Sustainability issues focusing on environmental and social responsibility are nothing new. However, with heightened media attention, increased consumer awareness, additional regulatory scrutiny and the growing consensus within the scientific community on the link between human activity and climate change, the issue has once again become front and center for both retailers and manufacturers of consumer product goods.
As a matter of fact, there has been a 300% increase in climate change regulations over the past five years, and the number of "green buyers" has increased to 17% of the market.
And, retailer requirements are driving substantial investments by manufacturers and strongly suggest that sustainability is not a fad, but a core business issue for the consumer industry. It also clearly shows that sustainability initiatives will only be successful by a close knit collaboration between retailers and manufacturers.
So what do we mean by sustainability? Sustainability is generally defined as "The continued improvement of business operations to ensure long-term resource availability through environmental, socially sensitive, and transparent performance as it relates to consumers, business partners and the community."
At a recent Grocery Manufacturers Association (GMA) Greenbrier Executive Conference, Linda Dillman, former Wal-Mart CIO and current executive vice president for sustainability, opened with a compelling presentation on sustainability with the following quote from her CEO.
"Being a good steward of the environment and in our communities, and being an efficient and profitable business, are not mutually exclusive. In fact they are one in the same."
-- Lee Scott, CEO Wal-Mart, Twenty First Century Leadership, October 24, 2005
Her presentation included a series of significant targeted savings for Wal-Mart working with one category on packaging and process improvements to generate:
- Gallons of water saved -- 478.1MM
- Gallons of diesel saved -- 20.7MM
- Reduced # of trucks -- 2.79MM
- Plastic resin reduction -- 128.9MM lbs
- Reduced # of out of stocks -- 50%
- Reduction in labor dollars -- $91.4MM
While Wal-Mart with its 50,000-plus suppliers is taking a key role in building sustainability in its core strategies, we see similar efforts in other leading global retailers including Lowe's, Target, Metro, Home Deport, Carrefour, and leading manufacturers like Kimberly Clark, P&G, Unilever, Coca Cola and PepsiCo.
However, sustainability is not only being driven by the large retailers. According to a recent GMA report, internal drivers such as cost reduction, commodity risk management, and upholding corporate culture also are factors driving sustainability for many consumer manufacturing companies.
The questions executives are asking with regards to sustainability include:
- Where should I place my emphasis and commitment?
- I know I have to leverage my manufacturing capabilities and processes, but how do I reduce material requirements?
- Can I reduce waste by improving material utilization and machine effectiveness?
- Can I improve my transportation planning?
- Can I redesign packaging to maintain content levels, but lower the dimensions, weight and use of resin-based materials?
- Once I reach my targeted point can I still have continuous improvement?"
The GMA report also identified collaboration and operational integration as two of the four enablers (strategic alignment and governance being the other two) for a successful sustainability program. As such, building initial manufacturing efficiencies and then creating a continuous improvement program is the cornerstone for reaching sustainability targets.
Coupled with increased collaboration with retailers and distributors, this will support the underlying processes required to drive the requisite improvements.
In order to be successful in implementing a sustainability program, companies must take a top-down approach and have their leadership committed to it. And for companies that do not begin to implement sustainability initiatives on their own, they will soon find it being required of them by shareholders, customers, federal and state agencies and consumers.
One proactive way for consumer-based manufacturing companies looking to enable sustainability across all the various processes in their organization is to implement lean manufacturing. The underlying principles of lean manufacturing are to build effectiveness and efficiency across the entire supply chain and help companies maintain success through continued process improvement.
Consider the potential effects of applying lean manufacturing principles to the above Wal-Mart example. Could we see an additional 25% to 40% improvement over the next three to five years? Could manufacturers improve margins by 10%, retailers selling space by 5% and same store sales by 3%? Could sustainability drive the next paradigm shift in collaboration?
Lean manufacturing can help identify overall requirements and align need to capacity to ensure that production lines are optimized, maximizing energy and raw product utilization. Lean manufacturing also can provide consumer companies with the ability to tightly align packaging material to specific production events. This could result in more efficient use of materials, reduce waste and improve line and machine utilization.
Implementing a lean manufacturing solution also can provide the tools needed to support enhanced supplier and retailer collaboration, ensuring the right product is made at the right place at the right time. And it provides the ability to reduce short run times, which adds valuable production cycle capabilities, and better utilization of natural resource while reducing expenses. The ability to make many while shipping only once can significantly improve truck utilization and reduce fuel and other related costs.
In addition, the use of a transportation system working in conjunction with a lean manufacturing solution allows alignment with key shippers and generation of global regulatory documents to ensure that direct and indirect materials have arrived on-time, and at the right location. This reduces lost potential spoilage, improving manufacturing effectiveness and efficiency.
And finally, a lean manufacturing solution ensures that plants, lines and machines are running at peak efficiency. This is a key component of enabling sustainability. It also ensures spare parts are aligned with product management initiatives; product management requirements are flagged when required, and that repair downtime is minimized.
In summary, while the issue of sustainability continues to mature and evolve in the consumer industry, companies looking to take a leadership position and enhance their business advantages can get started by implementing lean manufacturing solutions that are ideal at addressing the many aspects of meeting their sustainability targets.
Phil Friedman is Vice President, Consumer Products, QAD. Friedman has more than 30 years of experience in consumer industry manufacturing, sales, marketing, consulting and business management.
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