Coronavirus and globalisation: What next for supply chain sustainability?
Covid-19 has brought global economies to a standstill and knocked the confidence in global and connected trade. Would businesses benefit from pivoting to more localised value chains, or do global supply chains enable a global shift towards a climate-resilient future?
The impact of the coronavirus pandemic on international commerce has been described as “ugly”. The World Trade Organisation (WTO) has forecasted declines in international trade and commerce of between 13% to 32% this year.
Impacts to trade through transportation limits and production slowdown are impacting business productivity, with 94% of the Fortune 1000 seeing supply chain disruptions. Elsewhere, a survey conducted by the Institute For Supply Chain Management last month, found that 75% of companies are reporting supply chain disruptions due to impacts of the coronavirus.
Many manufacturers are now jostling to shift the structure of their supply chains to make up for missed deliveries, reclaiming some practices often undertaken by suppliers into their own factories or even pivoting production systems to make different products entirely – as seen by the sheer volume of manufacturers producing protective PPE equipment for frontline medical workers.
There is a risk that this short-term focus on operational capacity and processes could unravel efforts to integrate suppliers into more sustainable practices.
Fairtrade International, for example, has called on the G20 and corporates to provide economic relief to growers in developing countries that have no safety net if work stalls. On the other end of the supplier spectrum, Covid-19 has unmasked an overt reliance on manufacturing suppliers located in China, notable the technology hub of Hubei which has been identified as the source of the outbreak. The Financial Times notes that the “300 of the world’s top 500 companies have facilities in Wuhan, Hubei’s capital”.
It is apparent that for many organisations, the globalisation of manufacturing has created a scenario where supply chains are unprepared for disruption. They’re either too localised into specific regions or span multiple continents and tiers to the points where end-user businesses won’t be aware of associated links to deforestation, human rights abuse and other environmental and ethical pinch points.
During a recent edie webinar on supply chain resiliency, sustainability and carbon experts from UL, BT, HPE and Global X Project were all asked how they think supply chain management in regard to sustainable practices will change as a result of the Covid-19 outbreak.
Tech firm HPE’s technologist for IT Efficiency & Sustainability (EMEA) Mateo Dugand noted on the webinar that companies that were already engaging with suppliers on sustainability were likely still doing so during the global lockdown, but that the impacts of the crisis had shined a light on the need to better factor environmental and social governance (ESG) into engagement practices.
“The focus and priority right now are to manage the crisis and make sure people are in good health,” Dugand says. “In the long-term Covid-19 is a clear indication that we need to better include the ESG factors into the way we operate.
“Long-term, this is another argument to engage on the sustainability topic, both environmentally and socially, to shift the business model to an outlook that is longer-term…I think sustainability will become a lot more real for some companies once we pass this crisis.”
HPE has set science‑based GHG emissions reduction targets across operations and supply chain and 38% of the company’s environmental footprint is located in the supply chain. The company is one of many setting science-based value chain targets in order to de-risk its supply chain against future climate change impacts.
Through the Science Based Targets initiative (SBTi) the number of companies that have committed to setting 1.5C-aligned carbon reduction targets across their operations and value chains has more than doubled since September 2019. In fact, if scope 3 emissions represent more than 40% of a company’s overall emissions, the SBTi requires they set a target to cover that impact – approximately 90% of companies with science-based targets have a scope 3 target.
However, the impacts of the coronavirus on worker productivity, economic security and health and wellbeing pose specific threats to business. Many businesses will start to diversify their supplier base to minimise the risk of future disruptions and firms will be expected to assess the resilience of the entire supply chain, including second and third-tier suppliers.
Local vs global
With more than four trillion consumer goods products shipped globally annually, it is a staggering oversight that end-to-end traceability of goods across the value chain remains a “black hole of insight”.
As such, Project X Global’s chief executive Marcel Navarro believes that for some supply chains, a shift to a more localised approach, where end-user businesses have much more oversight of business practices will help deliver more resilient value chains moving forward.
“We need to remain pragmatic during the crisis,” Navarro says. We have an aspiration of what we need to do and what we’re able to do but a lack of transparency is a big disabler of collective action.
“Organisations have been influenced by the crisis, but we still see the fundamental importance to look outside our own operations. Pragmatism and realistic deployment of solutions is important, and the key concern is how to keep the planet and biodiversity as a focus.
“I think local value chains will gain priority and ensuring a local source of responsible supplies will become a new contingency norm for sustainable supply chains.”
Navarro has a strong track record when it comes to innovation. She was the head of customer innovation for the Royal Bank of Scotland (RBS). Under her guidance, the bank quickly became renowned for its willingness to trial and support innovations that directly impact its operations.
