Manufacturers quietly seize the opportunity to lead on sustainability
Sustainability issues are is increasingly material to businesses in many sectors. Many sustainability leaders started because they had brands to protect or government extraction licenses to win. They had a clear business rationale to start, and have been able to build from there. The exception was GE, which launched Ecomagination 10 years ago, but then, it has an exceptional size and prominence.
The business case has been much harder for most manufacturers, those one or two tiers up the value chain. They do not have consumer brands (in fact, their customers have the consumer brands). They tend to have weak pricing power, because their customers play suppliers off each other. Nevertheless, those customers require ever-greater compliance on various ethical or social standards, while still demanding lower prices. At the same time, the manufacturers’ own suppliers are passing on the volatile costs of resource scarcity.
What’s a manufacturer to do?
Many manufacturers feel trapped in a vise, with limited resources and freedom of action. They can find only a reactive, tactical approach to sustainability. This exposes them to business risks, either on supply chain resilience, cost volatility or not keeping up with customers, as sustainability pressures change their needs.
Even so, there is an emerging group of leaders. These are companies with unfamiliar names, though you probably wear or use something they make every week, responding strategically — creating competitive advantage for themselves and a better world for others. Some initiatives are still confidential, so some of these examples must go unnamed.
One example is an apparel company in Sri Lanka. Its employee benefits are legendary in the industry. Consequently, staff are motivated and take responsibility for a world-class lean approach. The company also has taken a leaf from the Toyota model to become a long-term innovation partner with its customers. By cooperating with apparel brands on more sustainable materials, the company makes it harder for their customer to switch and so protects its pricing power.
Another example is a global packaging manufacturer that makes and fills things such as aerosols. Again here the key is innovation. It had developed a concentrated aerosol spray, but its customers didn’t want to take the risk of moving consumer behavior. Unilever surprised its competitors by rolling out concentrated deodorant, which has sold well. The packaging manufacturer was able to help the others be fast followers, and get a premium for the privilege.
One company I can name is AkzoNobel, a leading global paints and coatings company and a major producer of specialty chemicals. Its overall business strategy centers around customer focus, operational excellence and sustainability. It has organized its customer base into four segments — buildings and infrastructure, transportation, consumer goods and industrial — and looked at the sustainability challenges for each. Then they have created value propositions based on helping their customers meet sustainability targets.
An encouraging trend
These examples hint at something more: Could there be an emerging dynamism in manufacturing? For manufacturers, there is an opportunity unlock value through sustainability. For the rest of us, we need to understand that these often-anonymous companies are crucial in the economy and in sustainability impacts. If we can help manufacturers be successful by being sustainable, then we will have made a big stride forward.
I’d love to hear from anyone who has other examples of manufacturers taking the opportunity. If you have one, drop me a line [email protected].