Leveraging inventory strategy in the CBAM era—Featuring insights from Paul Gordon, Olympic Fixings

 What is CBAM? 

In pursuing a greener future, the European Union’s Carbon Border Adjustment Mechanism (CBAM) has emerged, redefining the dynamics of global supply chains.  

The EU’s CBAM is how the EU will put a price on carbon emissions from producing carbon-intensive goods entering the EU. This aims to encourage cleaner industrial production processes in countries outside of the UK.  

While CBAM regulation comes into force as a definitive regime in 2026, we are in a transitional period phasing out allocating free allowances under the EU Emissions Trading System (ETS) to support decarbonisation in EU production. When fully in force, CBAM should capture more than half of the emissions in sectors covered by the ETS.  

How does CBAM work? 

From 2026, there are three stages to the definitive regime: 

• Companies in the EU that import goods covered by CBAM will register with national authorities. They can buy CBAM certificates, which will be costed depending on the weekly average auction price of EU ETS allowances expressed in €/tonne of CO2 emitted. 
• Companies must then declare the emissions embedded in their imports and surrender the corresponding number of certificates yearly. 
• If the importing company can prove a carbon price has already been paid during the production of the imported goods, the corresponding amount can be deducted. 

During the transitional period, CBAM will apply to those items with the most carbon-intensive production most at risk of carbon leakage, namely cement, iron and steel, aluminium fertilisers, electricity and hydrogen. 

Importers will only need to report greenhouse gas emissions embedded in their imports and won’t have to buy and surrender certificates.  

Until the end of 2024, companies can choose one of three ways of reporting: 

• full reporting according to the new methodology (EU method); 
• reporting based on an equivalent method (three options); and  
• reporting based on default reference values (only until July 2024). 

As of 1 January 2025, importers must use the EU method to be accepted, and they can use estimates (including default values) for complex goods if they represent less than 20% of the total embedded emissions.  

As businesses adapt to this regulatory landscape, supply chain directors must not overlook CBAM’s impact on inventory planning. This blog explores the implications of CBAM on inventory and discusses how adopting inventory optimisation strategies can be instrumental in navigating this new era. Integral to this discussion are the invaluable insights from Olympic Fixings’ MD, Paul Gordon, whose experience and expertise illuminate effective considerations for addressing these challenges.  

Understanding CBAM’s impact on inventory 

CBAM’s introduction reshapes the global supply chain landscape, compelling EU importers to account for the carbon content of their products. This shift introduces potential cost increases to cover the costs of certificates, changes in sourcing strategies to find EU-based or lower-emission suppliers, and adjustments in manufacturing processes to reduce emissions. These changes, in turn, directly impact inventory planning and management. 

CBAM insights from Paul Gordon 

Mark Chapman, Head of Customer Success, works closely with Paul Gordon at Olympic Fixings and caught up with him to draw on his extensive experience importing manufactured fixtures and fasteners and understand CBAM-related challenges.  

Paul, can you tell us what CBAM regulations mean for Olympic Fixings?  

Whilst the new CBAM regulations haven’t had an immediate impact on our ordering processes, it has necessitated additional work in ensuring that we can provide accurate emissions data from the manufacture of CBAM classified goods. As a leading distributor of fixings, many of our products are manufactured from steel and so the implications of the new regulations will have a significant impact on ourselves and our customers. The UK Government have announced a 12-week consultation process, with the intention of introducing a UK CBAM from January 2027. So, the direction of travel is inevitable. 

With CBAM incentivising environmentally friendly, low-carbon alternatives, such as recycled steel and green cement, the demand for these materials is expected to surge. In turn, this will likely influence inventory availability and pricing, which brings new business challenges. 

How will this change your processes? 

Rather than relying on our traditional sourcing methods, we will now need to conduct more rigorous checks to ensure that our suppliers follow environmentally friendly and low-carbon practices. Additionally, when exploring partnerships we may select EU-based or lower-emission suppliers to mitigate potential cost increases associated with CBAM certificates. This proactive approach is crucial for adapting to the changing landscape and ensuring compliance with CBAM while maintaining our commitment to sustainable practices. 

What systems do you have in place that will help you? 

Even in turbulent times, we’ve had good stock availability, but since implementing EazyStock, we’ve been able to reduce stock levels while boosting availability to 99.7%. This has helped us streamline operations and reduce stock levels, which has brought significant cost savings. These savings will be integral as our business landscape evolves and we encounter new costs.  

Getting our forecasting as accurate as possible will be fundamental as we will need to ensure we keep enough stock to meet demand without over-investing to ensure positive cash flow. That’s where EazyStock really helps, as we know the algorithms and calculations are going on in the background to tell us what we really need to order.  

The scenario planning functionality will also be useful to simulate how CBAM will impact your inventory and order processes.  

Yes, we already use scenario planning to simulate the impact of CBAM adjustments on our inventory. This proactive approach helps devise strategies to minimise disruptions. 

EazyStock can also help you with estimating emissions. Recently introduced functionality allows you to model different stocking policies and ascertain their impact on the total CO2 emissions, as well as their associated total inventory investment stock availability.  

We’re looking forward to this being rolled-out. Being able to pull that information out of EazyStock when we’ve got all the information from our suppliers will make reporting much quicker and easier.  

How EazyStock can support CBAM 

As businesses navigate the complex terrain of CBAM, smart, efficient inventory planning is critical in maintaining competitiveness and compliance. EazyStock’s inventory optimisation solution offers a strategic advantage, empowering companies to adapt to CBAM-related challenges seamlessly. By embracing technological advancements in inventory planning, businesses can not only comply with regulations but also contribute to a more sustainable and resilient global supply chain ecosystem. 

• Real-time visibility: EazyStock offers near real-time visibility into inventory levels, helping businesses stay informed about the availability of low-carbon materials and make data-driven decisions. 
• Demand forecasting: EazyStock’s advanced algorithms predict demand patterns, enabling businesses to align their inventory levels with market requirements. 
• Scenario planning: As EazyStock allows for scenario planning, businesses can simulate the impact of CBAM adjustments on their inventory. This proactive approach helps devise strategies to minimise disruptions. 
• Optimised reorder points: EazyStock optimises reorder points based on historical data and anticipated changes in the supply chain dynamics, ensuring that businesses maintain optimal inventory levels while complying with CBAM regulations. 
• Transparent reporting: EazyStock facilitates accurate emissions reporting by providing visibility into the carbon footprint associated with inventory items. 
• Efficient operations: Data-driven insights help to allocate resources effectively, streamlining warehouse space and enhancing overall operational efficiency.  

EazyStock’s eco-friendly benefits 

Beyond CBAM, EazyStock brings more green advantages to the table:  

• Optimised purchasing: Advanced forecasting prevents overstocking and understocking, enhancing cost efficiency and contributing to a more sustainable supply chain. How? 
• Fewer stockouts, less waste: Having the right stock levels means fewer emergency orders and expedited shipping, translating to less packaging waste and a greener supply chain. 
• Reduced shipments: Excelling in efficient restocking, EazyStock strategically groups orders, reducing shipment frequency, cutting transportation costs, and aligning with broader sustainability objectives set by CBAM. 

Speak to one of our experts to understand how EazyStock can help you navigate the complexities of CBAM.