Sustainable manufacturing

Clearly, there cannot be a conflict between a sustainable business model and sustainable manufacturing. Also the influential US Environmental Protection Agency (EPA) recognises this paradigm in their definition of sustainable manufacturing:

“Sustainable manufacturing is the creation of manufactured products through economically-sound processes that minimize negative environmental impacts while conserving energy and natural resources. Sustainable manufacturing also enhances employee, community and product safety.”

As always, one should approach a challenge not in a defensive, but rather a forward-looking way. Therefore, transformation towards sustainable manufacturing is an opportunity to look at the innovation power and efficiency of a company through a new lens.

Projects such as solar panels or wind farms rarely make the difference, rather a series of continuous improvements to innovation and the manufacturing process. The table below outlines typical levers to increase revenues and lower cost whereas some levers drive both:

Moving beyond traditional value levers in cost optimisation, sustainable operations are, and have been, rooted in maximising operational and resource efficiency. As a result, there is a natural and frequently occurring correlation between the two. A closer analysis of a traditional supply chain model reveals diverse opportunities for an organisation to not only enhance its profitability, but further embed sustainability into its identity.

These value drivers typically can be allocated to one of these four categories:

• supply protection / expansion
• spend reduction
• new revenue streams
• product improvement

Tech enabled efficiency (supply protection / expansion)

Raw and primary materials sourcing is frequently a challenge for many global manufacturing companies. As organisations strive to balance the need for efficient and stable supply chains with responsible business conduct at a local level, opportunities to develop revenue or profitability initiatives may not always be obvious. Indeed, local sourcing operations are sometimes viewed more as a liability rather than an opportunity.

The application of remote and digital technology offers new opportunities for companies to minimise the impact of their operations on the environment as well as the associated cost of operations. For instance, Vale, the Brazil-based global mining company, has introduced the use of drones to support a range of ESG-focused activities such as worker safety and site surveys. The result is a decrease in worker-related incidents, as well as more accurate site assessments, which can limit the need for further environmental disruption.

Energy sourcing and management (spend reduction)

Sourcing activities within the manufacturing sector also provide short and long-term opportunities to achieve profitability objectives through spend management and reduction. Energy management activities, including sourcing of clean and renewable energy as well as efficiency improvements, offer quick opportunities for quick ROI with parallel investment into sustainability objectives. On-site options may even be available for manufacturers with large campuses, including generation models such as solar, wind, or geo-thermal to support more cost-effective business operations.

In the realm of energy procurement, renewable energy power purchasing agreements (PPAs) can offer protection to manufacturers against commodity price volatility. PPAs allow manufacturers to pursue long-term agreements with renewable energy generators (sometimes 15-20 years) with fixed prices for supply. Consequently, manufacturers are not only able to drive down spend on energy consumption, but transition spend on energy from an overhead cost to a strategically managed direct material input.

Product to service transition (new revenue streams)

Multiple options exist for manufacturing companies to pursue new revenue streams that are aligned with both the corporate identity and a sustainability-oriented agenda. Examples of new revenue streams include the development of service support offerings such as after-sales service in maintenance and repair, as well as the transition to an Asset-as-a-Service (AaaS) model. These options allow the company to stay close to its area of expertise and minimise risks associated with entering a completely new market.

Many manufacturers are considering or already offering after-sales support services as an OEM to their customers. Not only does this service continue developing commercial relationships with existing clients, but it also extends the lifecycle of in-use products through quality maintenance and repair. Likewise, the transition to an AaaS model can generate more reliable and consistent revenue streams for manufacturers than traditional Buy-Sell models. From a sustainability perspective, this can mean a product’s lifecycle can easily be extended beyond the original owner, minimising waste and supply drain.

Reverse logistics (product improvement)

Depending upon a company’s and product’s maturity in the market, product and material defects can contribute significantly to lost revenue opportunities – either through direct product returns or diminished marketplace reputation. Whereas traditional focus is frequently on addressing product defect by replacing the defect in part or whole, organisations should pay additional attention to product use and consumer behaviour intelligence available from device inspection and repair.

Efficient product returns, inspection and remanufacture programs enabled by reverse logistics facilitate a low-cost return to market for returned components and products. Manufacturers can also consider incentivising product returns through formal collection channels through deposit schemes, including limited discounts on new or remanufactured component purchase. From a sustainability perspective, a well-managed reverse logistics process not only reduces the need to harvest and procure new raw materials for production, but can also contribute to recycling activities as part of a circular economy initiative.

