Local procurement is one of the most overlooked opportunities for companies to strengthen their operations. Organizations have an opportunity to secure their social-license-to-operate and make a more positive impact on the world by embracing local procurement strategies. Local procurement refers to the purchase of goods and services from local businesses and is often extended to include women-owned businesses and businesses owned by other equity-seeking groups. Employment metrics are also an important element of local procurement, as some procurement dollars create more jobs than others.
Despite the many benefits of local procurement strategies, many organizations still struggle to take advantage of this opportunity. This is often because of the upfront investment required in the context of cost pressures, and a lack of understanding and measurement of business value created through these strategies.
When organizations invest in local procurement, it creates positive outcomes for many different stakeholders. Businesses in the area see more opportunity, the local economy sees an increase in investment, and the regional workforce has opportunities to increase their skills and capacity. Firms that practice local procurement see benefits that include better supply chain flexibility and stronger relationships in the communities where they operate. For firms, local procurement is also important for their ESG performance and, in many regions of the world, a key factor in local content regulations.
Local procurement strategies take careful planning. There are multiple stakeholders that must be considered, there is upfront research required, and local procurement requires that firms shift away from global procurement practices that are engrained in many industries. Fortunately, local procurement efforts can be adopted thoughtfully over time to minimize risk. There are also proven frameworks that firms can follow to maximize the return on their efforts. For example, the extractive sector can follow the Local Procurement Reporting Mechanism (LPRM) created by the Mining Shared Value initiative of Engineers Without Borders. In addition to established frameworks, there are simple steps that can be taken to move a firm in the right direction.
For example, holding a well-advertised public forum for local suppliers is not only an effective means of understanding the challenges these businesses face in supplying an organization, but it also can attract competitive businesses that busy procurement staff may not have had time to meet before. An event like a public forum can also inform a company of minor procurement process changes that can be made to support local suppliers. Inviting local chambers of commerce, government economic development agencies, and other institutions with a mandate to support small businesses can also plant the seeds for successful capacity-building initiatives.
In all approaches to local procurement, there is no need to recreate the wheel. Established frameworks, guidance, and case studies are available across different sectors, and from a wide variety of geographic and socioeconomic settings. While the LPRM was originally designed for the mining sector, the best practices that form the basis for its requested information-sharing are applicable across any large-scale project. Providing information in accordance with the LPRM helps companies self-assess where they are in their strategy and processes and identifies actions that can be taken to further improve.
Philipa Varris, then with Golden Star Resources, that was one of the first mining companies to adopt the LPRM, stated “Local procurement provides the framework for genuinely interdependent relationships – where miners and host communities succeed together. The Mining LPRM provides a standardized method for ensuring transparency and, in practical terms, has guided our efforts and performance improvement.”
Organizations should begin by putting in place the internal management and reporting structures to ensure their local procurement processes are in line with best practice. This includes creating a committee with company, supplier and community representatives that meets regularly to keep everyone on track and identify new opportunities to support suppliers. This can potentially be done with government support. What is measured is managed, and as long as organizations and their stakeholders work together to measure and report progress, it will inspire continuous improvement.
With frameworks and best practices available to implement effective local procurement policies, there are also tools that exist to quantify socio-economic impact and report on performance. For example, The NetBenefit Platform is a user-friendly information management system that empowers contractors and suppliers throughout the supply-chain to report on their spending, employment and other activity. This reporting provides visibility deep into the supply chain where the largest local procurement impacts often occur. This gives firms and regulators quality data and reporting that otherwise wouldn’t be available or would be too exhaustive to reliably collect.
We can expect the trend of local procurement efforts and regulations to continue globally. This is commonplace in the extractive industries today, but is beginning to be seen in all business environments, including renewables. Fortunately, best practices have been maturing, frameworks such as the LPRM exist to guide firms, and technology advances allow firms to quantify and report on their progress. Firms that act quickly on implementing local procurement strategies or improving current practices stand to benefit from better ESG metrics, more robust supply chains, and stronger relationships with the communities in which they operate.
- Written by Jeff Geipel and Matt Adams.
Jeff Geipel is the founder and venture leader for Mining Shared Value, an initiative supported by Engineers Without Borders Canada. This venture works to improve the development impacts of mineral extraction in developing countries through encouraging an increase in local procurement by mining companies.
Matt Adams is the CEO of NetBenefit Software. Based on the east coast of Canada, Matt has spent his career (and more of his social life than he’s willing to admit) in the Environmental, Health, and Safety (EHS) and Environmental, Social, and Governance (ESG) software space.