Every link in the supply chain emits greenhouse gases (GHGs), which harm the environment and exacerbate climate change (Ghadge et al., 2020). Flooding and high winds, more frequent summers with high temperatures, desertification; a rise in sea level; hurricanes and changes in temperature; water shortages; and the spread of disease are just a few of the extreme events and phenomena caused by climate change that can have an impact on every link in the supply chain. As a result, the supply chain and global warming are now inextricably linked. In this paper, we’ll talk about how climate change affects the global supply chain and what we can do about it.
In operations management, supply chains are affected by climate change. Routing and scheduling software, inventory management, material requirements planning, and production planning are all affected by extreme weather (Gernaat et al., 2021). Climate change impacts may necessitate more frequent mid-term planning for the aforementioned schedules and programs. A combination of climate change and rising insurance premiums may increase supply chain disruption risks. Climate change threatens the continuity of the supply chain (Gernaat et al., 2021). Recent events have highlighted the supply chain’s vulnerability to extreme weather. Flooding in British Columbia, for example, in 2021 disrupted global supply chains. Due to hard disk shortages, it had an impact on finished products and prices in several industrial sectors. Product flow across supply chain agents is jeopardized by disruptions. Inventory shortages, carrier delays, traffic congestion, and price volatility are all caused by disruptions.
Aside from disruptions, climate change risks are likely to raise supply chain insurance costs (Pankratz & Schiller, 2021). As natural disaster claims have risen dramatically in recent years, the insurance industry may be able to help mitigate the financial impact of climate-related extreme weather events. Weather extremes can have an impact on supply chain assets, raw material shipments, and finished product shipments. As a result, businesses should implement comprehensive insurance policies to protect all assets and movements. Climate change could have an impact on liability insurance risks (Immigration, 2021). Third-party claims alleging injury or property damage caused by the insured expose insurers to such risks. Extreme weather events, as well as large corporations adopting global sourcing practices, increase liability risks. As a result, each supply chain partner’s roles and responsibilities must be redefined. Minor changes to supply chain contracts due to liability concerns may affect third-party logistics providers.
The transportation sector has a significant impact on global warming and the energy efficiency of the supply chain (Immigration, 2021). The direct use of fuels, particularly fossil fuels, results in the emission of pollutants like GHG into the atmosphere. Oil pipelines and all other suppliers further up the supply chain, for example, use fuels indirectly (e.g., for pipeline construction). GHG emissions in transportation can be reduced by consolidating freight across supply chains, i.e., pooling the supply networks or supply chains. The effects of climate change on transportation are already significant, and they are only expected to get worse in the future (Immigration, 2021). If not disastrous, extreme weather can have a significant impact on transportation of goods. Travel speeds can be affected by extreme weather events, for example. More buckled rails and rutted roads will almost certainly result from rising temperatures and hot summers, resulting in significant delays and repair costs. The full scope of transportation-related climate change impacts and countermeasures can be found in.
Most supply chains have warehousing and storage as an integral part, and these two are inextricably linked. They are either directly or indirectly to blame for the rise in temperatures. In spite of the fact that warehouses may seem like a low-impact option, they take up valuable space and resources even if they are not being used. Buildings with large land footprints can both absorb and reflect heat, and as a result, they use a lot of energy to run and maintain a comfortable temperature (Immigration, 2021). They can be sources of other pollutants because they tradeoff between minor pollution release and hazard-reduction handling in warehouses. In order to reduce the environmental impact of storage, it is critical to improve throughput, reduce the amount of idle inventory that takes up space, and improve space utilization.
All sectors of the economy rely on climate-sensitive infrastructure, equipment, and processes. Trade requires inventory facilities such as buildings, material handling equipment, and transportation infrastructure. Additionally, personnel are required for various aspects of the trade process. Extreme weather events linked to climate change can occur in any of these locations (Godde et al., 2021). Companies in the food retail sector face a reputational risk as their market visibility grows, as does the transparency of their operations, as does the power of non-profit organizations. It is also possible that new product labeling regulations will increase the cost of manufacturing consumer goods. In order to reduce demand for these products, price increases would have to be absorbed by the retail sector.
The final link in the supply chain is where the finished product is delivered to the customer. Everything in the vicinity of the product’s consumption is thrown away, which has obvious consequences for the environment in general and global warming in particular. Using the automotive industry as an example, the severity of a sector’s products in terms of GHG emissions during use can be demonstrated (Ghadge et al., 2020). Only about 10% of a vehicle’s lifetime GHG emissions are produced, but the other 90% are emitted by the people who use the vehicle. According to a number of studies, importing a product contributes significantly more greenhouse gas emissions than producing it domestically.
Materials, production methods, and management are all affected by climate change and supply chain operations. Many processes could benefit from using ICT to reduce their carbon footprints. For example, in the freight transportation industry, ICT can increase capacity utilization while decreasing energy consumption. Large corporations can use sustainability software to improve reporting and visibility of GHG emissions across supply chains by disclosing emissions across the entire value chain. Virtual goods and services can be used in place of physical goods and services in the ICT sector (Ghadge et al., 2020). It also encourages technological innovation by enabling energy efficiency and CO2 reductions across a wide range of industries. Emissions can be reduced by using smart motors, smart logistics, smart buildings, and smart grids. These systems are useful for designing transportation networks, managing centralized distribution networks, shifting intermodal loads, and driving more efficiently (Ghadge et al., 2020). This reduces the number of empty or partially loaded vehicles on the road while saving storage space, fuel, and total kilometers driven. ICT has the potential to cut carbon emissions by 15% while saving significant amounts of energy and fuel.
References
Ghadge, A., Wurtmann, H., & Seuring, S. (2020). Managing climate change risks in global supply chains: a review and research agenda. International Journal of Production Research, 58(1), 44-64.
Gernaat, D. E., de Boer, H. S., Daioglou, V., Yalew, S. G., Müller, C., & van Vuuren, D. P. (2021). Climate change impacts on renewable energy supply. Nature Climate Change, 11(2), 119-125.
Godde, C. M., Mason-D’Croz, D., Mayberry, D. E., Thornton, P. K., & Herrero, M. (2021). Impacts of climate change on the livestock food supply chain; a review of the evidence. Global food security, 28, 100488.
Immigration, R. (2021). Special processing measures: Persons directly affected by the 2021 floods in British Columbia.
Pankratz, N., & Schiller, C. (2021, June). Climate change and adaptation in global supply-chain networks. In Proceedings of Paris December 2019 Finance Meeting EUROFIDAI-ESSEC, European Corporate Governance Institute–Finance Working Paper (No. 775).
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