The general concept of contemporary strategic procurement

The general concept of contemporary strategic procurement This research paper introduces the general concept of contemporary strategic procurement and some of contemporary strategic procurement issues, including services procurement, corporate social responsibility, procurement in merging market, ethics in procurement. But this research paper focuses on such issues as sustainable procurement including its benefits and some main environmental issues that should be taken into account in the procurement activity, based on a global mining organization, Rio Tinto Group. Those main environmental issues mentioned in this research paper refer to climate change and greenhouse gas emission. Next, it is discussed that how to implement the sustainable procurement strategy and it takes Rio Tinto Group as an example. Later in the research paper it is discussed an important question that is why it is critical for mining organization to be sensitive to sustainability and from three respects including resource scarcity, environmental impact, and supplier se lection. At last, it is showed that a critical market mechanism, carbon emission trading, which is a hot topic with the development of sustainable economy. It is on the purpose of achieving greenhouse gas emission reduction. Introduction In recent years, corporations are in the intense global competition. It is evident that it is hard for company to remain its competitive advantage just by production and sales. Nowadays, increasingly more organizations view procurement as a critical source for improving the competitive advantage. However, the conventional procurement is lacking of explicit procurement strategy, whats more, is neglecting to form the long-term relationships with the supplier. Facing with all kinds of development tendency affects procurement prospective, companies are demanded to pay close attention to the strategic procurement. What is strategic procurement? To begin with, strategic procurement is the procurement which distinguishes from the conventional procurement that focuses on purchasing items at a possible lowest price. In other words, strategic procurement concentrates on total cost ownership (TCO), namely, life cycle cost (LCC). Secondly, strategic procurement is that through advanced planning, scheduling, and team purchasing initiatives as well, a company can achieve effective cost reduction. Apart from hard dollar savings, there will be additional savings generated through a more efficient business operations and hence increased profitability. In the case of resource limitation of a corporation, explicitly understand internal demand and external supply, supplier capacity and market condition, in order to manage the relationships with suppliers effectively and efficiently and to establish the long-term strategic partnerships with suppliers. By means of strategic procurement, it enables company to be aware of its type of internal demand more explicitly so as to make control of the demand. In once sense, through some valuable analysis an organization can make clearer of the production process of supplier and cost structure even than the supplier, and these analysis also supports the organization in terms of supplier selection, negotiation, supplier relationships management and so on. Therefore, the organization can give up supplier who doesnt meet requirements, moreover, look for the new substitute to improve the holistic level of supplier. When it comes to the critical principles of strategic procurement, the lowest acquisition cost, win-win strategic partnership, integrated purchasing capability and so on should be taken into account. With the development of contemporary strategic procurement, it indicates a host of strategic procurement issues such as services procurement, corporate social responsibility, procurement in merging market, ethics in procurement. This research paper focuses on sustainable procurement and some environmental issues like carbon emission and climate change, with Rio Tinto Group which is a world leader in finding, mining and processing the earths mineral products include aluminum, copper, diamonds, gold, and energy products such as coal and uranium, and industrial minerals like borax, titanium dioxide, salt, talc, zircon, a nd iron ore. As we know, sustainability is one of the hottest topics people talk about in this modern society. Sustainability is the capacity to endure. For human beings, sustainability is the potential for long-term maintenance of wellbeing, which has environmental, economic, and social dimensions. Another word which is also mentioned is sustainable development. Sustainable development is a pattern of resource use that aims to meet human needs while preserving the environment so that these needs can be met not only in the present, but also for generations to come. In the concept of business, sustainable procurement, also called green procurement, is a spending and investment process typically associated with public policy, although it is equally applicable to the private sector. Sustainable procurement broadens the framework of procurement which has historically been based on two criteria, price and quality. It takes account of third-party consequences of procurement decisions, forming a triple baseline of external concerns which the buying organization must fulfill. There are two essential parts in terms of sustainable procurement. First