Lean Design, Lean Manufacturing, Lean Inventory/Supply Management – A Sustainability “Trifecta”

Source (Popular Mechanics)

You’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”.

Organizational Collaboration, Transparency, and Metrics CAN Foster Sustainable Change

In an earlier post I mentioned the soon to be availability of “The Portland Bottom Line: Practices for Your Small Business from America’s Hotbed of Sustainability”.   Well, the book has arrived and I am more proud than ever to be a contributor to this publication.  The short 400 word essays by myself and over 50 contributors explores how small businesses can effectively and efficiently shift toward sustainability and thrive in a challenging economy. Contributors collectively chose, by vote, the local community organization Mercy Corps Northwest, which supports the launch and growth of sustainable ventures, to receive 100% of the profits from the book’s sales.

You can buy the book now on Lulu for $16.95 (paperback) or $6.95 (download).   www.portlandbottomline.com

My excerpt from the book can be found in Part 3- Prosperity and is included in its entirety below.  Enjoy, buy the book and make a contribution to the growth of sustainable enterprise!

A few years ago, I assisted a water utility in implementing a sustainability focused initiative based on the International Organization for Standardization (“ISO”) 14001-2004 Environmental Management System standard. Many public and private organizations operate in functional silos, often don’t coordinate well, communicate effectively or run efficiently. Creating a triple bottom line-focused organization requires that all parts work together—like organs of a living being. This utility was inefficient with taxpayer dollars and under intense public scrutiny to improve its operations. It was not healthy. Through the two-year journey with the [utility], I worked hard to know each of its parts, how they interacted, where the trouble spots were, and where good health was. The goal was to build a holistic, sustainable organization that capitalized on its best assets: the staff.

To be truly optimized and efficient, it was vital to shore up operational weaknesses. The program focused on new communication techniques, champion-building, public environmental awareness, and creating a culture of continuous change management. Public agencies are often stuck in a business-as- usual (“BAU”) mindset. The ISO 14001-2004 program and other internal performance turn-around initiatives required moving beyond the BAU mindset. Key steps and measures that contributed to the turnaround included the following spheres:

• Environmental: Early establishment of cross-functional performance improvement teams that focused on key measurable indicators, e.g. energy efficiency, resource management, and waste reduction.
• Operational: Collaborative fact-finding, problem resolution and decision-making around staff utilization and scheduling, resource optimization, asset management, emergency response, and predictive maintenance.
• Social: Proactive external public education and awareness campaigns at city-run facilities to engage community support related to natural resource management and watershed conservation efforts; employee initiatives that encouraged buy-in and financial rewards for cost saving measures and led to a reduced environmental footprint.

The organization achieved its ISO 14001-2004 certification, garnered prestigious national awards, and saved the City over $100 million in 5 years. After the certification award, a 30-year veteran of the department approached me. He hadn’t believed in the programs value at the start—maybe because of his BAU approach, or maybe he didn’t like change. He said, “Dave, I want to thank you. You made us do something that we would not have done ourselves”. That is what cultural change is all about. For once, I was speechless.

The keys to the success of this sustainability program and others like it are: cross-functional collaboration and employee input (early and often), early stakeholder collaboration, and metrics. These ingredients alone will go a long way toward laying the foundation for long term success of your organization’s sustainability initiatives and going beyond business-as-usual.

How Walmart & Others Use ‘Best Value’ Approach to Drive Green Supply Chain Management

I recently came across a great research article written a couple of years ago and published in Elsevier Business Horizons.  The article, entitled Best Value Supply Chains: A key competitive weapon for the 21st Century (co-author is no relation, but irony is cool nonetheless), emphasized how leading edge companies have adopted “best value strategic supply chain management” as a strategic approach to stay competitive and drive efficiency.  The authors describe this type of approach as way for companies to “excel across speed, quality, cost, and flexibility, and …require coordination across at least four supply chain elements: strategic sourcing, logistics management, supply chain information systems, and relationship management.”

In one example, the authors refer to “firms such as Wal-Mart, Toyota, and Zara [that have] have used their supply chains as competitive weapons to gain advantages over peers. For example, Wal-Mart excels in terms of speed and cost by locating all domestic stores within one day’s drive of a warehouse while owning a trucking fleet. This creates distribution speed and economies of scale that competitors simply cannot match.”  Exploring this approach by Walmart a bit deeper indicates several positive outcomes from an environmental perspective also.  In the past two years Walmart has committed itself to reducing its carbon footprint by 20 million metric tons by the end of 2015. The most direct manner to do this is to control how it distributes its product.  So fleet management and control, and strategic distribution placement equals lower fuel costs, miles driven and hence carbon emission reductions.  However Walmart will also accomplish its reductions largely by working with its suppliers on their own greenhouse gas emissions.  Looking a little deeper however, shows that Walmart also reported recently that its carbon emissions as a percentage of sales went down. While that is great news using ‘normalized’ performance indicators, the not so good news is that  the company’s ‘absolute’ carbon footprint continued to grow as sales and stores were added.  So this goes to show you that it is valuable to drive value through the supply chain, taking a strategic, whole systems approach to get a handle on your direct spend and indirect environmental costs.  The only way to effectively do so is to look inside the operations of your own four walls, AND explore ways to influence the outside variables that can impact your operations.

