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andchallengesuppliers © Oliver WymanOUR SUSTAINABLE PROCUREMENT MATURITY FRAMEWORKFollowing from our last year’s report on sustainableprocurement, Procurement’s Journey to Sustainability,we wished to go one step further and dive deeperto understand the degree of progress procurementis making in environmental, social and governance(ESG). In last years analysis, we talked to well over300 chief procurement officers from around theworld, representing all the main industries.In order to assess their current level of maturity,we asked them where they believe they standon each of the twelve areas highlighted inOliver Wyman’s Sustainable Procurement MaturityFramework, in terms of Track, Act, Impact, andOperate. This article focuses onDimension 5— Embark, engage and challenge suppliers.OPERATEConvert ESG-relatedcompany ambitions intoprocurement objectivesBuild arobust baselineChampion changeinternallyacross allbusiness functionsand initiativesAccelerate changeexternallythroughthe entire ecosystemEmbed ESG incategory strategyEmbark, engageandchallengesuppliersTeam up with partnersto share ESG-relatedbest practicesExplicitly state yourgoalsand pledgeto suppliersReinventprocurementperformancemonitoringtowardsESG-adjusted TCO1and EP&L2Upskill teamsto better engagesuppliersEmbed ESG inprocurement dataand digital assetstrategyEmbedsustainabilityin core procurementprocessesACTIMPACT1. Total cost of ownership. 2. Environmental profit andloss © Oliver WymanCPOs hold a unique position due to their significantinfluence in sourcing and business allocation. Thisgives them a special opportunity to guide supplierstoward more sustainable practices, effectivelysteering the supply chain to align with broadersustainability goals.There is a growing awareness that a companycannot achieve sustainability goals on its own: itrelies, among other factors, on the ESG performanceof its suppliers. For instance, the sustainabilityperformance of a consumer goods companywill depend on the environmental impact of itspackaging suppliers; a food company will dependon its dairy or grain suppliers; a train operator willdepend on its train manufacturers. All players ina value chain are interconnected when it comesto sustainability. That's why companies committed to ESGperformance need to engage and challenge theirsuppliers on their sustainability journey.Achieving this involves three successive steps that wewill explore in this paper:Engage and monitorEnableAssess 3 © Oliver WymanASSESS YOUR SUPPLIER BASEto define a licence to operate and focus on what mattersmostWith supplier bases ranging from a few hundredto more than 20,000 suppliers, large companiescannot assess all of their business partnersindividually. Therefore, advanced players adopta “mass balance” approach, concentrating theirefforts on a shortlist of key suppliers and employinga “license-to-operate” strategy with the rest. Thismeans assessing the entire supplier base usinga standardized method, defining the minimumrequirements a supplier must meet to qualify, andensuring these requirements are metefficiently.To achieve this, mature players typically create aresponsible sourcing policy for all suppliers to sign,combined with standardized questionnaires and/or automated ratings using external databases(for example, CDP for carbon, water, and forests,Ecovadis for supply chains, or Bureau van Dijk andDun & Bradstreet). Suppliers failing to meet thedefined minimum requirements (CDP grade, SBTitargets, % of renewable energy in their operations)are excluded from the supplier panel. While this approach is a step in the right direction, itcan create a significant administrative burden withuncertain impact, as it can be perceived as merebureaucratic exercise. Focused efforts on a subsetof suppliers and key ESG dimensions will go beyondthis first layer and implement deeper assessmentmethodologies. This subset is defined based on thesize of the business with the supplier, the operationaldependency, the materiality of the sustainabilityconcerns, and the inherent risk of the purchasingcategory (such as palm oil, coffee beans, or cobaltfor batteries). This second layer of assessment oftenconsists of more detailed questionnaires, ratingsand audits.Based on this shortlist of suppliers and selectedESG dimensions, the next step in the sustainabilityjourney, “engage”, will also be activated. 4 © Oliver WymanComplementary analysis on selected categories and/or specific risk profiles to fine-tune risk assessment and coverageFor selected number of suppliersDetailed externalquestionnaireSource: Oliver Wyman Analysis External rating requiringsupplier involvementAuditsand/orand/orecovadis © Oliver WymanENGAGE AND MOTIVATE YOUR SUPPLIERSin their sustainability journeyEngaging key suppliers involves a mix of incentivesand penalties. Mature players find the right balancebetween applying pressure and offering positiverewards. Again, this can only be achieved with asubset of the supplier base and ESG priorities