By Stephanie Trefcer
A company’s performance and response to COVID-19 has become a litmus test for understanding the potential pitfalls associated with their current strategy and approach to risk management in times of global crises. In parallel, KPMG has witnessed how the pandemic has forced decades of our clients’ digital transformation to take place in a few short months, including the digitization of the supply chain.
Learning from challenges experienced over the course of the pandemic, executive leadership teams are now highly motivated to implement supply chain risk mitigation strategies that will alleviate the impacts of current and future global crises, including global warming and tackling decarbonization, leveraging digital capabilities and emerging technologies.
According to KPMG Principal Arun Ghosh, “Organizations’ acknowledge that supply chain shortcomings are critical to correct in the current pandemic. They also need to improve their ESG performance in an era where every dollar counts and to meet shareholder expectations. Fulfilling these obligations under one corporate sustainability strategy, using digital capabilities, can help organizations proactively manage global crises that threaten their organization.”
The impetus to create a digitally transformed and trusted supply chain
COVID-19 has uncovered several weaknesses in corporate strategies, including inefficient and ineffective supply chain management. This became more evident when the delay of essential supplies, like personal protective equipment, put lives at risk, resulting in the crucial need for supply chain digitization to enhance real-time visibility into product attributes including status and location.
The United States-Mexico-Canada Agreement (USCMA), which became effective July 1, also presented an opportunity to reorganize and restructure global supply chains, including improving the transparency and traceability of goods, and reducing their environmental impact.
Creating an immutable data trail using digital capabilities such as AI and blockchain can improve business and consumer confidence in the quantity and quality of goods that are produced, shipped, and delivered, as well as the carbon emissions associated with those goods across the supply chain. Consumers also want to know that their products have a COVID-19-free chain of custody – meaning, they have not been contaminated with the virus while traveling across the supply chain.
Overall, the implementation of emerging technologies introduces additional clarity and trust to the supply chain process – revealing the availability and safety of goods, while accelerating their delivery.
Carbon accounting across the supply chain
Globally, freight and shipping account for more than three percent of total global carbon emissions. This is expected to increase over the coming decade as supply chains ramp up to meet rising consumer demand for a direct-to-home based consumption model, leveraging a massive, distributed network of individual drop-off points that replace traditional hubs and distribution models.
To determine supply chain emissions today, corporate sustainability managers and ESG committees must navigate a patchwork of greenhouse gas (GHG) reporting protocols using a combination of manual calculations, rudimentary software packages, and home-grown solutions to track and calculate carbon emissions.
Technologies such as blockchain improve the speed and ease to measure and report on carbon emissions, while enhanced data management allows suppliers to calculate emissions with greater accuracy and transparency. Leveraging these foundational data tools will ultimately enable broader systematic ESG initiatives to help companies better understand, manage, and report on the impact of climate risks on asset and company valuation.
As organizations continue to evolve in the pandemic landscape, it will be important to integrate climate change strategies into recovery and operational plans, as well as risk management and supply chain strategies. The companies that prioritize ESG and implement emerging technologies to address initiatives like decarbonization will be able to provide a critical layer of trust and traceability, allowing companies to more effectively meet the needs and expectations of key stakeholders.
Stephanie Trefcer is a member of KPMG's Corporate Communications team. Please contact her for additional information or to arrange an interview.