This supply chain industry analyst just returned from attending the Institute for Supply Management (ISM) 2016 annual conference held earlier this week. This is the conference where purchasing and supply management professionals gather for added learning, education and insights related to supply chain management and in particular, supply management’s role in contributing to required business outcomes.
I walked away from this particular conference with many positive impressions, some of which will be shared in subsequent Supply Chain Matters commentaries.
Overall attendance was impressive as well as the profiles of those attending. I was especially pleased on observing the many Millennials in-attendance, more so than I have observed in the many supply chain conferences this author has attended over the years. That is indeed great and a testament to perhaps the growing attraction to careers in supply chain management. Praise to ISM’s conference planning teams for putting together an overall agenda that featured many topics related to do’s and don’ts of procurement management as well as a number of panels that addressed skills, talent and career management topics. In that light, I also had the opportunity to hear from five of this year’s 30 Under 30 Rising Supply Chain Stars which was equally impressive. More on that will also be forthcoming in a subsequent posting as-well.
One very impressive presentation I would like to highlight was presented by Ian Hope Johnstone, Head, Sustainable Agriculture for Global Operations at PepsiCo. His presentation addressed how this global based food and beverage producer is advancing sustainability in agricultural practices across a spectrum of farmers. Further addressed was PepsiCo’s ongoing Sustainable Farming Initiative(SFI).
In a previous commentary addressing the global and industry supply chain ramifications of the recent COP21 Paris Climate Agreement, this author came to a realization, that the recent ground breaking 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. It literally should change our perspectives and goal-setting for sustainability strategies surrounding industry supply chains, moving such initiatives beyond functional to line-of-business level efforts. Through Supply Chain Matters, my hope is to provide specific examples of such efforts, and clearly I can now cite PepsiCo’s ongoing efforts as a benchmark example of the context of business sustainability.
PepsiCo’s sustainability umbrella is indeed broad and includes sustainability needs related human, environmental, talent and global citizenship initiatives. No doubt the firm’s dynamic Board Chairperson and CEO, Indra Nooyi has been a guiding and important C-Level sponsor for such efforts and resources. Within the firm’s 2014 Sustainability Report, Ms. Nooyi articulates very powerful statements that communicate the broader requirements for sustainable business. One of those statements is here noted:
“Weaving sustainability into the very fabric of our organization is a way to help future-proof our business for the changing world around us.”
PepsiCo’s sustainability umbrella therefore extends beyond procurement and umbrellas the entire value-chain and the many dimensions of doing business.
In his presentation, Johnstone highlighted the compelling need that food production must double by 2050 amid constrained land environments, an aging farm population and the ongoing climate changes impacting our globe today. Once more, he validated that consumers are highly influencing sustainability needs, being much more demanding of health conscious and protein-based foods, along with demanding visibility to where particular food products are sourced.
From the procurement lens, PepsiCo’s Sustainable Farming Initiative is both consumer and supply chain facing linking the two toward common objectives. The Procurement criteria now include a diamond visual that includes Service, Quantity, Price and recently added Sustainability as buying criteria. Sustainability includes security of supply over a much longer-term window, ten or more years in many cases. Noteworthy was PepsiCo’s procurement team efforts in listening to and collaborating with various farmers on efforts required to reduce water consumption, smarter agricultural practices and respecting the data ownership needs of farmers.
This global food and beverage producer clearly recognizes that no one corporation can succeed in farming sustainability without actively working with other consumer products producers such as Land of Lakes, Kelloggs, McDonald’s Unilever and others in an industry consortium for addressing common standards in sustainable farming practices and in consistent water and land conservation and renewal practices.
For further information, our readers can review PepsiCo’s dedicated sustainability web page.
In our Part Two commentary I will address some other personal highlights from this year’s ISM annual gathering.
For the past two decades, this industry analyst has devoted a career toward being an observer of industry and global supply chains, specifically the business strategies, processes and technologies that drive industry supply chain strategies. My passion is in understanding what motivates supply chain management strategies and how they impact business outcomes and I continue to share such insights on this Supply Chain Matters blog.
I recently came to a realization, that the recent ground breaking 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.
It literally should change our perspectives and goal-setting for sustainability strategies surrounding industry supply chains, moving such initiatives beyond functional to line-of-business level efforts.
