Written by Alexis M. Kyprianou
As economic growth in developing nations accelerates, competition for natural resources increases. As a result, businesses in many sectors face the challenge of resource scarcity: supplies are under threat and costs are increasing. Yet, despite the urgency of the challenge, many businesses are failing to acknowledge the growing impact that resource scarcity will have on their industry and the way they run their operations. They continue to use outmoded planning models that fail to reflect increased costs or to mitigate the risk of interrupted supply.
To rise to the challenge of a world where resources are becoming increasingly precious, businesses must focus on four priorities: using resources more efficiently, exploring alternatives to the resources they use currently, securing supply, and implementing new business models.
Using resources more efficiently
The drive to use resources more efficiently begins with good housekeeping — measuring the use of basic resources such as energy, water and raw materials within the business and putting incentives in place to drive down usage. Within manufacturing operations, there are a number of further options for reducing resource usage. Draka Prysmian, for example, reduced and managed its waste streams by:
- avoiding waste by more accurate measurement and control of production parameters and re-engineering of the planning process
- recycling waste by adopting material compositions so that waste could be recycled back into the production process
- selling valuable waste components that could not be recycled into European market segments where market prices are best.
Additional levers are:
- developing new, less resource-intensive processes
- using process engineering to increase raw material yield
- making changes to product design so fewer materials need to be manufactured
- making changes to reduce costs associated with packaging and distributing products.
- Exploring alternatives to current resources
Resource scarcity means business leaders need to make a real commitment to bringing new sustainable materials into the supply chain and to work with their own manufacturing and R&D teams, and their suppliers, to achieve this. For example, in the face of rising oil prices, one soft drinks manufacturer has developed a process for making its bottles from plant-based material rather than oil-based plastic. Responding to the challenge of resource scarcity by innovating in this way opens up opportunities for businesses to pioneer new technologies.
Threat to supply is a reality in many sectors. China, for example, dominates global production of rare earths critical to the manufacture of goods such as smart phones, lasers and hybrid batteries, and is now restricting export, denying this key resource to competitors overseas. Vertical integration, through which different companies in the supply chain are united by a common owner, is emerging as a trend among companies seeking to secure access to the resources they need to do business. However, vertical integration reduces flexibility and can be more expensive, so businesses adopting this strategy must be confident that the anticipated benefits outweigh possible drawbacks.
Implementing new business models
Through ‘the circular economy’ manufacturers invest in collection networks to reclaim end-of-life products, maximizing the reuse of parts and then feeding material back into the recycling chain. For example, Bosch and Ricoh have adopted this approach.
With ‘urban mining’, when businesses invest in waste collection to harvest and then reuse scarce and valuable materials from discarded material.
Following the trend for partnering, suppliers of consumables, such as a solvents producer who will work with a metal cleaning equipment provider, offer services instead of products. By working together, the organisations are able to recycle the cleaning chemicals afterwards.
All these models reduce the need for ‘virgin’ material, increase the level of recycling, and approach products as resource banks for re-use. These commercial models transform from selling products, to delivering services where the product is a resource-intensive carrier for service delivery.
Alexis M. Kyprianou
Alexis is a financial analyst/trader and freelance writer in Wealth Management, Trading, Blockchain, and Artificial Intelligence. As a former Goldman Sachs analyst, he helps finance professionals and Fin-tech startups build and grow exponentially. He's currently working on developing a high-frequency trading algorithm in collaboration with Algoriz backed by Y Combinator.
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