Today we continue with Part Two of Extreme Sourcing: Aiming for Perfection in Spend Management and how sustainable business practices are not only more economical, but also mandatory if we want to have a planet in which we can all live in.
We reviewed two of the four pillars of natural capitalism, namely Increasing Resource Productivity and Elimination of Waste. Here come the other two:
3.- Service and Flow.
Every business needs product and services to keep it going. But the ways in which those items are sourced, purchased and used can dramatically affect the impact in the environment, simply by misplacing incentives. The classic example is how companies are now sourcing for photocopiers. In the not-so-distant past, vendors like Xerox, Canon, Ricoh and others made their money by selling photocopying equipment and a juicy maintenance conract attached to it. The equipment was the product being transacted and the purchaser was married with the manufacturer for the life span of the equipment.
Now, every major client I have worked with has, or will soon move to a services agreement in which it pays by printed document. The client is paying for the photocopying service, not the equipment itself. In this case, the manufacturer has every incentive to keep the equipment working at it’s peak efficiency and for the longest time in order to recoup the investment and then make profits. If the manufacturer can extend one year more of productive life out of the standard five years from it’s equipment, each machine can now increase revenues by 20% with little extra investment. It requires that the manufacturer designs the machine in ways that minimizes overhauls, uses high quality and durable components, lowers cost of operation and be fully recyclable so old components can be re-used or fully recycled into new equivalent ones.
Now, I may ask, why can’t we do this for every non-core process in the enterprise? Companies can buy conditioned air services instead of air conditioners from Carrier Corp. or flooring services from Interface, Inc., leasing carpet instead of buying it. Almost every service can be purchased in this way, using a pull approach and paying for what is actually used instead of the equipment to perform the work.
4.- Reinvestment in Natural Capital
So, what do we do with all the money we save after implementing all the above strategies? The standard way would be to return the money to investors or “invest” in the traditional sense. New plants, equipment, employees and R&D. That is capitalism, and it is indeed good. But the focus of those investments is the one that should change.
Instead of just building another manufacturing facility, invest in a sustainable one: one that uses solar lighting, no air conditioning, lean processes, no toxic effluent.
Equipment that minimizes or eliminates waste.
In some instances, because of all the savings attained in manufacturing, companies can actually start looking at hiring more people to take care of some of the tasks that traditionally have been poorly performed by machinery, such as disassembling old equipment, customizing products for demanding clients who bought a “close enough” solution, product or service instead of the ideal one, etc.
And finally, research and development. As an example, I use one that has been widely used in the literature around natural capitalism: spider silk. If a spider can make a totally organic, non-polluting, extremely resistant fiber as it spider web silk is, why can’t we do the same? Why do we need multi-billion dollar investments in chemical plants, generate pollution, waste and massive energy use, when a spider can do it at room temperature using other fully natural inputs? Granted, the spider evolved over millions of years to accomplish that. But did not do it in a vacuum. It evolved out of necessity.
We can evolve out of necessity and be able to create the spider silk ourselves.
So, where does all this talk about natural capitalism leaves for the Spend Management profession? Two key takeaways:
1.- We are part of the core team of professionals who can help shape the future of businesses. We need to educate ourselves in sustainable practices so we can sell internally in our companies the way of the next industrial revolution.
2.- There are sustainable ways in which each service and product entering the enterprise can be sourced, purchased and used. It takes ingenuity and hard work to figure it out, but it must be done. Or else.