1. Define the sustainability strategy

In a first phase, we recommend defining and implementing a sustainability strategy with the following steps:

• Analyse what is expected to happen in sustainability and how your company is set up in terms of innovative products and efficient manufacturing
• Identify how to take advantage of emerging opportunities (e.g. regulatory changes, new technologies)
• Link the sustainability strategy to the broader corporate strategy
• Anchor the sustainability strategy across the firm through trainings and the setting of relevant incentives

2. Build the sustainability reporting

While through the strategic analysis some quick wins are likely to have become obvious and should be implemented promptly, in parallel relevant reporting capabilities to track progress should be built in a second phase:

• Define the stakeholders to be reported to
• Define the scope of reporting (e.g. financial and operational KPIs, risks)
• Identify how to report reliably and consistently
• Implement the right processes, tools and controls
• Make sustainability part of the evolution of the finance function and other relevant functions

Most companies will have to build or improve reporting capabilities in line with increasing regulatory requirements in any case.

3. Identify and implement the improvement opportunities

Once the right strategy is set and the reporting established, the identification and implementation of improvement opportunities follows as a third phase. Similar to a digitalisation project, the organisation should carry out an ideation session to identify “use cases” which then should be prioritised, for instance by ease of implementation (complexity, cost) and time to implementation. The prioritised use cases should then be made tangible through a project charter (goals, resources, stakeholders, budget, risks, timelines, etc.) as basis for implementation.

The question today is no longer whether sustainability is affordable but how much profit you can drive through sustainable approaches whilst being a good corporate citizen in an ever more demanding society.

Interview with Andreas Müller, Group CEO Georg Fischer

For more than 15 years, Georg Fischer releases a yearly sustainability report, highlighting the achievements of all our companies worldwide in social, ecological and economic matters. We contribute with our products and organisations to a range of U.N. Sustainable Development Goals.

The WSJ award is based on our longstanding efforts to support our customers reach their sustainability goals, for example, with innovations to avoid water leaks or solutions to reduce Co2-emissions through the use of lightweight components. Remarkable in this ranking was our high score in the human capital dimension. It is clear, that sustainability will also play a major role in our next strategy cycle.

Sustainability is definitely a driver for economic success. With the increasing awareness for ESG topics in the general public, innovative solutions are needed, for example, to reduce water or energy consumption. Solutions addressing the sustainability needs of our society become more important and carry more weight in the market. Demand for such products is high. Also these products are often in the early stages of their lifecycle and therefore can deliver higher margins.

Yes, it could be profitable, but it requires time. Governmental incentives could temporarily accelerate decarbonisation, as companies have to make substantial upfront investments in renewable energy generation and the energy efficiency of their manufacturing equipment. With new investments, alternative fuel and energy sources can replace old technologies. It is key to further increase efficiency, but also to act effectively in our plants to avoid waste and ultimately to increase the output with less or equal energy consumption. Today, we already have aluminium suppliers for our products that produce the alloys purely with hydropower. Green bonds may help to accelerate such investments.  

For many years, our employees are required to follow the values, principles and standards that Georg Fischer subscribes to as a global company. This comprehensive Code of Conduct is complemented by a Code for Business Partners to secure a supply chain with high standards in terms of correct behaviour.

Behind the Responsible Business Initiative were some good ideas that anyone could agree with unconditionally. No one is against human rights, or against environmental protection. With the counter-proposal, we will get some new rules without extensive liability regulations. This should cause a few smaller adjustments in our reporting.

I see several possible ways: firstly, the outputs that become inputs for the next production cycle, such as aluminium car components that can be reworked in next-generation parts. For example, our Machining Solutions division will take back modules of its machines and refurbish them to extend their usefulness.

Sustainable manufacturing can also be achieved by using less raw material, through either better design or by replacing toxic chemicals with non-toxic materials.

For many years, our employees are required to follow the values, principles and standards that Georg Fischer subscribes to as a global company. This comprehensive Code of Conduct is complemented by a Code for Business Partners to secure a supply chain with high standards in terms of correct behaviour.

                                                                 Andreas Müller, CEO George Fischer Ltd.

Gary Bearden

Senior Consultant

gbearden@deloitte.ch  |  +41 58 279 7047

Gary has more than 7 years of experience across supply chain topics, developing and rolling out value capture strategies in both the public and private sectors. He is skilled in reverse logistics and circular economy, operations management for clean and renewable energy programs, as well as strategic cost transformation along the value chain.