Strategies for a resilient supply chain: getting climate proactive

In this article we look at supply chain strategies to make your food and drink business climate resilient. 

In recent times, food and drink has had a front row seat to the impact of climate change on our planet – and the problem is escalating.  

The last few years have been littered with examples of how extreme and unpredictable weather patterns are ravaging supply chains.  Drought has devastated cocoa harvests in West Africa. Heavy rains in Europe have spoiled swathes of potato fields in Belgium, France and the UK. US hurricanes have dampened orange output. 

In fact, by 2050, it's thought that the impact of global warming will have cost the global food sector some $38trn in damages. 

The impact – so far – has trickled all the way down from primary producers to supermarket shelves, as poor yields have pushed commodity prices to record–highs. This has left manufacturers and suppliers with little option but to pass on costs to end consumers, triggering inflation and more controversial techniques such as the headline-grabbing “shrinkflation”.

These reactive strategies, while helping in the short term, haven’t exactly curried favour with consumers and will eventually be futile against the forecast impact of climate change on the industry.  

In the face of all this, companies will need a much better plan. One which incorporates farm-to-fork climate-resilient strategies and takes into account the impact of climate change and proactively mitigates and adapts to it.  

So, what does that look like in practice?  

 A proactive plan 

Simply put, climate resilience is the capacity a business has to anticipate, prepare for and respond to the impact of climate change. As IBM puts it: ‘It is built on understanding climate-related risks and vulnerabilities and implementing the necessary measures to manage these risks effectively.’ 

Crucially, it relies on being proactive, rather than reactive.  

A climate resilient supply chain is one that has not only reduced its inherent vulnerabilities – often in tandem with progress toward regulatory targets on areas such as greenhouse gas emissions (GHGs) – but has also mapped out ways to adapt to the impact of what it cannot avoid in such a way that protects its integrity and commerciality.  

There are three core steps.  

1. Map out supply chain vulnerabilities  

Understanding and prioritising climate risk is the first step in designing a more resilient supply chain.  This will look completely different for each food and drink business.  For some CPGs, for example, it may be their reliance on ingredient suppliers in vulnerable regions that carries the biggest weight.   

For a manufacturer or processor meanwhile, it could be the inefficiency of their energy consumption.  And for a retailer, it’s a Just-in-Time (JIT) inventory model that leaves them with little to no margin for error should sudden shortages occur. 

Carrying out a comprehensive mapping exercise at the outset is crucial in identifying where your specific level of risk sits, and therefore where the bulk of attention and resources need to be channelled. 

This can be a complex and resource-intensive task, of course, with many agri-food supply chains spanning many miles, countries and different products or ingredients. 

Supply chain leaders may be liaising with numerous stakeholders, with varying levels of transparency and insight into their own vulnerabilities.   

To navigate this, make use of technology where possible, utilising software that can centralise data in one place, draw comparisons and assist operations teams with assessing where the greatest potential damage could be, even in a complex ecosystem.  

2. Mitigate risk  

Armed with a priority list, focus first on mitigation. This means reducing the contributors to climate change vulnerability across your supply chain.   

• Transitioning to renewable energy sources  

• Investment in lower-impact transport options 

• Re-evaluating suppliers on their adoption of sustainable land practices, such as conservation tillage, cover cropping, and crop rotation 

• Route optimisation to minimise distance, reduce idle time and improve efficiency 

What each of these steps has in common is that they lower exposure to climate risk – albeit reaping the rewards can require a long-term view, with some costs upfront. Switching to renewable energy sources in a factory for example, could push up bills in the short term, but protect a business from fluctuations in the price of less energy secure sources like coal in the longer term. 

Remember though, that this approach has another clear commercial benefit from the start.  Not only does it reduce a company’s exposure to the impact of climate change, but it invariably helps them meet a growing body of regulatory expectations around GHG reduction, waste management and ethical sourcing, protecting the bottom line against hefty penalties and reputational fallout.  

3. Adapt, strategically  

 If mitigation reduces vulnerability to climate change, adaptation recognises that no food and drink company will escape the coming years without some impact.  

It means that, rather than bury their head in the sand, supply chain leaders have mapped out smart adaptation strategies that respond to that impact and avoid the need for knee-jerk market responses.  

The food and drink sector is no stranger to the controversy of these after all, with decisions to quietly shrink pack sizes or reduce the quantity of a core ingredient met with frustration from consumers.  

Adaptation takes the long view instead.  It could include: 

• diversifying a supply base to reduce reliance on a particular region or producer .

• investment in the development of climate-resilience technologies. Mars, for example, is one of a few confectionery companies exploring how gene-editing technologies can pave the way for more resilient cocoa crops.  

• adjusting inventory management models to create more flexibility and reduce vulnerability. This could include strategies such as nearshoring or storing a greater quantity of product. 
• creating a more resilient infrastructure. So, building or upgrading facilities and/or transportation networks to withstand extreme weather. 

As with mitigation, it’s a long-term play, but one that proactive companies will reap the rewards of further down the line.  

Ahead of the climate curve 

Though the details of climate resilience strategies will vary widely from organisation to organisation, using these three components – assessment, mitigation and adaptation – provides a useful framework for all food and drink companies to build around.  

As business leaders are all too aware, far from a future theoretical event, the impact of climate change on global supply chains is a very current crisis for global food and drink, one with a profound knock-on impact when it comes to cost and availability.  

What matters therefore is that companies don’t wait for crisis to strike.  

What will separate companies that can navigate the impact of climate change, from those that buckle under the pressure, will be a solid climate resilience plan that recognises the risks, puts in place steps to mitigate them but accepts that some impact is inevitable, and adapts accordingly.        

Concerned about how new tariffs and changing trade agreements will affect your supply chain? Then read our article on how to navigate trade tensions to ensure your supply chain resilience here. 

You can also overcome your supply chain visibility and traceability challenges with our Supply Chain Mapping tools. To learn more, download your free brochure.