A Natural Resource Scarcity Typology: Theoretical Foundations and Strategic Implications for Supply Chain Management

A Natural Resource Scarcity Typology: Theoretical Foundations and Strategic Implications for Supply Chain Management
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  A Natural Resource Scarcity Typology: Theoretical Foundations andStrategic Implications for Supply Chain Management John E. Bell, Chad W. Autry, Diane A. Mollenkopf, and LaDonna M. Thornton University of Tennessee W orld population growth and increased consumption stemming from economic leveling are leading to scarcity of a number of natural resources on a global scale. Scarcity of critical natural resources such as oil, water, food, and precious metals has thepotential to greatly impact commercial activity as the twenty-first century progresses. The challenge of continuing to provide neededgoods and services in the face of these constraints falls to supply chain managers, who are ultimately responsible for delivering utilityto customers. Unfortunately, there has been almost no research focused on supply chain strategies aimed at mitigating natural resourcescarcity’s (NRS) potential effects. The current research positions NRS as a supply chain risk and proposes an NRS typology based onkey resource attributes. Supply chain mitigation strategies to counter each resource status are offered, with an overall objective of improving supply chain performance. The study recommends future research aimed at further developing theory and methods forcountering NRS based on resource, systems and behavioral theories. In addition, this study has critical implications for practitionersfaced with the growing threat of NRS in their supply chains. Keywords : natural resources; supply chain management; population growth; supply chain risk; sustainability Three convergent societal forces described in both popularand academic literatures jeopardize global commercial activ-ity. First, human population growth and migration challengeindustries’ abilities to link demand for essential goods and ser-vices with adequate supply. Second, global Internet pervasive-ness has led to worldwide consumerism, flattening nationaldemand curves. Third, and consequently, natural resourcesneeded to sate future product demand are rapidly depleting(i.e., Biswas 2005; Diamond 2005; Lahart et al. 2008;Eccleston 2009; Friedman 2009; Pullman et al. 2009). Accord-ingly, supply chain managers should consider natural resourcescarcity (NRS) a critical supply chain risk factor for theforeseeable future.Economists and physical scientists (i.e., Hotelling 1931;Barnett and Morse 1963; Nelson and Honnold 1976; Koberg1987; Krautkraemer 1998; Baumgarten et al. 2004;Kronenberg 2008) 1 have extensively studied NRS, defined as a lack of adequate supply of natural resource(s) to meet required human demand   (Wagner 2002). Unfortunately, the existingresearch focuses predominantly on normative social policydevelopment (i.e., Biswas 2005; Kronenberg 2008; Verbruggenand Marchohi 2010) or individual-level responses such associal   ⁄   community activism or consumer recycling (Wagner2002; Sheth et al. 2011). However, NRS also has implicationsthat challenge businesses wanting to satisfy their customers inan increasingly resource-constrained environment.This article draws attention to NRS as a critical supplychain risk, and expounds on future research opportunitiesand practice implications. To accomplish these goals, a natu-ral resource typology is presented that highlights two keynatural resource attributes—scarcity and renewability—thatrelate to potential risks that supply chain managers (will)face. The categories are linked to potential supply chain miti-gation strategies, and the typology is leveraged as a basis forgenerating research directions that would extend current the-ory. The ambition is to stimulate further examination of NRS in the supply chain arena, given its salience forbusiness and society. NRS AS A SUPPLY CHAIN RISK Though NRS represents a significant supply chain risk, theliterature to date fails to consider the strategies necessary forits mitigation. Supply chain risks significantly influencemarket competition and firms’ financial outcomes (Wagnerand Bode 2008), but researchers have yet to rigorously evalu-ate NRS (and potential responses) in supply chain settings.Further, NRS risks are dynamic and stem from macrolevel Corresponding author: John E. Bell, Department of Marketing & Logistics, College of Business Administration, University of Tennessee, 310 StokelyManagement Center, Knoxville, TN 37996, USA; 1 It is noteworthy that economists and physical scientists (i.e.,geologists, ecologists) typically view the seriousness of theproblems discussed herein quite differently. Many economistshave posited that future exploration, technological advances,and factor-market substitution could mitigate NRS-relatedrisks into perpetuity (Rosenberg 1973; Krautkraemer 1998,2005; Lynch 1999; Adelman and Watkins 2008). Yet, thephysical scientists have often strongly exhorted the perils of natural resource exhaustion (e.g., Hubbert 