Sustainable manufacturing strategies are now critical to the industry’s ability to drive future competitiveness and growth, and improve corporate reputations, according to the latest Manufacturing Leadership Council survey. But a lack of appropriate funding, the right technologies, and clear employee incentives are hindering the rate of progress. By Paul Tate
The message is clear: sustainable manufacturing strategies are no longer optional in today’s increasingly eco-conscious world. Whatever perspective you take — economic, competitive, compliance, reputational, or environmental — sustainability is rapidly becoming an industrial imperative for the future of manufacturing on a local, national, and global scale.
The latest Manufacturing Leadership Council’s survey on Manufacturing 4.0 Sustainability reveals that the vast majority of manufacturing companies now believe sustainability is becoming fundamental to driving growth. It also confirms that advanced M4.0 production and analytical technologies are already helping companies to identify and deliver the competitive benefits of more sustainable approaches by providing greater visibility; increasing efficiency; reducing costs, energy usage, and materials waste; and creating more sustainable products and business models for the future.
There is also a clear shift in emphasis behind those sustainability activities in this year’s survey. No longer are manufacturing company sustainability programs predominantly limited to internal improvements. They are becoming increasingly focused externally as manufacturing companies strive to build and enhance their corporate reputations as sustainable and responsible corporate citizens within their local communities and markets.
Challenges remain, however. Although leadership teams continue to be the primary movers in determining sustainability targets and encouraging more sustainable cultures across their organizations, they still have more work to do in strategic execution. Many respondents cite a lack of designated funding, access to the appropriate technologies to support more sustainable production models, and clear incentives and performance metrics for employees as the biggest obstacles to continued progress.
Driving Competitiveness and Growth
One of the most important highlights of the MLC’s 2019 survey is that a substantial 80% of respondents now consider sustainability as either essential (36%) or increasingly important (44%) to their company’s future competitiveness and growth (Chart 1).
That’s a solid increase of 10% from our previous sustainability research, conducted only two years ago. What’s more, the number of respondents who regard sustainable approaches as simply “not important” at all has taken a notable dive, from 6% in 2017 to a mere 1% today.
That is clear evidence that there is rising recognition across the manufacturing industry that sustainability really does matter to the future of the sector, and that it is likely to have a direct impact on every manufacturing company’s business.
1 80% of Manufacturers Now See Sustainability as Essential / Increasingly Important to Competitiveness & Growth
Q: How does your company regard the importance of
sustainability to its competitive profile and future growth?
2 80% Already Have Corporate-wide Sustainability Initiatives or Embedded Business Practices
Q: How are your company’s sustainability initiatives organized and deployed?
3 Production & Supply Chain Are Key Areas of Strategic Focus; Room for Improvement in Partner Compliance
Q: Does your company’s sustainability strategy include goals and metrics for all, or some, of the following activities?
4 Improved Corporate Reputation, Cost Reduction, and a Cleaner World are Top Corporate Sustainability Motivations
Q:What are your company’s primary motivations for embracing sustainable practices?
5 Primary Internal Goals Aim to Reduce Energy, Materials Use, and Waste
Q: Does your company’s approach include policies, codes of conduct, or goals covering the following sustainability criteria?
That recognition is resulting in more formal approaches to sustainability across the industry. Chart 2 shows that 80% of respondents report that their companies now have either a formal corporate-wide sustainability strategy with publicly stated goals (39%) or have specific sustainability initiatives embedded into many of their primary business practices (30%).
The Rising Importance of Reputation
So, what’s motivating this increased attention on sustainability in today’s manufacturing industry?
Two years ago, by far the most important motivating factor for manufacturing companies adopting more sustainable approaches was reduced cost. This year that focus has changed significantly from simply internal cost gains, to a much broader external impact. “An improved corporate reputation among customers and investors”, and the goal of “a cleaner, healthier environment”, have now knocked cost reduction down to third place in the list of the top drivers behind corporate sustainability initiatives (Chart 4). This may reflect the fact that many cost gains have already been made through existing policies and processes, so companies are now looking towards more publicly influential, if less immediately tangible benefits across their markets and business ecosystems. It may also reflect an increasing awareness among industrial leadership teams that a sustainable reputation in today’s world is now a competitive necessity.
Manufacturing activities play a key role in achieving that improved reputation, the survey suggests, with over 70% of companies now establishing specific sustainability goals and metrics for manufacturing and production, while over half have done so for their supply chains (Chart 3). Those internal corporate goals still focus predominantly on cutting costs and unnecessary inefficiencies, with reductions in energy, materials use, waste, and water usage topping the list (Chart 5).
However, ensuring that partners across company supply chains also abide by the same sustainability goals still requires some attention as less than two in five manufacturing companies say they’ve so far established similar sustainability metrics across their partner networks (Chart 3). This is a recurring theme throughout this year’s survey. Internal sustainability progress is far easier to manage, measure, and deliver than successfully encouraging external partner compliance. However, as more companies establish dedicated internal sustainability teams to help drive their initiatives (now 51%) perhaps policies that extend beyond the four walls of the organization are likely to become more common and formalized in the future (Chart 6).
