The Competition Has Heated Up

The scramble for supply chain contracts is taking a new direction and it may not be what you expect. Traditionally, the key components of getting these contracts relate to price, quality, reliability and availability of volumes of product. 

Now there’s a new number in the mix which will turn supply chain contracts on their head. ESG reporting, and specifically Carbon Reporting. With the upcoming legislation mandating large companies to report their carbon emissions data and the race to reduce the number to zero, the impact will be felt down the supply chain and it will happen faster than the speed of light.

There are two ways for a company to reduce their carbon emissions to zero.

Firstly, they can buy carbon credits. Carbon credits are created through various carbon sequestration programs, eg, soil improvement and increased tree canopy, to name two. Whilst this looks like an easy fix, carbon credits have to be bought (which will reduce the company’s profit) and there aren’t enough available for every company to use this option.

Secondly, they need to reduce the carbon emissions in their inputs. That is where those in the supply chain come in. 

If a large corporate currently buys from two suppliers who supply essentially the same product or service. Supplier 1 has a carbon footprint of 100 CO2e per tonne, whilst Supplier 2 has a carbon footprint of 20 CO2e per tonne.

The large corporate is going to lean heavily towards Supplier 2 based solely on the carbon emissions. Even if their price is slightly higher than Supplier 1, chances are that Supplier 1 will lose their contract (or not get another contract) and Supplier 2 will get the full contract.

Think about this for a minute. 

I believe that price will not be the deciding factor in contracts in the future, carbon emissions will take a higher place in the decision-making process.

To get ahead of the game, now is the time to get ready for carbon reporting and work out your current carbon footprint so that you can work towards reducing it as much as you can before your next supply chain contract renewal discussion.

We are proud to advise that this article was written by the team and not produced by AI.