Climate change drives competition in your supply chains

Roger OakdenSupply Chains & Supply Networks

Know the risk of climate change.

A partner of PWC in the UK stated in a recent article that “…more businesses are seeing climate change for what it is – a risk issue, a resilience issue and a business opportunity”

It is good to read a realistic and practical statement from a person with influence in business. This takes the discussion away from considerations about the world in 2050, or any other period in the future, to the here and now.

Rather than wonder about the possible effects of increases in future temperatures, consider, for example, the risks over the next five to ten years of your (or your 3PLs) vulnerable warehouses from floods – which could be two years in succession! This happened to a distributor in Australia, with expensive consequences.

So, change your thinking of climate change as a topic for lunch break discussion, to building scenarios and undertaking analysis of the likelihood and consequences of climate induced events that will affect your business, its supply chains and logistics.

As an example, the article noted that PWC had undertaken a supply chain risk analysis for a major UK retail chain, which identified that over 90 percent of the company’s food lines are at risk from climate change. This has resulted in actions to identify how the company can source food in the future and educate its farmer suppliers in building climate resistance.

Analysing the risk

If your competitors are taking action to reduce their energy use or ensure they (or their 3PLs) locate distribution centres away from potential flood areas, they become competitive advantages against your business. So, the first thing to do is to analyse the risks and recognise the opportunities.

Using standard measures, your warehouse currently meets its customer service objectives and is efficient. However, in a risk analysis, identify the likelihood of (say) a large flood; then calculate the total cost (including consequences to the business) of flooding and the subsequent clean-up? Follow this analysis by identifying the opportunities avail;able from taking corrective action.

Establishing an internal carbon price to use when costing operational improvement activities and investment projects has merit. CDP, a non-government organisation (NGO), recently identified that about 150 large companies in America and Europe have done this.

Their internal price of carbon ranged from U$6 to U$80 per tonne; the wide range in price being caused by each company’s scenario planning and approach to cost responsibility. The price is not important as carbon reduction targets are set in tonnes saved, converted to monetary figures.

Managers in your supply chains and logistics will now have a different justification process in selecting projects to meet this new competition criteria.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...