By Andreas Queck, solution manager, industrial manufacturing with SAP
Industrial manufacturers have endured more than their fair share of disruption over the past several years. And because of that, there’s perhaps a case for them to temporarily move their sustainability initiatives to the back burner until things settle down with material and energy costs, the supply chain, the talent shortage and other issues.
But that case would be a flimsy and shortsighted one at best. In fact, there’s a stronger case to be made for industrial-manufacturing organizations to maintain and even redouble their sustainability efforts. Doing so would not only keep them on track with increasing ESG (environmental/social/governance) requirements, targets and commitments, it could also give them a competitive advantage by helping to address the disruptions they’ve been dealing with lately.
For industrial-manufacturing organizations, the connection between sustainability and profitability is growing stronger. As PWC’s Global Industrial Manufacturing & Automotive Leader, Anil Khurana, wrote in a 2021 blog post, “The [manufacturing] companies that have had the most success delivering financial returns while ensuring environmental stewardship…[have] approached sustainability as an investment that creates value and drives improved results in the short and long term, rather than as an initiative that imposes higher unwanted operating costs.”
Where to target investments to drive value and results, and still act sustainably in the face of disruption? Here are five potentially high-impact areas:
1. Managing material and energy costs more closely. In the National Association of Manufacturers’ Q32022 outlook survey, manufacturers ranked raw material and energy costs among the biggest problems they face today. What’s more, getting enough materials to the right factories at the right time can still be challenging. Meanwhile, for ESG reporting and carbon-footprint-tracking purposes, manufacturers also need to be vetting and tracking the provenance of raw materials, as well as the resources and emissions associated with transporting and using those materials. They also need to be tracking the cost and emissions associated with their operational-energy inputs.
To better manage all these risks, manufacturers are shifting their supply chains closer to home. A recent ABB Robotics & Discrete Automation survey of manufacturing executives found that 37% of US businesses are planning to bring production back home and 33% are looking to nearshore and shift their operations to a closer location. In tandem with these physical operational shifts, they’ll also need to ensure they have the track-and-trace and modeling capabilities to identify optimal pathways for sourcing materials and energy supplies. For example, RFID sensors used in tandem with blockchain technology can help supply-chain managers track and confirm the ethical and environmental provenance of the materials they source.
2. Improving collaboration and visibility to build resilience across the supply chain. In a recent SAP survey of senior business decision-makers, more than half (52%) said they believe their supply chain needs much more improvement and one-third said they expect supply chain issues will persist through the summer of 2023.
Embracing a business network or ecosystem approach, where multiple tiers of suppliers, distributors, logistics providers and other partners are connected and sharing data in close to real time, can give manufacturers the visibility they need to identify potential supply chain issues. It can also help them meet their sustainability goals and responsibilities. Within the network construct, a manufacturer and its suppliers and logistics providers can use analytics and modeling tools to collaboratively develop optimal pathways for warehousing, transportation, etc., that balance reliability, resilience and cost with emissions and carbon-footprint factors. All this is predicated on manufacturers having connectivity and visibility beyond their own walls, across multiple tiers of suppliers, through last-mile logistics, all the way to the customer.
We’re already seeing this type of network approach gain traction in the automotive industry. The Catena-X consortium, which includes some of the biggest names in the European automotive value chain, is creating standards and channels for the exchange of data about material traceability, carbon-footprint management, and demand and capacity management. Not only is participation in this ecosystem enabling manufacturers to overcome supply-chain disruptions, it’s also supporting their efforts to meet mounting sustainability-related regulatory requirements.
3. Making factories smarter and more efficient. Using Industry 4.0 capabilities like automation, the Industrial Internet of Things (IIoT), digital twin and predictive analytics, manufacturers can find new cost-effective ways to minimize waste and make more efficient use of assets, energy and resources during production. They can also draw insight from the data they gather to reduce the lifecycle carbon footprint of the end products they make.
4. Introducing circular-economy principles in manufacturing. With a high percentage of overall product emissions in manufacturing coming from purchased materials and components, companies are starting to look into circular manufacturing. They are reclaiming used products directly from their customers, dismantling them and re-using certain components or high-demand materials. This way they are not only reducing the carbon footprint of their products significantly, they are also counteracting supply chain disruptions and material shortages and are therefore becoming more resilient. Companies such as Caterpillar already are benefitting from these types of circular business models.
5. Smarter product design. When it comes to designing industrial products as well as their packaging, prioritizing a minimalist approach with fewer material inputs can be a win-win. Such an approach can not only cut material and manufacturing requirements and costs, it also can make those products more attractive to customers, who, as we know, weigh carbon footprint and other sustainability factors more heavily in their purchasing decisions. Using modeling/simulation technology, manufacturers can iterate during the design/engineering process to optimize for sustainability, profitability and quality, while also factoring in material availability.
In a world where disruption is constant and sustainability is an ever more pressing business priority, investing in these areas will help manufacturers build resilience without compromising their ESG activities or their bottom line.
