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On the need to prepare for climate change impact on logistics and supply chain management
27.01.2021

On the need to prepare for climate change impact on logistics and supply chain management

In April 2016, the former US Secretary of State John Kerry brought his granddaughter along with him to the UN headquarters in New York to sign the Paris Agreement. The gesture was a poignant one: John Kerry’s granddaughter is of the generation that could inherit a world harangued by so turbulent – and in many places – inhospitable a climate as for there to be crisis upon crisis to nations around the world over, upending life as we know it.

This would be a world of unendurable drought in some parts, extreme hurricanes in others. Tropical storms, infrastructure-decimating floods; a world riddled with air so thick and heavy with pollution as to make breathing a struggle, coughing a constant. A world of mass migration, as populations flee to the overcrowded corners of territories wrought with civil unrest, amid conflicts arising over water shortages and other diminishing commodities. 

"We are proud to be back. [...] President Biden knows that we have to mobilize in unprecedented ways to meet a challenge that is fast accelerating. And he knows we have limited time to get it under control." - John Kerry, Special Presidential Envoy for Climate

This month, the U.S. reentered the Paris Agreement in hope that immediate climate action can prevent this vision of the future from becoming a reality. President Biden has previously said that the decade we are in is one that will prove decisive in cutting the world’s carbon consumption such that the future of our children and grandchildren does not become this harrowing dystopia we fear. The Paris Agreement requires governments to commit to the endeavor of limiting global warming to well below 2 degrees – ideally at 1.5 degrees celsius, with a longer-term goal of achieving carbon neutrality by mid-century.

The road ahead will not be easy, especially given the fact the effects of climate change are already palpable. To offset their challenges, nations, communities, and companies will have to work together to adhere to targets forcing them to dramatically alter deeply entrenched ways of doing things that will become unconscionable given the state of urgency and impending climate crisis. But as foresight professionals reiterate time and again – and as living through a pandemic has shown – crisis is certainly not cause for despair but should rather be encountered as a vital trigger point through which to make ways for a thoroughly new way of operating and envisioning success.

The USA’s re-entry into the Paris Agreement has come as a relief to the demographics that accept the severity of the situation, especially in Europe, a continent that has pledged to strive for a carbon-neutral future that is climate-resilient – a modus operandi set out in the European Green Deal. This legislation outlines ambitious aims to fight climate change and achieve the transition to a climate-neutral society by investing in research and innovation, and fostering change in the way we work, use transport and live together, alongside imposing strict targets.

What does this mean for the business world, exactly?

It is fair to say that climate change and sustainability will be and remain a megatrend through these and the coming decades, as businesses and supply chains across the world will be forced to adapt. To our eyes, two main approaches are available moving forward. Businesses can reactively adapt to the tough regulation as and where necessary. A much more proactive and desirable approach would be to become leaders in grasping emerging opportunities in their respective industries.

Grasping said opportunities – while putting in place measures that enable companies to adapt to the changing conditions of the world – is and will continue to be a complex affair made all the more challenging by all the unpredictabilities that the future holds. All the more pressing, then, that businesses get in the habit of mapping out the future scenarios that might occur. Doing so can help them identify threats, opportunities, and innovation needs while allowing them to envision strategic moves and new business models.

Such endeavors will empower businesses to undergo their own “sustainability transformation” – a process that will separate the wheat from the chaff, much like how the need to undergo digitalization has empowered some businesses while leaving those unable to change in the dust. Nowadays, products oftentimes consist of thousands of parts, sourced from multiple geographies around the world. Over time, these supply chains have been honed to deliver maximum efficiency and speed. How effectively supply chains adapt and thrive through their sustainability transformation will hinge a lot on how well prepared they are to take on a range of eventualities that might occur, while exploring the possibilities and opportunities that might also present through these times.

The probability heavy rare earths production is severely disrupted from extreme rainfall may increase 2 to 3 times by 2030 - McKinsey

The risks that supply chains face as the climate changes and amid a host of much-needed regulation pressures are myriad, and their impact will vary depending on a number of factors, including the type of supply chain. For example, the event of hazardous climate wreaking havoc on the downstream player of a supplier of specialized goods will have a severe impact on the whole supply chain. If a disaster interrupts the production of specialized goods such as airplane fuselages, this raises costs and prices and hurts corporate revenues.

Those who prepare proactively will outcompete the rest

But that does not mean that supply chains of commoditized goods have an advantage. Without the right preparation, disasters will also have their impact, with a sudden reduction in supply affecting a larger number of downstream players as prices spike. As such, all players need to prepare for the possibility of harsh climate events, exploring ways to foster resilience in their operations. Options players might consider exploring to this end include diversifying their sourcing, developing best practices emergency procedures, while also working on building strong, accountable, and mutually-supportive ties with suppliers in which collaboration, due diligence can help develop the robustness of the entire supply chain. What will matter across the board is the accumulation of long-term data on climate change that can allow players to devise comprehensive risk strategies.

These are just some of the many strategies to be explored by supply chains taking a forward-looking approach to managing, and learning to thrive through times of unprecedented climate change. In an upcoming two-hour open workshop, we will apply different climate change scenarios with the participants to envision the impact on logistics and the supply chain and will furnish them with a host of tools to apply to the art of creating effective and agile strategies that allow players that proactively and sustainably transform with our changing world.

If you are looking for further readings, here are some resources to get started: 

MIT Sloan: Supply chain resilience in the era of climate change

EIT Climate KICHow the Global Supply Chain is Doing its Part to Fix Climate Change

McKinseyCould climate become the weak link in your supply chain? 

BCG: Designing Resilience into Global Supply Chains 

Tags:

Management Challenges Foresight Scenario Thinking