Industry 4.0

Sustainable Profitability with Circular Manufacturing

7 min read - published on November 4, 2020

Manufacturers can reduce waste and achieve sustainable profitability by implementing circular economy principles in their operations.

It’s becoming hard to deny the demand that we’re placing on our planet. Today, we consume the equivalent of 1.7 Earths worth of natural resources. If we keep consuming at this pace, by 2050 we’ll need 3 Earths worth of resources to keep up with our demands. As leaders in the global economy, manufacturing companies need to rise to the occasion and match the bold actions being taken by global policy makers. The good news is that they already are: 93% of CEOs today claim that sustainability is important to the future of their business.

But just because companies are making the transition towards greener practices doesn’t mean that they’re losing revenue. In fact, leveraging strategies like circular economy practices in manufacturing creates sustainable profitability: the practices that help manufacturers preserve resources and reduce waste actually help them become more profitable.

 

 

Why haven’t more companies adopted these practices?

A lot of the world’s top manufacturers set significant sustainability goals and achieve them. But at the same time, a great many more companies don’t manage to achieve, or even create, these sustainability goals. In fact, only 2% of programs effectively deliver on the ambitions and goals originally defined.

What are the main reasons that more companies don’t manage to successfully incorporate green initiatives such as circular economy principles?

  • A lack of resources for investment
  • Having an unengaged or disinterested senior leadership
  • No accountability throughout the organizational structure
  • No clear strategy or goals

But if we drill down even further, we can essentially pin these failures on two clear reasons:

 

1) Sustainability is simply not viewed as a priority for the company - it’s not seen as a value element that can win customers and markets. Thus, it get’s a limited amount of resources and effort and the initiative fails to make a meaningful impact.

2) It’s currently managed as a peripheral topic not central to the business like continuous improvement and lean initiatives. But actually, many of the same strategies and learning models apply!

 

 

sustainable operations

 

 

How can the operations system contribute to the sustainability transformation?

Lean and green initiatives support each other if they’re well executed - sustainability transformations and lean ways of working can work well when applied in synergy.

Getting started is often a matter of integrating sustainability initiatives with existing lean or continuous improvement programs within an organization. Note: it’s a huge bonus if manufacturers are already using tools that help standardize work and facilitate continuous improvement, as changes to standards and ways of working can be communicated more effectively.

What does this integration look like? Check out the four examples below. 

 

Use environmental KPIs in your performance cascade.

Integrating sustainability goals into a factory’s existing performance goals allows manufacturers to work towards a greener way of working at scale. As we’ll learn a bit later, often these KPIs are already beneficial for a manufacturer’s bottom line. Reducing waste (eg. water, plastic, etc) helps our manufacturing processes stay efficient and cost effective while also having a positive effect on the environment. Try to identify the points in your processes where the biggest ecological footprint (energy or resource usage) exists, and start there.

 

Translate sustainability into continuous improvement and Kaizen tools.

Make a sustainable action plan and integrate it into your existing Lean optimization materials. Not only does this provide a ready-made and transferable format for making incremental improvements to your green footprint, but it also delivers results through a methodology already familiar to everyone involved. 

Examples:

  • Value Stream Maps of water usage
  • Mass Balance of all energy and materials into and out of a process
  • A Material Waste Assessment of the organization
  • Develop a Waste Reduction Action Plan (WRAP)

 

Make Sustainability Visible when assigning responsibility.

Plant managers, supervisors, and leaders within an organization should take every opportunity to lead by example. Some companies already excel at integrating this culture of leadership and leveraging it for better lean results - the same principles apply with sustainability initiatives.

From an operator or shift perspective, many companies engage the workforce by assigning sustainability-focused roles to a number of individuals working on the shop floor. In addition to their regular daily tasks, they’re also made responsible for certain key tasks relating to sustainability. Not only does this actively work towards established goals, but it involves the frontline workers and provides more opportunities for accountability and engagement.

 

 

sustainable operations

 

 

Evaluate sustainability accomplishments and share successes!

This may seem obvious, but the success of sustainable profitability - and morale in general - can hinge on effectively sharing the wins from these programs. Clearly communicate the real impact in terms of cost, lead time, and savings. Having these figures clearly defined not only gives hope to those involved, but can be an important resource for stakeholders.

