The Eco-Advantage
25 Feb 2008
by Jeff S. Johnson, Dell Inc.Environmentally responsible manufacturing and supply chain processes can put “green” in your pockets
From synnovation issue 7: The Green Issue, EDS Agility Alliance Quarterly Publication.
Traditionally, going green means treading red. Even though environmentally sound practices are lauded, they're often considered the enemy of profit. Realigning manufacturing and supply chain processes with a strong environmental calculus can be disruptive, exacting huge costs in time, money, and intellectual capital. It's long been thought that an established company that maintains conventional manufacturing and distribution routines has a significant cost advantage over the environmentally conscious company.
Such conventional wisdom has persisted stubbornly for decades. But does such thinking reflect the truth, or is it the stuff of myth? Is aligning a business with a keen focus on environmental sensitivity really as costly and painful as was once thought? Is it possible to cull competitive advantages from instituting environmentally sound manufacturing and supply chain processes that go beyond image-building and regulator relief? Is doing the right thing doable in the context of markets and balance sheets?
Many business leaders think so. Some even insist sound environmental practices can generate profits – substantial ones. According to Cynthia Cohen, president of Strategic Mindshare, a Miami-based retail consulting firm (in the article “Term Limits: Green is Apparel's Gray Area,” LifeStyle Monitor, March 26, 2007, Cotton Incorporated), the predominant social maxim for the next few years is “green is good.” People are interested in green, sustainable products. And weaving this popular cultural interest into corporate culture can generate sustainable advantages.
How? “The thing that it really forces you to address is the efficiency of your processes,” says George T. Haley, director of the Center for International Industry Competitiveness at the University of New Haven. The most cost-effective and the most heavily implemented environmentally beneficial process, Haley says, is cutting waste, both in resource consumption and in manufacturing operations. “A good company to look at is 3M,” Haley says. “3M estimates that through the 1980s and 1990s, it cut costs by $1 billion per decade.”
That $1 billion was wrung from a relentless focus on energy efficiency and tuning manufacturing processes to slash waste. And contrary to what conventional thinking might suggest, 3M was able to maintain formidable competitiveness worldwide throughout the entire process.
Another example: In the 1990s, Dow Chemical launched a 10-year environmental program that focused on energy consumption and packaging. As William Hoffman outlined in his article, “The Greening of Logistics,” (Traffic World, June 25, 2007), the chemical giant's goal was to achieve resource savings while burnishing its image as a responsible corporate citizen. A decade later, after Dow crunched the program numbers, the company discovered the results shattered expectations. It realized savings of $3 billion in energy costs alone.
Strategic Green
But what exactly do such efficiencies look like? Is there really a mother lode of energy and process inefficiencies lurking in the systems of most well managed companies? Probably not. Significant cost and environmental advantages are most often cumulative, earned through a slew of small, incremental tunings.
Dell, for example, has bundled such tunings into a sweeping corporate culture rooted in a holistic “life cycle” environmental view. Environmental benefits are aggressively integrated throughout the entire system, from product design and engineering, to material and component procurement, to manufacturing and shipping, to comprehensive recycling and disposal once a technology obsolesces.
Dell's mission reaches beyond simple energy conservation strategies and innovations to useful product-life extension; it embraces the development of supplier sources dedicated to green production methods, the avoidance of materials with potential environmental hazards at each step of the life cycle, and the utilization of recyclable components at the highest levels. “Becoming a more green company is a lot more than recycling cans and paper at the office. You have to look at the total company footprint, end-to-end, and even include what happens to your product after it has served its productive life,” said Todd Forsythe, vice president of Global Commercial Marketing for Dell.
“Every aspect needs to be reviewed carefully in regard to going green,” says Anthony Corsano, CEO of Anvil Knitwear, a New York-based manufacturer of fashion activewear with annual revenues of $200 million. “You examine the smallest to largest processes.” Anvil Knitwear does everything from selling off textile scraps for recycling, to generating steam power from discarded waste.
Anvil even recycles heat. Because textile manufacturing requires water heated to high temperatures for fabric dyeing processes, Anvil re-circulates the effluent, or liquid waste, to preheat fresh water coming in. That step cuts the amount of energy required to bring the water to proper dying temperatures.
Anvil also manufactures and markets recycled clothing made from textile scraps that are broken down into fiber, combined with 25 percent recycled polyester, and spun back into usable yarn. Anvil is even experimenting with manufacturing high-performance fabrics from plastic bottles spun into polyester yarn. And their customers love such innovative products. Corsano says the demand for organic cotton and recycled textile products is so strong, it's a challenge to keep up. “Ninety-nine out of 100 of those initiatives are not only great for the environment, they're great for my bottom line,” he insists.
