Can Supply Chains Save the World?

Stephen DeAngelis

April 21, 2011

“Five years ago,” writes Kevin O’Marah from Gartner, “we published a book called ‘Supply Chain Saves the World.’ The idea was that at least three existential problems facing humankind — environmental sustainability, affordable healthcare and emerging market development — could be tackled with large doses of supply chain strategy and technology.” [“Supply Chain Saves the World 2.0,” Supply Chain Brain, 18 January 2011]. Since these are all topics that I’ve covered extensively since I began writing this blog, I was drawn to what O’Marah had to say. O’Marah asserts that supply chain professionals pursue these objectives in reverse order: wealth first (i.e., development); health second, and environmental sustainability last. He explains:

“The first dimension we work toward is wealth. In doing our daily chores to lean the inventory, minimize empty miles and eliminate waste, we’re steadily bringing more stuff to more people at lower costs. Market saturation drives us to innovate either with better stuff or the same stuff at lower costs. Improvement in either means more income in the aggregate. When we reach what once were ‘third-world’ customers and make a profit doing so, everyone wins. For an exhaustive discussion of this dynamic, see C.K. Prahalad’s ‘The Fortune at the Bottom of the Pyramid.’ The key, of course, is respect. Whether buying from or selling to, supply chain engagement in emerging markets creates wealth by finding partners, not victims.”

As I’ve pointed out repeatedly over the past couple of years, most analysts believe that emerging and growth market countries are going to lead the world in economic growth over the next few decades. Companies are actively pursuing consumers in the emerging global middle class as well as those who the late C.K. Prahalad called the bottom billion. O’Marah next turns to health.

“Wealth begets health. But if the experience of the United States is any guide, paying for it seems increasingly problematic. Enter again the supply chain. I have argued that the productivity gains that run regularly in the 3-percent to 6-percent range in all other industries should be readily available in healthcare. At least from a systems engineering standpoint, this must be true. It’s the same raw materials, same production assets and same distribution networks, so why not the same learning curve? Without touching policy and admitting that the demand drivers are different in healthcare, I still believe … we can crack this nut. Call it faith in supply chain over politicians.”

O’Marah is not alone in this assessment. Joel Haspel, CEO of international healthcare supply chain management specialists Sentient Health, believes that there is one area where healthcare executives “can take immediate action which will yield savings and increase efficiency and that’s in supply chain management.” [“CEO of Sentient Health on the NHS’ procurement challenge,” Procurement Blog, 30 March 2011]. He writes:

“A recent NHS [National Health Service] Confederation poll found that 63% of its members see cost savings and finances as their biggest challenge. … [Because supply chain management is] not a sleek and sexy subject, … it has tended to be overlooked during financially better times. But right now the gains that can be made from a modernised approach to ordering, stocking and distributing clinical supplies look increasingly attractive. … It’s not a panacea, but it does make a genuine difference. And what’s more it’s relatively easy and quick to achieve — and at the moment every healthcare provider must be yearning for some low-hanging fruit to pluck.”

Finally, O’Marah turns to how the supply chain can help the environment. He writes:

“‘What if everyone on earth consumed like Americans?’ is often asked to clearly show how we’re marching toward oblivion. I don’t buy that. First off, who says everyone, including Americans, wants to consume like Americans? Check out The Biggest Loser on TV sometime to see how silly that notion sounds to the wise. Second, environmental sustainability boils down to resource efficiency, and whether the resource is water, oil, biomass or whatever, we’ve always learned to work around the bottleneck — and there’s no reason to stop now. Carbon pricing, regulatory costs and even consumer behavior are changing the equation from earth as externality to earth as partner in the course of a single lifetime. Add the carrot of money to be made with venture-backed, clean-tech start-ups or corporate redirects exemplified by the likes of General Electric and IBM, and it seems more than likely we’ll find a pony in this pile, too.”

If you want read more about environmental sustainability, my most recent posts on the subject include: Going Green: Cradle to Cradle Supply Chain, and Supply Chains: Green and Sustainable, Part 1 and Part 2. Adrian Gonzalez claims, “Industry leaders of tomorrow will compete not only on cost, service, and quality, but also on ‘greeness.'” [“‘Green’ Supply Chains: Beyond the Early Adopter Stage?,” Logistics Viewpoints, 9 March 2011] He explains:

