Andy Wood, CEO of Adnams, and Keivan Zokaei, from S A Partners investigate sustainability in lean business practices. Is the idea a pipedream or a practical and pragmatic approach to production in the 21st century?

A Governance Shift

According to Jonathan Porritt, founder of the Forum for the Future, “A governance shift is occurring in the field of sustainability, with governments stepping back and businesses stepping forward to lead the change”. The whole idea that democratically elected governments will care for the non-proximate and non-contemporary humans, just as much as their existing constituents, seems to have failed. Today, the notion of sustainable development and its integration into the core of governments’ policy making is but conceptual social science. Look at the utter failure that was the Rio+20 Summit. In June 2012, at Rio+20, the leaders of 190 countries grouped together to celebrate “The Future We Want”. Instead, what they committed to, at best, could be described as the lowest common denominator consensus that hardly delivers any scalable benefits. In the United Kingdom, in 2010 the Sustainable Development Commission, the country’s main sustainability watchdog, was axed as part of the coalition government’s spending cuts. And, in the United States, in 2012, neither candidates thought climate change worthy of mention during Presidential campaigns.

However, there is another side to this story with more and more private sector companies stepping up to the plate to make their businesses more sustainable. Whilst the government’s lack of decisive action is worrying, one is encouraged by the number of leading-edge organisations that put sustainability at the heart of what they do. Going green has become a key economic driver for forward-looking firms such as Toyota, Walmart, DuPont, Volvo, Sainsbury’s, Tesco, Unilever, Marks & Spencer, General Electric (GE) and Adnams – all of whom have invested heavily in greening their products and processes over the past few years.

Adnams, an English brewery with a turnover of around £60m, invested in a state-of-the-art, energy-efficient brew stream in 2006, shortly after commissioning an eco-friendly distribution centre a few miles inland from the brewery thereby removing frequent and heavy brewery traffic from the historic small town of Southwold. Adnams’ Distribution Centre was built with lime-hemp walls, glulam beams, and one of the largest sedum green roofs in the UK. This environmentally-friendly building is so well insulated that there is no need to heat or cool the warehouse removing substantial energy costs from the business of around £100,000pa and potential savings and revenues of around £185,000 will be generated from its commercial anaerobic digestion (AD) facilities in conjunction with BioGroup. The AD plant takes food waste created from brewing and retailing, and from its pubs and hotels and turns it into biogas for injection into the national grid. Despite almost doubling beer production volumes, the business has actually managed to reduce its carbon emissions, sequestering in excess of 500 tonnes of CO2 by using crops in the design and construction of its Distribution Centre.

Another following this example is Unilever. It plans to double its revenue over the next 10 years while halving the environmental impact of its products. General Electric also aims to reduce the energy intensity of its operations by 50% by 2015 and have invested heavily in the Eco-magination project. Tesco has announced that it will reduce emissions from stores and distribution centres by half by 2020 and that it will become an altogether zero-carbon business by 2050. WalMart’s Zero Waste initiative claims that more than 80% of waste generated in its US operations has been diverted from landfill, while the company continues to work towards its goal of zero waste. Moreover, in 2010, Walmart announced that it will cut total carbon emissions by 20 million metric tons by 2015.

In the UK, Sainsbury’s announced the 20×20 sustainability plan as a cornerstone of their business strategy. In April 2013, it had beaten a self-imposed target to reduce water consumption by 50%, which means so far they are on track against this plan. Toyota, in its fifth environmental Aaction Plan, announced that it will improve the average fuel efficiency of its vehicles by 25% in all regions by 2015 compared to that of 2005. In production, Toyota has already reduced emissions per vehicle by 37% between 2001 and 2012. Similarly, Du Pont committed itself to a 565% reduction in greenhouse gas emissions over a ten-year period, up to 2010. In 2007, Du Pont saved $2.2 billion through energy efficiency – in the same year its total declared profit was not much more that $2 billion.

The question therefore is: why should companies show such level of commitment to sustainable development? The answer lies in a simple yet powerful realisation that environmental and economic footprints are aligned. When we prevent physical waste, increase energy efficiency or improve resource productivity, we save money, improve profitability and enhance competitiveness. In fact, there are often huge opportunities, which we can call quick wins thanks to decades of neglect. In other words, the environmental wastes are a great proxy for identifying the economic savings. Lean thinkers will know that the same is true about the lean wastes whereupon variation, over-burden, over-production and inventory are often used as the key proxy for economic improvements.