Still, most of the initiatives that yield benefits are not as sexy as manufacturing computers or athletic shirts from plastic water bottles. Some are as simple as instituting a policy of using both sides of paper when making copies. Dell installed motion sensors in all of its employee soft drink machines so that the machines are in sleep mode until human activity is detected. The company is also working on an automated process that shuts down idle computer equipment such as computer monitors at the end of the business day.
“Think about an office building where everyone has a docking station,” says Forsythe. “Can you imagine the power savings if you simply turned off 25,000 monitors? Now imagine if you have a data center with 500 servers, numerous storage devices, massive AC units and other equipment. If you could dynamically turn IT equipment on and off, based on computing needs, the savings could be massive. ”
Embedding Green
The manufacturing process that will assume vital importance in the years to come is product design with an eye firmly fixed on environmental soundness. Recyclability, energy efficiency, the elimination of toxic chemicals and effluents in the manufacturing process, streamlined packaging, and supply chain efficiencies, all will increasingly be engineered into products from scratch. Boeing's new 787 Dreamliner was deliberately engineered with cutting-edge efficiencies to dramatically decrease fuel consumption and reduce emissions through the use of lightweight composite materials in the fuselage; sweptback wings with variable, upward curving trailing edges to give the aircraft more lift; and engines with all-composite fans, along with nozzles that spin the fuel/air mixture into the engine core to generate thrust at lower temperatures.
Dell specifically designs computers and technology components with a goal of enhancing recyclability; eliminating hazardous substances such as brominated flame retardants (BFRs), polyvinyl chloride (PVC), and lead; slashing energy consumption and heat generation; and preassembling products to streamline packaging and eliminate unnecessary shipping materials.
“You have to consider everything from how far you have to ship parts to what kinds of waste and how much are generated in your manufacturing processes,” says Dell's Forsythe.
Engineering products for minimal environmental impact is a shrewd competitive strategy, as it can soften potential regulatory blows. Manufacturers who continually gear their own research and testing processes toward the development of environmentally sound products before regulations can be proposed are far less likely to squander resources wrestling with compliance issues. Embracing green technologies and processes can also present manufacturers with a marketing edge by staking a position at the forefront of developing eco-responsible corporate practices, as companies such as General Electric and Toyota have shown. Such industry leaders are uniquely positioned to work with lawmakers and regulatory agencies to help shape environmental policy, affording additional competitive advantages.
Yet one manufacturing process that potentially generates the richest environmental dividends is easily the most overlooked: remanufacturing. Nabil Nasr, director of the Golisano Institute of Sustainability at the Rochester Institute of Technology, calls remanufacturing the hidden giant of U.S. industry. And it goes far beyond diesel engines and automotive components, reaching into everything from aircraft engines and landing gears, tires, automated teller machines, and office furniture. Xerox remanufactures its copiers; Kodak, its digital cameras; Motorola, its cell phone handsets for warranty replacements; and General Electric, its medical devices.
Remanufacturing isn't refurbishment, a process that simply replaces worn and degraded parts. In remanufacturing, a product is completely disassembled and its components are salvaged and tuned to the quality standards of its newly manufactured counterpart before it is reassembled. Heavy-equipment maker Caterpillar Inc. has dedicated a whole division to the remanufacturing enterprise, and the concept is so deeply embedded in its design and development culture that its equipment is explicitly engineered to ease the process of remanufacturing by, for example, bulging up a part with a few extra ten thousandths of an inch of metal to get two or three or four more lives out of it.
The remanufacturing industry, which Nasr estimates at more than $53 billion per year, saves enough raw material resources annually to fill railway cars strung in an 1,100-mile-long train and enough energy to power six million cars for one year. Caterpillar Remanufacturing Services division generates some $1 billion in sales annually and helped the company earn a membership slot on the Dow Jones Sustainability World Index, an annual review of corporate performance across a range of social, environmental, and economic criteria of some 2,500 companies worldwide. In 2007, Caterpillar earned the highest overall World Index score of any company in the industrial engineering sector.
Yet remanufacturing clearly has its limits. The process is currently deployed most heavily in industrial sectors, where functionality overrides form. However, in the consumer market, where novelty and fashion are expressed in products, remanufacturing has fewer applications. Fashion cannot be remanufactured.
Taming the Supply Chain
Perhaps the most daunting challenge in any corporate greening process is wringing the appropriate inefficiencies out of the supply chain.
