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Dalziel: CIPS NZ Strategic Procurement Forum

12 June, 2008
2nd CIPS New Zealand Strategic Procurement Forum

SkyCity Convention Centre

Good morning, and welcome to the second New Zealand Strategic Procurement Forum. Thank you to the Chartered Institute of Purchasing & Supply for inviting me here today. It is my pleasure to once again open this forum.

I wish to congratulate you on the progress you have made over the past year promoting best procurement practice and providing educational and networking opportunities to procurement professionals.

The focus of today’s forum is on the four principal challenges facing the procurement profession in 2008. Those challenges are the effects of globalisation on procurement; socially-responsible procurement; the skills shortage and the evolution of the profession; and supply chain vulnerability.

Today I’d like to focus on the second of these challenges: socially-responsible procurement. And, in particular, I’d like to talk about how sustainable procurement fits into our overall strategy to develop a more sustainable nation.

Consumers throughout the world are becoming increasingly aware of the importance of sustainability. More and more, they want to know where products are sourced, how they’re made, what impact their manufacture or production has had on the environment. Many consumers are now looking beyond the purchase price when they make their purchasing decisions.

This growing consumer awareness puts pressure on businesses to demonstrate not only their own sustainability, but also the environmental credentials of any products they sell. Now and into the future, businesses will have to embrace sustainability to remain competitive. And this might seem like a big challenge for New Zealand firms, already struggling with skills shortages, the global credit crunch, and rising costs.

But these days, smart businesses are not only meeting the sustainability challenge, they are thriving on it. Many New Zealand firms are seeing serious business opportunities in sustainability – using it to gain an edge over their competitors here and overseas.

It is my view that New Zealand is relatively well-placed to take advantage of the global interest in sustainable products and services.

For a start we are regarded as a trustworthy source of high-quality products and services. I believe we can build on this reputation to position ourselves on a platform of environmental integrity, which will help businesses capture value from this growing environmental awareness. But it has to be a real platform of environmental integrity – with the emphasis on integrity - and we must therefore meet internationally benchmarked standards as an assurance to those who might no longer be prepared to simply rely on our ‘clean, green image’.

An important part of the government's role is helping business to verify the environmental claims they make about their products and services on one hand - and helping consumers make informed choices about what they buy on the other.

Robust, consistent, and easily-verifiable standards for products and services are central to this as they are to sustainable procurement. This is where eco-labelling comes in. We are currently working with business to enable it to attain accreditation for meeting environmental standards and we are developing an eco-label directory, which will provide businesses and consumers with information on various environmental labels and standards, and explain what they mean.
So we’re doing a lot of work to help businesses and consumers move to a more sustainable way of doing things. But of course government needs to walk the talk itself.

Early last year, the government announced that it was setting the core public sector on the path to carbon neutrality by 2012. This is an ambitious goal - and a world-leading one.

The first step in the Carbon Neutral Public Service programme was to calculate the carbon footprint of the 34 agencies, and work out how this could be reduced. This was completed at the beginning of April. Agencies were supported in this through the Govt3 programme which is an initiative led by the Ministry for the Environment that provides practical tools and relevant information to help departments undertake sustainability initiatives.

These agencies now have over 300 planned activities between them to reduce this base footprint – ranging from installing waste recycling systems to educating staff about sustainable practices.

And of course helping government departments to incorporate sustainability into their procurement practices – and so use their purchasing power to grow the market for environmentally-friendly services and products – is an important part of this programme.

The importance of government procurement as a way of encouraging behaviour-change becomes clear when you think that the government spends up to $20 billion each year on goods and services. That’s just over 15 per cent of New Zealand’s total GDP.

The public sector’s activities can have an extensive impact on the environment – for instance, through its workforce, its owned and leased buildings, its IT requirements, paper usage, and vehicle fleet.

For this reason, sustainable procurement is one of the important initiatives in the government’s overall sustainability strategy.

The joint Australian/New Zealand Framework for Sustainable Procurement was issued back in September 2007 and comprises four principles to guide public sector organisations to develop strategies, policies, guidance, training, and tools.

Building on this, the government issued a set of standards and guidelines to help increase the sustainability of government department purchasing – requiring departments to purchase goods and services that are more water and energy efficient, emit less carbon, produce less waste, and are accredited or environmentally certified where possible.

Standards, targets and guidelines are now in place for timber and wood products, paper, lighting, motor vehicles, video conferencing, travel, and workplace travel planning. Work is also ongoing in the areas of ICT and sustainable buildings. Both national and international eco-standards are incorporated wherever possible.

There is also an increase in the use of sustainability requirements in tender specifications and in evaluations. This translates into improvements in areas such as fuel efficiency, building energy efficiency, office supplies, cleaning services, and print services.

Of course, the other side of the coin is the suppliers. We’re really just starting out on this path - but we’re already seeing some changes for the better.

