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Optimising the Value Chain: survival of the fittest

Posted by Martin Barrow | 30 August 2013 | Viewpoint

 

Survival of the fittest

Survival of the fittest isn’t just about individual companies anymore, as Martin Barrow, world-leading authority on product and service carbon footprinting demonstrates. You may be an extremely efficient company, but only those that create the fittest value chains will continue to thrive.

 

The anthropologist Margaret Mead famously noted the power of a small group of thoughtful, committed citizens to change the world. These days, with the Earth’s resources growing ever more limited, it is the power of an expanding circle of corporate partners that will make the world a more sustainable place.

Sustainability matters not just on an environmental level, but on an economic one, too. As consumers and investors become increasingly aware of the impacts of climate change and resource scarcity, they’re looking for companies to demonstrate a high level of corporate social responsibility. Sustainability may not be number one on the business agenda today, but it’s a challenge that many forward-thinking companies have already started to tackle.

Some such organisations are already making significant efficiency improvements via two techniques: lean manufacturing (which tends to focus more on labour) and product footprinting (which focuses more on energy and materials). Despite a different heritage, both methods take a similar approach to determining the most efficient value chain capable of delivering an end customer’s needs. By definition a value chain is the process of adding value to raw materials in the creation of products and services, and is central to business strategy.

This common approach involves effectively mapping the current state to create a better future state; forming a value chain enterprise with multi-disciplinary teams, from right across the value chain, identifying and implementing actions that include:

  • Minimising inter-company waste by creating stable scheduling in both production and shipment
  • Ensuring more final products reach customers’ hands by minimising quality defects, redundant stock, and “unsolds” left on retailers’ shelves
  • Identifying co-product opportunities, where one company’s waste is another’s useful material, and
  • Standardising and simplifying to remove process steps, product variants and unnecessary packaging

Time and again, we see that actions that reduce carbon are invariably the same as those that reduce cost or improve revenue – so why aren’t companies doing both together and making decisions based upon their complete value chain impact?

From a carbon perspective, many large companies are now reasonably well optimised within their own operations, so the focus now needs to be on a broader problem: inter-company waste. It is far more cost-effective for companies to tackle this waste through value chain optimisation than to continue focusing purely on their own operations.

Creating a value chain enterprise is essential – with companies working together, in an environment where boundaries between these partners are transparent and irrelevant, and focused purely on the most efficient means to meet an end customer’s needs.

Like the “butterfly effect”, where the flapping of a butterfly’s wings causes unintended environmental consequences, altering process or design at one stage of the value chain can have a profound impact further down the line, thanks to the inter-related nature of each element of the lifecycle.

Creating a value chain enterprise is essential

Collaboration is vital to find the optimal way of fulfilling the end customer’s needs. Ideally, a holistic approach will allow engagement with suppliers and customers to work together on best practice. Process mapping and ideas generation workshops create a wealth of information about current and potential future states.

Capturing data from all players along the value chain will enable companies and even industries to build a model that determines the optimal way of meeting end customer demand. The Carbon Trust recently helped the Catering Equipment Suppliers’ Association develop just such a model. By using the detailed knowledge of experts from across the association’s value chain, it was possible to optimise the interconnectedness between equipment, customer demand and operating practices, creating a definitive system to calculate the energy and cost impacts of selecting and operating kitchen equipment.

It’s crucial that everyone involved is making decisions based on the impact for the whole value chain – and that they are given the tools to understand how a design or process change will affect the cost and footprint, from the raw material level through a product’s end of life.

More than this, it requires changes in incentives and behaviours, so that value chain decision-making is prioritised. As long as employees are rewarded only for the performance of their own division or even of their whole company, they will sub-optimise the full value chain. In fact, it’s not uncommon to see the most powerful company in a value chain over-optimising themselves, and, by doing so, reducing the efficiency of the whole value chain.

Lean is the most successful tool deployed to improve efficiency, but its conventional deployment focuses upon the delivery of one product at a time. Carbon footprinting (and indeed other environmental and resource footpinting), on the other hand, evaluates whether waste from one value chain would be useful material in another value chain. Taking such a holistic view may lead you to intentionally create more ‘waste’ in one product – but since it can be used in another product, overall, this represents a lower cost and lower environmental impact solution.

Put the value chain cost and carbon impact of decisions into people’s hands

The sustainable lean approach – that is, the integration of footprinting and lean – creates more powerful results, and the bottom line is, it saves money: not least by being able to have a single team working on the same problems, using largely similar data. Through process mapping, modelling and general implementation, the sustainable lean approach captures the total knowledge and capabilities of the value chain enterprise into a single system, enabling optimisation of the whole – not just the individual parts – of the value chain.

Already, several companies are working with the Carbon Trust to discuss ways of incorporating the sustainable lean methodology. Many more are working hard to optimise their entire chain of operations. By harnessing the best of footprinting and lean, you will be better able to understand the current state of your business, and move towards a more efficient, less resource-intensive, higher-profit future. Although it’s difficult to forecast just how much can be saved before getting into the detail, one thing is clear: it’s a continuous process, and these are the methods required to get to a truly optimised solution.


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