Sustainability in today's strategic supply chain - insights from Kinexions

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Last week Kinaxis successfully hosted Kinexions 2010 - our annual user conference, which this year was held at the Kierland resort in Scottsdale. With over 200 people in attendance, an impressive list of speakers, and three tracks of product workshops - it was certainly a full agenda....but wrapped in a very fun format.

Over the course of the next few days, we will be blogging about our thoughts as we reflect on the event. In the meantime, Bob Ferrari was there and covered the event on his blog at Supply Chain Matters - check it out. The twitter feed #kinexions also provides an interesting commentary of the conference.

For me, I was particularly interested in Andrew Reese's presentation. After reading his blogs and articles, I was very excited to hear Andrew, Editor of Supply and Demand Chain Executive speak at Kinexions and meet him afterword. He and his team has been the spark for more than a few of my blog posts. Andrew spoke on "Sustainability and the Strategic Supply Chain".

As readers of this blog know, I have a strong opinion about our responsibility as manufacturers to the environment (See Going Green shouldn't make you see red). Andrew's presentation shed some new light on how supply chain practices will need to change over the next few years.

So, first of all, why should we care about sustainability (or green) in the supply chain? Andrew points out that there are pressures coming from a number of fronts:

Regulatory pressure

There are more and more rules and regulations being applied to manufacturing every year. Carbon emissions, energy footprint, chemical regulations, RoHS all are impacting the supply chain. Regulations change from region to region as well. What may be unregulated in the North America may be controlled in the EU.

Adding to this complexity is that you need to look beyond your own operations. Do you sell into supply chains impacted by these regulations? Do you receive supply from suppliers impacted by these rules? If so, then you may still be impacted. The rate of change of these regulations in increasing significantly. The supply chain is going to become much more volatile as we try to come to grips with this new world.

Supply Chain Pressure

Large, influential corporate entities are setting their own rules as part of their efforts towards good corporate citizenship. Companies like Wal-Mart and IBM are demanding that their suppliers track and report their environmental performance. In Wal-Mart's case, the ultimate goal is to provide information to the buying public about the relative environmental impact of their products so that Wal-Mart's customers can make informed opinions.

By the way, this is not at all new. I blogged about this almost a year and a half ago! (Demand for green is coming. Are you ready?). This brings potentially the biggest and most unpredictable supply chain pressure...the buying public. At some point, we will hit a green inflection point where people will consider green and / or sustainability as a key part of their purchasing decision.

If you are not providing a green alternative and your competition is, you may find your share of the market shrinking fast!

Financial Pressure

Analysts and investors are starting to look at sustainability as a leading indicator of a company's overall efficiency and risk exposure. In his presentation, Andrew had a very telling quote; "If you're not efficient you can't be sustainable or, in the long term, profitable" This was from Tony Prophet SVP, HP Personal Systems Group Worldwide Supply Chain at Hewlett-Packard. So how does one respond?

One option is to wait for regulation, market forces, or financial analysts to force your hand. This could work but I think it is the riskiest of the approaches. Why? How long does it take for you to get a product out to market? Weeks? Months? Years? How long could you go survive If your top performing product was no longer allowed to be sold in your largest market?

In many cases, regulatory changes can result in a complete redesign of your product, or the design of a new product to replace the old. While acknowledging that this is a complex problem and that the target is constantly shifting, Andrew identified 5 steps towards getting a handle on the sustainable supply chain:

  1. Get an understanding of the issue - The sooner you are aware of a potential issue impacting your product, the sooner you understand how your product might be impacted, the sooner you can put together an action plan to respond.
  2. Get involved in industry group - but don't wait for them! - Industry groups can provide a more effective voice than an individual company. However, if you are aware of a problem, don' t wait for the industry group. The other truth about a group is that they tend to move more slowly; It may be too late before they achieve resolution.
  3. Assemble and engage the organization - Inform other parts of the organization to ensure that they are aware of the issues, then collaborate to ensure that the response has the buy-in of those involved.
  4. Assess your IT landscape - Part of the regulations and Supply chain pressures being applied is the requirement to document carbon footprint, energy consumption and chemicals used throughout the supply chain. Most ERP packages have little if any abilities to track this. If your ERP system can accommodate this, great….if not, you need to start looking for alternatives. There are some niche software applications that can be used for this purpose.
  5. Simulate your response - Will your response work? What will be the costs? Can your suppliers support? Being able to simulate your response will give you the assurance that you are on the right track and may identify some adjustments to the plan that will assure success.

Whether you believe in the issues that are driving these changes or not, you must agree that green and sustainability issues are impacting our supply chains today. So now, the question is what are you going to do about it? Comment back and let us know!

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