Effects of the COVID-19 crisis on the Supply Chain – Part 2: The Sustainability Aspect
This blog post is the second article of a small series. We are still in the middle of a development, so many observations are a snapshot. Since the crisis continues the full extent of the COVID-19 related supply chain disruptions remain to be seen.
To start off, we will summarize how the situation has evolved since the last post.
- Production rates in China went from -13.5% in Jan and Feb continuously up, to 4.8% in June and July. Export rates have also continuously risen, up to the same number as in December 2019.
- Global GDP growth is now projected at –4.9% in 2020 (compared to 2.9% in 2019)
- Air and ocean freight capacities are recovering slowly from the turmoil in March and April. insecurity in the markets still drive higher freight rates and higher spot rate market activity in both areas.
- Real personal consumption expenditure fell by 10.1% in Q2 2020 compared to Q1 2020, the sharpest quarterly contraction on record. However, sales volumes are rising especially for durable and non-durable goods, also when compared to pre-crisis YOY spending.
As a consequence, the general trend seems to point at a quick recovery in supply-chain relevant areas as freight, production volumes and consumption are on the rise again. On a more differentiated level however, there are still industries, for example airline production, where even today there is still little to no demand for products and hence business and the supply chain remains broken or disturbed.
Since China has nearly reached pre-pandemic levels of productivity, this relieves some of the pressure (especially for the sourcing of goods from there) on international supply-chains. Rising freight rates remain a disruptive factor however and blank sailings are still hampering the reliability of incoming freight.
With the second wave of COVID-19 affecting western countries it will be interesting to see as to if the mild positive recovery trend we are seeing can continue.
Current situation on the background of sustainability
With the COVID-19 crisis demanding attention, news on climate change and sustainability have lost the centre of attention for both consumers and companies. Even though the pandemics „Silver Lining“ is the predicted decline of global green house gas emissions by 8%, the UN Environment Program estimates that global GHG emissions must fall by 7.6% every year from 2020 to 2030 to keep temperature increases to less than 1.5°C. This means that climate and sustainability have never lost their urgency.
The crisis has kicked off a wave of digitalization efforts for companies in order to cope with new challenges like finding new suppliers, rerouting goods flows and determining new freight carriers for previously not used routes. We also discuss this frequently in our customer interactions at SAP. At the same time a lot of companies are having sustainability in their mid- to long-term agenda already. Hence the current crisis and resulting investments can be used as a unique opportunity to enhance the existing sustainability efforts whilst at the same time modifying the supply-chain to better adapt to the current and future similar situations. This happens in front of a background where policy makers like the European Union strongly emphasize their commitment to a greener and fairer society and hence plan to further tighten regulation in that area.
As we write his article there is still no overall trend that can be determined in how companies will use the previously described opportunity. The only thing that seems certain at this time is that those that are affected negatively by the crisis are likely to act.
A good overview on scenarios and opportunities both in terms of strengthening the supply chain and the sustainability agenda can for example also be found in the PMC Library (a publication on lessons from COVID-19 for transitioning to sustainable supply and production) and in this article from Deloitte(an article on the impacts of COVID-19 on supply chains, sustainability and climate change).
In terms of actions it seems to us that the following 5 steps are a solid guideline for upcoming implementations
- Reassessment of the current supply-chain is terms of resilience, efficiency and transparency
- Determination of possible changes to address previously determined issues
- Evaluation of change items against company sustainability goals and selection
- Feasibility study
- Implement change
As soon as digitalization of processes and software changes are on the list of things to address, reach out to SAP to help you assess and implement the required changes.
Just a few points as to why sustainability should be part of the change, just a few points:
- 42% of consumers walk away from a brand in frustration, because they are looking for more sustainable products and services
- Only 15% of employees from Americas 1000 largest companies are satisfied with employer action on environmental impact
- Between 2015 and 2017, the integration of Environmental, Social and Governance, has grown by 76% in the UK
SAPs action plan on digitalizing sustainability for companies
SAP intends to remain on the forefront of sustainability-based digital business decisions. Sustainability factors have been part of the SAP Digital Supply Chain for quite a while, for example the measurement of carbon emissions in SAP Transportation Management. This year SAP launched the Climate21 program, which is designed to embed sustainability even further into the core operations and ERP. It is developed to help companies track environmental impact from their upstream supply chains to downstream logistics, including procurement, operations and manufacturing. Co-innovation endeavour with leading customers across all industries.
- SAP saved €273 Million by reducing CO2 emissions over the last three years
- 100 % renewable energies supplying SAP cloud, data centres and facilities
- SAP follows the goal of 0 net emissions until 2025 and being single-use plastic-free by the end of this year
Companies that are willing to include emissions into their decision making, but lack the necessary visibility, will not be in the dark much longer.
Thanks firstname.lastname@example.org for the support in writing this article.