Janet Godsell, Professor of Operations and Supply Chain Strategy at WMG at the University of Warwick, comments on the importance of commodity products like CO₂ and how the interplay between supply chains needs to be considered to keep products on shelves.
Supply chains underpin every aspects of our lives. They help to feed, clothe, educate and protect our nation. They are largely invisible and usually only come to the fore when there is a problem that causes disruption to our lives.
We expect to go to the supermarket and find the shelves full of carbonated drinks, meat and crumpets. We rarely stop to think of the complicated supply chains that fill those shelves.
CO₂ has historically been regarded as a bi-product of ammonia production. It is purchased as a commodity. As with many commodities there is an assumption that there will always be supply, and that market forces will help to regulate demand and supply.
Ammonia is predominantly used for fertiliser production, and has seen reducing demand as the environmental effects of fertiliser is increasingly questioned. Furthermore, it is typically produced in the winter ahead of the agricultural season.
There is no point producing ammonia, unless there is demand. The production of CO₂ is has not historically been linked to the demand for CO₂ but to ammonia as it’s a bi-product.
What this crisis has identified is the change in the relationship between what is seen to be the primary product and bi-product as the world changes.
This has been seen in a number of industries. For instance, the cost of production of steel is closely related to the price of electricity. Steel manufacturers who also produce their own electricity are more protected against fluctuations in energy prices, than those that don’t. The decision by Diageo to develop an anaerobic digester to produce energy from the bi-products of whisky production, had a huge impact on the price of animal feed in Scotland, as previously those bi-products had been used to feed cattle.
As we enter an age where the economy is becoming more circular, where more thought is given to the environment, the inter-play between the supply chains will become increasingly important.
If we want to keep the shelves full, we will need to more proactively recognise these shifts, and change supply chain design accordingly.
For press information, contact:
Media relations manager
University of Warwick
E: a dot cullis at warwick dot ac dot uk
DD: 02476 528050
M: 07825 314874