The real, (often unsung), heroes of successful corporate sustainability goals are the people who ethically source ingredients and products. Regenerative supply systems are simply not possible without the commitment and investment of procurement teams. Unfortunately, many procurement professionals are in the extremely difficult position of executing ESG goals while also adhering to strict pricing constraints.
In this article, we’ll discuss a few of the challenges that face procurement teams in sourcing more regeneratively and some strategies for striking a balance between margins and responsible sourcing.
Challenges of Regenerative Procurement:
If you’re a smaller brand trying to purchase ingredients that meet your sustainability requirements, the frustrating reality is that there’s a good chance many suppliers aren’t interested in working with you. Maybe they don’t believe you can scale, or maybe they don’t want to do the extra work to meet your higher sourcing standards, but either way, this is a big problem for teams looking to bring a regenerative product to market.
The bottom line is that procurement professionals have to consider, well, the bottom line. Regardless of a company’s ESG goals, a path to profitability is often non-negotiable. If your company is already aligned on willingness to pay more for responsibly sourced ingredients, pricing may be less critical but is probably still a high priority.
A recent white paper published by the regenerative business consulting firm Volans on regenerative procurement encapsulates the predicament well,
“Currently, most procurement professionals are incentivized to retain a laser-like focus on squeezing out costs. Until broader goals linked to societal contribution are baked into targets, KPIs, and remuneration policies, corporate procurement will remain, for the most part, stuck in an extractive, linear model.”
Ambitious ESG goals are admirable and necessary, but unless employees at all levels of management are on board, they may fall by the wayside in service of other goals. Middle management, in particular, can be a barrier between a visionary c-suite and the younger generation of boots on the ground employees who are energetic about sustainability.
Supply System Disruption
An estimated $120 billion of incremental cost will be passed on to the corporate buyer in the next five years due to environmental disruptions. Part of the difficulty in mitigating these supply system disruptions, especially in the context of the COVID-19 pandemic, is that it can be tricky to identify the source of the disruption as a procurement professional.
These kinds of disruptions, regardless of their cause, can lead to compromising on the integrity of ingredients or suppliers. Often the most reliable suppliers are ones that have the least transparency and the least desirable ingredients from a regenerative or sustainability perspective.
Strategies for Responsible Sourcing
Flexible Formulas for More Resilient Supply Systems
Rigid formulas are more vulnerable to supply system disruptions than ones that are able to adapt to inconsistencies. Upcycling byproducts of other ingredients in your portfolio is one strategy that sourcing teams are considering in the face of supply system disturbances:
“Chia is one of the main ingredients in our chips and chia supply is only guaranteed through Q1 of 2022 right now. As we’re working on sourcing an alternative, we’re looking at the byproducts of two different ingredients that we can use in the finished product. By using the byproduct of a primary product in another finished good, we’re able to utilize them interchangeably depending on price fluctuations or supply system vulnerabilities. That sustainably shores up our supply chain while limiting consumer impact. Building that flexibility into formulas in advance could alleviate a lot of the suffering that’s going on in the industry right now in regard to supply chain disruptions.”
— a procurement professional at a global CPG company
Collaboration Between Sustainability & Procurement Teams
Procurement and sustainability teams should develop ambitious goals together. This increases team buy-in and helps build out goals that are both aggressive and achievable for the procurement professionals who are in charge of executing them.
This is also where pricing conditions could be reevaluated through the lens of sustainability goals. If these incentives aren’t restructured to value ethically sourced ingredients, then cost will continue to overrule and compromise ESG commitments.
Scalability While Maintaining Integrity
Finding suppliers who have responsible sourcing woven into their business models like Simpli Goods or Imlak’esh Organics can make it easier for smaller brands to meet their sustainability goals as they scale. Volans predicts,
“Scale will likely come from a mix of bottom-up replication of models that work, and partnerships with global brands that enable committed companies like The Body Shop to transition their own business models.”
Airly Foods is an excellent example of one such “lighthouse” brand, showing that regenerative products are possible and profitable at scale. They are both demonstrating a model that could be replicated, and are providing a powerful business case for their parent company, Post Holdings.
“Post has several different operating companies and a lot of different brands and I think every single one of them has come up to us and said ‘Tell me more about what you’re doing.’ For us, a win is that Airly’s model works and everybody else jumps in too. There’s no reason that everybody else can’t use carbon farming and look at what they’re doing through a different lens.”
—Jen McKnight, Co-Founder, Airly Foods
Bridging the gap between responsible sourcing and meeting pricing restrictions is going to require a different method of cost accounting. As organizations continue to recognize that ESG goals are no longer a “nice to have”, but a business imperative, procurement teams will need to have more leeway when it comes to purchasing requirements. Although sourcing responsibly and innovating sustainably may cost more in the short term, the long-term savings and supply system resiliency easily exceed upfront costs.