Navarro then founded Business Cubed, to support companies around the world to re-address imbalances within their supply chains by harnessing green innovation. Engine manufacturer Cummins was the first to benefit from this approach. At Project X Global, she is aiming to transform entire value chains at a speed and scale required to alleviate global pressures regarding sustainability and climate change.
Through collaboration, Project X Global is working with Skretting, Climate-KIC, WWF, Ikea and others to shift 10% of the global feed production to sustainable sourcing by 2025, improving the resiliency of that supply chain as a result.
For some manufacturers though, global supply chains remain a must, largely due to material sourcing. Mining for electric vehicle (EV) components and fibre sourcing for clothes require extensive supply chains, at least until the circular economy is embedded to reduce virgin material use. On EV components, Amnesty International has criticised the “unregulated” practices which are leading to human rights abuses of mineral extractions.
BT, for example, has a fleet of around 34,000 vehicles and is aiming to convert to electric vehicles where it is the “best technical and economic solution” as part of the firm’s ambition to achieve net-zero carbon emissions by 2045. The company’s head of sustainable business policy, Gabrielle Giner noted the need for businesses to “think about how to get [certain] industries to keep moving” to become more sustainable, rather than leaving them behind.
BT’s own supplier engagement forum is industry-leading, launching the Better Future Suppliers Forum (BFSF) in 2012. It is aimed at reducing supply chain risks by introducing suppliers to the concept of sustainability, before encouraging them to embark on a 10-step journey that culminates in that company getting benchmarked against a best practice approach.
For Giner, any approach to supply chain resiliency must come through engagement and businesses using their voices to lobby for a green recovery plan that enables supply chains to integrate more sustainable and ethical practices.
“We have certain key suppliers and we don’t want to strike anyone out,” Giner says. “We want to work with them on the issue to try and resolve it.
“What we need to look at is how do we get Governments to focus on a green recovery? I think we should all strive to influence our politicians and businesses around that.”
There have already been plenty of parallels between the response to the coronavirus and the required response to alleviating the climate crisis, namely a global and cohesive effort to alleviate the impacts of the pandemic.
In a similar fashion to Covid-19, failure to act on climate change is set to destroy livelihoods, shrink the economy and disrupt business practices and profitability. In the immediate aftermath to the coronavirus outbreak, many thought leaders are expecting chief executives to focus on the resilience of their value chains to respond to future challenges, whether they be pandemics, or climate-induced risks.
It is likely that supply chains will no longer be cost-effective endeavours for businesses, where they pivot their procurement towards cheaper labour and materials located in one or two locations. Instead, businesses may well be willing to pay an upfront premium to futureproof their supply chains, by spending more on mapping and angling procurement towards certified and sustainable sources that are better equipped to deal with the challenges posed by climate change and natural disasters.
In the agriculture industry, the Global Open Data for Agriculture and Nutrition (GODAN) has claimed that pivoting to vertical and urban farming methods can deliver a sustainable and resilient means to grow crops, while the wind sector is currently surveying its supply chain operators as to how different construction measures could ease any further disruptions. The seeds of change are slowly growing.
A digital opportunity
Going forward, businesses and industries will seek to modernise supply chain practices, regardless of whether they are global or local and Industry 4.0 will likely solve some of the transparency challenges.
Businesses like M&S and Primark have launched digital supply chain mapping exercises to better improve transparency and disclosure, while the likes of Unilever and Sainsbury’s have turned to blockchain technology to enhance the sustainability of supply chains.
Webinar sponsors UL’s Turbo Carbon tool exists to streamline carbon reporting, for example, and the firm’s senior sustainability consultant Adrian Wain believes that these types of digital tools will help reduce the carbon intensity of supply chains. However, relying solely on technology can remove some of the engagement aspects deemed critical to improving the resiliency of supply chains moving forward.
“In addition to keeping the conversation relevant [during the lockdown], businesses need to ask ‘how do we keep the conversation going?’” Wain says. “I think we need to look at the technology we have available today to engage with suppliers.
“As we go deeper into the supply chain, the capability to manage carbon can dramatically drop off. Brands want data from tier two and three suppliers to allocate their own emissions. But it may be better to understand the direction of travel, and see whether that supplier can report or even reduce. We need to change what we’re looking for to actually drive performance, rather than just allocating data to a brand.”
Many supply chains today lack any sort of contingency plan to mitigate economic, environmental or social impacts. The coronavirus has exposed these inefficiencies in a short period of time and post-pandemic, businesses will need to take extra steps to create sustainable supply chains.
The climate-resilient supply chains webinar took place on Thursday 16 April and is available to watch for free here.