2 July 2009

Manufacturers can reduce costs by eliminating waste

Monitoring and reducing waste is essential to creating leaner, more profitable manufacturing operations. Lindsay James investigates.

Sustainability has long been a buzzword in manufacturing but, in recent times, many organisations have put it on the back burner in order to focus on other more seemingly pressing issues. But sustainability is something that manufacturers can ill afford to ignore – it has become critical to success.

“Recently, there has been a massive paradigm shift when it comes to manufacturers looking at their business from the perspective of sustainability,” says Chris Caren, general manager, product management and marketing, Microsoft Dynamics. “Environmental actions that were once dismissed as soft benefits, meaning they were relegated to the realm of ‘tree-huggers’ or organisations that were not focused on shareholder value, are now rightly identified as constituting sound business acumen.”

The pressure to meet new, increasingly complex regulations is just one incentive for manufacturers to look at sustainability solutions. “Recent environmental regulatory legislation such as RoHS, WEEE, and Registration Evaluation Authorisation and Restriction of Chemicals (REACH) have had a major impact on the way manufacturers design and build products,” says John Fox, director of product and market strategy at PTC. “Manufacturers now need to track the substances used in their products. This can be a daunting task, but with the right data and the right tools it can be a straightforward process.”

A sustainable business will be leaner and more efficient, allowing products to be manufactured to order in smaller batches

Graham Hackwell, Preactor “Manufacturers will also feel the pressure to meet new environmental and social requirements directly as a result of market place demand,” says Greg Gorbach, vice president of collaborative manufacturing at ARC Advisory Group. “For example, in 2008 former Wal-Mart president and CEO Lee Scott stated in the company’s Global Sustainability Newsletter: ‘We will require all suppliers who work with us through global procurement, who are domestic or importers, or who manufacture Sam’s Club or Wal-Mart private brands, to demonstrate that their factories meet specific environmental, social and quality standards. We have already started doing this, and we hope to extend the requirements to all of the above-mentioned suppliers within three to five years. We will only work with suppliers who maintain our standards throughout our relationship, so certification and compliance will be part of our supplier agreements. We will favour – and in some cases even pay more – for suppliers that meet our standards and share our commitment to quality and sustainability. Paying more in the short term for quality will mean paying less in the long term as a company.’ With this in mind, it is apparent that sustainable manufacturing must deliver a new level of quality product – one that is compliant with dynamic emerging environmental, regulatory, social, and market place requirements.”

Sustainable manufacturing covers a range of concepts that help manufacturers monitor and cut waste in a way that promotes efficient, economic and green practices. Creating a business that embodies these principles should not be a fad, but a foundation for reaping long-term benefits. “There is no need to implement a strategy all in one go,” says Ari Pihlajavesi, president and CEO at Predisys. “Tackling it piece by piece will be hugely beneficial. Once the foundation is laid for measuring the success of the improved manufacturing process, you can continue to implement the major changes.”

“Achieving sustainable manufacturing is a process that itself must be nurtured and sustained,” says Gorbach. “Short-term and medium-term goals must be identified, and programmes must be resourced, instrumented, and managed. Although certain priorities such as energy consumption will merit immediate attention, over time, every system and asset throughout the enterprise may be involved in some changes to enhance sustainability.”

Smart sustainability initiatives start with measurement. Every organisation is different, but measuring sustainability and monitoring for improvements are the first steps toward being sustainable. “In the current economic climate, when everything on a company’s balance sheet is under the microscope, businesses’ overhead accounts, where all energy and operations costs come from, are ripe for an overhaul – the hardest part can be where to start,” says Caren. “Companies need ways to get that information in order to make smart decisions about where they can reasonably cut back, and that’s why Microsoft believes strongly in the mantra ‘if you can measure it, you can manage it’. Measuring your true impact allows you to mitigate the outcome.”

“Ultimately manufacturers must focus on the impact their operations and products have in the usage of natural resources, the emissions of pollutants, and the contribution of equivalent CO2 into the atmosphere,” says Jonathan Dutton, head of automotive strategy at Dassault Systèmes. “So the first actions are to measure, track and set targets to reduce the impacts. Having accessible tools to do this is key.”

