Category Archives: Going Green

Supply Management in the Decade Ahead: Same Old, Same Old — Only the Pendulum Swings Part II

Almost 20 years ago, back in 2007, I wrote a 2-part series on Supply Management in the Decade Ahead: The Eight Major forces (Part 1 and Part 2) where I discussed the various external forces that will impact a company’s supply chain, as verified by CAPS, AT Kearney, and their clients.

And just like you don’t need to read another state of procurement report for five years! because, except for the tech-du-jour, nothing has really changed in the past five, ten, and even twenty years; you don’t really need to do an extensive study or survey to realize that the core supply chain issues are more or less the same, it’s just where the pendulum happens to be in it’s swing on each major issue.

Today we discuss the last 4.

Customer & Channel Dynamics

The downstream supply chain will continue to change rapidly due to economics and government policies in some industries. In other industries, supply chain dynamics will be influenced by the poor financial condition of major trading partners in the chain. The impact of private equity firms will also be significant, who will continue to take public companies private, slash costs, raise prices, and change business relationships. (PE, which currently controls between 15% and 20% of the US economy, continues to get more powerful by the day … in fact, it won’t be long before they are twice as powerful as the stock markets, which only generate between 8% and 12% of the GDP per year. They may have a market capitalization equal to 2X to 2.5X of the US GDP, but we all know that’s meaningless because some of that results from foreign investment and an AI-triggered crash is coming.)

The only difference between conducting business today and conducting business in the years ahead with respect to channel dynamics is that these changes will continue to come at an accelerating pace and you will have to continue to adapt faster than you do today. That will require Human Intelligence (HI!) and Human Experience to accomplish. AI can make recommendations, but these are generated based on probabilities generated on unknown training data and can be useful or as useless as the AI telling you to eat one rock a day and strawberries with 2 “r”s. (And I’m not sure what those are, FYI.)

Increased Product Variety & Shorter Life Cycles

Variety will continue to mean more models, brands, and products tailored to different geographies and price points. Consumer tastes in emerging and newly developing economies will be new and different from traditional markets. Traditional lines of competition will continue to blur as companies try new products and markets.

While I was right that you don’t want to browse the web on the screen the size of a credit card, that only goes for developed economies (and in economies where the only devices most people have and the only internet they can afford is their phone, they are quite happy with that), it’s still a fact that you don’t want your fridge to tell your local grocery store that you consumed six litres of rocky road this week, and that you don’t want the ability to cut yourself seven times in a jagged fashion simultaneously while shaving. Amongst the big winners will be the companies that realize sometimes you just want a phone, a fridge, and a straight razor – and not all the garbage Gen AI-based hallucinators are trying to shove into these products today. And, oh yeah, there comes a point where it doesn’t matter how many fractions of an ounce less it is than the previous product, how many extra cubic inches you squeezed into the door, or how fast it vibrates (at least in the case of the razor).

People will want better (faster) and cheaper, but they will want it to meet the need better than last gen tech, not just different, and they don’t want to sacrifice what they have just to get something different. And while Weird Al lamented that his computer was obsolete before I opened the box, we’ve entered an age where most products are obsolete once the first unit is produced … which could be months before it gets into the hands of consumers.

Social Responsibilities

Companies in developed economies will continue to be held to high standards wherever they do business in the world. Companies will have to monitor working conditions in their supply chains all the way back to basic extractive and farming practices. Supply management will have to ensure that the supply base meets environment standards. Commitments to a diversified supply-base will become more important in developed economies, and in a significant sub-set of those now insist on DEI requirements (while one country now insists on no DEI).

However, we are still in the age of CSR: Corporate Social Responsibility. While it’s been proven again and again that consumers won’t pay more (than 1% to 2% above the lowest price) for CSR brands, if products and prices more or less equal, they will generally choose the responsible brand over the irresponsible one.

Environmental Responsibilities

Twenty years ago we said that continuing the social responsibility theme, customers, consumers, shareholders, non-govermental organizations, and governmental bodies will all increase their scrutiny of corporate environmental practices in all regions of the world and demand that companies take environmentally friendly actions. Companies will be forced to meet the environmental expectations of the general populace. Environmental issues will become brand-related issues and influence how companies are viewed in the marketplace. And with the exception of the United States, which is rolling back environment legislation faster than Walmart is rolling back prices, ESG laws have continued to be rolled out … and with the damage that “AI” data centers are doing, in most countries, expect another round of legislation to come later this decade or early next decade.

To meet environmental requirements, if you still don’t have across-functional team with executive leadership to monitor environmental concerns in the extended supply base, it’s time you get one. Carbon restrictions are going to come into effect in (more) countries, water restrictions will emerge, and other pollution control acts will also come into play. An organization will need to keep tabs on what’s being proposed, because, in many countries, proposed legislation eventually becomes reality (although it usually takes longer and gets watered down). It’s always cheaper to be in compliance before an Act comes into effect than scrambling later.

Supply Chain 2026 or Supply Chain 2008? Part III

Still continuing our “the more things change, the more things stay the same” theme, back in 2008, the Supply Chain Digest published an article on Key Trends Impacting Supply Chain Management and Logistics for 2008 where it asked a number of leading academics and practitioners what they saw coming. (Their responses are summarized in this SI post.)

