2degrees Viewpoint Beyond Lean


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Point of view from 2degrees on how Sustainability might take you beyond lean in your supply chain

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2degrees Viewpoint Beyond Lean

  1. 1. ViewpointBeyond Lean: how sustainabilityunlocks collaborative efficienciesWhere sustainable business happens October 2012
  2. 2. Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 What is a ‘lean’ process?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The limitations of lean and the benefits of green. . . . . . . . . . 4 Video interview: GlaxoSmithKline . . . . . . . . . . . . . . . . . . . . . . 5 Case study: Interface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Going further and closing the loop. . . . . . . . . . . . . . . . . . . . . . 5 Three other reasons why green out-performs lean. . . . . . . . 6 Video interview: Asda reveals the size of the opportunity. . . 6 The real challenge: the collaborative imperative. . . . . . . . . . 6 How do you reap the benefits of the opportunity? . . . . . . . . . 7 Case study: APS Salads and the Tesco Knowledge Hub . . . . 7 Case study: Asda Sustain and Save Exchange . . . . . . . . . . . . 8 Case study: Tesco Knowledge Hub. . . . . . . . . . . . . . . . . . . . . . 9 Contact details. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102degrees ViewpointBeyond Lean: how sustainability unlocks collaborative efficiencies Join the discussion 2
  3. 3. Beyond Lean: how sustainability unlocks collaborative efficiencies T rying to understand why a sustainable business lens uncovers waste and inefficiency that lean processes miss has been a subject of discussion at 2degrees since our launch four years ago. It started with Marks and Spencer’s Plan A eco-factories in Sri Lanka, out- performing factories elsewhere that had undergone lean re-engineering. (Not surprisingly M&S are now rolling out 200 eco-factories across Asia.) It sprung up again when Asda identified £800 million of waste in the supply chain of its fresh produce category (part of the inspiration for the Sustain and Save Exchange program on 2degrees). And it is apparent in dozens of small but cumulatively important interactions in the Tesco Knowledge Hub on 2degrees where Tesco’s top 1000 suppliers are It is ironic, but the man who is accredited with documenting the collaborating to cut cost and carbon by Toyota Production System, which became the inspiration for 30% by 2020. lean processes, can in hindsight be said to have highlighted lean’s However, it took a passing conversation own short-comings when he said, at the end of last year with Richard Pamenter, Global Head of Engineering “The most dangerous kind of waste is the waste at GlaxoSmithKline and then recently we do not recognize.” appointed Chief Environmental ~Shigeo Shingo (documenter of the Toyota Production System). Sustainability Officer, to set us towards a clear explanation. What is a ‘lean’ process? To understand why a sustainability approach can uncover the savings that lean misses - as well as why so few companies are yet achieving them - requires us to start by considering what lean processes are. Lean processes define waste as any Gaseous Waste cost that does not produce value to customers, or Non Value Added (NVA). This can include everything Raw First Quality from scrap materials and defectiveMaterials Production product to misdirected shipments Industrial or incorrect invoices. Lean Energy System Energy promotes high efficiency but solely Boundary within the boundary of the system People People as defined by a value stream map and limited concept of ‘value to customer’. Lean promotes resource conservation and efficiency inside Liquid Solid that boundary, which may be the Waste Waste walls of a plant or may extend to supply chains (See diagrams). 2degrees Viewpoint Beyond Lean: how sustainability unlocks collaborative efficiencies Join the discussion 3
  4. 4. Raw Material Converter Energy Mfg. Customer (manufacturer)The limitations of lean and the benefits of greenThe limitations of lean start with how it sets the boundaries to the industrial system it is analyzing. Asystem boundary is simply an arbitrary limit for analytical purposes. It can be made large or small toencompass many different types and scopes of analysis. However, the setting of tight boundaries asdefined by limited definitions of ‘customer’ and ‘customer value add’ reduces the opportunity to findsynergies with other systems. It also relegates remaining waste that is produced from its process ashaving no value, rather than viewing it as a potential in-put and resource for another process.Looking at a business through a sustainability lens requires you to set much wider systemsboundaries; setting the business and process within an environmental and social context,considering customers alongside other important stakeholders and thinking of the value addedmore broadly. It encourages analysis across whole business-environment and social ecosystems,identifying potential synergies between processes, organizations, supply chains etc., and forces usto consider material in-puts and out-puts which would not normally be considered by lean e.g. CO2.Expanding the boundaries increases the number of issues to be analyzed and addressed, but it alsoincreases significantly the opportunities for saving and creating new value. Put simply, a sustainablebusiness approach identifies opportunities between the siloes that arise from the more narrowlydefined systems that are created by lean processes. What was waste from one silo-ed systembecomes in-put to another (see diagram). So a sustainability approach doesn’t just help cut costbetter, but in many cases turns a cost or risk into a source of revenue. Raw Material Converter Energy Mfg. Customer (manufacturer) Raw Material Converter Customer Energy Mfg. (manufacturer) Raw Material Converter Customer Energy Mfg. (manufacturer)2degrees ViewpointBeyond Lean: how sustainability unlocks collaborative efficiencies Join the discussion 4
