Beyond transactions: How a systemic lens reshapes Procurement
Written by Alis Sindbjerg Hinrichsen & Oleg Kofoed
Procurement professionals have the power to influence buying decisions. Through shifting its approach towards a more responsible, resilient and potentially regenerative economy, procurement can act as a catalyst for systemic innovation and thinking that would serve the health of ecosystems globally and locally.
Many firms experience a dilemma between balancing sustainability, or if ambitious, regenerative goals, while meeting cost-optimization targets. In contributing to a regenerative economy, procurement has the possibility to incentivize spending that delivers on three needs: Generating net-zero GHG emissions globally, which may entail net-sequestering in some sectors for decades to come; restoring ecosystems, aiming at net-increases in biodiversity for several key biomes, and providing inclusive, safe and fair livelihoods for all.
In this article, we will explore how a systemic lens could potentially reshape Procurement and continue to keep Procurement at the cutting edge when it comes to enabling transformative change.
Change at the roots vital
Transformations across societies are inevitable given the scale, pace and depth of environmental and social change. Some of these deep structural changes will be imposed upon us as impacts of climate and other biophysical change accrue, while other more desirable transformations may emerge if humanity stewards change toward new social-ecological patterns. It requires fundamentally altered ways of thinking, acting and relating between people and planet. Today, an increasing number of initiatives and organizations are putting systems thinking into practice.
Systemic innovation is necessary because it addresses the root causes of problems rather than just treating their symptoms. Many of the challenges we face today are multifaceted and interconnected. Systemic innovation allows for an approach to problem-solving that combines more factors contributing to an issue across disciplines from the perspective of a connected whole.
Here are several reasons why systemic innovation and thinking is crucial:
Addressing inequality: Many societal issues, such as poverty, discrimination, and lack of access to basic resources, are deeply rooted in systemic inequalities. Systemic change aims to dismantle these structures to create a more equitable society. Creating capital, not just income. Investing in the farmers’ regenerative transformation to create healthy soil and resilient local economies.
Promoting justice: Systemic innovation often involves challenging power dynamics and advocating for marginalized communities. It seeks to ensure that everyone has equal opportunities and rights within society. It uproots structural dispositions that maintain and support exclusion and promotes empowerment.
Building Resilience: Addressing systemic issues can make communities more resilient in the face of crises, rather than individual economic agents. By strengthening social structures and economic, natural, and cultural buffers, systemic innovation can help mitigate the impacts of disasters and emergencies.
Procurement enables the business strategy
When discussing how a systemic lens is reshaping Procurement it is vital to understand Procurement’s role in the business strategy going forward as opposed to what is its role today. Procurement will continue to ensure cost-effective management of the Value Chain, they will be maintaining quality standards, managing risks, fostering relationships and driving innovation with the ecosystem.
What we also need to understand is that today Procurement plays a vital role in driving sustainability initiatives within an organization. This involves sourcing materials and services from suppliers who adhere to sustainable practices. Procurement teams can integrate sustainability criteria into supplier selection and evaluation processes, collaborate with suppliers to improve sustainability performance, and track and report on sustainability metrics to stakeholders. Going forward, Procurement will continue to be a key driver throughout the Value chain.
What changes will be how this task is conducted. A future-fit and effective procurement strategy involves a holistic, interconnected approach that considers the entire Value Chain, ecosystem, and long-term goals. It goes beyond isolated tactics and processes.
If the current business model is not designed to encourage this, it may be time to revisit the business model, in tandem with implementing the best possible practices within the current model.
Procurement’s role in managing systemic innovation
Transform Supply Chains to Value Cycles
We often give the impression to our ecosystem that profit is a prime-mover. This is no longer the case. The purpose of a business is its “reason for being”. Think of profit as the air we breathe — we need it to exist, yet breathing is not our reason for being. The organization needs to be able to demonstrate a purpose beyond hitting the numbers, a reason for being that galvanizes and coheres the organization amid volatile, fast-moving climates.
The ecosystem needs to understand — and contribute in mutuality to — the purpose of the company: how does this purpose contribute to the flourishing of life (i.e. make a positive difference to people and planet)? Are suppliers/external partners chosen in terms of how they relate with the organisational purpose, as well as how they might contribute to a more resilient, fair, life-supporting ecosystem?
