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Sustainability Measures That Drive ROI

By Karen Haywood Queen Contributing Editor, SME Media
PTC’s Vice President of Sustainability Dave Duncan (right) speaking in May 2023 at LiveWorx, PTC’s annual tech event focused on digital transformation.

Instead of yet another expense, a necessity to avoid fines or a way to lower taxes, sustainability measures actually drive return on investment (ROI), according to some industry leaders.

“Sustainability actions taken on the manufacturing shop floor can have a direct correlation to cost reduction,” says Kelsey Carvell, principal, supply chain and manufacturing operations at Deloitte. “Traditional manufacturing practices adopted for sustainability purposes tended to save costs by avoiding rework, scrap and making resource use more efficient. But more and more, we’re seeing that strategic plays for asset improvement can both improve standard metrics like overall equipment effectiveness (OEE) and save costs in the long run.”

Kelsey Carvell, principal, supply chain and manufacturing operations at Deloitte

Use cases are very process specific, and manufacturers need to think about engineering and design in new ways to optimize for OEE and sustainability goals, according to Carvell. “Every example from industry is unique, as waste, water and emissions are different in manufacturing across the various, components, lines and plants.”

Manufacturers can engineer advantages into their operations, Carvell says, by introducing water recycling systems, carbon capture and storage systems. Other sustainability practices include using renewable-energy-powered automated-guided vehicles (AGVs) to reduce emissions; implementing additive manufacturing to reduce waste; and utilizing machine learning for predictive manufacturing to optimize scheduled downtime and improve energy intensity.

Dave Duncan, vice president of sustainability at PTC, adds that achieving sustainability in discrete manufacturing involves:

  • Reducing the weight and size of a product and its packaging, known as dematerialization.
  • Reducing waste during manufacturing and service.
  • Improving energy efficiency during manufacturing.
  • Reducing freight cost.
  • Reducing dematerialization of the end product with modular design so that at end of life, components can be reused or refurbished as opposed to just breaking down material for recycling.

Quantifying ROI

The fastest ROI often comes from reducing energy intensity, Carvell asserts. This move also is aligned with how traditional manufacturing operations leaders think in terms of getting the most product with the fewest resources. “Tying sustainability results to operational results enables ease in implementation because many are already incentivized this way,” she says.

Within a factory, understanding energy draw for each machine can help managers understand when to act to reduce energy use, Duncan adds. China International Marine Containers (CIMC) used PTC’s ThingWorx to eliminate service chain inefficiencies and reduced energy consumption by 13%, he says. But sustainability encompasses more than saving energy.

“A common misconception,” Duncan says, is “we see a factory belching a lot of energy and think energy is the number one driver for reducing the carbon footprint. Usually factory emissions are only 1%-10% of a discrete product’s carbon footprint,” he continues. “For most products, at least 80% of the footprint is from supplied materials and components. Applying generative design to any conventionally designed part typically reduces the material used by 10% to 15%.”

In addition to reducing energy use, CIMC reduced unplanned downtime by 30%, cut manufacturing cycle time by 16%-20% and lowered WIP by 16%, according to Duncan.

Sustainability drives business success in three areas—compliance with regulations, optimization by lowering costs and transformation by raising the corporate sustainability profile, explains Bhushan Nigale, VP, sustainability product engineering at SAP SE.

Bhushan Nigale is VP, sustainability product engineering at SAP SE.

“By being more sustainable and reporting on how you’re doing, you can prevent fines,” Nigale says. In January, the European Union adopted mandates requiring E.U. members and companies with activities in the E.U. to require annual sustainability reports or face fines.

The Future Is Reducing Plastics Packaging

After avoiding fines, the next step is lowering taxes, specifically the plastics taxes on packaging that are being adopted in countries throughout the E.U. Reducing packaging overall and reducing non-recycled plastic packaging in particular results in lower taxes.

To address the issue, manufacturers first need visibility into how much plastic they’re using in primary packaging around the product, in the skin that holds the product together and in the product itself, Nigale notes. Manufacturers also need to know the type of plastic used in terms of recyclability. Then, he says, they must review what’s in the product.

As an example, Nigale cites SAP’s recent work with a popular U.K. food packaging company.

“We started with visibility: how much plastics taxes do they pay in the U.K. Then we did a scope for reducing the primary packaging around the product,” he says. “Next we looked at a different material to reduce the secondary packaging that keeps the product skin together. Then we examined critically the ingredients of the product itself.”

All of these factors determine the amount of plastics tax that must be paid. Thus, switching to a more expensive but recyclable material, Nigale explains, can lower costs because the plastics tax is less.

In addition to tax savings, when a large manufacturer reduces the amount of product packaging, the company may save a few cents per item on materials—which Nigale notes can add up to millions of euros.

Chalking Up Quick Wins

Manufacturers can achieve quick wins in three critical manufacturing lifecycle components—design, manufacturing and service, Duncan says. 

Artificial intelligence-enabled generative design simulation software helps designers reduce weight within specified performance constraints such as heat, compression, desired materials, and wear and tear. Designers input the constraints along with the desired shape, Duncan says, and the program “comes back with a remarkably lightweight design that human engineers couldn’t do on their own.”

In discrete manufacturing, the sustainability move with the best long-term results in both savings and sustainability is switching to modular design, Duncan adds, noting that the automotive sector is setting an example. Instead of producing different parts for each model and year of a particular line of vehicles, retaining the same components across many lines allows for faster, less expensive repairs, easier reuse of parts from older or wrecked cars, more efficient use of both engineering design teams and front line workers.

