With manufacturers facing rising raw material and energy costs, increasing environmental legislation, and more focus from investors and customers on environmental issues, the business case to improve resource efficiency and environmental management is strong. Using a product lifecycle approach will identify new opportunities to reduce costs and risks, and improved inventory management will ensure that manufacturers are leaner and more responsive to customer demands.
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Resource Efficiency in manufacturing
Raw materials and energy are a significant and increasing cost for manufacturers. On average raw materials and energy can make up more than 50% of total manufacturing costs. With commodity and energy prices increasing, this is likely to continue to rise especially as conditions ease in the global economy.
Manufacturers also now face more stringent environmental legislation and are increasingly subject to additional costs such as the CRC energy efficiency carbon tax (where large energy users have to report their emissions and pay £12 a tonne of CO2 rising to £16 a tonne in 2014-15) or the EU ETS (the market based mechanism from the Kyoto Protocol). Investors and customers are also more interested in the environmental and sustainability impacts of products, and are asking for greater transparency and performance.
As a result, being able to reduce the amount of materials and energy a company uses will be critical to competing successfully, and addressing the additional costs of materials in work in progress (WiP) and finished inventory will be important. Those companies who are able to do more with less will be able to compete best.
Resource efficiency unlocks opportunities
Using an environmental perspective is proving to be a useful way to identify areas of risk and cost reduction, as wasted materials and energy have a direct impact on the bottom line. A good way to start is assessing products and processes from a “life cycle” perspective, and understanding where the inputs and outputs are (with the corresponding costs and risks). It can provide valuable insight into how to develop better manufacturing processes or better products.
Analysing a manufacturing process from a resource use perspective can therefore provide a useful tool to maximise manufacturing efficiency and financial performance. The key improvement areas are:
- Minimising energy and material use
- Minimising waste and emissions
- Enhancing inventory management
Minimising energy and material use
The quality of energy management in UK companies has improved significantly over the last 5 years. Increasingly sub-metering and energy management software are being used to provide detailed data on energy use and being used to redesign processes and policies to drive down costs.
Energy efficiency is critical when procuring plant and management are starting to develop effective sustainability strategies for the business, which take into account the risks and opportunities to the business. In addition, low carbon technologies and renewable on-site generation have become more competitively priced and are supported by an excellent policy framework including grants and feed-in-tariffs.
Energy management software used with sub-metering can provide bettering understanding of energy usage and can provide new insight into what specific processes are using energy, and ultimately how to reduce energy bills. It can also be used to model energy usage of manufacturing runs, giving better visibility on margins and costs of products.
Eco-design principles that take into account the whole life environmental and financial costs of products have identified innovative approaches to minimise material use and substitute out harmful and expensive materials in product design. To learn more about product assessment, here’s our quick guide.
Minimising waste and emissions
Producing waste has a cost to a business. It can be direct (through landfill taxes or more stringent waste management requirements for hazardous waste), or indirect (where raw material is wasted in the manufacturing processes).
Avoiding generating waste altogether is the most effective approach, and some companies have developed zero-waste objectives by avoiding non-recyclable materials. Sainsbury’s has recently announced it has achieved it’s zero waste to landfill target 7 years ahead of schedule and Proctor and Gamble have reported similar success through their Global Asset Recovery Purchases (GARP) programme, which looks to re-imagine waste not as waste, but as a potential revenue stream or a raw material for a new product (There’s an excellent article in the Guardian from April 2013).
Where waste cannot be avoided entirely, minimising waste provides an excellent cost saving opportunity, and recycling waste (either in on-site processes or through a waste contractor) can turn a costly waste stream into an asset which can even become a revenue stream.
Enhancing inventory management
Using less energy and material in products and during the manufacturing process is important, but improving the flow of materials through the manufacturing process.
Holding stock of materials, especially potentially redundant work in progress and finished product (the most costly and least flexible inventories) can lock up significant amounts of working capital. Releasing cash from such “redundant” inventory can increase competitiveness now by funding cost-reduction, innovation and business development projects that might otherwise remain on the “back-burner”. Linking and synchronising the manufacturing processes for much faster response to customer demand reduces inventory held and manufacturers are able to release cash back into the business and increase responsiveness.