If companies are to unlock true efficiency savings in their value chain they will have to go ‘beyond lean’ and collaborate with their stakeholders.
That is the conclusion of a new 2degrees Viewpoint paper that explores how the likes of Tesco, GlaxoSmithKline (GSK) and Toyota have found efficiencies through a collaborative approach to sustainability that traditional lean processes would not have revealed.
The paper, Beyond Lean: How Sustainability Unlocks Collaborative Efficiencies, uses a series of case studies to explain how a sustainable business lens uncovers waste and inefficiency that lean processes miss. “There are limitations to lean because it creates a series of silos where waste can sit. But sustainability expands the boundaries, opening up many more opportunities for impact reduction,” said 2degrees CEO Martin Chilcott at the London launch of the paper.
The limits of lean
Lean processes define waste as any cost that does not produce value to customers, or Non Value Added (NVA). This can include everything from scrap materials and defective product to misdirected shipments or incorrect invoices.
Lean promotes high efficiency but only within the boundary of the system as defined by a value stream map and as a limited concept of ‘value to customer’.
The system promotes resource conservation and efficiency inside that boundary, which may be the walls of a plant or may extend to supply chains.
“A system boundary is simply an arbitrary limit for analytical purposes,” says the 2degrees paper. “It can be made large or small to encompass many different types and scopes of analysis.
“However, the setting of tight boundaries as defined by limited definitions of ‘customer’ and ‘customer value add’ reduces the opportunity to find synergies with other systems. It also relegates remaining waste that is produced from its process as having no value, rather than viewing it as a potential in-put and resource for another process.”
The sustainability lens
Compare this with how a growing number of companies are looking at their system through a sustainability lens, which requires them to set much wider boundaries. It enables them to set the business and process within an environmental and social context and to consider customers alongside other important stakeholders.
Sustainability also encourages analysis across whole business-environment and social ecosystems, allowing companies to identify potential synergies between processes, organizations and supply chains – forcing them to consider material in-puts and out-puts which would not normally be considered by lean.
“Essentially, a sustainable business approach identifies opportunities between the silos that arise from the more narrowly defined systems that are created by lean processes,” added Martin. “What was waste from one silo-ed system becomes an in-put to another.
“So a sustainability approach doesn’t just help cut cost better, but in many cases turns a cost or risk into a source of revenue.”
Ironically, even the man responsible for documenting the Toyota Production System – the inspiration for lean processes – can in hindsight be said to have highlighted lean’s own short-comings. “The most dangerous kind of waste is the waste we do not recognize,” said Shigeo Shingo.
The UK retail giant Tesco has focused on lean processes for decades. “Lean is good, let’s not forget that,” says Helen Fleming, the company’s director of climate change.
She points to the company’s distribution system – “moving goods around the country” – the fundamentals of which aren’t going to change any time soon. “The focus on lean to maximise the volume of goods on trucks makes sense; that’s classic lean process that really drives CO2 reduction.”
But for Helen, going beyond lean opens up enormous opportunities for innovation. “If you think of innovative new products like washing liquids that can be used in cold water: you don’t get that if you start with lean.
“Suppliers are amazing at looking at waste products – things like using anaerobic digestion or reusing water. Again, you don’t get that if you’re only thinking about process.”
The carpet tile manufacturer Interface is another great example of a business that has explored efficiency opportunities beyond its four walls. At one of its manufacturing sites, the company cut its natural gas energy use in half and negotiated the lowest cost per cubic foot possible. Impressive stuff.
This resulted in a very low total cost of natural gas. But the carbon emissions footprint from burning natural gas, even though it had been conserved to the minimum, was still there.
“Using sustainable analysis, we looked outside our business boundary to energy opportunities in our communities,” says Dave Gustashaw, assistant vice president for supply chain and engineering at Interface, Inc. “Several looked promising. A couple didn’t work out, but a third, landfill gas from a local municipal landfill, did.
“This turned out to be a sustainable triple win, with the project voluntarily remediating the air and groundwater contamination from the landfill – and the sale of a waste byproduct improved city services for the residents, generated a long-term revenue stream for the city, and offset a large percentage of Interface’s entire North American manufacturing carbon footprint.”
For GSK, and the company’s chief environmental sustainability officer Richard Pamenter, going beyond lean was a chance to unlock resource efficiency. “Lean doesn’t focus on materials,” he says. “We use thousands of different materials, so no one piece of action is going to make us sustainable. That’s why collaboration is so important.
Richard points to the example of how GSK now packages its Ribena product in recycled PET material made from the waste packaging arising from its pharmaceutical business. “We discovered that many of our pharma goods were coming in PET packaging, which was being thrown away. So we joined that up and asked: ‘Why are our suppliers giving us packaging that is not in PET that we can use to package our own goods?’ You can see how that type of thinking can expand.”
But GSK’s approach to sustainability wouldn’t have happened without a “nudge” from the top, says Richard. “We have used our corporate desire to be sustainable to look at materials. That wouldn't have happened without a nudge.”
A higher level
The successes highlighted by Helen, Dave and Richard point to true collaboration along the supply chain. But as the 2degrees Viewpoint points out, finding and exploiting higher levels of efficiency requires a need to go beyond merely co-operation, to find new levels of collaboration:
• within companies and across internal siloes;
• between companies and particularly within and across supply chains;
• between companies and their customers;
• between the private, public and third sectors
“Collaboration at the levels required to unlock this hidden value between siloes is neither strategically, culturally nor managerially easy or common place,” says the paper. “Up until now it has been very expensive to do so at scale and across geographies.”
And the task is made even more difficult by traditionally competitive and often hostile relationships between companies, with suppliers left suspicious of the motives of buyers. Meanwhile, the private sector often lacks confidence in the public sector and the NGOs have often viewed private enterprise as part of the problem, not the solution.
Step forward 2degrees' Enterprise Services, which has for the last four years been helping to support large-scale collaboration between organizations looking to unlock the value of sustainability to cut costs, risk and to grow their businesses.
For example, the Asda Sustain & Save Exchange on 2degrees is a private online community of Asda employees and suppliers, built to improve resource efficiency in energy, waste and water. There are more than 350 members from 200 companies, with median operating costs of $130 million. A tailored activity plan identifies collaborative projects to implement practical changes and deliver cost savings in the supplier categories.
Similarly, the 2degrees Tesco Knowledge Hub is the world’s largest supply chain collaboration, providing an engagement platform for the retailer’s top 1,000 suppliers from more than 20 countries – and helping to reduce the energy costs, waste and environmental impacts of the products Tesco buys. The aim is to cut 30% of the carbon emissions from the supply chain by 2020.
“[The Hub] is not just a bit of IT, or the bit of infrastructure that you import, but real people with knowledge and commitment, who shape what’s on the Hub, who help people come on board, find out what they want, really understand how people are going to use it; and then offer guidance to those people,” says Helen.
If you’d like more information on what 2degrees Enterprise Services could offer your business, click here.
To download a copy of Beyond Lean: How Sustainability Unlocks Collaborative Efficiencies click here.