Social procurement: ethical purchasing and supplier diversity for SME sustainability

When a business uses its buying power to generate social value beyond the value of the goods or services being purchased, it’s known as social procurement.

Over the past three years private and government sectors have spent a combined $222 million AUD with certified social enterprises. (A certified enterprise has verified its commitment to social value and to connecting with businesses looking to engage social enterprise as part of procurement.)

With 88% of consumers wanting to engage with brands that are making a social and sustainable difference to society, there is significant opportunity for small businesses to gain a competitive advantage while building a positive social and environmental impact.

Deloitte’s 2018 Human Capital Trends report found 77 per cent of companies around the world rate social impact as important. However, 51 per cent of those organisations are unclear how to advance their social impact.

This article sets out the main reasons why you should review your procurement practices and how best to go about it.

Supplier diversity

A diverse supplier is a business that is at least 51 per cent owned and operated by an individual or group that is part of a traditionally underrepresented or underserved group.

In Australia, the common target of social procurement is to include more Indigenous owned and operated businesses alongside disability enterprises. The Commonwealth Government’s Indigenous Procurement Policy sets annual targets for the volume and value of contracts to be awarded to Indigenous enterprises. Many state governments have their own social procurement frameworks.

While social procurement strategies could assist SMEs in tendering for government contracts, diversifying your supply chain brings further benefits.

The Hackett Group’s research found that supplier diversity programs broaden value propositions to drive increased market share and other revenue opportunities.

Business benefits of social procurement

Attract investors interested in social impact

A report by the Responsible Investment Association Australasia (RIAA) in partnership with Deakin University found that the market for impact investing grew 249 per cent to $19.9b in the two years to 31 December 2019.

Competitive advantage

A 2015 Nielsen analysis found that 56 per cent of consumers were willing to pay more for products and services from a company known for its commitment to social value.

New streams of revenue

A recent Deloitte global readiness report observed that 57 per cent of business leaders had generated new revenue by developing or changing products or services to be more socially or environmentally friendly.

Attract and retain next generation talent

Among millennials, 64 per cent consider a company’s social and environmental commitments when deciding where to work. An overwhelming 88 per cent find a job more fulfilling when they are provided opportunities to generate a positive social and environmental impact.

Three practical ways to increase social procurement and supplier diversity

#1: Create a social procurement plan

A social procurement plan details the social objectives of your organisation and determines what your company aims to achieve by engaging in social procurement. Your plan should detail measurable goals around topics such as environmental sustainability and local community engagement. These goals will inform the kind of suppliers you will look to procure goods and services from.

Your plan needs to identify who in your business is responsible for your social procurement strategy, analysing suppliers for diversity and ethics and engaging new suppliers as part of that framework.

The plan will also detail training and education opportunities for your own staff to understand the social procurement strategy and how it works.

#2: Audit your supply chain

Audit your current supply chain by asking your suppliers if they employ or engage with Indigenous businesses, social enterprises, women-owned businesses, or businesses owned and operated by disadvantaged or marginalised groups. Some of your current suppliers may have their own social impact strategies that you weren’t aware of. You may find current suppliers already meet your social procurement conditions.

Identifying gaps or areas for improvement, you can source new partnerships with social enterprises or other businesses that better fit your social procurement plan. Social Traders has a Social Enterprise Finder which can help you connect with like-minded businesses.

#3: Partner with an organisation

There are organisations in Australia that can connect your business with social enterprise, Indigenous businesses, and disability enterprises across the nation:

Social Traders connects businesses with registered social enterprises across Australia. They facilitated Australian property group Mirvac’s partnership with social enterprise Mates on the Move, a transport and logistics company providing support and employment pathways for people exiting the corrections system. Over the past three years, procuring with Australian social enterprises via Social Traders has supported 1430 jobs and delivered $13.3 million in community goods and services.

Supply Nation connects businesses with Aboriginal owned and operated business across Australia. Key findings of their recent Sleeping Giant Report found that for every dollar of revenue, Indigenous businesses create $4.41 of economic and social value.

Buyability helps you identify and source Disability Enterprises nationally that you can procure services and products from.

Assess legal risks of your social procurement policy

Seeking professional legal advice can help ensure your social procurement strategy and documentation are robust, and that your supply chain contracts are sound. Timely business advice from a lawyer experienced with supplier contracts can help you integrate diverse suppliers and ethical purchasing into your overall business plan to achieve your commercial objectives.

Any decision that affects your business has legal implications. Contact us today to help secure your business for whatever tomorrow brings.

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