Sustainable Procurement

Read this article, which highlights a novel strategy for procurement. Focus on sections 1, 2, and 5 and the opening paragraphs for sections 3 and 4. The model in the paper presents a new strategy to reduce procurement costs and enhance overall procurement flexibility.

Literature review

Sustainability can be achieved by changing the objectives from the economy driven towards economy, environment and society driven. This triple bottom line approach is also the cornerstone of sustainable procurement process. Material intensity, energy intensity, water consumption, toxic emissions and pollutant emissions are five basic sustainability indicators. The sustainable procurement process basically improves above five metrics. Literature on the sustainable procurement process is very limited. Only few journal articles have been found which considered environmental and social aspects – separately or together. With this limited journal articles an attempt has been made to answer few interesting questions: Is supplier selection, one of the key elements essential to supply chain success? What are the key dimensions to measure supplier performance? How to improve sustainable procurement process with postponement strategy?

Suppliers have been acknowledged as the best intangible assets of any business organization. Tracey & Tan mentioned that one of the key elements essential to supply chain success is an effective purchasing function. H Shin et al. proposed that the buyer performance can be enhanced with the improvement of supplier performance. Smith et al. considered that the good relationship between buyer and supplier is based upon exchanging information and sharing benefits with each other. However, Spekman showed that communication between supplier and buyer is always limited as buyer always focuses on the price of products and ignores the importance of preserving the long term relationship with suppliers. Van Hoek proposed three approaches for green supply chain management: (1) reactive approach, (2) proactive approach, and (3) value-seeking approach. Noci divided corporative green strategies into (1) reactive strategy, and (2) proactive strategy and integrated these green issues to supplier selection. Hsu & Hu measured supplier performance with five dimensions: (1) Procurement management, (2) R&D management, (3) process management, (4) incoming quality control, (5) management of the system. Noci  suggested that a firm practicing green supply chain should evaluate suppliers with four factors: (1) green competencies, (2) green images, (3) current environmental efficiency, and (4) net life cycle cost. Handfield et al. proposed an environmental conscious purchasing decision to trade-off between environmental dimensions using the analytic hierarchy process (AHP). Wu et al. proposed the integrated approach of AHP and fuzzy logic to select green suppliers. Lee et al. used both environmental and non-environmental criteria, namely, quality, technology capability, pollution control, environmental management, the green product, and green competencies, for selecting green supplier in high-tech industry. Bai & Sarkis integrated economic, environmental, and social issues into the supplier selection model. Particularly they emphasized more the social dimension in their model. On the other hand, postponement is a concept which brings the efficiency of the lean concept and the responsiveness of the agile concept together.The major reason of using postponement strategy is that one extremely high demand may be offset by another extremely low demand after aggregation. Apart from reducing demand variability, postponement is also used to tackle process and supply uncertainties. There are four forms of postponement strategies, namely pull postponement, logistics postponement, form postponement and price postponement. The former three strategies are also referred to as production postponement. Bowersox & Closs stated three different postponement strategies- time postponement, place postponement and form postponement. A detail classification of postponement strategy is given in Table 1.

Table 1 Classification of postponement strategy.

Sl.No. Type Definition Application
1 Pull postponement It is also known as process postponement ,which refers to moving the decoupling point earlier in the supply chain such that fewer steps will be performed under forecast results. 1. ABC Bicycle Company, India.
2. Benetton, an apparel manufacturer, postpones its colour dyeing process until orders are received.
2 Logistics postponement Logistics postponement involves the re-designing of some of the processes in the supply chain so that some customization can be performed downstream closer to customers. Packaging postponement and labelling postponement or branding postponement can be subsets of logistics postponement when the packaging, labelling or branding processes are moved closer to customers. 1. Hewlett-Packard produces generic printers at its factory and distributes them to the local distribution centres, where power plugs with appropriate voltage and user manuals in the right language are packed. Since generic printers are lighter, more units could be shipped.
2. All products in IKEA retail stores are kept in semi-finished forms (flat packs) and are assembled after home delivery by customers or deliverymen. In this way, truckload capacities can be utilized and configurations can easily be made at customer locations.
3 Form postponement Form postponement, also called product postponement, gives fundamental change of the product structure by using standardized components and processes to achieve high customization.
1. Brown et al. applied the form postponement in a semiconductor company
(Xilinx), where it re-designs the IC so that it could be re-configured by software easily and quickly for customized features and functions.
4 Price postponement Van Mieghem & Dada defined price postponement from economic and marketing perspectives. They described the price postponement as a strategy aimed at deferring the pricing decision until customer demand is known. Selling price is negotiated with customers after they place their orders. 1. In July 2002, Bank of China (BOC) in Hong Kong applied a price postponement strategy for its initial public offering.
5 Time postponement Customer order triggers the forward movement of goods. 1.Dell usually assembles computer after the orders are placed by customers
6 Place postponement Keep the goods in the central location of the supply chain until the customer orders are arrived. Hindustan Unilever Limited, India's largest consumer product company, addresses three major market segments: modern trade segment (organized retail sector), general trade segment and rural markets. The modern trade segments, consists of large urban market, are usually serviced by a HUL warehouse that supplies to the cluster of retail locations.

The concept of postponement germinates from the Just-in-Time (JIT) principle; as both focus on to have the right product in the right place at the right time. Postponement makes forecasting easier at a generic level than at the level of finished forms because demand variability is reduced by aggregation. Postponement strategy always tries to address various ways to reduce the complexity of supply chain with effective product family architecture (PFA). Its modular characteristic not only reduces the cost of assembly but also enables outsource capability and speeds up new product development. The more outsourcing opportunities a company can pursue with the increase of the degree of modularity. However, extensive literature review has not found any journal article which integrates postponement strategy with the sustainable supplier selection process.