Leading Sustainable Organizations
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Digital advances in product design are creating new opportunities to boost both environmental sustainability and profit margins. By making product development more design- and information-intensive, companies are creating a new generation of digitally enhanced offerings that are reducing material use, lowering energy demands, and increasing revenues. Managers who understand and embrace this trend are reinterpreting the meaning of asset productivity and benefiting from new links between corporate sustainability and the bottom line.
Any asset can be understood as a function of three basic elements: materials, information, and energy (as we discussed in an earlier essay). Under this approach, sustainable design information not only substitutes for much of the energy and materials needed to deliver product benefits, but it also extends their useful life and optimizes their productivity. Digitization’s not-so-subtle double bottom-line benefit is clear: It can help managers squeeze more economic value out of scarce environmental resources.
To get a sense of the possibilities, consider the digital evolution of the humble shipping pallet.
Most wooden pallets cost under $20 and have a life span of about three years. As the workhorse of global supply chains, an estimated 10 billion of them are in circulation at any given moment. With this economic scale comes environmental implications. Over 40% of hardwood produced in the U.S. is used to create wooden shipping containers. And, along with tricycles and TV sets, wooden pallets can carry invasive species to remote ecosystems.
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Today, innovative companies are bringing digital technology and the internet of things to the world of pallets and changing both the economic and sustainability calculus. RM2 is one of several companies revolutionizing the industry with innovative pallet designs that take full advantage of the materials+information+energy formula. RM2’s BlockPal pallet is made from durable composite plastic with cheap embedded sensors that are connected to low-power wide-area networks, allowing the company (and its customers) to track the pallet’s (and its cargo’s) every move. The dramatic supply chain transparency increases operational efficiency, but there are also sustainability gains. A BlockPal pallet is 25% lighter than a traditional pallet, which results in reductions in transportation costs, energy use, and environmental emissions like greenhouse gases. Whereas traditional pallets are designed for one-way use — the average pallet is reused for just three to five trips — RM2’s pallets can be used for a whopping 100 trips. And because its modular design bolsters its durability and ease of repair, the BlockPal pallet has the potential to be, in the words of RM2’s executive vice president of global supply chains, “an infinite asset.”
In a world of scarce resources, infinite assets are game-changing for business. They are made possible through the use of sustainability-conscious design information as a “substitute” for much of the energy and materials that go into products. And through the strategic use of information, companies can maximize the productivity of assets, extending their useful life and squeezing the maximum value out of environmental resources. Product designs that maximize the longevity of invested materials and energy, when combined with IoT digital platforms, can lower transaction costs, connect asset owners, and deliver economic, environmental, and societal gains that boost the bottom line.
Rethinking Asset Productivity
Digital platforms are also transforming the productivity of industrial assets, thus enabling incumbents and startups to share otherwise idle assets. Most of these companies are focused on business-to-business sharing applications. Chicago-based McPond, for example, links idle industrial machinery to customers that need them but can’t justify the capital expense of making an outright purchase. McPond styles itself as the “Uber of the manufacturing equipment industry” and lists a range of available items, including CNC routers and injection molding machines.
McPond is not alone in unlocking stagnant asset value. Truck rental company Ryder has launched the Coop by Ryder platform for sharing transportation vehicles. Ooverlab describes itself as an online social platform for researchers seeking scientific equipment, while Sitra’s eRent seeks to become Europe’s manufacturing equipment sharing platform. Most of these startups point to both financial and sustainability gains from their platforms. Floow2’s claims its platform for sharing business park assets explicitly highlights the opportunity to generate both financial benefits (of over 63 million euros) and sustainability benefits (avoiding more than 48 million tons of CO2 emissions).
While these companies are using digital platforms to maximize the productivity of 20th century industrial revolution assets, the frontier lies in next-generation 21st century combinations of flexible digital manufacturing technologies and manufacturing-as-a-service platforms. One early entrant is the Netherlands’s 3D Hubs, which originally created a peer-to-peer network to increase the productivity of underutilized industrial 3D printers. From this foundation, 3D Hubs built AI-based systems to help users get instant and accurate manufacturing quotes via the web. Since traditional manufacturing quotes can vary by 200% to 300%, this is a huge gain. As 3D Hubs CEO Bram de Zwart puts it, “We are becoming a stock market for manufacturing” by establishing accurate clearing prices for goods in thinly traded markets.
Competitor Xometry built its own, similar platform to help small and medium-size companies access the “stranded capacity” of industrial giants. Local, flexible additive manufacturing with transparent pricing has already begun to displace some traditional industrial production for low-volume goods like replacement parts in the automotive, aerospace, defense, and health-science sectors. As companies discover the true monetary value of their scarce assets, those assets can be more efficiently deployed for enhanced productivity and profitability.
Sharing Begins at Home
Despite the focus on business-to-business applications, perhaps the biggest business advantage for large organizations is yet to come. A significant side benefit of a sharing-economy approach to idle assets within companies is its silo-busting impact on organizational behavior. Discovering idle assets and sharing them across functions enables companies to build connections — and trust — in novel ways. Trust is a critically valuable cultural and operational benefit as companies look to become more agile. Platform-facilitated trust-building will also be enhanced by greater information availability and transparency.
Bringing the sharing economy inside corporate interiors enables operations professionals to ask better questions, like, “How much value creation is possible with our idle assets?” and, more fundamentally, “What assets are idle and can be shared across our organization?” Viewing assets as dynamic opportunities rather than sunk or fixed costs demands a mental shift — something that can be challenging for incumbents. However, digitally advanced companies are increasingly emboldened to make this shift as executives reimagine the value of nonfinancial assets for their own companies, the broader industry, and the environment.