As more companies across the manufacturing sector are discovering, profitability and sustainability are not mutually exclusive.
By Stefan Weisenberger
As frequently as consumers have been hitting the “Purchase” button lately, all of their buying activity has made one thing abundantly clear: their appetite for eco-friendly products and packaging is growing, as is their preference for sustainability-focused brands.
A January 2022 report from First Insight and the Baker Retailing Center at the Wharton School of the University of Pennsylvania found, for example, that 58 percent of consumers across all generations are willing to spend more on sustainable products. What’s more, nearly three-quarters of consumers value product sustainability more than brand name. Consumers also are more motivated to shop resale/recommerce formats out of a concern for the environment than retailers believe, the report found.
How products are packaged also carries increasing weight with consumers. Trivium Packaging and the Boston Consulting Group surveyed 15,000 of them in North America, Europe and South America for the 2021 Buying Green Report, finding that 54 percent consider the sustainability of a product’s packaging in their product selection process, 52 percent look for information on the recyclability or sustainability of the packaging of the products they buy, and 57 percent are less likely to buy products with packaging that is harmful to the environment. Among younger consumers (under age 44), a large majority, 83 percent, said they are willing to pay more for products with sustainable packaging.
A similar preference for sustainable materials and products is emerging in the purchasing decisions made by industrial customers. Automakers like Volvo, BMW, and Mercedes-Benz, are prioritizing steel components manufactured with a sustainable, lower-carbon profile. Meanwhile, demand for green steel, responsibly sourced aluminum, and other sustainable products is strong in growing in industries such as construction.
Sustainability and Profitability
The challenge for companies on the supply side of the equation, upstream, downstream, and in-between, is how to capitalize on the growing preference—among not only consumers and industrial
customers, but also regulators, investors, and shareholders, as well— for sustainability-forward products, packaging, and brands. Because, as more companies across the manufacturing sector are discovering, profitability and sustainability are not mutually exclusive. In fact, for companies that focus on the following four areas, sustainability and profitability can go hand in hand.
#1: Make Circular Processes and Products Part of Your Organizational DNA
The linear “take-make-use-dispose” model of production and consumption is fast yielding to a circular approach, where companies, driven by the expectations of customers, employees, shareholders, investors, and regulators, are figuring out ways to profitably manufacture sustainable products by integrating more resource-efficient processes and approaches across their engineering and
design activities, manufacturing operations, strategic planning, logistics and, ultimately, their entire value chains. “By 2029, the circular economy will be the only economy, replacing wasteful
linear economies,” the consulting firm Gartner asserted in 2019.
That prediction still rings true here in 2022 as the business case for following the principles of reuse, recycle, and reducing carbon footprint becomes more compelling. That is the case for companies like roofing materials company GAF and the recycled shingles it manufacturers, as well as for Steinbeis Papier GmbH, a paper producer based in Germany. Steinbeis has embedded various sustainability-related KPIs into its end-to-end processes and decision-making and is relying more heavily on sensor-generated data, predictive analytics and automation. “From the operational perspective, our aim is to supply paper with consistent quality features and to do so cost- and eco-efficiently,” said Dr. Michael Hunold, head of new processes at Steinbeis, whose use of only locally sourced recycled paper has made it a leader in Europe’s circular economy.
The ability to centrally monitor, manage, and optimize its business and operational processes enables Steinbeis to identify the most efficient pathways for sustainably producing its products, and to articulate a sustainability edge in the marketplace. “We use significantly less energy and water to produce our paper than manufacturers of comparable paper made from fresh fibers. We reuse wastepaper, so trees are not being felled directly for our products,” explained Ulrich Feuersinger, Managing Director of Steinbeis.
#2: Sharpen and Expand Visibility
Today, there is a growing expectation (and in some markets, a mandate) that companies, whether they make industrial or consumer products, publicly disclose their ESG (environmental, social and governance) profile. Given emerging consumer preferences and regulatory trends, it likely will not be long before these same companies are driven to report carbon intensity more granularly, by individual product and the packaging in which it is contained.
