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