The Supply Chain that gives more than it takes
This article series (4) was originally written by Poul Breil-Hansen and was published on www.scm.dk in Jan/Feb 2024. It was published in Danish, and afterward translated into english so it can reach a greater audience.
Read more about the book at www.reimaginingthevaluechain.com
Part 1: Introduction
The sustainable perspective is not enough any longer. More is needed if we are to create a healthy business in healthy surroundings. The ‘more’ could as an example be ‘the regenerative perspective’. In short, the regenerative Supply Chain is a chain that gives back more than it takes.
The Supply Chains are ‘broken’ and there is a need to heal them. This is the background for the book ‘Re-Imaging the Value Chain — a Regenerative Approach’, written by Henning de Haas and Alis Sindbjerg Hinrichsen. They are both seasoned Supply Chain professionals with plenty of theoretical insight and practical Supply Chain experience from companies such as LEGO, B&O, Vestas, VELUX, Danfoss, Odense University Hospital, Aarhus University and more.
They have both had their hands deep in Supply Chain operations and development, and they know what they are talking about. They’ve been there, and they’ve seen with their own eyes how much Supply Chain management is stuck in old business dogmas about efficiency, cost focus and short-term value creation, and how the work with the green transition seems like a tailor made in hell. In the book, they choose a neutral and constructive critical approach, where they focus on the rebuildable perspective. Very likeable — and indeed constructive.
“It is time to protect businesses’ value creation in the long run. Neutrality — or ‘do no further harm’ — is increasingly seen as an insufficient ambition. It must be seen in the light of loss of natural capital and climatic tipping points that threaten the health, safety and survival of millions of people”.
Get to the root of the problem
This is how the book’s estimate reads. The book then focuses on the next generation and their completely different view of businesses’ responsibility for the whole of which they are a part. Generation Z and other young generations do not see E (environment), S (society) and G (governance) as an add-on. ESG is an integral and fundamental part of business operations.
The authors’ real message is that the ESG-related challenge, recognized by the vast majority of citizens, governments and companies today, can only be solved if we tackle the root or core of the problems. The challenges must be seen and tackled as part of a larger whole.
According to the authors, we therefore need a regenerative approach: “Regeneration is a concept that addresses challenges in a broad-spectrum way and offers business and Supply Chain managers a comprehensive framework for the work of creating and protecting long-term oriented value. The long-term value takes into account:
· Harmony between the organization and new values and driving forces for value creation,
· inspires innovation and
· builds the company’s resilience
The company is not a desert island
The book advocates a complete system change that addresses the root causes of global problems. According to the authors, this implies that companies see themselves as part of a larger whole. The greater whole is ‘all life on earth’ in the form of both nature, people and the economy. The regenerative perspective is an ambitious vision of creating a better world — rather than focusing on the climate disasters we must avoid.
If you are interested in answers to the following types of questions, then the book is for you:
· What is regeneration? What are the driving forces behind a regenerative Supply Chain? How can you transform and create future strategic value?
· How can you incorporate regenerative thinking into your future mental models, products and processes?
· What is a business ecosystem — and what are the benefits of incorporating the ecosystem as a key element in the transformation?
· How can value chain technology support and accelerate the transformation towards a regenerative future?
You can also formulate it in another way. The book offers the following:
· Insight into the fact that decarbonisation, sustainability and ESG are just the start of a longer journey and what it means more precisely to be ‘regenerative’ in a supply chain context.
· Framework, models and tools that can support your regenerative transformation, so you will be ready for the future.
· Inspiration for how you can lead the change in your management team and/or board towards new mental models and mindsets.
· Insight into how sustainable work can be lifted to a strategic regenerative transformation of the entire value chain.
Part 2: Why?
Business life is undergoing a revolution, and Supply Chain management plays a key role in guiding businesses through the revolution. Towards a Supply Chain that gives more than it takes. The driving forces behind the upheaval are a historic U-turn, where companies in a completely new way take responsibility for being part of a larger whole.
Market conditions have always changed and created the basis for business unrest and innovation. The authors of the book ‘Re-Imaging the Value Chain — a Regenerative Approach’ Henning de Haas and Alis Sindbjerg Hinrichsen state in the book that the industrial economy is at the end of the road and that we are living in a turning point where a completely new economic age is on the way to arrive. The economy of the new era will be characterized by constantly changing solutions and continuous reconfigurations in response to the changing needs of end users. We are looking into a paradigm shift, it says.
