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.
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.
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:
- 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 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.
In 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.
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.
- Assure supply
- Deliver on time
- Be competitive on quality, price, and volume
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.
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