Tuesday, February 25, 2014

Adaptive Global Supply Chains in a Changing Climate

If you'll recall, during a discussion on using the cloud to "burn the bullwhip" altogether so to speak, I mentioned an NPR feature that covered two agricultural giants progressively incorporating cloud solutions to farming. If you weren't aware of it before, global agricultural supply chains are among the most complex in the world for obvious reasons: they are among the most globalized, exceedingly elastic to price fluctuations and commodities market movements, and extremely vulnerable to weather-related risks - in sum, it boils down to one of the most risk-exposed supply chains with the most to lose (i.e. food source shocks).

Using cloud-based analytics, both Monsanto and Deer & Co. (you know em' when you see em', monstrous green'n'yella' machines responsible for the bulk of modern agriculture's field work) are beginning to introduce Midwestern farmers to competing services, both of which use predictive analytics to optimize harvest yields and improve global supply chains. Monsanto's offerings are housed within a service called FieldScripts and Deere is offering both JDLink and Autotrac.

Up until today, I was only going to outline the innovations then bring up Monsanto's incredible $930 million dollar acquisition of climate analytics startup The Climate Corporation. But then the plot thickened this morning when the University of Notre Dame's Global Adaptation Index (ND-GAIN) announced that it had successfully orchestrated a partnership with two other organizations to bridging the divide between sustainability/climate adaptation advocates and large-scale corporations that require scalable strategies. ND-GAIN is a center for the collection and analysis of data related to climate change and its real-time impacts on vulnerable communities throughout the world in the fields of urbanization, coastal concerns, water, food/agriculture, and energy (Youtube feature). The other two organizations are Four Twenty Seven, a San Francisco-based environment consultancy, and Climate Earth, a private firm that specializes in offering sustainable supply chain and financial management strategies that are scalable for large companies. You can read up on the details here.

To pause for clarification, what do we mean by adaptation? Find out from the United Nations Framework on Climate Change's overview. In short, "adaptation" studies pertain to any strategies that prepare people groups, their government's, and corporations for the deleterious affects of climate change. It has become a buzz topic in the world of international development, foreign affairs, and environmental specialists in recent years as the number of global natural disasters increase, especially floods and droughts.

As with a former post of mine, this topic also happened to be a major topic of discussion at Davos 2014 as well. The culmination of leading researchers' work and the collaborations of global leaders at the Forum can be found in a fascinating report released this past January entitled, "Climate Adaptation: Seizing the Challenge." The most salient point for our purposes here is that the negative effects of climate change will present new challenges to 21st century supply chains. This very point is explored in the report mentioned above, but was also articulated succinctly by World Bank President Jim Yong Kim. Drawing this connection between climate change and economic risk, he passionately called on corporate leaders to drive the transitions to sustainability that our world needs, but by honing in on the things that matters most to them:
Be the first mover. Use smart due diligence. Rethink what fiduciary responsibility means in this changing world. It’s simple self-interest. Every company, investor, and bank that screens new and existing investments for climate risk is simply being pragmatic. (Kim from "Jim Yong Kim: Make 2014 the turning point")
There it is, "simple self interest," both a hallmark of traditional liberal economic theory as well as an important consideration for company's that wish to stay alive.

Perhaps your exposure to the discussion of climate change is narrowly divided along strict lines - industrialists and environmentalists. Thankfully, this kind of hysterical myopia is only a most notable trend in the US, while the majority of the rest of the world (particularly the Global South) has been taking this seriously for a decade or more. However, recent trends among large US-based companies suggests that Kim's self interested pragmatism approach is actually starting to play out in board rooms around the county. In a recent New York Times article entitled "Industry Awakens to the Threat of Climate Change," Coral Davenport profiles Nike and Coca-Cola, two Fortune 500s who have a large presence in areas of the world who are or will be greatly affected by climate change. Along with their peers, they both are feeling the heat (pun intended) and beginning to change their behaviors to respond to the risks by changing themselves. In the examples provided by Davenport, Coca-Cola began using water conservation technologies in response to droughts, and Nike began using synthetics to avoid the procurement-related issues with previously used materials.

But it should be said at this point that there are some sectors whose risks cannot be ameliorated by changing their procurement strategies or making operational improvements aimed at conservation. When it comes to global agricultural supply chains, the "procurement strategy" is far too entangled with variable largely out of our control, namely the part where you have to put a seed in the ground and nurture it to growth with good soil, water, and sunlight.

With that, we're brought right back to Monsanto, Deere, and ND-GAIN. Both Monsanto and Deere recognize the enormous potential of analytics to optimize their clients' productivity, and that the outcomes will be mutually beneficial. Furthermore, without saying much on the matter, it is clear they are attempting to provide solutions in sustainability that can assist the agricultural industry in responding to sudden changes in real-time. ND-GAIN and their partners are doing the same, hoping to provide a similar service to companies that don't have what Monsanto and Deere have, the only difference is their information is being offered open source.

In the first place, one of the more exciting elements of all this strikes a similar tone to my former post on the "circular economy." The Ellen MacArthur foundation has a daunting mission, and they begin with a fairly critical rebuke of our current model of production and consumption. But instead of taking some kind of moral high ground - pretending as if they too don't also participate in the activity that fuels it - they struck up partnerships with the likes of McKinsey & Co. and the World Economic Forum to deliver helpful solutions to the world's largest MNCs that are more than just wagging their shaming fingers and actually attempt to develop scalable alternatives. 

In the same way, ND-GAIN and its newest partners are investing their energies in cultivating the kinds of resources necessary for large firms to change. The partnership they announced today will spend the bulk of its time creating a large-scale "enterprise-quality application" called the Climate Change Risk Management Index: 
It will enable large corporations to quickly map and quantify global supply chain risks due to climate change, leverages climate indicators and country risk ratings developed by ND-GAIN, the world’s leading research index showing which countries are best prepared to deal with climate disruption and other global shifts. (ND-Gain News Release, 2/25)
At the same time, Monsanto and Deere are preparing their most important agricultural region - the currently fertile and always vital Midwest - through the use of a cloud enterprise system that incorporates analytics to improve the decisions of farmers and the ultimate outcomes. In both instances we see the importance of new technology to allow for SCM improvements, particularly this "final frontier" of cloud-based intergration or, better yet, cloud-based enterpise-quality applications for supply chains. A tertiary benefit is the ways the solutions can better unify the entire chain of actors in a supply chain, thereby reducing the bullwhip effect.

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