Sustainable consumption? Sounds like an oxymoron. But that's what we'll be discussing at next week's World Economic Forum Summer Davos 2010 event in Tianjin China. In the session, entitled "Redesigning the Supply Chain in an Era of Sustainability," my WEF colleagues and I will ask CEOs and policy makers to rethink our dominant model of industrial production: the supply chain.
What is it about supply chain thinking that causes sustainability problems? To understand, you'll have to come back to business school with me.
The fundamental model we teach MBAs for thinking about manufacturing is the value chain, a simple model that describes the value adding steps that take a low value material like iron ore and turn it into a high value product like a Ferrari Testarossa. There are, however, a few sustainability problems with the model. First of all, it ignores the fact the value chain is connected to the environment and that resources are being extracted at upstream end and that consumers are dumping their used products back into the environment at the downstream end.
But more problematic is the incentives the value chain creates for sales people. The value chain culminates with the "margin," which is the profit made on each sale of a widget. The obvious inducement for profit seeking executives is to sell as many widgets as possible, cashing in on the margin for each sale. The environmental result is that the value chain sucks ever more many raw materials through as fast as possible, swallowing up huge volumes of timber, steel, plastic and energy in the process.
Unfortunately, the global industrial value chain is already extracting more resources than the nature produces each year. Global Footprint Network calculates that as of August 21 of this year we had already used up nature's annual allotment of resources. As of today, we are at about 107% of nature's annual budget. The interest is gone and we are now spending our capital reserves. Any financial planner will tell you that this unsustainable by definition. And that's just today. It's estimated that energy and natural resource needs for industrial growth are going to rise by 170% by 2040. If China and India alone develop to the point where car ownership reaches the level of Europe we will triple the global automobile fleet.
Manufacturing three times as many cars, refrigerators, TVs, air conditioners and the like is not going to happen with our current models. We clearly need a new model of production and consumption if economic development to continue on a global scale. Growth can help pull the masses out of grinding poverty and create new business opportunities in the industrial world. But what worked in the past won't work in the future. Luckily we have plenty of promising examples of companies and governments innovating new more sustainable business models. I discuss many of these in my book Earth, Inc., but more are arising every year. It's an encouraging sign that the once arcane area of "sustainable consumption" has risen to the agenda of organizations like the World Economic Forum. Is it on yours?