1956; Campbell1994, 2006; Bentley 2002) and are beginning to forecast pro-found NRS impacts on global commercial activity (Wagner2002; Holbrook 2009; Duclos et al. 2010; Voeller 2010),which will impact global supply chain management practice.We advance a view here similar to that of the physical scien-tists, while recognizing the potential validity of the economicviews. Journal of Business Logistics , 2012, 33(2): 158–166   Council of Supply Chain Management Professionals  social forces. For example, the population in China hasgrown by approximately 40% since 1978, but in that sametime period the per capita income and ability to buy goodshas increased by 1,000% (Brander 2007; Bishop 2009). Thesechanges increase consumption such that the ability to supplynatural resources such as oil, coal, and precious metals isincreasingly at risk in both emerging and current economies.Although the established view holds that societies through-out history have generally mitigated scarcity problemsthrough technology and substitution, some modern econo-mists worry this position may be untenable, given that politi-cal and economic systems generally assume resourceavailability in perpetuity (Krautkraemer 2005). Recent stud-ies indicate that innovation, discovery, and technologicaladaptation may be limited as effective mitigation mechanismsfor responding to future shortages (Bishop 2009), particu-larly when considering net increased demand (Lahart et al.2008). Some design engineers already lament that as materi-als become scarcer and more costly, innovations are morechallenging to produce (Duclos et al. 2010). In addition,water and food scarcity are emerging as imminent social con-cerns (Eccleston 2009) of such magnitude that agricultural,environmental, and political scientists now worry publiclythat shortages will drastically impact demand-supplybalance, leading to increased political conflict and evenfuture wars due to competition for scarce natural resources(Howard 2009; Kehl 2010).Risks such as these adversely impact the supply chainsthat firms construct to serve customer markets. Though pre-vious research has focused on defining general risk catego-ries linked to microlevel supply market disturbances orenvironmental occurrences, that is, the 2008 economicdownturn or Hurricane Katrina (Smeltzer and Siferd 1998;Svensson 2002; Harland et al. 2003; Cavinato 2004; Chopraand Sodhi 2004; Christopher and Lee 2004; Spekman &Davis 2004; Zsidisin et al. 2004; Juttner 2005; Paulraj andChen 2007), scholarship has mostly been limited to descrip-tively categorizing risks and their immediate outcomes (i.e.,Zsidisin and Smith 2005; Rao and Goldsby 2009; Ellis et al.2011). Encouragingly, contemporary work has begun toderive methods for parsing global supply chain risk levelsand sources (Manuj and Mentzer 2008; Wagner and Bode2008), and factors to enhance firm level resiliency againstsuch risks (Blackhurst et al. 2011). In a particularly impor-tant advancement, Wagner and Bode (2008) empiricallyvalidated constructs representing five types of supply chainrisks, and related these risks to supply chain performance.Their findings suggest that though major supply chain dis-ruptions have dramatic impacts, the more routine, ‘‘every-day’’ sources of supply chain risk yield greater peril formanagers. Unfortunately, though the authors used existingmeasures (cf., Zsidisin 2003; Zsidisin and Ellram 2003) intheir study, NRS was not included as a salient factor. Inspite of popular press accounts, the scholarly literature virtu-ally ignores NRS as a supply chain risk factor, and does notyet prescribe strategies for its mitigation. To address theseconcerns, the current research develops a natural resourcetypology. The typology is tied to a set of actionableresponses to NRS-related dilemmas in the supply chain, thusproviding guidance for managers and an agenda for futureresearch. NATURAL RESOURCE SCARCITY TYPOLOGY How firms use natural resources is impacted by both therenewability and scarcity of a held resource. Resources suchas agricultural, forestry, and fishery products are ‘‘renew-able’’ (Nelson and Honnold 1976; Craig et al. 2001; Wagner2002), whereas coal, oil, and minerals are for practical pur-poses ‘‘nonrenewable.’’ Scientists have noted for decadesthat environmental pollution and damage to underlyingresource bases (air, soil, and water) can disrupt ecosystembalances and transition renewable resources to a ‘‘nonre-newable’’ state (Nelson and Honnold 1976). In addition,economic actors commonly consume the most available andhighest quality natural resources before inferior quality   ⁄   lessacquirable resources are consumed (Rosenberg 1973;Krautkraemer 1998). Therefore, future production is likelyto use natural resources that are lower in quality, moredifficult and costly to acquire, and create relatively moreenvironmental pollution in the process (Verbruggen andMarchohi 2010).Alternatively, scarcity describes the balance of physicalsupply and demand in a given location (Friederich 1929;Krautkraemer 2005). Following previous scarcity research,natural resources such as water, petroleum, food, and pre-cious