Lean and Six Sigma are established approaches to improving processes to make organizations more successful. It seems only natural that we would be able to reduce environmental problems with these same approaches. Just by having an improvement program, you will naturally improve the environment when you take out waste and inefficiencies in your company. However, there are some opportunities that can be missed if you don’t look in the right place, or look at the external costs associated with what your company does.
1) “Cost of doing business”
Many businesses look at the utility and energy bills (water, electricity, gas and trash), and assume that these bills are just part of the costs of being in business, and there is little that can be done to reduce them. There will almost always be expenses associated with these bills, but there is ample opportunity to save money by eliminating the portion that is wasted each month. For example, if you are running equipment to produce needed product for your customer, that is a good use of energy. Leaving the equipment running overnight? Non-value added! Leaving lights on in an area that is not being used? Non-value added! Keeping employees comfortable by optimizing the heating and cooling? Value added. Most companies don’t see these bills as opportunities to reduce them, so they don’t spend much time evaluating them, to determine how much is truly needed (value added) versus the amount that is waste (non-value added).
Due to this mindset, many companies do not spend money gathering detailed data on these bills, in order to find the opportunities. Even if your company decides to look for the waste, there is limited data to evaluate the bills, which makes it harder to find the “quick wins.” If this sounds familiar, don’t get too frustrated. There are many different ways to work around the lack of data, such as Regression Analysis, Gemba (Go and See) Walks, and manual data collection.
When calculating the impact in a small area or department (where the waste is most easily identified), the total cost may not seem very large, in comparison to other costs, such as material and labor costs. However, when these costs are rolled up at the department, facility or company level, the impact can be thousands or millions of dollars. It’s the roll up of lots of small improvements that make a huge impact, and that requires education, goal alignment, status updates, and continual reminders.
2) Costs and impacts can be blanketed across many areas, making it hard to isolate data to the biggest users
The way in which many companies allocate out utility costs by area or department makes it even harder to drive improvements. As we mentioned earlier, part of this may be due to the lack of metering and data to specify how much usage comes from each area. In other cases, the data might be available or easy to estimate, but the financial system does not allow for easy allocation to each department.
Typically, the usage is allocated by number of employees or space footage. That may be an adequate method in an office building, where everyone has similar equipment and infrastructure (computers, copiers, restrooms, lighting, etc). However, if the purpose of those areas change into different functions (labs, manufacturing, meeting rooms, cafeteria, storage, etc), the cost doesn’t accurately reflect the usage.
This causes a major problem for the biggest user. Let’s say a lab has a thermal and vibration chamber that is run multiple times per day, and it consumes lots of energy (we’ll call it an “energy hog”). The department who owns the equipment might be charged by the square footage, but is probably paying a lot less than what they actually use in electricity. They probably already know that it is a big user of energy, and might have some ideas on how to reduce the usage. If a software enhancement to the equipment costs $1000 that puts the equipment in standby mode when not in use, and could save about $50 per month, that would seem like a good investment and payback. However, since the utility bill is blanketed across the company based on square footage, that department would only see a fraction of that savings (maybe only $5-10 per month). This makes it less of an incentive for them to pursue this improvement, since their budget will be impacted for the full amount, but they will only see a small part of the savings. In that case, it might be better if the facility pays for the upgrade, not that individual department.
3) Improvement opportunities may be found outside of normal working operations
To address any problem, it is important to go the “gemba,” the area where the work is being performed. You see with your own eyes what is happening, you ask questions of the people doing the work, and you discuss ideas with the people doing the work. You don’t solve the problems on your computer or in a meeting room, you “go and see” for yourself what is going on, so you know that your thoughts and ideas reflect reality.
However, when looking for environmental wastes, especially water and energy usage, the waste may not be visible at the gemba. Instead, the waste may be generated when the work is NOT being done, such as during shift changes, breaks, overnight and on weekends. This is counter intuitive to lean concepts. That being said, we can apply our gemba “go and see” approach to find these wastes. Set up a planned event with people who work in the area to make observations outside of normal working conditions. You can read more about this approach here.
4) Environmental and human health risks are often not explicitly considered in business decisions
Progressive companies are using the triple bottom line approach to decision making, where the environment, and the community/workers (social) are taken into consideration, just as strongly as the financial analysis. Unfortunately for many companies, these considerations are not even discussed, so most decisions are made purely on money. That wouldn’t be a bad thing, but usually the full cost of environmental and social impacts (externalities) are not accurately reflected in the price of goods and services, or there are incentives and subsidies that arbitrarily keep the prices down.
