The recent pandemic’s disruption has largely overshadowed climate change’s impact on the global supply chain. In 2023, companies face a far more severe long-term threat, economic losses due to environmental causes. According to the United Nations Intergovernmental Panel on Climate Change, the frequency and intensity of extreme weather events have increased dramatically in recent decades resulting in significant financial losses.
In the past year, climate change has caused numerous supply chain disruptions due to the increasing frequency of hurricanes, floods, wildfires other extreme weather events. Some examples of climate-related supply chain disruptions in recent years include:
- The Texas freeze, which caused the largest blackout in US history
- Flooding in China’s Manufacturing Hub, Guangdong, disrupted global supply levels
- Hurricane Ida, which damaged industrial installations and caused diversions of trucks
Climate change has become a significant operational challenge for businesses worldwide; its impact is harsh on the supply chain. As global temperatures rise and weather patterns become more extreme, enterprises face increasing supply chain disruptions and inventory volatility, leading to increased costs, decreased efficiency, and reduced reliability.
Rising Environmental Buying
Another impact of climate change on businesses is its effect in driving changes in consumer behavior. In recent years as environmental awareness has increased, buyers have also become more environmentally conscious and are demanding more sustainable products from companies that require the same of their suppliers.
A 2022 Sustainability and the Consumer report from IRI, The NPD Group, and the NYU Stern Center for Sustainable Business (CSB) found that sales of sustainably marketed products grew 2.7 times faster than conventional products. And 93 percent of consumers have increased or maintained their purchasing habits of sustainable products over the past year.
It’s not just consumers who want green products. According to McKinsey, businesses are buying more and often paying premium prices, up to 30 percent higher, for green products.
This shift toward environmental buying has led to changes in demand for the types of products being used or materials manufactured, putting additional strain on suppliers and their supply chains. Businesses may need to reexamine their sourcing strategies to include better access to sustainable materials or find new suppliers to meet the increased demand.
GAINS: Moving Forward Faster & Greener
GAINS is passionate about directly impacting the global environment and community through its continuing sustainability and social initiatives. As GAINS grows, so does our investment in green initiatives, which include:
- We support solar energy and clean water access programs in our Chicago community.
- Our Combined Emissions Offset and Community Center Energy Initiative have built solar arrays at multiple community locations in Chicago, generating more than $6,000 in reduced energy costs.
- GAINS is on track to have a zero-carbon footprint in 2023 and has already saved 68,000 pounds of CO2 emissions and delivered the equivalent of 600 trees planted.
- GAINS increases its investment in solar arrays with every new subscribing customer.
- Since 2018, the data center energy consumed by each GAINS customer has been offset with installed solar arrays.
Taking Green Optimization Seriously
In the recent GAINS innovation contest, a team of GAINS employees presented a proposal for additional training and capabilities to equip our customers better to embrace “Green Optimization.” Green Optimization is a method of helping GAINS customers minimize their environmental impact and manage their environmentally conscious KPIs better. These changes may include the following:
- Considering eco-based stocking costs along with existing optimization techniques.
- Minimizing total annual green costs while achieving target service levels.
- Incorporating emissions or other environmental KPIs into allocation decisions.
- Examining methods for minimizing network distribution emissions.
- Using environmental factors to help determine the optimal source per order (e.g., inexpensive imports from countries less focused on emissions vs. more expensive, environmentally-responsible domestic vendors)
Become a Greener Supply Chain
Adopting an environmentally friendly strategy isn’t just good for the Earth. It can also be good for business. Companies taking climate change seriously are more attractive to businesses that have the mandate to favor green organizations as part of their vendor selection process.
There are several factors that companies can consider in optimizing their supply chains to minimize their climate impact. Many organizations have successfully adopted the methods listed below.
- Sustainable sourcing: assessing suppliers’ environmental impact and prioritizing those with sustainable practices. This approach can involve sourcing materials from local suppliers, selecting suppliers that use renewable energy, reduce the use of single-use plastics or paper.
- Efficient transportation: Optimizing transportation routes and using more fuel-efficient vehicles can reduce carbon emissions associated with the transportation of goods. This method can also involve using alternative modes of transportation, which are more environmentally friendly.
- Renewable energy: Companies can invest in renewable energy sources, such as wind or solar power, to reduce their reliance on fossil fuels. This strategy can help reduce their operations’ carbon footprint and improve their supply chain sustainability.
- Waste reduction: Implementing waste reduction strategies, such as recycling and composting, can help to reduce the environmental impact of waste generated by the supply chain. This change can involve reducing packaging and finding alternative uses for waste materials or include obsolete/ out-of-date stock resulting from inaccurate demand forecasting or inventory errors.
- Carbon footprint tracking: Keeping track of the carbon footprint of your supply chain can help companies identify areas for improvement. This reporting can involve monitoring the carbon emissions associated with different supply chain stages, such as material sourcing, production, transportation, and waste disposal.
- Collaboration: Working with suppliers, customers, and other stakeholders to reduce the supply chain’s carbon footprint can be effective. This teamwork can involve finding ways to collaborate on sustainable initiatives, including sharing best practices, setting targets for reducing emissions, and sharing demand forecast data to avoid the bullwhip effect.
By implementing these strategies, companies can optimize their supply chains to minimize their impact on the climate and contribute to a more sustainable future for all.
In conclusion, the effects of climate change on supply chains are significant and far-reaching. Businesses must take proactive measures to mitigate these effects and ensure their supply chains’ continued efficiency and reliability. This new strategy may involve investing in new technologies, changing sourcing strategies, or developing more sustainable business practices. By taking these steps, businesses can ensure the long-term viability of their supply chains and contribute to a more sustainable future for all.
Contact Us to learn more about how GAINS can help you make better inventory decisions to help lessen your company’s impact on the environment and how we are becoming net carbon neutral in 2023.