As sustainability pressures mount, manufacturers will benefit by taking a proactive approach.
Manufacturers are increasingly in the hot seat when it comes to sustainability mandates, especially those established by their customers. Understandably, many mandates focus on reducing carbon emissions across value chains. Scope 3 emissions, which come from an organization’s suppliers, are the most difficult to assess and mitigate and can account for 85 to 95 percent of an organization’s carbon footprint, making them a high priority.
So, how can manufacturers take control of sustainability initiatives that include limiting direct and indirect carbon emissions? Customers often have their own corporate commitments with targets and timelines that don’t easily align to value chain processes. And manufacturers typically don’t have the budget or resources to track critical information and make necessary changes.
The answer is to be proactive rather than responding to mandates as they come. Manufacturers that proactively shape sustainability initiatives with their customers can benefit everyone in the supply chain. By so doing, they can avoid or mitigate situations where they’re saddled with complex and costly initiatives that are difficult to implement.
With data insights based on operational baselines, material analysis and regulatory developments, manufacturers can help shape customers’ perspectives.
A case in point is Walmart’s past RFID initiative. Walmart had announced that its top 100 suppliers – and eventually all of their providers – would need to use RFID technology to tag their pallets and cases. The initiative was heralded by the media and closely watched by manufacturers to see how it would improve inventory management. After a few years the RFID initiative was quietly abandoned, due to vendor pushback. Suppliers complained that they were forced to invest in costly technology and experienced increased tagging costs.
In this example, suppliers learned by doing and relayed their feedback to Walmart. If these companies had proactively experimented with RFID ahead of the mandate, they could have shared their findings with the big-box retailer and shaped the initiative from the start. Walmart’s RFID initiative returned in 2019, as processes have now matured. The technology is now used to track certain high-value supplier goods at the item level in stores, rather than all products indiscriminately.
Driving the Sustainability Conversation
As sustainability mandates roll out, how can manufacturers ensure they benefit from these new initiatives? Here are some simple strategies manufacturing teams can use:
- Baseline existing operations: Manufacturers should determine where, how, and what quantity of carbon emissions they are producing at baseline. This data provides invaluable insights into areas to target for sustainability initiatives, as well as baseline metrics that can be shared securely with customers and partners. Customers can then verify aggregated product carbon footprint information, while keeping supplier data confidential.
- Identify materials that contribute to greenhouse gas emissions: Manufacturing teams can break down products into their components, such as metals, plastics and agricultural inputs, to identify opportunities for reducing carbon emissions. By analyzing products for cost, carbon and recyclability simultaneously, manufacturers can identify the best approaches to optimize product design, while avoiding well-intentioned actions that inadvertently increase carbon emissions.
- Stay up to date on regulations: Regulatory teams can track new requirements against their manufacturing companies’ operational locations, inputs and own suppliers. Leaders and teams can use this information to develop holistic strategies, provide their own downstream mandates, and transform products and operations appropriately.
- Explore new business models, products and services: Manufacturers can explore new business models, such as re-commerce initiatives that resell used merchandise and equipment, and programs that collect waste and reuse it in new products. They can also design products for recycling and remanufacturing, implement reusable packaging and more. Levi’s initially launched “wasteless” jeans and denim jackets but learned that mixing polyester and cotton meant the products couldn’t be recycled. The company’s new “circular jean” contains 40 percent post-consumer recycled cotton that can be separated and reused.
- Drive customer conversations with data: Manufacturers are the best experts on their materials, production processes, logistics and more. With data insights based on operational baselines, material analysis and regulatory developments, they can help shape customers’ perspectives. In the case of the Walmart RFID mandate, it was when leading manufacturers provided data on RFID costs that the retailer began walking back its mandate. Manufacturers can’t expect customers to understand the fine-grained details of their operations, so it’s best if they come to the table with this information.
- Team with partners to build a sustainability platform: Manufacturing teams can attend conferences to learn new trends and technologies. They also can partner with research institutes and universities to test new processes and pilot initiatives. Universities benefit by gaining research they can use to share with industry companies and burnish their brand. Manufacturers benefit by getting a first look at a new technology or process that could provide a new source of competitive advantage.
Moving Ahead of Mandates
More than 60 percent of all organizations now have a sustainability strategy, and more are soon to follow. Organizations’ sustainability imperatives and progress are increasingly considered by a wide array of stakeholders. These stakeholders include financial institutions that lend to manufacturers; customers, who use sustainability information to decide whom to partner with; employees, who want to work for a progressive company; and consumers, who want to buy from environmentally friendly brands.
By analyzing products for cost, carbon and recyclability simultaneously, manufacturers can identify the best approaches to optimize product design.
Manufacturers can help shape sustainability conversations with – and mandates from – their buyers by providing insights into operational baselines, material emissions, and regulatory data. They also can create competitive advantages by testing new business models, products and services and exploring new technologies and processes.
Manufacturers can learn and lead with sustainability, ensuring customer mandates are driven by the right priorities and will create value for the entire supply chain. M
About the author:
Shanton Wilcox is Partner, Americas Leader – Manufacturing at PA Consulting.