Politics aside, sustainable practices make good sense

Most companies today are taking steps to improve the sustainability of their products and processes in response to both consumer and public pressure and impending regulatory requirements. No matter where you stand on the issue of global climate change, there are good business reasons to reduce energy usage, cut down on waste and look for sustainable components and materials as substitutes for their non-sustainable counterparts. Operations management and supply chain professionals are increasingly involved in leading their respective organizations on the path to more earth-friendly operations.

Sustainability is defined as the capacity to endure. For humans, it is the potential for long-term maintenance of well being, which in turn depends on the well being of the natural world and the responsible use of natural resources (per Wikipedia). For businesses, this means two things: Reduce usage of any and all resources to the minimum necessary, and wherever possible, use resources that are renewable.

On the first point, the hierarchy of waste reduction is as follows: reduce, reuse, recycle or reprocess, and finally responsible disposal. The ultimate waste reduction is to not use the resource in the first place. Operations management has long been focused on waste reduction, so this is nothing new. Modern management programs like Lean Manufacturing represent today's best practices in this area.

Second on the waste reduction scale is reuse. This effort is most evident in a move toward reusable packaging and containers. Many companies now use more durable packaging materials (crates, cartons, pallets) that can be used a number of times instead of just once. Recycling is familiar to everyone today. Companies now consider recycling and reprocessing possibilities in product design, making sure that the products can be conveniently disassembled at end of life so valuable materials can be affordably recovered for use in new products and to prevent toxic materials from entering the waste stream.

The economics of waste reduction can be impressive. Using fewer resources inherently lowers costs. And most recyclable materials can be sold, generating revenue while reducing waste collection and landfill costs. In addition, some consumers are very concerned about environmental issues and actively seek out products from "green" producers and are even willing to pay a premium for products that are documented as sustainable or "earth friendly." Being "green" is good for your company's image even if you don't offer these kinds of premium priced products.

The other side of sustainability is the use of renewable materials wherever and whenever possible. Renewable materials (forest products and recycled materials as replacements for petroleum-based materials, for example, such as recycled paper burger boxes instead of foam plastic) often cost more and/or don't perform as well as the non-renewable counterparts, but companies are becoming more willing to pay the price for three reasons — regulatory pressure, consumer demand, and because it's the right thing to do.

Don't forget in all of this that energy usage is a prime concern for environmental sustainability. Electricity generation accounts for half of the carbon dioxide produced, and carbon dioxide is the definitive "greenhouse gas" that is the focus of so much attention among the environmental community. Other large sources of greenhouse gases are heating and transportation. Energy conservation must be high on the list of any company seeking to become more "green." In addition to energy conservation efforts in the plant, office and store, transportation management and optimization can significantly reduce the miles driven and fuel used in getting products through the supply chain. One such effort is the intelligent planning of "reverse logistics" for returning recyclables and bringing raw materials back to the plant in the same trucks that delivered the product.

Productivity is Down… Surprised?

Today’s headlines are bemoaning the sudden and unexpected drop in U.S. productivity after an exceptional run of increases in recent quarters. Why are they surprised? The increases in productivity were, in many cases, the result of fewer people working harder. Companies aggressively reduced the workforce as business declined, but have been slow to re-hire as sales have improved over the last six or eight months. Fewer people producing more goods and services equals increased productivity.

But the higher productivity levels were and are unsustainable. When a company reaches the point where the existing workforce just can’t keep up with increasing demand, they hire more workers. New people (or re-hired past employees) cannot, and shouldn’t be expected to, produce at the same rate as the overworked survivors that remained after the layoffs. We are getting back to more reasonable expectations as far as sustainable worker output levels.

In other words, the productivity increase we’ve seen over the past year or so was artificially inflated because of a general feeling of uncertainty that the recovery would have ‘legs’. Companies are understandably reluctant to commit to new employees if they are not confident that demand will continue to increase.

Productivity will continue to be higher than it was a year or two ago. We are not going back to the levels that were in existence before the recession and recovery. Those quarter-after-quarter increases will mostly remain after the dust settles on all of this. Just as the stock market doesn’t go straight up or straight down, there are healthy pullbacks from time to time. Look at any stock chart or index. I believe what we are seeing in this quarterly productivity measure is just such a pullback.

Manufacturing: Coming to America

A recent headline in the daily SME Executive e-newsletter proclaims “Some Companies Moving Manufacturing Jobs Back To America”. The story lead continues: “A small but growing band of US manufacturers - including giants such as General Electric, NCR and Caterpillar- are turning the seemingly inexorable off-shoring movement on its head, bringing some production to the US from far-flung locations such as China.”

This development is a good illustration of several key points of supply chain management. Above all else, supply chains must be flexible and agile. As conditions change, the supply chain must adapt ... and conditions certainly have changed. Labor costs in China as rising rapidly. Quality issues have come to the forefront recently. Shipping costs change rapidly and dramatically, and companies are ever more aware of the importance of lead time and inventory buffers required to accommodate longer lead times. That also points to another key supply chain consideration – risk.

Supply chain risk is the recognition that all elements of the supply chain are subject to disruption from any number of causes – natural disasters, labor unrest, political upheaval, pricing changes, and many more. The well-designed supply chain is built around certain assumptions that reflect current conditions. Savvy supply chain managers will anticipate all the ways those conditions might change and prepare contingency plans in case they do (change). Then, when the worst case presents itself, the company already knows what to do and can quickly execute on the contingency plans to keep the supply chain moving.

The reversal of the off-shoring trend is indeed good news for America and American manufacturing. So far, the manufacturing sector has been leading the country out of this recession and this trend promises to help continue that happy development.