INSIDE THE BUSINESS CASE FOR SUSTAINABILITY

Sustainability makes business sense, with both short
and long-term paybacks. 

Sustainability has rapidly become an important strategic consideration for businesses, particularly large companies and organisations that have to report to shareholders and other stakeholders on their state of governance and level of responsibility. However, if we take the view that sustainability is good for business, then even the smallest organisations should take sustainability very seriously. The wide range of issues that fall under the sustainability umbrella means that few organisations are doing nothing as far as sustainability is concerned. However, in South Africa, my experience is that the number of organisations taking an integrated, practical approach to sustainability issues is still fairly small, particularly for unlisted entities. Is there a genuine business case to be made for sustainability? The question has deep relevance, since a compelling answer in the affirmative would deepen the penetration of sustainable business practice.

In this post I hope to show why I believe sustainability has to be integrated into the strategy of every competitive industrial enterprise, but before we get into that, it has to be said that the issue of sustainability is about far more than profits. In large well-run organisations, once a strategic direction has been chosen, significant resources are deployed whose aim it is to execute the strategy.  In the process, the reasons behind the choice of the strategy are often forgotten. While with most business strategies profit is the ultimate motive, and while sustainability certainly entails aspects of that, we should not lose sight of the fact that there are moral dimensions to incorporating sustainability into business strategy. Sustainability is undoubtedly about “doing the right thing”. Sustainability strategy is about doing so while maximising the long-term economic benefits for your organisation, since we have to recognise that the profit motive is the driving force for all of business. CSR initiatives can include a small element of charity, but in the main have to be directed at business benefit, thereby killing two birds with one stone and ultimately reinforcing business strategy.  The role of business can never be “to save the world”, but business is certainly one of the most important stakeholders to be engaged if the planet is to be placed onto a more sustainable trajectory.

What then are the elements of the sustainability business case? The business benefits I associate with sustainability are broadly as follows:

Organisational Capacity

Sustainable organisations build internal capacity through training, coaching and an-the-job exposure. This investment in human resources is significant, and enables organisations to improve performance continuously. This capability can be easily diluted where key employees leave the organisation. Sustainable organisations counter this risk by providing attractive, challenging work environments. Going forward, expect more and more prospective employees to make sustainability a prerequisite when choosing employers.

Increased Productivity

Sustainable industrial organisations offer workers a safe and healthy environment. This includes reduced exposure to hazards, removal of all negative long-term occupational exposures and the optimisation of ergonomics. This results in fewer absences from the workplace as well as more productive task execution.

Cost Reduction

Resource efficiency, which involves a reduction in the quantities of energy, water and materials consumed in the production of a given output, directly reduces manufacturing costs. These costs tend to be the biggest costs in industrial operations, typically dwarfing costs such as manning, communication and other fixed costs. The real beauty of resource efficiency projects is that many high-impact projects require little to no investment. Often a small process change can deliver results that can be locked in, meaning that the benefits are enjoyed in perpetuity. Where such initiatives are pursued along entire supply chains the benefits multiply rapidly.

Avoided Liability

The prevention of pollution reduces the long-term risks of large remediation costs, which may be imposed on organisations at some point in the future. Sustainable organisations employ sound risk assessment, and through approaches such as Cleaner Production, attack pollution at its source.

Product safety is a further important aspect of liability avoidance. This is well developed in the food processing industry through systems such as HACCP, but applies equally to all products. The issue of lead in the paint used for children’s toys is an example of a non-food product safety issue.  

The safety of employees and local communities is the final piece in the avoided liability puzzle. Robust risk assessment for every job role and for every interface with the local environment is paramount to the avoidance of liability. The issue is more pronounced for some industries than for others, and you should take care to research your industry to identify industry-specific risks.  

Reduced Risk Management Costs

Sound management systems and a history of low or no incidents indicates to insurers that management systems are robust, leading to reduced premiums and lower insurance costs. Risk is typically quantified using relationships between probability and severity, and both of these parameters can be positively influenced by taking a sustainable approach to operations.

Legal Compliance

A failure to comply with regulatory requirements can lead to a business being shut down altogether, and legal compliance is the most basic of starting points for organisations seeking to become more sustainable. The business implications of non-compliance are clearly disastrous.Clearly in some geographies, such as the US and parts of Europe, strict regulations make legal compliance much more onerous than in emerging economies. Provided these regulations are appropriate, they serve to raise the sustainability bar in those regions, driving entire industries towards excellence. 

