With insight from our expert team of advisors, resource efficiency lead Kevin Lambert shows how supply chain sustainability offers both resilience and opportunity as we recover from COVID-19.
In some ways, the Coronavirus pandemic has been a giant litmus test for the modern global supply chain. The quest to source products and materials at the lowest possible price has led to ever longer and more complex supply chains, often resulting in a lack of transparency and/or flexibility and an over-reliance on certain regions or suppliers. COVID-19 has laid bare the vulnerabilities of this model.
As the global economy begins to get back to its feet, how can businesses protect themselves in future from similar sudden shocks or more chronic (but no less dangerous) ones like climate change? The answer comes in a more resilient supply chain strategy that balances price with an array of other risk factors. Now, more than ever, the principles of sustainability – people, planet and profit – have a key role to play.
The ‘triple bottom line’ approach to resilience
A sustainable supply chain strategy is one that takes economic, environmental and social factors into account in procurement decisions – also known as the triple bottom line. Evidence suggests that businesses following this approach are likely to weather the storm of COVID-19 better than their competitors. Why? Because accounting for environmental and social performance in your supply chain requires transparency, communication and a thorough understanding of your suppliers and the risks they’re exposed to. This knowledge can be invaluable in managing vulnerabilities and responding quickly in a crisis.
“Beyond physical shocks like COVID-19, building sustainability into your supply chain also improves resilience to other risks,” says Claire Scott, one of our specialist environmental business advisors. “For example, ensuring suppliers comply with modern slavery legislation and environmental regulations minimises the risk of legal liability and reputational damage. Choosing a supplier of recycled raw material rather than virgin material reduces the risks associated with the decline of natural resources and rising raw material costs. Similarly, choosing a supplier who is taking action to reduce their water use reduces the risk of future problems in water-stressed regions. The latter is an example of one of many environmental risks that are likely to become far more prominent in future due to climate change.”
The rise of social value
As we begin to ‘build back better’ from this current crisis, demonstrating social responsibility in the supply chain will almost certainly become more important in differentiating yourself from competitors. One example of this is the rise of social value in public procurement.
Clare Fallon, another member of our resource efficiency team, explains:
“Social value can loosely be defined as the role a business plays in generating benefits for society and the economy as a whole, such as supporting local jobs and skills, paying the living wage, taking part in charitable activities or protecting the local environment. A recent example is the decision by some manufacturers to start producing critical supplies for frontline workers during lockdown.
“Demonstrating social value already accounts for around 20-40% of tender scoring for public sector contracts, and we can expect it to become more prominent in future. Embedding sustainability in your supply chain and using local suppliers where possible acts like a social value ‘multiplier’ that may help you to win contracts.”
How to get started
The idea of implementing a sustainable supply chain strategy can seem daunting, especially in the aftermath of a global crisis. However, now is the perfect time to get started by analysing the recent disruptions you’ve experienced, says green technologies and services advisor Tolu Omideyi:
“A good place to start is to re-trace any steps you might have recently taken due to COVID-19. For example, the temporary closure of a supplier during lockdown may have forced you to switch to a new supplier. It’s easy to miss out standard due diligence checks at short notice, but it’s crucial you make sure they are compliant with relevant legislation and are performing to the standard required of them. Even if you haven’t switched yourself, the chances are one of your suppliers has, and you don’t want any environmental or social risks created by these decisions to transfer onto you.
“A full supply chain mapping exercise can help to identify, document and eliminate these risks. The first step is to compile a full inventory of your suppliers and characterise them by criticality and vulnerability to different risks. Next, gather information on the added-value they provide in terms of legal compliance, sustainability and social value through supplier questionnaires and communicate your own environmental and social goals to encourage buy-in. You can then begin to measure and evaluate performance on an ongoing basis. The companies coming out of COVID-19 most successfully will be the ones who have already done these exercises and taken the risks they identified seriously.”
Diversification and re-shoring
If your supply chain is over-reliant on certain regions or suppliers that face environmental risks, you may be able to manage that risk through diversifying your sources of supply. A real-world example is the 2011 Thailand flood disaster. Toyota was one of several major carmakers heavily reliant on manufacturing in the region and was severely affected, with knock-on effects to supply causing disruption at other plants all around the world. Following the disaster, the company reportedly requested information from hundreds of its suppliers and found that many were vulnerable to similar risks. By then of course, the damage was done. In contrast, Nissan – which was also affected by the flooding – recovered much faster, partly because it already had a more diversified supply chain.
It may even be prudent to ‘on-shore’ or ‘re-shore’ parts of your supply chain to the UK. This is something we’re likely to see more of in the aftermath of COVID-19. Re-shoring may bring environmental benefits – using local suppliers means materials don’t have to travel as far, and it could reveal opportunities to support a more circular local economy. However, it's not always a suitable strategy. The decision should be carefully weighed up to balance longer-term risks and impacts from both an environmental and social perspective.
How we can help
Ultimately, the supply chain risks exposed by the COVID-19 crisis will be gradually magnified and aggravated by the climate crisis over the coming years. Those that can build sustainability and long-term resilience into their supply chains now will be best placed to navigate out of both.
This isn’t something that can be done in a day, but our team of specialist advisors are on hand to guide you through the process. We can support you with a wide range of activities, from risk mapping to the development of environmental policies and supplier questionnaires.
This post was originally published on the GC Business Growth Hub website on 24th June 2020.
Posted under General Interest on 24 June 2020