For example, if a company wants to start composting their food, in order to reduce their landfill trash hauling charges, the costs need to be evaluated to see what the impact will be to the company. The problem today is that the cost to dispose of the food in the landfill may not reflect the methane produced into the atmosphere, which leads to climate change. The cost also does not include future money needed to purchase and acquire land needed to expand the landfills, based on the current rate of trash disposal. When the landfills fills up, they have to purchase more land, put in the infrastructure to prevent leaks, and run numerous analyses to make sure the land is acceptable for use. The money usually comes from the taxpayers through property owner taxes or increases in sales or income tax. If the company was able to avoid putting food into the landfill, then all of the citizens would benefit in lower taxes. The company must make the decision to “do the right thing” for the community and add additional costs to their business, because the costs aren’t aligned properly.
If it were included and reflected in the true cost, then the landfill disposal costs per ton would be higher for the company, and it would make it more likely that a composting program would show an overall costs savings to the company. Today, many companies are spending more money to compost, because they know it’s the right thing to do, not because they are saving money overall. Therefore, many companies struggle trying to estimate or incorporate these negative impacts into the business case, and therefore most of these good ideas for the environment don’t get approved.
When a company pays the county or state for a permit to pollute certain chemicals into the water streams or air, there is some cost to the company. However, it may not reflect the full cost to the local community. Coal-fired power plants are a perfect example. The particulate matter and gases that are sent into the air can cause an increase in asthma cases, asthma attacks and breathing problems to those who live nearby (usually those in a low-cost housing area). This requires them to go to the doctor or hospital, increase their medication, and increase health care costs to them (and everyone else, since health care costs affect all of us). Are these additional health care costs included in that permit? Not likely…
Many companies also have a short term view of their financials. There is little incentive for companies to invest in long term projects because the payback is not immediate, and they may have to explain or justify it to their investors and management, which may not seem worth the hassle. Usually, avoiding these long term investments lead to problems in the future, but many companies struggle to make long term decision making when they are rewarded for short term performance only.
The Iroquois tribe has a quote that best summarizes this long term view.
“In every deliberation, we must consider the impact on the seventh generation… even if it requires having skin as thick as the bark of a pine.” -The Constitution of the Iroquois Nations: The Great Binding Law.
Companies must look at the true cost of their decisions, and look at it from a lifecycle cost perspective, not based upon what impacts their own department budget, or the short term benefits of the company. Waiting for all the true costs of environmental problems to get allocated correctly into the price will not happen anytime soon. In order for companies to be sustainable in the future, they must adopt a long term view around decision making, despite how they are incentivized today.
5) Side benefits of efforts not anticipated or factored in
Not only are the negative impacts not well understood, but the potential benefits are not understood either. Some efforts to reduce environmental impacts can come with great benefits, that not even the company was anticipating. Understanding these benefits can help make the decisions much easier, especially when it appears that it will cost the company more money to “do the right thing.”
One example is a company take-back program. Initially, they may see it as a good thing to do, which allows their customers to return their products, so they can be properly recycled. Perhaps they see some potential scrap metal income to help offset the additional cost, but the financials may still show a loss.
What doesn’t get factored in is:
- the customer goodwill that is generated
- the interaction with the customer (which creates loyalty)
- the evaluation of how the product was used (leading to fixes in the next version, or innovative ideas for new markets or uses for the product)
- the opportunity to create a sale by offering a discount or upgrade of the new product to that customer.
These benefits more than pay for themselves, but were probably overlooked when evaluating the financial cost of the program, and may be the difference between approval and rejection of the program.
Another big benefit is the impact on the employee. When they see their company doing the right thing, and making efforts to reduce their environmental impact, they are more likely to feel pride in the company. They are also more likely to get engaged in these efforts, which can boost productivity and help identify waste and problems. This helps the company retain the employees they already have, and bring in more employees interested in working there. In addition, customers and investors have mentioned that they have more trust towards companies that have a strong environmental program, which could make the different in contract negotiations, and separate the company from their competitors.
These five reasons are not meant to discourage you. It should help you make a better business case for reducing environmental issues, by understanding what issues might be working against you. We would recommend starting with improvements that do have a clear financial payback (conservation efforts and efficiency upgrades). Showing early success with quick payback improvements will make it easier to propose more complicated ideas in the future, where the financials are not as clear.
What other issues have you come across that make environmental issues harder to implement?