While the focus of much of the Green Supply Chain movement has logically, given the state of things now, focused on carbon emissions and energy use, it is likely that water management and conservation will take on increasingly prominent Green Supply Chain emphasis.
There is certainly some debate about carbon emissions and global warming, especially with recent announcements that called into question some of the data that has been used (e.g., "Climate-gate," backtracking in predictions of Himalayan glaciers disappearing by 2035), or how much it is really possible to reduce CO2 emissions globally given the expected growth in developing nations.
The emerging potential crisis relative to water is much less controversial, and is likely to manifest itself in very real ways down the road - in fact, it already has.
In 2004, for example, both Coca-Cola and Pepsi Bottling shuttered plants in India that local farmers and urban interests believed were competing with them for water. In 2007, a drought forced the US Tennessee Valley Authority to reduce its hydropower generation by nearly a third.
That has led many companies to already start to tackle the water issue through a variety of recycling and process re-engineering steps that in some cases have dramatically reduced the amount of water their production processes consume.
For example, food giant Kraft has been able to reduce its total water consumption by some 21% since 2005 from a variety of changes its manufacturing processes (See
Kraft Re-Engineers Manufacturing Processes to Dramatically Reduce Water.) Toyota has reduced water usage in its North American factories by more than 20% in the last decade, with even more ambitious plans being enacted now.
The fact is that in many parts of the world, water is already becoming scarce. Not only does that mean that, as in India, it could be perceived that business is "competing" for scarce water resources with consumers and households, it also means the price of water is likely to rise substantially in many areas, providing a big hit to the bottom line for businesses that can't reduce water consumption at even faser rates than the prices go up.
While "closing the gap between supply and demand by deploying water productivity improvements across regions and sectors around the world could cost, by our estimate, about $50 billion to $60 billion annually over the next two decades," the analysts at McKinsey say, the ROI for many of these projects should be high. "Many of these investments yield positive returns in just three years," McKinsey says.
The need to act is in fact urgent. According to McKinsey's analysis, on the current course, there will be an overal global water shortage of more that 40% versus demand by 2030, with the shortfall exceeding 50% in many areas of the globe (see graphic below).
How this will play out across the globe will vary by region/country and have a huge impact on business. For example, McKinsey says that in Chile,
copper mining company Xstrata was asked to reduce its rate of water extraction to 300 liters a second by 2010, from 750 liters now. To make up the difference needed to remain in operation, the company has considered building a desalination plant or shipping in water to the mine. It is also deploying new technologies and processes, such as using less water to separate waste rock (called tailings) from ores and recycling more of the water used in the process - significant investments whichever path they take.
This story highlights another risk: multi-national companies may see pressure, cost and rationing hit them harder in various locales if water gets tight versus locally based manufacturers. Water as a local political issue is sure to emerge in more places, as it did in India with the cola companies.
Water is a growing issue that has already moved beyond pure environmentalism to present real operational challenges in manufacturing and which will have a growing impact on capital spending and the bottom line over the next decade.
Next week, we will look at a framework for thinking about improved water management.
What are your thoughts on water usage in supply chain operations? How significant are the pressures now? How much and how soon do you think they are likely to increase? Has your company reduced water usage? Let us know your thoughts at the Feedback button below.
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