part is to purchase raw materials and/or products to meet the current customers needs and/or to meet the requirements of production to fulfill current customers demands. Second part is to preserve the ability of the coming generations to meet their needs. Sustainable procurement encompasses all issues where procurement is seen as having a role in delivering economic, social and environmental policy objectives. Specifically speaking, sustainable procurement means that when buying goods and services, some consideration needs to be taken into account. For instance, avoid unnecessary consumption and manage demand; minimize environmental impacts of the goods and services over the whole-of-life of the goods and services; consider suppliers socially responsible practices including compliance with legislative obligations to employees and value fo r money over the whole-of-life of the goods and services rather than just initial cost. In addition, use sustainable or recycled materials and/or products; consider the availability of the product. Organizations practicing sustainable procurement meet their needs for goods, services, utilities and works not only on a private cost-benefit analysis, but also to society and the economy, whilst minimizing damage to the environment. Sustainability can be incorporated into the whole procurement process: defining the need, evaluating options, design and specifying, supplier selection, tender evaluation, post-contract management and supplier development. It has been already integrated within the mainstream of procurement policy and practice. If the mining industry is to retain its access to resources, it must understand the sustainability better. Thus, it can continuously improve its performance and succeed in restoring public trust. How significant is sustainable procurement? To begin with, there are a number of environmental issues with mining organizations including Rio Tinto. Environmental issues can include climate change, loss of biodiversity, and contamination of soil, groundwater and surface water. In particular, that people pay more attention is climate change which is a hot topic of discussion worldwide. In recent usage, especially in the context of environmental policy, climate change usually refers to changes in modern climate. It may be qualified as anthropogenic climate change, more generally known as global warming or anthropogenic global warming. Global warming is the increase in the average temperature of earths near-surface air and ocean; arise from increasing concentrations of greenhouse gases. Global warming results in extreme weather, increased freshwater flow, sea level and temperature rise, and it is detrimental to the social system and biological system. As matter of fact, a host of activities of human beings and companies are contr ibuting to climate change. For instance, Rio Tinto Groups coal operations contributed to global warming. Carbon dioxide emissions are the most important cause of global warming. As a consequence, in order to achieve environmental protection thus resource can be met not only in the present but also for generations to come, at the same time, not bring harm to the economic interest of a company, the company needs to conduct sustainable development. Among the contemporary strategic procurement issues, sustainable procurement is listed into a key issue. When it comes to the benefits of sustainable procurement, first of all, it reduces adverse environmental impacts arising from the procurement activities of human beings and companies. For instance, it reduces waste to landfill, saves water, reduces air and water pollution, saves money through reusing materials and products, reduces consumption of both natural and processed resource, and decreases carbon emission. In terms of carbon emission, as mentioned above, it is the most critical cause of global warming and is mostly generated by the heavy industries like the mining organization. As one of serious issues that all mankind faces, a host of developing countries even some developed countries are taking actions to limit carbon emission primarily via some economic and political measures such as voluntary agreement, carbon dioxide tax and carbon trading. Carbon emissions trading is a form of emissions trading that specifically targets carbon dioxide and it currently constitutes the bul k of emissions trading. It is a general method that countries utilize so as to fulfill their responsibility specified by the Kyoto Protocol. In this respect, sustainable procurement builds a sustainable supply chain for the future. And it is with the addition of assisting in the protection of environmental biodiversity all over the globe, and ensuring the health and safety of the community. Secondly, it is the benefit from more sustainable goods and services. That means by choosing to invest in the sustainable solutions, it can influence the decisions made by other bodies and by individuals. Demand for sustainable goods and services can help to make these solutions more generally available, at more affordable prices to the purchasers. Buyers who conduct sustainable procurement will also demand their suppliers for sustainable products and services. As a result, the whole supply chain will become sustainable. Thirdly, sustainable procurement will be likewise more efficient use of shar eholders resources. Specifically, for the shareholders, what they pay most attention is the cost. And sustainable