Hodgson_PPT_JLI-2008.ppt

09/07

Canadian Supply Chains and Managing Environmental

Risks -- and Opportunities?

JLI ConferenceCalgary

June 10, 2008

Glen Hodgson, Senior Vice-President & Chief Economist [email protected]

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Supply Chains and the Environment

•Growing awareness among Canadian leaders of :

•Supply chains:

•Increased dis-aggregation of production outside the firm and across borders

•FDI a key driver

•Era of “Integrative Trade”

www.conferenceboard.ca

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Supply Chains and the Environment (cont.)

• The environment and sustainability

•Firms are becoming aware of disruption risk from environmental impacts

• Policies in flux: carbon tax, cap and trade and regulation now all part of the CO2 debate

•But still early days in putting the two concepts together -- “Sustainable supply / value chains”


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Measuring Canada’s Fit into Global and Regional Supply Chains

• Original Conference Board analysis just published

• Estimates country supply chains from buyer’s perspective – recuts trade data by entry level, intermediate and final goods

•Measures international trade in real terms – price increases eliminated

• Top 25 goods exports and imports, by region

• Services not included due to data problems


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What Did We Find?

•Trade integration took off after FTA, until 2000

•But we are now stuck in neutral

•Real trade volumes have declined with the U.S. since 2000

•Share of trade in inputs has not progressed

•Some progress still being made with emerging markets

•Huge increase in imported parts from Asia


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Canada’s Exports to the World Top 25 Goods

Share (%)Volumes (billions of 2002$)

Source: Calculations from Industry Canada Trade Data Online.

09/07Canada’s Imports from the World

Top 25 Goods Share (%)Volumes (billions of 2002$)


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Canada’s Exports to the U.S.Top 25 Goods



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Canada’s Imports from the U.S.Top 25 Goods



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Canada’s Exports to EuropeTop 25 Goods



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Canada’s Imports from EuropeTop 25 Goods



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Canada’s Exports to AsiaTop 25 Goods



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Canada’s Imports from AsiaTop 25 Goods



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Integrative Trade Trends: Canadian Exports to Asia

($ CND billions)

Source: The Conference Board of Canada, Statistics Canada, UN Comtrade.

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• Business literature is now drawing a sharper difference between “supply” chains and “value” chains

• Supply chain: linear process where parts and inputs are formed into a final product brought to market

• Value chain: circular process involving the creation, development, production and distribution of a product, creating value at each step -- regular feedback from suppliers and buyers about the value they are deriving

www.conferenceboard.cawww.conferenceboard.ca

From Supply Chains to Value Chains

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• Environmental effects can subtract from, or add value to, the production process

• The environment represents an important sources of disruption and reputation risk; but also opportunities

• Environmental disruptions / opportunities can arise from:• within the firm • with its suppliers• the sector or jurisdiction• from an external source


Adding the Environmental Dimension

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What Does Our Supply Chain Research Suggest re: Environmental Impacts?

• Trade integration in North America is both deep and stalled

• Need for clear North American regulatory standards

• Huge increase in imported parts from Asia and from other emerging markets

•Translates into enhanced disruption risk

• Points to need for greater clarity on global environmental standards and impact assessment for these inputs


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• Management failure or compliance failure by suppliers

• Ongoing impacts: e.g. CO2 and other airborne emissions, water pollution, soil contamination, etc

• A catastrophic environmental event: e.g. chemical spill, flood

• Changes to policy: • Externality pricing via green taxes• Green tariffs on imports?• Regulation – approvals, processes, standards • New technologies

• Lack of policy coherence across borders


Specific Environmental Risk Elements

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• Environmental technologies and services • Energy savings, emissions reductions, etc

• Alternative service delivery• Use of info technology to deliver more efficiently or even

virtually

• Green branding and products• e.g. Walmart has created green product mandates, less

packaging that may also cut costs


Environmental Opportunities in Supply / Value Chains

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• Full engagement and transparency of suppliers and buyers

• Clarity on standards and expectations across supply chain

• Feedback mechanisms and use of certification

• Alternatives / competition among suppliers

• Crisis management plans


Managing a Sustainable Supply Chain:The Search for Good Practice

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• Business is starting to define good practice in sustainable supply chain management

• e.g. Global Commerce Initiative (GCI) and Capgemini, website “Future Supply Chain 2016”

• e.g. IBM Institute for Business Value, recent work on “mastering carbon management”


Managing a Sustainable Supply Chain:Recent Business Research

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• Seven solution areas identified for retail supply chains:• In-store logistics – improvements to display, shelf-ready

products• Collaborative physical logistics – design and sharing of

physical infrastructure in shipping and warehousing• Reverse logistics – packaging , product recycling, etc• Demand fluctuation management• Identification and labeling – e.g. barcodes use• Efficient assets – modify buildings, equipment• Joint scorecard and business plan


Managing a Sustainable Supply Chain:GCI / Capgemini Guidance on Retail

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• IBM proposes a trade-off model where businesses must balance transportation, process and inventory policies to minimize total CO2 emissions

• IBM suggests a five step approach to manage CO2 across a supply chain:

1. Diagnose and assess2. Implement asset management and realize point solutions3. Address emissions in supply chain functions4. Find the optimal solution for integrating across functions5. Collaborate with supply chain partners to realize overall potential


Managing a Sustainable Supply Chain:IBM Model for CO2

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• Carbon tax on producers / consumers

• Regulatory limits – major emitters, vehicles

• Cap and trade – sets regulatory limit on CO2 produced, and uses prices to reallocate the limits

• Investment incentives – green bonds, enviro tax credits


Managing CO2: Big Policy Options

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• Cattle: Due to BSE, producers now track an animal through its life to monitor contamination risk

• Retail: • Rona and Home Depot have introduced “sustainable wood

sourcing” (must be CSA approved)

• Tesco (U.K.) has introduced carbon labeling for its products-- domestic only so far, since the supplier needs to be able to track CO2 across the entire supply chain


Making It Real: Some Examples

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• Energy: California and U.S. Feds / DoD have introduced a “low carbon fuel standard” -- requires refiners to meet a given carbon emission standard (that heavy oil feedstocks can’t currently meet)

• Energy industry examining carbon capture and storage (CCS) and its economic viability• Pricing carbon will change the incentives and create new

business opportunities in the value chain


Making It Real: Energy Examples

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• Still early days for the concept of “sustainable supply / value chains”

• But the idea is catching on with retailers, producers and service-providers

• A risk management / new opportunity approach should capture the interest of business and policy leaders alike

• And “sustainable value chain” management will create opportunities for stronger brands and new lines of business


Conclusion

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