Vast amounts of energy are consumed throughout the supply chain network, much of it hidden and not properly scrutinized in transport and inventory systems that are perpetually in flux. Such challenges require soup-to-nuts rethinking. Unfortunately, many companies lack firm control over the movement of their goods, delegating it to freight forwarders. “If you're going to focus on environmental issues in your supply chain, one of the things that is tremendously important is the close collaboration between the vendor and the buyer,” Haley says.
Example: Wal-Mart Canada recently introduced a Supply Chain Sustainability Scorecard to assess its network of suppliers on the environmental impact of their business practices. The program will scrutinize the firms it hires to ship and store its products on a variety of criteria including the efficiency of its vehicles, systems, and storage facilities in transportation networks; the strength and breadth of recycling programs and equipment standards; and the efforts it undertakes to wring out unnecessary packaging. Corporately, Wal-Mart plans to generate some $3.4 billion in savings by encouraging its suppliers to shave packaging materials by 5 percent beginning in 2008.
Retuning supply chain systems often starts with a detailed, route-by-route analysis of a company's transport networks. Oftentimes, selecting an alternative transportation mode can generate substantial savings. Wal-Mart Canada changed the mode of transporting goods from one supplier destined for 10 stores from road to rail. “When you ship over 500 miles, shipping it by some way other than truck is going to be more environmentally friendly,” Haley says. “One of the surprising things in the United States is that you actually have more ports of entry into the shipping system by waterborne transport than by rail transport. We've got a tremendous river system.”
Other approaches abound. Office-supply retailer Staples realized fuel savings of 25 percent by installing governors on its truck engines to cap speeds at 60-miles-per-hour, while it lights its warehouses with skylights and solar power. Additional savings can be realized by limited truck and locomotive idling throughout the supply chain.
Companies are also evaluating potential efficiencies and resource savings by locating Manufacturing facilities in robust markets, rather than manufacturing products in far-away locales and shipping them over great distances. Dell recently opened a manufacturing plant in India, one of its key markets, rather than ship products into that market from plants in Singapore.
Such supply chain concerns are triggering sourcing reversals. Mark Messura, executive vice president for Cotton Inc., a U.S. cotton-grower trade group, says some companies that have gone overseas to establish manufacturing plants are returning to the Western Hemisphere. They're doing so not only for logistics gains, but also to more effectively monitor environmental and social compliance. He predicts countries such as India and China will find themselves at a competitive disadvantage globally if they fail to establish strong environmental and social compliance standards, especially if they host companies with strong brand recognition. “There are companies that realize they have a lot at stake and there's a big risk if they don't do this,” Messura says. “They could end up being the next ‘60 Minutes' story.”
Avoiding an Unsound Environment
Not surprisingly, like most things worthwhile, an emphasis on green practices and loudly touting them can entail risks. In 2003, Cotton Inc. teamed up with the Organic Trade Association to undertake a study gauging the perceptions of 1,000 consumers who recently purchased organic cotton products. Organic cotton, which accounts for a scant 0.1 percent of global cotton production, is grown under strict United States Department of Agriculture guidelines that allow for few, if any, applications of synthetic pesticides and fertilizers. It also prohibits the use of genetically modified crops. Yet few of those who purchased “sustainable” organic cotton actually understood what the product was. The vast majority of those surveyed thought organic meant no ironing, was manufactured with soy, or was made from recycled materials. Additionally, the organization was stunned to find a mere 4 percent purchased organic cotton products because they were environmentally friendly.
While the textile industry has different forces driving its market, namely price, fashion, and fit, this yawning gap between perception and reality offers lessons for other industries gearing to go green. It also offers opportunities for those companies that want to face the green challenge head-on – those that want to carve leadership positions and exert influence both on suppliers and customers. Going green may be seen as costing more initially, but those costs largely evaporate as benefits accrue.
“You have to look at the three fundamental tenets of sustainability,” says Messura. “You have to look at environmental impact. You have to look at social issues and quality of life. You have to look at economics. The companies that are moving in the direction of green have to look at balancing all of these things. If it's too much in one direction or the other, it's really not a sustainable solution.”
The process of broadening the green focus to account for the total impact of a company's presence on the planet may sound daunting, but it is immanently doable. And it's not only good for business, it's a net positive for society, culture, global relations – indeed, the planet and its future. If the process is undertaken with great care, there's potential for great success.
About the Author:
Jeff Johnson is an enterprise strategist in Dell's Global Commercial Product Group.