Builders and how to green your supply chain
Willow Aliento | 5 March 2015
Some construction industry heavyweights are taking the sustainability mission beyond the base building rating approach, looking instead to improve sustainability along the entire supply chain through a new online tool and e-learning platform.
According to Mark Lamb, general manager of the Chartered Institute of Procurement and Supply (Australasia), it’s a valuable initiative as decisions made about suppliers are a major determinant of whether a building is truly sustainable in lifecycle terms.
Launched this week, the Supply Chain Sustainability School aims to increase subcontractor and supplier sustainability knowledge and competency through self-assessment tools and a resource library that addresses topics including energy, waste, water, carbon, environmental management and climate adaptation.
The program has eight founding partners – John Holland, Mirvac, Stockland, Downer Tenix, McConnell Dowell, Infrastructure Sustainability Council of Australia, DuluxGroup and Laing O’Rourke – and additional funding and support has been provided by the NSW Government, Sustainability Victoria and Construction Skills Queensland.
John Holland group manager for sustainability and co-chair for the school Renuka Sabaratnam said the tool would address the growing expectation that Australian construction and infrastructure projects should be built in a sustainable manner and in line with international best practice.
Mirvac’s procurement manager construction Roderick Petre, the other co-chair for the school, said it would help close the current knowledge gaps and assist contractors and developers to enact their own sustainability policies more effectively by creating a means of educating suppliers. Mirvac’s own supply chain would be encouraged to engage with the school, he said.
“The school will provide a fantastic independent solution to education for our supply chain,” Mr Petre told The Fifth Estate. “There is no doubt this will be a benefit to the industry and to Mirvac. We identified education as a barrier to sustainability being integrated into the industry and as such set ourselves a target of [educating] one million [people]. This is a great tool to help achieve that.”
It’s a timely initiative, given that professionals in the procurement sector are increasingly factoring in environmental and social sustainability, including ethics.
The rise of the triple-bottom-line
Mr Lamb told The Fifth Estate that triple-bottom-line sustainability had become a focus across the board.
“It has now become the standard people look for,” he said.
The demand is not only coming from within firms from staff who want to know their company is ethical and sustainable, but also from market stakeholders, shareholders, clients and also sometimes from suppliers themselves.
The concept of sustainable procurement applies to even minor purchasing decisions. Mr Lamb said that many mining companies, for example, were trying particularly hard to achieve more sustainable operations. A case in point is procurement of truck tyres, where the focus is on the lifecycle of the tyre, looking for longevity rather than the cheapest possible price, as there is a cost to replacing tyres not only in the tyres themselves, but in time off the road while they’re being fixed and potentially in human health and safety risks from blown tyres.
“If people use the wrong sustainability practices, it costs organisations,” Mr Lamb said.
Ultimately, looking only at the cost bottom line and seeking the cheapest rather than looking across the lifecycle and seeking the best value is a false economy.
A generational shift
The lifecycle approach has been part of a general shift in procurement.
“Once upon a time, procurement was about purchasing, and it used a transactional cost model, because a few decades ago, purchasing was just about costs,” Mr Lamb said.
“But it’s not about that anymore, now it uses a more holistic model, and cost is only one element, alongside longevity and ethical, social and environmental considerations.”
What this means is sustainable procurement aims to deliver value for a money on a whole-of-life basis. This approach, Mr Lamb said, generates benefits not only to the organisation but also to society and for the environment.
Mr Lamb said the CIPS members working in the construction and property sectors, who account for around five per cent of the organisation’s 4000 Australasian members, were reporting an increasing recognition of the importance of sustainable procurement and engagement of procurement professionals throughout project lifecycles. However, they were also saying they needed to play a bigger role.
Given the massive multimillion dollar figures involved in construction and infrastructure projects, Mr Lamb said it was crucial procurement personnel were involved in sustainability decision-making. This could also improve safety and longevity outcomes, he said.
Ultimately, he said, sustainable procurement is not about cost, it is about value. It is about procurement practice that delivers outcomes that “last the distance”. In property terms, this means buildings with lifespans of 50 to 100 years or more, not 25 years.
