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    Environmental Competitiveness: "Green" Purchasing


    © International Trade Centre, International Trade Forum - Issue 2/2001

    Think twice before buying supplies that are environmentally unsustainable. Above, a deal to buy environmentally certified wood.

    Consider environmental issues in procurement to reduce total costs and make your enterprise more competitive.

    Environmental procurement means systematically building environmental considerations into your day-to-day procurement decision-making and operations. Its objective is to help you procure the most suitable and "environmentally preferable product" that meets your enterprise's needs.

    You might be sceptical. After all, building environmental concerns into procurement might seem only to add to your costs, force you to buy products of inferior quality and cost you time and effort. In fact, "going green" can make your products more attractive to big buyers and consumers, reduce waste disposal and operating costs, and help you comply with increasingly stringent environmental regulations.

    Why environmental purchasing?

    Today, environmental procurement is an increasingly important issue and decision-making tool for small and medium-sized enterprises (SMEs) in developing countries and economies in transition. It can be ignored by an enterprise only at peril to its long-term survival. Among the external factors pressuring enterprises to take account of the environment:

    Big buyers demand it

    Trade is increasingly global, even for SMEs. Many large enterprises now require improved environmental performance throughout their supply chain. For example, they are applying ISO 14000, which is an international standard on environmental management systems. This standard requires companies to incorporate environmental considerations into their procurement procedures, including ensuring the improvement of their own suppliers' environmental performance.

    "Green" products more effective

    New generations of products and technologies are more environmentally "friendly". These "cleaner products" and "cleaner technologies" are also usually more efficient and cost-effective. SMEs will need to keep pace with these new developments.

    Legal requirements

    An increasing number of products that are harmful to the environment (especially chemicals) have been banned by international conventions and treaties. Some companies are exporting their products and relocating industries to developing countries and economies in transition. This can carry serious long-term risks to the countries that import harmful products and technologies, risks to the health of the environment and of the population. These countries will find their competitiveness in the world marketplace being affected by substantial "hidden" environmental costs.

    Consumer pressure

    Due to pressure from consumers, various countries have started to put forward restrictions on importing certain consumer goods. For example, governments have introduced legislation that limits the use of specific chemicals in processing textiles. The constraints will increasingly affect SMEs whether they export directly to these markets or supply to enterprises that do.

    Potential benefits

    This says nothing about the positive side of embracing environmental procurement. The benefits of adoption are as significant as the costs of not changing your approach:

    Can reduce costs

    Environmental procurement reduces your costs. Some costs in procurement are visible: price; transport; etc. Others are "invisible": losses due to inefficient use of resources; product liability; and the like. Environmental procurement can help reduce overall costs for the short, medium and long term by introducing a life-cycle perspective.

    Compliance with regulations

    Environmental procurement helps you meet regulations. Adopting the approach at an early stage can help your enterprise meet progressively stricter environmental regulations at a lower overall cost.

    Pleases consumers

    Environmental procurement can help you keep pace with consumers' preferences. The demand for environmentally safe products is being increasingly felt in developing countries and transition economies as well as in developed countries.

    Improves competitiveness

    In sum environmental procurement improves your overall competitiveness. Applying environmental procurement can improve your enterprise's strategic position in the market, whether domestic or international.

    Perhaps the most important advantage is that the benefits of environmental procurement reinforce one another, creating synergy within the enterprise. For a company seeking to compete in an increasingly transparent and demanding world market, environmental procurement has further benefits: it encourages continuous improvement in products and services; serves as a strategic tool for cutting costs; improves your public image; and promotes sustainable development. These are all likely to appeal particularly to authorities considering whether to introduce legislation and measures to promote the implementation of environmental procurement.

    Getting started: the life-cycle approach

    Understanding the "life-cycle approach" is key to introducing environmental procurement into an organization, and making it operational. The life cycle of a product has four main stages: production; distribution; use; and end-of-life. This last stage may be disposal as waste, but it could also mean recycling or reuse of products. Under the life-cycle approach, product performance has to be evaluated at each stage. Procurement, as an operation that links production and use, is therefore of strategic importance to gaining the maximum benefit out of a product.

    Analyse the product

    The approach can be integrated into procurement operations through two key aspects of a product: resource consumption and the pollution/hazard impact. This means that procurement officers have to ask themselves questions such as whether a product is based on resources from environmentally sensitive bases (including regions with fragile ecosystems, rare woods or endangered animals). If a product has a percentage of recycled materials rather than relying on virgin materials, it will usually be preferable. If the production process involves a high level of wastage, companies should look for products with reduced wastage levels achieved through use of more appropriate materials or better technologies. This can generate savings for your enterprise.

