Sustainable Sourcing and the urgent need for a resilient value chain

Over this summer, we felt the impact of climate change on the quality of our daily lives, courtesy of the heat waves that engulfed Europe. Local wildfires and droughts are not usual headlines in the UK and Western Europe. One headline drew my attention as it helps illustrate the challenges supply chain professionals are increasingly facing: “Low Rhine water levels threaten Germany’s economic growth.”

Why does it matter?

Rhine river is a major commercial artery for products ranging from grains to chemicals to coal, and it flows from the Swiss Alps to the North Sea via German industrial heartlands. Due to a prolonged period of high temperatures and scant rainfall, the water level was drained, causing shipping delays and pushing costs up more than five times. This event alone is estimated to impact the German economic growth by half a per cent this year, with reverberating effects on other economies that are importing goods manufactured in Germany.

This is just one example of how climate change impacts businesses’ bottom lines and overall socio-economic recovery after a few challenging years.

Additionally, supply chain professionals must adapt their operations in response to new laws and regulations much needed to accelerate the green agenda.

What’s the current status?

“Climate change is a systemic risk that must be addressed now,” warns SwissRe Institute, which estimates that it could wipe up to 18% of GDP off the worldwide economy by 2050 if global temperatures rise by 3.2°C.

Some companies, like the chemicals group BASF, have adapted after the 2018 drought by implementing low water alert systems and developing ships for shallow waters. However, even they are anticipating production cuts.

One of the major pain points we hear from the industries we work with in this regard is the lack of visibility and difficulty in accurately mapping the value chain beyond the 1st tier. There’s an evident need to integrate category intelligence, supply chain mapping, and network data through an orchestration platform.

Limited visibility on overall supply risks and category performance are only two of the challenges most procurement and supply chain professionals face. Gathering intelligence from various sources is gruelling, and data quality is often poor and outdated. Also, the lack of a user-friendly dashboard to enable faster, more innovative, and more effective procurement decisions and risk management.

What can be done?

Resiliency should be at the forefront of strategic transformation programs to enable alternative strategies that are also cost-effective and reduce scope 3 emissions, to meet current and future legislative requirements. Businesses must adapt quickly to avoid legislative, financial, and market pressures.

Extended visibility through the value chain, hence providing the ability to mitigate potential risks faster and minimise the impact on the business, should be based on real-time data flows. Visibility over the value chain could also enable companies to assess their carbon footprint and propose alternative sources of materials.

However, the manufacturing industry is at the embryonic stage of adopting various analytics, artificial intelligence, and digital platforms. These tools can provide access to scenario planning, risks vs benefits analysis, improving transparency, and even proposing alternative suppliers. Significant benefits to efficiency and transparency are yet to be fully realised.

For example, Procter & Gamble developed a centralised control tower that provides visibility across geographies and products. It integrates real-time data for its plants, suppliers, and distributors, from road delays and weather forecasts to ESG or financial risks. The system can run scenarios to identify the most effective solution when an alert is flagged.

Today, most businesses have only a dim view beyond their tier-one and perhaps some large tier-two suppliers. Reviewing each product’s bill of materials can reveal the value chain resiliency of critical inputs and ready substitutes. Supplier collaboration is therefore crucial for companies to create transparency. But some suppliers are reluctant to share their data with their clients and require further negotiations to achieve a win-win solution. Therefore, supplier relationship management teams may have to turn to other information sources to unveil the missing links.

Want to find other solutions you can implement in your supply chain and operations to ensure a genuinely resilient business? Get in touch to learn more about how we can help your company build a resilient supply chain and manage it more efficiently.