How procurement can build resilient supply chains

Procurement professionals build resilient supply chains by leveraging the full optionality of the extended supply chain without inflating costs

Procurement professionals play a critical role in building resilient supply chains. As organisations face frequent disruptions, procurement professionals must ensure that their supply chains can withstand these disruptions and continue to function effectively. They are responsible for identifying potential risks and implementing strategies to mitigate them. Procurement professionals must also ensure that their supply chains are cost-effective while meeting environmental, social, and governance (ESG) targets.

To build a resilient supply chain, procurement professionals must expand their focus to the entire extended supply chain, starting from raw material origins to finished product delivery. They must examine the available options and adapt in near-real time by collaborating with external partners to leverage the full inherent optionality of the extended supply chain. Procurement professionals must also ensure visibility, agility, and collaboration and align people, processes, and technology to build resilience without inflating costs.

But most believe that building resilient supply chains for the attempt at it, always comes at the cost of ESG objectives or some other wider project, which renders the attempt futile.

But there is a way to build supply chain resilience without sacrificing ESG goals or inflating costs, according to the Harvard Business Review.

The article points out, historically, cost reduction has been the primary focus for supply chain leaders. Their role has been to ensure that operations are running efficiently and cost-effectively. However, recent years have caused a shift in thinking.

In today's world, disruptions occur frequently, forcing organisations to prioritise supply continuity at any cost. Nevertheless, with the global economy facing inflationary pressures and a looming recession, organisations must now return to cost minimization while still ensuring a reliable supply chain. Moreover, the added challenge of meeting rigorous environmental, social, and governance (ESG) targets compounds the complexity of the task.

Given these competing demands, building a resilient supply chain may appear daunting. Nonetheless, by recognising that cost minimisation and supply assurance are complementary objectives rather than conflicting ones, organisations can build a resilient supply chain that achieves both goals.

Attaining resilience without inflating costs

Attaining resilience without inflating costs can be achieved by utilising optionality. This refers to the range of solutions available to address potential risks in the supply chain, and it comprises three key elements:

  1. Having redundant paths or options available in the supply chain
  2. The ability to determine when to utilise these options, particularly in the case of imminent disruptions
  3. The ability to quickly use these options in near real-time

While investing in setting up parallel supply chains or increasing inventory levels are common methods for creating optionality, these approaches can be costly for supply chains.

To build resilience more efficiently, practitioners must expand their focus to the entire extended supply chain, starting from raw material origins to finished product delivery. This extended ecosystem of raw material suppliers, logistics partners, and distributors will often have built-in optionality.

A more effective strategy for achieving resilience is to leverage the full inherent optionality of the extended supply chain. This involves examining the available options and adapting in near-real time by collaborating with external partners. The key enablers of this strategy are visibility, agility, and collaboration. In addition, alignment of people, processes, and technology is a hidden but essential fourth enabler for building resilience without inflating costs.

After achieving alignment within the organisation, the next step towards building resilience is creating visibility into the extended supply chain. Visibility can provide early warnings of potential disruptions. In such situations, agility becomes crucial, and having access to near-real-time data feeds can enable a true sense-and-respond system.

For instance, if an organisation's supply of raw materials were disrupted, a sense-and-respond system could direct the supplier to fulfil the order from another location in the short term. In the long term, it may be worthwhile for the organisation to collaborate with key suppliers to extend their distribution centres across multiple strategic locations. Alternatively, if such a collaboration would result in significant costs, it may be more sensible to develop a secondary supplier.

Having the optionality and the ability to act quickly is critical to building resilience without adding costs.

Balancing Sustainability and Cost

Despite the common perception that going green is cost-prohibitive, it's important to note that aggressive environmental goals don't have to conflict with minimising costs or building resilience.

Category: Scope 1 Emissions

Opportunity: Electrification of Owned Fleets

Description: 

While the media may be focused on passenger car electrification, it's worth noting that electric vehicles (EVs) are becoming increasingly mainstream in many areas of the industrial supply chain. Specifically, the economics of EVs are particularly favourable in three applications: 

  • Short-haul semis
  • Last-mile delivery 
  • Material-handling equipment

Each of these segments has more than three products available, and although adopting EV fleets requires managing certain constraints, the low operating costs may make it worthwhile.

For example, a typical electric semi has significantly lower running costs than an average pickup truck powered by an internal combustion engine.

Category: Scope 2 Emissions

Opportunity: Green Electricity

Description: 

According to Bloomberg, building and operating new solar- or wind-power plants in the United States is now less expensive than running an existing coal plant.

This means that two options to reduce Scope 2 emissions have become economically viable:

  • Buying green power from an existing generator or utility
  • Setting up captive renewables at large industrial or commercial sites

Category: Scope 3 Emissions

Opportunity: Small-Supplier Education

Description: 

To start with, it is essential to pinpoint suppliers that have a higher carbon footprint. Spend data analytics can facilitate this process, as they offer a more efficient alternative to manual surveys.

The next step is to conduct an impact analysis that can highlight the suppliers that have the greatest potential for reducing their emissions. Typically, these suppliers are smaller and less experienced in sustainability practices. Once these suppliers have been identified, enterprises can take the following measures:

  • Arm the supplier(s) with the latest ESG know-how
  • Track and encourage emissions reduction
  • Reward the suppliers that implement changes 

The implementation of such initiatives can bring about a dual advantage of minimising costs and emissions for suppliers while also strengthening the partnership between suppliers and enterprises.

Sustainability and resilience share common ground in their paths towards achievement

By strategically identifying and prioritising opportunities, organisations can minimise any potential conflict between sustainability goals and operational costs. Building resilience and achieving ESG goals overlap significantly in their paths:

  1. Electrifying some parts of the supply chain can add optionality to logistics, which an organisation can use to balance cost and speed. This includes captive green-energy generation to add resilience to manufacturing sites.
  2. Visibility into Scope 3 emissions can piggyback on visibility into upstream supply chains that are built for resilience.
  3. Educating suppliers on emissions can lead to long-term strategic relationships and collaboration to build resilience.

To achieve both outcomes, it's essential to ensure close collaboration between ESG and supply chain teams. This synergy can help build more compelling business cases for technology and other investments in the supply chain.

Supply chain resilience, cost management, and sustainability are all crucial goals that may seem conflicting. However, organisations must meet these goals to survive in a competitive market.

To mitigate any potential conflict, practitioners must prioritise opportunities that intersect two or more outcomes and execute them efficiently. By doing so, they pave the way for the clean, lean, and resilient supply chains of the future.

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