Using Sustainability for Competitive Advantage
Mehdi Shahbazpour1 and Rainer H. Seidel1 1
TheUniversity of Auckland, Department of Mechanical Engineering, New Zealand Abstract
In this paper the authors explore the evolution of the perceived definition of manufacturing performance over time, in response to market and social trends, thus establishing sustainability as the latest dimension by which manufacturing performance is gauged. This has significant implications in the area of manufacturing strategy as it introduces a new set of manufacturing trade-offs, which must be managed. The nature of these trade-offs are further explored with the aid of a case study. The authors also introduce a framework for manufacturing system and process innovation and demonstrate how it can be used to manage such trade-offs.
Keywords
Sustainability, Manufacturing Performance, Trade-offs, Innovation
1 INTRODUCTION
Over the past couple of decades sustainability and social responsibility have been emerging as new themes in the realm of business strategy. Previous studies have provided extensive analysis of the drivers of corporate social responsibility [1-3]. Bansal and Roth [1] list three motivating factors for firms to take on ecologically responsive initiatives:
1. Legitimation – the desire to improve suitability of the firm’s actions within an established set of regulations, norms and values [4].
2. Moral responsibility – the desire that stems from the concerns a firm has for its social obligations arising from its self-perception as a functional entity within the macro economical, social and natural environments [5].
3. Competitiveness – the desire to improve the potential for profitability through developing resources and capabilities that are difficult to imitate [6, 7].
Regardless of the motive, studies have shown that sustainability and social responsibility lead to improved competitiveness [6, 8, 9] and manufacturing plays an important part in facilitating this.
Much has been written on the role of manufacturing in achieving business competitiveness, since the renowned publication by Skinner [10] which highlighted the significant benefits of integrating manufacturing strategy into the overall business strategy.
However, the literature in the area of manufacturing strategy and performance does not seem to include sustainability as one of the competitive manufacturing objectives. This is evident in lack of attention paid to sustainability in recent publications [11-13] which only list quality, delivery, flexibility, innovation and cost as competitive objectives of the manufacturing function. This has many implications in the area of manufacturing strategy, including the lack of understanding of manufacturing trade-offs that arise as a result of including sustainability amongst existing manufacturing objectives. This paper aims to shed some light on this subject by firstly establishing sustainability as the latest competitive dimension of manufacturing performance by looking at changes of the perceived definition of manufacturing performance over time, in response to market and social trends. This is followed by exploring the nature of the trade-offs between sustainability and other manufacturing objectives with the aid of the case study of a medium
sized NZ furniture manufacturer’s quest towards more sustainable production. The authors also introduce a framework for manufacturing system and process innovation and demonstrate how this framework can be used to manage such trade-offs.
2 MANUFACTURING PERFORMANCE AND SUSTAINABILITY
It is generally accepted amongst researchers and practitioners that manufacturing supports a firm’s business strategy through achieving the following performance objectives:
• Cost: Production and distribution of products at low cost • Volume: Meeting market volume requirements
• Quality conformance: Producing defect free products • Quality capability: Manufacturing products with superior
quality and performance standards
• Delivery reliability: Meeting delivery schedules • Delivery speed: Fast response to customer orders • Flexibility: Proactive response to changes in production
mix and volume,
•Design Flexibility: Product customisation
•Innovation: Introduction of new products and processes New [14] divided the manufacturing objectives into hygiene factors and competitive-edge factors, which are similar to Hill’s [15] order qualifying and order winning categories. Order qualifiers or hygiene factors are criteria that are essential for the customer to consider the product, while order winners or competitive-edge factors are those that win the orders. It has been suggested that manufacturing firms must be at least as good as their competitors on the order qualifiers and try to outperform the competition on the order winning criteria.
