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BUSIDATE

Volume 30, Issue 3, 2022

BUSIDATE

Volume 30, Issue 3, 2022

Social procurement -
Buying,selling and the benefits of giving back

Jolene Manford

Procurement is the process of buying goods or services. It is normally in relation to spending by organisations because organisations need to purchase goods on a relatively large scale. Social procurement is when organisations make buying decisions to generate value beyond the value of the actual goods and services. This value can be social, economic, and environmental. The widespread benefits of social procurement continue to gain momentum. The world is shifting from social procurement as an accepted practice to an expected practice – and Australia is no exception.

Social procurement in practice

Social procurement is becoming the normal way of doing business. To understand social procurement, it is helpful to think about how it is different from standard procurement. 

Standard procurement is usually focused on purchasing goods and services at the lowest cost. Procurement is often a key part of a company’s strategy because it can determine whether operations will be profitable. A clothing manufacturer purchasing a bulk order of the lowest cost fabric without considering the workers’ conditions is an example of standard procurement.  

Social procurement, on the other hand, involves making deliberate choices around buying and selling that provide value, with the value being wider than just the financial benefit. This benefit could involve engaging with or improving the economic development of a local community; improving sustainability; improving fair trade; or targeting benefits to a particular group of people who may be disadvantaged, such as people with disabilities, beneficiaries, women, migrants and refugees, or indigenous communities and other ethnic minorities. A café chain choosing to buy its coffee beans from a sustainable coffee bean farm, despite the coffee beans not being the lowest cost option, is an example of social procurement.

As buyers or sellers, companies can be on both sides of the procurement process. Companies may incorporate wider outcomes from social procurement into their normal procurement processes. They can also subcontract the delivery of social procurement outcomes to social procurement experts. Among these social benefits, suppliers are social enterprises, indigenous businesses, disability enterprises, fair trade businesses or businesses owned by minorities. 

Figure 1: Social procurement can create opportunities for groups of people who may otherwise be disadvantaged.

Big spending by governments

Government organisations tend to purchase very large quantities of goods and services at very high values, and increasingly more government organisations are strategically using their purchasing position to embrace social procurement. In practice, social procurement by the government could involve incorporating certain requirements as part of the tendering process.  When putting out a tender for a contract for road maintenance, grounds maintenance, cleaning, or graffiti removal, for instance, the government tendering process could help provide jobs by requiring successful tenderers to employ a percentage of their labour force from the local unemployed population. Another example is indirectly helping to promote workplace inclusion and diversity by requiring successful tenderers to employ a percentage of people with disabilities. In this way, the government organisation adds value through the procurement process that would not otherwise be created.

Everyone benefits

The benefits of social procurement are more than just outward-facing. For corporates and government organisations, there is added value from engaging in social procurement – and letting that be known. By demonstrating the values-driven activity, there are benefits for brand development and attracting and retaining like-minded staff and customers. For corporates, this positive reputation can give them a competitive advantage in the market. There are also benefits for the not-for-profit sector, as money can stay in the social economy for longer and continue to create social benefits.

Giving back is on the rise

Figure 2:Much social procurement is taking place with regards to construction-related spending.

The first in-depth analysis of the breadth and scope of social procurement in Australia and New Zealand was reported in the 2001 report, ‘The State of Social Procurement in Australia and New Zealand’. The research, conducted by the Centre for Social Impact, was based on interviews with almost 200 people from 16 different industries across Australia and New Zealand. Of the people interviewed, 74 per cent reported actively engaging in social procurement. While social procurement spending is happening across all categories identified in the research, the research found that it is most prevalent in the construction, cleaning, and facilities sectors, followed by accommodation, food services, and professional services. 

Thinking socially and strategically

Almost 60 per cent of organisations engaging in social procurement spending report support from within their senior leadership team. According to Social Traders, who identify as the national ‘trailblazer’ of social procurement, it is important that leadership ‘buys in’ to the social procurement movement. Engagement at a high level within an organisation drives and embeds positive activity. 

Social Traders reports that while it is positive to see a rise in social procurement activity and support across business leaders, it is disappointing that only a third of organisations that reported engaging in social procurement in the study have set specific targets. Having a clear social procurement strategy, spending time goal setting, and tracking those goals is important to ensure social procurement is taken seriously and truly embedded within an organisation to achieve outcomes. Interestingly, the research showed that all of the organisations that had actually set targets had either met or exceeded them. 

Figure 3: Research shows social procurement outcomes are stronger when targets specific to social procurement are in place. 

A voice for social procurement in Australia

Social procurement is more than just a recent ‘tick the box’ activity for large organisations to demonstrate good values; it is steadily gaining traction as a social. movement. Social Procurement Australasia is a group of individuals and organisations who believe in the untapped potential of procurement to deliver social impact above and beyond the product or service being purchased. The group focuses on raising awareness of social procurement and connecting people to the information and resources needed to procure socially.

