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Deep Dive on 2017 Prediction Nine: Business Self-Interest Will Fuel Continued Efforts in Supply Chain Sustainability Actions and Initiatives

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The following Supply Chain Matters blog is part of our ongoing series of deep dives into each of our previously unveiled ten 2017 Predictions for Industry and Global Supply Chains.

At the start of the New Year, our parent, the Ferrari Consulting and Research Group along with our Supply Chain Matters blog as a broadcast medium, provide a series of predictions for the coming year. These predictions are shared in the spirit of assisting industry specific and global supply chain cross-functional teams in helping to set management objectives for the year ahead. Our further goal is helping our readers and clients to prepare supply chain management and line-of-business teams in establishing impactful programs, initiatives, and educational agendas.

The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and customer service management.

In an earlier Supply Chain Matters blog postings, we provided deep dives related to:

 Prediction One- Subdued World Economic Outlook and Heighted Uncertainty to Test Industry Supply Chain Agility.

Prediction Two- A Challenging Year in Procurement

Prediction Three- A Supply Chain Talent Perfect Storm

Prediction Four- Increased Anti-Trade Geo-Political Forces Provide Added Global Sourcing Challenges

Prediction Five- Continued Global Transportation Industry-wide Turbulence

Prediction Six- A Renaissance in Supply Chain Focused Business Services and Technology Investments

Prediction Seven: Enhanced Supply Chain Intelligence Capabilities Among B2B Network Platform and Managed Services Providers Will Pay Dividends for Industry Supply Chains

Prediction Eight-Amazon and Alibaba Continue to Position for Global Online Platform Dominance

 In this deep-dive series posting, we drill down on our next prediction.    Paris_COP21

2017 Prediction Nine: Business Self-Interest Will Fuel Continued Efforts in Supply Chain Sustainability Actions and Focused Initiatives

Despite the declarations by U.S. President Trump that climate change has not been proven to be an issue, we predict that individual business and supply chain self-interest needs, along with the track record of benefits to-date, will continue multi-industry green and supply chain sustainability initiatives and momentum.  There is literally too much positive momentum on a global basis to motivate senior executives to derail such efforts in 2017.  The need remains compelling.

Where Emissions Emanate

Scientists point to three sectors that are most critical toward reduction of GHG emissions:

Energy– the engine and most influential cost aspect of global business and of industry supply chains represents upwards of 30 percent of global CO2 emissions. Throughout modern history, the cost of energy and fuel has been the principal driver of a majority of industry, manufacturing, distribution, and global supply chain strategies. Reduction opportunities reside in the consumption of alternative and low carbon renewable energy sources, smarter and far more efficient energy, and logistics utilization practices.

Agricultural, Land Use and Forestry Practices account for an additional 30 percent of global-wide emissions. With world population growth expected to reach 9 billion people by 2050, our planet cannot tolerate an unsustainable food production system. Farming practices, fertilizer, water use, animal husbandry all add to considerable emissions.

City Infrastructure, Buildings and Transportation can be responsible for upwards of 40 percent of global emissions. More of the world’s population is expected to be concentrated in larger cities, (mega-cities) and thus will be the hubs for economic growth, commerce, delivery, and fulfillment logistics. The potential of smarter, more connected cities coupled with advances in more sustainable, renewable energy sources provides the opportunity for a complete re-thinking of urban logistics and transportation. Global trade must now stem from advances and efficiencies in global, regional, and local transportation networks.

To address these three imperatives, more and more organizations have discovered that the firm’s supply chain can be responsible for up to four times GHG emissions beyond that firm’s direct in-house operations.  Industry supply chains are therefore one of the most critical areas of opportunity to enable GHG reductions and climate chain resilience.

Sustainability is further not limited to emissions and natural resource protections, it further umbrellas global-wide social responsibility as a business and corporate citizen, and in the treatment and respect of labor provided by individuals. Here, the latter is especially pertinent to industry and global supply chains who elect to source production, component supply or business services in low-wage, limited protection geographies.

