The Future of Supply Chain Management, Part 6

Stephen DeAngelis

January 3, 2013

This post focuses on some thoughts offered by Manish Bapna. After reading the National Intelligence Council’s (NIC) latest Global Trends Report, he was motivated to write about how four of the mega-trends identified in the report could affect the business environment. [“National Intelligence Council Report: Megatrends That Matter For Business,” Forbes, 19 December 2012] He writes:

“Two-hundred page policy reports don’t normally sit on a CEO’s bedside table. But the U.S. National Intelligence Council’s wide-ranging new assessment of what the world will look like in 2030 is essential reading for smart, forward-looking corporate leaders. Most international media attention around Global Trends 2030, produced every four years, has focused on its geopolitical analysis—rising China, plateauing United States, and potential failing states. But the private sector should pay careful attention to the megatrends the report highlights. Many relate to the profound sustainability challenges facing a warming world that will house around 8 billion people in 2030.”

The four trends that Bapna selected for further discussion were: resource scarcity, a booming global middle class, the rural to urban transition, and transformative information and communications technology.

 

1. The Resource Crunch

 

The NIC isn’t the first organization to write about resource scarcity and how it might affect the world’s future. In a report published early last year, KPMG analysts identified “ten sustainability megaforces that will impact each and every business over the next 20 years.” The KPMG analysts noted that “these forces do not act alone in predictable ways … they are interconnected.” [Expect the unexpected: Building business value in a changing world, KPMG, 2012] Resource scarcity was among the sustainability megaforces they discussed. You can read my discussion of the KPMG study in posts entitled “KPMG Identifies 10 Megaforces that Will Shape the Business Landscape,” Part 1 and Part 2. NIC analysts agree with KPMG analysts that resource scarcity is going to be a major shaper of the future. Bapna writes:

“Perhaps the most alarming of the ‘relative certainties’ the NIC predicts is soaring demand for food, water, and energy — growing by 35%, 40% and 50% respectively over the next 15 to 20 years. Nearly, half the world’s population, it warns, will live in water scarce regions by 2030. Agriculture and associated industries are particularly vulnerable, accounting for a staggering 70 percent of all water use. Especially for businesses that operate globally, the impact on corporate operations and bottom lines is hard to overestimate. Last summer, the World Economic Forum similarly cited water scarcity as one of the five top global risks.”

For years, there has been talk about the potential for conflict over access to water. The point of the NIC assessment is not to predict conflicts over resources but to encourage better management of resources in the years ahead so that such conflicts can be avoided. Bapna continues:

“The NIC report concludes that better resource management, wider technology use, and improved governance are vital to weather this resource crunch. The private sector can play a critical role: by better managing resources, especially water; by developing efficient technologies; and by helping reduce the shockingly high volume of food lost between farm and fork. To bring shareholders along, and identify specific strategies, companies need to mainstream natural resource risk management into their business models and operations. Retail giant Target, for one, is starting to look into sustainable food initiatives after surveying the vulnerability to drought of its U.S. agricultural suppliers.”

Keith A Wheeler, chairman and CEO at ZedX Inc., agrees with Bapna. [“Building resilient food systems in a world of climate uncertainty,” The Guardian, 21 December 2012] Wheeler sees little progress being made towards managing climate change and he believes that continued climate change will likely have a significant impact on food security. He writes:

“By 2050, if farmers are not assisted to meet these changes, agriculture yields will decrease with impacts projected to be the most severe in Africa and South Asia, with productivity decreasing by 15% and 18% respectively. Therefore, strategies to adapt to the significant shifts in weather patterns are greatly needed.”

Although concerned, Wheeler is not despairing. “Amidst these colossal challenges,” he writes, “there is hope.” He explains why:

“The agriculture community is in a strong position to achieve the win-win scenario of both adapting to, and addressing, the underlying causes of climate change – particularly if identifying these win-wins is a focus from the onset. We know this, because it has been done before. For those of us who remember the global food security crisis in the 1950s and 60s, when millions of people in Asia were on the brink of famine, we know that the promotion of technologies that utilize water efficiently and access to new high-yield seed varieties, not only increased productivity, but also reduced historical agricultural emissions by nearly a third. The same is possible today. … Technological innovations are at the forefront of meeting the world’s growing food demands, while reducing carbon emissions. … The thread that ties all of these innovations together is greater access for farmers to research, information and extension.”

