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Article based on a workshop on green procurement at the FMANZ Summit | Auckland, JUNE 2015

Get your Green Suppliers On Board ! . FMANZ Summit 2015 in Auckland – Longer version of an FMANZ E-Magazine article. Anne Staal BENG MA DMS MBA; Auckland University of Technology astaal@aut.ac.nz

During the recent FMANZ Summit in Auckland we discussed the role of innovative suppliers and green procurement. Our one-hour workshop with 20-odd FMANZ professionals and managers started with the notion that we live in turbulent times with lots of changes (Rotmans e.a., 2012). Supply chains are vulnerable and customers are ever more demanding. Organisations often focus on cost and have a short-term horizon. Moreover they often live in low-trust paradigms. (For NZ construction industry,

see e.g. Hinton, 2013). New technologies and regulation give us challenges and opportunities. HOWEVER: Sustainability will remain on the agenda of top management (Giddings e.a., 2002), and FM professionals can learn from recent overseas experiences. FM procurement DOES benefit from green & innovative suppliers. Green procurement is NOT more expensive. Yes: we CAN learn from overseas on how to IMPROVE our procurement processes & our results. (Please see the power-points for more details). This is what the participants found during the workshop.

A What blocks suppliers from optimal performance Organisations become more dependent of supply chains and can hugely benefit from good suppliers. However circumstances can also prevent suppliers from optimal performance. In line with US case-study research (Hughes & Weiss, 2007, as cited in Johnsen, Howard & Miemczyk, 2014) our workshop attendants found the following four critical barriers: 1 Focus on short-term and easy quantifiable savings 2 Lack of internal alignment 3 Lack of transparency about needs or priorities 4 Lack of respect for suppliers expertise. MY EVALUATION: This particular case study of Hughes & Weiss was done within the US multinational Kraft Food. As such firms are often considered “best class” in procurement, findings for this case study certainly have a relevance for other commercial and public procurement organisations.

Figure 1: Procurement behaviour that blocks suppliers from delivering more value (Hughes & Weiss, 2007)

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Article based on a workshop on green procurement at the FMANZ Summit | Auckland, JUNE 2015

B Green procurement as done by 109 Hungarian SMEs Organisations can vary greatly in their approach to green procurement. Some do the absolute minimum to conform to regulation; others do more and are able to create good profits. Differing somewhat with recent research (Vörösmarty, 2015) on green procurement within 109 Hungarian SMEs, the FMANZ workshop participants considered as most important aspects: 1 Supplier must disclose the environmental attributes of product content 2 A product lifecycle-analysis is part of supplier evaluation 3 Cooperation with suppliers to develop environmentally better products. MY AFTERTHOUGHTS: The complete list of green procurement practices of these 109 SMEs can be found in Figure 2 below.

1. Require product content restrictions 2. Supplier evaluation with environmental requirements for purchased items 3. Supplier evaluation with environmental requirements for packaging 4. Supplier must disclose the environmental attributes of product content 5. Supplier evaluation with environmental requirements for the suppliers operations 6. Supplier must have ISO 14000 7. Product-lifecycle analysis is part of supplier evaluation 8. Suppliers must commit to waste-reduction goals 9. Environmental assessment of suppliers' processes 10. Setting environmental standards for suppliers 11. Cooperation with the suppliers to develop environmentally better products 12. Educate suppliers about environmental issues

Figure 2: Green procurement practices of 109 Hungarian SMEs (Vörösmarty, 2015)

According to Vörösmarty these Hungarian SMEs conducted such activities (1) to manage negative business risks (13%), or (2) to comply to external expectations e.g. like voluntary ISO norms (58%), or (3) to achieve positive business goals (28%). The 109 SME were not representative for all Hungarian SMEs, but are probably front-runners. Although lower on the priorities of these particular SMEs, (11) cooperation with suppliers and (12) educating suppliers on environmental issues are dominant practices we often find with large corporations like Philips. However SMEs are often resource-constrained and may not be in the position to conduct such activities (compare e.g. Hagelaar e.a., 2014).

C How to specify FM services & what procurement strategies There is an ongoing debate on the type of specifications for suppliers providing critical or strategic FM services. Based on a model of Van Weele (2010) the workshop attendants gave the following ranking: 1 OUTCOME: Focus on the economic value for the customer to be generated by the service. 2 OUTPUT: Focus on the functionality or the performance of the service. 3 INPUT: Focus on resources & capabilities of the supplier to produce the service. 4 THROUGHPUT: Focus on supplier processes needed to produce the service. MY AFTERTHOUGHTS: But then we will also recognize that the FM reality can differ. For instance that we still require regular maintenance-intervals or (even worse) quick repairs. Instead we could hugely benefit from predictive-maintenance based on hard data and Asset Management practices. (But then: were is our data and where are those FM professionals and suppliers that truly work with outcome or output specifications?)

