Thursday, March 7, 2013
Increasing Resource Productivity in Manufacturing: Where Are We Headed?
Rapid growth causes dramatic increases in demand of resources which makes it difficult to secure supplies. Commodity prices rise become volatile and manufacturer’s variable costs increase which inturn has an effect on their bottom-line. We live in times of scarce resources which has created huge challenges for manufacturing companies. This scarcity has also created opportunities for companies to look at their supply chain. According to McKinsey, manufacturers could reduce their energy consumption and material use by 30%. Companies could increase resource productivity to minimize costs and attain higher operational stability. Some companies are beginning to realize this and using new business models that enable better tracking and reuse of resources to extract the maximum value from them. “Material-and-information-flow” analysis and lean manufacturing are traditional approaches that are still paying their dividends. However, they do not completely address resource costs and energy constraints. There is an opportunity to adopt an approach that looks at the entire value chain, instead of just looking at individual units.
Of course, manufacturers will have to start by concentrating on their core competencies. However, after that, companies must focus on four areas of industry: Product design, production, value recovery and “supply circle” management. By taking a larger view, companies will not only save on costs but also create value for their customers and benefit society.
Upstream manufacturers have to start with optimizing production by reducing material and energy consumption to raise resource productivity. A second priority would be to acquire waste materials for reuse. Downstream manufacturers need to focus on designing resource efficient products. This includes products that use less material and those that use less energy once they reach the consumer. A second priority for them could be minimizing the energy for manufacturing as this is comparatively low for downstream manufacturers. Waste management companies need to develop technologies that can help them extract high value materials from waste. The next step would be to help production companies with material sourcing.
Companies need to start looking at activities like procuring, transport and waste disposal that they do not control in their facility. Manufacturers need to exert greater influence on these activities to improve the efficiency of their supply chain. After a finished product has served its utility, it can be looped back into the supply chain. In order to do this, companies to be able to better track their foot print. A foot print analysis will reveal hot-spots for improvement in both the company’s and the suppliers operations. For example, 30% of a beverage company’s carbon dioxide emissions come from the fertilizers that farmers use to grow the fruit used in the beverage. The company can work with farmers to reduce the use of fertilizers that will help them reduce their carbon foot print.
In this world of resource constrains, companies will have to make new business models for better resource utilization. For example products can be leased instead of owned where in the product is returned after its utility is over. Value lies in the hands of the resource owners. With increasing price volatility and greater risks, manufacturers have been given an opportunity to improve their supply chains. If successful, they will bring stability to their supplies and manage costs.
Can you name any products that you have read about that are considerate of their foot print and have successfully managed their supply chain to do so? Look at a company that you would like to work in and determine if there is any value in going up or down the supply chain. What tools could companies use to track their supplies and get a bigger picture for better resource productivity?