Sales Growth

While cost reduction and penalty avoidance increases profits, turnover is generally a far stronger driver of profitability, and sustainability helps in this regard in myriad ways:

• Organisations that publicise their sustainability efforts give themselves the opportunity to tap into a growing market of sustainability-aware consumers. The process can be driven by effective marketing campaigns, eco-labelling or even word of mouth. It is important that any claims made are credible, since a good reputation can evaporate should it be discovered that  a product does not live up to the sustainability benefits promised.
• Sustainable organisations generally produce products of high-quality, and consistently so. Good quality control is an important way to minimise rework, with crucial accompanying benefits in terms of water, material and energy consumption. Inconsistent quality is a sure way to reduce sales, and hence this focus on quality helps organisations to grow their market penetration.Note that "high quality" in this context refers to meeting the specifications set for the product, based on customer needs. This is different to the notion of premium quality.
• CSR strategies that are constructed with organisational benefit in mind can actually help to grow the market for an organisation’s products. This can be done by targeting communities of potential prospects with CSR initiatives, as a simple example. This is not a cynical approach to sustainability, but rather precisely how to use sustainability for business advantage. Of course, organisations are also free to use some funding for CSR initiatives that may not be market-facing, but in general the bulk of funding should be deployed in ways that drive the economic sustainability of the business.

The business benefits of integrating sustainability into your business model are many and varied. It is important that these business benefits are front of mind when developing your sustainability strategy and that you have measures in place that allow you to monitor the impacts of implementation 

PLANT MAINTENANCE PHILOSOPHIES AND THEIR IMPACT ON PRODUCTIVITY AND SUSTAINABILITY

Plant Maintenance practices have a large impact on the
productivity and sustainability of industrial sites

The maintenance discipline is of tremendous importance for manufacturing and industrial organisations, and has evolved considerably over the last 50 years or so. While in the past plant maintenance was largely considered as a necessary evil (and a cost rather than an investment) whose sole purpose was to reduce downtime, it is now appreciated that excellence in industrial undertakings is simply not possible without the adoption and successful implementation of well-considered maintenance strategies.

The general role of plant maintenance includes:

• The assurance of safety – this should be the no.1 priority in asset-intensive industries, and for industries like mining, has become a major strategic issue;
• The prevention of functional failures – this is a critical issue, and requires an appreciation of the fact that an asset may be operating, yet may have failed, resulting in risks for product quality, the environment, safety, plant flexibility, throughput and other business objectives;
• To correct failures – not all failures can be prevented, or indeed should be prevented, since the cost of prevention may exceed the cost of allowing the failure to occur and then correcting it after the fact. Also, even a good preventive maintenance programme will not have a 100% success rate;
• To optimise equipment life – note that this is different to maximising equipment life, since obsolete equipment may not deliver competitive performance;
• To ensure that equipment delivers performance as per its design – this is related to prevention of failure, but also includes the prevention of injudicious plant modification;
• To achieve the above at minimum cost – cost here refers to total operating and capital costs, not simply the costs of performing maintenance, and strictly speaking should include the cost of externalities which may come about as a result of failure.

There are a plethora of approaches to the maintenance discipline, and in general, organisations do not subscribe to a single philosophy. Let’s explore individual approaches and what they mean in the context of productivity and sustainability.

Run-to-failure Maintenance (RTF)

A run-to-failure philosophy is one in which failures are allowed to occur and are then dealt with after they have been detected. The philosophy is sometimes referred to as “breakdown maintenance” but the difference between RTF and breakdown maintenance is that, as discussed above, a component may have failed without a breakdown actually occurring i.e. the failure does not stop the equipment from running.

This is essentially the base from which all preventive maintenance philosophies were ultimately developed. This is not a preventive philosophy, but a reactive one. If adopted as the dominant philosophy, it has many risks and can also be expensive due to consequential damage that may occur as a result of component failure, much of which can be far more extensive than that incurred through the original failure itself. Often, since spares cannot be held for every component, the approach leads to long periods of downtime as the site waits for delivery of the required components. Stable operating performance cannot be achieved with this philosophy.

From a sustainability perspective, there are obvious economic drawbacks and also risks to safety and the environment that arise from use of this approach, and it is seldom adopted as the primary philosophy on an industrial site. There is however room for limited application of the philosophy within the context of a wider preventive maintenance programme. This is for the case where the consequences of failure of an individual component or sub-component are very low, and the costs of prevention of the failure exceed the costs of the consequences of failure. A further criterion is that the failure must be readily detectable once it occurs. In this case the component may be allowed to fail and then repaired without incurring risks of multiple failures occurring at the same time, which may have far more serious consequences than the original failure.

Time/age-based Preventive Maintenance (PM)

Preventive maintenance involves taking action before failures occur to prevent the failures from occurring. With time-based PM, components are replaced or reworked at defined frequencies, independent of their condition. The initial philosophy was based on the age of components, and involved replacing components when they reached a fixed period in service. The approach was pioneered in arms manufacturing companies during WW2.

For this approach to be viable, components would have to display distinct wear characteristics that would allow some prediction as to when they would be expected to fail. The approach would then be to replace them as they approached this failure point, which would be determined by their operating hours.

