Sustainability Procurement Porfolio Methodology
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The SPPM methodology
The SPPM follows the design principles of Kraljic’s portfolio model. It introduces segmentation thinking from Procurement Portfolio Models (PPMs) into the sustainable public procurement practise. The SPPM allows for developing risk-informed sustainable procurement strategies, based on organization specific sustainability exposure in the procurement portfolio, for optimal prioritization and resource allocation. The model is based on a two-step approach.
The first step develops a segmentation model reflecting category-specific sustainability risk profiles. The category-specific sustainability risk rating is determined across a series of sustainability indicators incorporating a wide scope of Environmental, Social, and Governance (ESG) related factors. The sustainability indicators are extracted from the High-Level Committee for Management (HLCM) framework, defining sustainability risks relevant for procurement activities across UN organizations. The procurement categories are defined as per the UNSPSC coding system applied by most UN organizations. The model applies ratings at the H2 category level.
The second step constitutes the development of segment-based procurement strategies and formulation of guidance for management decisions. The model proposes four distinct market approaches based on the segmentation of categories. The categories are: strategic, critical, market leverage, and non-critical. The segments require different market engagement strategies, that are described in detail below.
The segment of High Risk/High Impact categories represent the highest exposure of sustainability risk for the organization, capturing types of procurement activities that are likely to manifest themselves in the supply chain, and with significant consequences. The segment also represents the procurement activities where the organization is most invested, which is both a liability and a strategic opportunity for influencing change in the marketplace.
- In this space the organization would seek to manage sustainability risk through instigating market innovation and transformation to reduce risk exposure.
The segment of High Risk/Low Impact categories also represents significant sustainability risk to the organization, but without the spending volume to influence the market. The segment is critical as even minor volumes of spend with any suppliers associated with ESG violations can have detrimental implications for the organization in terms of reputational damage and liabilities.
- In this situation the preferred strategy for the organization may be to pursue a Follow-the Leader Approach, identifying market sustainability leaders and follow their lead. The organization may also consider combining procurement volume with other organizations to build more leverage to influence the sector.
MARKET LEVERAGE SEGMENT
The segment of Low Risk/High Impact categories represents procurement activities that do not constitute a major sustainability exposure for the organization, however in which the organization wields potential to influence due to market share.
- In this field, the organization can “raise the bar” and set higher standards for the sector. Through a gradual increase in the sustainability requirements, the organization can systematically develop a demand for products/services with, for example, higher recyclable content, fewer emissions, a higher degree of traceability, etc.
The segment of Low Risk/Low Impact categories represents procurement activities that constitute only a minor sustainability exposure for the organization and limited spend volume.
- In line with traditional procurement strategy practice, the objective would be to reduce the transaction cost of applying sustainability measures. This can be achieved by following market standards already established, including the use of eco-labels and social responsibility certifications.
Please consult the following working paper (available on the One Planet Network) for an extensive description of the SPPM methodology:
A Sustainability-weighted Procurement Portfolio Model (PPM)