How Procurement Leaders Drive Sustainability Into Midsize Companies

Innovation How Procurement Leaders Drive Sustainability Into Midsize Companies SAP BRANDVOICE Storytelling and expertise from marketers | Paid Program Oct 24, 2022, 09:13am EDT | Share to Facebook Share to Twitter Share to Linkedin By Gordon Donovan, Market Research Director – Procurement and Supply, SAP In recent years, senior leaders from midsize companies have had many reasons to stay up at night. Supply chain interruptions, temporary and permanent demand shifts, rising costs, and greater emphasis on cash and risk management – these challenges and more have dramatically impacted every aspect of their business. The same is true for procurement functions – and according to research data from SAP Insights , they’re shifting priorities while revisiting purchase policies and programs to navigate their company’s dynamic environment.

Approximately one-third of surveyed procurement leaders from companies with annual revenues under $1 billion use sustainability-related strategies to drive revenue growth, boost operational efficiency, and mitigate risk. Priorities rising to the top of their agenda include reducing reliance on scarce resources, increasing automation, making operational processes, products, and services more sustainable, and developing plans for better materials and services acquisition. The more a “good sense” sustainability mindset is incorporated into sourcing processes and buying policies, the better protected the company’s reputation.

And when those efforts align with the company’s overall strategy, procurement becomes central to long-term growth and success. Price more competitively from the start With the cost of producing goods rising astronomically worldwide, the competitive landscape – across every industry – is at a point where price has an outsized influence on customers’ daily purchase decisions, leading providers to consider new pricing models. To illustrate this reality, let’s consider a provider of mobile devices.

The cost makeup of the latest mobile device model, including all the different components, subcomponents, and software, is roughly $213. So why do some devices have a price tag of $1,300 and others cost under $500? MORE FROM FORBES SAP BrandVoice: Learn How Sustainability Helps Life Sciences Companies Grow By SAP Guest The answer boils down to two different pricing models. Some brands choose to mark up the price because demand is high and customers are willing to pay a premium for the product.

Meanwhile, others adopt a subscription services model that drives a repeatable and guaranteed revenue stream and keeps customers engaged enough to trade up to the latest model every two to three years. The subscription-based monetization model helps mobile providers break through a product category that is increasingly commoditized. It also allows procurement leaders to take a clear-eyed look at how their products are brought to market – from components to finished goods and maintenance.

By identifying opportunities for vertical integration (also known as insourcing), the cost structure can be changed to reveal savings that can be passed to customers, partners, or the bottom line. MORE FROM FORBES SAP BrandVoice: How Manufacturers Drive Real Value From The Circular Economy By SAP Guest Through insourcing, midsize businesses can determine if certain parts of the supply chain process typically owned by partners or service providers can be done in-house with greater control, less risk, and more resilience. These decisions may include modifying a product design with different parts, reassigning workers to more meaningful work, or forming a mutually beneficial merger with a service provider.

Procurement leaders can then change the structural nature of calculating overall cost. Furthermore, supply shortages – as frustrating as they are – can lead to buying decisions that take even more cost out of product sourcing, manufacturing, and delivery. By accessing a wider network of suppliers, procurement leaders can let potential vendors compete against each other in terms of price and value.

Treat suppliers as your sustainability partners After optimizing their cost structure, understanding drivers for expenses, and considering supply alternatives, midsize businesses can make supplier choices that enable them to be more eco-friendly and socially ethical. Factoring sustainability into their total cost structure enables procurement leaders to protect supply chain continuity. They can expand the supplier network and pick optimal sources of materials, goods, and supplies without getting locked into long-term contracts.

And these benefits contribute to the company’s overall financial health and revenue growth. MORE FROM FORBES SAP BrandVoice: Can This Carbon Capture Technology Help Create Negative Emissions? By Judith Magyar A prime use case is finding components with a longer lifespan and negotiating competitive costs. This approach helps ensure customers gain the extra value of having a reliable product and operations benefit from a reduction in customer service, returns management, maintenance orders, and product waste.

In addition, procurement functions can onboard vendors that can help minimize packaging and product loss due to expiration and obsolescence – all while running more sustainable operations on their end. Sustainability-focused collaboration and relationships with vendors empower midsize companies to respond immediately to emerging supply chain risks and opportunities. Rethink the basis of growth, efficiency, and risk For procurement leaders, success is demonstrating to their management team how their function’s efforts impact the bottom line and drive revenue growth.

And as humans, they prefer to make decisions that make the planet a better place for everyone to live too. Incorporating sustainability into procurement decision-making makes good business sense. Increasing the sustainability of existing offerings – on top of introducing new products or services – is not only a great way to appeal to customers.

It also perfectly positions midsize companies to boost sales, attract and retain customers, and surpass competitors now and for years to come. Explore how procurement leaders from midsize companies move beyond cost savings and toward operational resilience by prioritizing sustainability by reading the SAP Insights paper, “ The Transformation Mindset: Procurement’s Role in Delivering Business Value . ” SAP Editorial Standards Print Reprints & Permissions.