The new year presents a great opportunity for FMCG businesses to assess their environmental, social, and governance (ESG) criteria, with a particular focus on sustainable procurement and reducing their supply chain carbon footprint. Chief Procurement Officers (CPOs) must ask themselves: Are our sourcing decisions supporting low-carbon procurement and advancing our net zero goals?
There is no doubt that the pressure is on. Many FMCG manufacturing businesses have made their ambitious ESG goals public. Apart from the moral obligation to fulfil these promises, there are risks associated with non-compliance. For example, businesses can face fines and reputational damage for neglecting their carbon footprints. This can spill over into other areas, such as recruitment, customer satisfaction, and product innovation, all of which impact profits.
Beyond risk mitigation, CPOs have a unique opportunity to optimise resource use across the business and drive meaningful impact. How, then, can CPOs from FMCG businesses ensure that their strategies for carbon reduction in procurement are primed to deliver? Here are some key considerations for transforming the status quo.
Understand your supply chain carbon footprint
To fully understand whether a low-carbon procurement strategy is on track to deliver, it is helpful to assess the situation, which can be accomplished in a few steps.
First, CPOs can conduct in-depth surveys and interview their key stakeholders to understand how their supply chains are performing. Activities within the supply chain should be compared against the goals set out by bodies that support the Paris Agreement, such as the Science Based Targets Initiative (SBTi) and the UN Sustainable Development Goals (SDGs).
Next, evaluate supply chain resilience. This can be done by assessing the business’s robustness against carbon regulations. Simultaneously, it is sensible at this stage to check other issues with ESG in procurement such as child labour, slavery, taxation, fraud, and wages.
Following this process, CPOs can illuminate key risk factors and opportunities, which are key components for reviewing a procurement carbon footprint reduction strategy.
Plan resource allocation
Once the carbon-cutting roadmap is established, it is time to address resource allocation, which can present fresh challenges. Cutting carbon often brings indirect business benefits—linked to delighting customers and meeting regulations—but does not automatically reduce direct costs. It can even increase unit costs, as seen when FMCG manufacturers use recycled plastic in sustainable packaging strategies, which may cost more than virgin plastic due to high demand.
So, to demonstrate return on investment, CPOs must clearly show how their low-carbon procurement plans will make the supply chain more resilient and enable savings – albeit indirectly.
Prioritise projects by carbon impact
There is also the question of which projects in the carbon reduction plan to fund. These projects will span multiple business areas, including packaging, ingredients, materials, commercial operations, transport, and more, each of which should be ranked by its carbon-cutting potential. Then, based on the impact each project promises, a budget is allocated. Gauging this potential and, therefore, budget allocation, however, is highly dependent on an external variable: carbon datasets.
For example, a food or drink manufacturer that needs to choose the most sustainable packaging may compare the merits of glass, recycled plastic, and aluminium cans. Upstream data is critical for carbon emission reduction in the supply chain, so it’s imperative that data on these materials is accessible.
However, securing this data is very difficult in practice. It must come from suppliers, who contribute significantly to emissions data. Every product or service they offer reflects a path through the value chain and, therefore, carries a carbon footprint – but not all suppliers have the expertise to extract accurate data based on their carbon activities. How, then, can FMCG manufacturing CPOs resolve the supplier carbon data puzzle?
Set low-carbon procurement targets
Businesses must prioritise securing accurate data from suppliers. However, leaders first need to understand what information is required and for what purpose. To best determine this, leadership must align. It is crucial to agree on the carbon criteria that suppliers must meet and the information they should provide.
These expectations must integrate with supply chain activities and sustainable procurement targets, a step that will help CPOs define criteria. Once it is clear what information and activities the business expects from suppliers, these criteria must be shared with senior leaders to ensure that everyone is on the same page.
Collaborate with suppliers
For CPOs seeking to reduce the risk of non-compliance and implement effective carbon-cutting programmes, it is crucial to collaborate with suppliers and understand their practices.
The spirit should be to help suppliers support your carbon reduction in procurement goals. However, before this can be achieved, procurement must clearly convey what the business expects. Subsequently, the question becomes: how can you help suppliers to help you?
The answer lies in guiding suppliers to improve their own carbon emission performance. To do this, assist them in setting goals. With this in place, it is time to build their expertise: establish educational training programmes, provide ample resources, and be generous with support.
Next, procurement teams can collaborate with suppliers to achieve the agreed-upon standards. A relationship built on mutual goals increases the likelihood that suppliers will support carbon-cutting efforts. They can then offer the data necessary to refine carbon plans.
Monitor carbon-cutting performance
Finally, procurement teams can create processes to monitor carbon-cutting performance and data quality. CPOs will benefit from regular audits and supplier self-assessments.
Additionally, consider introducing robust data management technology to help streamline reporting. At this stage, it is prudent to engage third parties to accredit any carbon-cutting success, as this will build credibility and encourage further performance.
Driving business value through sustainable procurement
When procurement teams and suppliers work harmoniously towards carbon emission reduction in the supply chain, CPOs can drive long-term success.
For one thing, it makes the entire supply chain less risky and more robust, thanks to the accurate data required. For procurement, this serves as a platform for further success. For the broader business, there is also a wealth of value to be found—such as winning over investors at lower costs, growing returns, boosting brand reputation, securing customers, and attracting talent. At the end of the day, when procurement delivers on the sustainability agenda, the entire business wins.
So, as CPOs prepare their plans for carbon reduction in procurement, they can add significant value to the business, broader net zero goals, and the planet. At the core of this success is ensuring accurate supplier data. Achieving this requires strong partnerships with suppliers and alignment with fellow leaders to determine carbon reduction needs and expectations. When all is said and done, CPOs who can maintain a robust low-carbon procurement strategy will be well-positioned to drive positive change.