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Sustainability in fragile and volatile supply chains

By May 20, 2022No Comments

The NHS aims to be carbon neutral by 2040 on the emissions it controls directly and has set a target of 2045 to be neutral on the emissions it influences.

The NHS and government have introduced mandatory requirements to include net zero and social value at tender, include the Evergreen assessment and set expectations for modern slavery reduction through the supply chain.

In 2023 PPN 06/21 will require all contracts over £5mm will require suppliers to publish their carbon reduction plans, an analysis of key supplier markets has informed the development of the NHS approach and timing, which gives suppliers an additional 18 months to prepare for its application. In 2027 all suppliers will be required to publish their carbon reduction plans aligned to net zero targets for their direct and indirect emissions with carbon foot printing of products introduced in 2028 and from 2030, all suppliers will be required to demonstrate their progress in line with the NHS net zero targets through reporting standards.

However, are we going to find that reality bites?

The current economic situation doesn’t lend itself well to delivering long-term goals and sustainable supply chains when there are other more short-term priorities facing people around the world.

Towards the latter part of this 2022 the UK is expecting a rate of inflation of 10%. This is something that has not been seen for over 30 years and interestingly is actually driven by cost pressures and not demand, there are fractures in global supply chains and the cost pressure is coming from fuel, crude oil and energy costs, food and to some extent labour.

A significant number of professionals in the NHS and the workforce in industry were children when the economy was in a similar situation.

There is a cost-of-living crisis which is affecting consumption in the economy and in most advanced economies, up to 70% of GDP is driven by consumption, and the cost of living is starting to have an effect. Consumer energy prices and food prices are so high that whilst not expected, an emergency budget is being called for by some and more government intervention is being speculated including tax cuts.

This would usually result in decline and drive economies into recession, but there is something strange occurring in the labour market. Employment is high, and unemployment is low and these dynamic leverages an increase in pay, driven by an acceleration in labour demand and not only from Unions. We are seeing salaries through talent acquisition with bonus payments fuelling the inflationary rate.

This is sometimes referred to as rational expectations, increasing the wages of people by relative amounts with the expectation that they will sit below the expected level of inflation, but this is in turn fuelling this increase faster.

Coupled with the demand for labour, following the pandemic we see the great resignation, many 55-60 year olds are choosing to leave the labour market because they can afford to, they are the majority of the last people to receive defined benefits pensions, out of a c.400,000 workforce resignations, 250,000 of these are from this age group. This will also have an inflation and cost to the government as some will qualify for benefit payments.

We have Covid-19 still impacting supply chains with raw materials and goods coming from China with their zero covid policies and we have the war between Ukraine and Russia and the sanctions felt across the world. Global warming and climate change is, despite the naysayers views also affecting costs of goods particularly with food products such as wheat due to the reduction in supply from Ukraine due to the war and India reducing exports to ensure they can feed their own population.

So, supply chains are under pressure, resources are low, there are external impacts such as war and energy and environmental and health events, these are fragile and volatile supply chains.

Procurement professionals are under more pressure than ever to reduce costs, but where will they reduce costs with the pressures facing companies providing goods and services as well as having the workforce requirements in the NHS and industry.

Are they going to refuse inflationary increases and are they going to demand more for less from suppliers?

How are national agendas in sustainability going to be delivered balanced against the cost of goods for patient care?

This could have an impact on Sustainability, but perhaps it won’t. The reasons for this are that the regulatory landscape is now more inclusive of sustainability goals, the NHS has it PPN 06/20 and 06/21 which are effective now and the standards and regulations are becoming increasingly more inclusive of sustainability requirements.

There is also the expectation from consumers, users and individuals that these requirements are a given. Sustainability promotors have always said that Sustainability requires a mindset change, and even with the volatile and fragile supply chains, it seems that this mindset change has happened, perhaps more quietly than expected, but these considerations are expected all the way through supply chains, from modern slavery, corporate responsibility and designing sustainably.

Previously strategies across corporations have been repeated to continue previous successes, and inactivity has been the main challenge, but with all the cogs in place, which admittedly were put in place before reality began to bite, but is there appetite to roll back developments and policy expectations to address the pressures facing the country or not?

Sustainability is obvious, it is [almost] impossible to argue against it, de-carbonising is theoretically a lower cost than high carbon, and using less and re-using is also more cost effective – however if hearts and minds, and the general mindset from the consumers and the workers changes – if their daily lives take the pressure and government is forced to address issues with short term policies we could find Sustainability less of an issue than price, or ease of use. This is a long game and it relies solely on everyone understanding what is in it for them, and if the volatile and fragile supply chains are impacted and no-one sees what is in it for them, if there are no clear values visible to everyone, how does this affect the procurement of goods and services that have corporate, social and environmental benefits in comparison to those that address people’s immediate needs?

For years the feelings of business have not been a priority, only facts, we were travelling in the right direction towards feelings and facts, but was the mindset embedded deep enough to not “repeat previous successes” or has the love of sustainability been nipped in the bud by reality biting at the worst possible time for the planet?