survival-2-0208.jpgYou’d have to be living in a mountain cave or vacationing on the  south coast of France to not know that world stock markets are being  whipped around these past two weeks.  The USA Today has attributed what’s been happening in the markets here in the U.S. along seven key elements,  all of which is related more to external factors such as the European  money woes, general investor fear and lack of policy direction from the  federal government. The general market fear and scurrying for  shelter reminds me that when hikers are caught in a sudden storm, they  often seek shelter in a “lean-to” or other protective cover until the  skies clear.


I thought that in light of the economic body slamming  that has been going on this past week, it’s worth reflecting on some  efficiency-based ways that  businesses can use to overcome (or at least  buffer) some of the external factors that are causing such economic  uncertainty.  Like the hikers seeking shelter from the storm, there are  some “lean-to”-like steps that company’s can take to exert some control  and influence -- and it all relates to a leaner, greener, smarter enterprise.


The Lean and Green Enterprise


Last winter I wrote about how importance a “lean and green” enterprise was in establishing a smarter, leadership position in a rapidly changing global marketplace.  I noted then that a 2009 study suggested that “lean companies are embracing green objectives and  transcending to green manufacturing as a natural extension of their  culture of continuous waste reduction, integral to world class Lean  programs.”  Lean was more rapidly accomplished with a dedicated  corporate commitment to continual improvement, and incorporating ‘triple  top line’ strategies to account for environmental, social and financial  capital.  I also argued by looking deep into an organizations value  chain (upstream suppliers, operations and end of life product  opportunities) with a ‘green’ or environmental lens, manufacturers can  eliminate even more waste in the manufacturing process, and realize some  potentially dramatic savings


So I was reminded this past week that Lean in design, Lean in manufacturing, and Lean in inventory can individually or collectively be key success factors in managing  waste in all its many forms.  Collectively, this can have a measurably  positive effect on a company’s financial, and hence, business  performance.  A couple of recent articles touched on this topic this  week while you were watching your 401(K) equity or stock value tank.    But first let’s touch on Lean Design.


Lean Design


I came across an older but very relevant article written in the aftermath of the Internet stock crash in the early  2000’s.  The article described product development as involving “two  kinds of waste: that associated with the process of creating a new  design (e.g., wasted time, resources, development money), and waste that  is embodied in the design itself (e.g., excessive complexity, poor  manufacturing process compatibility, many unique and custom parts).”   The article cautioned that because the design process is the cradle of  creative thinking, designers needed to carefully watch what they “lean  out” or risk cutting off the creative process to reduce waste.  What has  happened in the ensuing years has been an incredible emphasis on “green  design” that focuses on full product life cycle value, such that “end  of life management” considerations have taken on a more relevant and  embedded nature in manufacturing.


A Lean Manufacturer Can be a Sustainable Manufacturer


In yet another recent article by manufacturing consultant Tim McMahon (@TimALeanJourney),  he notes that “Lean manufacturing practices and sustainability are  conceptually similar in that both seek to maximize organizational  efficiency. Where they differ is in where the boundaries are drawn, and  in how waste is defined”.  He notes, as I have in my past posts, that  Lean manufacturing practices, which are at the very core of  sustainability, save time and money — an absolutely necessity in today’s  competitive global marketplace.


The key areas to control manufacturing waste and resource use during the design and manufacturing cycle, can be broken down  and managed for waste management and efficiency in the following five ways:


Reduce Direct Material Cost – Can be achieved by use of common parts, common raw materials,  parts-count reduction, design simplification, reduction   of scrap and  quality defects, elimination of batch processes, etc.


Reduce Direct Labor Cost- Can be accomplished through design simplification, design for lean  manufacture and assembly, parts count reduction, matching product  tolerances to process capabilities, standardizing processes, etc.


Reduce Operational Overhead-  Efficiencies can be captured by minimizing impact on factory layout,  capture cross-product-line synergies (e.g. a modular  design/ mass-customization strategy), improve utilization of shared  capital equipment, etc.

 

Minimize Non-Recurring Design Cost– Planners and practitioners should focus on platform design strategies  to achieve efficiencies, including: parts standardization, lean  QFD/voice-of-the-customer, Six-Sigma Methods, Design of Experiment,  Value Engineering, Production Preparation (3P) Process, etc.


