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The Evolving Green Challenge for Manufacturing

Unless you have been incommunicado for the last few years, you realize that the focus on green manufacturing has swept across Europe, and is now actively being studied in the United States and Asia.  But for all the attention and recognition in recent months, companies still think of it in narrow terms – like product packaging and transportation.  Now is the time to broaden the conversation to include research, product design, procurement and manufacturing – internally as well as across the value chain.

In other words, green manufacturing – the creation of manufactured products with non-polluting, energy and natural resource efficient, economically sound processes and that are safe for employees, communities, and consumers – is now an encompassing, profound, board-level issue for manufacturers.  It goes to the very nature of a company and its survival in a fast changing political, regulatory, and social environment.

With Internet speed, a company’s reputation can be damaged or enhanced by its environmental initiatives.  And companies that anticipate rather than react to demands for more environmentally friendly practices will be better positioned to thrive in an era of heightened regulation and scrutiny.

Indeed, consumers, regulators, politicians, activists, and the general public are clamoring for greener corporate practices.  Until recently, this quest tended to come at the expense of profits.  The tradeoff was stark: either we were greener and poorer, or greyer and richer.  But thanks to advances on many fronts – most notably, the use of technology-enabled optimization techniques – we are able to be cleaner and more profitable at the same time.  Indeed, the two are now inextricably linked.

The prerequisites are several:

First, get out of the compliance mindset and think continuous improvement – recognizing the economic penalty of wasteful business practices.  We have not been handed a Sarbanes-Oxley burden, but a cost-reduction opportunity.  However, it is going to take the information to determine what is possible and optimal, and a manufacturing strategy to take advantage of it.

Second, it is simply not feasible to collect the required environmental impact information by “hand.”  We need our manufacturing execution systems to collect it as a byproduct of the production activity, not as an overhead task.  We need the information to be in readily available data warehouses, displayed on dashboards for managers to analyze it quickly and take action.

Third, we have to recognize that we are not going to solve this problem overnight. Simultaneously focusing our top manufacturing experts on the factors driving the “carbon footprint,” and identifying manufacturing cost improvement opportunities, is crucial.  Applying accepted and tested business processes like Lean Six Sigma can support a systematic approach to the continuous improvement.

Finally, many of the plant decisions are made in the service of supply chain tradeoffs.  This is clearly not just a manufacturing plant issue.  We need to look at what we are doing with our suppliers and customers, and pick our battles to create a sustainable supply chain.

Investment in plant technology will be the crux. We need to eliminate the blind spots we have inside of plant operations, and use automation to make better decisions.  Thanks to better technology, we actually can have it “all”: better data, better analytical opportunities for improvement, and advanced systems simultaneously to drive out cost and drive down the carbon footprint of our operations.  Integration with the rest of the supply chain allows an even higher level of optimization and greater business case.

Some people, conditioned to think of “profitable green” as an oxymoron, might wonder if this is a pipe dream.  Not at all.  In fact, my company has seen firsthand the returns that are possible with these investments.  We estimate that, over the last eight years, the annual savings from our focus on pollution prevention and design has exceeded our environmental expenses by an average of two to one.  Plainly put, for every dollar we spent to protect the environment, we saved two — a “green” dividend.

So how do manufacturers get started?  First, get a comprehensive view of carbon footprint drivers, and then focus on the largest opportunity areas.  We believe that the best way to get this view is to “de-compose” your operations into component parts to see all of these components and, most important, the carbon contribution of each and begin to think about what actions to take.

Manufacturing, for instance, has myriad opportunities for carbon reduction.  These include manufacturing strategy, supplier relationship management, production/materials development and planning, product/component manufacturing, assembling and packaging of products, plant inventory management and transportation– each with numerous dimensions on which to attack the carbon footprint.

Consider an example.  “Green” is one more cost variable to be put into dollar terms and added to the optimization calculation: the lowest total cost possible, with a lower impact on the environment. This thinking is crucial, as early literature focused almost exclusively on carbon reduction as a constraint rather than as a variable to be incorporated into the objective function.

Rather than considering just the costs of lost sales, inventory carrying costs, and production – and trying to find the optimal answer – also consider the costs to the environment, which are becoming larger by the day – even without a clear set of financial penalties in place for the less-than-green companies. Imagine planning production to take advantage of off-peak energy costs.

The talk is everywhere.  Politicians are talking about it, as this year’s elections show. Particularly with energy costs, the cost-reduction opportunities are apparent.  Our C-level executives are promulgating ambitious green mission statements.  Customers are insisting on environmentally friendly products.  As we said at the outset, failure to take action on the environment could lead to adverse publicity and shunning across the globe.

But smart companies will see the opportunity – that it is possible to do the right thing environmentally and to be an even healthier, more profitable company.

Bruce Anderson is the IBM’s Global General Manager for the Electronics industry.  He has over 25 years of experience in the application of technology to supply chain problems.

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