The vast majority of manufacturing companies (80%) believe sustainability is now fundamental to driving competitiveness and growth.
6 Half of Manufacturers Now Have a Dedicated Sustainability Team to Drive Initiatives
Q: Does your company have a dedicated sustainability team/function tasked to drive corporate sustainability initiatives?
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7 70% Have Achieved Significant or At Least Moderate Sustainability Improvements Over Last Five Years
Q: Compared to five years ago, how would you characterize your company’s sustainability progress and achievements so far?
8 Manufacturing Activities Show Most Sustainability Progress Achieved So Far
Q: In which of the following corporate activities do you feel you have made the most significant progress in
achieving your sustainability goals so far?
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9 Over Three Quarters Have Specific Goals to Reduce Materials Waste and Energy Consumption in Production
Q: In your manufacturing and production activities, which of the following areas have specific sustainability goals
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10 M4.0 Technologies Will Significantly Impact Sustainability Over Next Five Years
Q: How would you describe the impact of Manufacturing 4.0 technologies, such as IoT connectivity and advanced analytics, on your company’s sustainability initiatives today, and your ability to reach new goals in 5 years?
Continuing Progress in Production
Certainly, the impact of those dedicated sustainability teams seems to be paying off. Seventy percent of respondents say their companies have made either significant progress (31%) or at least moderate progress (38%) in achieving their corporate sustainability goals over the last five years (Chart 7).
A powerful majority of those respondents (88%) also say that they have continued to make the most significant sustainability gains in manufacturing and production activities over that five-year period (Chart 8). However, they also highlight a marked increase in progress in developing and deploying more community or charity support programs. This again marks a discernible shift of emphasis and effort towards more external outreaches for corporate sustainability activities.
Two years ago, only 29% of respondents cited these external activities as a key focus of attention. This year, that figure has almost doubled to 54%. This is strong evidence that manufacturing sustainability strategies are increasingly extending beyond the organization and being leveraged to help enhance corporate reputations across both local communities and the market at large.
Once more, however, the issue of partner compliance across the supply network remains low on the list of areas where significant progress has been made.
In terms of specific sustainability goals for manufacturing activities, the primary areas of focus continue to be on the better management of key elements of the production process, (Chart 9), including reductions in materials usage (78%), energy consumption (78%), waste to landfill (64%), and water (57%). Over half the companies in the survey have also now introduced specific goals for the use of recycled or reclaimed materials (57%), a figure that is likely to rise in the future as material recycling and reclamation processes become more efficient and widespread.
All these measures, of course, not only help the bottom line by reducing costs per unit and direct production overheads, they also deliver significant improvements to the company’s overall sustainability performance.
The Impact of M4.0
Those performance improvements look set to increase significantly over the next few years with the further deployment of advanced M4.0 technologies. While many respondents say these technologies are already making some level of positive contribution to their sustainability initiatives today, a substantial 68% predict that M4.0 will have either an “Extremely Significant” or “Fairly Significant” impact on their sustainability performance over the next five years (Chart 10).
Only a few of the 27% of companies who report that they have seen “No Impact” so far, possibly because they may still be early on in their adoption of M4.0 tools, still agree that will be the case in five years’ time, with the figure falling to only 4%. By then, an overwhelming 96% say they expect M4.0 technologies to have some form of positive impact on their ability to reach new sustainability goals by 2024.
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11 High Expectations That AI Will Drive Future Sustainability Performance
Q: Which of the following M4.0 technologies do you feel now support, or will support, your company most significantly in achieving its Sustainability goals?
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12 Almost Half Say Their M4.0 and Sustainability Strategies are Closely Linked
Q: Please indicate the extent that you agree with the following statement: Our company’s Manufacturing 4.0 strategy complements and is closely linked with
our sustainability strategy.
The technologies predicted to have biggest impact on the future of manufacturing sustainability are clearly artificial intelligence and machine learning tools, with their significance rising from 29% cited by respondents today to almost tripling at 86% in five years (Chart 11). The potential predictive and autonomous abilities of these technologies offer the rich promise of helping companies successfully ensure all assets, materials, services, and products are managed with maximum value throughout the production and life-cycle process.
These are not the only important M4.0 technologies for the future, however. Over two thirds of respondents also expect the sustainable impact of additive manufacturing/3D printing approaches, new materials, augmented and virtual reality systems, and digital twins/digital threads technologies to all increase in importance over the next half decade.
In fact, the close relationship between M4.0 technologies and a company’s ability to improve its sustainability performance is becoming ever more intertwined. Forty six percent of the respondents to the survey agreed with the statement that their company’s M4.0 strategy already complements or is closely linked to its overall sustainability strategy (Chart 12). This figure may be even higher, however, as another quarter of the respondents didn’t specifically disagree; they simply didn’t know.
