Monday, April 8, 2013

The Sustainable Supply Chain Imperative

As climate change worsens supply chain disruptions can be expected to increase. The global nature of modern day supply chains means that events in one part of the world can have far reaching impacts. The destructive effects of climate change reverberate up and down supply chains and wreak havoc on procurement, production and logistical tactics.

There is an increasing need for companies to assess, evaluate and optimize their supply chain operations in order to reduce their carbon footprint, avoid disruptions from climate-related events, and meet the growing requirements from governments and customers.

Companies cannot avoid the impacts of climate change and year after year more more businesses are acknowledging these risks. In 2012 the CDP’s Global 500 Climate Change report  found that 81 percent of reporting companies have identified physical risks from climate change, compared to 71 percent in 2011. The report also says that 37 percent perceive these risks as a “real and present danger,” up from 30 percent in 2011 and 10 percent in 2010.

According to a PwC report, 10 Minutes – Risk ready: New approaches to environmental and social change, many companies now view preparation for climate change as not only an indicator of resilience, but also as a competitive advantage.

Climate change induced extreme weather events like drought, hurricanes, tornadoes  storms and floods are very costly. The PwC said that only one third of the $380 billion lost to "natural" disasters in 2011 was covered by insurance. Even in the absence of extreme weather, basic resources like water and energy are strained and in many places they have already reached a breaking point.

The PwC report, published just after Hurricane Sandy, says the ability to anticipate — and plan for — potential weather disasters is vital. Companies should embed sustainability practices into their business models to mitigate the risks associated with these major weather events.

The disruptions caused by Hurricane Sandy effectively illustrate the point. The devastating caused shipping delays and backed up supply chains and slowed deliveries by days and even weeks. The Hurricane closed shipping facilities, slowed transportation. Power outages and a lack of resupply prevented vehicles from being refueled forcing some companies like FedEx to assume the additional expense and logistical burden of renting fuel tankers. Grocery stores suffered significant losses of perishable goods.

In addition to protecting against the risks associated with climate change, sustainable supply chains are appreciated by customers, shareholders and employees. Optimized supply chains with smaller environmental footprints are also more efficient, less costly, and less likely to suffer from disruptions. Further, sustainable supply chains insulate companies from the shocks associated with sudden price increases and resource scarcity.

Another PwC report titled Low Carbon Economy Index 2012 says that the world is heading for a six-degree rise in temperature by the end of the century. The supply chain disruptions associated with climate change are almost certainly going to get far worse, so developing sustainable supply chains is not only a competitive advantage, it is a matter of survival.

© 2013, Richard Matthews. All rights reserved.

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