 

A parallel story from quality management

Today, the greening industry movement stands where the quality movement stood around 40 years ago. During the past 40 years, industries realised that better quality can be – and often is – cheaper to make. Today, the quality movement is variably referred to as TQM, six sigma, lean sigma, or just lean thinking. The story of the quality movement first begins in the late 1940s and 1950s when quality gurus such as Deming and Juran went to Japan to help rebuild the country’s war-torn economy. They initiated what was a true industrial revolution and later became known as the Total Quality movement, exerting a huge influence on hundreds of companies, amongst them Toyota, which itself became legendary for lean management. But it was not until 1970s that Philip Crosby popularised the total quality movement in the western world with his infinitely accessible style of writing and by finding a terminology that mere mortals could relate to. In his 1979 best-seller, Quality Is Free, he famously claimed that “quality is not a gift, but it is free”.

Up until that time, the conventional wisdom was that each level of quality has its own price and in order to get to the highest levels of quality it would exponentially cost more – also known as the law of diminishing returns. Nonetheless, Crosby, along with other quality gurus, defied the conventional wisdom of the time pointing out that poor quality causes hidden costs such as need the for inspection, rework, scrap, delivery delays to the customer and potential costs during product use which typically dwarf the costs of systems and training required to foster zero defects.

By the same token, we argue that it is much cheaper to make processes and products environmentally friendly. Lowering our impact on the environment, rather counter-intuitively, means lowering costs. The reasons are the same ones that underpinned the quality movement of the 1960s and 70s. When making poor quality products (or services) we waste time, energy and resources. By not making mistakes in the first place, it is much cheaper, while also guaranteeing better customer satisfaction. Sustainable business means not wasting resources and energy, which in turn means cheaper and better products.

Adnams, for example, has adopted close working relationships with local farmers and suppliers, ensuring that the raw materials that go into making its award-winning beers and hand-crafted spirits are locally-sourced and of the highest quality (in other words, sourced from producers and suppliers that also share its set of business and social values leading to an increase in quality). All the way through the production process, emphasis is on maximising returns from the raw materials, re-using waste heat and water, and using innovative techniques to ensure an engaging and attractive end product for customers.

 

Creating a lean and green business system

You cannot implement lean: you have to create it. The same is true for lean and green. In order to create a lean and green business system, there needs to be orchestration across all levels of managing an organisation, from strategy deployment, process management, supply chain management and leadership and people engagement. Adnams engenders an enviable and widespread dedication and commitment to a core set of values with sustainability at the heart, at all levels throughout its business operations.

 

Leadership and people engagement

Leadership and people engagement is the key building block of creating any lean and green business system. Across the company, team members should lend their support willingly, buying into senior management’s commitment to the vision of building a more sustainable company for the long term. A strong set of social and environmental values, combined with technological excellence and a track-record of innovation, will not only enable substantial improvements in terms of environmental performance, but also have the ability to generate real business benefits, principally in the form of cost savings, people engagement and brand development. In terms of people engagement, Adnams received an 88% response rate to its last staff opinion survey. Of this, some 92% of respondents said they were either proud or very proud to work for the company. An equal 92% rated sustainability as the company’s most important value.

In 2012, Adnams won the First Woman Award, a national competition run by the Confederation of British Industry (CBI) that recognised Adnams for the way it develops and progresses female careers. The person who collected this award on behalf of the company was Karen Hester. Since then, Karen has become the first executive director on the Adnams board. Through skill and strength of character, Karen has been able to progress from part-time office cleaner to the Boardroom during the tenure of her career at Adnams. Karen’s personal journey is both encouraging and inspirational – a lesson to others in determination and tenacity.

 

Principles

Every business focused on lean and green management will have its own set of values around which strategic thinking can revolve. The principles of lean and green leadership at Adnams can be summarised as value-based decision making, challenge, tenacity and staff engagement. Making the right decisions based on a core set of business values will lead to a more efficient, morally sensitive, holistic approach to business, rejecting short-term reactionary behaviours in favour of long-term, sustainable planning.

We strive for continuous improvement through the identification of new technologies, self-auditing and self-awareness and by being truly aware of the impact we have for all stakeholders in the business. For the environmental and economic benefits of all, we urge other businesses to do the same.