How manufacturers can create a sustainable business model
In the wake of the sustainability agreement signed by countries at COP28, environmental, social and corporate governance (ESG) has never been more important for organizations than now. However, for many companies, complying with ESG regulations feels like an administrative burden, rather than an initiative designed to create business value.
Nevertheless, customer awareness of corporate sustainability and climate responsibility is increasing, as is the number of companies from which consumers can choose, leaving manufacturing companies struggling to differentiate themselves. If they want to attract customers and investors and in turn stay ahead of increasing competition, manufacturers must look beyond simply meeting sustainability regulations and make addressing sustainability issues a necessary part of their business model.
Furthermore, sustainability goals are rallying points that manufacturing organizations can use to accelerate projects that modernize process and supply chains – improving costs, quality, flexibility and revenues on the path to achieving them.
VP and Head of Sustainability Services and Engineering, Cognizant.
The recipe for success in sustainability
For many organizations, it is difficult to design and realize a consistent sustainability transformation as different parts of the business struggle for attention and decision-making ability. For example, a company’s sales department may wonder what environmental claims can be made about different products, its engineers may wonder which material to use to reduce the carbon footprint of those products, and its purchasing teams may struggle with the challenge of working with suppliers.
Faced with siled information, disjointed systems and low-quality unstructured data, many manufacturers find it difficult to answer practical questions about products or manufacturing processes – let alone optimize them for sustainability outcomes. Most companies simply do not have access to the necessary data (even if it exists), decision points or human capabilities available to achieve sustainable transformation. There are several factors that influence changes in product strategy, such as flexibility, resilience and quality, but often these are cost-driven and usually come with additional stress on logistics and the supply chain, which hinders manufacturers’ ability to balance their sustainability ambitions with turnover and profit targets.
Sustainability competitiveness requires certain capabilities that companies must prioritize, including operational efficiency, responsible materials and supply chain management, as well as the development of circular business models. For example, operational efficiency can include ensuring that raw materials are transported at the correct temperature, that energy waste is reduced in the supply chain, and that production costs do not exceed the cost of the final product. Similarly, circular business models require manufacturers to think ahead about what happens to products after their primary use. For example, electric car batteries can often have a residual capacity of 70-80% when they are considered to no longer meet electric car standards. However, there are options for manufacturers to reuse them in lower intensity areas after replacing them in the car, such as storing power from electricity grids.
The key to meeting these requirements is leveraging data, decision points and skills within the organization. Too often, data is concentrated in a few hands, preventing other teams from getting the most out of it. To overcome this, manufacturers must develop systems for tracking data across their organizations, then use tools like generative AI to enable teams to find and understand the data they need to do their work.
The twin transition
For companies to comply with ESG obligations while ensuring that business needs such as optimizing resource use and maintaining a sustainable business model are met, a major overhaul of current processes, systems and solutions is required take place.
Introducing the ‘Twin Transition’: the idea that for an organization to successfully prioritize sustainability, Net-Zero-related transitions and digital transformation must go hand in hand. One cannot exist without the other – whether it’s driving better business decisions using data assets, or prioritizing technical capabilities to enable scalability. It is critical for companies to understand where their capabilities are falling short, and to chart a path to improve these areas.
To embark on this challenging path, manufacturers must first map out their Net Zero goals, including planning resources and timelines, and defining the various stakeholder responsibilities along the way. There are several steps companies should take next, including prioritizing the ESG metrics the company wants to focus on. This could include reducing pollution, or increasing social opportunities for workers and the local community.
From there, they can define optimized metric paths that ensure the company collects all the data it needs to make an informed decision. This can be done by using IoT sensors and smart devices and integrating them with financial and production data, enabling better business decisions through managed data assets. Finally, companies must prioritize technology capabilities to enable scalability and establish a new business model to perform consistently.
For example, a manufacturer looking to reduce emissions from a product would need to determine how much pollution is produced when transporting materials to the factory, during loading and unloading, during the manufacturing process, and how much is produced in a store. In the past, it often involved taking averages of the amount of CO2 a van could emit, or of the average energy required to develop a product. Instead, by implementing sensors throughout the process, teams can see much more precise data. Once they have this, data engineers can more accurately measure how changes in the process affect emissions, and continue to iterate on the model until they achieve the desired effect.
This enables the use of data and technology to drive stronger, sustainability-oriented decision-making.
Start of the green transformation
While significant progress is being made within the sector, it is still by the minority rather than the majority. Manufacturers have a decision to make. By deprioritizing sustainability initiatives, they may see themselves falling behind as the world becomes more sustainable, while those who understand the symbiotic relationship between sustainability initiatives, digital transformation and business benefits will thrive.
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