Such categorisation of the manufacturing objectives is dependent on a number of factors such as technology, market requirement and society’s needs. Using the model presented in Figure 1, one can look back at the evolution of production paradigms over time and view the changes of manufacturing objectives with respect to the changes in these three factors. Doing so reveals a pattern in which new competitive-edge objectives emerge based on technological advancement and social and market requirements of the time, while previous order winning criteria may become new order qualifying or hygiene factors. Table 1 illustrates this pattern of change in manufacturing objectives.
Technology Market Society Order qualifier Order winner Manufacturing Objectives
Figure 1: Model of external influences on manufacturing objectives. Manufacturing Paradigms Craft Production ~ 1850 Mass Production 1913 Flexible Manufacturing ~ 1980 Mass Customisation 1995 Sustainable Manufacturing 2005
Society Needs Customised
products Low cost products Variety of products Customised products Environmentally friendly products Market Requirements Very small volume Demand>Supply Steady demand Supply>Demand Smaller volume Fluctuating demand Declining natural resources Energy efficiency Technology Enablers Electricity Machine tools Interchangeable parts Moving assembly lines Computers Flexible Manufacturing Systems Information Technology Internet Recycling Energy recovery Order winning manufacturing objectives Quality conformance Quality conformance Quality capability Delivery reliability Cost Flexibility Quality capability Delivery speed Cost Sustainability Design Flexibility Innovation Quality capability Delivery speed Cost Sustainability Design Flexibility Innovation Quality capability Delivery speed Cost Order qualifying manufacturing objectives Volume Quality conformance Delivery reliability Volume Flexibility Quality conformance Delivery reliability Volume Sustainability Flexibility Quality conformance Delivery reliability Volume
Table 1: Evolution of manufacturing objectives (modified from Boër et al.[16]) As illustrated, today’s market requires manufacturing
companies to cope with fluctuations in demand for more personalised products as well as reducing natural resources and more environmentally conscious societies. It is due to such external forces that sustainability has been emerging as the latest manufacturing objective. Whether sustainability is categorised as order winner or order qualifier depends on the specific market, industry and society the firm operate in. For instance, a manufacturing company operating in an environmentally conscious society such as Germany will probably classify sustainability as a hygiene factor - one that the firm must possess in order for its products and services to be considered by the customers. However in developing countries where there is an absence of effective environmental legislation and sustainability does not carry much weight in the market, some firms may choose to ‘go green’ [1] as a strategic move towards differentiation. Thus, regardless of the context in which sustainable manufacturing is viewed by a firm, sustainability has become part of the mix of manufacturing objectives that businesses around the world must consider as part of their manufacturing strategy. As suggested by Hart [7], ‘over the next decade businesses will be challenged to
create new concepts of strategy, and it seems likely that the basis for gaining competitive advantage in the coming years will be rooted increasingly in a set of emerging capabilities such as waste minimisation, green product design, and technology cooperation in the developing world’.
3 SUSTAINABILITY AND MANUFACTURING TRADE-OFFS
The World Commission on Environment and Development has defined sustainability as ‘economic development that meets the needs of the present generation without compromising the ability of future generation to meet their own needs’ [17]. This is often translated into sustainability sub-objectives such as reducing waste and emissions, conserving energy, conserving natural resources and reducing business impact on ecosystems. In other words, sustainable production is mainly concerned with resources, energy, material, waste and emissions [18]. It is therefore possible for sustainability to be in conflict with other manufacturing objectives on issues surrounding resources, energy, material, waste and emissions.
These conflicts are referred to in the language of manufacturing strategy as trade-offs – conflict between two competitive objectives whereby superior performance in one results in lower performance in another [19]. For example a trade-off exists between sustainability and cost if achieving higher levels of sustainability will result on poor performance in the cost dimension.
Trade-offs play an important role in manufacturing. They have long been the subject of debate in manufacturing strategy research. On the one hand are the supporters of the notion that trade-offs inherently exist in manufacturing systems and can not be eliminated [14, 20]. On the other, hand the world class manufacturing supporters regard trade-offs as myths, and propose that it is practically possible to simultaneously achieve world class levels of performance in many (if not all) competitive objectives [21-24].