metals can be described as either globally or locallyscarce or available (Rosenberg 1973; Wagner 2002; Biswas2005; Manning 2008; Liu and Speed 2009; Verbruggen andMarchohi 2010). For example, platinum and iridium arebecoming globally scarce, with potential widespread effectson product design (i.e., cell phones) and market demand,while beef may be locally scarce due to a dearth of nearbygrazing land, while remaining globally available. Further,some natural resources may be locally abundant but scarceon a global level (i.e., nickel in Ontario), while others areabundant both globally and locally, and thus consideredglobally available (i.e., sand).Considered together, the impacts of renewability and scar-city are becoming difficult for supply chain managers toignore. Though technology and substitution have undoubt-edly suppressed or delayed the many negative effects of NRSin the past, forces such as consumption and resource basedegradation are accelerating many natural resources fromstates of renewability toward nonrenewability, and fromstates of availability toward scarcity (Figure 1).The NRS typology (Figure 2)—based on renewability andscarcity combinations—allows for classification of the cur-rent status of a natural resource, in eight scarcity   ⁄   renewabil-ity combinations. Beginning with instances where arenewable resource can exist at either a global or local level, Degeneration  refers to scarcity of a resource due to a cur-rently degraded but remediable resource base. Similarly, Munificence  refers to the availability of renewable resources.Alternatively, when nonrenewable resources are scarce, thiscan be described as  Depletion , and when a nonrenewableresource is relatively available, a state of   Abundance  exists. A Natural Resource Scarcity Typology 159  The challenge for supply chain managers is to developappropriate strategies that enable ongoing utility creationbased on each resource scarcity status. NRS mitigation strategies for supply chain management To create managerial utility, resource employment and con-servation approaches (which together comprise supply chainmitigation strategies) are needed for each status.  Resourceemployment approaches  (Table 1) include (1) avoidance(Wagner 2002; Manuj and Mentzer 2008), where productdesigns preclude the use of a scarce natural resource; (2) logistics techniques, where resources are shifted to asite suffering from local scarcity; (3) allocation approachesthat ration scarce resources; or (4) sustainment approachesthat ensure the availability of a resource. Furthermore, conservation approaches  include either (1) resource recoveryinitiatives such as returns management and closed loop sup-ply chain management for nonrenewable resources (Black-burn et al. 2004; Mollenkopf and Closs 2005; Mollenkopf 2006), or (2) resource base protection initiatives, thatimprove and secure underlying renewable resource bases(Krautkraemer 2005; Pullman et al. 2009).Combining employment and conservation approaches, afirm-level supply chain mitigation strategy is specified foreach natural resource status. In a situation of Global Degen-eration, (e.g., global corn resources are scarce due to thecombined effects of soil pollution, increased demand forfood, increased industrial usage), a  Fortification  strategywould be warranted. Firms would avoid the use of corn intheir products in the short- to medium-term, substitute moreplentiful grains in product designs, while supporting long-term global renewal efforts toward reviving the corn resourcebase. Alternatively, when faced with Local Degeneration,firms should employ a  Mobilization  strategy, combining alogistics approach with resource base protection. As anexample, where timber is locally degenerated, a firm couldimport timber and   ⁄   or use postponement to balance timberdemand and supply; simultaneously, it could participate inlocal initiatives aimed at reconstituting the local environmen-tal base (e.g., reclamation of the water and soil needed togrow forests) to ensure future supply. Firms such as Nestleand Coca-Cola also mitigate Local Degeneration by reengi-neering supply chain networks to avoid locations with localfresh water scarcity (Alter 2009); others leverage locallyabundant fresh water by purchasing water rights and accu-mulating stocks to sell for future premiums (Mayer 2007).When faced with Global Depletion of a rare resource suchas platinum, firms should employ a  Discretion  strategy, rede-signing products to avoid the unnecessary use of platinum,and employing returns management practices to recaptureany usable quantities. In the case of Local Depletion, firmsshould apply a  Compilation  strategy, combining a logisticsapproach with a recovery approach. For example, wherealuminum is locally depleted, companies can leverage trans-portation and postponement to mitigate local scarcity, whilesimultaneously using recovery methods such as recycling toincrease local availability.When Local Abundance exists for a nonrenewableresource, a firm should deploy a  Utilization  strategy, whichemphasizes judicious allocation and simultaneous resourcerecovery. For example, diamonds are relatively abundant inSouth Africa but scarce globally. Under such circumstances, Figure 1:  Natural resource scarcity status. Figure 2:  Natural resource scarcity typology. 