Climate change is impacting every populated region in the world, and it seems likely that the effects of climate change are only going to worsen in the future. In 2021 alone, the United States suffered 20 separate billion-dollar weather events, and Australia has seen a 16% decrease in rainfall since 1970. In considering the havoc that wildfires, floods, and freezes are wreaking on supply chains around the globe, it’s quite clear that doing nothing is no longer an option. Today’s business leaders are under intense pressure to drive sustainable initiatives with a clear and direct focus on climate change. However, creating a more sustainable organisation requires a “whole of business” strategy and there’s a growing realisation that procurement has a vital, but often neglected, role to play.
The role of procurement
Eight global supply chains account for over 50% of annual greenhouse gas emissions, and only a fraction of these emissions are produced during the end manufacturing process. The majority are rooted in the supply chain - in raw materials, agriculture, and the transport needed to move goods around the globe. Therefore, the procurement function should be involved in an organisation’s drive towards supply chain sustainability from the very start.
However, according to a recent report by Gartner, only 27% of industry leaders have conducted a climate change risk assessment to identify their most critical supply chain risks and, in the survey of 320 leaders, Gartner found that only 18% have conducted both risk assessments and scenario planning for climate change. With climate-related impacts already a reality for many industries and the total cost estimated at nearly $1 trillion over the next five years, it’s apparent that a lot more needs to be done.
Procurement can play a crucial role in identifying and mitigating supply chain risks, while creating opportunities for an organisation. In many cases, minimising these risks can lead to the detection of environmental and social improvements that deliver value to an organisation. Procurement is also essential in unlocking suppliers’ combined expertise and knowledge. Once suppliers understand what the business wants to achieve, it’s possible to work together to propose and implement more sustainable alternatives.
Empower your procurement team to build a more sustainable supply chain
In order to achieve their sustainability goals, businesses must provide their procurement teams with the right tools. Here, we look at some ways organisations can empower their procurement teams to build more sustainable supply chains.Ensure ESG goals are aligned with procurement
Management must kick off this process by evaluating all aspects of their operations, including procurement, to get a transparent picture of the biggest contributors to their sustainability issues. This includes in-house operations and third-party suppliers. Once this has been done, organisations must work together to find ground-breaking technical and operational solutions to develop a logical roadmap towards achieving their sustainability goals.Implement clear policies and processes
Using standards such as the ISO standard for sustainability as a benchmark is a good place to start and can act as a target for businesses. Policies should be clearly defined, and teams should be equipped with the necessary tools to achieve them.Incentivise sustainable sourcing
Procurement teams must be incentivised to integrate environmental factors into their purchasing decisions. As well as cost and delivery metrics, procurement KPIs should include environmental performance, such as freight-related carbon emissions or the percentage of purchases made from certified “green” suppliers.Work with suppliers to address their emissions
Many suppliers may not be aware of how to reduce their emissions. Providing education and technical support can be a real game-changer. At the very least, buyers must communicate clear expectations about new policies and potential repercussions for non-compliance.Implement measurement and reporting
Measuring change is essential – a business cannot expect its people to buy into these initiatives unless they can see how their actions are actively contributing to these goals. Supplier Relationship Management (SRM) tools can be useful here as they can help businesses to track cost, quality, and sustainability performance.
Using technology to build more sustainable supply chains
As organisations strive to operate more sustainably, industry leaders are embracing technology as a means to help them achieve their goals. For example, when a company has accurate data to work with, they can implement a fairly simple process to detect and tackle potential sustainability issues. However, although 70% of supply chain leaders are planning on investing in the circular economy in the next 18 months, just 12% of those have linked this with their digital strategies. Moreover, as Gartner reports, with only 19% of organisations using digital technology to understand climate change risks, the use of technology is still in its infancy stage.
The changes required are vast, transformative, and ultimately vital. Every industry, government, and individual has to play their part. In order to recover from various disruptions, businesses must increase supply chain visibility by investing in information technology to ensure economic efficiency and sustainability. By leveraging technology, such as automation and robotics, tracing and mapping technologies, and transportation innovations like electric vehicles, businesses can achieve transparency, energy efficiency, and waste minimisation – to name but a few – across their entire supply chain operation and help to combat climate change in the process.
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