On December 12, 2015, 195 nations became parties to the Paris Climate Agreement, commonly referred to as COP21. The implication of COP21 is an explicit declaration by a majority of nations that the existence of climate change and heightened greenhouse emissions provides global risk to our planet. The agreement focuses and commits the signing nations towards a common goal for holding the increase in global temperature below 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels, and to pursue efforts to limit temperature increase to no more than 1.5 degrees Celsius. Overall this agreement is being viewed as a turning point in the challenge to contain global warming and its current effects on the environment, weather and climate changes.
Keep in-mind that this effort was primarily brought about by the influences of private industry, and from a nation’s perspective, the United States and China, two of the three largest economies. COP21 sends a clear message that much of the globe’s remaining reserves of crude oil, coal and natural gas must stay in the ground in order to meet and alleviate the stated temperature rise objectives.
Think for a moment on how much of our past and current industry manufacturing and chain strategies have been driven by fossil fuel availability, consumption and cost?
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 and 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.
In order 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.
In April, I delivered an Accenture Academy Trend Talk presentation that addressed what I believe is a broader opportunity for global and industry supply chains to elevate sustainability efforts towards a broader dimension of sustainable business.
With the era of COP21, industry supply chains are presented the opportunity to seize upon the tenets outlined in Jeremy Rifkin’s book, the Third Industrial Revolution as well as other 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, the Internet of Things and the Digitization of Manufacturing, all of which are converging over the not too distant future. It can foster insured business continuity through strategies that are directed at long-term sustainability of commodity, raw material and natural resource supply.
Subscribed members of Accenture Academy can view the full recording of my April TrendTalk presentation at this Accenture Academy archive web link. (Paid subscription and login required)
I also encourage reader feedback regarding current initiatives addressing supply chain wide sustainability initiatives. What’s working and why? What’s getting in the way? Do you believe, as I, that supply chain efforts can be elevated to those of sustainable business with C-Level leadership? Share your thoughts in the Comments section associated with this posting.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Supply Chain Matters has been observing how U.S. automotive producers continue to fall back on what we view as a bad habit- a reliance on big-ticket, larger margin trucks and SUV’s for profitability and hence manufacturing strategy. Perhaps you have noticed this same trend.
These past few days have featured troubling news that points to the same tendencies. It is like an unhealthy habit that does not seem to abate and it reflects on both product demand as well as supply strategy aspects of the automotive supply chain.
These past months of an unprecedented global oil glut has led to sub two dollar per gallon pricing for gasoline, although that trend is changing with the spring fuel composition conversion. As reflected in past history, it has apparently motivated many U.S. consumers to once again buy shiny new automobiles and trucks at a very healthy pace. According to The Wall Street Journal, nearly 57 percent of vehicles sold in the U.S. were classified in the light truck category. Many of these consumers are seeking out the biggest and most feature laden pick-up trucks and luxury SUV’s. Why not! With the occurrence of such low prices of gasoline, it’s like suddenly reverting back to a bygone era, and doing so before it is too late. Perhaps we can choke that up to short-term memory loss.
At the same time, other consumers (we will keep the term generic), foresee the continuing overwhelming implications of climate change and the need for the global economy to substantially reduce dependence on fossil fuels. They perhaps have the insight that the era of sub $2 per gallon gasoline is temporary and much more dependent on ongoing geopolitics among oil producing and consuming nations.
As noted in a prior commentary, last week Tesla Motors unveiled its latest Model 3 all electric powered SUV with a declaration that the vehicle achieves 215 miles of operating range per charge, delivering superior performance with a starting price of $35,000 before incentives. Immediately, the Model 3 has garnered over 200,000 customer reservations, and yes, it will produced in Tesla’s California assembly facility with the now infamous gigafactory producing lithium-ion batteries in Nevada.
A glance of this week’s business headlines indicates a confirmation from Ford Motor on investing $1.6 billion for a new auto assembly facility in Mexico to produce the Ford Focus and other smaller sized vehicles. This is incremental to prior announcements to invest $2.5 billion in other Mexican based factory and supply chain facilities.
Fiat Chrysler Automobiles, which previously touted that it could competitively produce smaller cars in U.S. factories, indicated it plans to cut upwards of 1600 jobs this summer at its existing Michigan based auto assembly facility which produces smaller vehicles. Overall, Fiat Chrysler is reportedly investing upwards of $1 billion to re-align manufacturing capacity towards larger vehicles.
