author: Larry Berglund
Want to make a deep-rooted difference in your career?
Step 1: Adopt a social procurement strategy for your organization.
Step 2: Implement it!
What is Social Procurement?
Social procurement was a nascent idea which resonated with supply chain professionals across the public sector. Rather than focusing on and defending the lowest cost for goods and services, buyers could add value and contribute to local social and economic development.
Adding value does not cost more money. Social procurement leverages the current and future demand for spending.
The Purpose of Social Procurement
Social procurement is intended as a means of purchasing for the purpose of social and economic development. The spend is inclusive of a broader set of values, which all stakeholders agree, makes sense. With social procurement, buyers aren’t losing sight of the importance of cost but are aiming at a more positive social impact when redefining value.
For example, in Shrek, a popular children’s movie, the main character, Shrek, realizes the princess Fiona is best as a swamp-dwelling ogre; her being a princess only benefited one stakeholder and Shrek’s adversary, Prince Farquaad.
Why is Social Procurement Necessary?
Buying at the lowest cost was intuitive and it worked for years, until it didn’t. Fast forward to the present and we see oligopolistic markets which control the price and supply in most sectors. The pandemic epoch exposed the problems with this short-term thinking using a price-based model. Material shortages are due in a large part to a lack of resiliency in sourcing.
The system that got us here won’t get us out of this situation. A new approach to product value had to be realized.
Social procurement is a value-based strategy. Social impacts are measurable outcomes which go beyond the conventional transactional role of buyers. To do this, procurement adds social criteria and appropriate weighting in its decision-making.
Rather than alienating small, medium businesses (SMEs), there is a renewed commitment to ensure they have a fair and equitable opportunity to compete for government business. Local is good.
Socially Responsible Suppliers
Social enterprises (SEs) are a part of the supplier community and are often overlooked. SEs are a mission- or purpose-based organizations which can provide goods or services. SEs compete with all other forms of business and can respond to competitive bids and provide a wide variety of services, from IT to hoarding cleanup and everything in between. Every community has an SE. The demand side of government has so many opportunities to connect with this integral part of the supply side.
Social Impact & Supply Chain Transparency
Measuring and reporting on social impact increases the transparency and objectivity of supply chain strategies. Examples of outcomes can include the number of people who face systemic employment barriers being hired; the amount of hours of work for youth-at-risk; the number of contracts awarded to local SMEs; the number of contracts awarded to First Nations contractors. Having contractors track these types of KPIs helps with the measurement and accountability.
Tips to Design and Implement a Social Procurement Strategy
Supplier diversity programs can be an important component within a social procurement strategy. The seminal work done by Paul Larson Ph.D. https://umanitoba.ca/asper/asper-school-business/faculty/paul-d-larson, on supplier diversity, indicates a great many benefits to private and public sector organizations.
These can include:
- Increased competition among vendors, leading to better pricing and more innovative products and services
- Increased flexibility and just-in-time delivery from vendors
- Building the most-qualified supplier pool
- Reducing supply chain risk, by engaging multiple, capable suppliers
- Increased access to ethnic or diverse markets
- Community relationship building
- Building economic capacity and prosperity in the community
- Building stakeholder relationships and goodwill
Social procurement views diversity and inclusivity as complementary components-not competing interests. Supplier diversity implies a multiple-sourcing strategy which supports a resilient supply chain model. Increased onshoring will likely be attributed to the need for improved availability of goods and services. Food security is better addressed through agreements where local produce, meat, and poultry are encouraged in contracts with a lesser reliance on imports.
Living Wage Considerations
Living wage (LW) programs are often adopted by leading organizations which initiate social procurement strategies. When LW rates are paid, as opposed to minimum wage rates, to contractor employees, there is an increase in the spending by these employees with local businesses. This redistribution of wealth in the local economy largely offsets the out-of-pocket costs between these wage rates.
From the first LW city of New Westminster in 2011, there are now dozens of LW cities across Canada. Another sign of the emergence of social procurement.
Fair Trade Programs
Fair Trade (FT) programs demonstrate the difference between conventional procurement and social procurement practices. Buying bona fide FT products ensures the environment is being protected and the workers in the industry are receiving better incomes, with improved working conditions. Using a city as an example, this means that at every civic function, FT products should be served.
Conventional buying, in this case, favours one service provider to provide open market coffees, teas, all under one large contract to get the lowest price for the products, coffee dispensers and urns. Very efficient. Under a social procurement policy, the city has the option to buy FT products from the many local roasters and brewers across the city for these events which supports local catering and employment. This strategy will favour local SMEs and SEs. Very effective.
Ethical Trade Agreements
Trade agreements are often cited as being barriers to social procurement or the broader issue of sustainability within the supply chain. This is an inaccurate characterization of the many trade agreements which actually support social initiatives. All trade agreements have exceptions, exemptions, and exclusions which enable contracting with SEs without necessarily running a competitive bid. These waivers provide more latitude and professional discretion to work with local SEs. Direct awards can be made to an SE without contravening trade agreements or compromising best practices. Increased public sector demand helps to build the capacity of SEs in the market while receiving good value for those goods and services.
Social Procurement: It’s Worth the Journey
Social procurement is not without its challenges. However, implementing these strategies is very gratifying professionally as you can see the direct impact. Increased local employment and contributing in a meaningful way to community development is a role that supply chain professionals should leverage to make a real difference. If Shrek can, you can too!
If your team needs training on social procurement then please check out our webinars: https://theprocurementschool.com/webinars-trainingformyteam/
author: Larry Berglund
Disclaimer: The views and opinions expressed in this article are those of the Subject Matter Experts and do not necessarily reflect the official policy or position of The Procurement School.