Current Status

As we begin 2017, scientists indicate that the Earth reached its highest temperature on record during 2016, breaking an earlier record set in 2014. This development represents the first time in the modern era of global warming data that average temperatures have exceeded prior levels for three years in a row.

The 12th Edition of The Global Risks Report 2017, sponsored by the World Economic Forum, observes that extreme weather events, climate change and water related crisis have each consistently been noted as among the top ranked global risks for the past seven editions of this report. However, according to this latest report, the pace of change is not yet fast enough to curb current warming trends.

The Artic sea ice had a record melt in 2016 and the Great Barrier Reef suffered an unprecedented coral bleaching event last year. Estimates are that GHG emissions are growing by 52 billion tons of CO2 equivalent per year even as the share from industrial and energy sources may be peaking because of investments in green and sustainability initiatives among multiple industries and countries.

Much has been accomplished these past few years, but more difficult work remains.

The Paris COP21 Agreement on climate change entered force during November 2016. This agreement has now been formally ratified by 110 countries with another 196 countries including China, now indicating strong support. The Global Risks Report 2017 cites data indicating: “The reality remains that to keep global warming to within two degrees Celsius and limit the risk of dangerous climate change, the world will need to reduce emissions by 40% to 70% by 2050 and eliminate them altogether by 2100.

Moving Forward

This new era of the Paris COP21 Agreement provides both a profound call to action as well as a significant opportunity- an opportunity for bolder collaboration and joint goal-setting to not only address greenhouse gas reduction imperatives and to saving our planet, but the imperative of sustainable business itself. It literally should change our perspectives and goal-setting for sustainability strategies surrounding industry supply chains, moving such initiatives beyond supply chain functional to line-of-business level efforts.

Across many industry supply chains, a lot has already been accomplished in identifying opportunities related to reducing industry supply chain related GHG emissions, preserving natural resources including water, and insuring sustainable supply of Earth dependent commodities. Multi-year objectives have been established that include annual tracking of performance to each objective. The benefits of these initiatives are meaningful in relation to savings on supply chain related costs, reductions in responsible emissions, insuring adequate supply of key strategic supply needs and a more positive perception to one’s corporate and product branding.

Opportunities to Further Leverage Technology

With the era of COP21, industry supply chains are presented opportunities to seize upon the tenets outlined in Jeremy Rifkin’s book, the Third Industrial Revolution as well as other Industry 4.0 thought leaders that point to the compelling convergence of technologies that are before us. One that leverages the convergence of green and renewable technologies, new more renewable energy sources, IoT enabled predictive-focused analytics and the digitization of manufacturing and supply chains. All are converging over the not too distant future, and collectively can foster insured business continuity through strategies that are directed at long-term sustainability of commodity, raw material, and natural resource supply.

Our Takeaway

In 2017, despite any U.S. political notions that climate change may or may not be a significant factor for business risk, industry supply chains and the respective businesses and customers they support and serve, will be at a disadvantage in de-railing or slowing down sustainability efforts.

Benefits have already been recognized along with added opportunities. From our lens, the ongoing convergence of digital and physical business processes manifested by IoT, more predictive analytics, autonomous decision-making and additive manufacturing will provide added opportunities towards sustainability needs and objectives.

The challenge remains insuring a sustainable business within domestic and global dimensions, and that momentum is likely to continue in the coming year.

 

This concludes our Prediction Nine drill-down. In our final posting of this series, we will explore Prediction Ten which addresses certain industry-specific supply chain focused challenges in the current year.

Stay tuned.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


New and More Controversial Food Labeling Requirements About to Go Into Effect in the United States

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Last week, the United States Congress passed new federal legislation related to the labeling of food ingredients, specifically food products made from genetically modified organisms (GMO’s).  The new regulations are expected to be signed by President Barack Obama.  These new requirements have drawn mixed perceptions among consumers as well as industry participants and will lead to further language interpretations along with process and technology changes in the months and years to come.

While the Grocery Manufacturers Association lauded the bill passing as a tremendous victory for consumers and common sense, general and business media are noting quite different perceptions.