Unique challenges
Given the benefits of measuring sustainability you might wonder why more organisations are not already well on their way. But sustainability is often broader and more complex than anything organisations have reported on in the past. Measuring it involves a web of interrelated data that cascades from the very top of the organisation to the very bottom, affecting every office, factory, data centre, building and employee – often permeating boundaries that connect suppliers and customers.

“When planning and implementing a sustainability strategy, many companies take a generic approach and try to follow in the footsteps of their competition, or best-in-class companies,” says Steve Sacco, vice president, environmental affairs and sustainability at Invensys.

This leads them to fail in customising their strategy for their specific business. They also fail to engage leaders and employees from all aspects of the business in developing their strategy. If a business doesn’t engage all employees to participate and communicate their vision it is very difficult to get traction and support.”

Today, measurement and reporting of sustainability often comprises manual processes without the controls needed to consistently measure performance across the organisation that would not stand up to any substantial scrutiny or audit. Inaccurate or absent sustainability performance measurement results in decisions based on hunches or abstract calculations rather than real, subjective data. This uncertainty has served to relegate sustainability issues to the fringe of the organisation and, in absence of conclusive data, prevents decision makers from confronting issues.

“Many manufacturers use a variety of different tools and methods to measure sustainability,” says Dutton. “This is because of the disjointed systems used by key players in the supply chain. For example, a manufacturer may source its raw materials from Africa, design its components in India and the US, manufacture in France and Poland, and recycle precious metals in Germany. The key is to monitor and track the measurements and enable all actors worldwide to input and access their part of the information easily in one system.”

The challenge for organisations is clear – to measure sustainability accurately and drive real, lasting change. “The right technology can help them achieve this goal,” says Caren. “Earlier this year Microsoft Dynamics launched a free tool called the Environmental Sustainability Dashboard. This dashboard integrates with the Microsoft Dynamics AX enterprise resource planning solution and helps businesses to capture data based on key indicators of energy consumption and greenhouse gas emissions, helping them cut their energy consumption and costs.”

The data from the dashboard can help manufacturers become aware, often for the first time, of their impact on the environment so that they can choose to implement environmentally sustainable business policies and practices. After these are in place, businesses can use the Environmental Sustainability Dashboard to track and display their effects.

“The value of the collected data comes not simply from numbers, but also from how an organisation chooses to act on the information,” says Caren. “Because Dynamics AX integrates Environmental Sustainability Dashboard data with business data, manufacturers can make decisions that consider their environmental impacts. When manufacturers understand the resource consumption of their operations, managers can make fiscally sound decisions about the way their companies are run.”

Further technology such as product lifecycle management (PLM) solutions from companies such as PTC and Preactor can help manufacturers to collate data on all of the materials that make up a product, enabling them to run complex product analytics to make sure a product is compliant to every regulation. “PLM solutions can tie together data from engineering, manufacturing, and suppliers to bring unprecedented benefits,” says Fox.

“There are thousands of hazardous substances that are targeted by product regulations – no manufacturer can keep track of these without the right technology. The recent problems Mattel has faced, when it had to recall 800,000 toys worldwide because of excessive amounts of lead paint, highlight the devastating consequences of not adequately measuring and managing the chemical makeup of a product.”

A sustainable operation can bring with it significant benefits, not only for the environment, but also across the business including leaner processes, more attractive working conditions, and considerable cost savings. “There is money to be saved here,” says Pihlajavesi. “A customer of ours abolished paper-based records, optimised manufacturing processes, reduced scrap and has saved over US$8 million a year, while at the same time offering better customer service.”

“Manufacturers can realise many benefits of a sustainable operation,” says Sacco. “They can reduce costs by efficiently using new raw materials for production, conserving energy and water, and eliminating all forms of waste. They can minimise risks by staying compliant with laws and regulations, maintaining positive relationships with local communities, understanding the business performance of their critical suppliers and avoiding negative press coverage. Finally, companies can create business value through improving their image and reputation with stakeholders, satisfying customer expectations, opening up new markets and introducing new and efficient products.”

Agility can also be achieved through sustainability, as Graham Hackwell, technical director at Preactor explains: “A sustainable business will be leaner and more efficient, allowing products to be manufactured to order in smaller batches. Using a good planning and scheduling system can really help here – allowing manufacturers to cut waste, create more productive sequences of work and create an extremely agile business that can thrive in any market condition.”

This article first appeared in the Summer 2009 edition of Prime.

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