Strategic planning for sustainability
By Theresa J. Barker
Business managers and corporate executives understand that strategic planning has become more concerned with green manufacturing, or the process of adapting manufacturing practices for sustainability. Planning for regulatory developments, building a trustworthy “green” reputation with the public and incorporating new technology to make manufacturing processes more efficient can improve the bottom line. Cradle-to-cradle design provides a paradigm that can open new markets and build customer loyalty, all while conserving raw materials and natural resources.
Business managers and corporate executives understand that sustainability concerns have become a factor of strategic planning over the past 10 years.
In a recent poll by PricewaterhouseCoopers, 88 percent of 175 private equity and corporate executives stated that sustainability’s importance in business decisions and investments will increase in the next two years, as reported on GreenBiz.com. Furthermore, 22 percent report that they are developing sustainability strategies. Green manufacturing, the process of adapting manufacturing practices to address sustainability concerns, is a large part of this trend.
Developing a sustainability strategy can be a challenge. Sustainability involves uncertainty — for example, will concerns about global warming actually impact the company’s business? It is difficult to know where to start. How can managers best make the decisions required to benefit the future of the planet as well as the profitability of manufacturing processes?
Focusing on specific strategic areas is critical to success. As Daniel Esty and Andrew Wilson stated in their book Green to Gold: “At the operational level, managing sustainability issues, no matter what the company calls them, works best with a defined focus. Thinking about environmental challenges … quickly becomes daunting.”
Further, being “green” for the sake of improving the planet is not enough; sustainability initiatives need to maintain or increase profitability, as affirmed by Forest Reinhardt in his article, “Bringing the Environment Down to Earth,” from Harvard Business Review on Green Business Strategy, “Managers need to go beyond the question ‘Does it pay to be green?’ and ask instead, ‘Under what circumstances do particular kinds of environmental investments deliver benefits to shareholders?’”
Sustainability strategy for manufacturing falls into three major areas: global warming, green building and the changing value of natural resources. The forward-thinking manufacturer will benefit from specific planning strategies for all three.
In the face of debate about global warming — whether it is occurring, whether human activity is to blame, and what the extent will be — there is sufficient concern by the scientific community and by the public to merit business planning. In “What Every Executive Needs to Know about Global Warming,” from the Harvard Business Review on Green Business Strategy, Kimberly O’Neill Packard and Reinhardt wrote that risks include:
- Shifts in the weather
- Potential regulatory changes
- The battle over public opinion
Addressing these risks in your sustainability strategy will put your company ahead of the competition. Although it may be tempting for managers to feel defensive about new regulations and to worry that potential costs may be difficult to calculate, it is clear that planning for these risks is more prudent than ignoring the problem.
For the past decade, experts have been investigating the link between human activity and the Earth’s temperature. Even small increases in average surface temperature are predicted to result in dramatic weather shifts such as storms, floods and droughts, as well as more variability in weather patterns. Mitigating the impacts of these weather shifts is straightforward. First, evaluate your weather-related assets to account for increased risks. Insurance may incur higher costs, or coverage may need to be increased. Second, consider how your product markets may shift due to weather changes. For example, a hot-weather product such as an air conditioner may have increased demand in locations with previously tepid temperatures, or it may be in demand more immediately in other locations due to sudden spikes in weather temperatures.
Climate-motivated regulations already are affecting businesses. Government mandates require products to use less energy, and energy costs are increasing, especially for fossil fuels. Assess the impact of fuel- and energy-related regulations on your future operations, such as your fleet costs and commercial building utility costs. Can you reduce fuel demand through improved technology such as more fuel-efficient vehicles or improved energy efficiency in facilities? Coupled with the risks of new regulations, there are business opportunities for new technology and products in renewable energy, process control equipment, responsive appliances and control devices. Can you take advantage of those markets to increase sales and value for the company?