The new labeling regulations supersede tougher measures already passed by the State of Vermont  that went into effect in July. That Vermont law required food manufacturers and grocery chains selling prepared foods in the state to explicitly label food containing GMO ingredients by January 0f 201.  Some leading food producers had already initiated efforts to comply.  According to news reports that we have reviewed, this new federal legislation renders the Vermont law null and void.

The new federal food labeling legislation allows regulators up to an additional two years to determine the new federal guidelines while smaller food manufacturers would have up to three years to comply. The compromise federal bill spreads out the timetable for conformance and introduces the ability of food manufacturers to utilize QR codes as a means of transmitting full disclose of GMO ingredients.  The new federal regulations passed in what the New York Times described as: “.. after a battle that cost food and biotech companies hundreds of millions of dollars (Of lobbying) over the last few years.

As business media notes, within the core of this ongoing debate is a reality that the vast majority of corn, soybeans and other crops grown across the United States are currently genetically engineered to avoid pest and crop losses. One U.S. Senator predicted certain future litigation challenging the new regulations.  For instance, the U.S. Food and Drug Administration (FDA) interprets the current bill’s definition of foods as not including the many products containing refined oil and sweeteners.  The U.S. Agriculture Department, designated to oversee enforcement of the new labeling regulations disagrees with the FDA interpretation.

Perhaps the most controversial aspect is that the new law allows food companies several options to disclose ingredients.   According to reports, producers can either add additional text to existing physical labels, place a yet to be determined symbol on product packaging to denote GMO ingredients, or utilize a “digital link” such as QR bar code that consumers can scam with a smartphone that would transfer detailed information from a dedicated web page. The latter option is drawing pointed controversy because current industry data seems to indicate that only 20 percent of current shoppers actually scan a digital code on grocery items to retrieve such information.  Proponents also point out anything short of full physical label disclosure will inhibit full disclosure. They further point out that the use of digital media penalizes consumers that currently do not own a smartphone with scanning capabilities.

In spite of all of this ongoing controversy, leading food manufacturers have the opportunity to rise above the noise and take the lead on measures of full disclosure.

Regardless of the ultimate timetable, there are obvious food supply chain implications.  They include the ongoing transition to more organically sourced farming and food ingredients which will take additional years of transition to complete.  The other obvious implication is greater transparency related to the entire food supply chain.

As Supply Chain Matters has noted in many prior commentaries, most all of this activity should come under the broader umbrella of incorporating broader aspects of sustainability in ongoing business objectives.  By our lens, advanced technology in providing full end-to-end visibility of product, ingredient and supplier sourcing will be the new table stakes in providing consumers the visibility they desire.  Producers who elect to drag their feet are delaying the inevitable, and open the door for industry disruptors to gain the trust and confidence of consumers and grocers that actions are being taken to assure both visibility as well as longer-term sustainability for healthier products.

Bob Ferrari

©Copyright 2016. The Ferrari Consulting and Research Group LLC and the Supply Chain Matters® blog. All rights reserved.


A Disruptor is About to Enter the Heavy Truck Equipment Market

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Supply Chain Matters has provided our readers visibility to emerging industry disruptors who are leveraging advanced technology and platforms directed at supply chain related business process and asset needs.  Such visibility included the entry of Uber and Lyft and their potential to move beyond people transportation.

We now bring visibility to Nikola Motor Company and its ongoing development of a Class 8, 2000 horsepower electric powered semi-tractor truck that will be named the Nicola One.  nikola_one_hybrid_tt

According to this manufacturer’s founder, the name Nicola was named from electrical engineer Nikola Tesla, whose last name is now affixed to one of the most visible automotive industry disruptors.  Similar to electric car manufacturer Tesla, even before the first prototype truck is produced, Nicola’s founder indicated last week that the manufacturer has booked 7000 reservations, each accompanied by a $1500 deposit, totaling more than $2.3 billion in cash.  Any tractor-trailer fleet manager will probably view $1500 as a pittance sum when considering the purchase of a Class 8 semi-tractor truck.  None the less, the fact that 7000 organizations are willing to queue-up in line, with five months remaining until physical product unveiling, indicates something special in product development.

