Social Procurement: Changing Value

In the race to create greatest value in procurement, social impact has been one of the most poorly understood and captured drivers of value.

Recently we worked with one of our buyer members to audit their supply chain.  The objective was to ascertain the amount they were spending with social enterprises. They didn’t believe that they were spending anything at all, and when the audit was complete it showed that they were spending over $1 million with four social enterprises that were delivering packaging services.

The reason they didn’t know that social enterprises were already in their supply chain was because the enterprises had won contracts through standard RFT processes, which don’t recognise social impact as value. In other words, the social enterprises in their supply chain had won work because they were in fact the cheapest, best quality, most on-time, least risky supplier option overall.

As a result of the social enterprises fulfilling these contracts, 20 people with a disability were employed. That’s a good story and a significant stream of value that the buyer organisation wasn’t capturing.  

Research into Corporate Social Procurement in Australia (2014)  conducted by Social Traders and The Faculty found that organisations who do capture social impact information resulting from their procurement strategies, identified it as a powerful engagement tool with customers, staff and in some cases with investors.

The effect of the audit on our buyer member was significant. Previously, they had wanted to buy from social enterprises but were sceptical about their capacity (‘We might spend a couple of hundred thousand with them’).  Knowing that social enterprises had already met their stringent standards gave them the confidence to increase their spending with social enterprises– and also encouraged them to recommend that their tier 1 suppliers follow their lead.

The change in behaviour from this buyer member is significant as they will now move from a million dollar spend with social enterprise to tens of millions in the coming years. Such a small shift will over time create hundreds of jobs for those that wouldn’t otherwise be employed whilst also generating broader-ranging benefits for the business.

This story shines a light on a number of critical concepts.

Firstly, value is not static and there are great opportunities for procurement to drive new value streams in organisations.

Secondly, if you don’t ask you won’t get. Most large organisations in Australia will have social enterprises in their supply chains but if they don’t ask the question they will continue to leave this value on the table.

Thirdly, changing an organisation so that it begins to ask for and capture the value from social impact is not easy.

Organisations are quite set in their ways and there is often need for the support of an intermediary to assist and a strategy to be put in place.

Fourthly, social enterprise isn’t a bi-word for ‘fluffy’ or ‘sub-standard business’. Most of these organisations win and retain contracts, competing with commercial businesses on quality, price and timeliness. They just happen to exist for the benefit of the community and have developed business models that enable them to deliver on their mission, be it employing disadvantaged cohorts or addressing other social issues.

Social procurement is growing as business and government see the benefits.

The time is right for all procurement professionals to embrace social procurement and create new value streams for their organisations whilst enjoying the experience of changing lives.

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Written by: Mark Daniels

Mark Daniels is Executive Director, Buyer Services at Social Traders and will be presenting at the upcoming Government Procurement Summit.