Recently, Shahbazpour and Seidel [25] argued that trade-offs are neither myths nor permanent, but rather constraints or obstacles that must be removed in order to reach higher levels of performance. They suggested that identification, improvement and elimination of trade-offs must become the focus of the manufacturing improvement process towards enhanced competitiveness.
Understanding manufacturing trade-offs between sustainability and other competitive objectives, is therefore a crucial step in using sustainability for competitive advantage. As Da Silveira [19] points out, ‘A focus on trade-offs may yield improvement trajectories that are more effective and sustainable’.
There are a number of ways trade-offs can be viewed and analysed. Da Silveira and Slack [26] proposed to view trade-offs as ‘pivot’ type models. They suggested that the attributes of the manufacturing system make up the ‘pivot’ of the trade-off while the resources and capabilities of the system form the ‘base’ of the trade-off. Improvement is achieved by either enhancing the system attributes (ie ‘raising the pivot’) or improving operation capabilities and resources (ie ‘raising the base’).
Shahbazpour and Seidel [25], however, advocated that for the purpose of improving or eliminating trade-offs it would be more useful to view the contradicting relationship between two objectives in terms of opposing correlations they have with a system parameter. Such contradicting relationship is the root-cause of the trade-off, and the key to improvement of the trade-off is in elimination of the root-cause. Figure 2 illustrates a hypothetical trade-off between sustainability and quality capability due to their contradicting relationship with a certain material property.
Figure 2: Trade-off model
Using this model and based on our previous discussions regarding the definition of sustainability, it can be concluded that sustainability as a manufacturing objective can be in trade-off with other competitive objectives when and where the relationship between sustainability and system parameters such as resources, energy, material, waste and emissions, is in contradiction with the
relationship between other objectives and these parameters.
3.1 Case Study
In order to get a better understanding of manufacturing trade-offs involving sustainability, a case study is presented, which explores the trade-offs faced by a manufacturing SME. CML is a panel furniture manufacturer in New Zealand producing and distributing its products for the local and international markets. In late 2004 CML’s top management decided to investigate the potential benefits of embracing the sustainable manufacturing paradigm. A number of tools such as SWOT analysis, life cycle assessment and stakeholder analysis were used for this purpose, reaching the conclusion that there are great strategic benefits for the company, namely [27]:
• Creating an image as the forerunner of sustainable panel furniture manufacturing in Australasia,
• Qualifying CML’s products for entry into markets with tougher environmental legislation such as Europe and Japan,
• Adding sustainability as a new order-winning criteria to CML’s mix of capabilities, to further differentiate their products in the local market heavily under competition with Chinese manufacturers,
• Reducing cost of energy and waste disposal,
• Reducing risk due to up and coming environmental legislation in New Zealand.
The ‘green manufacturing’ project at CML is quite a recent initiative, which has slowly been gaining momentum. The discussions relating to trade-offs between sustainability and other objectives have been taking place internally ever since the inception of the project. The following is a discussion of some of the trade-offs that CML has had to deal with so far:
Sustainability vs. Quality
Quality is related to the reliability of the manufacturing processes in delivering the end products according to design specifications leading to customer satisfaction. Trade-off between this objective and sustainability will occur if reducing waste, energy usage or other environmental impacts of the production processes results in defective or less capable products.
The first example of such trade-off occurred when discussing the possibilities of recycling board off-cuts back in to the particle board production process. CML does not manufacture board at its facilities, but it sources its main raw material from two local companies. The board that was made of the recycled material caused ‘chipping’ problems during the cutting, shaping and drilling processes at CML. Degree of ‘fine-ness’ of the board, as a material property was therefore the root-cause of this trade-off (Figure 2).