For instance, the directive that public service departments adopt minimum environmental standards for new and refurbished office buildings has had a dramatic impact in the commercial office-building sector. As at December 2007, developers of 25 new or refurbished office buildings, covering a total area of over 300,000 square metres had started the application process for certification under the Green Star New Zealand rating system.

Another example is motor vehicles. When the standard was introduced, one of the most popular small car choices for government fleets in New Zealand had a safety rating less than the new standard, meaning it would be have been excluded even though the size and price of the vehicle made it a popular choice.

The manufacturer stepped up to the mark to understand the problem and the requirements of government. They came up with a fix that made the vehicle compliant, allowing it to be re-evaluated. It meant that government employees have safer cars. And of course, any members of the general public that purchase the same vehicle will also get a safer car.

Some suppliers may be resistant to the new sustainability challenge. After all, they are being asked to make significant changes to the way they operate. However the collective purchasing power of government departments will inevitably have an impact on how businesses wanting to supply those departments behave. This is especially true for a small market like New Zealand.

To remain competitive, suppliers must be prepared to take on the challenge and come up with sustainable and innovative products and services that offer true value for money over their whole life cycle. And this in turn means increasingly eco-savvy consumers will also benefit from this growth in environmentally-friendly goods.

We are moving beyond the days of government departments procuring goods and services on the basis of purely commercial considerations of lowest price. What are important are the whole life costs of a product or service, including its social, environmental, and ethical impacts.

Looking to the future, the minimum standards and targets that we have established so far are just the beginning for the sustainable government procurement project.

To date, New Zealand’s procurement policy, including the mandatory sustainability standards and targets introduced last year, has applied only to central government departments and the New Zealand Police and New Zealand Defence Force.

The ability to influence a larger proportion of government spend would obviously further increase procurement’s contribution to sustainability. Therefore, starting later this year, the Government Procurement Development Group has been asked to roll out the procurement policy - including the new standards - to the wider state sector.

This means that in addition to core government departments, other agencies such as District Health Boards and State-owned enterprises will be expected to apply the policy.

The benefits of sustainable procurement will also be promoted to local government. The Government Procurement Development Group will work with regional and city councils across New Zealand to encourage adoption by that sector through involvement, communication and education.

We also plan to make the procurement process easier for suppliers – including by upgrading the government electronic tender service to make it more user-friendly for procurers and suppliers alike. If the costs of the procurement process can be reduced, then suppliers will be able to make greater investment in meeting sustainability requirements and still maintain economic viability.

Another area that we are looking at is how we can get the benefit of increased sustainability through better collaboration on procurement.

One challenge we face here is that New Zealand has a highly decentralised environment. There is no central purchasing mandate. Each agency is responsible and accountable for its own procurement.

However, the significant – indeed, impressive – savings that have been achieved in New Zealand and other jurisdictions through collaborative contracts are persuasive. By making greater use of collaborative contracts for common use items, there is greater opportunity to integrate sustainable procurement standards into agencies’ buying patterns. But with the government such a major purchaser there are always risks around reducing suppliers and risks of monopoly rent seeking behaviour are also there.

The resulting aggregation of demand can also provide further encouragement to New Zealand businesses to develop more sustainable and innovative solutions.

Agencies need to have sufficient procurement expertise to deliver value for money while meeting the sustainability objectives. This includes framing contracting strategies, managing risk, and building supplier relationships — and awarding contracts on the basis of achieving longer term sustainable value for money rather than simply the lowest price. And that is where New Zealand businesses expect to see their bids gain some ground against some of the international brands. The proximity to the needs of the customer, the ability to make adjustments over the life of the contract to meet the needs of the customer are all important. And the potential for partnership in terms of R&D that lead to contracts for supply are all part of utilising government procurement policy to New Zealand Incs. advantage.

The spin-off to all this focus on procurement practices is that many agencies are beginning to not just recognise the importance of procurement in their operations but are giving procurement professional status within the organisation.

To back that up we are already working with the Australian Procurement and Construction Council to develop a programme to build government procurement capabilities. And the Government Procurement Development Group continues to work closely with CIPS in developing pathways for learning for practitioners here in New Zealand. One item under consideration is the inclusion of a new training module on sustainable procurement.

It is also very encouraging to see that procurement professionals – such as yourselves – take up the opportunities that CIPS provide. Your attendance at this second CIPS New Zealand Strategic Procurement Forum demonstrates that you all recognise the importance of developing and maintaining your professional procurement skills.

All this shows that we are well on the road to integrating sustainability into New Zealand as a whole and government procurement in particular, and it is rapidly becoming part of business as usual. While we may have achieved a great deal over the past fifteen months, there is still a lot of work for us to do.

I hope you get a lot out of today’s forum and that you go away from it with new ideas and fresh inspiration. I look forward to seeing both the continued growth of the profession and its contribution to building a truly sustainable New Zealand.

Thank you.


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