CRA Business News – South Africa
By Reinhardt Arp
The Covid-19 pandemic has sent shockwaves through the global economy, forcing businesses around the world to close their doors, in part because the workforce has been compromised, either directly through Covid-19 infection or indirectly through public lockdowns, but largely due to the disruption of global supply chains.
Is this a glimpse into the future impacts of climate disasters that risk disrupting global supply chains on a similar or even larger scale? And if so, what can we do to prevent the repeat of such widespread socio-economic disruption and ensure we mitigate future disruptions?
Supply chains are the lifeblood of our global economy, ensuring the effective functioning of our interconnected economies and broader society. They provide us with an array of goods and services that we often take for granted and which satisfy both our basic needs, as well as our insatiable appetite for luxury goods, in the process.
Yet underpinning this impressive expansion and growth of international supply chains has been a deep flaw, a contradiction if you will, that has left us unprotected from the socio-economic impacts of crises fuelled by unsustainable business practices and the linear make-use-dispose supply chain model. While efficiency gains and cost minimisation have come to be paramount for global business, they do not sufficiently factor in resilience to disruptions, such as pandemics, geopolitical conflict and climate disasters, in their business models.
Driven by just-in-time paradigm, the global economy’s propensity to create lean inventories, consolidate suppliers and concentrate production activities in cheap, centralised locations have made supply chains cost-efficient, but left them vulnerable to disruptions. And, on top of this, unsustainable business practices continue to drive the ecological and climate crises that cause significant disruption to international supply chains and the global economy. The Covid-19 crisis has made this contradiction crystal clear; the expansionist drive of global business is very shallow and pays little attention to consolidating gains back into sustainable business practices and supply chain resilience.
Over the last three decades, China has become a global hub for manufacturing, producing the majority of processed materials, key inputs, components, parts and commodities that feed the global economy. The outbreak of Covid-19 initially reduced the supply of goods from China to the rest of the world, creating a concoction of knock-on effects that negatively impacted major industries globally. Today, our just-in-time supply chains cannot cope with the various lockdowns imposed across the planet.
Companies have responded with a variety of short-term solutions, such as ordering supplies from secondary or even tertiary suppliers and reabsorbing some of their core functions back into their own business or factories. Others re-tooled their production systems to manufacture alternative products, such as face masks, sanitisers and ventilators that are currently in high demand, in an attempt to support the global effort to tackle the pandemic and minimise financial losses. However, these are only short-term measures without any coherent strategy of infusing resilience in global supply chains.
Here is where the contradiction comes in: Not only are supply chains vulnerable to disruption from disasters such as Covid-19 or climate change, but they are fuelling such disasters through unsustainable business practices.
There is an important link between building resilience and reducing supply chain impacts on the environment and our climate. After all, one can argue that our dense supply chains fuel over-consumption and put pressure on the environment. Our linear supply chains that “make-use-dispose” generate significant environmental impacts; impose substantial external costs onto society and the broader economy, and ultimately contribute to the severity of future disruptions.
When we “make”, we continually have to feed the global supply chain with new, “virgin” raw materials that often leads to great environmental damage, habitat destruction and biodiversity loss. These virgin materials then need to be transported, refined, repurposed and sold to consumers to “use”, which generates a number of indirect costs, such as air pollution, greenhouse gas (GHG) emissions and climate change.
Your morning cup of coffee, for example, is grown in generally warm, humid climates, such as Brazil, where natural forests are cleared for coffee plantations. The plantation itself requires substantial amounts of water and fertilizer etc. to grow coffee beans. Those beans are then shipped off across the world, via several intermediaries, to thousands of different roasting houses and distribution centres, which again, consume significant amounts of resources and produce substantial external costs. In fact, a single cup of coffee (with milk no sugar) is said to consume 140 litres of water and produces 53 grams of GHG emissions. It might not sound like much, but if half the global population drinks two cups per day, that’s about 1 trillion litres of water and 413 000 tons of GHG emissions daily, just from enjoying two innocent cups of coffee.
Then we “dispose” of our goods and our coffee cups, generating billions of tons of waste, which is either sent to landfill, gets incinerated or pollutes our rivers, wetlands and ocean. Either way, our supply chains end by contributing waste to our planet. Our current, highly inefficient linear supply chain model is only contributing to future disruptions, against which we will need to build ever more resilience.
Coming out stronger
To come out stronger from this crisis, we need to ensure that systemic longer-term resilience and sustainability are built into the global supply chain system to avoid a repeat of this magnitude of socio-economic disruption during future disasters.
There are a variety of strategies for strengthening supply chain resilience but they must be tailored to specific contexts. Firstly, companies and governments must place a greater strategic focus on risk competitiveness rather than cost competiveness alone. That is to say that we need to pivot from just-in-time to just-in-case.
Secondly, supply chain visibility must be improved, while also mapping potential vulnerabilities and bottlenecks. This requires greater collaboration and coordination among stakeholders throughout the supply chain, both vertically and horizontally, to share critical information and support one another.
Thirdly, agility, flexibility and responsiveness need to be built into the system to allow for quicker responses to different disruptions, including shortening supply chains and redesigning products so that they can potentially be manufactured with alternative inputs and parts.
Lastly, knowledge management is critical for learning from different stakeholder experiences, re-integrating learning back into product and supply chain design and consistently monitoring disruptions as much as possible.
We must also redesign our supply chains for sustainability in a systemic manner. One way of achieving this is to implement circularity into supply chains and move away from a linear design. Circularity, more commonly referred to as the circular economy, aims to limit the use of new, virgin resources and minimise the amount of waste produced by the system, while powering it with renewable energy to minimise environmental impacts and externalities.
This requires that we re-engineer the system and its components so that waste can become a “secondary resource” or input. The expansion of a domestic secondary resource market has the dual benefit of reducing reliance on primary inputs, often imported from other countries, and can, therefore, improve supply chain resilience to climate disruptions. Circularity can enhance the value of natural capital, improve natural resource use efficiency and avoid unnecessary waste and pollution that ultimately contributes to the severity of future climate disruptions.
The Covid-19 crisis has clearly illustrated both the contribution and vulnerability of global supply chains to disruptions. While the world continues to battle the pandemic, we cannot afford to ignore the looming climate crisis in the background. Not only must we take drastic steps to strengthen supply chain resilience and move from just-in-time to just-in-case, but we must also ensure that those same supply chains do not “add fuel to the fire” of future disasters.
Reinhardt Arp is an environmental economist at WWF South Africa. Views expressed are his own.
Credit to Fin24.