Conversely, General Motors indicates that it will continue to build its smaller car models in the U.S. including the newly designed 2017 Chevrolet Bolt with an estimated 200 plus mile range and $40,000 price tag. That is in addition to the current hybrid powered Chevrolet Volt that provides 420 miles of driving range for a base price of $35,000. The Volt is assembled at GM’s Detroit Hamtramck production facility.
Beyond the current rhetoric of these announcements reverberating in the current U.S. Presidential Election cycle, it is important to focus on what is occurring. These are not, from our lens, solely temporary adjustments in existing manufacturing capacity to reflect near-term changes in product demand brought about from consumer buying euphoria from dramatically lower fuel prices. Instead, the level of new investments implies strategic shifts in manufacturing capabilities towards non U.S. sites, perhaps a reflection of pending new global trade agreements such as the Trans Pacific Partnership and NAFTA that view North America as a contiguous trading, supplier and production zone.
Business strategy pragmatists will probably view these events as smart moves to insure larger margins on smaller, lower-margin vehicles. This is the consistent strategy of lowest cost direct labor but the tradeoff is often in product design and management more than likely residing a plane ride away. The counter-argument is that with so much of the production process now highly automated with robotics and additive manufacturing techniques, shouldn’t direct labor costs be manageable regardless of location?
Organized labor likely views these moves as a betrayal of prior agreements made during the 2008-2009 bankruptcy crisis that surrounded the bulk of U.S. automotive OEM’s. Chrysler and GM subsequently sought government bailout funding with assurances that there would be a continued U.S. manufacturing presence in small and larger car production alike.
From the sustainability strategy lens, we submit it is yet another fallback to an old and troubling habit, trading-off direct labor savings with added logistics and transportation costs.
Larger vehicles with higher fossil fuel consumption are added to the nation’s byways while added surface transportation movements are required to transport smaller vehicles from Mexican supplier and final assembly facilities to various U.S. and Canadian consumption regions. The net result is more greenhouse gas emissions and an industry where certain producers view product strategy solely as a facilitator of near-term financial results vs. integrated product strategy and regionally based manufacturing flexibility that can produce either small or large vehicle models in any plant.
And so the habit of certain producers lives on, along with the overall implications. Short-term memory loss perhaps applies to certain consumers and producers.
Praise to Tesla and GM for continuing efforts toward broader strategy that insures sustainability for both the business and the planet.
© 2016 The Ferrari Consulting and Research Group and the Supply chain Matters® blog. All rights reserved.
Prediction Eight of or 2016 Predictions for Industry and Global Supply Chains (Available for Complimentary Downloading in our Research Center) anticipates developments surrounding global trade will occupy the attention of many industry and regional global supply chain organizations in 2016 and beyond.
The most prominent trade development is turning out to be the ratification process involving the proposed Trans-Pacific Partnership (TPP). In early October, ministers of the 12 TPP countries announced conclusion of their negotiations regarding trade among what is estimated to represent 40 percent of current global GDP, which is rather significant, especially from a global supply chain context. The countries to be included in TPP are: Australia, Brunei, Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam. In early February, ministers from the 12 countries signed-off on the overall agreement paving the way for the individual member country ratification process that must be completed in two years.
Supply Chain Matters highlighted some of component sections within TPP in a two-part commentary series in November.
As we near the completion of Q1, the TPP ratification process among member countries has involved much political discourse. It now appears that a building political tide among developed countries will delay or possibly derail TPP.
Our original feeling was that as TPP details emerged, industry supply chains would begin to uncover certain strategic and tactical opportunities and impacts related to current global sourcing strategies. Some of these impacts will relate to specific industries and include either current or potential future global value-chain strategies that exist in China, Vietnam, the Eurozone or other countries. Among the goals of TPP was lower trade barriers and increased export opportunities for developed countries in their efforts to market and sell more products in the emerging markets of Asia.
However, as the ratification process continues to unfold, lots of concerns are being raised regarding the true benefits of open global trade as well as the protection of jobs in developed countries.
While business trade groups and associations such as the U.S. Chamber of Commerce have endorsed TPP, other industry factions as seeking either additional concessions or added protections. For instance, pharmaceutical firms are seeking broader provisions for intellectual property protection while the apparel industry remains concerned that TPP could disrupt efforts in fast fashion sourcing, where regional designs are sourced and produced in the consumption region just as the Eurozone of the U.S. in order to accelerate time-to-market turnaround.