  5. 5. Case study: Interface“Sustainable analysis generally begins where lean Video interview: GlaxoSmithKlineleaves off. Suppose that conservation cuts the Hear Richard Pamenter of GSK talking about findingbusiness’s energy use in half. That cost reduction resource efficiencies in manufacturing (4 minute video):is very helpful, but sustainability doesn’t stopthere. Look at a much larger system boundary —the environment — with the business operationsnested within it. That opens up new opportunities.Here’s an example. At one manufacturing site,Interface cut natural gas energy use in half andnegotiated the lowest cost per cubic foot possible.This resulted in a very low total cost of naturalgas, but the carbon emissions footprint fromburning natural gas, even though conserved to theminimum, was still there.Using sustainable analysis, we looked outsideour business boundary to energy opportunitiesin our communities. Several looked promising. A couple didn’t work out, but a third, landfill gas froma local municipal landfill, did. This turned out to be a sustainable triple win. This project voluntarilyremediated the air and groundwater contamination from this landfill. Thus the sale of a waste by-product 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.The project was the 2005 United States Environmental Protection Agency Landfill Methane OutreachProgram Energy Partner Project of the Year. (Burning methane still puts CO2 in the air, but methaneseeping from a landfill is a worse greenhouse gas; plus burning it avoids burning natural gas, so theEPA encourages this with offset credits.) Incidentally, Interface saved an additional 30 percent on theunit cost of the energy. That’s an example of triple bottom line synergy.” (Thanks to Dave Gustashaw,Assistant Vice President, Supply Chain and Engineering, Interface, Inc.)Going further and closing the loopWhen the boundary is set wide enough to encompass how end customers use a product or service andhow it is disposed of after use, then opportunities to ‘close the loop’ create an even wider array of potentialbenefits. As well as cutting cost found in the siloes between processes and creating new revenues fromwhat was waste, closing the loop and taking responsibility for products post-life can also:• help with security of supply; and• lower exposure to price volatility in raw materials. Raw Material Energy Mfg. Manufacturer Customer Manufacturer2degrees ViewpointBeyond Lean: how sustainability unlocks collaborative efficiencies Join the discussion 5
  6. 6. Three other reasons why greenout-performs lean Video interview: Asda revealsThere are three other main reasons why taking a the size of the opportunityrigorous sustainable business approach generates Listen to Julian Walker-Palin, Head of Corporatesuch high and often unexpected returns: Sustainability at Asda, talk about the vast efficiency savings opportunities available through supply chain collaboration• eturn on engagement. Staff, suppliers and R - Asda and 2degrees have identified an estimated £800 customers engage much more enthusiastically million of savings in Asda’s food supply chain, with an around the universally important issue of estimated £70 million of savings available from energy sustainability than they do about making a efficiency from just one group of 23 suppliers. process more efficient and/or shareholders richer. Most reported sustainable business programs provide powerful, qualitative evidence of the importance of engaging stakeholders.• nnovation. Because sustainability is a far- I reaching socio-economic revolution across industries and geographies, it is continuously generating new business models and clean technologies which often provided new and surprising breakthroughs e.g. anaerobic digestion that can turn waste into fuel, heating and rich fertilizer (see Case Study: APS Salads).• isk reduction. Because sustainability considers a business’s environmental ’off-balance sheet’ R impacts, it acts as an early warning radar to identify challenges to security of supply of essential raw materials and anticipates commodity price inflation. The real challenge: the collaborative imperative To find and exploit these higher levels of efficiency requires new levels of collaboration: • Within companies and across internal siloes B • . etween 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;and up until now it has been very expensive to do so at scale and across geographies.Furthermore, it is made even more difficult by traditionally competitive and sometimes hostilerelationships within and between organizations: suppliers are often suspicious of the motives ofbuyers; the private sector often lacks confidence in the public sector; and the NGOs have in thepast viewed private enterprise as the problem and not as part of the solution. All of this requiresfrequent engagement at depth and at scale to overcome.2degrees ViewpointBeyond Lean: how sustainability unlocks collaborative efficiencies Join the discussion 6
