Changing Supply Chain Systems

In another type of integrated system, the situation is different, but in this case as well, companies may need guidance from overall policy makers, before they decide to make major changes themselves. This is in the case of replacing existing global and national supply chains by an increased amount of local and regional supplies. As we have seen above, many industries have moved toward global supply chains and production networks. In many industries specialization has been driven very far and production has been centralized to a few units globally, which require extensive transportation networks in order to deliver supplies into plants and to move products to market. In other industries, production is still regional to some extent, but it has usually been concentrated in order to achieve economies of scale in production, at the expense of increased transportation. Production and transportation networks are examples of complex integrated systems of highly specialized producers, suppliers and production networks, where it will be difficult for one player in the system to make decisions without information about the general direction of the development of the system as a whole.

In many cases improved energy efficiency will require investments and, perhaps, cost increases, which will be difficult to accept in the short run, since such decisions will affect the long-term competitiveness of companies. At least managers will need reliable forecasts of future energy prices, and forecasts of the energy supply, but in many cases this will not be sufficient to make major investment decisions. This means that no CEO in his right mind could make a decision to move production to a more expensive country or change suppliers in a similar way, simply because of environmental consciousness. He will need a long-term business case in order to do this. This is not because managers are not aware of the perils of decreasing oil supply or climate change. Managers are simply appointed by the board with the remit to make a profit. This means that companies will focus on financially justifiable investments. Companies and their managers could spend small sums on charity, but they could not, within the existing system, make large investments based on other goals than making money. A long-term business case could be based on an overall plan for the energy transition, which has been described above, which needs to be firmly grounded in business fundamentals. Such a plan could, in the best of worlds, indicate the level of change that will be needed for the longer term, in order for society to adapt to new conditions.

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