The shift is driven by new generations’ higher sense of responsibility towards society and the environment — or the planet and people. It is also driven by many shortcomings: lack of resources, food, energy, natural capital and biodiversity as well as qualified labour.
Simply put, the driving force behind the shift to the regenerative Supply Chain is that we have moved from a so-called Holocene status — where the earth was able to regenerate the resources humans use — to an Anthropocene status — where the earth cannot keep up with the pace of human consumption. Humanity is simply sawing off the branch we are sitting on.
Management of the Supply Chain, as we know and practice it today, is no longer sustainable, according to the book, and major upheavals are needed if the supply chain is to be future-proof.
New concept of growth
The shift can in many ways be summed up in a new growth paradigm — or perhaps rather, that we begin to question the all-dominant growth mantra that permeates our entire way of thinking, consumption, production as well as social and business life.
“We would need several planets if, at our current rate of consumption, we were to support nine or 10 billion people living a reasonable life. It’s not something we just fix in a day or two. We need to change our mindset from a self-centered perspective to a broader perspective with an eye for the whole of which we are a part. The earth is limited and cannot support our needs unless we start consuming and regenerating resources”,
write the two authors in the book.
They add that less than nine percent of all that is produced is recycled; less than five percent of electronic waste is recycled; and approximately 40 percent of food is lost on the way from farm to table. Just to put consumption, growth and waste into perspective.
The authors suggest that we expand our understanding of the concept of growth. For example, it could also include concepts such as employee engagement and the employees’ experience of meaning (purpose), customer satisfaction and enjoyment, the well-being of the surrounding community, the health of the local environment and so on.
New concept of value creation
For the past 50 years or more, the dominant purpose of running a business has been to generate financial results for the benefit of shareholders. And the Supply Chain has historically been measured by its ability to reduce costs and maximize profitable customer service. According to the book, it no longer lasts. The one-sided focus on the financial results damages the climate, biodiversity, environment and so on. There is no way around expanding a company’s stakeholders from the owners to also include society and the environment. A company must no longer create value for the owners, but also for society and the environment — otherwise there will be no company anymore.
New perception of technology and management
In the same way, the authors argue that there is also a shift in our perception of technology and management. In the 19th and 20th centuries, machines were a metaphor for society focused on money and growth. Then computers appeared, and digitization created a new economy based on bits and information. The next technological shift is characterized by living systems and biology (bio-economy), which aims to support our well-being in the future in a stable and sustainable way. Our relationship with technology has always been shown to have a great effect on our relationship with nature and each other. For some time, we have been technologically able to make a big dent in the earth’s resources to support our consumption; in the future we must change the rules of the game so that we protect the ecosystem of which we are a part.
In the same way, the authors emphasize that we are also experiencing a change in management. The management of the future must take care of the employees’ well-being to a much greater extent. It requires a completely new kind of brave and authentic leaders who are able to focus on compassion, empathy, trust, creativity and learning — and on their own personal development.
Look at the resource account
In an interview, they point out that today in the Supply Chain we waste resources in the form of gas, raw materials, human energy, well-being, skills, social capital and more, without giving anything back. In many cases, it creates good financial profits for the owners of the companies; but it also creates a number of very unfortunate effects in the form of:
• climate damage,
• environmental pollution,
• high stress levels,
• poor well-being,
• social inequality,
• violation of human rights,
• cut into the basic needs of millions of people worldwide
• and so on.
“It is dawning on many of us that our Supply Chains are out of balance and exploiting resources, and we believe that the time has come to bring about change”,
they say and add:
“Hand on heart: If you, dear reader, pay close attention, it is your assessment that today we have created a society and a way of living which will continue to allow humans and other life to flourish on earth forever? Or put another way: Is it possible for us to create a future that is of a mold that we or our children and children’s children want to be a part of?”.
Part 3: What is it?
The Supply Chain has long been a major consumer of resources. Now is the time to think in several dimensions and redesign the Supply Chain so that it gives back at least the amount of resources that have been consumed. Because it’s the only thing that makes sense. This is the essence of the ‘regenerative Supply Chain’.
There is a difference between sustainability and regeneration. Regenerative recognizes that business and the Supply Chain are part of nature and not the other way around. The regenerative practice focuses in the same way as sustainability on environmental and social responsibility, but the two concepts also have clear differences. That’s what it says in the book ‘Re-Imaging the Value Chain — a Regenerative Approach’, written by Henning de Haas and Alis Sindbjerg Hinrichsen.
