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The Greening of Procurement (Part 1)

Written by: Jon Hansen

Article Overview: In my extensive travels to exotic locales (alright Calgary may not be exotic but it is certainly a great place to visit), purchasing professionals who have attended one of my conferences have rarely if ever broached the subject of environmentally friendly (re green) procurement practice. Burdened by the more pressing challenges associated with unnecessarily complex initiatives that are behind schedule and over budget, one can certainly understand the reasons for the paucity of inquiries.

The Greening of Procurement (Part 1)

In my extensive travels to exotic locales (alright Calgary may not be exotic but it is certainly a great place to visit), purchasing professionals who have attended one of my conferences have rarely if ever broached the subject of environmentally friendly (re green) procurement practice.

Burdened by the more pressing challenges associated with unnecessarily complex initiatives that are behind schedule and over budget, one can certainly understand the reasons for the paucity of inquiries.

However based on the recent spate of newly released studies and reports coupled with the announcement of upcoming conferences (one of which is the November 2007 Green Purchasing Summit referenced at the conclusion of this post as well as under the PI Blog Roll), I was interested in trying to understand the root causes of the discrepancy between expressed interest (or lack thereof) and the increasing market activity.

The EcoMarkets 2007 Survey

At the beginning of May I received an advanced copy of the 2nd annual EcoMarkets Survey. A collaborative effort between the North American Commission for Environmental Cooperation, the Center for a New American Dream and TerraChoice Environmental Marketing (who spearheaded the program) this ongoing research initiative monitors patterns of green procurement practice within the B2B and B2G communities. (If you would like a copy of the complete survey send an e-mail with “Green” in the subject line to procureinsights@rogers.com.)

The survey’s results were based upon 692 respondents from a total invitation pool of 10,500 procurement professionals. The conclusions are therefore drawn from a 6.6% sample response rate. The respondents’ organizations account for more than $5 billion in combined annual spend.

Clear Answers

Unlike a lengthy dissertation where the desired answers can be somewhat obscured by superfluous (and sometime meandering) statistics, the EcoMarkets 2007 Survey wasted little time in providing meaningful insights. This was no small feat given the fact that the subject matter is simultaneously contradictory in that while green procurement is widely recognized as being important (91% of respondents indicated that they consider green factors at least occasionally) its importance in terms of practical adoption is relatively low.

From a purely statistical perspective, the survey reached the following conclusions (and I quote):

“It is clear that while environmental factors are being increasingly incorporated into purchasing considerations, the translation of policy to practice is mixed and incomplete.”

“The three most important factors that influence purchases are product performance, durability and price. Environment is a lower priority.”

“A strong majority of respondents (60%) report that they will not pay a price premium for environmentally preferred products.”
The question this raises is quite simply what set of circumstances will elevate green procurement from a nice to do “boutique” status to a more meaningful (and essential) element of a sound purchasing strategy? At the risk of answering my own question, I do not think that green procurement in and of itself will achieve this status, nor do I believe that it is a reasonable goal. At least not in today’s dramatically evolving procurement practice climate.

Factors such as the ever expanding talent vacuum combined with the continuing high rate of e-procurement initiative failures will likely dampen organizational enthusiasm for going green.

Governmental influence – the fuel for change?

Another interesting statistic provided by the survey indicated that the majority of government departments or agencies in Canada and the United States have instituted a green purchasing policy. Based on these findings, the report concluded that this is a clear indication that “governments are making the effort to lead by example,” and are less driven by “financial constraints or profit-making.” While it has generally been accepted that government procurement practices are measured by a different set of criteria from the ones employed by their counterparts in the private sector*, in the context of green procurement it is still a notable observation.

* (Note: as chair of the 2006 Summit Roundtable on Federal Government Procurement Practices, I prepared a comprehensive report highlighting the key elements of a successful purchasing program. This of course was based on feedback from a diverse group of participants. One of the points for which a general consensus was reached dealt with the very issue of purchasing guidelines in the public sector. And I quote, “it is also generally agreed that government is not a corporation and therefore has different priorities and imperatives to meet when procuring goods and services. This acknowledgement takes into account socio-economic implications including the importance of developing key Canadian business sectors or industries. Examples of key sectors or industries include the SME/minority-owned business community, or Canadian-based manufacturing sectors such as shipbuilding where job creation and community financial stability are taken into consideration.” So it is certainly not a stretch to extend the above statement to include green procurement.)

However, looking beyond the realm of its own procurement practice, governments have historically demonstrated a proclivity for fueling environmentally-inspired change. The Province of Ontario’s energy efficient lighting program of the early 90’s gives testimony to this fact.

Looking for ways to reduce energy consumption, the Province of Ontario offered “significant” subsidies to businesses that made the change from standard compact florescent lighting to energy efficient lighting. With the subsidies covering the majority of the transition/upgrade costs, the rate of conversion skyrocketed as immediate savings were realized with the first electric bill. An unexpected adjunct benefit was also realized through the program as the subsidies also stimulated revenue opportunities for the companies that sold and installed the new fixtures.

Almost 15 years later, the EcoMarkets 2007 survey reflected the continuing enthusiasm for programs like the one offered by the Province of Ontario. The response from survey participants indicated that “energy conservation programs are 3x more common than green electricity purchasing programs.” While I am not familiar with the level or immediacy of the savings associated with the green electricity programs, the success of the energy conservation programs should motivate green marketers to look for parallels between the two initiatives.

This is especially important given Ontario’s recent decision to suspend the Provincial Sales Tax (which is 8%) when an energy efficient appliance such as a fridge or stove is purchased. While this program has obviously garnered a universally positive response, to what degree it actually influences consumer buying habits remains to be seen. That said green marketers should pay close attention especially given the fact that the savings impact is immediate.

The survey’s assessment that “being green won’t be enough to win customers” rings true. Both direct and indirect savings must be clearly demonstrated and easily understood by the purchaser.

Next Installment: The Greening of Procurement (Part 2)

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Article Tags: b2g, collaborative effort, commission for environmental cooperation, discrepancy, e mail, environmental marketing, green procurement, lengthy dissertation, little time, meaningful insights, new american dream, ongoing research, paucity, procurement practice, procurement professionals, research initiative, respondents, response rate, spate, upcoming conferences



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