Green Manufacturing: what's the value?

Monday, March 10, 2014

18:00 - 20:30

We devoted our March forum to green manufacturing. With pressure increasing from volatile resource prices and growing consumer transparency, we asked what is the value of sustainability leadership? And if we could prove its value, does that mean it is about to shift from the margins to the mainstream?

This challenge was put to our crowd by Interface, one of the recognised leaders in sustainable manufacturing. In his keynote, Nigel Stansfield shared some of Interface’s more radical initiatives, and argued that it just makes good business sense.

We then turned to a panel hosted by Peter Marsh, author of “The New Industrial Revolution”, to discuss the big issues, from carbon policy to the emerging force of the circular economy. Peter’s guests were;

  • Mike Wright, Executive Director at Jaguar Land Rover
  • Nigel Stansfield, Global Innovation Officer at Interface
  • Susanne Baker, Senior Climate & Environment Policy Adviser, EEF
  • Matt Bulley, Managing Director, Caterpillar Reman Europe

This is what we call a Changemaker process, where we collect the latest thinking via blogs, a survey, a panel and roundtables, feeding into a report that we circulate after the event. Could 200 minds use enlightened self interest to create change?

Speakers

Matt Bulley Caterpillar Reman Europe

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Mike Wright Jaguar Land Rover

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Nigel Stansfield Interface

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Peter Marsh

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Susanne Baker EEF

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Round Tables

The business case for green manufacturing

Do you agree that true resource efficiency will only mainstream when the business case is clear? How effective are organisations at capturing the full spectrum of benefits, including mitigating price volatility, employee engagement and brand and how do you expect this to change with time?

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MOST IMPORTANT DRIVERS
The group identified the following as the most important factors in making the case for green manufacturing:
1. Efficiency / cost cutting:
• Improving efficiency (which reduces operating costs) was identified as the primary motivator for businesses.
• Ultimately it gives companies a competitive edge. For example reducing energy use by X% means you can focus capital elsewhere.
• There’s nothing wrong with this as a motivation rather than acting responsibly, because the ends are the same – ultimately the fact it brings/saves money is what will keep it going (e.g. Plan A). Sustainability must be good for business.
2. Innovation
• Approaching problems from a different perspective can hugely drive innovation and solve problems in your manufacturing process.
• Helps the company stay ahead of competitors
3. Pride
• The group expressed surprise that employee engagement featured so low down the survey results
• They argued green credentials are an important employee engagement tool; Coca-Cola and M&S noted that it helps massively with employee retention and motivation
• M&S noted that during their recruitment, for graduates in particular, Plan A is constantly cited as a major pull factor to the company

CONSIDERATIONS
• A necessity, not luxury – if you’re not greening manufacturing then your business is in trouble because of price volatility. The 20th century belief that resource prices would be driven down to innovation ultimately proved untrue. Resource prices will only be exacerbated in the future. It’s an imperative, not an option.
• Market hand – it was noted that the recession effectively forced out businesses that didn’t adapt their manufacturing processes to cope with rising energy/resource prices. Those still in business had to have a mind shift.
• Collaborate – the group noted that little of the plenary discussion had been around the importance of collaboration, viewed as important in terms of mutual benefits.
• Be ambitious – the group felt it is better to be ambitious and aim for a step change rather than incremental
• Marketing value – some of the group felt that the marketing potential associated with green manufacturing provides a value; can give some products the edge against competitors
• B2B vs. B2C – the group argued it is easier to drive green manufacturing for B2C organisations – consumers are more interested in sustainable products, whereas in the B2B space there is a lack of pull
• Tata Steel argued this isn’t always the case, some businesses (e.g. Nissan) have sustainable values built into their buying. However the more stages in a value chain, the more it falls down.
• Using data – collating data about your manufacturing operations/ efficiency is useless used to deliver greater improvements. Too often there is little value in the numbers. Concerns were raised around benchmarking, e.g. Sedex – one participant said he’d never been asked for his company’s data.
OBSTACLES
The label - the group argued that part of the problem lies in the label; ‘green’ manufacturing:
• Implies environmental objectives are the end goal, rather than driving efficiency.
• Can drive fear in the boardroom that it will be costly, such is the association with ‘green’.
ROI – green manufacturing should not only be about immediate or visible ROI
• Sometimes you need to act in the long term interest of the business (‘in 20 years’ time how can we produce products that people love at low prices)
• Or, take things forward because they are close to your business values, e.g. Shwopping has other benefits such as building greater a relationship with the consumer, supporting charity, plus recycling into the supply chain
Time – very difficult for established manufacturers to go green overnight
• However, the group felt it is still important to avoid being too incremental

Measuring commodity price risk

Price volatility is one of the biggest drivers for investing in green manufacturing. This table will discuss ways that organisations are finding to identify and manage risks within their supply chains, and how to present the internal business case for resilience.