Sustainability aims to maintain or delay the environmental or social degradation — or reduce the negative effect of human activity on the environment and society.
The regenerative approach takes a more proactive approach and seeks to regenerate and rebuild systems, ecosystems and collaborative communities.
Sustainability is not enough
The sustainable perspective is not enough. More is needed if we are to create a healthy business in healthy surroundings. The ‘more’ can be, for example, ‘the regenerative perspective’. In short, the regenerative Supply Chain is a chain that gives back more than it takes.
“We are not necessarily arguing that the business owner should do without his big BMW if that is what he or she wants to drive in. We are not talking about creating businesses that are less profitable. We are talking about companies that do not waste energy, where ‘energy’ is understood in a broad sense in the form of fossil fuels, natural resources, renewable energy, social energy, human health etcetera”,
they say in an interview and add:
“Today, we all know that many people go to work and use up so much of their energy that they are completely exhausted when they get home. They must then use private and family life to recharge and generate new energy. Imagine if it could be the other way around — and why shouldn’t it be?”.
From consumption to production of resources
In its essence, regeneration implies a transformation of the economic paradigm created by the industrial revolution, aiming to replace it with a new industrial system that, instead of consuming resources and producing waste, does the opposite: consumes existing waste and produces resources.
In the book, the two authors present a number of concrete proposals for how a future-ready Supply Chain can be arranged and designed. At least in overall terms, as they formulate it themselves in an interview: “This is an early phase. We want to start a movement that changes the development of the Supply Chain. We do not know where it may end; but we believe that someone must start the movement, and then others will follow and support and contribute to shaping the development”.
Economic profit cannot stand alone
But what does it mean for managers and employees in the Supply Chain to redefine ‘value creation’ and ‘consume existing waste and produce resources’? What does this mean concretely for behavior and working methods in everyday operations?
“We are far from having an adequate answer to that question. Someone has to take the lead and launch some thoughts and ideas, and we are happy to take on that role. But we have some suggestions on where you might start”, say the two, who present themselves as curious, exploratory and not least optimistic.
The market for the regenerative Supply Chain is, for example:
· Access to resources is not unlimited for us or future generations.
· The mental models we used in the industrial age will not necessarily be the right ones in the future.
· We cannot take for granted that we can simply rebuild biodiversity at any given time.
· It is untenable to maintain that a company’s only form of value creation is financial profit.
· It is unsustainable to assume that your business will automatically continue to make sense — especially from the perspective of the employees.
· It is unsustainable to assume that your employees can help save the planet without thriving and being healthy.
Humans ARE nature
In the book, the two authors write that the foundation for the regenerative paradigm is to remove all barriers between man and nature. People ARE nature, and it is important to view the company’s organization as part of a larger ecosystem — and that the organization must support the ecosystem.
They estimate some elementary principles from the natural world that can form the platform for an organization’s work:
· Collaborate more and compete less.
· Invest in the well-being of others — and reap better well-being for yourself.
· Leave places in better condition than you found them.
“Regeneration is not just a new word for the somewhat worn-out term ‘sustainability’. It is a new way of thinking and a completely new level of ambition. It involves creating the right conditions so that life can renew itself on an ongoing basis”, reads the book.
The regenerative perspective implies that we must fundamentally refrain from being satisfied with being ‘less bad’ and instead go after being ‘more good’.
Part 4: How to do it
The Supply Chain of the future must reflect that the Supply Chain is part of nature and a larger ecosystem. It must give back more than it takes. According to the authors of a new book, it is the only sustainable way — and the only one that makes sense.
Here is a book that gives concrete suggestions on how you, as a Supply Chain manager, can transform your Supply Chain so that it supports a regenerative vision. The book argues for and shows how the management of the Supply Chain must reformulate goals and adopt a completely new mental model.
“If we redefine the overall business goals in accordance with a new form of ‘value creation’ that takes into account both society, the environment and owners, then this must also affect the entire hierarchy of goals in the company and Supply Chain organization”, say the authors.
Regenerative recognizes that business and the Supply Chain are part of nature and not the other way around. The regenerative practice focuses in the same way as sustainability on environmental and social responsibility, but the two concepts also have clear differences. That’s what it says in the book ‘Re-Imaging the Value Chain — a Regenerative Approach’, written by Henning de Haas and Alis Sindbjerg Hinrichsen.
But how does the Supply Chain manager who wants to transform into a regenerative Supply Chain do it in practice?
