Managing climate change

From the December 2021 print edition

Climate change and its risks have shown us how interconnected our world is today. Flooding, forest fires, drought and other events can upend best laid plans. Supply chain leaders must work to dampen the effects of climate change to their operations. But they can also ensure those operations don’t make climate change worse.

That need is more important than ever. Heavy rainfall and flooding has hit supply chains recently in British Columbia, for example. The COP26 Conference – the 26th UN Climate Change Conference – in Glasgow, Scotland last month has also brought attention to the climate crisis. The event saw 197 countries agree to a new deal, the Glasgow Climate Pact, aimed at curbing climate change.

Supply chains play a pivotal role in the process. According to the US Environmental Protection Agency (EPA), over three quarters of the greenhouse gas emissions (GHG) produced by many industries come from their supply chains.

Collaboration is key
One important way that supply chain organizations can reduce emissions is collaboration with suppliers, says Abe Eshkenazi, CEO of the Association for Supply Chain Management.

“It’s important to ensure that organizations’ actions are consistent with their rhetoric,” he says. “If an organization is indicating that they hold themselves accountable for carbon emissions, or a single company relative to the environment, it’s much easier to hold your partners accountable.”

GHG emissions have risen to become perhaps the single most important issue within sustainability, says Tim Reeve, president of Reeve Consulting. As organizations recognize that supply chains make up such a large part of their emissions, many are engaging with suppliers around reducing that footprint.

“If you really want to look at it in a holistic way as an organization, your own stuff is the tip of the iceberg,” he says. “The more substantive berg is lurking beneath the surface in how it shows up in the supply chain.”

To deal with this, supply chain management must be a team sport, says Adel Guitouni, professor of management sciences at Victoria University. Think about how each player adds value, rather than focusing exclusively on which can provide the cheapest price. Where possible, think about exchanges with suppliers as long-term relationships, especially first- and second-tier vendors, Guitouni says.

Switching to LED bulbs and other operational fixes may solve a fraction of an organization’s emissions problems. That’s not a bad thing, he notes, but there is more potential for emissions reductions through forging relationships with vendors.

Supply chain leaders should consider the effects on emissions of moving goods multiple times and consider streamlining their supply chains, Guitouni says. He advises taking opportunities to purchase local or regional goods and services.

“We don’t need to move the parts of a car between Canada and the US multiple times if we can redesign how we do these workflows, these operations and so on; I think that’s important,” he says.
Ask strategic suppliers if they have climate change mitigation strategies and whether they’ve set science-based targets to reduce their emissions, advises Reeve. From there, speak with smaller, less strategic suppliers about carbon footprint reduction and the expectation that those suppliers will play a role
in that process.

Organizations can also target high-impact procurement opportunities (HIPOs) related to carbon or GHG emissions, says Reeve. These include items that may have an obvious and direct impact on emissions, like power generation, vehicles, stationary and some types of equipment.

Another step organizations, particularly in the public sector, can take is looking at the carbon footprint associated with infrastructure and building projects, Reeve says. For example, Infrastructure BC, a crown corporation in British Columbia, has begun looking at calculating the carbon footprint associated with potential design options on new infrastructure and having contractors and suppliers provide that information as part of their bids.

“We hear so much about climate change and it can seem like a bit of an overwhelming topic at times,” Reeve says. “I think there are ways to break it down into some chunks. Whether it’s choosing a few product or service categories to focus on or engaging with some suppliers, we’ve got to keep our eye on eating this elephant one bite at a time so that it doesn’t feel too overwhelming and people become paralyzed.”

Beyond the boxes
When evaluating the carbon emission of suppliers, it’s important that the due diligence goes beyond checking boxes and evaluating for low cost, says Eshkenazi of ASCM. Too often, vendors are selected based on how quickly they can provide goods and how low the price is, he notes. Focusing exclusively
on cost and speed is likely to leave out any discussion of the environmental and sustainability impacts
of supply chain practices.

“All it indicates is that I’m getting my materials and my resources in front of everybody else, or I have priority,” Eshkenazi says. “It really doesn’t establish climate change as a significant consideration for organizations. So, due diligence has to go well beyond just a check box or a low cost.”

Establish criteria on how to evaluate vendors and then follow through, he advises. It’s critical not only to establish goals, but to measure progress towards them. “Actions need to be consistent with the rhetoric,” Eshkenazi says. “Not only for yourself but for your suppliers as well.”

Supply chain challenges such as the COVID-19 pandemic and the blockage of the Suez Canal by the container ship, the Ever Given, have highlighted the nearshoring of manufacturing as a potential fix for the risks of lengthy, global supply chains. But nearshoring or establishing local operations isn’t a quick fix to supply chain problems, including GHG emissions, Eshkenazi says. Such a move must harmonize with other activities. What does it do to your existing vendor base? What does it do to logistics operations? What about customer expectations regarding time, frequency and product availability?

“While nearshoring would help with lead times, with the logistics and the transportation, and could reduce our carbon footprint or the impact on the environment, we also need to understand the challenges in establishing these multiple facilities – because it’s no longer just one facility and one location,” Eshkenazi says.

To fight climate change, supply chain leaders must keep in mind the bigger picture surrounding what they do, notes Guitouni. Value doesn’t refer only to financial gain. In working to tackle the challenges of climate change, it’s also important to remember that while the relationship between buyer and supplier
is important, it’s not the only relationship. Modern supply chains depend on many stakeholders.
Organizations that realize this fact gain a competitive advantage, he says.

“It seems complex in the beginning, but it gives us more satisfaction in terms of the job that we do because everything in our modern life depends on supply chains,” he says. “This is why I think it’s important for supply chain professionals, researchers and everyone to step up their game and become part of the solution, and not part of the problem.”