To Thwart Lack of Natural Resources, Go Full-circle in Supply Chain

September 17, 2009

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By 2020, demand for natural resources will outstrip supply, resulting in higher and more volatile pricing in the consumer industry, according to a new research report. The report indicates that these pressures could significantly impact the profitability of consumer industry companies, and makes several recommendations for a sustainable industry.

The report, Sustainability for Tomorrow’s Consumer, published by the World Economic Forum in collaboration with Deloitte Touche Tohmatsu, suggests that unless businesses can rapidly redesign their value chains to reduce resource use and decouple economic growth from environmental degradation, their ability to help economies grow, provide consistent shareholder returns and meet the needs of consumers will be threatened.

The report highlights the potential impact that rising prices of resources could have on businesses in the consumer industry. As an example, one company with revenues of $80 billion has 40 percent of its revenue tied up in covering the cost of resource-based inputs and a profit margin of around 10 percent. A ten percent increase in its resource-based inputs cost will result in an 80 percent decline in profits, assuming the company will not be able to transfer the cost increase to the consumer, according to the report.

The report outlines a series of actions consumer businesses should begin to address to move the industry towards a sustainable future. As an example, the report recommends the transition to a supply-chain model that enables resources to go full circle, where every stage of the chain of sourcing, manufacturing, distribution, consumption and end-of-life is optimized for resource use.

The report also proposes new forms of collaboration such as open sourcing with supply chain partners and consumers, focused on resource efficiency, product take-back, and reverse logistics. Information sharing will become more common, for example, through standardization of packaging materials to boost recyclability, according to the report.

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