 

 

How can circular economy principles help redesign how you do business? 

But this still leaves us with the big question - when do we accomplish sustainable profitability? Saving the planet is critical, but most companies will still require a tangible financial incentive before they’re ready to make the leap. That’s where leveraging the circular economy can make a huge impact. These practices actually open up new avenues of value creation for your company by reconciling profitability with sustainability. To put it simply - they save you money while also saving the planet.

 

 

circular economyImage courtesy of Mathias Fahy.

 

 

Recycle.

This is the process of reincorporating waste material - whether it’s from consumers or your own operations - back into new products. 

  • Example: Nespresso has a home ‘recovery’ program that allows customers to recycle their used coffee pods - grounds, plastic, and aluminum - and use a part of these reclaimed resources to manufacture new products.
  • Example: A number of beverage manufacturers are using treated wastewater to brew beer. This keeps valuable resources (water) within their operations, and also reduces the amount of wasted resources. Learn more about the science behind it, here.

 

Re-Make.

Otherwise known as remanufacturing or refurbishment, this is recreating a product with a combination or re-used, repaired, and new parts and distributing it back into the market. This saves manufacturers from discarding (read: wasting) perfectly good parts when only a portion needs to be replaced.

 

Redistribute/Re-Use.

The best of both worlds - this practice describes using a product again (often in a different market) without needing refurbishment or repair. In fast moving consumer goods models, exploring reusable packaging models can make a huge impact. 

    • Example: Levis has implemented a comprehensive “waterless” program, designed to reduce the amount of water used throughout their operations. Wherein. One key component of this initiative is to re-use a large amount of the wastewater used during their dying process, rather than discarding it.

 

Maintenance.

What if we could prevent a product from turning into waste in the first place? This practice involves creating products that can easily be repaired to increase their longevity in the market. Check out the section below to see how this can be leveraged into higher profits.

 

 

A change in the way we think about business models.

But how do companies adopt these strategies and still make a profit? In order to grow, manufacturers need to sell a certain quantity of products. What are the incentives to invest in higher quality, longer lasting products? In other words, how do circular economy principles counter the traditional revenue model that relies on more, rather than less? 

Saving the planet requires change.

We’re noticing a fundamental shift in the business models of those companies that want to make an impact and invest in sustainability. Rather than investing in the product themselves, they invest in the lifetime of the product. 

Examples like Fairphone’s phone-as-a-service model serve as an inspiring proof of value for how this tactic can raise product quality while simultaneously benefiting the environment. Easy to maintain, easy to upgrade, and with a much longer lifetime - they charge the user for the use of the phone, rather than the ownership. Instead of collecting a one time price, they are able to generate revenue throughout the long life of their product. 

 

Screen Shot 2020-11-04 at 4-18-05 PMImage courtesy of Mathias Fahy.

 

At every level, circular economy principles are integrated according to the following fundamental building blocks:

 

  • Business model - The best circular economy business models will have a clear strategic rationale and business case. Like any, they need to fulfill a need and solve a problem for your client.

 

  • Circular strategy - Select the right circular strategy, based on well-researched and realistic product and market characteristics.

 

  • Value chain design - Successful circular economy business models don’t happen in a vacuum! Companies need to understand and define the roles and responsibilities of key players in each part of the value chain.

 

  • Product design - Products specifically designed for distribution in a circular economy can deliver profitable leverage to a business case (think about a modular Fairphone or a recyclable coffee pod).

 

We need to make a change, but it doesn’t mean disaster for your company.

In fact, it’s quite the opposite. With the right attitude, motivation, and investment, sustainable practices like circular economy principles can deliver sustainable profitability while simultaneously sparing resources for better use. Many of these tactics can, in fact, be integrated into the same lean initiatives that manufacturers have been using for decades.

But like every change on the shop floor, it starts with accountability and responsibility from leadership. These innovations won’t take hold unless sustainability is made a priority within your operations and treated as an integral part of your business.




About our expert speaker: Mathias Fahy uses his expertise, in partnership with Mobius Business Redesign, to develop effective sustainability programs and link these to a company's core business. He’ll often leverage circular economy principles to maximize the efficiency and impact of these programs.

Want to learn more about sustainable profitability? You can learn about all of this and more by watching our free recording of the webinar here.




 

published November 4, 2020

Chris

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