There is significant untapped potential in the further deployment of connected M4.0 tools and techniques to increase visibility; to measure, analyze, and improve production efficiency; and to extend sustainable practices across the entire business ecosystem in the years ahead.
Barriers to Progress
Access to some of these influential advanced technologies, however, and the dedicated funding needed to acquire and deploy them, are still regarded as two of the main barriers to further progress in improving sustainability across some companies’ manufacturing activities.
Over a third of respondents (35%) cited a lack of budgets to fund more sustainable production approaches as the top obstacle to improving their sustainability performance, while almost a fifth (19%) also complained that they did not yet have access to the appropriate production technologies they need to support more sustainable activities (Chart 13).
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13 Lack of Funding and Appropriate Technologies are Hindering Progress in Manufacturing
Q: What do you feel is the most significant barrier to increasing sustainability in your manufacturing and production activities?
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14 C-Suite Leadership Teams Significantly Influence Sustainability Strategies
Q: To what extent do the following groups influence your sustainability strategy?
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15 But Most Manufacturing Employees are Not Yet Incentivized or Measured on Their Sustainability Performance
Q: Are manufacturing management and employees
incented or measured on their sustainability performance?
These are problems that manufacturing leadership teams in these companies now need to address as those C-suite teams are considered by survey respondents as by far the most influential group in the development and execution of manufacturing sustainability strategies (Chart 14).
As sustainability is now clearly regarded by the vast majority of manufacturers as critical to competitiveness, growth, and reputation in the sector, this suggests a worrying gap still exists in some companies between strategic intent and strategic execution in terms of providing the basic requirements to meet their own sustainability goals.
It’s an issue that also seems to have a cultural dimension. Encouraging employee engagement and inspiring motivation in employees can often make the difference between failure and success in any transformational activity. Yet despite the manufacturing sector’s ambitious targets for sustainability, over half of the respondents (56%) say their companies have no programs in place so far to incentivize, or even measure, the performance of managers or employees against these key sustainability targets (Chart 15).
What’s more, although the primary motivation behind today’s sustainability strategies is now focused more around improving corporate reputation and responsibility in an increasingly environmentally aware world, half of the respondents say their companies still don’t regard their sustainability initiatives as a key factor in employee attraction or retention (Chart 16). Given the well-publicised emphasis that next generation candidates now put on the importance of creating a more sustainable global future, this may be a missed recruitment opportunity in the increasingly difficult search for new talent.
Towards a Circular Industrial Economy
Such current gaps between strategic intent and execution may only be temporary, however. In terms of more sustainable approaches to product design and overall life cycles, there is clear evidence that many manufacturers are beginning to develop and deploy more extensive strategies that embed sustainability practices from cradle to grave.
Two thirds of manufacturers now say they have formal design criteria built into their product development processes that look ahead to that product’s end of life, whether it’s the recycling of all or some of the materials, the reuse of some components, remanufacturing, refurbishment, or simply easier disassembly (Chart 17). Many of these have also followed up this design philosophy by implementing product return or end-of-life programs (Chart 18), including returning used products to a dedicated recycling partner (33%) or directly back to themselves (31%).
Perhaps most encouraging, is that these types of programs represent continuing moves by many manufacturers towards the creation of a more regenerative Circular Industrial Economy for the future, where traditional “take-make-dispose” approaches increasingly give way to “refurbish-reuse-recycle” production strategies.
That regenerative industrial model is certainly what the vast majority of manufacturers expect to see in the years ahead. Over three quarters of survey respondents consider the concept of a Circular Industrial Economy as important to the future of manufacturing (Chart 19).
How quickly the industry reaches that future regenerative state will depend on many factors. The manufacturing sector must sustain and even accelerate its drive to reap the multiple economic, competitive, and reputational benefits of more sustainable practices. Leadership must continue to be willing to actively support sustainability strategies with adequate funding and inclusive employee engagement. And each company’s value chain must demonstrate enlightened adoption of powerful new M4.0 technologies to help achieve its increasingly ambitious sustainability goals. M
68% predict that M4.0 will have either an “Extremely Significant” or “Fairly Significant” impact on their sustainability performance over the next five years.
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16 And Half of Manufacturers Do Not Recognize Sustainability as a Key Factor in Employee Attraction or Retention
Q: Do you consider your company’s sustainability initiatives to be a key factor in talent attraction and retention?
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17 Two Thirds of Manufacturers Have Design Strategies for Some Form of Recycling/Re-Use at Product End-of-Life
Q: During your product design and development process, which of the following are formal design criteria related to product end-of-life?
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18 At Least 60% of Manufacturers Also Adopting Product Return/End-of-Life Programs
Q: Which of the following programs or processes does your company have in place that support product returns/end-of-life activities?
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19 Over Three Quarters Believe Circular Industrial Economy Concept will be Important to the Future of Manufacturing
Q: Looking forward, how important do you think the concept of a regenerative Circular Industrial Economy will be to the future of manufacturing?
Survey development was led by Executive Editor and Research Director Paul Tate, with input from the MLC editorial team and the MLC’s Board of Governors.