Decarbonisation regulations are contributing to a generational reorganisation of the ways in which supply chains and the procurement process works.

There are many reasons why organisations everywhere are taking a long, hard look at reorganising their approach to procurement. Overly complex supply chains, increased geopolitical risk in certain parts of the world, and the increasing instability created by the worsening climate crisis are all among the forces pushing chief procurement officers (CPOs) and supply chain managers (SCMs) to rethink the shape and scope of their value chains. 

Of course, to some degree, supply chains exist in a constant state of self reinvention. However, the changes we’re seeing in the industry now suggest that a more profound, generational reorganisation is taking place.  

Supply chain unpredictability was expected to fade along with the effects of the pandemic. However, even going into 2022, SCMs were preparing themselves for “extremely unpredictable supply chains” with “very long” lead times. 

Nearshoring, protectionism, and environmental resilience 

In 2024, it’s becoming remarkably clear that the problems facing procurement and supply chain teams aren’t going away. There’s a difference between a few years ago and today, however. Today, CPOs and supply chain leaders are increasingly taking steps towards implementing “fundamental, structural change”. This change, however, will demand “significant capital investment and subsequent corporate restructuring.” 

In particular, shifts in the regulatory landscape around emissions are driving a rise in nearshoring for procurement. Moving the procurement process closer to home is increasing in popularity. Nearshoring like this is a way to “reduce significant risks like long lead times, tariffs, and exposure to geopolitical tensions.” 

In Europe, for example, the European Union’s Carbon Border Adjustment Mechanism (CBAM) is disrupting long-standing practices  where companies based in the EU move carbon-intensive production to regions with more lax climate policies. Significant new taxes on imports are prompting organisations to bring the more carbon-intensive elements of their supply chains closer to home where there are fewer regulatory blind spots in which to hide. 

“Climate change is a global phenomenon whose impacts get propagated throughout the economy,” argues Ivan Rudik, an associate professor at the Dyson School of Applied Economics and Management at Cornell University. “If supply chains don’t get reshaped as a way to deal with global warming, the impacts on the economy will be much worse.”

This combination of increased climate risk and stricter regulations is driving the structural, far-reaching reorganisation of supply chains. As a result, higher volumes of trade in localised areas will become more common. Procurement will undoubtedly look very different in a few years from now compared with the state of the sector just a few years ago, as the sector undergoes a “reversal of the multi-decade journey to globalisation” that defined the pre-COVID economy. 

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