- THE MAGAZINE
Supply chain management has evolved in recent years. In the past, the focus was on cost reduction across procurement, manufacturing operations, inventory management and logistics. However, now, supply chain leadership needs to push their teams to foresee and detect vulnerabilities that may or may not currently exist.
Modern supply chains are structured to optimize operations, but are not necessarily engineered to withstand global environmental shifts, like water and energy scarcity. Although contingency planning could involve some additional cost under normal business conditions, it could help protect the company and provide flexibility in the event of a significant business disruption. That’s why companies large and small are re-thinking their operations systems in order to build a contingency plan for environmental shifts and threats that could seriously disrupt their business in the not-too-distant future.
Sustainability isn’t new, but how companies approach finding sustainable solutions is shifting dramatically. In the past, many companies turned to the finance team to squeeze dollars out of the supply chain and improve margins. But, finance isn’t going to address finding more water or energy or creating more places to eliminate waste. Many companies already have goals and are making good progress. The low-hanging fruit has already been plucked, but now they need to dig deeper, looking at new innovations to achieve future goals. Supply chain vulnerabilities should be viewed as design-driven innovation opportunities, or as the chance to break outside of the norm by using creative intelligence to develop new processes designed to close the gaps and mitigate risks.
Water scarcity is the greatest environmental challenge facing our planet, businesses and supply chains. According to the UN website, “by 2025, 1.8 billion people will be living in countries or regions with absolute water scarcity, and two-thirds of the world’s population could be living under water-stressed conditions.” Water depletion can be attributed to our surge in population, as the number of human inhabitants is expected to grow from 7 billion to 9 billion people by mid-century. It can also be attributed to climate change. According to the UN website, “with the existing climate change scenario, almost half the world’s population will be living in areas of high water stress by 2030, including between 75 million and 350 million people in Africa.” The shift in climate poses threats not only for drought, but also for other natural disasters, like hurricanes, that contaminate our already fragile reservoirs. The water scarcity issue poses significant risks to businesses no thanks to reduced water allotment, more stringent regulation and potentially higher costs, as demand for water increases. To avoid these effects that are in reality not too far down the road, we have to start investigating how to work around them. Many companies are conducting in-depth supply chain analyses that explore modeling and water purification and conservation techniques. Companies that treat the water scarcity issue as a strategic challenge at present will be far better positioned in the future.
While water scarcity seems to be the hot topic, it isn’t the only natural resource that is posed for scarcity. Energy, or natural gas and oil, join water on the list of resources in jeopardy. Similar to water, population and growth and the shift in climate are affecting energy resources. Businessweek reports, “electricity demand is forecast to rise at least two-thirds by 2035, driven by population growth.” The large surge in growth will take a toll on our already precious energy resources. According to energy.gov, “as global temperatures rise, wildfires, drought and high electricity demand put stress on the nation’s energy infrastructure. And severe weather—the leading cause of power outages and fuel supply disruption in the United States—is projected to worsen, with eight of the 10 most destructive hurricanes of all time having happened in the last 10 years.”
These precious fuels, used to warm our homes in the winter and cool them in the summer, are also what we use for power generation, manufacturing and transportation of goods. Without them, the supply chain falls apart and the production of the physical product comes to a halt. There have been many successful efforts to use alternative energy sources, including solar and wind power. In fact, environmental activist Al Gore says in a Rolling Stones article, “by 2020, more than 80% of the world’s people will live in regions where solar will be competitive with electricity from other sources.” However, companies will need to conduct systems analyses to effectively monitor and identify energy reduction opportunities. Another alternative would be to design inexpensive, yet portable energy sources.
Perhaps the most interesting industry when it comes to sustainability is agriculture, because it is both creating challenges and facing challenges. According to National Geographic, “farming is the thirstiest user of our precious water supplies and a major polluter, as runoff from fertilizers and manure disrupts fragile lakes, rivers and costal ecosystems across the globe.” There are situations where agriculture is negatively affecting our precious water supplies. One way to reduce the amount of contaminated water would be to design processes that turn wastewater into potable water. However, agriculture faces problems of its own. With our growing population and spread prosperity, there is an increased demand for food.
The same National Geographic article says, “if these trends continue, the double whammy of population growth and richer diets will require us to roughly double the amount of crops we grow by 2050.” We already find it difficult to produce adequate crops for our current population due to the fact that 36% of crop’s calories are fed to livestock and 9% are turned into industrial products, thus leaving only 55% to people. And, the 55% that makes it to people is still wasted in the form of uneaten leftovers and spoiled product. In fact, according to the United States Environmental Protection Agency, “in 2011, we landfilled more than 36 million tons of food waste.” One way to solve this problem is to figure out how to better reduce food waste. While planning your shopping list based on what already exists in your fridge and ordering only what you can finish at restaurants helps relieve the problem, it only works if everyone does it. There is a significant opportunity to create a way to reduce or reuse food waste.
This process of designing sustainable supply chains will become the new normal in the next 3-5 years. Consumers will continue to push companies to create better products, more efficient packaging and minimize waste and impact on the environment. Smart companies are not only looking at supply chains and product development for efficiencies, but also at how to merchandise their processes to gain heart share with consumers.