We could start by recalibrating KPIs or target numbers in our everyday life. Is it a good idea to produce for stock? Do we really have control over our stock, or do we have 30 percent too much of the wrong thing in stock? What are the sources of our raw materials? Can we find new more sustainable sources or is it possible to recycle some of our resources? How can we take into account the UN’s 17 + 5 global goals for ‘external’ and ‘internal’ sustainability in our daily work?
Instead of only looking at price variations and lead time when developing new products, we could also look at what makes ‘human sense’ or ‘how do we regenerate the human resources when we produce and deliver this product?’. Does it make sense to dig up resources from the ground, use fossil fuels or compensate by buying CO2 allowances?
Regeneration requires innovation
The regenerative Supply Chain will require lots of innovation in many dimensions. We can start by involving Supply Chain experts in the development department’s work from day 1. Supply Chain people can contribute to ensuring that the physical Supply Chain is included in the development of new products from the very first thoughts, so that we make sure that the product does not not only delivers good value to customers, but also creates value for the environment and society throughout the Value Chain.
Another form of innovation could be to monitor or monitor the real ‘resource consumption’ in the entire Supply Chain. It could be ‘resource consumption’ measured both in kWh, CO2, environmental footprint, social footprint in society, employee well-being and other relevant dimensions.
A third form of innovation could be to train managers to think about all forms of resource consumption and support both external and internal sustainability in their management in everyday life. There are already many new concepts for self-directed groups and new forms of organization that focus on creating well-being, creativity and productivity among employees.
A fourth form of innovation is the intelligent use of the many new digital tools that can precisely eliminate redundant work among employees or contribute to creating smarter and more sustainable sourcing or planning and so on. There are many options and there are already many tools on the market.
Here is a framework
In the book ‘Re-Imaging the Value Chain — a Regenerative Approach’, the authors Henning de Haas and Alis Sindbjerg Hinrichsen launch a practical framework that can help the Supply Chain manager who wants to transform the Supply Chain into a more regenerative Value Chain.
The framework consists of six steps:
1. Place regeneration at the heart of the Value Chain
2. Transform your internal rules of the game
3. Build regenerative practices
4. Make technology your anchor
5. Partnership with new relationships in the ecosystem.
6. Build new management and target structure.
The work with the transformation framework is based on a “Value Creation Framework for the Value Chain”, which the authors present in part 3 of the book.
Step 1 of the framework consists of translating the analysis work from the “Value Creation Framework for the Value Chain” to the transformation framework. It primarily consists of developing the Value Chain’s new value proposition in the context of the regenerative economy.
Working with the transformation framework requires a lot of rethinking and deep reflection. The authors talk about a ‘re-imagining journey’ and they suggest that the Supply Chain management team ask themselves the following type of questions:
· What do you have to do to change the internal rules of the game? What new mental models can you use to remove yourself from the mindset of ‘do less harm’ and instead think: ‘give more back than we take’?
· How should products, processes and services be changed so that they support the company’s regenerative profile?
· Which external ecosystems of partners should you engage with if you want to realize systemic thinking?
· What technologies and digital tools can help you accelerate the transformation?
The book goes into detail about the six steps. The book also dedicates chapter 8 to the leader’s own personal development:
“As a leader — start by leading yourself first”.
Supply Chain managers have special responsibilities
The two authors emphasize in an interview that everyone can contribute and that the Supply Chain department has a great responsibility for bringing real sustainability to the agenda. Management of the Supply Chain sets the framework for how we produce and deliver goods and services, and the Supply Chain therefore plays a significant role and has great detailed knowledge of what happens in the ‘engine room’.
The two point out that the biggest barrier or lever for sustainable development may be our mental models.
“Our mental models are based on what is called the Holocene state, when the earth was able to regenerate the resources we humans use. But we have now transitioned to the Anthropocene state, where we humans use more resources than the earth can regenerate. For example, in 2023, Denmark already hit Earth Overshoot Day on 28 March 2023, when we have used our quota of resources for an entire year. We therefore all have to work with our ‘mental model’ and start thinking, for example, about offering a washing machine as a service instead of a product sale and so on”,
- Alis Sindbjerg Hinrichsen and Henning de Haas tell us.
This article series (4) was originally written by Poul Breil-Hansen and was published on www.scm.dk in Jan/Feb 2024. It was published in Danish, and afterward translated into english so it can reach a greater audience.
Read more about the book at www.reimaginingthevaluechain.com