procurement reduces costs through greater energy efficiency, waste disposal, risk management, and the costs for products over the life cycle. In general, sustainable procurement plays a key role in the both economic and environmental development in that it identifies more sustainable ways of meeting requirements and designs sustainable procurement specifications accordingly. The approach can address the social, economic and environmental implications of product and service choices. It also can embrace whole life costing and address how aspects such as design, manufacturing materials, operating costs, energy consumption, waste and recycling options support a more sustainable approach. How to implement the sustainable procurement strategy? Sustainable procurement is a product of sustainable thinking throughout the entire organization. The organization must share the drive, responsibility and the commitment and this should be reflected in policies, strategies and procedures. Every organization should develop its own plan to improve the sustainability of its procurement activity. The plan should declare the future plans in terms of improvement showing what and by when they will be achieved. Chief Executives and senior management must demonstrate leadership and a genuine commitment by incorporating sustainability objectives into their procurement activities, policies and strategies. All those involved in specifying demands and procuring goods and services need to contribute to incorporating sustainability into contracts.4 It is critical that those who originate and develop requirements consider sustainability at the outset and through each stage of the process. Information and training on the importance and value of speci fying and purchasing sustainably is also essential for all the staff in the organization and organizational procedures and plans should reflect this. Sustainable procurement will come about only if the organization and those within it understand, and are committed to, operating sustainably. Organizations need to keep to all environmental legislative and regulatory rules when buying products, services and works; integrate the environment into procurement decisions; raise staff concerning and awareness on environmental issues into procurement by providing relevant information and training; get products, services locally wherever possible taking into account the need to achieve best value for money; and get energy supplies generated from renewable sources. At Rio Tinto Group, they have their own procurement department called Rio Tinto Procurement (RTP). They focus on the ways in which it can bring sustainable socio-economic benefits to the areas in which it operates, namely mining business. Rio Tinto Procurement claims that they deliver value to the Rio Tinto Group by providing a safer, efficient and effective procurement and inbound supply chain service to business units and functions. With respect to sustainability, Rio Tinto Procurement also declares they conduct their procurement activity in a manner that is holistic, transparent and sustainable. Respect for the environment is central to their approach to sustainable procurement. Rio Tinto Procurement seeks to contribute to sustainable development. Specifically, in the process of procurement activity, they work as closely as possible with their host countries and communities, respecting their host countries laws and customs. They minimize adverse effects and strive to improve every aspect of their procurement performance. Before they make decisions in terms of what kind of material to purchase, Rio Tinto Procurement will competitively test the material commitments to ensure that Rio Tinto obtains the best value available considering all relevant factors, such as safety, quality, delivery, specification, price, environmental and community impact and sustainable development. They believe that conducting a successful business and sustaining quality of life and the environment go hand in hand. Their commitment to responsible stewardship and business practice benefits society by keeping economies and the planet healthy for the future generations, and it benefits the company by enhancing its long-standing reputation as a good business partner and neighbor. Firstly, for society, Rio Tinto Procurement provides goods jobs, goods opportunities and a safe working environment for all employees, and partnering with neighbors to deal with a variety of issues that affect th e communities. Secondly, for environment, they minimize their environmental footprint and maximize the contribution their products make to the environment. Thirdly, for economy, they create value for their customers, shareholders, employees and economies. Why is it critical for mining organization to be sensitive to sustainability? One of the implications is that the conventional technical and professional strengths of mining and metals people are no longer sufficient for the requirements of today. Companies need to ensure that they are sensitive to sustainability. Then, why is it critical for mining organization to be sensitive to sustainability? As we know, mining is the extraction of valuable minerals or other geological materials from the earth, normally from an ore body, vein or coal seam. It also includes the removal of soil. Materials recovered by mining include base metals, precious metals, iron, uranium, coal, diamonds, limestone, oil shale, rock salt and potash. Mining