Over the past few years, Covid-19 has severely disrupted global supply chains, making it more difficult for companies around the world to produce and distribute their products.
During the height of the pandemic in 2020, many companies fell short of their supply chain goals, with demand for products and services high, but production low. However, companies with more sustainable supply chains proved to have significant advantages over those that didn’t, giving them a leg up in surviving the disruptions caused by the pandemic.
This article explores how the Covid-19 pandemic affected sustainable supply chains and how sustainability efforts in sourcing can help companies improve their resilience to major disruptions.
The Effects of Covid-19
When the pandemic was in full swing throughout 2020, businesses were hit hard by unproductive supply chains. People around the world were forced to stay indoors, which led to rises in demands across all industries, and a steep drop in available supplies as workers were unable to abide by lockdown restrictions while simultaneously fulfilling orders. Businesses around the globe reported significant drops in available inventory, particularly in the manufacturing, construction, and retail sectors. For example, in February 2020, before the start of the pandemic, most retailers had around 43 days of inventory ready to ship. As of June 2021, just a year or so after the pandemic began, retailers had an average of 33 days of inventory. This led to obvious and widespread shortages around the world.
Many businesses were also missing important materials. For example, much construction has been delayed due to a lack of roofing materials and lumber. Not only do these shortages raise the prices of materials and goods significantly, but they also may force businesses and individuals to turn to less sustainable materials. If the sustainable option is either unavailable or extremely expensive, it’s unlikely that anyone will choose it over alternatives.
Studies suggest that the industries most affected by Covid were those with complex, international supply chains. With the dangers of the pandemic threatening human safety on a global scale, many companies that relied on complex international networks were at a disadvantage. Many businesses, especially those in the manufacturing industry, had to rely on factories in developing nations that were overcrowded and poorly ventilated, leading to severe risk of infection that put workers at extreme risk and forced factory shut-downs.
This resulted in a domino effect that slowed and even stopped production for many industries worldwide. However, companies that had stronger supply chain transparency had an immediate advantage in the thick of the pandemic due to deeper levels of communication and networking.
Sustainability in Supply Chains
A major aspect of sustainable supply chains is having clear, open communication between networks. The majority of a company’s emissions typically stem from its Scope 3 emissions, where massive amounts of greenhouse gasses and environmental impacts go undetected in the complexity of its value chain. Improving supply chain transparency lets companies know where their products and resources are coming from and how they’re procured, and allows for more efficiency and better control over their environmental impacts.
Transparency Through Digitization
Throughout the pandemic, companies that improved their supply chain transparency through quality control management systems and digital methods of transparency have had marketplace advantages over those that didn’t, and have been better equipped to address changes in production schedules. Increased supply chain visibility promotes sustainability, as it allows companies to gain insight into opportunities for waste, emissions, or pollution reduction in their supply chain. However, companies must ensure that their digital tools not only improve their visibility into their supply chains but also provide wider-spread monitoring for supply chain disruptions. A recent McKinsey study found only 39% of companies’ digital investments focused on supply-chain disruption monitoring, leaving them vulnerable to future problems (and thus less likely to be able to focus on sustainability initiatives in the future as well).
Increasing Importance of Transparency for Sustainability
Sustainability not only helps supply chains to be more resilient in the face of disasters but can help boost profits as well. A growing number of people are practicing ethical consumerism and using their purchases to promote ethical, sustainable brands. By reducing Scope 3 emissions with more efficient supply chains, companies can significantly improve their environmental impacts and improve their brand reputation.
Since 2020, a growing number of companies in nearly every industry have committed to improving their supply chain transparency. Not only will increased transparency provides a multitude of economic benefits to businesses, as increased monitoring helps companies find places to reduce costs, but it will also make it clearer to outside investors and consumers which companies are actually committed to environmental change. As investors and consumers alike push for better environmental commitments, these changes come hand in hand with sustainability efforts, pushing industries to better source their networks for both business and environmental purposes.
Moving Forward: Towards Resiliency and Sustainability
At the beginning of Covid, a major concern was that the pandemic would push back the sustainability efforts that had been achieved over the past decades. However, disruptions in global supply chains actually strengthened environmental sustainability in many industries and even encouraged businesses to improve their commitments to the environment. As the world recovers from the pandemic and companies improve their resilience in the case of another global disruption, moving towards sustainability will prepare the global market for stronger business practices and better environmental efforts.
This will be particularly important moving forward, as the Covid-19 pandemic is sure to not be the last major disruption to the supply chain. For example, as climate change worsens, many experts predict that more extreme weather events will create supply chain disruptions on a global scale. Sourcing may get more difficult as finite raw materials are depleted or become impossible to produce in an altered climate. Major storms may also create transportation delays that create shortages around the world. Thus, sustainable sourcing is more important today than ever before, as it can help mitigate the future disruptions climate change will inevitably cause. While the pandemic exposed the vulnerabilities of our supply chains, we must use those lessons today to plan for tomorrow.