuming decision making affecting production capacity of the firm and failure of adoption of green products by the customers.

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