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Technology Is at Center of ESG Efforts

How M4.0 technologies can help manufacturers meet sustainability goals  

The manufacturing industry has unique challenges when it comes to meeting sustainability goals and net-zero emissions targets; it is a sector that depends on raw materials and vast global supply chains. As environmental, social and governance (ESG) issues become more prominent performance metrics for companies across the economy, industrial businesses need to harness all the tools at their disposal to adapt.

Technology is at the center of many such efforts to meet new and increasingly aggressive sustainability goals. More manufacturers are making intentional efforts to achieve these specific metrics, and those who fail to use Manufacturing 4.0 technologies to amplify their progress will be at a distinct competitive disadvantage. Sustainability strategies have been proven to create long-term value, particularly during what has recently been a concerning economic landscape.

In fact, middle market companies across the economy are reprioritizing their ESG policies to reflect their organizational goals better. Companies are focusing on what they can realistically accomplish. They are striving for specific objectives rather than attempting to tackle a broad range of ESG concepts, according to data from the third-quarter RSM US Middle Market Business Index survey.

Those who fail to use Manufacturing 4.0 technologies to amplify their progress will be at a distinct competitive disadvantage.

For the survey, 407 interviews of middle market executive decision-makers working in a broad range of industries were completed from July 5 to July 26, 2022. The survey reveals that 70% of middle market companies have formal plans or strategies regarding ESG initiatives, up from 66% for the comparable period a year ago. Furthermore, 88% of companies provide external reporting on their ESG performance, a statistically significant increase from 77% the previous year.

Middle market manufacturers will find more opportunities by keeping up with these trends. Because larger companies are under significant pressure related to carbon-neutral targets, the midsize businesses that develop a clear path toward their own sustainability goals will likely become more attractive partners.

Dashboards and data-driven decisions

Manufacturers of all sizes should examine how data-centric technologies can streamline their internal business processes toward the goal of reducing waste. Something as simple as moving to paperless systems that adopt digital dashboards can have something of an exponential effect; not only would the business reduce paper consumption and waste, but it would also cut transportation costs previously needed to move that paper, thereby also reducing vehicle emissions.

Digital dashboards that present real-time data and analysis allow for prompt decision-making that increases opportunities and minimizes inefficiencies. Information about various supply sources and product tracking can provide early warnings about potential disruptions, allowing companies to reroute supply chains or adjust their shipments accordingly to minimize waste. Manufacturers can also use artificial intelligence to improve their demand forecasting for various geographies, which can allow them to head off procurement issues in one locale and search for alternative sources elsewhere if needed.

Midsize businesses that develop a clear path toward their own sustainability goals will likely become more attractive partners.

Companies can also harness data analytics to become more strategic about their own energy consumption and costs. A manufacturer that can monitor and forecast energy consumption patterns on the shop floor along with energy market pricing patterns can use this information in decisions about scheduling production. Savvy leadership teams that align production with dips in the market will boost not only their own energy savings but progress toward their environmental goals.

Benchmarking and reporting on that progress is another aspect of business operations where data and technology play a critical role. Industrial companies’ reporting obligations around climate change issues will likely only grow in coming years, and businesses need to ensure that their internal processes enable that reporting to be timely, robust, and accurate. That might involve setting up proper governance strategies to quantify the data itself or addressing existing skills gaps and making sure employees feel comfortable using and interpreting the data.

More circular supply chains

Manufacturers are increasingly focused on circular economy principles as they chart their path to achieving carbon emission goals. This might involve rethinking the designs or materials used in products, and whether those materials and parts are recyclable or reusable. While this thinking is on the right track, manufacturers also need to assess their infrastructure and how it will allow them to achieve this recyclability and reusability. In order to bring potentially reusable parts and materials back to the production process, manufacturers must build a “reverse supply chain.” This requires investments in technologies that enable traceability and collaborative technologies that help manufacturers build a strong network of internal and external partners throughout the “circular” supply chain. This will also allow for a greater focus on understanding the supplier web — that is, suppliers’ suppliers and so on — and improve manufacturers’ visibility into possible issues around controversial sourcing. This is especially crucial in the manufacturing space because of the industry’s use of rare earth elements.

As outlined in a 2021 White House executive order on the nation’s supply chains, manufacturers rely heavily on sourcing of a variety of minerals and metals, including copper, lithium, nickel, cobalt, graphite, and magnesium, from a limited number of countries. U.S. manufacturers of computer hard disks, cell phones, solar panels, wind turbines, batteries, lasers, gas turbine engines or catalytic converters for automobiles, among others, have become largely dependent on other countries for mining, processing and transporting of these rare earth elements.

Something as simple as moving to paperless systems that adopt digital dashboards can have something of an exponential effect.

As we wrote in May 2022, manufacturers in the automotive industry are already acknowledging that recycling can and will be part of their supply chain of the future for certain rare earth elements and are taking responsibility in their planned sourcing and recycling of used EV batteries. But to satisfy growing stakeholder demands around ESG, industrial companies will need to take these efforts to the next level — for instance, setting goals for 100% reusability of materials, minimizing scrap, or eliminating the waste that comes back to their manufacturing plants. Blockchain technologies can allow for more precise traceability and analytics around waste, which can help manufacturers close the loop and become truly circular.

One notable challenge that manufacturers will continue to face in adopting these technologies is so-called “greenflation” as the industry moves away from fossil fuels.

“Metals and materials that are needed to achieve green goals will play a critical role in all of these efforts — and are already experiencing high demand, driving up prices,” as we wrote in an IndustryWeek article in April 2022.

Navigating these higher prices might also compel manufacturers to use advanced 4.0 technologies such as data analytics to predict the impact of that greenflation and plan accordingly.  M

About the authors:

 

Anthony DeCandido is a partner at RSM US LLP.

 

 

Shruti Gupta is a senior manager at RSM US LLP.

 

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