How driving operational efficiency can help support your ESG goals
Sustainability has moved beyond being an ethical focus and has become a strategic imperative. Having an ESG (environmental, social and governance) strategy in place is not just about preserving your company’s reputation, it also makes good business sense. Organizations that are actively focusing on social upliftment, responsible sourcing and reducing waste and carbon emissions are seeing tangible benefits, from better bottom-line performance to increased competitive advantage.
If you have a continuous improvement (CI) program in place, your organization will already be inclined to focus on waste reduction and process improvement which will naturally support your ESG agenda. In practice, however, few companies fully incorporate CI gains into their sustainability focus and reporting – this is a missed opportunity as these results can significantly contribute to your ESG performance.
Operational efficiency is about getting more from less – for example, reducing energy consumption, improving yield and increasing overall equipment effectiveness (OEE). Energy, water, and material consumption savings are often mentioned in sustainability reports, but what about OEE? This allows for better production choices from an existing asset footprint, e.g., smaller batch sizing and vertical startups allow for greater responsiveness to market needs, making the right product at the right time and reducing inventory. By optimizing your manufacturing and supply chain performance with a sound operational excellence program, a positive ESG impact is a healthy by-product.
Here are three operational efficiency focus areas that can help you achieve your ESG goals:
Eliminate the hidden factory
Increased operational efficiency will enable you to identify opportunities for waste reduction and eliminate the hidden factory. The Six Sigma Institute defines the hidden factory as: “The set of activities in the process that result in reduction of quality or efficiency of a business process or manufacturing department, and is not known to managers or others seeking to improve the process”.
Process variability, material inconsistency, lack of standards, fluctuation operating condition all contribute to this lack of operational stability. A relentless focus on waste reduction will help you uncover the hidden factory and result in “cleaner processes”, better maintenance, longer equipment life and vertical startups requiring fewer material losses.
By establishing a systemic approach to improvement, organizations can lift OEE from 63% to 85%; this equates to three factories producing the equivalent of what four factories would have been needed for. In a growth environment, eliminating the need to build an entire plant has a significant environmental impact, yet this is seldom mentioned in ESG reports. This tipping point, linked with SKU consolidation and product design, is seldom focused on.
Optimize your value chain with focused improvement
A focused improvement approach across your value chain and an associated improvement in supply chain efficiency, will often result in a 30% reduction in inventory. This means that less warehousing space is required (which reduces your carbon footprint), and, although this might require more frequent and smaller batch shipments, these can be carried out with smaller vehicles. The risk of obsolescence is also significantly reduced. These are the kinds of outcomes that should be highlighted in your ESG report.
Engage your people on the road to ESG success
The success of your ESG initiative, much like the success of your CI initiative, hinges on the enthusiasm and commitment of your people. A good CI program empowers people to make decisions and allows them to own and drive the improvement process. This leads to improved morale, safety and efficiency.
Similarly, to get the most out of your ESG initiative, your people need to understand the purpose of the program and how it relates to them, and they need to be given the freedom to contribute ideas that propel the journey forward.
Once CI becomes embedded in an organization, it creates a relentless focus on eliminating waste and improving processes. The benefits of this include cost savings, increased employee engagement and, of course, better ESG outcomes. Never underestimate the role continuous improvement plays in supporting your ESG program, and in helping you build a sustainable organization that is in harmony with its environment, and the people it serves.
About Carl Loubser
Carl Loubser is a Senior Business Partner at CCi. He has spent almost 30 years helping leading manufacturing and supply chain organizations improve operating effectiveness. Carl specializes in transforming supply chains through operationalizing strategy, identifying areas of opportunity, and leading internal teams to deliver these strategies and sustain improvement. Key to his success is his ability to credibly challenge existing methods and results, and work with multifunctional teams to implement new work standards and controls. He has experience in all aspects of the value chain, and has led in excess of 100 projects.
Learn more about Carl’s expertise and connect with him on LinkedIn here.