Nine (9) experts weighed in and provided 24 thoughts on what they saw coming in 2008. Those thoughts more-or-less fell into seven themes, and for the most part, those themes are the same themes today. Moreover, the specific concepts addressed are more-or-less the concepts being addressed today. Let’s continue to take them theme by theme and conclude our initial series.

Globalization

Three (3) of the nine (9) experts included globalization as a core theme and stated that they believed:

  • Globalization will continue to take up a lot of organizational focus as companies try to efficiently and cost-effectively manage their global operations.
  • Supply chain globalization is about to enter a new phase, driven by the recognition by many organizations that their initial off shoring decisions were made with a myopic focus on product cost, and not a thorough evaluation of total delivered cost.
  • Freight volumes will continue to fall in the first half of 2008, but will stabilize by the second half of the year.

With the tariffs, global instability, and continually increasing natural disasters, globalization will continue to command organizational focus and attention.

As the pendulum swings back from full globalization to isolationism, we’re returning to an earlier time where trading partners are limited, friend-and-near-shoring is finally gaining traction, and pushes are being made for home-sourcing. (Which won’t happen until proper investments are made because, even with tariffs, it’s still cheaper to use someone else’s multi-million/billion dollar facilities than build your own.)

Freight volumes by country and route will continue to rise and fall as tariffs, oil price surges, recessions, sanctions, border closings and other contributing factors play a factor in actual consumer demand, available supply, and permissible routes.

Multi-Stage Manufacturing

Two (2) of the nine (9) experts included multi-stage manufacturing as a core theme and stated that they believed:

  • More companies will resume manufacturing in-house.
  • Multi-stage manufacturing that allows for decision postponement and re-purposing of parts in-line with fluctuations in demand across product lines will start to become common.

That didn’t really happen much as a result of the financial crisis or the carrier failures because it was still cheaper to outsource, but when tariffs, border closings, oil price surges, and other detrimental factors combine, companies take an analysis of in-house manufacturing seriously and as soon as it looks like it will be cheaper long-term to bring manufacturing back in house (which will happen if the government that pushes an isolationist strategy starts to actively invest in the industries it wants to nationalize / build / resurrect).

This has become common in electronics and control systems where components have been standardized across product variations, and even product lines, to the extent possible to allow for production plan updates and postponement as long as possible to reduce stock-outs in the product versions and lines in greatest demand and minimize overstocks in product versions and lines not selling as well as possible. However, with parts shortages bing common, you can see more and more products are going to be designed with the ability to use multiple components from multiple manufacturers with specs that are “similar enough”.

Green

Two (2) of the nine (9) experts included green supply chain as a core theme and stated that they believed:

  • Activity & Hype around “Green” Supply Chain will continue.
  • “Green” Logistics will continue to attract mind-share, but until profitability is proven, market-share will lag.

While the USA might be rolling back environmental legislation to (at least the) 1970s to please the tech bros so they can build their energy and water intensive data centers for Gen-AI (that can blackout and dry entire towns, while nearby energy plants pollute on a scale not seen in decades), as the same mega corps try to build similar massive data centers in the EU and other environmentally conscious countries, we will see a renewed effort to introduce new environmental legislation, that will renew a push for “green” supply chains in those countries.

Nothing has changed in the past two decades. When the economy is good and consumers have extra disposable income, they become interested in corporate responsibility and green, and the green hype sells. But the reality is that, like corporations, consumers like to virtue signal and when the rubber meets the road, or, more importantly, the plastic hits the terminal, they still won’t spend more than they need to for a product or service they want to fulfill a need.

This concludes our coverage of the market predictions from the thought leaders in 2008 and how nothing has really changed over the past two decades.

Carbon Calculation is Great, But What You’re Really Concerned About is YOUR e-Liability

A few weeks ago, we ranted that Carbon Tracking is Important — But a Calculator or a Credit is Not a Solution! The reasons that credits were not a solution were that most “credits” were iffy at best, and downright fraudulent at the worst. The only solutions to carbon are actual reduction or proven capture. But that’s a diatribe for another rant. A calculator is not a solution either. It’s important to understand YOUR carbon footprint, but simply understanding your footprint is not addressing your footprint. Plus, it’s not just your inbound footprint you need to worry about, it’s your outbound footprint as well. You are NOT responsible for any carbon in your organization associated with products or services that are being sold to another business. You are only responsible for the carbon footprint of products are services that are being sold to a consumer or that you incur in running your operations.

In other words, what you need to be tracking and addressing is your e-Liability, which was well defined in a recent Harvard Business Review article on accounting for climate change. And this is not scope 3 carbon tracking or ESG reporting under the GHG protocol which contains flaws that result in the same emissions reported multiple times throughout the chain by different companies and other emissions being completely ignored. All emissions need to be captured ONCE and allocated as appropriate between the different entities in the supply chain, depending on which business is the last business to acquire the products or services that the emissions are directly correlated with.

