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Good for the Environment, Good for KPIs?

Aug. 15, 2023
Leading-edge factories are now seeing the payoff from their strategic investments in greener technology.

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This column revisits a theme I introduced a year ago, describing how emerging technologies such as  IoT and 3D printing can benefit both the environment and your business, ending the longstanding myth that’s what good for one is not for the other. I described this shift as “The New Efficiency,” and argued it was a necessity for global and corporate survival in light of increasingly apocalyptic predictions on global warming and its lethal effects.  

I return to the subject because current warnings about global warming are even more dire, and, on the positive side, because a growing number of blue-chip factories worldwide embodying the “new efficiency” values are now gaining a quantifiable bottom-line advantage.       

I’ll detail how these benefits are so great that they might actually constitute a valuable new set of key performance indicators (KPIs).

First, the latest on the looming global warming disaster. 

As if anything could be worse than 2021’s warning by the U.N. Intergovernmental Panel on Climate Change (IPCC) that we faced an environmental “code red,” the same group’s March report made it clear: no responsible manufacturer can avoid the need to make a dramatic shift in environmental policies in the next five years if we are to avoid exceeding warming by 1.5 degrees Celsius (2.7 degrees Fahrenheit) above pre-industrial temperatures by the early 2030s. According to the UN panel, if that happens, the climate disasters will become so dire that humans can’t adapt, and the planet will be irretrievably altered. But you don’t have to read those reports to understand: all you had to do was go outside anywhere in July,  the hottest month in global history!

Put bluntly, your factory may the best in the world, but if it’s surrounded by wildfires and you can’t source raw materials, you’ll go bankrupt.

The World Economic Forum and McKinsey created the Global Lighthouse Network to forcefully promote environmental leadership’s bottom-line benefits. It’s an outgrowth of WEF Executive Chairman Klaus Schwabs concept of the Fourth Industrial Revolution” (4IR), which he argues will transform the economy, society and the environment by integrating advanced technologies such as the IoT, AI, robotics, and 3D printing.

The WEF hopes the Lighthouse Network” will push the majority of manufacturers (70%, by their estimation) that are still stuck in the pilot program stage of testing these technologies, to fully adopt them. By showcasing individual factories that have achieved significant improvements in productivity, quality and safety, the network should attract investment and new customers.

Global Sustainability Lighthouses

More important for our discussion, 13 Global Sustainability Lighthouses have been singled out for documenting substantial environmental improvements such as reducing waste, cutting energy use and greenhouse emissions and improving supply chain efficiency.  

The new digital technologies, individually and even more when they are combined, create a new model for pursuing economic and environmental goals simultaneously. Getting real-time digital data documenting operating efficiency from supply chains, assembly lines and products allows for continuous adjustments to achieve peak performance impossible in the past.

Three of the most recent additions to the Sustainability Lighthouses — two of them in the US — demonstrate these benefits:

Ericsson’s 5G factory in Lewisville, Texas, gets 100% of its electricity from onsite solar plus renewable electricity from the grid. Other sustainable technologies include thermal ice storage tanks designed to use 24% less energy and 75% less indoor water usage. The combination avoids 97% of carbon emissions vs. comparable buildings.  As plant head of Industry 4.0 Carlos Torres told IndustryWeek, "‘I want to build transparent, optimized, autonomous and connected systems,’” to analyze and diagnose issues to increase efficiency and safety.”

•  Schneider Electric in Lexington, Kentuckyoptimizes energy efficiency through IoT devices including power meters and predictive analytics. The result: a 26% reduction in energy use, 30% less in net CO2 emissions, and water use down by 20%. The plant earned a Department of Energy Superior Energy Performance 50001TM certification.

•  Henkel in Düsseldorf used a digital twin to improve sustainability. Acting on real-time data from meters has cut energy use by 38%, water by 28% and waste generation by 20%.

One of my favorite Sustainability Lighthouses is Siemens’ “factory of the future,”  in Amberg, Germany, which I wrote about previously because its IIoT systems achieve an astonishing 99.9985% quality rate.

The Amberg team looked beyond their own walls, streamlining their supply chain and reducing the facility’s environmental impact by actively involving its supply chain partners in the effort as part of Siemens’ “Lean Digital Factory” initiative. (Think of all of the environmental impacts of inefficient supply chains, such as energy consumption in transportation and packaging). Their effort includes a “New Ways of Working” workstream focusing solely on sustainability issues.

The numbers are impressive:

  • 70% output increase
  • Emissions reduced 49% (since 2015)
  • Normalized Greenhouse Gas reduction of 69% per volume (particularly important for European manufacturers because the EU now imposes fees on CO2 emissions).
  • Energy consumption per volume cut 47% “while maintaining the same floor space, higher product complexity, headcountand despite the pandemic period, material and energy crisis.”

So, as I proposed earlier, how might these environmental improvements go even further, translating into KPI’s? 

I think the easiest way to think of them as possible indicators is in terms of a simple formula:

             waste (the environmental side) = inefficiency (the profitability side).

Any waste would be an indication that the system was operating at less than full economic efficiency. The more waste is reduced, the more profitability increases.

After all, in an admittedly hard-to-conceive ideal world, 100% of raw materials (preferably sourced nearby) would be converted into final products, with zero waste. Energy use would be limited to what could be produced renewably on site. In such a model, the final products would be shipped nearby for sale and use, and used in a “circular economy,” to recover and reuse as much material as possible at the end of the product’s lifespan.

Admittedly, such extreme standards won’t be achieved in the foreseeable future — if ever — but focusing on “stretch” goals might result in a dramatic reduction in operating costs and profit maximization. 

Isn’t it worth discussing?

Looking at the lighthouse factories’ environmental achievements suggests how they might translate into bottom-line economic KPIs:

 The KPIs need refinement if they are to be useful, but it seems to me the potential combined economic and environmental benefits are worth the effort.

There’s a precedent for such a statistics-based stretch goal.

Enno de Boer, a partner and leader of Digital Manufacturing North America at McKinsey, runs the Lighthouse Network in his position as McKinsey's Digital Capability Center (DCC) global leader. He positions the lighthouses in the tradition of the late W. Edwards Deming, who was revered (particularly in Japan) as the father of statistically-based quality control. Deming too dreamt of what seemed impossibly high quality standards when he began, but became achievable goals.

De Boer told me participants at one Davos conference had a “Deming moment,” when they realized that “sustainability needs to be embedded in business practices, and circularity must be part of engineers’ jobs.” He said the Lighthouse Program didn’t start out with sustainability as one of its goals, but it became one when they realized how much the Lighthouse factories improved in sustainability practices.

We’ve come a long way from the tech-limited days when business leaders saw environmental activities as the enemy of profits and efficiency. Now, with the simultaneous evolution and synergies between so many digital technologies, there’s no need for tension between the two. In fact, corporate and planetary survival may depend on exploiting their full potential.

W. David Stephenson is CEO of Stephenson Strategies (Millis, Mass.), a consultancy specializing in applying the Internet of Things (IoT) to sustainability and creative approaches to aging. An IoT thought leader, he wrote The Future Is Smart (HarperCollins), one of the first guides to IoT strategy.

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