Sustainability Quality capability
material property
Another example of such trade-off occurred when considering the environmental impact of polystyrene used in the packaging of CML’s products. As there are no polystyrene recycling facilities in New Zealand, this material is mixed with other residential waste after the consumer has unpacked and assembled their product, and is dumped in the landfill. Elimination of polystyrene from the packaging process is therefore a key requirement of sustainable production at CML. However, polystyrene plays two important roles in the packaging of CML’s products. Firstly it acts as a cushion to stop damages to the product from possible impacts during the distribution process. Secondly it acts as filler of gaps
inside the package, thus reducing damage to the product by stopping internal movements of the components relative to one another. Elimination of polystyrene from the packaging material will therefore result in damaged components.
Sustainability vs Cost
Trade-offs between sustainability and cost proved to be very crucial to the longevity of the ‘green manufacturing’ initiative at CML. Similar to other SMEs CML’s access to limited resources meant that there were limitations in allocation of resources to the ‘green manufacturing’ project as well as other sustainability enhancement initiatives driven from this project.
Lack of resources was in fact one of the first points of discussion when CML was considering to implement sustainable principles at its manufacturing plant. This was in spite of the fact that there was general agreement amongst managers and directors on the benefits of sustainability towards improved competitiveness of the company. It was therefore critical that project costs are kept to a minimum and proposed initiatives bring short term financial gains.
Luckily, sustainability initiatives such as waste reduction and improving energy efficiency have very quick pay back periods resulting in almost immediate financial gains. For these initiatives, this trade-off proved to be ‘perceived’ rather than ‘real’. However the cost of skilled and knowledgeable human resources to carry out the ‘green manufacturing’ project and its proposed initiatives was still a concern when there were no immediate pay backs. Costs associated with developing the environmental management system, staff training and compliance with the requirements of eco-labels were amongst these expenses.
Other examples of sustainability versus cost trade-off occurred when considering alternative material options for polystyrene (used in packaging) and vinyl (used for lamination) and also when putting emission prevention measures in place to comply with local government regulations.
Sustainability vs Delivery
Delivery speed and reliability are two manufacturing objectives affected by the system parameter, time. Sustainability could be in conflict with these objectives if sustainable initiatives result in increased lead-times or unreliable delivery of materials through out the supply chain. The former could occur if additional processes are added to the production process in order to comply with sustainable principles, while the latter could be a problem if the supply of environmentally friendly raw material is not reliably available. In the case of CML none of these issues were present.
Sustainability vs Flexibility
Design, volume and mix flexibility can be in conflict with sustainability if principles of sustainable production result in reduced capability of responding to change. For instance in the case of design flexibility this could occur if certain customer requirements such as special material or finishes can not be met in a sustainable fashion. Volume and mix flexibility could also result in less optimised processes, thus increasing waste and energy use. Once again CML has not yet needed to deal with such issues. 3.2 Managing manufacturing trade-offs
While many studies have been carried out with the aim of validating or rejecting trade-offs in manufacturing, few have addressed the practical aspect of trade-off management [19, 25]. Da Silveira [19] proposes a
decision making process for choosing between trade-off enhancement (improvement of trade-offs through enhancing capabilities) or repositioning (compromising one objective for another). Shahbazpour and Seidel [25] argue that management of trade-offs requires fundamental rethinking of systems and processes and casting off the old ways of doing things. The authors propose innovation as the only means to achieving sustained improvement in multiple contradicting objectives. The literature contains various definitions of innovation and the inventive process but, here, the word innovation will be used to represent breakthrough change which strikes at the root causes of trade-offs and constraints within the manufacturing environment. A four step process is proposed for this purpose, as outlined below:
1. Identify and classify trade-offs: The first step of the manufacturing system innovation process is to state the problem in terms of trade-offs and distinguishing whether the trade-offs are real or perceived.
2. Find the root cause of the trade-offs: Sustained change will only occur if the root causes of the problems are eliminated. This requires a systematic analysis of the cause-effect relationships embedded within the manufacturing environment.
3. Systematically eliminate the root cause of trade-offs: Many trade-offs and constraints can be eliminated by documenting and examining the underlying assumptions governing the cause-effect relationships behind them. However, elimination of the root causes of other trade-offs can be a complex problem involving analysis requiring a systematic approach for resolving this type of trade-offs.