The authors also cite three key attributes of a strategic supply chain management process that must be optimized: agility, adaptability (think Darwin?), and alignment (or the Three A’s).  I agree in whole that in order to shape behavior and optimize sustainability goals within a supply chain, that its vital the companies seek to 1) set in place tools that increase flexibility and ability to rapidly respond to changes in customer behavior and preferences (agility) 2) reshape supply chains to new ways of thinking (adaptability) 2) align your organizational goals with those of your upstream and downstream suppliers, vendors and stakeholders through improved collaboration and relationship management (alignment).  Each of these success attributes plays well in the sustainability arena and in managing an organizations triple bottom line.

As I have repeatedly stated in this space, the supply chain and logistics world is changing- expanding from a company vs. company solar system to a supply chain vs. supply chain universe.  Reshaping and reforming your supply chain management practices to reflect changing business norms toward managing to the ‘triple bottom line’ makes for smart business.

New Green Supply Chain Blog on Kinaxis Supply Chain Community

Friends- I want to let you all know that I have recently been invited to be the lead expert blogger on green supply chain issues for the Kinaxis Supply Chain Community. 3500 members and growing strong! As mentioned, The Supply Chain Expert Community is “Your social place for learning, laughter, sharing and connecting.”

LEARN—Read insights from our bloggers and members. Ask questions, discuss trends, research topics.

LAUGH—Visit the “Just for Laughs” section, and enjoy some supply chain humor.

SHARE—Impart the lessons you’ve learned and the obstacles you still face. Invite your friends and colleagues to join the discussion.

CONNECT—Meet peers who face similar challenges and opportunities. Give and receive support.

You can view my Green Supply Chain Blog here:

https://community.kinaxis.com/people/DRMeyer/blog

Shades of Green…Getting the Most from Your Sustainability Initiatives

Are you “dark green” or are you “light green”…or are you a trendy “blue thinker” (having abandoned the “green” mantra as not deep enough)?  Well, two articles caught my eye this morning, both located on a very trustworthy e-zine, the Environmental Leader.  The first discussed how corporate marketers expect their companies to increase environmental sustainability initiatives over the next two to three years.

(http://www.environmentalleader.com/2009/04/10/survey-corporate-marketers-foresee-greater-investments-in-sustainability)

The second article was by Deloitte’s Peter Capozucca, who cited a 2008 study by the Economist Intelligence Unit, that stated that companies that embrace sustainability have achieved the highest share price growth over the past three years whereas companies with the worst performance focused less on sustainability (http://www.environmentalleader.com/2009/04/10/avoiding-pitfalls-on-the-sustainability-path-to-shareholder-value/)

What struck me in these two wildly divergent articles (and which seems to be a perennial challenge among both public and private organizations) is the principal motivation is behind companies drive to implement sustainable business practices.   Is the motivation driven by market barriers, new regulations, risk management thresholds, competition, globalization of goods and services, supply chain, cost containment, profit, or more altruistic reasons?   According to the Fleishmann-Hillard led marketing study:

“…three-quarters believe that corporate reputation, corporate culture and technological advancements will be the drivers for sustainability. The Obama administration’s policies also will drive the adoption of corporate sustainability programs, according to 63 percent of respondents. “

Whatever the reason it is clear, as I am discovering here in the Northwest, that sustainability and all that it offers organizations is becoming more prevalent in today’s society.  One size does not fit all when it comes to defining sustainability.  To truly be effective, an initiative must create positive change in fundamental organizational behavior, both within, upstream and downstream of the organizational walls.  This change must provide long term, measurable and meaningful value.

And despite the fact that the economic slowdown has dampened the speed at which organizations are implementing sustainable practices, organizations are finally “getting it”. A few key pointers as you head down the sustainability path:

• Know your driver
• Develop a compelling, clear vision of sustainability
• Identify critical sustainability issues
• Select areas of focus- look outside the “four walls”
• Develop and adopt goals and measurable performance indicators
• Reflect sustainability throughout all phases of organizational development, planning and implementation processes and decisions
• Build a network of internal sustainability champions
• Strengthen relationships with key external sustainability partners

Don’t wait to unlock organizational value. Position yourselves now so that you can emerge as a leader within your business sector through:

• Optimizing the linkage between sustainability, environmental and business objectives;
• Creating a performance measurement system that demonstrates bottom line results;
• Identifying marketplace trends that reward innovation toward sustainability; and
• Building assurance systems for compliance and credible stakeholder engagement.