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Most important drivers
• Make a business case for sustainable supply chain management

- Tying sustainable supply chain management to economic value to the organisation is essential. The relationship between economic savings and sustainability should be proven to those responsible for budgets.

- There is no such thing as a 100% altruistic company, sustainable planning allows a company to continue its licence to operate

• The strength of the conviction of the company, and the leadership is essential
- The degree of commitment can often reflect the size of the company, and the conviction of its leadership
- The price of the commodity will also play a role in determining conviction and action (e.g. a smaller company will prioritise energy). Small companies without sustainability teams often look to larger companies for support
- Getting a CFO on board is key, making them think about energy supply not merely from an environmental angle, but as something to benefit the long-term self-interest of the company – decisions made today which will continue to have effects in 20 years
• The role of legislation
- In the long-term, legislation can help, however in its current form it is not is providing the ‘carrot and stick’ incentive to companies to investigate supply chains
- There is a huge different in legislative proposals between the US and Europe. The US government funded system of the of the ‘Material Genome Initiative’, is an example of an open source database for sourcing alternative materials that shows the benefits of government intervention
- More funding could help to tackle commodity price risks, as the cost of funding technical solutions to commodity sourcing is a huge barrier. Government and industry needs to set the right balance between business environment, regulation and incentives for companies
- Most importantly, government intervention can often provide the incentives to encourage investment in more sustainable business models
- The whole debate needs to be reframed in a way that the treasury can understand, i.e. talk about Green Manufacturing in monetary terms, not just the benefits to the environment.

Considerations
• Action needs to start with suppliers
- Producers need to challenge suppliers to monitor their footprint and how to reduce it, this helps you make your sustainability impact felt outside your own four walls
- Monitor at what tier of your supply chain the risks exist, which is why investments in LCAs (tracking consumer, internal and external data) gives you the best possible picture of where risks lie e.g. Tesco has done very thorough research into its dairy farmers, and can see where the value is being added into the supply chain
- Value can be found in setting long-term contracts with suppliers, however volatility in pricing in commodities (e.g. energy prices) can make such long-term budgeting, and therefore contracts, difficult
• Alternative commodity replacements
- Rolls Royce has invested huge amounts in sourcing alternative supplies, e.g. 3D printing
- However there are technical considerations, as well as material/safety concerns - consistency in quality is key across all industries
- Companies need to prioritise closed loop, vertical sourcing and establishing alternatives (although some alternatives are harder to formulate than others, and can take a long time to pass safety regulations). Also there are diminishing returns on research investment
• Differentiating risks
- Acknowledge difference between ‘incremental’ risks, and shock risks, and how to manage for both
- Sustainable incremental supply chain management can help to protect you from shocks
Obstacles
• Monitoring different tiers along the supply chain can pose problems
- While the carbon footprint of suppliers can be tracked, tracking second tier and the whole value chain can be more difficult. Many suppliers, especially smaller companies, don’t have the data capture that larger companies might have
• Prioritising problems in a supply chain
- First thing to tackle should be the ‘no-brainers’, which are easy to sell within an organisation, such as reducing waste. There is no point trying to sell high-level technological innovation without tackling issues such as day-to-day waste
- Companies need to take a holistic view of commodities, and how they interact with each other. Different companies prioritise difference commodities and needs, and it can be dependent on location, politics etc
• Nature of the commodity
- It is more difficult to bridge the gap in material commodities, as it is harder to find alternatives (e.g. different from energy or water supplies which can be reused or self-generated)
- Material commodity supply is contextualised by where it is sourced from, the political structure, and can be different for each company. Companies need to consider the materials they use, and therefore how they would survive without them. By having an enhanced knowledge of your materials and where they are sourced, you can identify where the risk lies

The Circular Economy – the big solution?

With considerable momentum building behind the concept of a circular economy, this table considers the key moves a company should make to integrate circular thinking into its business model. Is it the Holy Grail or a useful stepping stone to more sustainable business?

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During the discussion, the group explored the following themes:
1. Is the circular economy just recycling by another name?
2. Does ‘circular thinking’ have meaning and offer benefits beyond the strict technical/literal definition?
3. What kind of innovation is required to deliver circularity, and how can we create the right conditions to enable it?
4. Is the circular economy the silver bullet to sustainability challenges or is y there a degree to which it is itself unsustainable (e.g. trade off between recovery of materials vs energy/carbon used to recover them)?
5. How relevant is the circular economy to consumers?

