2. Think global. Act local. It is an overused phrase that has a new twist in the context of supply chains that must consider logistics, product content verification, rising energy and transport costs, and product integrity on a global scale. The significance of this last factor is made painfully clear by the numerous recent reports of contaminated consumer, drug and food products. The take-home lesson may be that a supplier’s supply chain, regardless of geographic location, may need to be monitored as well. Today’s procurement executives must weigh cost, risk and availability in a different fashion so as to avoid cost inflation and safeguard reputation.
3. Certifying the suppliers’ supplier as a sustainable source. The homework required to manage this process is dramatic, and entire efforts are being devoted to ensuring selection of the right certification system.
In the United States, the construction industry recognized that uniform standards would ease the pain. Through a consensus-based process, the U.S. Green Building Council in 2000 created Leadership in Energy and Environmental Design (LEED), a third-party certification program and the nationally accepted benchmark for the design, construction and operation of high performance green buildings of all types and sizes.
The bottom-line benefit to construction industry suppliers offered by a widely accepted certification program is apparent when one considers the results of a 2008 American Institute of Architects survey. According to the study of green building initiatives in the 200 most populous U.S. counties, the number of counties with programs that foster green building has risen from eight to 39 since 2003, an increase of 388 percent. That is an appealing potential customer base for suppliers who can make the grade.
We can contrast this with the current situation in the forest products industry, which is wrestling with three competing standards: the Programme for the Endorsement of Forest Certification (PEFC), the Forest Stewardship Council (FSC) and the Sustainable Forest Initiative (SFI). The confusion in this marketplace is particularly difficult because forest products often must feed into the LEED process, making a clarification of the certification process a matter of urgency in competing for construction customers.
4. Resource base expertise. Today’s supply chain executive requires an expert level of insight into a range of resources issues, such as capacity for alternative energy sources; the substitution of oil-based plastics (polymers) with renewable (e.g. corn-based) plastics; consolidation of base metals output; and demand patterns from emerging markets. For those who source globally, the ability to understand and interpret resources trends like these is a must-have skill.
5. Commodities trading. It is a new game, and procurement professionals managing sustainable supply chains are becoming conversant in commodities trading, although not necessarily trading of “your father’s commodities.” For example, today the European Union (EU) operates the world’s largest emissions trading system (ETS) and is the first to trade and limit carbon dioxide emissions.
The system allocates emissions allowances to companies that may sell allowances they do not need to companies that are exceeding their own allowances. The goal is to keep emissions levels unchanged or, preferably, to reduce them. The EU ETS, which is just three years old, now trades allowances valued at $80 billion and covers facilities in 27 countries. This trend and its effect on operations cannot be ignored.
Emissions allowances are only part of the supply chain picture, which also includes the trading of traditional commodities and raw materials, as well as water and energy consumption issues. Supply chain executives now must understand how all these markets work and the impact they may have on their businesses.
What It Takes to Succeed
Given these five emerging trends identified by executives we interviewed, how can CEOs and boards ensure capable supply chain leadership in their organizations? Our view is that companies will do best if they take a dual approach: invest in a capabilities development program for existing managers and design an assessment method that identifies prospective managers who can fill existing skills gaps.