“There are many buildings that have not stayed the distance,” Mr Lamb said, noting that issues such as concrete cancer due to the use of the wrong kind of reinforcing and window seals that aren’t fit-for-purpose or fail were examples of poor procurement that have caused even quite recent buildings to fail.
“With intelligent buildings, the use of resources is minimised, and good engineers will use products and resources that last decades. [Builders] will not just be cutting corners so developers can make a quick buck,” he said.
“In buildings and construction, [procurement] needs to use whole-of-life basis to make decisions about materials that will go the distance. The test of time will determine if a project has practised good procurement or not.”
Build up to value, not down to cost
The message is simple: instead of building down to a cost, projects should aim to build up to a value.
“The value proposition generates benefits not just to an organisation but also to society and the economy, and also minimises environmental harm.”
The degree to which a product uses non-renewable materials is a major element of the environmental lens. In the CIPS publication A Cynic’s Guide to Sustainable Procurement, data showing the limitations in supply of critical elements such as metals used in technology like BMS systems and solar panels makes the case for careful decision-making.
The publication also outlines the growing evidence that sustainability is a critical factor in the long-term performance of shares.
It states that any organisation is only as sustainable as the products and services it brings in from the supply base; and also, that 85 per cent of sustainable development issues that attract media interest arise from supplier activity. When between 65 to 85 per cent of any firm’s operational costs are related to external suppliers, there is significant reputational risk involved in engaging with unethical or unsustainable suppliers, for example, the consumer goods manufacturers impacted by boycotts of unethically produced palm oil
Mr Petre said Mirvac was applying the sustainability lens to 75 per cent by value of its supply chain, and plans to extend this to the entire supply chain.
“We are currently in the engage, educate and encourage phase of this process as we seek to understand sustainability within our supply chain and recognise leadership,” he said.
The company has recently released a supply chain questionnaire and code of conduct for current suppliers, and as part of internal procurement processes, all potential suppliers are now requested to complete the questionnaire and review the code to get an understanding of the sustainability strategy.
“The school compliments this approach as it offers an independent educational facility for our suppliers. The benefits are simple, as in many cases we are only as good as our suppliers, so without their support we would be unable to deliver our plan.”
Good procurement is a science
Mr Lamb said that good procurement was a science in its own right.
“Some firms see it as a competitive advantage. Others, such as Qantas and Air New Zealand, see the added value procurement brings to their organisation,” he said.
When procurement personnel are given the authority to make sustainable decisions, they can deliver cost savings to both a company and its customers, he said.
So, instead of the old transactional purchasing approach of simply looking for a widget at the best price, procurement is becoming involved every step of the way in the delivery of products and services, and often involved in key decision-making processes.
Mr Petre said that his company’s procurement approach looked at both cumulative small gains and big, bold sustainability moves.
“We know innovation exists throughout our supply chain and we hope that through our program of engagement and education we will open the doors for suppliers to excel,” he said.
“There is no doubt that as the industry matures and sustainability becomes more mainstream, costs come down and it is easier to deliver sustainable performance.
“We would benefit if the industry adopted environmental product declarations and all suppliers produced them for every product. We are already working with the Steel Stewardship Council to help create a certification system for the steel industry. This should happen in all industries so that customers such as Mirvac can make informed decisions.”
A range of resources have been developed by CIPS that assist both procurement personnel and supplier firms to benchmark and improve on both sustainability and ethics within organisations and also within supply chains.
The organisation has a global index for sustainable suppliers that members can use as a tool for benchmarking. To be listed in the index, firms are audited for triple-bottom-line sustainability against the requirements of best practice International Standards Organisation standards.
It also provides ethical procurement training and has an “Ethics Mark” program, which Metro Trains Melbourne and NSW Trains have both earned. Mr Lamb said the tool used in the ethics assessment was rigorous, “not just a tick and flick”.
Arup has undertaken the CIPS Sustainable Procurement Review, becoming the first firm to earn a Gold Award. The outcomes of the review included a seven per cent reduction in energy use across the organisation, through collocating and virtualising the firm’s servers.
Mr Lamb said the organisation currently has a project underway with Standards Australia to develop an Australian standard for procurement, which will incorporate sustainability and ethics considerations.