Taking these in turn:

1) Is the circular economy just recycling by another name?
2) Does ‘circular thinking’ have meaning and offer benefits beyond the strict technical/literal definition?

In answer to (1): no. The group felt strongly that circularity (i.e. the application of circular manufacturing models) was markedly different from simply recycling materials.

While no strict definition was proposed, the group identified defining characteristics of circular processes to include:

• Designing for repair/remanufacture
• Designing for deconstruction

It was argued that the latter (designing for deconstruction) was an essential precondition for the former. It was noted that whilst the aspiration might be to recover and subsequently reuse the same materials for the same purposes, extending the lifecycle of scarce materials (via downcycling/upcycling) was in itself a valuable objective and signified progress beyond the status quo.

3) What kind of innovation is required to deliver circularity, and how can we create the right conditions to enable it?

Making circularity happen requires more than technical proficiency; it requires a leap of the imagination, as one member of the group put it. As such, much of the conversation focused on the degree to which current structures incubate the kind of scale of innovation necessary.

The view was that large, established businesses, with vested interests in maintaining the status quo, are not only culturally but also motivationally disinclined to create and foster genuinely disruptive innovation. Instead, smaller businesses are better placed. Given these challenges, investment in disruptive innovation by large businesses will typically derive from a fundamental corporate repositioning. As one member of the group put it, Desso and Phillips engage with circular because of “who they are and what they stand for”; how they work and to what end, follows this.

4) Is the circular economy the silver bullet to sustainability challenges or is there a degree to which it is itself unsustainable?

A couple of members of the group put forward the argument that the circular economy might in itself be unsustainable unless it a) can demonstrate superior returns (given the CapX required) and b) can demonstrate that one environmental gain doesn’t militate another’s loss (e.g. benefits of saving scarce raw material is offset by the energy/carbon emissions involved in recovering them).

5) How relevant is the circular economy to consumers?

There were divergent views on how compelling circularity is to consumers. The consensus seemed to be that as a proposition its natural home was among informed business audiences. However, this was recognised as a potential challenge for companies for whom engaging consumers is key to closing the loop.

Finally, other topics that emerged during the conversation:
• Role of legislation
• Role of incentives (incentivising materials recovery/re-use of key materials)
• Socially closed loop thinking, as a complement to being ‘environmentally closed’

How can Big Data drive down energy costs?

We’ve got data, loads of it. But does it tell a story that helps informed decision-making? This table will discuss how quick access to well-managed data can help to drive down energy costs, exploring issues such as software vs. spreadsheets, data visualisation, and advanced analytics.

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What is making big companies prioritise sustainability?
• For too many companies, sustainability is a tick box exercise driven by legislation. It's not seen as something which is driving change, more as a necessity which is getting in the way of what the business really wants to do.
• Yet there is a new generation of graduates who are seeing social change as an important factor in choosing which company to work for.
• Passion for sustainability is currently often on an individual rather than company wide level.
• In some instances investors are driving sustainability, where it makes business sense.
• Some retail banks are using competitive incentives amongst senior executives to make more people care about sustainability on a personal level.
• KPIs and targets which match business objectives are crucial.

Where does Big Data fit in?
• For big international companies which work across a number of business areas, finding the right data to measure sustainability initiatives can be very difficult.
• At one real estate company, initiatives are being introduced to organise and collect the most relevant data, and compare on a global scale to find out where the best performers are around the globe.
• Often, you find that sustainable business involves looking at influencing people in the supply chain, for instance landlords, who may have ultimate control over how energy is used.
• There are ways that big companies can monitor and collect this data in buildings, either through collecting it via a fiscal meter, which every building has, and where it can be intercepted before it is aggregated. Alternatively the data can be taken from billing companies or at a supplier level, so it is available for companies that are serious about driving sustainability initiatives.
• Energy Performance Certificates (EPCs) and the Energy Savings Opportunity Scheme (ESOS) are seen as useful, but the table agrees that there needs to be more incentives to carry out these audits.

What is the opportunity created by Materiality Assessments (MAs)?
Cian explains that if the business goal is to reduce carbon, Materiality Assessments look at where that carbon is in the business. The assessment asks key stakeholders what they want and see as important, and where their energy / carbon comes from in terms of those factors.
Doing materiality with Big Data helps you to find out where action should happen next.
• It needs to be relevant to the people doing it. Lloyds has 90,000 staff, so something that could pinpoint specific departments and where they are going wrong would be helpful.
• Transparency is key as the assessment can uncover high energy usage in embarrassing areas, for instance executive air travel.
• When you link in data findings with company psychology you can start to link in cycles that reinforce positive behaviour, helping to embed behaviour change in organisations and avoid 'green wash'.
• There is software available which is helping companies gather this data, but it's very much not a one size fits all solution.