resources are one of the most critical natural resources and are the important material foundation of society. For example, mineral fuel and iron are basic need of the country. Copper, lead and zinc are mostly used in industries. While gold and silver is used in industrial development. Nickel, manganese, fluorspar, vanadium, tungsten, a sbestos, mica, mercury, graphite, antimony a tin used in various industries. However all of them are non-renewable resources. From the perspective of sustainable procurement in the mining organization, what to concern is less investment while high productivity, as well as environmental protection. That means purchase the raw materials and relative accessories used to production at the reasonable prices to meet mankinds requirement and to improve peoples life quality, at the same time, eliminate the negative effects to the ecology. First of all, from the perspective of resource, sustainable development of resources focuses on exploring new ways to maximize the value of the resources. The first key question is whether the resources all over the globe are utilized adequately? As we know, a characteristic of all the resource is the scarcity. That means resource whatever tangible and intangible is all limited. Resource which is rich today will be exhausted one day in the future. Whats more, resource is a core element for any company, especially for the mining company. In recent years, it indicates that with the dramatical development of technology and productivity the demand of mineral resources is at all-time high in that economic prosperity and societal wellbeing require a safe and reliable supply of energy and mineral resources. For instance, in USA, it consumed 35 billion tons petroleum, 7.3 billion tons steel, 140 million tons copper and 200 million tons aluminum during 20 century. Although a plenty of mineral resource is enough for the production for this generation and a few next generations, these mineral products will be exhausted eventually in a certain generation. It is reported that there exists potential risks in terms of the quantity of other mineral resource excluding coal in Peoples Republic of China. As a result, mining organization needs to pay more attention to procure the mineral resources sustainably. Some mining organizations which conduct sustainable procurement emphasize that renewable resources, recycling, resource substitution, and increases in efficiency and conservation are needed to enhance the stability and security of non-renewable energy and mineral resources supply and demand. Some substitution can extend the mineral supplies. At Rio Tinto Procurement, their approaches is not only discovering new mineral resources, but also finding ways to contribute to recycling as well as looking for more sustainable materials and ingredients in order to preserve the ability of future generations to meet their needs. Some recycled materials should be taken into account in the process of procurement activity. In terms of recycled materials and resources, Rio Tinto also does a significant job. It is reported that 20 percent of the materials that are used in the production comes from recycled content. The second key question is whether the certain material needs to used really. This means that both the end customers of the products and the buyers have to review their product requirements and identify potential opportunities for increasing the efficiency of use. It can both cut procurement costs and save the resources which can be used more suitably. Secondly, from the perspective of environment, sustainable procurement of mineral resources also concentrates on the environmental protection. For instance, a new process at BMA Peak Downs Mine (Australia) is not only decreasing coal loss by nearly nine percent, but also improving the mines sustainability performance via reducing the area disturbed, waste production and fuel consumption, the latter assisting to meet greenhouse gas emissions targets. When the organization purchases goods and services, environmental issues should be taken into account. As a consequence, organization should purchase materials which bring less environmental impacts to both current and future life. It is inevitable for the mining organization to create adverse environmental impacts in the operations. As mentioned above, it mainly refers to climate change, carbon dioxide emission. For instance, at Rio Tinto Alcan which is one of five product groups operated by Rio Tinto and is a global supplier of high qua lity bauxite, alumina and aluminum, they invest in zero and low emission technology research, development and deployment to address climate change issue because the aluminum industry generates approximately one percent of global greenhouses gases emissions in the integrated production of aluminum products. Therefore, by running sustainable procurement, it enables Rio Tinto Alcan to reduce operating costs, enhance product value and quality with less impact on the environment. In order to produce products that meet the requirements of sustainable development, procurement department is also responsible for buying the raw materials and ingredients which have less adverse impacts on the environment. For example, at Rio Tinto, they procure low emitting materials that include adhesives, sealants, paints, primers, carpeting and composite wood products to support the manufacturing activity. Rio Tinto Procurement also carefully selected