William A. Levinson, CFPIM | November/December 2011 | 21 | 6
Cut waste the right way
Genuine social responsibility requires an organization to serve all its stakeholders— investors, employees, suppliers, and customers—which, in turn, enriches society as a whole. Conversely, efforts to strictly measure and reduce carbon dioxide emissions are either the wrong thing for the wrong reason (conformance to a politically correct ideol ogy) or the wrong thing for the right reason (identification and removal of energy waste from a supply chain). Supply chain waste can easily hide behind a favorable carbon foot print or the purchase of carbon offset credits. But that same waste cannot hide from more straightforward and comprehensive metrics.
Bad assumptions lead to bad decisions, so the first step must be to evaluate the premise that carbon dioxide is a pollutant. China’s plans to bring hundreds of coal-fired power plants online demonstrate that the nation’s leaders do not seem to think so. Even though global warming would affect much of its land, the country’s priority is cheap and reliable energy. Instead, China’s pledge to reduce the carbon intensity of its operations (meaning, carbon emissions per unit of output) is actually a promise to reduce costs and increase profits by removing energy waste from its supply chains—something that any intelligent business person would want to do.
Observation is the best metric
Operations and supply chain managers can increase value for stakeholders by paying attention to everything that goes into a shipment, as well as everything that does not go into a shipment. Anything in your trucks, ships, or trains that does not add value for the customer at the other end is waste. Everyone from hourly workers to engineers to managers must be trained to recognize waste on sight. For example, shipping pre-bottled tea is far more wasteful than an equivalent amount of tea bags or loose tea because of the added water.
Packaging material is a necessary evil: It’s necessary for protection against handling damage, but it adds no value for the customer. Thus, Henry Ford had his suppliers send shipments in wooden boxes of a very specific size so the wood could be used as floor boards for Model Ts.
Empty space in a shipping container, truck, or other conveyance is waste (unless the shipment’s weight equals the vehicle’s capacity). Learn to see not only the value-adding cargo, but also the empty space that surrounds it. Itis worth a supply chain professional’s time to visit the loading dock and see how shipments arrive and depart. As soon as air between packages is seen, the need for redesign becomes obvious. The ability to ship more product perload reduces not only per-unit trans portation cost, but also per-unit carbon footprint. Take Walmart, for example, which recently started using square bot tles in its pharmacies. Somebody appar ently paid attention to not only whatwas shipped, but also what was not shipped: Using cylindrical containers wastes about 20 percent of the capacity of a truck, train, or other vehicle. This is why office furniture generally is shipped in unassembled form—this allows for more units in a shipment.
These examples illustrate how smart operations professionals can learn to deliver lower prices to customers, higher wages to employees, and greater profits to investors—simultaneously. These types of initiatives teach not onlythe supply chain professional, but also the hourly worker, to identify waste that otherwise would hide in plain view.
Dollars are the second-best metric
Just as smoke is an indicator of fire, carbon emissions are indicators of fossil fuel consumption. However, it is easier to measure dollars than carbon emissions—and dollars reveal the use of energy from non-carbon sources. If trucks burn fuel uneconomically or loads are packed inefficiently, the per-unit transportation cost will reflect this. Thus, there is no need to spend time or money quantifying carbon emissions. Carbon emission data cannot identify forms of energy consumption (and possible waste) that are not visible through straightforward dollar measurements. Yet dollars—and also what chemical engineers call “material and energy balances”—can identify wastes about which carbon emission metrics are totally oblivious.
Consider the argument over whether companies should require trucks to operate below the legal speed limit in order to reduce fuel consumption: This is socially irresponsible if the driver is paid by the mile. A socially responsible employer’s profits come from what would be waste, not from worker wages. Even if the company pays the driver by the hour regardless of miles driven, the capital cost of the truck is an issue. Say a logistics firm directs its drivers to drive 55 mph in 65 mph zones. It will need 18 percent more trucks and drivers to move the same amount of freight. Operation at a lower speed to save fuel makes sense only if there is excess capacity and all the work can be handled by its existing fleet.
The Ford Motor Company and Eaton have developed a hydraulic, regenerative braking system for trucks up to 11,000 pounds. It costs $2,000, but reduces fuel consumption by 25 percent (more than driving 55 mph in a 65 mph zone can achieve). It looks especially useful for delivery trucks that make frequent stops. This is the kind of innovative, mutually beneficial thinking that improves supply chain value for all stakeholders and has the accompanyingeffect of reducing carbon emissions.
A truck that idles in heavy traffic represents increased lead times and more inventory, fuel burned for no purpose, and paying a driver to stare at the bumper in front of him. It may be cost effective to give drivers a shift premium to go through major urban areas late at night or early in the morn ing to avoid traffic. Sophisticated global positioning system equipment also can help route vehicles around traffic jams.
Material and energy balances
There are analytical tools that the practitioner can use to identify manufacturing waste. Chemical engineers use a material and energy balance, which is similar to debit/credit accounting: Everything that goes into a process (debit) must balance everything that comes out (credit). Traceability of every material and energy stream forces all forms of waste to become immediately and conspicuously visible—a task for which carbon emission metrics are very poor substitutes.
Pay attention to the doughnut and the hole. A bill of material lists every thing that is necessary to make a unit of product. However, by adapting the material and energy balance concept to a bill of outputs for use by supply chain professionals, the result is a balanced account of everything that goes into and out of a process, thus forcing all material wastes to become highly vis ible. (See “Waste Management: Using a bill of outputs to eliminate excess,” APICS magazine, January 2005.)
Still want to reduce carbon emissions?
The tools and techniques described in this article are far more effective than carbon footprint for identifying all forms of waste. The simpler ideas can be put into practice by every member of the supply chain—and, onceimplemented, these concepts offer the incidental result of reducing carbon emissions … if that kind of thing is still important to you.
William A. Levinson, CFPIM, is principal of Levinson Productivity Systems and author of Henry Ford’s Lean Vision: Enduring Principles from the First Ford Motor Plant. He may be contacted at email@example.com. To comment on this article, send amessage to firstname.lastname@example.org.