  7. 7. How do you reap the benefits of the opportunity? The answer: managed services like 2degrees that use social media technologies. Fortunately, the last 10 years has seen an explosion in social media technologies which can be ideally adapted to support peer-to-peer collaboration at scale. As the world’s leading community for sustainable business, 2degrees has for the last 4 years been helping support large-scale collaboration between organizations looking to unlock the value of sustainability to cut costs, risk and to grow their businesses. Our Enterprise Services division offers a managed service which makes it efficient to organize and facilitate large scale collaboration amongst key stakeholder groups wherever they are. Currently we are running: • Two supply chain collaboration programs for Tesco and Asda • An internal manufacturing collaboration program for GSK • A best practice sharing program for the Property Leadership Team within Kingfisher Group plc Our unique blend of technology, sustainable business expertise and processes for facilitating collaboration mean we can enable both knowledge sharing/capacity building within stakeholder groups and the identification and initiation of practical projects that deliver real cost and impact reductions.Case study: APS Salads and the Tesco Knowledge HubHow many bacteria does it take to run a Tesco van on tomato leaf waste? 1798, at least for this biogaspowered van, the latest in a string of APS sustainability achievements.Back in 1998 APS were the first British horticultural company to install combined heat and powerwith CO2 extraction. Since then they’ve designed and installed their own ground source cooling plant, achieving 40% energy reduction (and a 3-month payback period) and a four part ‘cow’s stomach’ anaerobic digestion (AD) plant diverting 3500 tonnes of tomato leaf waste from landfill and producing CH4 CO2 H2, water, fertilizer, heat, power and biopolymers. APS Salads are one of the leading contributors on the Tesco Knowledge Hub, a private space on 2degrees for Tesco suppliers to collaborate and share best practice to improve resource efficiency. They hosted one of the first site visits from the Knowledge Hub program - the 3.5 minute video of the site visit in October 2011 gives an insight into On site at APS with the tomato powered van. their remarkable carbon reduction activities – and illustrates perfectly the spirit of collaboration that the Knowledge Hub generates. 2degrees Viewpoint Beyond Lean: how sustainability unlocks collaborative efficiencies Join the discussion 7
  8. 8. Case study: Asda Sustain and Save ExchangeThe Asda Sustain & Save Exchange on 2degrees is a private online community of Asda employeesand suppliers, built to improve resource efficiency in energy, waste and water.There are 350+ members from 200companies, with median operating costs of$130 million.A tailored activity plan identifiescollaborative projects to implementpractical changes and deliver cost savings inthe supplier categories.“The Sustain & Save Exchange is an importantAsda programme. We want to work togetherwith our supplier partners so we can learnfrom each other to increase our efficiencies andincrease our resilience to the growing challengesof resource scarcity. At Asda, we want to builda world class supply base for the future, so we’llbe working with the most proactive supplierson this agenda to explore how we will continueto support each other for the future. For us,sustainability isn’t about reinventing the wheel – it’sjust what we do. It’s also part of what Walmart - our global family - does. And when you are part of the biggestretailer in the world, you have an opportunity – and a responsibility – to make a difference.”- Barry Williams, Food Trading Director, Asda-WalmartSupplier resource efficiency is benchmarked to identify opportunities for improvement, whilstkeeping supplier identities anonymous.Since 2011 the Exchange has enabled Asda and its suppliers to benchmark resource efficiency in 3product categories, representing £12bn of sales.“Sustainability means responsibility– working collaboratively and inpartnership is part of the solution.The Asda Exchange offers a two-way conversation with our supplychain, allowing us to work morecollaboratively and efficiently with ourvalued suppliers.”Julian Walker-Palin, Head of CorporateSustainability, Asda2degrees ViewpointBeyond Lean: how sustainability unlocks collaborative efficiencies Join the discussion 8
  9. 9. Case study: Tesco Knowledge HubThe Tesco Knowledge Hub on 2degrees is the world’s largest supply chain collaboration, providingan engagement platform for Tesco’s top 1000 suppliers from over 20 countries.It is also a resource for hundreds ofTesco staff and partners like WRAP, IGDand the Carbon Trust.The collaboration helps to reduce theenergy costs, waste and environmentalimpacts of the products Tesco buys, andaims to cut 30% of the carbon emissionsfrom the supply chain by 2020. “We’ve pledged to reduce the carbon footprint of the products we sell by 30% by 2020. To do this we need to work with all of our suppliers and the Tesco Knowledge Hub provides an excellent way for us all to learn more, and to share best practice.” - John Scouler, Commercial Director, TescoThe Hub was a key factor in Tesco being named top retailer for carbon reporting and performance bythe Carbon Disclosure Project in 2010.The project was then recognized with a Gigaton Award for outstanding carbon reductions andsustainability performance. For its collaboration with suppliers on the Knowledge Hub and overallstrategy, Tesco won the Grocer Gold Award 2012 for ‘Green Retailer of the Year’.Hear what makes the Hub so interesting in a short video interview with Helen Fleming, ClimateDirector at Tesco. “ [The Hub is] not just a bit of IT,or the bit of infrastructure thatyou import… but real people withknowledge and commitment, whoshape what’s on the Hub, who helppeople come on board, find out whatthey want, really understand howpeople are going to use it; and thenoffer guidance to those people. ”2degrees ViewpointBeyond Lean: how sustainability unlocks collaborative efficiencies Join the discussion 9
  10. 10. This Viewpoint was produced by 2degrees, the world’s leadingcommunity for businesses driving growth and cutting costs bybeing more sustainable.2degrees (UK Office):228-240 Banbury RoadOxfordOX2 7BYUnited KingdomTel: +44 (0)1865 597 640Printed on 100% FSC certified paper.Where sustainable business happens October 2012