Three Strikes – or the Trifecta?



In order for a manufacturer to be sustainable, it must be persistently profitable. To do this, the manufacturer needs a durable competitive advantage and a globally competitive costs structure. Profitability is a prerequisite to sustainability. Notice that the terms “sustainability”, “persistently” and “durable” all connote extension well into the future.




There are many possible routes to durable competitive advantage, most involving an ability to innovate. Earlier posts on this blog, the Jera manufacturing resource website (
www.JeraSustainableDevelopment.com) and a legion of other sources discuss this critical issue. It will also be the subject of future blog posts and of future additions to the Jera website.




“Costs structure” includes most of the line items on your P&L Statement. Every manager is concerned about costs. Every good manager has a systematic way to do so. For now, let us limit discussion to three manageable cost factors, expressed as productivities and measured as dollars per unit delivered product.




Human Productivity




American labor productivity leads the world. However, large manufacturers are significantly more productive than smaller manufacturers, creating a large and growing productivity gap.



Productivity Gap Chart

    Data Source: U.S. Census Bureau

For more on this – and what can be done about it – see The Productivity Gap, posted on this blog on 28 September 2011.


Materials Utilization




Here are two exercises that may prove interesting:





(1) Sum the gross weights from all of your receiving reports or incoming freight bills for some sensible period of time. Then sum the weights of all products invoiced to your customers in the same time period. Subtract the sum of the weights of the products your customers paid you for from the sum of the weights of everything you paid for.




(2) Again for some sensible period of time, pull your solid waste collection invoices and count the number of dumpsters that you paid to have hauled away. If the dumpsters are not weighed as removed from your site, weigh several, strike an average, then use the average to estimate how much “stuff” was hauled off.




If you find the results hard to believe, consider that the average American sends 1,697 pounds of household “stuff” to the dump every year. That’s one person – not a factory. A large and growing number of large manufacturing companies are now reporting zero waste to landfill – the solid waste is almost all recycled internally, recycled through outside recyclers or used as fuel. In 2008, about 60 million tons of municipal solid waste was recycled, meaning that somebody used it as raw material to produce something. Significant use of recycled materials as a raw materials source has obvious competitive implications.




Energy Utilization




There are many reports of big costs savings through improved energy utilization. As one example in many, the Volvo Truck plant in the Blue Ridge Mountains of Virginia reported savings of $2 million in 2010, the first year of their program. For more details, see What’s Your Excuse? posted on this blog on 17 August 2011.

Big companies like DuPont and Dow Chemical report savings in the billions.
How do they do it? A new report from DuPont indicates that about 40% of their savings come from low or no-cost projects. It’s not just big capital outlays. For details, see www.environmentalleader.com/2011/11/16/sustainability-culture-saves-dupont-billions/. Also, the U.S. Government’s Energy Star program (www.energystar.gov) provides examples, insights and tools for getting started.




Again, for a manufacturer to be sustainable, it must be persistently profitable. And persistent profitability requires a globally competitive cost structure. This post discusses only three cost areas. How are you doing with those? Three strikes? The Trifecta? Or somewhere in between?




Your thoughtful comments are always welcome. Click on the title of this post to open the comment section.

…  Chuck




P.S.
  There is a lot more information on energy efficiency, recycling and waste reduction on the Jera website, www.JeraSustainableDevelopment.com. Check under Context – Resource Utilization

Note:  New posts are added to this blog on Wednesday evenings here in western U.S. So, almost everybody can view a new post during working hours every Thursday.