The idea of the ‘supply chain’ suggests we are all just links in a chain, passing things along, in a mechanical and unavoidable manner. From a systemic perspective, supply could seek to be inspired more by the feedback loops of cyclical natural and physical systems. When businesses integrate this, including for sourcing products and services, then the relationships, contracts and incentives are more likely to be aligned with the needs of a healthy ecosystem.
Shifting towards a circular and indeed cyclical model of value creation is about more than material flows. The cyclical and dynamically interconnected model of value creation involves a recognition that the purchasing decisions of one organisation are the climate, ecosystem, and community impacts of others. To put it short, what goes around, comes around — whether as degenerative depletion of ecosystem capacity, or as regenerative capacity to heal, grow, and develop.
Today, we experience a call to align all of our industrial processes with the cyclical nature of ecosystems. It is our disregard of this call that has butted us up against planetary boundaries, calling for a systemic, transformative shift.
Slowforest coffee
A good example is the company Slow Forest Coffee, engaging actively with their Value Chain through a systemic approach. By supporting and offering a regenerative coffee solution, Slow helps larger companies take tangible action on their sustainability strategies. They work directly on the ground with local farmers to produce forest grown coffee. A growing method where CO2 is sequestered in the trees growing in between the coffee plants, and biodiversity is strengthened in the coffee forests.
Slow has removed up to 15 intermediaries in the coffee Value Chain to have full ownership and greater impact. The released value from this disintermediation is reinvested in nature and communities to grow coffee in forests and preserve and regenerate more forests. They have taken “fair trade” to the next level by offering farmers a 40% pre-payment to balance their cash flow. They have established an emergency health foundation for the farmers. They educate the farmers in sustainable agriculture practices, have helped them get bank accounts and created individual livelihood improvement programs.
Communication and collaboration with farmers are key to building a regenerative relationship and supply system. Understanding and addressing farmer’s needs and integrating them within the goals of a company are critical to building a strong supplier-brand partnership.
As stated by Mike Lee, Co-Founder & Co-CEO at Alpha Food Labs: “It’s about getting on the ground and talking to them to understand their point of view and build relationships with them. An essential part of the regenerative movement is putting the farmer back on the platform. I think the ultimate tool is asking farmers what they need to grow, and then we can figure out how to build a market for that. We’re trying to create a fully regenerative relationship with them instead of isolating biodiversity and just checking the box”.
Rather than an isolated single case, Slow represents a growing trend both within the coffee market, driven for many years through highly unsustainable, extractive relations throughout the supply chains. Also, this trend is growing beyond the coffee industry, in fields as diverse as cotton manufacturing and agrofoodtech.
Foster holistic & interconnected thinking
Instead of just focusing on individual parts, it is time for Procurement to look at the entire Value Chain process. Everyone within the ecosystem needs to understand that they are part of nature as well as society in existence, not separate from them. This contrasts starchly with the present day, in which human activity has reduced both the efficiency and resilience of energy flows in ecosystems by eroding wild biomass and biodiversity, dramatically reducing their regenerative potential.
Working systemically in procurement means approaching procurement activities as interconnected parts of a larger system rather than isolated parts. This approach recognizes that every aspect of the procurement process, from sourcing to contract management to supplier relationships, is interdependent and influences the overall performance and success of the ecosystem, internally as well as externally.
As an example, if a farmer is supported financially to regenerate soils and ecosystems upon which their production depends, it is just as important to look at the community wider perspective needed to support the farmer.
Embodying an ecological worldview, fostering holistic and interconnected thinking, means that all actions from production of food, energy and materials to financial transactions to our reproductive decisions are performed with awareness of, and in ways that nurture the positive interdependencies.
Procurement needs to find ways to maximize the ability to build, maintain, repair and reproduce as well as adapt and evolve and give rebirth. Without it, approaches and actions are likely to fall back on reductionist and siloed thinking and egocentric notions of human societies separate from nature. Our actions have the ability to maximizing life’s inherent capacity to sustain its organization, productivity and resilience which include a sufficient level of biological diversity and complexity as well as efficient resource flows.
Human well-being in which everyone’s full suite of needs is met and ongoing human cultural and intellectual evolution is enabled, is part of this holistic approach. The desired outcome is not only ecological and human, but mutually reinforcing.
An ecological worldview might be encouraged by collaborative efforts to map or otherwise visualize the internal and external system and how they affect each other with a long-term lens.
Key questions:
· How might we as a business make use of the transparency gained, to innovate and gain efficiencies, as well as mitigate risks and address vulnerabilities?
