With the recent revelation of a strategy for America's national supply chain, President Obama highlighted the vulnerabilities of the supply chain model. Identified threats included natural disasters, which are occurring at more frequent intervals and are likely to increase as a result of climate change, with negative implications for the global economy.
However, analysis released today by CDP shows that some major companies are already ahead of the US administration in acting to reduce climate change risk and capitalise on related opportunities across their supply chains. The report, based on 49 global companies, including L'Oreal, Walmart and Philips, and over 1,800 of their suppliers, indicates that companies at the top of the supply chain are already redefining the way they operate and are making real changes to their supplier procurement models.
So why is it that organisations are shifting their tried and tested procurement approach? Companies are identifying key areas of risk in their supply chains. This is perhaps unsurprising when considering that extreme weather events disrupted 30% of the supply chains analysed as part of the new report in the past year alone. We all witnessed the widespread media coverage of natural disasters during 2011 and this brought considerable cost to business, often as a result of supply chain disruption. The Japanese automotive industry, for example, found itself a victim of the Thailand floods, losing $450m of profit as a result of the business interruption to its Thailand-based suppliers.
There is a financial imperative for companies to act on their supply chains, considering more than half of the suppliers contained in the report identified certain or likely exposure to increased operational costs as a direct result of climate change. With Scope 3 emissions – the carbon emissions that occur beyond direct operations – accounting for the large majority of an organisation's carbon footprint, growing legislation on this issue will not just impact companies directly, but will have a significant impact on costs through their supply chains.