products to avoid volatile organic compounds, formaldehy des and other hazardous and irritating chemicals, ensuring that products they procured are with hazard to both living beings and environment as little as possible. Additionally, Rio Tinto Procurement is also working to better understand the future needs for metals and minerals. Sustainable procurement considers not only materials, environmental effects, but also supplier selection. Under the condition of strategic procurement, company has not focused on purchasing items at a possible lowest price. Normally, when conducting sustainable procurement it is essential for organization to make sure that suppliers and contractors are aware of environmental issues and policies, promote environmental awareness among suppliers and encourage them to minimize the environmental impacts of the supply chain. Take Rio Tinto Procurement as an example. Rio Tinto Procurement sources its suppliers with high criteria. Firstly, Rio Tintos suppliers and potential suppliers must meet the requirements of sustainable development. In other words, they must be able to demonstrate strong organizational commitments to the sustainable development such as natural resource conservation and management, carbon and greenhouse gas emission reduction, energy and fuel efficiency, waste minimizati on, improved health and safety, human rights and labor practices. Rio Tinto Procurement values suppliers whose policies and practices demonstrate active awareness of and support for sustainable development principles and help them achieve the goals of sustainable development. Through collaborating with suppliers to obtain the objectives of sustainable development, Rio Tinto Procurement seeks to create business relationships that have positive and enduring effects in the developing economies where they operate. As a result, suppliers who are safe, efficient, and meet the requirements of sustainability play a critical role in Rio Tintos success. General speaking, one of key factors of sustainable procurement is to motivate vendors to offer more sustainable products. Company may share supplier information with respect to products functional performance specifications including sustainability instead of the technical specifications of known products. Carbon emission trading In addition, sustainable development cannot be achieved by industry alone. It requires concerted collaborative effort from industry, governments, inter-governmental agencies and civil society. For instance, as a key word of sustainable development, carbon emission trading plays an important role in sustainable procurement. Carbon emission trading is a form of market mechanism on the purpose of achieving greenhouse gas emission reduction, especially reducing carbon dioxide emission. This form of permit trading was specified by the Kyoto Protocol that takes market mechanism as a new method that resolves the issue in terms of greenhouse gas emission reduction. In other words, it is a market-based approach that trades carbon dioxide emission credits. Specifically, if an organization comes in below the limit of allocation of allowable emissions, they can sell the remainder of the allocation. On the other hand, if a company produces carbon dioxide more than its allocation of allowable emis sions, they either have to offset that or buy additional allocation. Rio Tinto is encouraging governments to implement workable fair trading schemes. They invest capital in developing new technologies such as AP technology which is the most efficient approach of smelting aluminum, low emissions processing for iron ore, and block cave mining process which reduces materials handling and allows the ore to begin to break itself during the handling process. As new technologies become available, these will be adapted to further reduce emissions and improve energy efficiency. Conclusion All in all, procurement has never played such as important role in the increasingly globalized economy. Strategic procurement can mean completely different things in different industries and sectors. What cannot be denied is procurement decisions are more and more based on total supply chain cost, carbon footprint impact, other ethical, social and economic factors, rather than just purchase prices. In this modern society that people emphasizes sustainability and sustainable development, contemporary strategic procurement should also pay more attention to sustainable procurement and environmental issues. Sustainability requires the purchasing organization to be aware of both life cycle costs (LCC) and the life cycle environmental impact associated with their purchase decision and to add these factors into their supplier selection as well as relationships with suppliers. Organization which has a better understanding of sustainable procurement may implement the following three points: m inimizing impacts of the supply chain, minimizing impacts of the product and/or service, and buying resource efficient products. And their sustainable procurement activity considers products, services, and suppliers. It includes issues such as resource extraction and consumption, manufacturing and production, use and maintenance, recycling and disposal options. As a result, this organization can obtain significant economic interest, at the same time, maintain the sustainable development of ecology, keep the resources for next generations and make an effort in its social responsibility.