Yesterday, a front page article appearing in The Wall Street Journal provided added awareness to the notion that free trade policies are not at all resonating with the electorate in the United States and other developed nations. Resentment toward free trade and indeed building frustrations around government policies more influenced by lobbyists and big business appears to occupy the minds of voters, and consequently, legislators.
In the ongoing U.S. Presidential primary voting process, candidates for both the Democratic and Republican parties have each declared opposition to TPP. What’s even more interesting is to observe primary elections held in U.S. states that would seem to have significantly benefitted or were harmed from free trade. For instance South Carolina, which has become a hub for automotive manufacturing and exporting for a variety of foreign based manufacturers, had voters electing to favor candidates openly opposing TPP adoption in its current form. A state such as Michigan which remains the hub of automotive supply chain manufacturers with unionized workers opted for candidates such as Donald Trump and Bernie Sanders who threaten to blow-up existing trade deals that take away from U.S. jobs. It’s interesting to hear Mr. Trump rail on a company such as Apple that favors a supply chain sourcing strategy where upwards of a million contract manufacturing assembly jobs exist across China. Perhaps Mr. Trump’s staff have read some of our Supply Chain Matters related to Apple.
In yesterday’s report, the WSJ cites a survey of 1200 people conducted by Caddell Associates, indicating that among Republican voters, by a margin of 59 percent to 4 percent, and among Democratic voters by a margin of 35 percent to 4 percent, many believe that trade deals benefitted other countries rather than the United States.
Thus, political support for TPP ratification among both U.S. political parties has indeed faltered making any ratification this year somewhat unlikely. Similar opposition is building in other developed countries such as Australia, Canada and Japan. Meanwhile, countries such as Vietnam are embracing the potential benefits that TPP will provide to that country’s economy.
Perhaps lost in all of the current discourse are broader tenets provided by TPP in areas such as intellectual property protection, stricter social responsibility and labor collective bargaining requirements along with broader and more impactful supply chain sustainability standards.
Obviously, in order for TPP to gain ratification, much more education and informed discourse will be required. Those companies that favor TPP will have to shift their energies from one of political influence to that of public education and open discourse. Other trade initiatives such as the Transatlantic Trade and Investment Partnership (T-TIP) could be bogged down by the same political discourse.
Rather than be muddled by ongoing uncertainties as to trade and manufacturing sourcing environments, we are now of the view that energies are better focused on efforts directed at insuring long-term supply chain sustainability and greenhouse gas emission reduction strategies. This is an area where, despite political rhetoric, there is a building populace consensus that our planet is in jeopardy from the effects of global climate change. Those effects include risks to strategic supply continuity and longer-term impacts to markets served.
By influencing value-chain sourcing strategies towards strategies that insure supply chain sustainability you risk not getting de-railed by an uncertain political tide directed at the perceived value of free trade agreements. While business executives can rail on too much regulation and regulatory complexity, they should readily understand that climate change poses a far greater strategic threat.
We would certainly value reader comments on this topic.
© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Last week this author attended Oracle’s Modern Supply Chain Experience conference held in San Jose California. This conference is hosted annually by Oracle, and provides a singular focus on broad supply chain related technology and business process topics. Attendance this year was impressive, upwards of 2000 attendees from multiple industry settings.
I had the opportunity to participate in two different panel discussions. One was the role of sustainability in the modern supply chain. Our panel was moderated by Rich Kroes, Director, and Sustainability Strategy at Oracle and included two other panelists besides myself: Jon Chorley, Chief Sustainability Officer and Group Vice President, SCM Product Strategy at Oracle and James Ayoub, a student at Penn State University.
To its credit, Oracle sponsored the attendance of nearly 80 students from various supply chain management programs both in the local area and across the country. These students were afforded the opportunity to attend general sessions, a dedicated set of student focused session tracks as well as participate in a panel discussion, including our sustainability panel. Our sincere thanks and shout-out to Oracle for their generous outreach and support, was of the first that this author has witnessed from a specific technology company.
Our sustainability panel touched upon various topics regarding how sustainability is manifesting itself across industry supply chains.
