The cost benefits of going green
The environmental movement has been around for almost fifty years, but it has tended to ebb and flow with economic pressure: when times are tough, manufacturers tighten their belts. But this time is different, because going green has real economic benefits.
“The majority of companies we work with are looking at competitive cost savings,” says Chris Rickett, senior project manager at the Toronto Regional Conservation Authority’s Partners in Project Green. Begun in 2008, Partners in Project Green is an initiative to engage the industrial and commercial community around Toronto’s Pearson Airport.
“In some companies awareness is very advanced,” says Rickett. “I’d say 3 to 4 per cent are really gung-ho, then there is a mushy middle of 70 per cent that are looking at cost savings, and the rest who don’t really care. We are trying to bring them over to understand sustainability.”
Partners in Project Green is aiming to create North America’s largest eco-business zone on more than 12,000 hectares of industrial and commercial lands.
“We have 12,500 businesses around the airport, with about 1,200 in logistics, 1,300 in the auto industry, 300 to 400 in plastics, and another 300 to 400 in food processing,” says Rickett. “This is all about sustaining new market opportunities.”
Given that green initiatives are new to many companies, Rickett finds that for many the best approach is to go after energy, because it’s the easiest.
“We can typically go into a building, do an energy audit, and identify 15 to 25 per cent savings with limited capital outlay.”
Manufacturing: a special case
Manufacturing has its own unique challenges, however, with a sustainable model having more to do with processes than a simple building energy audit.
“When you look at milling machines and cutting tools, we know that when they are manually controlled they are only working five per cent of the time,” says Paul Ranky, professor of Engineering Design, Manufacturing, Industrial and Management Systems at the Department of Mechanical and Industrial Engineering at the New Jersey Institute of Technology.
“The rest of the time is occupied for such things as set-up or maintenance. But with a CNC machine you can get 85 per cent utilization, and a flexible automation system can get you to 95 per cent or 98 per cent.”
Ranky says that manufacturers are in better shape than they were ten years ago, because simulation technologies are more advanced. Simulation allows for processes to be optimized in virtual domains first, which then brings real savings.
“Management has to understand they must invest in virtual modelling before they invest in the shop floor,” says Ranky. “Factories can improve efficiencies by 30 per cent to 50 per cent—easily. This represents an enormous amount of time, energy, machine and human waste, as well as waste on the transportation, logistics, and storage front.”
Ranky agrees with Rickett that energy management is fairly straightforward to tackle, largely because it is easy to measure. But things get more complicated when other costs are factored in, particularly smaller time increments and expense trade-offs.
“For metal cutting processes, how you set the parameters is important,” says Ranky. “Do you want to minimize the cycle time or the energy use? Energy is more expensive at peak hours, so perhaps that is when you shut down for maintenance, and run an un-manned shift at night.”
Price fluctuations as well as an individual manufacturer’s use profile can affect the best way to get the most out of a green investment, but none of this is possible without the right data and analysis.
“Managers have to analyze their business, it’s what they do, but most don’t really understand costs,” says Ranky. “A proper process model must be updated to allow for fluctuations in energy and material costs.”
Without this, a lot of managers don’t really understand what’s going on in their shop, and can’t properly assess the ROI of a waste reduction initiative. Scale is also an issue, because if the use profile for a small manufacturer indicates that grams, and not kilos, of metal chips are swept off the floor, then there is little incentive to recycle or reuse. That is, unless you can find a way to tap into economies of scale.
“Only about 20 per cent of the ICI—industrial, commercial, and institutional—waste is now being diverted,” says Rickett, who adds that part of the problem is that capturing waste can cost money, and there is no model to fund that, particularly if haulage firms don’t see the value in small scale operations.
“There is a lot of room to develop relationships with haulers,” says Rickett. “This is where we come in, because we can provide the resources and institutional memory to keep all that together.”
Rickett can also show haulers numbers that indicate all those smaller operations add up to real volume–-and money to be made.
“There are huge waste opportunities,” he says. “It’s simply a matter of understanding the market.”
Pressure from the supply chain
There is money to be made from energy conservation and waste reduction, but there is also money to be made in ways that many manufacturers are only now beginning to grasp, namely through new market opportunities and better employee engagement.
“Energy and waste are the low hanging fruit,” says Bob Willard, a Toronto-based former executive who now makes a living as an author and speaker on business sustainability. “But it is also a great way to get employees engaged so that you can respond to a changing market.”
Willard points out that Walmart recently announced an initiative to reduce greenhouse gas emissions from its supply chain, with the retail giant pressuring its suppliers to rethink manufacturing, packaging and transportation. IBM is another example – Big Blue has said it will require its 28,000 tier 1 suppliers to implement management systems for tracking energy use, waste and recycling.
That means a lot of manufacturers are going to have to shell out some coin to comply with the green requirements of the big companies they supply. But how to go about what are, on occasion, capital intensive initiatives? Los Angeles-baed WB Financial, which does green manufacturing financing, might have the answer.
“We facilitate the leasing and financing of energy efficient equipment,” says Nicholas Fitch, director of finance at WB Financial. “A lot of companies need new gear to be in compliance, and we help bridge the gap.”
WB Financial is seeing demand for LED lighting retrofits in warehouses and manufacturing plants, but that’s just the beginning. Fitch echoes Willard’s observation that the supply chain will determine the ROI on investments in green, because market opportunity will necessitate capital spending.
“Manufacturers need to get ahead of the curve on this,” says Fitch. “Governments and big companies are going to be requiring higher environmental standards. If you want an OEM agreement with General Electric, then you’re going to have to give the company an accounting of your sustainability practices.”
An HR issue
One aspect that many manufacturers overlook is that they are already making an investment in a source of green innovation—their people.
“Many businesses will invest a lot of money in technology or a new process,” says Rickett. “But it’s better to leverage the HR-related stuff; it’s easier, and you can then put some of those ideas into the technology that comes later.”
Rickett points out that some of the approaches are surprisingly simple, like having people keep the bay doors closed in a warehouse. In fact, Willard argues that the same culture that has supported safety and quality improvement can be brought in to advance green initiatives.
“The unions are ready for this,” he says. “The Canadian Auto workers are way ahead of GM in terms of what they want to do with green manufacturing.”
At the end of the day, however, it is senior management that has to see the material benefit from green investments.
“We do a lot of assessments of small metalworkers, and we see the same things, most of which can be fixed from an HR perspective,” says Rickett. “But I have also seen leadership from the owner of a metal fabricating plant in Scarborough, who uses water to cool his spot welders, then circulates the same water to heat his shop.”
That small investment has led to a smaller footprint and, intended or not, has made the owner more competitive in the new green economy. CM
Tim Wilson is a freelance writer based in Peterborough, ON.