Industry Market Trends

New Report Finds Benefits in Sustainable Manufacturing Practices

Sep 05, 2013

marks-and-spencersBold innovation in the name of sustainability "can improve competitiveness, grow revenues, and better address changing customer needs," according to a new study†produced by the triumvirate of Accenture, Business In The Community, and noted British retailer Marks & Spencer.†"UK businesses have the opportunity to unlock†around £100 billion ($156 billion) a year in value from new innovation opportunities that address social and environmental challenges," the report asserts.

"By designing higher quality sustainable products, adapting the way of doing business, innovating in supply chains and engaging communities, business can better meet customer needs simultaneously creating value as well as environmental and social benefit," the authors suggest.†

The study is based on research conducted by Accenture and in-depth discussions with CEOs of some of the UK's leading companies, such as Kingfisher, BT Group and Jaguar Land Rover. Though directed toward UK businesses, the report could be of value to American manufacturers, as well.

Sustainable = Efficient = More Profitable

The five categories of innovation are far from groundbreaking -- shared value, circular economy, more with less, new consumption models, transparency and customer engagement. Under circular economy, for example, the report gives the example of clothing maker Patagonia, which encourages customers to return clothes to the company when they're done with them, whereupon Patagonia strips "all useful material from the product and reuses them in the manufacture of new garments."

The story is the same here as in Great Britain. The costs of raw materials used in manufacturing in the UK are rising, resource procurement can be volatile, which has decreased profitability to "under 5 percent at the end of 2012, compared to 11 percent in 2007," the report says. The numbers might not be that bleak for American manufacturers, but no doubt many would like to optimize their operations and supply chains and use fewer inputs per unit of economic output.

Recycling looks pretty good now. Recycling looks pretty good now.

Welcome to sustainable manufacturing, then, which is designed to do precisely that, since in many cases "green manufacturing" and "resource-efficient manufacturing" are functionally interchangeable terms. As the report makes clear, "Resource efficiency programs designed to cut energy consumption, minimize raw material inputs and reduce waste drive significant cost savings and environmental benefits."

If you're not particularly given to green ideology, then you can still be satisfied with the cost savings. But you might as well use the green cred to your advantage as long as you have it -- after all, have you ever heard of anybody who found being green-friendly a strike against a manufacturer?

"Give Us Your Tired, Your Clothes..."

Back to Patagonia: Even after investing in research and technology, the company comes out ahead in their sustainability push. What's slightly surprising is that so many customers would forego the extra money to be made at yard sales and simply gives clothes back to a company once they're done with them.

Patagonia then sends all recyclable product to Teijin, a Japanese manufacturer of synthetic fibers, for remanufacturing. "Polyester is one of the main materials used in their products, for which Patagonia believe they have now 'closed the loop' completely," the report says. "No new polyester-based compounds are procured for the manufacture of Patagonia's products."

In fact, company officials proudly†say, they have designed waste out of the cycle -- all of their clothing products are 100 percent recyclable. Not only does this help Patagonia's PR, but it helps the bottom line, too. "Patagonia claims this has created large savings and has enabled them to hedge against rising oil prices and reduce other raw material costs significantly," the report notes.

No Garage Sales In Britain?

One wonders whether American consumers would be as willing as the Brits to forego the extra bucks to be made selling their old clothes at yard sales or the tax deductions from donating to Goodwill and the Salvation Army.

Patagonia officials claim great ROI from redesigning their products to be 100-percent recyclable. It might be the case that your manufacturing concern could see similar benefits.

Or it might be the case that you can benefit from what the report identifies as "the market for sustainably sourced, ethical, and transparent goods and services (including ethical savings and investment)" which it says has seen "growth at 14 percent year-on-year since 2000, from £8 billion to £33 billion today ($12.4 billion to $51.3 billion)."

Starbucks Is One Thing.

Granted, in the context of world manufacturing this is a drop in the bucket, but fair trade products and sustainably sourced clothing have grown more than 30 percent annually for the past 10 years worldwide, not just in the UK.

If your manufacturing supply chain involves agricultural products, the benefits might be more immediate -- the report says a short-term sales uplift of at least 1 percent is "possible" through "certification of supply against a recognized environmental or ethical standard" if you're able to track the provenance of raw materials and manufactured goods for your buyers.

On this score, the type of business you're in might play a big part. It's one thing to charge a buck or two more for a bag of fair trade coffee at Starbucks, or pay a few dollars more for a fair trade shirt at Ten Thousand Villages. But for manufacturers, the goodwill value "fair trade" carries might not translate into higher profits.

Free trade items for sale at Ten Thousand Villages. Free trade items for sale at Ten Thousand Villages.

On the Other Hand...

But it might be. Transparency and engagement are valued by an increasing number of American consumers. Having enough visibility into your supply chain can help you command a higher price for your manufactured goods.

As the report suggests, investing in track-and-trace technology can give you "real-time information on labor conditions at suppliers' factories," which could be a worth something to you in addition to the inventory reduction and real-time forecasting such tools can also provide. "Overall," the report says, for British manufacturing "the potential cost savings to companies from improving visibility and transparency could amount to £3 billion per annum," and certainly that figure would be higher for American manufacturing.

The report gives the example of John West, which catches, cans, and sells fish. They implemented a traceability program for tuna catches in 2010 and today use it for their salmon, mackerel, and sardine catches as well. It's hard to put a dollar figure to it, but John West officials are convinced the 100-percent traceability of their products not only endears them to the conservationists, but helps them "understand where their major challenges are, for example in terms of fish supplies, sustainable practices and which vessels perform the best."