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Sustainability is fast acquiring center stage in the global manufacturing industry.
Being caught in a tightening web of sustainability regulations, sustainable performance, and climate change resiliency, manufacturers must secure their license to operate, trade, and sell in the future. The increasing focus of investors on environmental, social, and governance (ESG) performance and higher market valuation for sustainable products, add to this burgeoning need. The risk is enormous, but opportunities are abundant. We think that manufacturers need to view sustainability as a strategic function that not only ensures compliance management but also creates new business opportunities, which requires redesigning operating models. We believe this is integral to a sustainable by design approach, which borrows from the principles of a cognitive value chain that senses, responds, and adapts to sustainability triggers. This white paper explores the tenets of the sustainable by design approach, which embraces neural behaviors. It also examines how the approach can help manufacturers unlock significant economic, social, and environmental value and, in turn, incubate opportunities to participate in new sustainable ecosystem-driven innovative business models.
Sustainability: A compelling necessity for manufacturers
Increasing industrial activities structured on unsustainable development frameworks have stirred an alarming environmental crisis stemming from increased greenhouse gas emissions, industrial waste contamination, and natural resources depletion.
As a result, sustainable manufacturing has emerged as an imperative tool in this battle against climate change and other environmental and economic disruptions, going forward.
However, sustainability is more than just that; it’s a strategic driver and a competitive advantage for meeting consumer and investor demands, which go beyond just addressing environmental, social, and governance (ESG) issues and evolving regulations. Evidently, the need to drive strategic outcomes for a competitive edge, improved returns, investor attraction, enhanced brand image, and economic multiplier effects (see Figure 1) has emerged as a lever for adopting sustainability initiatives.
The benefits of sustainability are enormous and compelling. It stands to reason that companies like Siemens are envisioning eco-efficient operations by 2030 with 10% improvement in energy efficiency through sustainable ecosystems and circular economy-focused business models. Similarly, Safran’s electric hybrid aircraft, lower carbon footprint, and decarbonization goals can help accomplish a target of 30% carbon reduction from its industrial sites worldwide by 2025. It has also increased its adoption of sustainable aviation fuel for civil engine tests – 10% by the end of 2021 and 35% by 2025. Joining this league are organizations like BMW, JLR, ABB, Saint-Gobain, and many others that are actively adopting sustainable alternatives and structural changes that focus far beyond just financial outcomes.
An emerging industry trend is the electrification of the auto power train. Many industry leaders across the auto value chain are considering this emerging space to transform their existing business models. Electric vehicles (EVs) and their variants have considerably lower tailpipe emissions owing to increased usage of renewable energy as their electricity source.
By enabling electrification, multiple partnerships will emerge among extended value chain partners such as original equipment manufacturers (OEMs), battery manufacturers, component suppliers, energy infrastructure providers, and utilities powering EVs with renewable energy to deliver reduced emissions through the life cycle of the vehicles.
Organizations need to rethink their approach and build purpose-centric ecosystems by overhauling their portfolio and positioning to meet the demands of environment-aware consumers and investors. This presents a case for involving sustainability principles at a very early stage in the manufacturing value chain. This is where sustainable by design principles are changing the game for manufacturers.
Sustainable by design: The road to sustainability and circularity
To become a sustainability leader, manufacturers must completely redesign the touch points where sustainability concerns are raised across the extended value chain.
Manufacturers must innovate and redesign their current operating models to embed sustainability and circularity principles across processes, production operations, products, and product usage. They can achieve this by pursuing an ecosystem-driven approach that addresses their needs from design to usage and further reuse, repurposing, or remanufacturing, and hence, by default also addressing the Scope 1, 2, and 3 compliance needs.
Further, manufacturers can design new ecosystem business models by adopting the tenets of Neural Manufacturing–which outlines how enterprises can become resilient and adaptable through capabilities driving the 21st century value chain and the factory of the future. The neural approach allows stakeholders across the value chain to be partners, binding them through the shared purpose of a sustainable future.
To sum, a sustainable by design enterprise is one which-
Establishes a core sustainability purpose well integrated with business goals and agenda
Forms new sustainability driven partnerships to empower sustainable choices for customers
Strives for sustainable brand positioning, leading to higher market valuation
A sustainable by design manufacturing enterprise must embrace intelligent and insight-driven models. In addition to ensuring a sustainable process, product, and service design, the approach enables circular business models powered by connected value chain operations and purpose-centric ecosystems. It enables-
New revenue streams through circular business models: An example of a sustainable business model can be seen in Toyota’s vehicle production, wherein 20% of all plastics used in the production comes from recycled or plant-based plastics extracted through car shredder reuse and recovery methods with 96.9% effectiveness.
Resilience to climate and linear business model risks: In the face of depleting natural resources and changing legislative priorities, manufacturing companies that adopt sustainable by design models stand a better chance at business continuity and profitability.
Access to green finance and lower capital rates: In order to achieve its sustainability targets, Finnish paper company UPM issued its EUR 500 million second green bond earlier this year. The net proceeds from this bond will be used in climate-positive products and solutions, sustainable forest management, pollution prevention and control, and waste management.
Cost and operational efficiency: Simplified packaging, energy-efficient lighting, and water recycling in plants are some examples of how sustainable design will result in operational and cost-efficiency. When coupled with Lean best practices of optimizing idled or below-capacity use of machinery and human resources, a comprehensive approach to sustainable manufacturing emerges.
Sustainable by design: Dynamic capabilities
Numerous capabilities accelerate the payoff of embracing the sustainable by design model.
Increased focus on transparency and visibility across the value chain supports the track-and-trace of existing sustainability data, materials, and events. This paves the path for an integrated sustainability data model, powered by cognition and intelligence, that generates insights and provides proactive responses to anomalies. These insights, along with performance reporting, brings sustainability to the core of business decisions.
Manufacturers need to invest in product and process innovation, which create circular product designs, and sustainable manufacturing initiatives, which eventually support their decarbonization goals. Such decarbonization levers boost an organization’s carbon neutrality goals, coinciding with region-specific goals.
Furthermore, because of connected value chains and circular ecosystems, organizations need to use technologies to weave in the right amount of agility and flexibility in their decision-making, which occur at the edges of the network. Ecosystem-level decisions are based on seamless data collaboration and insights. Such a connected, cognitive, and collaborative ecosystem creates new or alternate business models.
On the flip side, to survive and ensure continuity in a sustainable business environment, manufacturers must embrace risks such as access to capital, product valuation, and regulatory compliance. This will allow firms to govern and effectively communicate their sustainability strategy and performance to their business stakeholders.
At the intersection of technology, data, and ecosystems
Sustainable by design capabilities require an organization to have a multi-pronged strategy.
Manufacturers can realize these capabilities through several initiatives: a top-down leadership focus, policy change focusing on sustainability, and bottom-up changes with product innovation, process automation, and an embedded innovation culture. A focused approach encompassing organization, process, and technology change can foster such transformation for an organization.
Ecosystems, digital technologies, and data collaboration are the key foundational pillars for sustainability leadership for future manufacturing enterprises. The benefits of the sustainable by design approach can be unlocked in phases. This begins by envisioning and defining a strategy for identifying new business opportunities, followed by designing and building a digital core supported by a neural information fabric. Lastly, manufacturers can scale and operate with automated cognitive business operations and handle risk management with sustainable platforms.
The time for change is now
The manufacturing industry stands at an inflection point, where sustainability converges with humanity, technology, and innovation, thereby altering the course of business.
Manufacturing businesses must cater to dynamic economic, environmental, and social risk management. Becoming sustainable by design will give them the default license to operate, survive, thrive, and recover profits in the industry.