Every year, the U.S. Government spends over $500 billion via “procurement,” or the process of acquiring a product or service from another business. This number is over 3 times more than what all governments combined spend on international aid.
In the private sector, some of the world’s best-known companies also spend massive amounts of money via “procurement”. As an example, Starbucks spends $2.5 billion via its procurement teams – and this doesn’t even include the $600 million it spends on coffee.
In total, procurement teams around the world spend over $13 Trillion dollars per year on products and services from other businesses, and increasingly, they want that money to be spent with entities that mitigate harm and create more good — in other words, social enterprises.
This represents a tremendous business opportunity and new source of revenue for socially impactful businesses. “Engaging in social procurement can be a way for your social enterprise to scale your social impact and develop stable revenue streams,” says Social Enterprise World Forum Strategic Policy Advisor, Maeve Curtin.
In this post, we’ll share what you need to know to take advantage of the growth in “social procurement.”
What is Corporate Procurement
Let’s take another look at Starbucks. Historically, procurement teams would look at a business need – in this case, serving customers coffee – and then set out to purchase the advertising, coffee, condiments, and cups in a way that would maximize profits. Procurement teams do this by finding suppliers, issuing bids, awarding contracts, and then managing billings.
While the process of procurement may not be known to the average consumer, it is a massive market for business-to-business sales. SAP’s Ariba platform, which is the world’s leading procurement software, transacts over $3 Trillion worth of procurement bids every year.
However, the rise in stakeholder capitalism is forcing procurement teams to do more than maximize profits. Returning to the Starbucks example, procurement teams are central to initiatives like finding alternatives to plastic straws, integrating recyclable cups into stores, and sourcing coffee from regenerative farms. As companies continue to evolve, they look at how they can make every step of their business more green and sustainable (because doing so is proven to improve business outcomes.)
From Procurement to Social Procurement
There is often a bit of irony in the corporate social responsibility efforts of large corporations. Take Coca-Cola as an example, which just announced an investment to help clean up oceans. Coca-Cola has made billions of dollars with unsustainable manufacturing and packaging practices, and now seeks praise for its philanthropic efforts of removing a small percentage of its waste stream. This is a “winners take all” mindset that is not sustainable.
Social procurement represents a fundamental change of approach, in which corporations actively seek to do business with other entities that are themselves socially responsible, in turn enabling the corporation to become sustainable and equitable throughout its core business activities. So, when Coca-Cola decides to actually care about the planet, it will develop a social procurement team that will help it find suppliers to produce, package, and ship its products in a way that will never need charitable efforts to then fix.
To quote Stephen Young, Social Procurement lead at SAP, “In most corporate organizations, every employee is a ‘buyer’ and social procurement empowers them to go beyond volunteering and donating to charities to help social enterprises grow their for profit business and expand their impact.”
Social procurement is procurement that ensures that environmental degradation is minimized (or reversed) and social inequality is addressed through the act of buying from and working with suppliers. And there is no better way to achieve these goals than by sourcing from and partnering with social enterprises.
An Example: Comparing Procurement to Social Procurement
To make the difference between traditional procurement and social procurement more real, let’s take a look at two clothing manufacturers.
A clothing manufacturer like H&M, for example, will ask its procurement team to find the cheapest possible cotton with the most reliable supply, ignoring the environmental and social damage created by sourcing cotton from non-regenerative farms and paying workers minimum wages. This is traditional procurement – procurement with the goal of minimizing cost and maximizing financial profit.
Another clothing manufacturer like Patagonia, for example, will ask its social procurement team to find social enterprises that grow the fabric sustainability (or perhaps even upcycle it, like Enviu), and who also compensate staff fairly, provide them equity, invest in community efforts, and actively work to improve the entire clothing industry. This is social procurement – procurement with the goal of promoting sustainability and equity across its value chain.