Founder and CEO Trevor Milton indicates that Nicola’s technology is 10-15 years ahead of any heavy equipment truck manufacturer in fuel efficiencies and emissions.  According to the firm’s web site, the Nikola One will feature 4 times the horsepower, 2.2 times the torque and twice the miles per gallon of a standard diesel powered Class 8 tractor. Acceleration from zero to 60 miles per hour under load is claimed as 30 seconds, twice as fast as an average diesel powered vehicle.  The vehicle features six-wheel drive, allowing the vehicle to both push and pull loads. With 6X6 regenerative braking and air disk brakes, the combined electric and compressed natural gas (CNG) powered semi-truck claims to stop nearly two times faster than any other semi- truck on the market – cutting stopping distance in half.

Once more, this upstart is offering a compelling opportunity that will allow owner-operators and fleets to get into a new Nikola One and know their total cost of ownership every single month, regardless of fluctuating fuel costs and miles driven. The Nikola Complete Leasing Program will offer unlimited miles, unlimited fuel, warranty and scheduled maintenance, all for only $5,000 per month. Then for no additional cost, tractor-trailer fleet operators’ can trade-in for a new Nikola One every 72 months or 1,000,000 miles, whichever comes first. Whether a customer drives 8,000 miles per month solo or 16,000 miles per month as a team, total fuel cost is covered by Nikola. Tax, title and license not included.

As noted in a recent press release, the average diesel truck burns over $400,000 in fuel and racks-up $100,000 in maintenance costs over a million miles, and Nicola claims these costs are eliminated with its lease program.

That seems to be quite a compelling financial proposition, hence the current pent-up interest. Class 8 truck sales have been very depressed of-late because operators have been very reluctant to invest large sums of investment in new trucks with the current financial dynamics of fleets and today’s lower cost of fuel.  Nikola could add a whole new dimension, but obviously, has to convince transportation operators that the technology indeed performs as claimed and what Tesla is generating for customer advocacy, Nikola can do the same among a highly conservative lot of buyers.

There has long been skepticism as to whether anyone could develop a compelling electric powered heavy duty truck. It is only a matter of time before a manufacturer addresses such skepticism and it seems that Nikola is positioning itself to be that manufacturer.

Obviously, this is a manufacturer to watch over the coming months.  The company indicates that it has completed a seed round of funding and is working of a milestone of $300 million in round A funding to be completed by the truck’s initial launch, which is currently targeted for early December of this year.

Sustainability efforts could well get a huge boost is this technology does come to market.  Then again, with all of the advanced hype and pre-orders, other established manufacturers may have something to say or an action to initiate regarding such a disruptive technology.

Bob Ferrari

© Copyright 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


New Study Finds Social Responsibility as Part of the Business Sustainability Agenda

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In prior Supply Chain Matters blog declarations, this Industry Analyst has declared a belief that the recent ground breaking Paris COP21 Agreement on stemming global climate change provides both a profound call to action as well as a significant opportunity– an opportunity for bolder collaboration and joint goal-setting to not only address greenhouse gas reduction imperatives and to saving our planet, but the imperative of sustainable business itself.  Paris_COP21

After receiving a direct Tweet from consulting firm BearingPoint regarding the latest results of its 5th Supply Chain Monitor survey on sustainable supply chain efforts, this analyst remains even more convinced on the need for moving such initiatives beyond functional to line-of-business level efforts.

According to the BearingPoint survey summary, Sustainable is the new green for supply chain.

To cite a specific finding:

In 2015, the green supply chain is widely seen as a strategic priority: if it isn’t already, it will be in the next 1-3 years.

Having a green supply chain is now high on the agenda for 59 percent of European companies, and for 51 percent of U.S. companies. Considerably more U.S. companies (2 percent compared with 6 percent of European companies) see it becoming an important priority in the short term (the next 1-3 years), as they strive to close the gap and bring their activities in line with Europe.”