  • We’ve come from the ‘early’ early adopter stage to the ‘late’ early adopter stage. In other words, there’s been continued, steady progress in the number of companies that are getting involved in green supply chain initiatives, but the absolute number is still very small. According to the recently-published ‘State of Green Business 2011‘ report by Joel Makower and the editors of GreenBiz.com, 350 of the S&P 500 companies responded to the Carbon Disclosure Project in 2010, up from 235 companies in 2006. And the number of sustainability-related reports filed by S&P 500 companies has also risen since 2005. But as the authors note, ‘a smaller percentage of U.S. firms [compared to global peers] have board-­level oversight of climate issues, fewer offer management incentives to reduce carbon emissions, and they are less likely to view climate change as a regulatory risk.’ The bottom line: The early adopters have continued to expand their focus and activities in this area, even during the recession, and more large companies have launched initiatives, but these active companies remain the exception rather than the rule.
  • The conversation has moved beyond carbon emissions and climate change. And that is a very good thing. The link between carbon emissions and climate change was (and still is) a lightning rod for debate, especially in the political realm where heated discussions about cap-and-trade legislation and EPA regulations continue. While politicians remain anchored and hyper-focused on carbon emissions, many companies in the private sector have moved on, expanding their sustainability focus to other areas, such as water footprinting (see ‘SABMiller: Water Footprinting the Beer Value Chain‘). As I noted in that blog posting, ‘Water is different than carbon. It’s tangible, whereas carbon is not. Water impacts our daily lives: we drink it, bathe in it, fish in it, cook with it, etc. But an estimated 1.2 billion people in the world lack access to clean water. Mess with scarce water supplies, and you’ll get a strong response from people.’ Companies are also paying more attention to how they source and use other natural resources, such as rare-earth metals and ‘conflict metals,’ and sustainability is even making inroads in product development (see ‘Sustainability Initiatives at GlaxoSmithKline‘). Simply put, while carbon emissions remains an important factor in green supply chain management, it (along with climate change) no longer dominates the conversation.
  • Transportation-related initiatives remain a low-hanging fruit opportunity for companies. As I noted back in December, a growing number of companies are using or testing electric and hybrid fleet vehicles. For example, BT in the United Kingdom is testing electric vans as part of its fleet. In November, General Electric announced that it was buying 25,000 electric vehicles by 2015 for its corporate fleet and to lease to customers. And just last month, UPS announced that it had purchased another 48 heavy tractor trucks equipped to run on Liquefied Natural Gas (LNG). With gasoline prices on the rise, companies will intensify their efforts to eliminate trucks and miles from their transportation networks. Some will invest in a transportation management system, others will use more rail and intermodal, and some will follow in the footsteps of Del Monte Foods and achieve transportation and sustainability benefits via packaging innovation (see ‘Del Monte Foods: Packaging, Transportation, and Sustainability‘).”

In each of the areas discussed above, O’Marah argues that supply chain professionals can make a difference. He continues:

“Supply chain people are doing what no one else can: spreading the wealth. Scientists and engineers may find the molecule, material or mechanism that delivers goodness, but [the] supply chain gets it to everyone in volume. Marketers and salespeople may create and close the deal, but supply chain delivers and closes the loop. Every time you cut a day out of inventory or a mile out of the route, you’re taking a step toward the healthy, wealthy world [that Hans Rosling describes in the following video].”

 

O’Marah concludes:

“The jumps Rosling describes in both health and wealth are mind-boggling, even if you look only at Europe and North America. More impressive, however, is the sudden shift of fortune from the Western economies, which had a near monopoly on the good life as of 1948, to the rest of the world, which has rapidly closed the gap on both dimensions. Still lagging, of course, is Africa, but even here the drum beats steadily, with the 13 January 2011 edition of The Wall Street Journal featuring a front-page story on the continent’s surging consumer economy. The long view offered by Rosling’s work provides a ‘true north’ to those of us looking for something bigger than a bit more margin.”

O’Marah is not alone in his assessment that supply chain professionals can save the world. Lauren Bossers also sees supply chain professionals as superheroes [“The supply chain manager as superhero,” The 21st Century Supply Chain, 12 January 2011]. She writes:

“For those of us who work in supply chain management and its related industries, it can be a real challenge to easily describe to others what we do. Despite the fact that supply chain management touches each of our lives on a daily basis, it can often be difficult for outsiders to grasp—and for the experts to explain in a way that is easily understood. Demystifying the industry, the Department of Supply Chain Management at Arizona State University’s W.P. Carey School of Business created a great series of videos to explain exactly what supply chain management is. The concepts are delivered in a way that is easily digestible (and humorous). The supply chain manager is repeatedly positioned as a superhero with a cape, someone that children aspire to become. This type of message is exactly what the industry needs to attract more people to the field of supply chain management, a challenge that only looms larger as we enter 2011.”

Bossers’ article provides links to all the videos. She goes on to note that “a December 27, 2010 Fortune magazine article calls supply chain management ‘2011’s hottest job you never thought of,’ in addition to stating that the industry currently has a shortage of qualified managers and ‘a decidedly unglamorous image.'” If you’d like to be a superhero, check out the videos and see if supply chain management is the career for you. Who knows, the tag line for future television series might be, “Save the supply chain manager and save the world!”