    Ask questions

    Questions also need to be asked about the transport and distribution stages. Do they require intensive use of resources such as fuel or protective packaging, and are the materials used recyclable or reusable? Companies should seek solutions here that reduce the burden on the environment.

    Consumption and use throw up similar questions related to resource use. Generally, avoid intensive consumption of scarce resources. As for pollution and hazards to human beings, the life-cycle approach seeks solutions that reduce negative harmful impacts and costs to the environment. This can mean avoiding restricted or banned substances, non-degradable materials and packaging prone to leakages in transit.

    Introducing the life-cycle approach into your procurement decisions, therefore, does not necessarily require a complicated analysis. Most cleaner products and technologies, you will find, have a combined effect of economic benefit and environmental performance.

    Identify constraints

    However, SMEs, particularly in developing and transition economies, might fear that their unique operational constraints may hold back their enterprise's transition towards environmental procurement. For a start, many SMEs have limited production and storage capacity, as well as a shortage of finances, to achieve economies of scale. So procurement planning and operations often cannot arrange purchases and shipments in the most economical quantities. One environmental impact is that greater amounts of fuel are required for fragmented shipments. Production resources are wasted through stoppages due to stock-outs, and the lack of a proper management and handling system can cause deterioration and losses in storage.

    Find solutions

    There are solutions to such challenges. SMEs can join together to purchase their common requirements. An analysis of purchased items can show what the critical needs are for the enterprise to operate. This can become the basis of new supply strategies and stock levels. A review of plant layout and warehousing facilities can improve allocation of space and resources.

    Another constraint for SMEs comes from insufficient information and records, which are often withheld by suppliers under the guise of being "business secrets". Apart from keeping records of the performance characteristics of the items you purchase, you can tap additional sources of information, from other buyers to chambers or commerce and industry associations, even commercial sections of embassies in your own country. If you have an Internet connection, you can frequently find suppliers' catalogues online, or web sites devoted to "green purchasing".

    Rigid attitudes among SME managers can also hold you back. They need to recognize that environmental procurement simply involves the refinement of what can be considered good procurement practice. With a little common sense, you can apply environmental procurement with relative ease.

    For environmental procurement as for most business practices, the secret of being successful in an increasingly competitive market is to adopt a system of continuous improvement. Environmental procurement is simply one of the tools for continuous improvement that can be applied both by your own enterprise and by your suppliers. At the moment, most SMEs affected by the demand for environmentally sensitive procurement practices are those supplying large companies. However, as ISO 14000 and other such standards are being applied by more and more firms, few will be able to avoid them over the long term.

    This article is based on research carried out for ITC by Desta Mebratu, who wrote the training module, Environmental Procurement for SMEs. For more information, contact Margareta Funder, Officer, Learning Systems, in ITC's International Purchasing and Supply Management Section at funder@intracen.org

    Misconceptions about environmental procurement

    Misconception: "Environmentally preferable products are more expensive."

    Answer: Most environmentally preferable products are competitively priced. In some cases, the initial purchasing price of the environmentally preferable product might be higher than for alternative products, as in the case of an energy-efficient light bulb compared to an ordinary bulb. However, if you consider durability and cost of use (e.g. energy consumption), the overall cost of the environmentally preferable product (in this case the energy-efficient bulb) is significantly lower than the cost of the alternative product.

    Remember... Don't be fooled by the initial price. Look at the total cost of the product, including the cost of use and disposal.

    Misconception: "Environmentally preferable products are of inferior quality."

    Answer: Most environmentally preferable products are of sufficient quality for the purpose they are meant to serve. Some are even of a higher quality than ordinary products. Of course, environmentally preferable products do not give priority to aesthetic qualities (e.g. colour, decorative packaging), which have nothing to do with performance. For example, paper from recycled material can be used for many of the same purposes as paper made of virgin material, even if it may seem visually to be qualitatively inferior.

    Remember... Identify those product quality features that are relevant to the product's performance - as opposed to features that are marginal or purely aesthetic - and focus on those functional qualities.

    Misconception: "Environmental evaluation of a product is a cumbersome process."

    Answer: Environmental preferability of most products can be ascertained by simply looking at their major attributes or features in relation to resource consumption and health impact. For those products with a higher environmental impact, a more systematic evaluation can be conducted.