The report notes that European supply chain respondents indicated they have already harvested most of the low-hanging fruit of carbon reduction initiatives. The study authors indicate that the data suggests that in the post COP 21 period, they perceive a revival of green awareness that includes more social responsibility efforts in overall supply chain sustainability plans.

Consider that according to this study, 70 percent of European based companies currently view the social aspects of supply chain as a strategic priority in their supply chain management efforts with an additional 12 percent indicating that would be the case in the next 1-5 years. The report further observes that the U.S. has raised its social responsibility game, which is attributed to the fact that U.S. activity has also lagged European efforts by a visible margin.

Regarding the notion of raising sustainability efforts towards a broader objective of sustainable business, there was an interesting finding:

Although CSR (Corporate social responsibility) departments exist in many companies now, they don’t necessarily have the broad view or the decision-making power to move things forward to the degree needed.”

The authors go on to note that companies now need to implement professional management concepts to plan, execute and control their extended sustainable supply chain management activities to include internal and external incentive systems required to drive change.

That is encouraging data to state the least. Including social responsibility under the sustainability strategic umbrella adds a broader strategic mission implying higher organizational and executive level stakeholder interests.

The data is quite interesting and reinforces that industries are indeed approaching another crossroads in the COP 21 era of global climate change and sustainability efforts.

Is your supply chain organization, or better still, are your company executives taking this view?

Readers can download the full BearingPoint study at this 5th Supply Chain Monitor web link.

Bob Ferrari

 


Volkswagen Reports Profitability Despite Ongoing Emissions Scandal

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Supply Chain Matters provides an important follow-up to the ongoing diesel emissions scandal and brand crisis associated with Volkswagen. Today, in announcing its financial performance for the first quarter of 2016, the company surprised many by actually reporting respectable operating and net profits. VW characterized such results as “respectable” considering the challenging conditions and further re-iterated that it has the financial resources to weather the current emissions scandal.

Last September, the U.S. Justice Department initiated a wide ranging investigation into alleged use of software installed in nearly a half-million diesel powered cars that make these vehicles appear to have cleaner air emissions than they actually do in operation. Volkswagen has since acknowledged that the vehicle software installed in some U.S. diesel powered passenger cars make it appear that the vehicles conform to U.S. emissions standards. Since that time, there has been a series of internal and external investigations, management accounting and other management actions and/or missteps related to this situation.

Despite group sales revenue being down 3.4 percent from the year-earlier period, operating profit climbed to €3.4 billion, while net profits fell to €2.3 billion ($2.6 billion), down from the €2.9 billion reported in the year-earlier period. Automotive division’s net cash flow attributed to operating activities declined by a hefty 45.8 percent but total corporate-wide was slightly up because of a nonrecurring gain on the sales of LeasePlan. According to a published commentary from the Associated Press, the Volkswagen brand made only 73 million euros in the quarter, down from 514 million a year earlier, leaving an operating margin of only 0.3 percent.

It would therefore appear that the company’s broader brands and operating groups, in particular the highly profitable Audi and Porsche Divisions, are financially making-up the difference in the ongoing crisis.  Many manufacturers, not of the sheer global size and breath of Volkswagen would have suffered more financial implications.

In the announcement of financial performance, VW CEO Matthias Mueller states:

2016 will be a transitional year for Volkswagen that will see us fundamentally realign the Group. Nevertheless, we remain confident that our operating business will again record solid growth this year. The Group’s robust financial strength and earnings power are key to our ability to take the necessary decisions calmly and diligently and to resolve the strategic policies that will shape our future with the necessary determination

Today’s announcement of Q1 financial performance did not include any updates on financial contingencies related to ongoing actions related to the emissions scandal. The company outlook for the remainder of 2016 expects 2016 sales revenue for the Volkswagen group to be down by as much as 5 percent.

Reports indicate that a tentative agreement was reached with U.S. authorities in federal court in San Francisco to buy back or repair upwards of 500,000 vehicles. Attorneys for Volkswagen owners have until June 21 to file a final settlement with the court.


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