4. Capture the knowledge: Once a trade-off is eliminated, it is crucial to capture the knowledge created in the process. This can then be used to eliminate similar problems that may arise in the future. The authors also demonstrated that tools from theory of inventive problem solving (TRIZ) and theory of constraints (TOC) can be used in the above process to eliminate trade-offs. Due to space constraints we will not go into detail about these methods. For detailed description of these methodologies and their use refer to the following references [25, 28-32]. The remainder of this paper will briefly present how some of the trade-offs discussed in the case-study can be eliminated.
‘Chipping’ of recycled particle board
As mentioned earlier, investigations in to this problem revealed that a real trade-off existed between quality of the board and recycling principle of sustainability, caused by the contradicting relationships these objectives have with the ‘fine-ness’ property of the board. Elimination of this trade-off was achieved through the application of the ‘separation principle’ tool of TRIZ methodology. In this specific case, the principle of separation of opposite requirements in space resulted in the innovative idea that the ‘fine-ness’ property can be different in various parts of the board. This meant that the recycled material could be used as the core material of the board, while finer board chips could be used on the surface layers of the board where the ‘chipping’ was occurring. Since the ‘separation principle’ tool was used successfully to eliminate a trade-off between quality and sustainability, it was noted that the same principle should be applied to similar trade-offs in the future.
Affordability of the ‘green manufacturing’ project
Earlier discussions revealed that the lack of available resources to SMEs such as CML, meant that they could
not justify allocating financial resources to the ‘green manufacturing’ project when fast payback of expenses was not possible. Application of TOC thinking processes indicated that the trade-off was perceived rather than real, as it was based on the following challengeable assumptions:
• Skilled human resources for this project are expensive • The financial resources for the project was to be
provided by the company itself
TRIZ tools of resources, resulted in the innovative idea of recognising CML’s place in two previously ignored macro-systems:
1. CML as an industry partner in the tertiary education system,
2. CML as an important part of New Zealand’s society and economy.
Analysis of the resources in the first macro-system lead to the idea of utilising post-graduate international students as interns carrying out the project in collaboration with a local university. The second macro-system revealed that there were government grants available for SMEs aiming to become more sustainable.
4 CONCLUSIONS
In this paper, the authors argued that although sustainability has been getting a lot of attention as a business strategy towards increased competitiveness, researchers and practitioners in the area of manufacturing strategy seem to have ignored sustainability as a manufacturing competitive objective. Using a conceptual model of external influences on manufacturing objectives, the authors provided a pattern of evolution of manufacturing objectives with respect to the changes in three parameters of market, society and technology. As a result of this analysis, it was concluded that sustainability must be considered as one of the main manufacturing objectives, which can be classified as an order winning or an order qualifying objective depending on the three parameters of market, society and technology.
Although this conclusion may appear rather obvious, it should be noted that to the best knowledge of the authors, this has never been stated in the main stream literature in the area of manufacturing strategy.
This paper makes further unique contribution in this field, by analysing the resulting trade-offs that arise as a consequence of including sustainability in the mix of manufacturing objectives. To gain more insight in to the nature of these trade-offs the case of CML – a furniture manufacturing company in New Zealand– was presented, reaching the conclusion that trade-offs involving sustainability will occur if contradicting relationships are found between other objectives and system parameters such as resources, energy, material, waste and emissions. The authors also introduced a framework for manufacturing system and process innovation and demonstrated how it can be used to manage some of the trade-offs discussed in the case study.
ACKNOWLEDGMENTS
We extend our sincere thanks to CML furniture manufacturing for involving our team in their ‘green manufacturing’ project, and to the New Zealand Foundation for Research, Science and Technology for their financial support of this project.
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CONTACT Rainer Seidel
Department of Mechanical Engineering The University of Auckland
Private Bag 92019 Auckland, New Zealand
Phone +64-9-3737 599 Ext. 87578 Fax +64-9-3737 479