Since the health crisis began, supply chains have suffered unprecedented strain and disruption. While COVID-19 has brought their weaknesses and lack of resilience to the foreground, supply chains have become more crucial than ever before.
But should we expect further upheaval?
According to CDP, who collects environmental data from 8,000 companies, environmental risks could directly cost large companies an additional $120 billion via their supply chain by 2026, with manufacturing and food sectors the most affected.
In their report entitled ‘Transparency to transformation: a chain reaction’, the organization estimates this amount at $1,260 billion, of which €120 billion are due to supply chains alone.
The reason for these losses? The increase in the severity and frequency of weather disturbances (such as cyclones and flooding) could lead to shortages, delays, and even stoppages in production lines. According to the same report, the biggest players are not spared either, with the list including L’Oréal, Walmart, and Unilever.
This report is all the more relevant following the cold snap in Texas and Louisiana, which led to shortages and soaring prices for plastics.
“Most supply chains operate on very narrow profit margins, so cost increases are likely to be passed down the chain in a domino effect for their buyers,” says Maxfield Weiss, interim executive director of CDP Europe.
More transparency to better manage risks
The most affected sectors are manufacturing ($64 billion), food, beverage and agriculture ($17 billion) and power generation ($11 billion).
Some companies have already identified the issue and are demanding more transparency and action from their suppliers regarding their environmental impact.
Today, 8,000 suppliers disclose their greenhouse gas emissions, water consumption, and the volume of raw materials (such as soy, wood, palm oil, chocolate or coffee) sourced from countries at risk of deforestation. However, the CDP points out that data is still too limited and lacks quality.
Yet, this data can be a real “competitive advantage” for the entire chain, says Maxfield Weiss.
Cooperation and synchronization across the supply chain seems to be a significant way to ensure the sustainability and efficiency of companies. COVID-19, whose effects have been felt for more than a year, has been just another indicator of the need for transparency, collaboration and synchronization within our extended supply chains.