In the arena of public opinion, many companies are beginning to produce sustainability reports that document their efforts toward reducing greenhouse gas emissions. Showing that you are thinking about the problem and working to improve your manufacturing operation will go a long way toward earning the public’s trust. Pressure to be more sustainable and “green” is being brought to bear by consumer groups, investors and shareholders alike. Management is realizing that if you don’t provide a sustainability position as part of your public communication, you will be viewed as part of the problem, even if you are making changes to your operations to address sustainability concerns. At the same time, your sustainability position must be credible and authentic; avoid “greenwashing” or overstating your claims.
Think systematically about your sustainability efforts, and document the benefits of those efforts to the Earth’s environment and to the company’s value. One way to begin is with an assessment of your carbon footprint and an explanation of ways that the company is striving to reduce the use of carbon in its operations. That will provide a focus and a platform for demonstrating improvements and a positive trend over future years.
For a manufacturing operation with assets such as plant facilities, distribution warehouses and industrial laboratories, green building practices are an important part of sustainability planning. Green building technology has advanced substantially over the past decade, and green building practices can offer significant opportunities and efficiencies that create financial advantages.
What is a green building? As described by Charles Lockwood in “Building the Green Way,” from the Harvard Business Review on Green Business Strategy:
“Green buildings, as many know, have less impact on the environment than standard buildings. Their construction minimizes on-site grading, saves natural resources by using alternative building materials, and recycles construction waste rather than sending truck after truck to landfills. A majority of a green building’s interior spaces have natural lighting and outdoor views, while highly efficient HVAC (heating, ventilating and air-conditioning) systems and low-VOC (volatile organic compound) materials like paint, flooring and furniture create a superior indoor air quality.” Ten years ago, green building was considered experimental, but a number of developments, including LEED certification, have shifted green building to mainstream thinking. The LEED (Leadership in Energy and Environmental Design) rating program has become a strong standard for construction and renovation and is widely adopted. For instance, all capital projects for the University of Washington must meet a minimum of LEED silver certification, as mandated by state government. Harvard University just gained its 50th LEED certification.
Certification covers a variety of sustainable building practices, including water use, energy efficiency, and materials and resources. LEED standards for green building practices also provide an incentive and protection for investing in new or renovated buildings, since they assure future buyers or tenants that the building meets sustainability standards.
And, according to Lockwood, the financial advantages of green building practices have been proven by hundreds of U.S. and international studies. Reduced utility costs top the list. Lockwood cites the example of Genzyme Center. The 12-story LEEDplatinum headquarters for Genzyme Corp. in Cambridge, Mass., uses 42 percent less energy and 34 percent less water than a comparably sized standard building. Additional financial benefits arise from higher employee productivity (approximately 15 percent on average) and reduced absenteeism, a result of using alternative building materials without formaldehyde and other toxins. Such toxins, often included in standard building materials, can impair employee health. Productivity is also improved by green design criteria such as letting in abundant daylight and offering individual climate controls, which boost employee morale while reducing energy use.
As the market for green building materials, mechanical systems and furnishings has exploded, prices have become much more competitive with standard materials and systems. Based on information from Turner Construction Chairman Thomas C. Leppert, Lockwood’s article reports that construction of a basic LEED-certified building costs on average only 0.8 percent more than a standard building. This is according to four industry studies of more than 150 sustainable buildings across the United States.
After installation, green building materials and systems pay off in long-term cost reductions. For example, motion-sensitive light sensors shut lights off when areas are vacant, and highly efficient HVAC systems require less energy than standard systems. Water conservation is another cost savings area, where landscaping design for reduced water use and water-conserving irrigation systems can reduce water requirements dramatically. Green roofs — roofs planted with water-absorbing vegetation — that absorb rainwater runoff better manage multipoint surface water pollution while cutting energy costs over conventional roofs that build up internal building heat.
Companies need to plan construction and renovation projects with an eye toward green building practices. It is predicted that standard buildings will become obsolete and lose their value as more green practices are adopted. Even if your organization doesn’t plan new construction in the near future, it should check out the guidelines for converting a standard workplace into a green building provided by the LEED-CI (LEED-commercial interiors) program. They are available on the U.S. Green Building Council’s website at www.usgbc.org.
