Using less resources in your business.
Reducing the amount and value of non-renewable resources through your supply chains will be the coming challenge for management and will require the skills and knowledge of procurement and logistics professionals.
For more than a century, until the early 2000’s, the price of hard commodities (except oil) and energy had trended down, but since then the price trend has been up, absorbing all the past reductions.
Even though there will be fluctuations in commodity prices, with the current reduction in the price of gas, iron ore and coal as examples, the upward price trend is likely to continue. This will be influenced by the periodic shortages and the demands of increasing global population with rising incomes. Coupled with the challenges of hard commodities will be pressures on the price and availability of soft commodities in our food chains.
So, the pressure will be on all businesses to dramatically improve the efficiency and effectiveness of the resources they buy and use. Figures of 50 to 80 percent improvement in the efficiency of resource utilisation through supply chains and 60 to 80 percent improvement in energy and water efficiency within facilities are being discussed as realistic objectives.
Less resources requires more thinking
Because business as usual, with productivity improvements of 2 to 3 percent, will not be acceptable, a rethink of current practices is required. Productivity improvements of 10 to 15 percent annually for a decade will provide an opportunity for procurement and logistics professionals to take leadership in developing innovative approaches and identifying market development opportunities.
Many years ago, when I was an industrial engineer, a colleague at the facility was responsible for the efficiency of heat, light and power; so the concept of focussing on resources productivity is not new, it just needs re-visiting.
In Heck and Rogers Resource Revolution: How to Capture the Biggest Business Opportunity in a Century (New Harvest, April 2014), the authors identify five approaches to resources productivity:
- Replace current scarce or expensive materials with less scarce or new, higher performing materials. The role of Procurement in supply market research is vital in taking advantage of substitution opportunities
- Replace physical materials with electronic data and information e.g. replacing paper or wallets and money
- Optimise the use of materials by embedding software into production equipment and products to enable tighter process controls and an integrated responsive network for maintenance
- Waste elimination through the re-design of products, services and processes
- Reverse logistics to provide new value for materials used in the products – change the mindset of ‘take, make and dispose’ to design for multiple cycles e.g. recycle. Change the business model from ‘consumers who buy’ to ‘users who rent’; the business that owns the materials is then able to repair, re-manufacture, refurbish and reuse and so buy less materials and potentially have increased margins.
The first step in reducing resources is to focus on improvements within your business, then using those achievements as examples, work with parties in your core supply chains to gain their co-operation for further resources productivity improvements.