ESG strategy with measurable results
An OEM integrates sustainability KPI into its risk and procurement management
An automotive manufacturer wants to make its procurement management sustainable and make the results achieved measurable using key figures. However, looking at the purchasing side is not enough for this; the company needs a company-wide ESG strategy. Together with ROI-EFESO, the company develops an integrated and pragmatic solution. This optimizes purchasing with regard to sustainability and makes progress measurable using KPIs. At the same time, a holistic ESG framework is integrated into the company-wide risk management, thus aligning the entire organization, including suppliers, towards increasing sustainability and transparency.
Challenge
A leading automotive manufacturer wants to set up its procurement sustainably and needs a cross-company solution for this.
MoreLessons learned
ESG strategies are successful if they do not only deal with partial aspects, but set clear guidelines for the entire organization.
MoreROI-EFESO success model
With a methodically sound and pragmatic approach, even major strategic challenges can be resolved quickly and reliably.
MoreFrom a partial solution to a company-wide sustainability program
A leading automotive OEM planned to introduce a sustainability program for its procurement organization. This was to take into account all ESG (Environmental Social Governance) factors relevant to the company. It quickly became clear that a strategically anchored solution could not only concern procurement management. Rather, it had to encompass the entire company, all the way to the suppliers.
Since sustainability aspects had not previously played a major role in procurement, suitable criteria, key figures and an overarching framework for implementation had to be developed. In addition, the results of the process and the key data of the strategy had to be visualized and the results of the sustainability program had to be made comparable across all sectors.
Holistic approach integrates people, planet and profit
In order to take a holistic view of the ESG factors, the conultants of ROI-EFESO worked with the client to expand the focus of the project to include several areas of the company. At the procurement level, a future-oriented procurement strategy was first developed together with the purchasing department. This defines the guidelines for all material groups and assigned suppliers and provides the purchaser with orientation for concrete questions. The existing procurement strategy for all purchased components such as transmission parts or seats was restructured in four steps:
- First, the commodity groups and the context for the strategy were defined, e.g. in terms of products and required quantities, market development and other internal/external benchmarks.
- Second, complementary information was collected and analyzed, particularly in relation to commodity group and supplier risk management.
- Based on this, the third step was to develop a new commodity group strategy with an updated supplier panel, corporate vision and positioning matrix.
- Fourthly, the strategy package was supplemented by concrete action plans for procurement management.
In addition, procurement activities were decisively improved operationally, including in internal reporting and in planning formats, e.g. in the form of business plans and purchasing scenarios.
Sustainability is integrated into the entire organization via company-wide risk management.
In parallel, the sustainability perspective was integrated throughout the company at the risk management level. This was also a pragmatic decision, as it was the quickest way to increase the importance of sustainability for supplier management and quality strategy and to build a bridge to day-to-day business.
The three main elements are the defined material group strategy, standards for purchasing indicators in the automotive industry according to the Sustainability Accounting Standards Board, and the "Triple P" approach for identifying (sustainability) risks. This works with the dimensions environment (planet), social (people) and economy (profit). On the profit side, for example, the availability of materials or risks such as cybercrime are considered. For sustainability, on the other hand, the dimensions planet and people are decisive. A detailed framework defines the specific activities in these areas. In this way, the ESG KPIs will be used in all of the customer's risk management measures in the future.
Successful ESG strategies cover the entire value chain
When addressing sustainability issues, companies often face previously unknown problems and questions: What trade-offs between sustainability and profitability are acceptable? How can we identify areas where sustainability increases profitability? What are the most important indicators of sustainability in processes and value chains and how can these be influenced?
The case of the automotive manufacturer impressively demonstrates the following aspects: an ESG strategy can be sustainably anchored if not only individual aspects of corporate action - such as departments or acute problem areas - are considered, but the measures are embedded in a strategic context that understands sustainability as a central guiding principle. In this way, the necessary sub-projects were also placed in a long-term frame of reference. This not only solved the narrowly defined original task, but also created the strategic framework together with the OEM in order to increasingly implement sustainability throughout the entire company in the future, starting from the acute challenges in procurement management.
The strategic frame of reference is critical to effectively implement sustainability measures and their KPIs.
Effective solution through methodically sound, pragmatic approach
A key to the success of the project is the methodically sound and at the same time realistic and pragmatic approach. This can be seen, for example, in the development of the indicators for procurement. An initially critical factor was the lack of a framework for sustainability reporting, e.g. on conflict minerals.
ROI-EFESO therefore expanded the existing risk management framework to include the Triple P approach and tested the practicality of the approach directly as a pilot project at one of the client's plants. Sustainability topics were linked to an integrated risk matrix via KPIs that map a wide range of topics and factors, such as total energy consumption, the proportion of recycled waste, or the CSR rating of suppliers. In addition, a process was established that also improves the review and evaluation of suppliers and goods with regard to ESG aspects.
The solution lays the foundation for even deeper integration of sustainability in the company. The next step will be to create an IT platform that enables employees to routinely assess sustainability factors. This will enable the car manufacturer to further increase transparency, embed sustainability even more deeply, and at the same time support suppliers in making their business more sustainable. This is crucial for improving the overall ESG rating - and a further step on the way to a fully sustainable automobile.