Can our fragile supply chains still deliver net zero?

This is the first in a series of collaborative blogs between members of our SME ecosystem. We start with Gareth Evans, Founder of Smart Procurement Solutions and Jo Lucas, Cofounder and Director of Co.Cre8

Follow, like, comment and share this article or simply get in touch, we would love to hear from you. If you are a fellow SME and want to co-author a blog with one of us, get in touch.

What a week it's been… are we on the brink of another financial crash? No wait…its already hit us! These are turbulent times, and there are no signs it will stabilise any time soon.

We've experienced huge disruption in the market this week, and the current fiscal conditions will only exacerbate the lack of confidence / stability that the chancellor hoped to create by the announcement of more spending in the construction sector.

As our attention horizon narrows to today’s headlines, there is a very real risk that our focus will slip from the very urgent need to deliver Net Zero.

But surely there is nothing more important?

We can't "afford" to let time, cost and politics get in the way of delivering on our Net Zero commitments. It's time for action.

The leadership challenge, followed by the Queen’s funeral had already delayed several significant procurements by months, for example the new hospital programme and HS2 Phase 2a. This massive shift in economic policy only causes more uncertainty, delaying decision making even further.

Whilst this is difficult for all parties involved, our supply chains, having weathered the uncertainties of the pandemic, are particularly fragile with a series of compounding issues.

• Security of supply: staff reductions and material availability are being felt throughout global supply chains with many consolidating resources and making staff redundant due to the delays in procurement. The economic uncertainty means there is less commitment to and investment in much needed training, not least to support a Net Zero transition and pivoting from trades most impacted by automation toward a more manufacturing approach on sites.

• Cost of tendering and financial stability: prolonged tendering processes in a period of high inflation hits the pockets of the supply chain hard as they are often not reimbursed for the investment to tender work and their business plans, prices and viability will be based on lean, efficient and best value offers which do not build in a prolonged tendering period. Not to mention the fiscal impact of bonds/guarantees/insurances which all depend on certainty and will now cost more. The economic impact of the current crisis will materially alter their financial status/viability.

• Political uncertainty: the shifting sands of new requirements and legislation often place unexpected and hard to meet requirements on the supply chain, especially when they are not part of the decision-making policy frameworks

• Crossrail effect: many suppliers working on Crossrail are feeling the pinch as the project ends and suppliers are facing financial challenges associated with aggressive cost verification processes being implemented by Tier 1 contractors and Crossrail as budgetary pressure continues to be a significant issue.

• Accelerated programmes: projects are under pressure to mitigate these front-end delays; we must be honest and realistic and not set up our partners to meet unrealistic targets.

• Sustainability targets: which are being passed down to the supply chain, but not facilitated past the procurement process.

• Data visibility: The data visibility beyond Tier 1's is shocking. There is insufficient sharing of pipeline (growth / investment) opportunities from clients and a lack of transparency of suppliers’ capacity risk data. The data which is available is underutilised to support circumventing the prevailing boom and bust cycles.

How stable are our supply chains and do our current methods of assessing their resilience work in such volatile conditions?

The strength of our supply chains shows up in times of crisis and we have seen remarkable examples of this during the pandemic as the routines of every day work were upended. This resilience cannot be taken for granted; it is built over time with continuous effort. It is more than the transactional nature of the contracts which sit between parties and more than the financial stability of individual players. It is a function of the quality of relationships between people. It is built one coffee at a time, one generous act at a time.

We will not achieve a Net Zero transition without our supply chain.

So how resilient are our supply chains?

What are you doing to support them during this turbulent period?

And, how are you building your relationships to be future ready?

Action examples

Check ins: Go grab a coffee with some of the key players in your supply chain and listen.

Set realistic requirements, contractual clauses, and programmes: set targeted early contractor involvement (ECI) arrangements with critical suppliers to bring them in on discussions around how to accelerate programmes and how to meet ESG targets. Get a reality check on what is possible on the ground and how you can best facilitate the supply chain to achieve their obligations. We should value suppliers’ insights and support by paying for it and this can be a financial lifeline for them.

A good place to start is elevating carbon reduction in award decisions and considering using the new NEC climate change X29 clause.

What is NEC Secondary Option - X29?

The new climate change clause, X29, was released this year to support, incentivise and demonstrate carbon reduction initiatives on future builds across the construction sector. 

With the built environment being one of the most problematic for emissions, X29 has been drafted to try and combat this issue and to help companies achieve the net zero target through their build contracts. 

Clients (the procurer of the works or services) will articulate their requirements for reducing the impact of climate change as part of their wider project goal. As part of X29, the Client will set Climate Change Requirements within the contract’s Scope.   

In response, the Contractor is required to submit a Climate Change Plan, how they will meet the requirements.  

Resilience mapping: use underutilised data and resilience mapping to do predicative analysis of where supply chain capacity or failure risk is likely to occur. With closer relationships, both clients and suppliers can be better at sharing data. We are already seeing progress in this space and helping companies like Booly – Supply Chain Intelligence to create "what if" scenario style risk assessments.

Ways to support resilience:

• identify your key/critical suppliers,

• review their financial status,

• where needed support them in maintaining the minimum necessary resources

• support inflation clauses

• release smaller packages of work that could be delivered by a cluster of SMEs (sharing economy) in advance of larger packages being able to be released. This builds relationships both between suppliers and with the client as the integrator and provides some continuity of cashflow during a prolonged procurement process.

Share resources and knowledge: If your organisation has been:

• analysing upcoming projects,

• knows about the latest grants and government loans available,

• has gone through PAS2080/B Corp accreditations,

• is reviewing strategies such as the recent one launched by CLC (link here),

• has some insights into what critical skills you will need on your next projects

Be open to sharing it, so suppliers can better future proof their organisations. Many suppliers do not have the bandwidth to assess and collect this data individually and in return they may be more transparent in sharing their capacity risk data.

Become Net Zero aware: Becoming carbon aware is a fundamental first step on the journey to Net Zero. Now it is a differentiator for organisations to have a clear pathway to Net Zero, it is rapidly becoming expected and often relies on the supply chain to deliver. Take an ecosystem approach to developing these and join communities like ZERO to learn and share together and remember reducing embodied carbon often equals reducing costs.

Financial well-being: Things are tough right now and many organisations are thinking more holistically around how they can help their people. Don’t forget your supply chain when sharing this type of support and make sure all outstanding bills on account have been paid.