Minimize Product-Specific Capital Investment through:  Production Preparation (3P) Process, matching product tolerances to  process capabilities, Value Engineering / design simplification, design  for one-piece flow, standardization of parts.


Can a Lean Inventory Management Drive Sustainable Resource Consumption?


Business  Colleague Julie Urlaub from Taiga Company  (@TaigaCompany) summarized a  post in a recent Harvard Business Review by green sage Andrew Winston  (@GreenAdvantage).  The article, Excess Inventory Wastes Carbon and Energy, Not Just Money describes how the global marketplace “ is sitting on $8 trillion worth  of ‘for sale’ inventory [the U.S. maintains a quarter of that   inventory].  These idle goods not only represent a tremendous financial  burden but an enormous environmental footprint ” that was generated in  the manufacturing of those goods.  Mr. Winston maintains that “If we could permanently reduce the amount of product sitting idle, we'd save money, energy, and material.”   The problem is predicting and managing inventory in such fickle  times.   Winston went on about new predictive tools being advanced by  companies that hold promise in nimbly driving inventory demand response  up the supply chain.  For instance, he noted that “ using both demand  sensing software and good management practices, P&G has cut 17 days  and $2.1 billion out of inventory. All that production avoided saves a  lot of money in manufacturing, distribution, and ongoing warehousing. It  also saves a lot of carbon, material, and water.”

 

What Mr.  Winston found shocking though (me too!) was that “even with the  fastest-selling, most predictable products, the estimates are off by an average of more than 40 percent.  Imagine that a CPG company believes that 1 million bottles of a  fast-turning laundry detergent will sell this week. With 40 percent  average error, half the time sales will actually fall between 600,000  and 1.4 million bottles. And the other half of the time sales will be  even further off the mark.”  The process becomes self  perpetuating and the inventory racks up along with the parallel  environmental footprint, unless somehow the uncertainty can be better  predicted.  While companies like to have on hand what Mr. Winston  referred to as “safety stock”, I have come to know as reserve inventory  driven by “just in time” ordering .  But that process was shown to have  its own flaws such as when orders for goods dried up overnight in 2008  and when it came time to ramp up in early 2010, part counts were  insufficient to meet the rising demand.

 

I really pity the supply  chain demand planner, who like the weatherman is subject to the fickle  nature of an unpredictable force.  Winston wrapped up his article by  stating that “ reducing the inventory itself could be the greenest thing  [logistics executives] can do”.  I had the chance to speak and attend  the 2010 Aberdeen Supply Chain Summit where demand response planning was  discussed at length and where green supply chain issues were recognized  as one of many key attributes in effective supply chain management.  In  such a volatile economy, its vital that companies keep inventory  management in mind as a way to leverage its costs and simultaneously  look toward environmental improvements that can reduce waste.


Partnering for Progress


A  relatively recent pilot program in the State of Wisconsin just shows  how partnering to create a lean focused sustainable manufacturing  cluster can have enormous dividends.  According to a recent article in BizTimes.com,  the Wisconsin Profitable Sustainability Initiative (PSI) was launched  in April 2010 by the Wisconsin Department of Commerce and the Wisconsin  Manufacturing Extension Partnership (WMEP). The goal according to the  article is “to help small and midsize manufacturers reduce costs, gain  competitive advantage and minimize environmental impacts”. 

 

Forty-five  manufacturers participated in over 87 projects evaluated. These projects  focused on “evaluating and implementing a wide range of improvements,  including reducing raw materials, solid waste and freight miles,  optimizing processes, installing new equipment and launching new  products.  The initial results show that the projects with the largest  impact do not come from the traditional sustainability areas such as  energy or recycling. Instead, outcomes from the initial projects suggest  that transportation and operational improvements are places where  manufacturers can look to find big savings, quick paybacks and  significant environmental benefits.”

 

The program is projected to  generate a five-year $54 million economic impact, including: $26.9  million in savings, $23.5 million in increased/retained sales and $3.6  million in investment.

