How Renewable Energy Supply Logistics Will Affect Procurement
Climate change is the defining issue of our time. Now more than ever, we are feeling the consequences of centuries of poor environmental practices. From rising sea levels to shifting weather patterns, the impacts of mostly relying on non-renewable sources of energy are unprecedented in scale.
Governments across the globe are looking for ways to shift towards a net-zero-carbon economy to combat the effects of global warming, including making supply chains and logistics “greener”.
In this article, we will take a closer look at these new policy changes and what it means for MRO teams moving forward.
What you need to know about the new “green” supply chain
The response to this global crisis is layered and involves many stakeholders. It starts with internal changes that are made to keep operations compliant with climate initiatives. The goal of these initiatives is to incentivize large-scale changes that move across the length of supply chains, incentivizing corporations and multinationals to evaluate external processes, too.
In most cases, this translates to identifying and working with suppliers who are compliant with new climate initiatives. This can make procurement contracts more complex and often requires more involved KPI tracking.
Many of these changes are set forth by Environmental, Social, and Governance (ESG) policies that are established to ensure operations reduce their greenhouse emissions using recommended guidelines. Many governing bodies are implementing incentive programs that couple these ESG policies to promote compliance, usually in the form of tax credits.
Optimizing MRO to reduce carbon emissions
One of the most significant action items procurement leaders and operations teams can take is optimizing MRO inventory to levels to reduce overall shipping and logistics practices to reduce carbon emissions emitted during transit.
While procurement teams may feel isolated from such policy, operations teams can elevate this initiative by sharing excess MRO materials and spare parts with other facilities in their enterprise. Not only does this ensure existing inventory gets used, reducing the need to manufacture new materials, it reduces the overall procurement effort by eliminating purchases of materials already on hand..
Recommendations to shift towards a centralized “hub and spoke” model for MRO parts can have a positive impact on procurement costs, especially when it comes to shipping expenses. This will make strategic procurement contracts much more important in the coming years.
Reducing the frequency of freight transportation is another proposed solution for reducing the carbon footprint of the supply chain. This can impact shipping logistics, potentially leading to delays or reducing lead time on stock. Strategically placing orders can help teams prepare for these changes, but this requires careful planning and inventory maintenance.
Using systems with natural language processing capabilities and predictive analysis can help teams make these processes air-tight, all while maintaining accurate records of their supplier relationships.
Increased regulation and reporting
A core tenet of the push for sustainability is accurate, frequent, and transparent reporting.
Different policy measures and trends including the recent Federal Supplier Climate Risks and Resilience Proposed Rule as well as expanding efforts for carbon disclosure practices point towards this upcoming change.
Reporting and record keeping demonstrate operational compliance with ESG regulations, a requirement for those seeking to benefit from incentive programs. Over time, though, these regulations may become permanent fixtures rather than enrollment-based programs.
Record keeping and reporting can be a challenge, especially for processes like MRO management that usually run on disparate data collection systems. However, moving MRO data into a centralized platform to drive data-backed insights can make these processes more inefficient, and has the added benefit of significantly boosting ESG compliance.
Increased costs
Though the adoption of sustainable business practices is urgently needed, and while the implementation of these programs may come with initial costs and adoption challenges, MRO optimization can actually help reduce costs almost immediately.
Implementation of a purpose-built MRO solution, can drive improved communication within processes that are traditionally siloed across an organization. Additionally, this new visibility to MRO inventory levels and locations can help ensure lost revenue that occurs from unplanned downtime is minimized.
The risks posed by failing to implement these measures can be catastrophic, even if it is tempting to put off change until absolutely necessary. Meaningfully adopting and incorporating sustainable practices now is the best way for operations to prepare for what lies ahead.
Arm yourself with a purpose-built MRO solution to elevate sustainability initiatives
Increase visibility and reporting
One of the most actionable, and simple, ways to begin preparing for sustainability measures is to increase MRO inventory visibility.
Disparate data collection and manual systems can make it difficult to aggregate data for not only reporting and compliance purposes but also for production efficiency.
A robust materials management software should eliminate these silos and offer a holistic view of your MRO inventory from enterprise end to end.
By harmonizing data through a single platform, operations managers can create a universal method for optimizing material needs. This not only makes it possible, and easy, to keep practices compliant, but also helps track KPIs and supplier reliability during a time of large-scale operational changes.
Use procurement strategies tailored for new needs
Strong procurement contracts are key to making procurement processes resilient in times of change.
A few strategic preparations and contract terms can soften the blow of anticipated rising costs and shipping delays. By establishing clear performance metrics within your procurement contracts, you can hold suppliers accountable to KPIs while remaining compliant. It’s an easy way to safeguard against rising costs and to ensure accountability when delays arise.
The right cloud-based solution can help you assess and evaluate supplier information based on key metrics. You’ll receive regular updates on lead times and actionable recommendations to prepare for inventory delays.
These simple fixes can reduce costs and downtime.
New tools make processes greener without extra disruptions
It’s no doubt that carbon emission reduction has become a fundamental paradigm shift within the supply chain landscape.
Certainly, the transition into this new era will not come without challenges, but leveraging the right tools can help you make the most of these changes. Preparing your operations and procurement teams to embrace sustainability practices is also an opportunity to shore up processes and optimize inventory costs.
To learn more about how cutting-edge tools can help make your MRO processes more efficient, download our ebook on overcoming MRO challenges today.