How Climate Change Is Driving Supply Chain Strategy
Climate change is impacting supply management organizations like never before. “Physical climate risk impacts not only facilities, but also supply chains, distribution networks, customers and markets,” says Penney Phipps, senior director — global environmental, health and safety, sustainability at WESCO International, in Glenview, Illinois. “Climate change is increasing cost of production, reducing speed and responsiveness of delivery and reducing quality of goods and services.”
In the March/April issue of Inside Supply Management®, the cover story “An Unavoidable ‘Global Threat” delves into how supply chains must be more resilient and responsible to combat the unprecedented risk of climate change. In another article, “Driving Value Through ESG,” Phipps joins three other experts who share thoughts on the sustainability issues facing the profession, as well as how their companies strategize to create value through sustainability.
Below, the four discuss the impact of climate change on their organizations and supply chains. The other panelists are:
- Kenyatta Z. Lewis, executive director, supplier diversity and sustainable procurement at MGM Resorts International in Las Vegas
- Daniel Weise, managing director and partner, global topic leader — procurement at Boston Consulting Group (BCG), based in Dusseldorf, Germany
- Nino Mori, principal with BCG, based in Vienna, Austria.
Question: Has your company made any supply chain changes based on climate change?
Lewis: Our focus to date has been in engaging suppliers to help us reduce our Scope-1 and Scope-2 carbon emissions. (According to the U.S. Environmental Protection Agency (EPA), Scope-1 emissions are direct greenhouse-gas (GHG) emissions occurring from sources controlled or owned by an organization while Scope-2 emissions are indirect GHG emissions pertaining to the purchase of electricity, steam, heat, or cooling.)
For example, we transitioned to distribution-only service from our main utility, NV Energy, and started buying electricity on the wholesale market. In 2018, we entered into a partnership on a solar photovoltaic array that will generate 100 megawatts of clean, renewable energy, and we have made major investments in energy-efficient lighting and heating, ventilation and air conditioning (HVAC) equipment.
The next phase of our work will focus on Scope-3 emissions associated with purchased goods and services. (Scope-3 emissions, according to the EPA, are “assets not owned or controlled by the reporting organization, but that the organization indirectly impacts in its value chain.”)
We will be engaging many of our suppliers (notably those with whom we have significant spend; or that we know have significant “embodied” emissions in the products they sell to us) to better understand and reduce their emissions.
Phipps: As many articles I have read state, climate change can upend supply chains in obvious ways — sudden floods, flash fires — as well as through secondary repercussions like a migrating workforce or infrastructure in need of a retrofit. And those scenarios and others stand to directly affect a company's bottom line. WESCO has developed and implemented disaster recovery protocol that extends to vendors and customers for seamless distribution in a time of natural disaster. Another measure has been the installation of “roof kits” — weather stations and solar radiation — for detection of natural threats.
Weise: Building on our net-zero and wider-sustainability commitments, we are evolving the way we engage with suppliers and manage our relationships. Our global supplier governance policy ensures that we source and manage suppliers in compliance with BCG policies and legal requirements. It also details our approach to delivering the best value for our business and clients. Through our relationships with suppliers, we set clear expectations of our requirements and emphasize the importance we place on sustainability topics.
During tender processes, we also integrate supplier sustainability questionnaire into our standard supplier RFP template. The questions posed in this questionnaire raise awareness of our commitment to sustainability in the supply chain, provide options for our sourcing teams to use sustainability criteria in evaluating new suppliers, and improve the quality of data we collect about the sustainability commitments and performance of new suppliers.
Mori: In terms of best practices, we observe the following with our clients: A top-level commitment is required by linking board-level compensation to the achievement of the sustainability goals such as carbon-dioxide (CO2) reduction targets. Second, leaders have made changes to their core processes by reflecting sustainability into key decisions. In particular, we observe that carbon footprint has become a key decision criterion in new business awards, and measures to reduce it after award are tracked and audited.
Third, companies have already implemented quick-win measures, including (1) requiring green energy for energy-heavy production processes, (2) switching to more local logistics routes/modes, (3) changing to lower carbon-footprint materials where no change to specification is required and (4) reducing demand for air travel.
Finally, a robust governance is being set up with dedicated Centers of Excellence teams to enable buyers to implement sustainability objectives with the supply base, including dedicated resources for supplier enablement.