“Most of the components can be disassembled and either remanufactured on a new car or put in a service warehouse for a second life,” he says.

Sustainable Service

A meaningful win on service—financially as well as sustainably—is inventory optimization, according to Duncan. Once manufacturers understand where their equipment is, they can plan multi-echelon parts stocking—dispersing inventory to regional warehouses, local warehouses and then to delivery trucks. “That reduces the overall inventory and reduces the number of redundant parts,” he says.

Improved inventory analysis and management produces both quick and long-term wins, says Mike Buchli, 3DExperience Works partner sales manager at Dassault Systèmes.

Mike Buchli is 3DExperience Works partner sales manager at Dassault Systèmes.

“For example, bringing in a bunch of material because I bought it at a 10% discount, and then having it sit on the floor leads to extra fuel costs because I have to move the material around with forklifts to get it out of the way,” Buchli notes. “That’s not really a 10% discount.”

By adopting PTC’s Servigistics Service Parts Management, Finland-based mining technology company Metso tackled global supply chain inefficiencies, moving from a location-based, on-shelf availability model to an organization-wide parts planning system. Metso realized more than 40 million euros in inventory reducing while improving the service levels of parts availability by 3%, Duncan says.

“Financially, that’s 40 million euros in costs,” he continues. “As for sustainability, that’s the elimination of the embodied carbon from 40 million euros worth of mining spare parts that no longer need management.”

Virtual Twin, Real-World Impact

Using a virtual twin, such as Dassault Systèmes’ virtual twin experiences for manufacturing, enables manufacturers to do an event simulation or robot programming validation first before making a change in the factory, Buchli says. Compared to a digital twin’s mathematical representation, a virtual twin considers an entire system of systems, including the environment in which the physical object exists. Such planning and streamlining saves energy and labor, he says.

“Not only can I plan where a new robot cell is going to be, but I can also program ahead of time, wasting less energy,” Buchli adds. “We can predict, validate and verify the virtual environment to match the physical environment without adding more risks.”

For example, adding automation to an air compressor enabled a manufacturer to limit an air compressor that once ran 24/7 to run only when needed, Buchli says.

“The air compressor ran non-stop 100% of the time regardless of how much air was needed for their manufacturing processes,” he says. “We helped them run data analytics on when their machines were at peak periods and when they were sitting idle. The manufacturer put the compressor on standby most of the time and then spooled it up and down as needed. That extends the life of the equipment, reduces the load of electricity and makes the system better because they’re not running full-blast air into a system non-stop, generating waster moisture and other contaminants that impact machines downstream.”

The change saved energy by reducing the load of electricity, extended the life of the equipment, and improved the ecosystem because the air compressor was not continuously blasting air, generating water and contaminants that could damage machines, Buchli adds. Instead of replacing compressors every two years, he says they may last five to seven years.

In addition to understanding and controlling their own emissions, manufacturers need to be mindful of what their suppliers and other constituents are doing. These are known as Scope 3 emissions.

As much as 70% to 95% of emissions are Scope 3 pollutants in most industries, Nigale says. As a result, he stresses, it’s very important for manufacturers to get an accurate handle on them.

Considerations in Calculating ROI

Sustainable practices with high ROI vary depending on specific manufacturing processes and assets.

After determining which process and asset, companies need to determine the availability of alternatives for the process, Carvell says. For example, there are fewer decarbonization options for a blast furnace in steel making and more alternatives, such as AGVs, for material movement.

Among other considerations, Carvell cites one-time install costs, downtime due to process changeover, qualification and validation of a new process, available government incentives, increase in revenue or market share, and decrease in ongoing operating expenses.

In addition to saving manufacturing costs, sustainable practices potentially can increase sales and revenue if B2B trade partners and/or consumers are willing to switch brands or, if necessary, pay a premium for goods manufactured in carbon-net-neutral facilities, Carvell says.

SAP’s Sustainability Footprint Management software contributes to a green ledger for companies to calculate their carbon footprint based on a variety of data points, Nigale adds. SAP is working with a milk cooperative in Germany that wants to calculate its carbon footprint because its customers, such as cookie makers, want to know their own Scope 3 impact and publish carbon footprint information on their cookie labels, Nigale explains.

PTC works with at least as many suppliers as it does OEMs, Duncan says, because OEMs are choosing suppliers based on the suppliers’ carbon footprints. “For example, electric motor suppliers are being selected based on the embodied carbon of the motors they supply to OEMs. Those pressures cascade all the way down to the lower tier of the providers. That is what’s forcing the most impactful improvements in sustainability.”

Nigale affirms this sentiment. “You are investing in recycling, eliminating waste and then it starts to attract customers,” he says.

Manufacturers should keep in mind that evaluating opportunities by purely financial impact can be interesting but generally doesn’t paint the full picture, especially if considered as a siloed process, Carvell says. When considering resource usage in manufacturing facilities, there are some tradeoffs that can have an impact to the cost.

“For example, if you need to utilize water in a cleaning process, we wouldn’t want to consider the cost and environmental impact of cleaning using the cost of city water per gallon and the number of gallons needed, but rather, the total impact of those resources—such as how using only cold water, which takes longer and leaves the line down, may actually generate more emissions than utilizing solar power to heat the water and have less downtime to keep the resource intensity at a lower level. If you looked at this situation purely financially, it could be said that the solar panels versus the cost of water don’t make financial sense initially, but this is why a long-term view can be so useful to adopt.”

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