Open manufacturing

How will a more open approach impact the adoption of green manufacturing? We expect this table to discuss issues such how companies share what is working and peer review each other, ways of crowdsourcing manufacturing solutions and different ownership models. How much, and how, will it help?

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What do you have to focus on to make it work?

Considerations

• After carrying out a cost-benefit analysis, businesses must focus on the opportunities that knowledge sharing offers to gain insight from others in order for your own company to innovate. It was agreed that business leaders need to realise that they do not always have the best answer and that there are often mutual rewards to be gained from open manufacturing, for example more fuel efficient engines across the automotive industry.
• Someone indicated that open manufacturing can create much faster innovation.
• By contributing to an industry wide knowledge bank, companies can position themselves to stakeholders as putting competitiveness aside in order help to achieve a more positive outcome for society.

Obstacles

• The tough economic climate and competition makes it difficult for businesses to see the long-term gains that can be garnered from open manufacturing and knowledge sharing. Instead, many businesses often focus on short-term gains.

• Although knowledge gained by competitors from your business through open manufacturing, can often have a positive green purpose, it may also be a development that gives a competitive advantage. It doesn’t make good business sense to share this information, for example Jaguar Land Rover would not want BMW to know how they have developed a more fuel efficient engine.

• It was indicated that ‘making the world a better place’ is often a personal objective of employees. However often companies either don’t encourage this outlook or don’t offer employees act upon this desire or carry out business in a transparent manner.

How do you make it work?

• Someone indicated that on a practical level in order to enable collaboration, businesses must hold a large number of meetings. She stressed the importance of sparking a social connection with your competitors in order to encourage knowledge sharing.

Obstacles

• It’s often difficult to make that initial contact with a competitor company in order to share ideas. it was indicated that in this particular case, the luxury goods company shared the information with their material suppliers who then encouraged them to start a dialogue with the company.

Age of Open Manufacturers

• The Chair asked the table whether they thought that in the information age, younger business people were more inclined to share knowledge and promote open manufacturing.
• Participants highlighted that younger people understood the power of technology. If they’re willing to share information about their private life, they will be more inclined to use technology to share business information as well.
• It was also agreed that younger business people are probably more conscious of the time pressure to deal with problems such as climate change and acutely aware that these problems will affect them and their businesses more than older colleagues.
• Google and Facebook were cited as examples of companies that know they need to engage with other companies that innovate, for example through open source software.

Accelerating a programme

This table will discuss how to get started or accelerate a profit-focused sustainable manufacturing programme. Where to find the early wins and where the best returns lie. Suitable for manufacturers and those looking to influence manufacturing suppliers.

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The Challenge: Driving and sustaining sustainability

- While pilot projects that experiment with more sustainable approaches are widespread throughout the manufacturing industry, the difficulty for manufacturers is maintaining the focus and scaling up to larger programs of activity
- The brand/PR case and environmental case for sustainability are widely acknowledged; it is the business/ economic case for sustainability that really matters now: the motivation for green manufacturing has to align with other business motivations such as efficiency and profitability

The driving forces: How to drive more sustainable approaches

1. Internal
- Collaboration is key: sustainability strategies need to be embedded in a company’s culture and supported by all employees. For example, one leading sustainable manufacturer has a physical ‘sign-up’ process for all staff to a sustainability commitment
- Sustainability needs to become a collective, not departmental, responsibility
- It requires calculated innovation and its inherent risk taking
- CEO endorsement and promotion is essential: top down influence is a very important driver, as demonstrated by Interface
- Transparency on sustainability is important so businesses know which areas of their operations are more sustainable and which need improvement
- Control over business processes is helpful for implementing sustainability strategies – vertical integration makes this easier

2. External
- Poor financial results sometimes drives greater business efficiency which often leads to more sustainable business processes
- Sometimes a crisis allows companies to make a fresh start on their business approach, overcoming institutional inertia
- Suppliers now compete on carbon as well as cost
- Greater collaboration between suppliers and buyers can enable optimisation across both steps in the value chain

Limitation: why more sustainable manufacturing is not yet widely adopted

- Some companies do not recognise the business value of more sustainable manufacturing
- For others, the business value of more sustainable approaches is not recognised by the right people (especially senior management who have the power to drive change)
- Some companies recognise the value of more sustainable manufacturing, but do not know how to implement it
- Corporate bureaucracy and inertia can get in the way of sustainability ideas and strategies, preventing them from scaling; it is sometimes easier for small, dynamic companies to implement new approaches
- It is difficult to manage sustainability throughout a supply chain, especially for small businesses
- Stakeholder and investor interest is often too short term to care about long term sustainability strategies – short term share value remains their primary concern

When is 90% easier than 30%?

