Improve the productivity of materials.
My previous blog discussed price volatility for hard and soft commodities. This situation is unlikely to change, being influenced by factors of supply availability and disruptions, plus spikes in demand.
The flow on effect of volatile raw material prices is that producers must take action to protect their businesses, as materials are a high percentage of their costs. And that action can affect their downstream customers, the converters and then their customers, the fabricators and assemblers, although the effect of material costs reduces as more production and transport costs are incurred. These actions are likely to rebalance the traditional emphasis of improvement activity away from labour and operating costs towards productivity of materials.
Obtaining additional value from materials by returning them to earlier suppliers in their supply chain is called reverse logistics. But this term, while accurately describing what is done, does not convey why there is a need to improve the productivity of materials. Examples of new terms being used to express the ‘why’are environmental logistics and resources productivity; I am sure there will be others before we begin to use a generally accepted term that incorporates ideas of sustainability.
Achieving sustainable supply chains requires an understanding of the risks; that is vulnerabilities, in each of your supply chains. For example, the term ‘food miles’ has been used to highlight the overall risks (including consumption of energy) that distance can have on the supply of food, which is often processed and therefore incorporates multiple supply chains.
How much consideration of sustainability and materials productivity is given in the logistics strategy of your business? In my next blog we consider some areas for materials productivity.