A new report by McKinsey & Company has highlighted that firms are allocating up to 70% of their spending on procurement “to reach sustainability goals”. The consultancy noted that between 40% and 70% of a construction company’s total spending is allocated to procurement, with spending on higher-quality “best in class” procurement having the potential to save the firms over a tenth of their overall costs in the long run. The strategic era of procurement in construction reports notes that the role of procurement is also rapidly elevating in strategic importance. The construction industry is, directly and indirectly, impacting 25% of global carbon dioxide emissions mainly through the production processes of the ingoing materials and the energy efficiency of the structure through its lifecycle. McKinsey partner Erik Sjödin said: “The role of the CPO [chief procurement officer] in construction companies is at an inflection point. Those who act now will position themselves as attractive partners to leading developers in the future in making cost and sustainability trade-offs, identifying the most sustainable suppliers, and securing access to many sustainable materials and technologies that will be in short supply.” The report also highlights that procurement, as the main interface with the construction value chain, should be in the “driving seat” to reduce the carbon footprint of construction projects and meet corporate sustainability targets. However, Civil Engineering Contractors Association (CECA) chief executive Alasdair Reisner said that the main impact on the cost of project procurement comes from delays, rather than from sustainability considerations. “There are many drivers and costs to procurement but when we speak to our members we wouldn’t see sustainability as the overwhelming driver of cost,” he says. “Typically the overwhelming driver of cost is delay. Say a project is supposed to be built over a period of ‘X’ but things get eaked out, teams aren’t as efficient as they could be. “Sustainability is a substantive part of whether you are successful in winning a tender but it hasn’t come across as the number one cause of the cost of procurement at all.
“If You Are Spending 40% To 70% of Your Spend With Suppliers.
you will use procurement to ensure that you are buying sustainable solutions.” Nonetheless, McKinsey predicts that the impact of sustainability on procurement is broader than cost. It said that procurement is expected to play a pivotal role in making cost and sustainability trade-offs, identifying the most sustainable suppliers and securing access to many sustainable materials and technologies that will be in short supply. The report notes that to effectively tackle those challenges will require new skill sets, data and insights, as well as new decision-making processes and involvement in the construction projects by the procurement professionals. It focused on three key areas: Talent and expertise – construction companies will need new expert roles focused on collecting reliable information, guiding and recommending trade-offs between alternative materials and technologies – tailored to each category and project – assessing design simplifications against impact on value and assessing risks/assessing unproven approaches Roles and mandates – new roles should not only be embedded in the procurement organisation but also integrated closely with engineering and design functions and project teams to drive recommendations or alternatives, optimise trade-offs between profitability and sustainability targets, as well as securing access to scarce materials (potentially recommending M&A opportunities) Data and market intelligence – procurement teams will need to collect and curate reliable information on the different existing alternatives. This should be built in partnership with suppliers but will require to build own databases, conduct research and even perform tests when needed. This needs to be complemented with new digital tools, such as dashboards (similar to those used to manage customer relationships) to collect, display and interpret data. Turner & Townsend sustainable procurement lead Andrew MacGregor: “This report sheds a welcome light on the often overlooked but critical role procurement plays in delivering better outcomes. “Procurement is really the thread that brings together the whole supply chain to work towards the same goals. This is critical to help drive decarbonisation and net zero targets where Scope 3 emissions have long been seen as too difficult to tackle. “Procurement has the potential to shift the needle on net zero but there needs to be a consistent focus on ensuring that procurement strategies work hand in hand with sustainability strategies. The key is to look holistically at the whole value chain, embedding the aims and values of the project at the earliest stages of the project’s lifecycle – that’s where procurement teams can bring their expertise to bear, driving not just environmental but also commercial outcomes.”