To understand and then articulate the carbon profile (intensity or footprint) of a product and its packaging, companies must have the ability to track and analyze the make-up (and trace the origin) of the materials and equipment they use, the products they make, and other factors, such as the emissions from production operations and transportation of products to market. Was a certain material ethically sourced? What is the carbon footprint of a specific product, taking into account the entire product lifecycle? Companies must be able to back their answers to these kinds of questions with trusted, verifiable data about origin, chain of custody, the carbon emissions from manufacturing processes and more. And that data must come not only from internal sources (such as sensors at the manufacturing facility), but from external sources as well—other parts of the value chain.
Having greater visibility up and down the value chain is critical if companies are to comply with extended producer responsibility (EPR) policies that are becoming increasingly prevalent in the U.S., Canada and elsewhere in the world, as well as with other regulatory initiatives like the U.S. Security and Exchange Commission’s recently proposed rules to require corporations to disclose a range of information about climate-related risks and greenhouse gas emissions. Under the SEC rules unveiled in March and scheduled to phase in beginning in 2023, companies would need to disclose how they manage climate-related risks and how those risks could impact their business, along with information about greenhouse gas (GHG) emissions produced directly from their own operations as well as indirect emissions from the energy they purchase, and from upstream and downstream activities along their value chains.
Not only are track-and-trace capabilities a must to comply with regulations like these, they are also useful in helping companies evaluate their supply chain partners. How does one supplier compare to another in terms of the carbon footprint associated with the materials they provide, while also factoring in price and quality? In a world where entire value chains are judged on their sustainability performance, the performance of one company within a value chain can impact the entire value chain and all its constituent parts. So, organizations need the ability to evaluate their suppliers and partners, balancing sustainability factors with price, quality, and reliability considerations.
#3: Cultivate Connected Business Networks
Having an elevated level of visibility across an entire value chain is predicated on a willingness among the various organizations within that value chain to connect their operations digitally in order to share data and insight. Really what we are talking about here is the establishment of digitally connected business networks in which upstream and downstream companies are working together toward their individual and collective sustainability goals, and toward supporting the end customer in meeting their own sustainability goals, too.
The Carbon Transparency Partnership, a global CEO-led organization of more than 200 companies, embodies this collaborative mindset. The organization and its member companies—which range from 3M to Ikea to Sumitomo’s rubber and forestry divisions—are developing what they call “transformation pathways” that detail actionable routes for companies to take in the areas of energy, transportation and mobility, products and materials and more.
Within the framework of a business network, companies not only can share data for reporting and disclosure purposes, but they can also collaboratively pursue new sustainability-focused business models, services and revenue streams, sharing the risk and reward, and, in the process, adding value for the end consumer by combining their strengths.
A packaging manufacturer could work closely with a consumer goods manufacturer in the design and engineering phase to collaboratively develop optimal product and packaging designs, for example, using materials that are more sustainably sourced and/or more readily recyclable, and processes that are more resource efficient. The result would be sustainable product and packaging combinations, designed to use a minimum of materials, and made from materials that can be returned to the material cycle, with little or no residual waste.
#4: Develop a Single Trusted Data Resource—and Data Scientists to Maximize that Resource
For companies to accurately articulate the sustainability performance of individual products and their operations, they must have a strong handle on their data, whether it is from their own operations or from other entities in their business network/value chain. It is critical that companies develop the ability to collect, analyze, and standardize vast amounts of data from disparate, sometimes unstructured sources, then package that data in the formats that consumers, shareholders, investors, regulators, etc., want. Having a single reservoir of trusted data can help a company keep pace with EPR and other regulations, to embed circularity principles into its core business processes, and to efficiently manage its sustainable product portfolio.
Beefing Up Your Capabilities
As much value as all that data could hold in terms of illuminating pathways for making products and packaging more resource-efficient, more appealing to sustainability-minded customers, and, ultimately, more profitable, it is also important for companies to consider beefing up their data science capabilities considerably to better compete in an increasingly circular economy. In a world where purchasing decisions are increasingly driven by factors like recyclability and carbon footprint, investments like these are not just wise, they are necessary. | WA
Stefan Weisenberger, Global VP, Head of Industry Business Unit Mill Products & Mining at SAP, has deep roots in the manufacturing and natural resource industries with almost 25 years of experience. During that time, he has helped many customers with real world business process challenges transform, solving problems with a portfolio of solutions targeting sustainability, circular economy, heavy manufacturing and resource industries. He can be reached at linkedin.com/in/stefanweisenberger.