Focusing on incremental improvements and the so called 'quick wins' might distract you from the bigger wins. This table will discuss how the big wins can be tackled, starting with the right ambition, scope, mindset and technology.

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Companies and employees need inspiration, permission and strong leadership to think bigger if they are ever expected to aim for the 90%
· Kodak is a case in point of where this didn’t happen. They failed to think bigger, completely missing the broader emerging trend of convenient photography and becoming unsustainable
· Information about what other companies are doing – how ambitious they are being – is a key enabler for other organisations looking to follow suit. They are often working in siloes, and have no relative sense of how ambitious their targets are
· Many organisations don’t give departments permission to look outside of the industry for ways to achieve the 90%. How do we break the system? Need comprehensive business change, not just incremental adjustments
· We need leaders with ambitious targets too. Kennedy committed to going to the moon without any idea how, but once the target was set people achieved it
· More organisations need to foster a risk-taking culture and put an end to fear of failure

Focus on retailers: drivers of behaviour change
· Retail itself only contributes a small percentage of the carbon footprint, so there is scope for more to be done by retailers downstream to have a bigger overall impact
· Retailers need to demand EPDs for all products as a starting point
· Their influence when it comes to educating the consumer can also be very powerful – they can encourage behaviour change
· A pair of jeans – half of carbon footprint comes from production and half from washing and wearing. Retailers can alter product design to reduce need for washing or, perhaps more powerfully, they can find ways to change the psychology about fashion, encouraging people to wear what they buy and not to see trends as transient
· If retailers don’t do this then consumers will do it themselves. They are already renting clothes to others that they don’t wear very often

Changing just one thing
· In the case of Adnams beer, glass manufacturing contributes 50% of their global footprint. Retail and consumption only contribute 10%.
· The same applies for Interface – the most carbon-heavy element of their manufacturing is nylon. Shows how altering one key element of the manufacturing process can make a significant difference overall – moving you further towards the 90% mark

Energy Strategy

Can businesses afford not to go green?

Growing concern over supply shortages, rising costs and climate change means energy has rapidly moved up the business agenda. With more companies looking to buy renewable energy or generating their own, is sustainability increasingly a necessity rather than a choice?

Debate: what will trigger change?

This table will identify the triggers that are emerging in the manufacturing system, and consider whether they are powerful enough to deliver meaningful mainstream change. Resource price volatility, the transparency agenda, circular economy thinking and more.

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MOST IMPORTANT DRIVERS

The group identified the following as key factors in triggering change when it comes to green manufacturing:

Customer/client demand

Considerations

• Customer demand is a huge driver of change in any organisation – if customers aren’t showing interest in sustainable manufacturing to the sales team, that won’t filter back to shareholders
• There is greater opportunity for change in smaller companies with smaller supply chains

Obstacles

• Tough economic climate makes people eliminate risk which in turn reduces the desire for long-term change – sustainability through the supply chain doesn’t happen overnight
• Customers are a huge driver but aren’t necessarily looking for radical change

Business case

Considerations

• Sustainability not what separates companies from competitors but can save money across business thus giving competitive advantage
• A lot of these products won’t be around due to resource scarcity so research in sustainable options can ensure competitiveness
• Aim for ambitious long-term vision rather than step by step incremental developments

Obstacles

• At a time when business is scarce, companies will wonder whether they can make a case for return-on-investment in greener manufacturing
• Recession stopped long-term visions, greater focus was on meeting short-term targets

Big goals

Considerations

• Setting outlandish goals can stimulate innovation and change
• Businesses need to provide freedom, space and time to think and develop innovative ideas
• Excitement in a blue-sky challenge can be the biggest trigger for change – Anglian Water set a challenge to their engineers to reduce embodied carbon in their infrastructure by 50% which inspired excitement amongst employees

Obstacles

• Require long-term vision of board to see through radical change in risk-averse business environment
• Stringent regulation can hold back radical innovation within the sector
• Sometimes you need to act in the long term interest of the business (‘in 20 years’ time how can we produce products that people love at low prices)

Venue Detail

Bank of America Merrill Lynch: The Auditorium

The Auditorium | 2 King Edward Street | London | EC1A 1HQ

Please note that The Auditorium is located in the main Bank of America Merrill Lynch building. Please enter through the revolving doors into the main reception area just off Newgate Street.

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