One of the critical decisions to be made when launching green procurement in your organization is how to account for a green preference in your proposal analysis. Two common methods are weighted average scorecarding and total cost of ownership analysis.
Deciding between the two often depends on the market. If the market is one where green alternatives actually save costs over the life cycle of the purchased product or equipment, then total cost of ownership analysis is the proper method. Please see this Supply Excellence post about how Adobe is actually achieving ROI from its green procurements.
However, some green alternatives have higher prices without a cost-saving benefit associated with them. You pay a premium for the comfort of knowing that you did something environmentally responsible. In these cases, you should use weighted average scorecarding.
When using weighted average scorecarding, you need to decide how much weight should be given to environmental responsibility. Should it be 5%? 10%? 12%? More? Less?
Even with total cost of ownership analysis, you can apply similar logic to determine how much of a premium your company is willing to pay for a greener alternative. I found an interesting – albeit limited in its scope of research – article that reveals the percentage of people willing to pay a premium for a green alternative.
Top management should be involved in these decisions. It really is a decision that is based on the values of the company.
The article also reveals that fewer people are willing to pay a green premium (a “greenium” maybe?) this year compared to last. Not surprising given the economy and the rising prices of gasoline and other things.
In the podcast, I playfully asked our guest expert if green business was the new low carb diet in terms of hype. While I do feel that green business will (and should) always be a growing interest, I’m not sure it can sustain the media coverage it gets today. Could the statistics from the above linked article mean that the current economic challenges, if sustained, could be the death of green hype?
Regardless, green procurement is here to stay. So get on board and get started if you haven’t already! I think that the article, podcast, and this post can help you get through the introductory steps successfully.
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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