Sustainable Procurement & Life Cycle Analysis Heather Pearce 9 th February 2010

Contents Sustainable Procurement Strategy Environment Agency Sustainable Procurement Strategy Model Tools Sustainable Procurement Risk Assessment Life Cycle Assessment Whole Life Costing

Developing a Sustainable Procurement Strategy Procurement has a key role to play in achieving the overall vision and mission of any organisation. Procurement can make a significant contribution to any policy goals of sustainable development and resource minimisation by ensuring that suppliers, contractors and the goods and services bought achieve optimum environmental performance. Procurement has an additional role to play in minimising any reputational risk of social exploitation within the supply chain. Procurement therefore has a significant contribution to make in promoting environmental and social awareness in the wider market place through its supply community.

Stakeholder Values Resource Sustainable Procurement Strategy Risk Assessment & Action Supplier Management & Development Integration into Procurement Process Maintaining Excellence Sustainable Procurement Marketing Staff Training & Awareness Org Values Support Framework © Environment Agency 2006

Environment Agency Tools Sustainable Procurement Risk Assessment Commodity Guidance Document Centres of Expertise Sustainable Questionnaire Managing Actions Sustainable Procurement Guide Supplier Development – Environmental Audit Programme

Sustainable Procurement Risk Assessment Prior to starting a tender process, procurement teams should conduct three complimentary assessments. These assessments should be used to inform procurement strategy development. The 3 assessments are: Commercial / Business Risk Assessment Environmental & Social Risk Assessment Market Influence Risk Assessment

Commercial / Business Risk Assessment Is the purchase core to the business? Would recovery costs be high? Is there a limited number of suppliers? Do we have difficulty in describing and measuring what we want? Will the organisation suffer negative PR if supply fails? These high level risk questions will begin to flag the commercial issues in the purchase being developed.

Environmental & Social Risk Assessment Does the purchase or the service provider have potential for high- energy consumption? Is the product made of, or does the service provider use unsustainable materials? Does the item or the service provider have potential to cause a pollution incident in the performance of our work? Are excessive emissions (land, air, and water) caused during the manufacture of goods used directly or by service providers? Is there a likelihood of a developing world supply chain? Is there an environmental/ social PR risk to the organisation in purchasing the product or service? This will start to flag the degree of environmental and social risk present in the contract.

Market Influence Risk Assessment Does this organisation brand/ reputation influence us? Is this organisation a customer that is easy to work with? Is this organisation an intelligent client that is informed in its dealings? Is this organisation efficient in its business dealings with us? Does this organisation pay on time? Is this organisation a key client we need to have in order for us to win other business with other organisations? Does this organisations total yearly business represent more than 0.5% of our turnover? Of the products/ services that this customer buys, is it the main customer of those products within our portfolio? Is this organisation open to change to make itself easier to work with? By working with this organisation do we become better? Do we operate in a saturated market? Are low switching costs operative within this marketplace? These high level risk questions will begin to flag the ability of the organisation to influence the market

Assessment Results The results of these three assessments are designed to: Inform procurement decision making Become instrumental in the development of procurement strategies, action plans and/or the identification of an alternative product or service In other words, the results of these assessments inform procurement as to the nature and extent of management resource required to manage business, environmental and social risks and which of the following areas to focus resources into: Specification/tender requirements Supplier selection/appraisal Contract management and setting of (environmental) performance measures

Life Cycle Assessment & Record STEP 1: Assess Life Cycle using the Life Cycle Record Raw material…Use/Maintenance… Manufacture…Disposal….

Life Cycle Assessment & Record STEP 2: Use the Life Cycle Record to Map Impacts Aspect / Impact Raw material ManufactureUseDisposalComments Non- renewable/n atural resource use Energy Water use & Pollution Air emissions / VOC Solid waste Hazardous substances Packaging Noise Developing world supply chain

Life Cycle Assessment & Record STEP 3: Undertake a Strategic Environmental/ Social Risk Assessment Strategic Sustainability Risk AnswerNotes Existing or forthcoming legislation or national strategy concerning product/service. Yes / No Industry subject to IPPC regulations Yes / No Commodity linked to or subject of “green” pressure group campaign Yes / No Developing world supply chain Yes / No

Risk Assessment Outcomes The risk assessment will help identify the environmental and social risks associated with the procurement exercise. This means the organisation will be able to rank commodities and either avoid or manage the risks effectively and will provide the key information to facilitate the development of future strategies. The environmental commodity guidance was developed to assist procurement staff in the production of their contract strategies.

Whole Life Costing Once the life cycle mapping has been identified from raw materials through to disposal, we can start to look at whole life costing of the product or service. Tenders are evaluated taking into account cost, quality and sustainability criteria. Cost is not simply the initial purchase price but should incorporate the whole life costs which include costs associated with maintenance, use and disposal.

Whole Life Costing – Constraints Complicated Lack of knowledge of the supply chain and product life cycle Subjective Comparability Reliability Time consuming Budget / finance complications (Capital Vs Revenue budgets)

Way Forward Complicated – Start off simple and build up as you get more experienced Lack of knowledge of the supply chain and product life cycle – life cycle analysis and market analysis Subjective – organisations replacement policies Comparability – cost of use subject to supplier information which may not be comparable with competitors variables Reliability – not an exact science, you will never be able to predict how often and how expensive it will be when equipment fails. Time consuming – working out whole life costs takes time, especially complex requirements. Budget / finance complications (Capital Vs Revenue budgets) – work with finance and maintenance functions to try and resolve this conflict.