Look for energy incentives and long-term energy and water cost savings. For instance, Puget Sound Energy used the LEED-CI program to renovate its corporate headquarters in Bellevue, Wash. This resulted in substantial energy cost savings each year. It also provides prescriptive incentives in energy cost reductions for buildings that use LEED certification in construction and renovation.
Other LEED rating systems that may be of interest, depending upon your industry, include existing buildings: operation and maintenance (EB: O&M), core and shell (CS), healthcare (HC) and retail.
The changing value of natural resources
Can you make your raw materials more productive? The value of natural resources used as raw materials for a manufacturing process is changing due to scarcity considerations and increased regulations. Increasing the productivity of your existing raw materials will position you better against the impact of increased costs or reduced availability of those natural resources.
Cutting waste is critical. Experts tell us that a vast amount of natural resources are wasted in the production of goods. William McDonough and Michael Braungart, the originators of the “cradle-to-cradle” design approach, put it this way in Cradle to Cradle: Remaking the Way We Make Things: “According to some accounts more than 90 percent of materials extracted to make durable goods in the United States become waste almost immediately. … The product itself contains on average only 5 percent of the raw materials involved in the process of making and delivering it.”
Cradle-to-cradle design is a new paradigm for making things. The traditional way has been termed “cradle-to-grave” because once the producer had made the goods and they were in the customer’s hands, products went into the waste stream and ended up in a landfill. Cradle-to-grave design offered little opportunity to reclaim the goods or the raw materials used in the manufacturing process.
In cradle-to-cradle design, the producer provides for the disposal of the product when the consumer is finished with it. Sometimes called closed-loop manufacturing, this approach involves design for the full lifecycle of a product, from raw materials to finished product and then back to raw materials again. Some producers provide take-back programs. For instance, HP provides free recycling for laser printer cartridges that are then refilled and reused. Others provide remanufacturing or refurbishing, such as Apple’s popular line of refurbished Mac computers.
And some forward-minded manufacturers are shifting to designing the product as a continuous flow of service, in which customers pay for the usefulness provided by the product, rather than the product itself. Carrier Corp., the world’s largest manufacturer of air conditioners, now offers contracts for comfort in commercial buildings to provide a specified temperature and air quality level. Carrier can meet the contract through a combination of efficiency upgrades. This approach avoids unnecessary disposal of valued raw materials, such as steel, aluminum and others, into landfills.
Manufacturers are achieving higher productivity from natural resources in surprising and innovative ways. In addition to the need to reduce waste, there are three primary drivers for the shift:
- Government regulations mandating pollution prevention, product recovery or greater energy efficiency
- Economic value to be gained from reuse, recycling or remanufacturing used products
- Customer, investor and shareholder demand for conservation of natural resources
In more than 19 states, governments have passed laws mandating the recycling of consumer electronics products as the responsibility of the manufacturer. Under such a law in the state of Washington, manufacturers selling consumer electronics products have funded an electronics recycling program, E-Cycle Washington, and the program has recycled more than 78 million pounds of electronics in the first two years of operation. Europe has been even more aggressive in imposing legislation mandating manufacturers’ responsibility for end-of-life disposal of products.
In addition to consumer electronics, carpet is another product that has received attention from legislation; the state of California is in the process of regulating carpet recycling. Germany takes it one step further with its “Green Dot” program, in which manufacturers are compelled by law to pay for the cost of recycling their consumer products.
For a long time, the scrap metal industry has realized economic value from salvage, and other industries are following suit. Caterpillar remanufactures its engines and parts with a “same as new” warranty and quality, which extends the length of use of the original product and eliminates the need for completely new raw materials. Often, the price is much lower for a remanufactured part, which appeals to a new market segment. Remanufacturing makes parts for older models more readily available, building customer loyalty and repeat sales.