Note the concept of direct correlation. All of the GHG produced mining a rare earth mineral is direct GHG associated with that rare earth mineral, and is passed up the supply chain to the buyer who buys that ore to process it, whereas all of the GHG produced by the CEO flying around on his private jet just because he can is indirect GHG that is the liability of the corporation that needs to be accounted for, and offset in someway, but that cannot be passed on to an organization that buys its ore (as it was not GHG absolutely necessary to extract the ore).

The best part of the HBR e-Liability recommendation by Kaplan and Ramanna is that it is based on financial accounting principles which track liability inflows and outflows the same way an accountant or economist would track inflows and outflows. It’s mathematically sound, makes perfect sense, doesn’t double count, and properly used, won’t miss anything either. If you want calculator, get a proper e-Liability calculator.

But remember that understanding your e-Liability is only your first step. The next step is to find ways to actually reduce your GHG footprint by reduction of unnecessary activities, production process improvement (including energy and water efficiency), and product design improvements. (Not BS credits.)

Societal Sustentation 38: The Sharing Economy


Cookie: Me got some something that you want
You got some something that me want
Put both somethings together and share

Ernie: I’ll take my something that you like
You take your something that I like
Then put both things together and share

Both: One for all, all for one
Sharing every everything and having a ball

Sharing is a good thing. Unless, of course, you are the one who isn’t being shared with (or the one who refused to share).

And, as we discussed in our “Future” of Procurement series a couple of years back, the Sharing Economy is one of the few true future trends of the space. And while the sharing economy is currently in the domain of individuals like you and I, and a handful of small businesses that have latched on, the sharing economy is going to migrate to medium sized business en-masse (driven by companies like Uber). This is going to give these businesses access to the latest and greatest technology and economics of scale that these medium-sized businesses will be unable to acquire on their own.

But just because it could help, that doesn’t mean it will help. Especially if the organization cannot accept, embrace, and form the new reality to its advantage. This means the organization has to start by identifying opportunities that it cannot achieve on its own. Then it will have to identify what partners it would need to bring those opportunities within its grasp. Finally, it will need to put together a plan to unite those partners and execute it to completion.

How will it do this?

Identify it’s biggest costs.

Is it the need for specialized equipment owned by only a few select suppliers? Is it the constant LTL shipments? Is it the need for regular day labour?

Identify which of the costs could be reduced with cooperation.

If a group of mid-size suppliers that required the specialized production equipment formed a co-operative and created a production facility based on that equipment that was shared and used to maximum efficiency, that could reduce costs. If a group of suppliers in a small radius band together and synchronize deliveries they can always ship FTL and even manage their own fleet for reduced costs. But unless they can find nearby companies that need day labour at different times, this is not likely something that can be solved by the sharing economy.

Be prepared to lead the charge.

Put together a plan to make it happen. Make sure it demonstrates the tangible benefits to those who will join the cooperative you are about to form as well as outlines exactly what will be required, when, and when the benefits you are promising will be realized. It has to be attractive to all parties you want to join, and has to show your commitment by showing that you’ve thought it all out.

A lot of your peers might want it to happen so that they can compete with the big guys, but very few will want to lead the charge.

Environmental & Sustainability Damnation 23: Food Shortages

So far we’ve covered natural disasters, EMPs, water, waste, rare earth minerals, and Greenpeace, but that still leaves four environmental damnations to discuss, and the next on the list is food shortages.

A few years ago, global food reserves hit a fifty year low.
With approximately 800 Million people, which is almost 11% of the global population, food insecure, and the increased rate of natural disasters, this is scary both from a social viewpoint and a corporate viewpoint. Every time there is a food shortage, the commodity prices spike, and contracts be damned.

If a significant portion of a supplier’s crops are wiped out and it doesn’t have enough to satisfy its contracts, it can claim force majeure, and unless your organization is paying the most, it’s claiming force majeure on you and your supply is out the window. If a considerable portion of its crops are wiped out, and it theoretically could meet demand, but a considerable portion of the global supply was wiped out and prices have skyrocketed, the supplier might choose to still claim force majeure and sell to the highest bidder, contracts be damned, and while you might be able to go to court and make a case that it should have fulfilled your contracts, that could take years, and you’re certainly not getting the crop this year unless you pay market price. If a major product line depends on that crop, your organization could be out of business before it won the lawsuit and recouped any damages.

Since most crops are still grown in fields, and not greenhouses (which are not as environmentally friendly as one might think if one is trying to grow crops in the summer), the right climate is needed for a good yield. Sun and warmth, but not enough to dry the plants (and bake them to a crisp), enough rain (and irrigation), a sufficiently long growing seasons, and an absence of pest swarms. A drought can quickly wipe out a crop. A fire can quickly wipe out a crop. An earthquake that can destroy irrigation systems and storage containers can wipe out a crop. And so on. Moreover, as the rate of natural disasters increases as a result of global warming (which is a bad term because it’s not just global warming, it’s global climate change on a broad scale), the rate of natural disasters that destroy crops and lead to food commodity shortages is going to increase. Diversified supply is no longer an option, but a must. Excess production and storage in diverse locations for eventual disasters is a must. Planning ahead years at a time is a must.

It’s another damnation that does nothing but increase the complexity of your job.