160 J. E. Bell et al.  firms should not only look to capitalize on unique access toa globally scarce resource and allocate speculative stocks forfuture use   ⁄   sale, but also should continue to pursue recoveryactivities. 2 Alternatively, Global Abundance of a resourcecalls for a  Preservation  strategy that combines sustainmentand recovery approaches. For a common mineral such assilicon, sustainment practices such as land management andworker-training programs ensure continued access to supply,and economically feasible reclamation should be continuedto ensure continued abundance.For Local Munificence, a  Cultivation  strategy that combinesresource base protection and allocation approaches is effec-tive. For example, firms need to wisely harvest and allocatelocal salmon stocks, while continuing to support globalresource base protection strategies to ensure global supply andecosystem balances. In the case of Global Munificence of arenewable resource such as rice, firms should employ a Perpetuation  strategy. This strategy combines sustainment andprotection approaches toward the resource base (Pullmanet al. 2009). A perpetuation strategy would also emphasizewidespread activity toward protection of the land, air, andwater resource bases to support renewability for agriculturalcrops, forests, and fisheries (Krautkraemer 2005). NRS dynamism considerations The proposed natural resource typology affords a betterunderstanding of how and where NRS may impact supplychain operations, and which mitigation strategies are appro-priate for a given resource status. While the typology startsby considering static scarcity conditions, the impact of dynamic changes in natural resource statuses (Newbert 2007;Fawcett et al. 2011), and demand levels (Hunt and Davis2008) are relevant, because they affect NRS mitigation strat-egy choice. For example, firms may misidentify a resource’scurrent status based on inaccurate assumptions of its avail-ability or renewability, or naı ¨ve estimation that the resourceis homogenous with an unlimited supply. Companies mayalso not understand that a resource’s actual current positionon the typology may be evolving, thus shifting the resourcestatus. Firms must both understand the actual current status,and how societal forces (i.e., consumption, resource basedegradation) may transition a resource to a future status.The ever changing dynamic status of NRS highlights the sig-nificance of NRS as a supply chain risk factor of growingimportance. FUTURE RESEARCH DIRECTIONS ANDCONCLUSION This paper is intended to encourage dialog about NRS andits impact on current and future supply chains, and the NRStypology is designed to elicit understanding of two keyresource characteristics in combination. While the suggestedsupply chain mitigation strategies provide some initial mana-gerial direction, both the NRS typology and mitigation strat-egies require further study to achieve relevance. To inspirefuture research, construct theory and develop best practicesfor managing NRS in the supply chain, a number of schol-arly avenues are offered (Table 2).Summarily, research is needed to evaluate the appropriate-ness and content of the mitigation strategies. For example, Table 1:  Supply chain mitigation strategies NRS status Supply versus demand balancesConservationapproachEmploymentapproachMitigationstrategy GlobaldegenerationRenewable global supply < global demandRenewable local supply < local demandResource baseprotectionAvoidance FortificationLocaldegenerationRenewable global supply  ‡  global demandRenewable local supply < local demandResource baseprotectionLogistics MobilizationGlobaldepletionNonrenewable global supply < global demandNonrenewable local supply < local demandResourcerecoveryAvoidance DiscretionLocaldepletionNonrenewable global supply  ‡  global demandNonrenewable local supply < local demandResourcerecoveryLogistics CompilationLocalmunificenceRenewable global supply < global demandRenewable local supply  ‡  local renewable demandResource baseprotectionAllocation CultivationGlobalmunificenceRenewable global supply  ‡  global demandRenewable local supply  ‡  local renewable demandResource baseprotectionSustainment PerpetuationLocalabundanceNonrenewable global supply < global demandNonrenewable local supply  ‡  nonrenewable local demandResourcerecoveryAllocation UtilizationGlobalabundanceNonrenewable global supply  ‡  global demandNonrenewable local supply  ‡  nonrenewable local demandResourcerecoverySustainment Preservation Note : NRS, natural resource scarcity. 2 Though theories such as resource-based view and resourceadvantage would encourage the firm to perpetuate and takeadvantage of global scarcity in situations of local abundancefor short-term competitive purposes, the long-term benefitsof resource base revitalization outweigh the more immediatefinancial concerns. A Natural Resource Scarcity Typology 161
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