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Article based on a workshop on green procurement at the FMANZ Summit | Auckland, JUNE 2015

Following sustainability insights and regulation from overseas, the New Zealand government (MBIE, 2012) classifies their supplier base in a risk versus value matrix and recommends sustainable procurement strategies for four categories. (See Figure 3).

Figure 3: Four strategies for sustainable procurement in NZ government (MBIE website, 2012)

Applying this matrix is an important first step for implementing a sustainable procurement strategy. Yet another approach is to benefit from innovative ideas and proven concepts in the market.

D Benefit from supplier innovations Both public and commercial organisations can benefit from supplier innovations. Public procurement research in the UK (Rigby, 2013) on 725 innovative suppliers of public procurement concluded that the following aspects yield the best results. 1 Innovation requirements in tenders 2 Early-interaction with the procurement department 3 Outcome-based specifications 4 Advanced communication of future needs. However, also according to Rigby these four aspects are not the most often used. What is more often used does not best stimulate innovations: electronic submission of tenders; framework agreements, and open competitive tenders. MY AFTERTHOUGHTS: The role of government on stimulating innovations through their procurement policy is widely acknowledged. Governments can act as important pilot customers and thus enable suppliers to develop and commercialise their innovations for the wider community. This particular research in the UK found that a substantial amount of suppliers were able to commercialize on their innovations. (Figure 4; overleaf). One again also sees the effect of friendly procurement practices.

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Article based on a workshop on green procurement at the FMANZ Summit | Auckland, JUNE 2015

Figure 4: Suppliers can introduce more innovations via public procurement (Rigby, 2013)

BUT of course one small workshop … never gives us a complete picture on the complexity & importance of FM procurement. However, we can learn from others. This ongoing AUT research will involve other groups of professionals. It is part of my PhD project on innovation & procurement activities of innovative companies within the construction industry. These and more topics will be discussed in FMANZ master classes on Procurement & Supplier Management and in an MBA sustainable procurement paper at the AUT. Please contact me for information on my PhD topic: astaal@aut.ac.nz. I want to thank all participants; my key message is FM procurement DOES benefit from green & innovative suppliers. Green procurement is NOT more expensive. We CAN learn from overseas on how to IMPROVE our procurement processes & results. Main references used Giddings, B., Hopwood, B., & O'Brien, G. (2002). Environment, economy and society: fitting them together into

sustainable development. Sustainable Development, 10(4), 187-196. http://onlinelibrary.wiley.com/doi/10.1002/sd.199/abstract

Hagelaar, G., Staal, A., Holman, R., Walhof, G. (2014). A Conceptual Model & Analytical Framework for studying Purchasing & Supply Management in Small Firms. Competitive paper for IPSERA Conference, South Africa.

Hinton, M. A. (2013). Convenient immorality: a substantive theory of competitive procurement in the New Zealand construction industry. (Link: http://ir.canterbury.ac.nz/handle/10092/8714).

Hughes & Weiss (2007). Kraft Food - Getting closer to key suppliers. CPO Agenda, Autumn: 19-23. Article and Figure cited in Johnsen Howard & Miemczyk (2014). Purchasing & Supply Chain Management – a sustainability perspective (p. 113-114). Textbook Routledge.

MBIE, (2012).Website. www.business.govt.nz/procurement. (Accessed 30 April 2015). Rigby, J., Edler, J. (2013) OECD conference on Public Procurement.

http://www.slideshare.net/STIEAS/developing-a-framework-for-measuring-public. (Accessed 30 April 2015). Rotmans, J., Kemp, R., & van Asselt, M. (2013). 11 Transition Management: a promising policy perspective.

Interdisciplinarity in Technology Assessment: Implementation and its Chances and Limits, 11, 165. Staal, A., Tookey, J. (2015). Procurement of non-incremental sustainable technology innovations -

Entrepreneurial firms supplying the New Zealand construction industry. Paper for ACERE 2015 Adelaide Australia. ISBN 978-0-646-93378-8.

Van Weele (2010). Purchasing & Supply Chain Management (p. 96-97). Text book Cengage Learning. Vörösmarty, G. (2015). Green purchasing practices and their motivational background. WP41 FIN. Abstract for a

working paper for IPSERA Conference, Amsterdam. Corvinus University of Budapest Institute of Business Economics. gyongyi.vorosmarty@uni-corvinus.hu.