On Supply Chain Matters, we have highlighted industry supply chain efforts dating back to at least our founding in 2008. While some initiatives have stemmed from regulatory directives and requirements such as REACH across chemical focused supply chains, RoHS within high tech, or Conflict Materials, others have been spawned from aggressive and committed corporate sustainability goal setting. Many global corporations have declared carbon reduction and sustainability goals mapped to specific timelines and much of the facilitation or enablement of such goals originates specifically within supply chains because product value-chains are responsible for a considerable portion of carbon and greenhouse gas emissions. Consider the carbon emissions footprint of transportation and logistics, manufacturing or agricultural production for example.
Many Consumer Products and Food producers such as Procter & Gamble, Nestle and Unilever and others are recognized for their wide reaching efforts for incorporating sustainability in business strategy. Beverage companies such as Coca Cola, PepsiCo and SAB recognize that large consumption of water is a critical component of a sustainability strategy. They have each appointed senior managers responsible for water conservation and sustainability initiatives that insure supplies of water are continuous.
High profile manufacturers in the high tech and consumer electronics sector such as Apple, Dell, Hewlett Packard and others have always been on the forefront of sustainability initiatives. Across various other industries, innovators have been openly active and committed to sustainability efforts because it drives benefits.
Consumers and customers have in-turn, continued to actively support brands that demonstrate a commitment to sustainability and preserving our planet. James Ayoub was very articulate in expressing how consumers of his millennial generation care about their environment and factor buying and loyalty decisions based on the reputation of the brand in active sustainability efforts. James further shared highlights of internship efforts in supporting corporate initiatives in this area as well as how Penn State’s supply chain management programs and academic instructors weave sustainability into the curriculum.
Jon Chorley noted the dual role of Oracle in the area of sustainability, first as a corporate citizen and in providing technology that supports the management and tracking of such efforts. Having inherited a high tech manufacturing supply chain from the past acquisition of Sun Microsystems, Oracle inherited a high tech manufacturing value-chain with many opportunities for continued efforts in sustainability. As Chorley exclaimed to the audience, it makes good business sense to have sustainability weaved into business strategy in four impactful dimensions:
- Innovation- both product and process focused and in supply and value-chains that become self-sustainable
- Enhancing the Brand– Consumers and customers making their buying decisions not only on product form and function but on the brand’s commitment to sustainability and combating climate change.
- Strategy and Stockholder Value– Sustainability efforts insure strategic continuity of supply of commodities, raw materials and natural resources. They insure that a firm has plans and strategies that can support long-term competitiveness and industry leadership.
- Cost– in carbon and missions reductions that save our planet and in the monetary costs of materials, processes, product packaging and movement of goods.
I also had the opportunity to share with our audience my perceptions of the potential industry supply chain impacts from the recent Paris climate agreement. In December, 195 nations became parties to the Paris Climate Agreement (COP21) that commits to holding the increase in global average temperature below 2 degrees Centigrade (3.6 degrees F) above pre-industrial levels and to pursue efforts to limit temperature increase to no more than 1.5 Celsius above pre-industrial levels.
Whereas the prior Doha Agreement among 37 nations, the new Paris Agreement addresses climate change challenges after 2020. The Paris Agreement further represents the first time that such a large portion of the global countries have explicitly declared that the existence of climate change and heighted greenhouse emissions provides global risk.
From the accounts that I have read, the implication of this Agreement reflect clear messages that much of the globe’s remaining reserves of coal, oil and gas must stay in the ground. Reduction of deforestation must become global-wide priority.
The implications of such goals are yet to be fully understood by industry and supply chain audiences. One European based research firm declared that supply chain mitigation initiatives will be the Number 2 most effective strategy for achieving COP21 commitments.
Our panel concluded with thoughts that under COP21, industry supply chain involvement in sustainability has little choice but to move into a mandatory stage. Think of all the ships, railways, trucks and equipment that make-up the global movement of goods. Think about current manufacturing, assembly and farming processes primarily powered by fossil fuels and you begin to get a sense of the seriousness of this next stage. Businesses and their associated supply chains must take on a more implicit responsibility to act in ways never before, in with innovation of a large scale.
Thus, vision and leadership among both public and private sectors is now a must and critical for alignment of efforts in joint investment, in policy, in rewards and in penalties. Because supply chains are intrinsically global in scope, there will be requirements for far broader collaboration within and across industries, suppliers and service provider communities to overcome these new challenges.
I very much enjoyed discussing such an important topic with my fellow panelists and I thank Oracle for the opportunity as well as the commitment to the topic of sustainability.
© 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.