Tuesday, May 28, 2024

How climate change will affect supply chain management

Last updated on May 29th, 2021 at 02:36 am

North America supply chains are at risk due to climate change. Recently, business consulting firm Accenture and CDP issued a report on worldwide supply chain vulnerability rating Canada, the United States, Brazil and China behind Europe and Japan. Canada is ahead of the U.S. falling into the “inactive” area of Accenture’s sustainability matrix, meaning supply chains have low risk of exposure at present but could lead to supplier complacency. The U.S. is in the “vulnerable” quadrant making its supply chains susceptible due to poor risk mitigation.

The report points to a lack of emissions targets and water risk assessments on the parts of Canadian companies. Not all Canadian companies are complacent. Procurify, a cloud-based purchasing software provider from British Columbia, is proactive toward supply chain management. “OEMs should ask supply chain partners about origins of raw materials as well as processes involved in creation of products,” says Aman Mann, CEO and co-founder, Procurify. “An OEM needs to understand the entire value chain.”

Cost savings, cost of doing business and revenue

In the United States, emissions regulation and water risk assessment trail most of the developed world. And dependence on cheap natural gas threatens to crowd out sustainable, low-carbon energy sources, according to Accenture. More than lip service must be paid to sustainability. “Companies are touting sustainability, green initiatives and eco-friendly practices in everything from unbleached paper to CO2 scrubbers,” says John Boucher, president and CEO, ModusLink, a Delaware provider of supply chain business process management solutions. “Sustainability should be more than PR. If you’re not considering sustainability in your supply chain, not only are you behind the times, you could be missing cost savings.”

In addition, supply chains have become more complex, impacting the cost of doing business. “Across borders, supply chains grow subject to socioeconomic and political disruptions,” says Jeff Karrenbauer president and co-founder INSIGHT, Inc., a supply chain consulting organization. “But supply chains don’t have to operate globally to be vulnerable to natural disasters, volatility of consumer demand, loss of a supplier or other disruptions.” He also cites research that says big drops in operating income and sales growth are just some impacts of supply chain climate risk.

Not only are companies that don’t promote sustainable supply chains and practices like the Tesla Powerwall missing cost savings and revenue on the wholesale level but also hurting their potential retail revenue. According to Forrest Burnson, market research associate, Software Advice, a Gartner company, consumers are more likely to make purchases from companies they know reduce their ecological footprints. Specifically, his research shows that consumers are:

  • 32 percent more likely to buy products from companies that reduce their supply chain environmental impact
  • 28 percent more likely to purchase products from companies that reduce water usage
Portion of Accenture study on climate change affecting supply chain management
Portion of Accenture study on climate change affecting supply chain management

The cloud and spreading risk

In the 21st century, many supply chain solutions have moved to the cloud, and climate risk mitigation is another aspect they address. “Online procurement can help the supply chain by providing visibility into factors that drive risk mitigation,” says Greg Holt, product marketing director, SciQuest, provider of cloud-based business automation solutions. “One widely discussed threat is severe weather, which can create supply chain disruptions due to powerful storms that take out infrastructure. With better visibility via spend analysis that shows supplier locations in threat zones, companies can begin reducing reliance on (them).”

In addition, online procurement provides visibility and control of company spending—a goal that must be achieved when assessing organizational risk related to climate change. “Before a firm can do anything, they must first know where they are spending money and how each supplier is affected by climate change,” Mann says.

Of course, supply chain disruption due to water ingress at supplier locations is not only mitigated by avoiding vendors in threat zones but also by spreading risk among partners in different geographies. “One item for business owners to keep in mind is geographic proximity of vendors,” says Eric Cannon, assistant vice president, The Hartford. “Avoiding situations where a single weather event could adversely impact all vendors that support the business is sound planning.”

Chris Kushmaul, director, supply chain solutions, IDV Solutions

These thoughts are echoed by other supply chain climate risk mitigation experts. “Companies can minimize exposure to risk and strategically source suppliers,” says Chris Kushmaul, director, supply chain solutions, IDV Solutions, maker of enterprise risk visualization software. “For example, they might try to save $10,000 in transportation costs by keeping all their suppliers in the same area but stand to lose $10 million revenue if a major storm hits that area, they aren’t prepared and have nowhere else to source.”

Midsize B2B companies that have too many suppliers in the same threat zone operate at a high degree of risk. So how can midsize businesses manage vendor exposure? “Think about starting the supplier diversification process,” says Sarah Rathke, partner, Squire Patton Boggs LLP, who litigates supply chain disputes and advises businesses on supply chain issues. “It is important to investigate and qualify alternative suppliers. Check supplier agreements. Make sure you do not have exclusive relationships—or if you do, in case of disaster, you can temporarily source elsewhere. Otherwise, you run the risk of weather disaster causing total production shutdown.”

And keep an eye on your supply chain. This can be accomplished via the miracle of Space Age technology, believe it or not. “Forward-thinking companies leverage high fidelity satellite images that capture, collect and convert to valuable data on sub-meter targets of any site around the world,” says Brian Lichtenberger, co-founder, 7Park Data, “This kind of satellite imagery helps business across industries—oil and gas, industrials, shipping, autos, international retail, amusement parks and more—mitigate 21st century risk and plan a more efficient, productive future.”


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Derek Handova
Derek Handova
Derek Handova is a veteran journalist writing on various B2B vertical beats. He started out as associate editor of Micro Publishing News, a pioneer in coverage of the desktop publishing space and more recently as a freelance writer for Digital Journal, Economy Lead (finance and IR beats) and Intelligent Utility (electrical transmission and distribution beats).