As the trend of social procurement continues to grow, H&M will likely try and create a fancy PR campaign at some point in the future to show how it is trying to be green, but consumers will see through it. Meanwhile, Patagonia has and will continue to build meaningful trust with customers and continue to grow in ways that benefit the planet.
To learn more, make sure to read this case study about Change Please, the Compass Group, and SAP.
Who Manages Social Procurement
It depends on the company. At large companies, most of the procurement efforts are managed centrally through intermediary suppliers. As an example, SAP uses the intermediary supplier Compass Group to aggregate products and services from across the value chain to provide directly to SAP through a single source. However, just because you aren’t the head of procurement doesn’t mean you can’t actively divert part of your procurement spending towards socially responsible businesses, especially social enterprises. If you have a corporate credit card, you can play a role in where your company spends its money. Here are some examples:
- Marketing leaders who choose to procure ad placements with design agencies that are structured as B-Corps
- Finance leaders who choose to procure capital partners based on their ESG reporting records
- Engineers who choose to procure servers that minimize energy usage
- Operations teams who choose to procure office space, travel partners, and meals from social enterprises and benefit corporations whenever possible
- Sales teams who choose to arrange travel in a way that minimizes environmental degradation
According to Maeve, “In recent years, social enterprise engagement with corporate business has moved from CSR to procurement. Social procurement often involves CSR personnel making introductions and reporting social impact, but when a company is purchasing goods or services from a social enterprise, the transaction may have more value than a donation.”
(For tips to expand social procurement at your company, read our complete guide to social intrapreneurship.)
Trends to Watch
We will see a massive increase in the number of social procurement teams, as well as the budget per team. International financing institutions, national governments, cities, and municipalities are all adopting social procurement strategies.
In addition to governmental budgets, corporations are also drastically increasing their spend via social procurement channels. These are international trends, the UK to the USA. Argentina to Australia. Southeast Asia to Europe. Globally, social procurement is on the rise and it represents a multi-trillion dollar market opportunity.
Learn More About Social Procurement
Some of the top influencers and thought leaders driving this supply chain transformation are the partners involved in Social Enterprise UK’s “Buy Social Corporate Challenge,” including SAP, Compass Group, Siemens, and more.
SAP in particular is leading the charge in terms of global social procurement and expanding into new markets where other corporates are not. Through its 5 & 5 by ‘25 initiative, SAP is rallying organizations around the world to buy more goods and services from purposeful suppliers, making a positive collective impact on the societies they operate in. SAP is also the founding partner of S-GRID, and actively grows its own ecosystem of ‘purpose’ partnerships through both procurement and its CSR strategy.
Another industry leader is the Social Enterprise World Forum (SEWF), which is building a global Social Procurement Community of Practice to increase the capacity and capabilities of the sector. As Maeve explained, “SEWF thinks about social procurement as the intentional use of procurement activities as tools to generate positive social, cultural, economic and environmental outcomes by purchasing goods, services and works from social enterprise suppliers.” SEWF has social procurement partners on almost every continent who have initiated the conversations at a governmental and grassroots level, influenced policy development, provided technical support and/or brokered buyer and supplier introductions in their own contexts, and in some cases, even internationally. These partners include organizations like Community Enterprise in Scotland and Buy Social Canada, but also government agencies like the Malaysian Global Innovation and Creativity Centre and organizations in countries with emerging social procurement frameworks like SELCO Foundation in India. You can learn more by checking out the procurement resources in SEWF’s public Resource Library here.
The shift from traditional to social procurement will only continue to accelerate as we work towards building back better, representing a tremendous opportunity for social enterprises to scale their impact and revenues and for corporations to build more resilient, sustainable, and transparent value chains.
By understanding the corporate procurement process and the difference between traditional and social procurement, your organization will be better able to identify and connect with key decision makers in the space to unlock new possibilities. Looking for more support connecting your social enterprise into global value chains? Apply to our S-GRID revenue growth program.
Looking to accelerate social procurement at your company? Learn how MovingWorlds is helping scale social impact within corporations.