 

Lean design,  Lean manufacturing, Lean inventory management – a Waste Containment and Efficiency “Trifecta”

 

Together,  lean design,  lean manufacturing  and effective, lean inventory  management offer a “trifecta” approach for industry to identify, reduce  or eliminate and track waste.  Effective use of these tools cannot only  drive both in how the product is designed and  produced but offers  opportunities all the way up the supply chain to manage effective  inventory and resource consumption. As the University of Tennessee  studied concluded,  the implications of lean strategies are 1)  Lean  results in green; and 2) Lean is an essential part of remaining  competitive and maintaining a quality image. 

 

Put the two together and a  company can virtually be unstoppable…or a least a bit more  recession-proof and "shelter from the storm".

ray_anderson.jpgRay Anderson died this week.   Most of us in the business just called him “Ray”, because he really was  such an approachable guy.  I saw him speak in San Diego three years  ago, and even to a business green business veteran like me, he was  sage-like.  To most outside the world of sustainability in business, the  name hardly rang a bell.  But to those of us within its three  concentric circles, Ray was an icon.  As many know, Ray Anderson ran InterfaceFLOR.   As the leader of a major global carpeting brand, which at that time  relied on heavy use of industrial chemicals, hydrocarbon based products,  energy and water use, InterFaceFLOR, like other carpet manufacturers  was enduring a major challenge to rethink how its products were being  made.


By the mid 1990’s when Ray had become the company’s CEO,  more customers were asking questions about the company’s sustainability  efforts.   In 1994, Ray had an awakening of sorts (his so-called  “point  of a spear into my chest” moment), when after having a number of  meetings and discussions with his staff and reading Paul Hawkens the Ecology of Commerce, he became an enlightened, radical industrialist. He had come to the  conclusion that the environment was at risk and a lot of that was caused by industry and companies such InterfaceFLOR  that were based on petrochemicals and energy.


I,  myself, was amazed to learn just how much stuff the earth has to  produce through our extraction process to produce a dollar of revenue  for our company. When I learned, I was flabbergasted. We are leaving a  terrible legacy of poison and diminishment of the environment for our  grandchildren's grandchildren, generations not yet born. Some people  have called that intergeneration tyranny, a form of taxation without  representation, levied by us on generations yet to be. It's the wrong  thing to do.-Ray Anderson


The Radical Industrialist Takes on the Supply Chain


Ray was simply on a mission- for InterfaceFLOR to not only cut waste, but to be a leading, responsible business.   He became the face of the “radical industrialist” (the title of his  last autobiographical  book which I received signed by him just two  months ago is called Confessions of a Radical Industrialist)  and in 1994 launched InterfaceFLOR into a first mover role to reduce  its environmental and social footprint.  The data is quite extraordinary  in the 17 years since the company launched its many environmental  initiatives. Of course, Ray started with a plan- one that by necessity  started small- but was across the board, an overhaul affecting every  link of the supply chain.  Ray also smartly knew that go get his  shareholders on board, he needed “obliterate costs/footprint associated with waste; silencing the shareholders that were uncomfortable with the risk involved with completely revolutionizing your company”.


We  began to tackle the face of mountain we identified as waste. We defined  waste, by the way, as any cost that we incurred that does not add value  to our customer and that translates to doing everything right the first  time, every time. It’s not just waste material, scrapped and low  quality and so forth. If you send something to the wrong destination and  have to get it back and reship it -- that’s waste. If you incur a bad  debt -- that’s waste. So we defined waste very broadly and over time we  actually said that any energy that comes from fossil fuel by our  definition is waste and we need to eliminate it. We really began to  think in different ways about our business in terms of climbing this  mountain and it became very clear very quickly this was the smart thing  to do. Not only did we start to generate answers for those customers,  they embraced us for what we were trying to do. The goodwill in the  market place has just been stunning. The rest of the business case is  pretty simple. I cost it down not up. - Ray Anderson


According  to Lindsay Parnell, InterFaceFLOR’s CEO for Europe, the Middle East,  Africa, and Asia, the company has “reduced waste to landfill by 80 per  cent since 1996, curbed water use by the same amount, reduced energy use  per unit of production by 43 per cent, and cut greenhouse gases 44 per  cent, partly by generating 30 per cent of its energy from renewable.   But what also stands out (and what made Ray such a business visionary)  was that there was a phenomenal financial payback that could be realized  from “going green”.  According to Parnell, "We could see that the  millions of dollars were stacking up.  Between 1995 and 2010 we have  saved $433m – that is a huge amount for a company with revenues of  around $1bn. There is no way we have invested $433m in this, but that is  what it has saved."


