I interviewed Richard Schrader who discussed Supply Chain and Sustainability.
Can you talk about what is supply chain sustainability?
Thanks for reaching out. Supply chain and sustainability kind of walk hand in hand. Supply chain sustainability, as we know it right now, is really related to the supply chain principles — the efficient use of resources, maintaining a customer service level, and risk mitigation. Sustainability inside the supply chain is really being pushed by a couple of things. First, you've got global population increase. We're going from 7 billion to 9 billion people. Climate change is increasingly placing pressure on our resources. And since supply chain is the efficient use of resources, we need to be able to respond to that.
Things like water. An example would be Cape Town in South Africa is expected to run out of water. The city is expected to run out of water later that month. Electricity and manufacturing, as it's related to population density. Air quality is a critical issue in China, in many Chinese cities right now. And how it impacts our commodities.
Commodities, especially crops, are impacted by weather patterns, such as the drought that we saw in southern Europe last year. And supply chain professionals need to be able to meet these challenges and should be ready to basically focus on adaption. If it's going to happen, then how are we going to adapt to it from a supply chain perspective?
You need to think about what's your risk mitigation strategy or what's your adaption strategy. Things like can you reduce corporate consumption of water and electricity? Are you in the right location? We here in the United States saw the Los Angeles fires pop up. It's because the population is in an area that is a chaparral. It's really designed to catch on fire, and those trees basically grow based on the fire. The seeds are released, and the carbon is the fertilizer. So we're seeing things like that that make us wonder whether we're in the correct location.
Will the increase in weather extremes such as the hurricanes impact your business? I'm in Dallas, Texas, so we saw Houston get hit hard. Puerto Rico got hit multiple times. Again, to kind of wrap it up, we need to take a look at where we're at and how we're going to use our resources and do risk mitigations, especially in industries like the wine industry. Tabasco sauce is made in Louisiana, but there is encroachment based on the sea level increase. Or the Houston hurricane that we had here — is that going to increase? Are the hurricane frequencies going to increase? Are their intensities going to increase? And how is that going to impact our supply chains? Are we able to move things around? And how do we deal with cities that may be under water for several days?
Can you share why this is important?
The impacts of climate change on supply chain can shut you down. We saw it when I was at Nokia. A lot of our product came over from Europe. There was a volcano, for example. It erupted, and it disrupted our supply chain. We couldn't get our components. So sustainability is very similar to the same thing.
In Houston, for example, when the hurricane hit, I work in a health care company, and we make beds for hospitals, but we also rent beds to senior care centers. So when the hurricane, we needed to be able to get rental equipment out to disrupted people. We also needed to be able to take care of our employees since we had people in their locations. That's kind of a double whammy that we ran into because of those situations.
But more importantly, customers are increasingly expecting companies to display corporate responsibility on social and environmental matters. So the customers are really asking companies to do that. And it's a supply chain responsibility often because of our imprint, our importance, in supply chain.
Supply chain professionals in the future need to ensure they've examined their processes and make sure their suppliers' processes ensure that customer trust is really ensured. You don't want to find out that your suppliers are cutting corners — similar to the issue we had in China with melamine in the milk — or let your supplier's gambles bring you down, like Foxconn had with Apple.
Metrics — you need to really implement metrics and confirm your locations so that you don't take impacts to your brand or your business, which can cost millions. Nike, for example, found that out recently — well, not recently —but found that out when they had some switch-out labor issues. You can really use it to your advantage.
Some examples are REI — they're known for their supply chain focus, their corporate responsibility — Starbucks; Patagonia, especially; Panera. Companies like that build their brands with their corporate and social responsibility programs.
Can you talk more about how it's done effectively?
Sustainability and implementing sustainability? Sure. There are a lot of initiatives you hear about. I'll call them topical. Energy, for example. You'll hear about people implementing solar, putting solar on top of the buildings. From a personal perspective and an ROI perspective, it takes a good chunk, maybe 20 years, to receive the benefit of that. If you're a sustainable corporation, then you're thinking a little longer term, and you can recognize that you can get the benefit because you're going to be in business, or you're expecting to be in business for longer than 20 years.
Really, what we're seeing now is a lot of focus from the financial organizations. Companies such as BlackRock are requiring their companies... BlackRock has — I don't know — $6 trillion worth of business that they own. And they're reaching into their companies and asking them to respond with corporate responsibility, responses such as diversity — making sure that there's diversity in the corporations, making sure that they're dealing with gender balance. Those are increasingly measured. The global reporting initiative, GRI, releases sustainability reports. So there are metrics in place. And companies' performance and effectiveness, to your question, are being metric-ed and measured and balanced against each other. So really, a lot of the most recent push we've seen is from the financial sector — the investors and the shareholders, because often they have shared values with sustainability — are expecting that of corporations going forward.
A lot of it is maybe different than what we've typically done in the supply chain, which is supply chain optimization —how do we do things cheaper, faster; how do we do it better —and really expecting us to lean forward and take a leadership position and make sure that our footprint and our impact as supply chain professionals is consistent with what our shareholders and the financial community is expecting because they're influenced by the consumers. And we've seen that younger generations are increasingly focused on these environmental issues and social justice issues and making sure that the environment is taken in consideration. That also has to be balanced with the running a business, being financially responsible, and making sure that there is an ROI on that implementation.
Can you provide a brief background of yourself?
I did my undergrad in international studies and realized that you really couldn't find a job after getting a BA in international studies except with the CIA. That didn't really appeal to me. So I got my MBA in operations and ended up in supply chain for 20 years. I worked with companies like Gillette up in Boston. I went to Corning out in Toledo, Ohio. Nokia and Samsung — I was in telecommunications for about 10 years. And currently, I'm in health care here at Joerns as director of purchasing and inventory. Most recently, I decided to expand.
One of the reasons that I got interested in supply chain is because it's a big problem. It's got a lot of moving pieces. And after 20 years, you start to see the pieces come today, and you start looking for where is the innovation and where is the bigger problem. And climate change seems to be a big problem, so I went back to school. I'm in the back half of getting a second master’s at Harvard University right now. So that's a little bit about my background.
Well, thanks again for sharing today, Richard.
Thanks again, Dustin. Thanks for calling.
About Richard Schrader
Director Supply Chain Planning