Sustainability as a strategic driver in industrial production

What added value does sustainability offer for industrial production processes? And how does sustainability connect to successful transformation programs such as Operational Excellence (OPEX)? This article is the start of a series in which we highlight the strategic relevance of sustainability for manufacturing industries and discuss and present success parameters for the implementation of a sustainable transformation towards a future-proof company.

Sustainability: hygiene factor or strategic driver?

By applying Lean Production, industrial companies can create production systems that achieve a special degree of cost efficiency, delivery reliability and quality. Next to safety at work, these factors have therefore established themselves as essential drivers for production optimization and transformation. At the same time, the importance of a sustainable orientation has increased in recent years. For example, the coalition agreement of the new German federal government also makes it clear that a sustainable transformation is inevitable in the coming decades. But what does sustainability specifically mean for manufacturing industries? And how do companies integrate sustainability into production systems? Can it be considered as hygiene factor or rather as strategic driver and how does sustainability tie in with existing transformation programs such as OPEX, Lean Production, TPM or Six Sigma?

In practice, it can be observed that most of the companies understand sustainability primarily as a hygiene factor. In this light, established targets remain as before and sustainability is regarded as externally defined requirements that must be met. These requirements can thus be defined by politicians, customers, investors and other stakeholders (e.g. employees). For implementing appropriate measures to comply with the requirements, in some cases staff units are set up that are not or hardly integrated into the essential planning and production processes of a company.

The opposite approach is to consider sustainability as a strategic driver. Here, sustainability is integrated into the matrix of objectives, and processes are also developed and managed with regard to their sustainable value-add. This opens the opportunity for a more comprehensive view, allowing new opportunities to emerge inside and outside the existing structures and systems.

The ‘right’ approach depends on the strategic orientation and environment of the company. On the one hand, an integrated approach to sustainability increases complexity. Yet, it seems clear: discovery and leveraging of long-term entrepreneurial potential, and thus a significant improvement of the competitive position, requires an integrated consideration of sustainability as a strategic driver.

Holistic and integrated strategy as a starting point

To begin with, it is important to define strategic goals for the company as a whole and thus anchor sustainability aspects directly in the strategy. Experience shows that simply adding sustainability goals into a matrix of objectives rarely creates value-add for an organization, both in an economic and ecological sense. For example, a company that sets itself the goal of being carbon neutral by 2035 should also understand how climate neutrality relates to economic success and other strategic goals. Otherwise, when translating the strategy into KPI and measures, the interrelationships between general KPI and sustainability related KPI are not clear. This also makes it difficult to convey the importance of corresponding goal achievements to the employees, e.g. on the shop floor. The importance of carbon neutrality for the company as a whole is not understood and related measures are considered, in worst case, as additional work without contributing to the desired result. Thus, although sustainability KPI might be rolled-out for individual production areas, goal-oriented management does not take place, since the relevance of the figure for the overall success is not tangible. Additionally, it is also important for individual employees to comprehend in which way he or she can influence the respective KPI operationally and which measures are to be prioritized in the case of trade-offs between goals.

To sum up, interrelationships and priorities between goals must be clear. Then, respective synergies can also be leveraged.

Operational excellence as a promising path for achieving sustainability goals

If sustainability is holistically integrated into strategy and KPI systems, the approach for respective goal-oriented implementation can often be seamlessly integrated into a lean production system. Alongside operational excellence, a culture of continuous improvement is always being created as well as a special ability of employees to solve problems proactively and flexibly, allowing to consciously contribute independently to the company’s success. This comes along with an organizational transformation competence, which also provides companies with resilience in an increasingly complex environment. Such a transformation competence is also the basis for a sustainable orientation of a company and for successfully leveraging respective opportunities.

Traditional methods such as e.g. Lean Management or Six Sigma can also be systematically used to accelerate achievement of sustainability goals. Respective examples have been compiled by the US Environmental Protection Agency, among others. Thus, many companies have already experience with tools that also promise success for the implementation of a sustainable transformation – a good prerequisite for corresponding success.

Circular economy as a further driving force for a sustainable supply chain

An additional approach for identification of sustainability potentials in production is coming from the perspective of circular economy. It offers the possibility of a systematic analysis of production processes, also within the supply chain beyond the company’s own borders, and to uncover e.g. avoidable waste and losses. On this basis, strategies for the utilization and, if appropriate, commercialization of waste and scrap can become clear. Thus, integrated target systems can be defined and corresponding management systems can be implemented across the entire supply chain. In this way, ‘sustainable production’ also enables the identification of innovation potential and additional business models.

How can industrial companies leverage potential through sustainable production?

Even though many industrial companies have tools for sustainable production at hand, the sustainable and thus future-proof set-up of production systems remains a complex undertaking. Questions often remain unanswered, such as e.g.:

– How do I develop a holistic and integrated strategy? And what are the barriers to implementation in practice?

– How are regulatory requirements evolving for industry and can OPEX programs accelerate meeting sustainability requirements?

– How do companies benefit from sustainable production in the long term and what spillover on the corporate strategy can be identified from a production perspective?

– What potential does circular economy offer and how can these be identified and leveraged?

In the coming months, we want to discuss these questions together. In individual posts, we pick up these questions and present possible starting points to address them. In doing so, we also draw on success cases from practice in order to illustrate possible application.

Get in touch and discuss with us: Is sustainability a strategic driver in production? What challenges do you see for successful implementation of an integrated strategy? Do you know any examples of successful implementation?

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