It's not just the right thing to do, it's the smart thing to do. - Ray Anderson

 

 

From a supply chain point of view, InterfaceFLOR realized that to be e truly sustainable organization the company had to reach into its supply chain, especially at the end of a products life. InterfaceFLOR has since launched  new sustainable supply chain concepts across its customer reach to reduce costs and offer cost savings opportunities for its freight forwarders. The company also set up its ReEntry scheme in 1995, collecting carpets at the end of their lifecycle. Any  product which cannot be re-purposed is recycled or downcycled into a new  product. According to Melissa Vernon, Director of Sustainability Strategy for InterfaceFLOR, the company also "consciously seeks out suppliers who share [InterfaceFLOR's] environmental commitment and entrepreneurial spirit ...and...has found it more  effective to sit face-to-face with suppliers and discuss how they can  help ... achieve... sustainability goals.

 

Climbing Mount Sustainability


Rays efforts were noticed for sure.  Time Magazine featured him in an article this past spring and Fortune Magazine called him “America’s greenest CEO".  He went out  and "evangelized" over 150 times a year, until his fight with cancer  started to finally slow him down.  The awards and honors bestowed on Ray  and the companies over the past two decades are too many to mention  here. Recently, Interface ranked 11th worldwide in the 2010  Sustainability & Innovation Global Executive Study & Research  Project by MIT Sloan Management Review and The Boston Consulting Group.   They ranked second behind Unilever in the 2011 Global Sustainability  Leaders Survey from GlobeScan Inc. and SustainAbility Ltd.  Suffice it  to say though that InterfaceFLORs efforts disruptively changed the way  the carpet, building materials and textile industry operate today as  compared to 20 years ago.


Meanwhile, in the last couple of years the company launched its highly ambitious Mission Zero ™  sustainability strategy,  which aims to turn InterfaceFLOR into a zero-impact organization.  Ray  often spoke about how climbing the sustainability mountain in business  was akin to climbing Mount Everest and that there were seven paths or fronts to get there:

  • Eliminate Waste: Eliminating all forms of waste in every area of business;
  • Benign Emissions: Eliminating toxic substances from products, vehicles and facilities;
  • Renewable Electricity:  Operating facilities with renewable electricity sources – solar, wind,  landfill gas, biomass, geothermal, tidal and low impact/small scale  hydroelectric or non-petroleum-based hydrogen;
  • Closing the Loop: Redesigning processes and products to close the technical loop using recovered and bio-based materials;
  • Resource-Efficient Transportation: Transporting people and products efficiently to reduce waste and emissions;
  • Sensitizing Stakeholders: Creating a culture that integrates sustainability principles and improves people’s lives and livelihoods;
  • Redesign Commerce: Creating a new business model that demonstrates and supports the value of sustainability-based commerce.


Making the Business Case


When  you are being asked to make the business case for sustainability -  perhaps ask them to make the business case for being un-sustainable. -  Ray Anderson


You see, for the past 30 years I’ve been evangelizing like Ray for organizations to make “the business case” on behalf of reducing waste of any kind (be it over-consumption,  generation of waste, human productivity waste, etc) so the bottom line  is optimized and employees, communities and the environment are  protected.  To me it’s a “no brainer” and for folks like Ray it took an  epiphany to make that realization.  Since Ray’s awakening in 1994, and  especially in the past half decade or so, more CEO’s and manufacturers  with local to global reach are coming to their own realizations and  drawing their own conclusions.


Ray  stepped out of his comfort zone to challenge the status quo.  He forged  a new business normal that called for a respect of the land,  responsible use of resources, smart design and innovative end of life  (cradle to cradle) management of products.  Mission Zero will continue  for the many thousands of employees of InterFaceFLOR around the world-  all because of one man’s vision. All because of Ray.


As Ray said back in 2008 when I saw him, “There are noble fortunes to be made in the transition to sustainability.” That inspirational quote stands right up there with my son’s from back  in 1991 when he introduced me to his pre-school class as the Dad who  “saves the planet”.   Sometimes, being radical is not such a bad thing.


Mr. Anderson…er, Ray, thanks for all the inspiration- this one’s for you.