Navigating the Impact of Climate Change on Indirect Procurement
Climate change is having a tangible impact on so many industries, including the procurement field. Most organizations will take meaningful steps to protect their direct procurement needs, but climate change could significantly impact indirect procurement, as it doesn't always take priority.
According to Deloitte, direct procurement represents "the cost of doing business,” whereas indirect procurement represents "the cost of being in business.” Making significant changes in indirect procurement "often requires changing behaviors across the organization to drive compliance to preferred suppliers and negotiated commercial agreements."
Due to this situation, indirect procurement leaders must take steps to navigate the impacts of climate change on their operations. Here are a few things indirect procurement leaders can do to mitigate these impacts.
Potential Impacts of Climate Change on Indirect Procurement
No one can predict the future, so the impact of climate change on supply chains and the procurement function could vary. Nonetheless, we are already witnessing some significant impacts due to the current state of warming.
Here are a few climate change challenges that indirect procurement leaders currently face:
Disruption of Supply Chains
Climate change is increasingly disrupting global supply chains, which can have a significant impact on indirect procurement. Leaders should evaluate potential alternative sources of supply and build resilience into their networks to provide long-term stability.
Shortages and Production Halts
Due to the disruption of supply chains, shortages and production halts are becoming increasingly common. This is particularly true for suppliers that rely on raw materials, such as agricultural goods.
These events don't directly impact organizations that source from such suppliers, but they can cause a ripple effect across the supply chain resulting in shortages and higher costs for goods. Again, indirect procurement leaders must recognize these potential risks and secure alternative products or suppliers as necessary.
Changes in Demand Patterns
As the climate changes, it will bring about new customer needs and preferences that procurement must account for. Indirect procurement leaders should work with stakeholders across their organizations to identify and understand these changing demands, so they can be better prepared for the future.
Increased Costs
In some cases, procuring goods from alternative suppliers or different areas may be more expensive due to increased transportation costs or other related issues caused by climate change. Leaders must use their financial acumen to balance these costs against those of the business, so they can make strategic decisions that benefit both parties.
Tips for Making Indirect Procurement More Sustainable
Indirect procurement is an important part of any organization's sustainability efforts. It also has an important role to play in mitigating the negative effects of climate change on the organization. Here are a few tips to help indirect procurement become more sustainable:
Invest in Green Suppliers
Organizations should prioritize green suppliers and look for ways to support their operations. This could include investing in technology that helps them use fewer resources or forming strategic partnerships with sustainable suppliers to encourage others to adopt green practices.
Commit to Transparency
Being transparent with suppliers about what the organization expects from them in terms of sustainability can go a long way toward creating meaningful change. Leaders should commit to being open about the company's expectations and pushing for greater transparency across the entire supply chain.
This is also an important step to minimize the effects of any supply chain disruptions that could occur because of climate events.
Develop Long-Term Plans
Indirect procurement should develop long-term plans to ensure that the organization is proactively addressing climate change-related risks. This could include establishing alternative supply chains and diversifying sources of materials or ingredients, as well as developing strategies for responding to extreme weather events.
Encourage Collaboration
Effective collaboration between all stakeholders along the supply chain is key to success. Leaders should collaborate with customers to better understand them and come up with creative solutions that can help them achieve a more sustainable future.
Learn More at ProcureCon Indirect East
Navigating the impacts of climate change on indirect procurement is becoming increasingly important for businesses. Leaders must be prepared to assess potential risks and take steps to mitigate them to ensure a stable supply chain.
To learn more about how you mitigate the risks of climate change, don’t miss ProcureCon Indirect East, happening from September 11th through 13th at the JW Marriott Orlando Bonnet Creek Resort & Spa. Download the agenda and register today.