Strengthening Supply Chains in the Face of Climate Change

Strengthening Supply Chains in the Face of Climate Change

The global supply chain landscape is facing a relentless stress test. From the disruptions caused by the COVID-19 pandemic to the growing impacts of climate change, supply chains have never been more vulnerable. Unlike the game show catchphrase “You are the weakest link. Goodbye,” which neatly dismisses contestants, supply chains must adapt to face these challenges head-on.

The COVID-19 pandemic has already tested the resilience of global supply chains, revealing both strengths and weaknesses. However, this is far from the final examination. The ongoing threat of climate change promises to continue challenging supply chains for the foreseeable future. Over the past year, we’ve witnessed extreme weather events like flooding in Europe and Asia, wildfires in California, and freezing temperatures in Texas disrupting crucial parts of supply chains. Adding ongoing conflicts into the equation further complicates the outlook.

The common approach of severing weak links in the supply chain has several issues. First and foremost, many companies lack deep visibility into their global supply chains, particularly for tier 2 and 3 suppliers. These vulnerabilities often remain hidden until a problem arises. Additionally, while climate change is a reality, predicting its specific impacts remains challenging. Although geographic information systems (GIS) and weather models can offer some advance warning, few businesses are using this data to make supply chain decisions. Lastly, frequent supplier changes can introduce their own risks and disrupt people’s lives.

Instead of immediately eliminating weak links in the supply chain, access to better data can help companies make informed decisions. This begins by obtaining primary, high-frequency sustainability data from factories and partners, including tier 2 and 3 suppliers. By combining this information with impact data from sustainability platforms and environmental data from GIS providers and reinsurance companies, companies can identify which supply chain partners are most vulnerable to climate change and when they are most susceptible. The next step is to determine how to use this information effectively: Should companies disengage from at-risk suppliers or help reduce their risk exposure to strengthen the existing supply chain?

Embracing Sustainability to Bolster Supply Chains

To mitigate the negative effects of climate change on supply chains, businesses must become better stewards of natural and human resources. Sustainability is at the heart of this effort, and brands are under increasing pressure from policymakers and consumers to adopt environmentally and socially responsible practices across their entire supply chain.

Sustainability doesn’t mean brands must act as enforcers but rather as supporters of sustainability. To address climate-related disruptions, brands can take several measures to help their suppliers fortify their operations. For instance, if a factory is at risk of flooding, brands can incentivize partners to create flood defenses or assist them in qualifying for low-interest loans to modernize their facilities. Such support need not always involve direct financial assistance but can take creative forms, like annual production commitments that help suppliers secure loans.

In the apparel industry, where climate and social issues often go undetected due to limited data reporting, true sustainability goes beyond giving out T-shirts. Workers seek better working conditions, job stability, and access to low-interest loans. Building a sustainable supply chain is a more meaningful investment for apparel brands than creating redundant supply chains or constantly replacing links compromised by climate change.

While COVID-19 and climate change may disrupt supply chains, the real issue lies in the relentless pursuit of ever-cheaper products. The demand for low-cost goods has pushed manufacturing into remote areas of the world, many of which are susceptible to increasingly severe weather conditions. Disentangling these supply chains and eliminating the weakest links only create more problems due to the intricate interdependencies between regional producers and suppliers. Brands must realize that they are only as strong as the weakest link in their supply chain. They can choose to be a bully or an umbrella—ultimately, the choice is theirs.

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