An example of the social procurement movement in Australia is the ‘Indigenous Procurement Policy’ (IPP), which has significantly impacted indigenous Australians. Deloitte Australia recently undertook an independent evaluation of the IPP on behalf of the National Indigenous Australians Agency. In 2019-2020, the policy set targets for 3 per cent of the total number of government contracts to be awarded to indigenous businesses (along with 1 per cent of the total value of those contracts). From 2015 to 2019, Deloitte found that 5 per cent of the total contracts (and 1 per cent of the total value of the contracts) were awarded to indigenous businesses. 

The initiative has directly contributed to increasing the rate of government purchasing from indigenous businesses. As a result, it is leading to increased business, employment opportunities, innovation, and economic outcomes for indigenous Australians. This positive impact has equated to $1.5 billion in the indigenous economy over that time.

Figure 4: A policy for indigenous social procurement is having positive outcomes for Australian’s indigenous community.

Victorian Government leading by example

Spending by the Victorian Government is one of the largest drivers of the Victorian economy. The Victorian Government recognises that its procurement choices significantly impact the economy, the environment, and the community and has developed a ‘Social Procurement Framework’ that sets a clear expectation to make social procurement business-as-usual. The framework advocates for achieving the desired procurement outcome at the best possible price – but not necessarily the lowest price – based on a balanced judgement of financial and non-financial factors, with environmental, social, and economic factors as a core component of value for money.

The social procurement framework is designed to embed social procurement throughout the procurement process and implement a consistent and streamlined approach to achieving social and sustainable outcomes through procurement. It recognises that social procurement is a tool for governments to leverage their purchasing power to achieve broader public policy objectives; increase opportunities and expand markets for ‘social benefit suppliers’; influence mainstream suppliers (namely suppliers that are not social benefit suppliers) to prioritise social value creation; and diversify supply chains to drive competition, promote innovation and provide all suppliers with a full and fair opportunity to compete. 

To ensure that the framework is adhered to, the Victorian Government has integrated mandatory planning requirements and individual procurement activity requirements, as well as mandatory measurement and reporting requirements, across government agencies in Victoria.

Not just big business

Though most of the social procurement spend in Australia is through larger organisations with a turnover of more than $250 million, smaller scale organisations are becoming more aware of the benefits. Increasingly more businesses with a turnover of less than $10 million are also taking social procurement seriously.

An example of a values-driven company that proudly embraces social procurement is the natural beauty products company, Ethique. When Ethique’s journey started in New Zealand in 2012, its founder, Brianne West, was on a mission to buy ingredients in a way that had a positive impact. 

By choosing to use coconut oil as the main raw ingredient in its products, Ethique avoids using palm oil, which is commonly used in beauty products and is well-known for having negative environmental impacts. Ethique buys coconut oil for its products from small communities in Samoa. This supports small producers and family businesses and provides them with the certainty of income to plan for the future, hire local people in the community, access healthcare, and send their children to school. The coconut farms are usually intergenerational businesses, which means the benefit extends beyond just one family.

Ethique also supports women. A local social enterprise, Women in Business, works with the families and helps set up the coconut farms by teaching them the processes, helping them buy equipment, and offering ongoing support. This gives more women employment opportunity and empowers women to have financial independence so they can plan for their futures. 

Since 2012, Ethique has grown from a start-up operating out of a small New Zealand kitchen to an award-winning international beauty brand. Much of this success can undeniably be attributed to the company having social procurement at its heart.

Figure 5: Ethique is an example of a small business that has grown into a successful international beauty brand by embracing social procurement as a core value.

Student activities

  1. In your own words, briefly describe how social procurement differs from standard procurement and provide a short example of each. 

  2. List at least two factors that could help to ensure social procurement is successfully embraced and sustained within an organisation. 

  3. List at least two indirect commercial advantages for a business as a result of engaging in social procurement rather than standard procurement. 

  4. The article focuses mostly on examples of economic, social, and cultural benefits from social procurement. 

  5. Describe an example of environmental benefit from social procurement. This can be based on an actual or hypothetical company. 

  6. Describe at least two ways in which the Australian government could be more proactive about encouraging social procurement. 

  7. Research an Australian company that purchases goods or services from a supplier that delivers benefits to a minority group and explain how the minority group benefits. 

  8. The Australian Social Value Bank (ASVB) provides an approach to measure the social value of procurement. Research the ASVB and briefly describe its approach. 

  9. List at least two reasons why it might be useful for an organisation to quantify its social value from procurement.

  10. Imagine you are the founder of a new start-up and describe how you would engage in social procurement. Provide examples of goods or services you would socially procure and how your buying decisions would have a wider positive impact. 

References

Australian Social Value Bank. https://asvb.com.au/social-impact-value/social-procurement/

Lloyd T. and Gray, L. 2020. How social procurement can address inequities in Aotearoa – Exploring social procurement policy as a tool to improve social and economic outcomes for all. Social procurement to address inequities | Deloitte

Stefanoff, N. 2021. Latest research shows social procurement spending is on the rise. Pro Bono Australia. Latest research shows social procurement spending is on the rise – PBA (probonoaustralia.com.au)

Young, J. 2020. Procurement Investopedia. Procurement Definition (investopedia.com)

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