Industry 4.0 • December 9, 2021

How Your Value Chain Directly Impacts an Environmental, Social, and Governance Program

How Your Value Chain Directly Impacts an Environmental, Social, and Governance Program

The recently concluded United Nations conference on the climate, COP26, with its pledge by nearly 200 nations to strengthen efforts to reduce global warming, will impact future manufacturing by putting new pressure to strengthen Environmental, Social, and Governance (ESG) performance. As more companies focus on ESG and strive to reduce their carbon footprint, they will quickly discover that programs beyond just improving operational performance will be needed.

Heightened awareness of environmental programs is expected to drive greater investment in Manufacturing Execution Systems, as explained in this article, “The Critical Role of MES to Meet COP26 Objectives.”

A manufacturer’s overall ESG performance is directly impacted by its entire value chain. When GE, under Jack Welch, embarked on a Lean Transformation strategy, it quickly discovered that if it didn’t help its suppliers and customers go Lean, its own Lean efforts were not going to be successful.

When it comes to sustainability, the same is true. 

Making sure you can achieve digital continuity with Environmental, Social, and Governance data across your entire product lifecycle is the key to success. In today’s interconnected value chains, being able to collect certain ESG data from your suppliers is critical to accurately report your own performance.  Likewise, being able to share ESG related data with your customers will make you a preferred supplier, compared to competitors that can’t accurately report needed ESG compliance information. 

Learn more about competitive differentiation with product traceability data, “Transforming Manufacturing Traceability from Compliance Headache into Competitive Differentiator.”

You Are What You Eat

Nearly two hundred years ago (in 1826), Anthelme Brillat-Savarin of France wrote in his dissertation, Physiologie du Gout, ou Meditations de Gastronomie Transcendante: “Dis-moi ce que tu manges, je te dirai ce que tu es.” Or in English: Tell me what you eat, and I will tell you what you are (source). One hundred and twenty years later, American nutritionist Victor Lindlahr, published his book, “You Are What You Eat: How to Win and Keep Health with Diet,” which brought the expression “you are what you eat” into common use. 

The common theme is that what a person consumes directly impacts their health and performance. This is equally true for a manufacturer. Virtually every manufacturer understands that the quality of incoming raw materials and parts directly impacts the quality of the final products they produce. The same principle applies to the carbon footprint of the products you produce. It also applies to other environmental factors that are increasingly being regulated and reported on because of nations trying to meet their COP26 commitments.

“Counting Calories”

Keeping with the health metaphor, nutritionists and weight loss coaches will tell you that to lose weight or to maintain a healthy weight, a powerful method is to count calories. Then make sure your intake is balanced against your output based on your objectives. If you want to lose weight, you must burn more calories than you consume – and vice versa if you want to do the opposite and gain weight. This same concept can be applied to meeting ESG objectives.

To accurately report the carbon footprint of your product, you must know the carbon footprint of the constituent components. Then add your own carbon contribution to arrive at the total for each final product. The same principle applies to any other ESG element, such as recyclability or the absence of toxic or reportable materials. Knowing that material from one supplier has a slightly higher or lower contribution to whatever ESG parameter you are measuring could impact your choice of what production line to schedule. Or what other raw materials, by the supplier, you might choose to produce your final product.

It Won’t Be Easy

As anyone who has made a serious effort to change their health such as losing weight or controlling sodium intake can attest, it isn’t always easy to accomplish your goals. New habits must be learned, and different processes implemented. It is easier today than it was before 1990 when the FDA required nutrition information labeling of most products. Even with this regulation change, it was only three years ago (2018) when restaurants were required to provide similar data. 

Automated access to better data can both help you to diet better – and better manage how to reduce your carbon footprint. Armed with information by using a fitness tracker or smartwatch to measure energy expended can make a big difference in helping you to achieve your goals. 

In manufacturing’s case, insisting on accurate information about important Environmental, Social, and Governance parameters from your suppliers – and coupling that information with what you can track from your Manufacturing Execution System (MES) – will greatly simplify how you can track your ESG contribution. Access to this information can help you to be successful in meeting either government-imposed ESG performance standards or internally mandated ESG performance goals. The key to making it easier is to ensure your operational technology on the plant floor can operate with a level of detail that lets you track this intelligence, and to do so within a highly dynamic environment so as to not impact your ability to change quickly to new market opportunities or competitive threats.

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