Today’s medical devices are sophisticated electronic products, and they constitute another promising arena for remanufacturing. Hospital beds produced by multinational Hill-Rom are remanufactured in Indiana by a small firm that specializes in that industry. Hill-Rom has a stellar reputation for quality, and the remanufactured product provides a more affordable, yet still high-quality, alternative to new.
Increasingly, companies are confronted with expectations for sustainable business decisions. Not only that, but corporations develop brand loyalty and new markets by building a trusted “green” image. As Reinhardt described in “Bringing
the Environment Down to Earth,” the recreational clothing company Patagonia has a strong brand identity for environmental conservation among high-end consumers. Shaw Industries, a flooring manufacturer in Dalton, Ga., provides 100 percent recycled carpet products that satisfy cradle-tocradle design criteria. Nylon 6 carpet is manufactured, sold and installed. After it is worn out, it is brought back to Shaw’s Evergreen recycling facility in Augusta, Ga., and remade into raw carpet fiber for manufacturing.
Increasing the productivity of your raw materials is a smart move to address risks of future scarcity and cost volatility. As described by Marc Epstein in Making Sustainability Work, three strategies can boost natural resource productivity while maintaining or increasing profitability:
- Redesign the product
- Re-engineer the process
- Rethink the market
When developing your products, consider designs with replaceable parts, eliminating the throwaway aspect of the produced asset. Repairable and remanufactured products build customer loyalty, extending the life of your brand. Look at reducing the packaging of your product, which eliminates waste and may be more cost-efficient.
Enormous amounts of natural resources such as water or fuel often go into the manufacturing process. In today’s market, new technologies are being rapidly developed to improve efficient use of water, fuel, forest products and other natural resources.
You may be able to reduce the use of those natural resources significantly by evaluating new technologies and re-engineering your manufacturing process.
Examine other sources of waste in the process. Some waste may be suitable as biomass fuel or may be converted into raw materials for a different process. For instance, Reinhardt reported that yogurt cups produced by Stoneyfield Farms are reclaimed and turned into toothbrushes, and scrap plastic packaging at Unilever is made into park benches that are donated to the national parks.
As with any business, pay attention to new trends. Rethinking the market is a good approach, particularly if you can design your product as a continuous service flow. Xerox has done that in the world of office copiers. Their copiers are leased to customers, rather than sold, and then remanufactured to a high standard of quality to be placed in customer sites all around the world. Copiers can be upgraded as advances are made, without having to sacrifice the natural resources and raw materials used in manufacturing the original unit.
Or perhaps you can develop a sustainable product that will command a premium from customers. Reinhardt cites an example in the textile market: Ciba Specialty Chemicals designed a line of textile dyes that dramatically reduce the required salt in textile dyeing. The new dyes cut customers’ costs for salt by 2 percent of net profit and eliminated the need for costly wastewater disposal. Ciba was able to command a higher price for the dyes because customers that used the products lowered their costs and improved quality in the dye fixing process.
Green manufacturing is no longer an esoteric experiment. Thanks to new technologies for resource efficiency, green building standards and inventive market strategies for sustainability, green manufacturing can be a strategic way to improve the bottom line.
The sustainable manufacturing movement lost one of its driving forces when Ray Anderson died Aug. 8. Anderson founded Interface, the largest producer of commercial carpet tiles in the U.S. After reading Paul Hawken’s book, The Ecology of Commerce, in 1994, he started pushing to make his company fully sustainable by 2020. The company has been a leader in using recycled materials and renewable energy sources. The Georgia Tech industrial engineering graduate continually made the business case for sustainability, noting that his changes saved Interface hundreds of millions of dollars while improving the quality of its products.
Theresa J. Barker is an affiliate assistant professor in industrial and systems engineering at the University of Washington. Her doctoral research at the University of Washington focused on reverse logistics and sustainability in manufacturing. She also has an M.S. in industrial engineering and a B.S. in mathematics from the university. She served as chair of the 2011 IIE Applied Solutions Conference, and she has published papers and given several seminars and presentations in the field. She has worked for Boeing, Microsoft, IBM and Walt Disney World, and she is a principal with BARK Consults, a sustainability consulting firm.