How Spend Intelligence Transforms Savings into Sustainable Growth and Social Impact
For many business leaders, identifying and realizing savings remain the most important goals for procurement. But it’s shortsighted for Chief Procurement Officers (CPOs) to focus on savings, alone.
True, driving cost savings is the top priority for 46% of all CPOs in 2023, according to Ardent Partners’ CPO Rising 2023 report. This core tenet of procurement won’t change as we hum along in 2023 feeling persistent economic uncertainty. But CPOs are focused on other priorities this year. According to Ardent’s research, managing or mitigating supplier risk (43%), driving digital transformation (38%), and driving ESG initiatives (27%) are also top priorities for CPOs in 2023.
While driving ESG initiatives seems to be a low priority, this is likely to change. According to Andrew Bartolini, Ardent’s founder and chief research officer, procurement performance has become a moving target over the last two years, with many enterprises introducing new, non-financial KPIs, including ESG metrics, for procurement teams to hit. These include social impact, supplier diversity, sustainability, and resilience vis-a-vis supply chain disruptions.
How do procurement teams put some juice behind these initiatives, especially driving non-financial value through ESG programs? The same way they drive financial performance – through spend data.
Start with Your Spend Data
“Better data visibility and analytical capabilities are critical for next-level procurement performance,” said Bartolini. “For 49% of respondents, this is the top attribute, and there is no surprise since better data visibility is essential for more strategic and competitive decision-making.”
Conducting spend analysis is a vital first step toward data visibility. It is also a fundamental part of identifying and realizing non-financial value-creation opportunities like ethical and sustainable business practices. However, too few companies are digitally enabled to take this step: just 39% of procurement teams have adopted automated spend analysis solutions, according to Ardent research.
Progress starts with spend visibility: companies must identify or “tag” the sustainable, ethical suppliers with which they currently conduct business. These can include Scope-3 compliant, diverse and fair–trade certified vendors, or vendors that boast net-zero emissions. By highlighting and establishing contracts with these suppliers, companies can begin driving non-financial value by driving more of their spend towards these suppliers to hit ESG targets, comply with related laws and regulations, and manage and mitigate supplier risk.
Move onto Procurement Performance Management
Once you know where you’re spending, you can supercharge value creation by combining your new spend intelligence with procurement performance management (PPM). PPM allows teams to move from demonstrating value in terms of cost reductions and spend optimization to driving good corporate citizenship with more ethical and sustainable sourcing and procurement projects and supplier relationships. It’s where procurement can drive environmental and social progress by combining opportunity identification with project management.
So, after you’ve conducted your spend analysis, pull it into a centralized PPM platform that will enable you to enrich your spend data further and turn your spend insights into action. You’ll be able to oversee actions, track performance over time, and create a continuous loop of feedback, adjustment, and optimization.
Within the PPM platform, enrich your spend and supplier data further with specialized sustainability, risk, and compliance data from providers such as EcoVadis and Supplier.io. The more specialized data you integrate, the more holistic your supplier ESG assessments and ratings will be. For example, with EcoVadis, you can assign your suppliers EcoVadis ratings for ESG categories, such as emissions, environmental impact, health and safety, human rights, etc. With Supplier.io data, you can enrich your spend data with supplier diversity data to better understand which of your suppliers qualify as women-, veteran, or minority-owned businesses.
Go Ahead – Make ESG a Project
Are you or your suppliers weak on ESG? Address it. Immediately.
Leverage your PPM platform to create, centralize, launch, and manage projects to:
- Increase the amount/percentage of spend with diverse suppliers, net-zero suppliers, etc.
- Cut company greenhouse gas (GHG) emissions by x-percent or reach net zero by a given year
- Account for Scope-3 emissions to comply with pending reporting requirements
- Uplevel a supplier’s sustainability ratings over time
- Earn x-number of certifications from independent certification bodies
- Gain tier-2 or tier-3 visibility into their extended supply base, etc.
A quality PPM platform will make it easy to see where your projects are, their status, how well they’re progressing, and which ones need greater oversight or direct intervention. Procurement can then revisit six, nine, or twelve months after kickoff to determine whether or to what degree these initiatives are successful, answering questions such as:
- Did we increase the amount or percentage of diversity spend?
- Are we working with more net-zero suppliers?
- Are we meeting our own GHG emissions reductions targets?
- Are we on track to reach our own goals?
- Can we account for our Scope-3 emissions? Can we account for every node in our extended enterprise?
One of the most important steps you can take towards improving procurement performance is using your spend and supplier data to fuel a continuous process-improvement loop. This feedback loop includes benchmarking, prioritizing, tracking, measuring, and revisiting performance outcomes to reveal which projects have been successful, which need improvement, and which contributing factors led to divergent outcomes.
Procurement’s Forecast: Continuous Improvement, Constant Change
Performance improvement never ends. It’s not just what you measure, but how you measure, and whether you ultimately measure up. To get there, you need to digitally enable your procurement teams.
As Bartolini said, “Digital transformation is critical for CPOs to drive procurement performance and deliver strategic value to their organizations. By leveraging technology to automate processes, gain insights, and improve decision-making, CPOs can achieve cost savings, enhance supplier relationships, and improve risk management and compliance.”
Of course, both performance-improvement and ESG targets are dynamic. While organizations are currently focused on conducting due diligence and reporting on GHG emissions, supplier diversity, and human rights in supply chains, next year they could be focused on water usage or ESG-related investing.
Adapting to today’s business climate while knowing that tomorrow’s climate could be very different is critical. Procurement leaders need to be willing to regularly adjust priorities and shift resources to reinforce underperforming parts of their business.
However, we can be sure that no matter what expectations the future brings, spend visibility and continuous process improvement will be at the heart of procurement enablement. Integrating non-financial performance insights (e.g., ESG) from Spend Intelligence into a PPM platform enables you to not only identify necessary business changes, but to also execute plans and improve performance. That’s the power SpendHQ brings to the marketplace.