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.
In the next few years, we will see huge increases in social procurement teams and the budget allocated to each group. In addition, social procurement strategies are being adopted by international financial institutions, national governments, cities, and municipalities.
Social procurement spending by corporations is also rising drastically along with government budgets. There are trends worldwide, from the UK to the USA and other parts of the world. As a result, the global market size of social procurement is increasing, which is a multi-trillion-dollar opportunity.
- What is social procurement?
- Why is social procurement critical?
- Why do social enterprises make vital partners?
- Example of social procurement
- Impact measurement and social enterprise procurement
Social procurement is choosing and working with socially responsible suppliers that can minimize environmental degradation (or reverse it) and address social inequity. It is crucial to achieve these objectives by partnering with social enterprises and sourcing from them.
Social procurement is about embedding social impact into core business practices for Corporations.
KEY TAKEAWAYS
- By partnering with Social Enterprises, corporations can direct significant spending to a positive impact, generate business value, and change people's lives.
What is social procurement?
Social procurement is purchasing goods or services from social enterprises (SE) rather than traditional sources. (Yunus) This practice re-envisions a core business function to generate a positive impact for society and the environment, not just shareholders. To understand this corporate development, we look at procurement and social value.
Moving from procurement to social procurement
What is procurement in business?
Businesses and governments purchase other companies' raw materials, components, labor, and finished products. Governments worldwide spend an estimated $9.5 trillion on public procurement annually. Good procurement is a vital 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 ecological 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. 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 the business. Social enterprises are key creators of social value.
Why is social procurement critical?
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 vital 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 vital 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
Social enterprise procurement - 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 to avoid talking about with customers.
To meet ESG goals, you revisit your supply chain to incorporate an SE. You will 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. This partnership has benefited 700 families in Peru with employment, home loans, and schooling.
Your company benefits from Social enterprise procurement
- 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 social enterprise procurement initiatives
In the UK, Social Enterprise UK launched the Buy Social Corporate Challenge initiative in 2016. As a result, the industry has 250 SEs supplying corporations such as Johnson & Johnson, BP, SAP, and more. In addition, 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
Impact measurement and social procurement
Furthermore, as partners in social innovation, corporations can 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.
Measuring Social Procurement Outcomes
Through social procurement, corporate-social enterprise impact partnerships are proven to create a positive impact. Without redirecting average spending to SEs, corporations cannot meet supply needs, generate business value, and change people’s lives. Sopact is committed to helping social enterprises manage and measure their impact. Reach out to learn more about IMM for your organization.
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