Technological innovations are likely to play a role in dealing with resource scarcities of all types, not just food and water. The next megatrend discussed by Bapna is one that I’ve discussed numerous times: the growing global middle class.

 

2. A Booming Middle Class

 

A growing and prosperous global economy rests squarely on the shoulders of a growing and prosperous global middle class. “By 2030,” Bapna writes, “NIC forecasts, a majority of people in most countries will be middle class, with Asia positioned as the world’s consumer powerhouse.” That’s a very optimistic outlook. Bapna continues:

“More people with more money to spend are obviously good for business. But if we are to avoid depleting the world’s finite natural resources, we need to pursue a more sustainable approach to consumption and production. Here, again, business has a big role to play in its own interest. First, companies can lead the way in making natural resources go further. The McKinsey Global Institute has found, for example, that up to 30% of global resource demand in 2030 could be met simply by efficiency improvements. Second, companies can deploy their innovative powers to develop and market a new generation of resource-efficient products and services. Some are already showing the way. Kingfisher, the European home improvement group, generated a tenth of retail sales from eco-products in 2011. In the U.S., household names like GE, Kimberly Clark, and Nike are setting targets for developing sustainable products and services. Realistically, to live within the Earth’s means, we will also need to rethink current consumption models. Cradle to cradle re-use of materials needs to become the norm in production, as first mover companies such as Nike already recognize. Even dietary considerations should not be considered off limits given that beef farming, for example, requires nine times as much water as growing cereal crops.”

As I’ve noted before, consumers are the unlikeliest group to insist on sustainability efforts from businesses (at least not in the short term). Government regulations and corporate self-interests are going to be the main motivators. What Bapna refers to as a “cradle to cradle” supply chain is referred to by others as a circular economy. For more on that topic, read my post entitled Supply Chain Sustainability and the Move towards a Circular Economy. The next megatrend discussed by Bapna is also one I’ve written quite a bit about: urbanization.

 

3. Urban Explosion

 

We already know that a majority of the world’s population lives in urban areas. “By 2030, NIC forecasts, six in ten people in the world will live in cities.” Bapna writes, “This concentration of humanity offers huge opportunities to address the intertwined challenges of resource scarcity and sustainable consumption.” He continues:

“The private sector, in partnership with city governments, can help make our cities work more efficiently and sustainably by providing capital, infrastructure, and technology. The McKinsey Global Institute reports some eye-opening examples of what is achievable. Sensors and smart grid technology, it concludes, can reduce water system leaks by half, while making buildings worldwide more efficient could save more energy than the volume generated by air travel and shipping combined.”

For more on the topic or urbanization, read my post entitled Will Cities Save Us? The final megatrend discussed by Bapna is technology.

 

4. Empowering Technology

 

Like Thomas Friedman, who claims that technology has made the world flatter, “the [NIC] report concludes that the dizzying development of communications technology will prove ‘a great leveler’ in the next 20 years, shifting power to citizen networks.” Bapna explains:

“This welcome development could transform transparency, forcing governments and companies to be more engaged with, and accountable to, citizens and consumers. Most multinational companies are already investing in stakeholder engagement. But increasingly sophisticated cloud computing, crowdsourcing and social media, combined with global internet connectivity could enable businesses to further engage their consumers in decision making, with profitable results.”

Bapna is correct. More and more analysts involved with smart cities initiatives have come to realize that all stakeholders, including ordinary citizens, need to be involved. Since the “smartness” of cities depends on the availability of data (lots of data), citizens must willingly partner with governments and private enterprise to ensure that the right data is available for analysis. Only by empowering individuals with control over their data will this be achieved in a mutually-satisfactory way. Bapna insists that this will require enlightened and motivated corporate leadership. The same can be said about political leadership. Bapna concludes:

“The National Intelligence Council is careful to say that a world plagued by scarcities is not inevitable. But it gives a clear warning that ‘policymakers and their private sector partners will need to be proactive to avoid such a future.’ Doing so is in the private sector’s own interest to stave off risks and maximize opportunities. Any CEO who isn’t convinced should spend [some time] with Global Trends 2030.”

Collaboration between citizens, governments, and private enterprises must be the hallmark of the future if scarcity isn’t going to be the defining factor that dominates our lives. Tomorrow I’ll discuss some predictions about the supply chain that have been made by consultants from IDC.