Skip to content
Unmesh Sheth 1/11/22 1:57 AM 6 min read

How social procurement saves corporations from underdevelopment?

Business-as-usual cannot address the urgent social and environmental challenges of today. Corporations need to bring social impact onboard. Not only is it the next frontier, but social procurement saves corporations from underdevelopment.

  • What is social procurement?
  • Why is social procurement important?
  • Why do social enterprises make key partners?
  • Example of social procurement
  • Impact measurement and social procurement

What is social procurement?

Social procurement is the process of purchasing goods or services from social enterprises (SE) rather than traditional sources. (Yunus) This practice re-envisions a core business function as a way to generate a positive impact for society and the environment, not just shareholders. To understand this corporate development, we look at two components: procurement and social value.

Procurement

Businesses and governments purchase raw materials, components, labor, and finished products from other businesses. Governments around the world spend an estimated $9.5 trillion on public procurement annually. Good procurement is a key part of ensuring profitability for shareholders. 

Because the goal is to acquire quality goods at the lowest cost, the globalized supply chain can be fraught with human rights and environmental violations. This kind of procurement has negative social and environmental impacts. 

Social Value Procurement

The “social” in social procurement refers to social value. Broadly, social value is a non-monetary return for humans such as improved quality of life or increased social inclusion. Practically, social value is the sum of positive impacts on society, the environment, and the economy. A social enterprise’s dual goal is to address a social, environmental, or economic problem while generating revenue for their business. Social enterprises are key creators of social value.

Read More: Investing in Social Value - Maximize Social Returns

Why is social procurement important?

The public increasingly demands a positive impact from corporations and regulators. Standards such as corporate social responsibility (CSR) and environmental, social, and corporate governance (ESG) reflect this changing attitude.

CSR involves creating new processes such as corporate volunteerism and philanthropy. While valuable, social procurement goes beyond CSR to embed social impact into core business practices.

Why do social enterprises make key partners?

With global procurement in the trillions of dollars annually, turning to SEs as suppliers can direct significant spending into a positive impact. Social enterprises are key partners for corporations because they are:

  • Local
  • In-touch with stakeholders
  • Innovating business practices
  • Generating social value

Social procurement is not only about altruism, it’s about driving sustainable business value. Research conducted by Yunus shows that there are significant benefits to corporations that use SEs as suppliers:

  • Achieves ESG standards 
  • Increases corporate brand equity and brand differentiation
  • Triggers corporate transformation
  • Improves employee engagement

Read More: 3 Reasons Why Collective Impact Model Is The Future Of Social Change

Social procurement - Social enterprise example

Imagine you are a corporation with home goods stores across the United States. Until now, your purchasing department has sourced exclusively from inexpensive foreign vendors. Your supply chain ethics are something you prefer not to talk about with customers.

Social Enterprise ExampleIn order to meet ESG goals, you revisit your supply chain to incorporate an SE. You find a network of artisans in Peru that make traditional ceramics, wooden mirror frames, home accents and accessories made of alpaca wool. Your design team begins working with the artisans to meet demand. Two years later, you have your first purchase order. In Peru, this partnership has benefited 700 families with employment, home loans, and schooling. 

Your company benefits from:

  • the story of your unique connection with artisans
  • traditionally crafted home goods
  • increased customer loyalty 
  • improved reputation

This is a real-world example of West Elm working with Allpa. Today their partnership is valued at US$2 million.

Similar initiatives

In the UK, Social Enterprise UK launched an initiative Buy Social Corporate Challenge in 2016. The initiative has 250 SEs supplying for corporations such as Johnson & Johnson, BP, SAP, and more. IKEA established IKEA Social Entrepreneurship to promote SE partners as suppliers.

Research from Social Enterprise UK, Yunus, and IKEA have found similar results regarding SE capabilities in the market. SEs as suppliers can:

  • Assure supply
  • Deliver on time
  • Be competitive on quality, price, and volume

Read More: 3 Ways To Calculate The Social Value Of Shared Impact Initiatives


Impact measurement and social procurement

Furthermore, as partners in social innovation, corporations have the ability to increase the learning capacity of social enterprises. 

Corporations have a wealth of expertise and non-financial support to help an SE grow. These partnerships improve scalability in terms of an SE’s ability to meet corporate needs.

It is critical for both the corporation and SE to engage in impact measurement and management (IMM). This will gauge the outcomes of their partnership.

Business as unusual

Through social procurement, corporate-social enterprise impact partnerships are proven to create a positive impact. Without redirecting normal spending to SEs, corporations cannot meet their supply needs, generate business value, and change people’s lives in the process. Sopact is committed to helping social enterprises manage and measure their impact. Reach out to learn more about IMM for your organization.

Images: Photo from Unsplash

avatar

Unmesh Sheth

32 years of track record In technology companies, innovation, leadership. Deep understanding of bottom-up and top-down data trust challenges in high impact philanthropy and impact investments.