· How might we nourish a common agenda from a systemic perspective?
· How does each decision impact other parts of the organization?
· How might a systemic perspective lead to uncovering locally rooted practices with the potential to inspire to business-wide regenerative innovations?
Practice collaboration & mutualism
The future ecosystem is going from being transactional to being network focused, as we move into a systemic world-view and practices. This means moving towards thinking like organisms in mutual dependency. Mutualism develops the quality of interactions between individual actors as well as the overall networks towards common benefits and systemic interests. Fostering collaborative relationships with suppliers and partners based on trust, transparency, and common benefit. Recognizing suppliers as strategic partners rather than transactional vendors, and involving them in decision-making processes where appropriate.
Cooperation (working toward a common goal) and reciprocity (recognizing the needs of the other and supporting them in reciprocal action) are key to enhance overall network mutualism and systemic health. Mutualism is as much a shift in our perspective of how organisms interact as it is about how we choose to interact. It means moving from a narrow view of life founded on individualism and competition to recognizing the importance of mutualistic relationships. It grows from the recognition of all actors being bound into one another through our common belonging to living systems. This implies a move from a blind focus on egocentric interactions through ecocentric understandings of network health, and even on to understanding how all (inter)actions might serve the regenerative capacity of an overall mutualistic system.
In other words, mutualistic interactions require care for others as well as care to meet ones own needs. Your problem is my problem, and the benefit of all is my benefit. Encouraging mutualism means encouraging care and can very well be started in local contexts and communities.
In a corporate context, it can also mean resource sharing. Sharing knowledge about successful practice, technologies to share data, etc. Any organization is made up of complex processes of human relating. The capacity to work with tensions and transform misunderstandings or differences into creative potential, helps the organization continuously learn, adapt and evolve.
In 2011, Novelis, the world’s largest rolled aluminum products manufacturer, announced a goal of increasing the recycled content of its products to 80% by 2020. Nearly a decade on, Novelis has opened the largest aluminum recycling facility in the world, reshaped post-consumer collection of packaging in regions where recycling rates have been notoriously low (such as the US), and substantially reduced their absolute GHG emissions — all while growing sales: a shift they were only able to achieve through collaboration and dialogue with key customers.
Although Novelis has fallen shy of its ambitious target, there are lessons to be learned from the progress made and the challenges faced along the way. A closer look at their story offers insights for others in technical, manufacturing and other heavy industries about the changing dynamic for buyers and sellers as we close the loop on raw materials.
Key questions:
· Does the ecosystem openly engage in authentic and meaningful conversations about their feelings, intuitions/instincts, passions and tensions? Are they encouraged to do so/given space to do so? → Is such openness/vulnerability modelled by leaders?
· Is the ecosystem encouraged to — and feel safe to — provide ad hoc informal feedback? Is this in all directions (between team members, leader to teams, teams to leaders?)
· Is conflict always perceived as negative or are tensions sometimes perceived as healthy in terms of growth and learning? How are people supported to approach conflict in a constructive way?
· Are systemic and local needs viewed from a common perspective, shifting the gaze from individual interests to potentials of mutually supportive practices and routines?
In conclusion, it is evident that applying a systemic approach to procurement can yield substantial benefits for organizations. By considering the entire supply chain ecosystem and addressing interconnected issues, businesses can unlock opportunities for cost savings, efficiency gains, and innovation. Embracing systemic thinking in procurement also allows for proactive risk mitigation and fosters collaboration among different stakeholders, leading to deeper innovation solving sustainability issues at a higher level. Ultimately, this holistic approach has the potential to drive positive change, enhance transparency, and align objectives, positioning businesses for sustainable growth and success in the ever-evolving marketplace — or should we say, ‘nature-place’.
To shift from a linear and antagonistic “cost reduction” mentality to a cyclical and mutually dynamic “value creation” mindset requires overcoming decades of learned behaviour for procurement teams. This will only happen if those professionals responsible for day-to-day decision-making are incentivised to prioritise social and environmental outcomes — alongside financial goals — and rewarded for doing so. It requires a shift in incentives and culture as well.
With inspiration from:
https://volans.com/wp-content/uploads/2020/01/Procuring-a-Regenerative-Economy-FINAL.pdf
https://medium.com/@howgoodratings/five-strategies-for-shaping-regenerative-procurement-fad54cca655d