The American airline industry, with its strong focus on safety, pioneered many of the approaches that form the basis for much of modern maintenance practice, and research into component failure conducted in the 1960’s shows that greater than 90% of components in the industry did not exhibit a predictable probability of failure with age. Maintenance tasks driven by time of use hence are not generally effective, and maintenance programmes using this philosophy will therefore not prevent functional failures. Infant mortality represents a simple example of why the philosophy is flawed. Even new components have some probability of early-life failure, and hence replacement of a working used component may in fact reduce the reliability of a piece of equipment. Maintenance-induced failures may also occur due to dis-assembly and re-assembly of complex equipment, particularly by unskilled artisans.

This approach, while potentially better than a run-to-failure philosophy, cannot guarantee improved productivity and sustainability, simply because most components do not wear in a predictable fashion. However, in replacing or reworking components, inspection of equipment is naturally carried out, and other potential problems may be detected and corrected before failure occurs. Reliability should therefore be somewhat improved over an approach comprising RTF.

Reliability Centred Maintenance (RCM)

RCM originated in the airline industry, and was a product of a study commissioned to maximise availability and control costs, with primary consideration for safety. Its roots lie in a steering committee representing airlines and aircraft manufacturers which was formed in 1960 to study the effectiveness of PM. The committee, known as the Maintenance Steering Group (MSG) developed a logic known as MSG-1, which after successive iterations and improvements developed into MSG-3 by 1978. This decision logic, applied with detailed knowledge of failure causes and consequences, is effectively RCM. The technique quickly found application in other industries, notably nuclear power plants (due to its safety focus), manufacturing plants and railroads.

RCM uses a logical, structured framework for optimising the availability and lifespan of equipment and systems. It ensures that maintenance tasks are effective and economical. The following are core principles of the methodology:

• It seeks to preserve an item’s function – hence any failure which impacts on a component’s ability to function is addressed, not just those which cause plant stoppages;
• It focuses on the entire life (not to be confused with life cycle) of the system or item, making RCM a continuous process;
• It seeks to understand the failure characteristics of the item in question, and uses this to evaluate whether PM is appropriate (i.e. should an item be allowed to fail or not?) , and if so what type of PM ;
• RCM is driven by safety and environmental considerations first, and then by economics;
• RCM acknowledges that an item has “inherent reliability” which cannot be improved through maintenance, but only through re-design.

The primary difference between RCM and time/age-based maintenance is that RCM stresses the examination of the condition of an item, with tasks that are then defined based on this condition. The philosophy also differentiates between evident functions, whose failure can readily be detected by the operator of the equipment, and hidden functions, whose failure may not be readily apparent to the operator. In the case of hidden functions, there is the potential for exposure to multiple functional failures, and this is what the maintenance effort aims to prevent. The consequences of failure determine the options to be followed in terms of preventive maintenance tasks.

The work of F.S. Nowlan and H.F. Heap is considered to be where RCM began. Their book on the subject  explores the principles of failure, age-reliability patterns and the step-by-step process that needs to be followed in developing a preventive maintenance programme using RCM. Still relevant, I recommend that you read it, and it can be downloaded here.

Total Productive Maintenance (TPM)

TPM originated in Japan in the 1970’s, and while focused to a large degree on plant reliability, is in fact a broader continuous improvement philosophy and culture encouraging participation at all levels of the implementing organisation.   Central to the philosophy is the performance measure used to judge its success, which is called Overall Equipment Effectiveness (OEE). The measure takes into account the so-called “six major losses”: breakdown losses, setup and adjustment losses, speed losses, idling and minor stoppage losses, quality defect and rework losses and start-up losses.  It therefore addresses machine-related impacts on throughput and product quality, but importantly also addresses the relationship of the operator to the equipment being operated. Hence operator work practices are a critical aspect of TPM implementation. From a maintenance point of view, TPM also employs operator maintenance tasks (so-called autonomous maintenance – a misnomer in my view but perhaps something that I can discuss in a future post). These generally involve simple aspects of preventive maintenance such as cleaning, lubricating and tightening, which together are considered by the philosophy, if neglected, to be accountable for up to 80% of failures. Cleaning is considered a form of inspection, and hence there are linkages here to RCM, which stresses the performance of tasks on the basis of condition rather than time.

As an organisation-wide philosophy, TPM involves everyone from the shop floor through to senior management. Communication within and across levels is considered vital. TPM implementation generally involves the use of a large number of tools, such as visual management, problem solving, quick-changeovers, 5S, standardised work and others.  While many of the tools of TPM are now used in implementing philosophies such as Lean manufacturing, Lean and TPM are not the same thing. The goals of TPM are to:

• Maximise overall equipment effectiveness (OEE);
• Establish a comprehensive PM system spanning the life cycle of the equipment;
• Involve all departments that plan, use and maintain equipment;
• Involve all employees from top management to front-line workers;
• Promote autonomous, small-group activities;
• Promote zero breakdowns;
• Promote zero defects.

TPM seeks to harness the power of the collective. Its success requires good change management and strong leadership, and has to be underpinned by a focus on technical skills at all levels in the organisations that implement it. It is notoriously difficult to sustain, with a large part of the problem being that it is generally considered as a “programme” with steps that have to be followed in order to be able to make the claim that “we have implemented TPM”. Of course, implementing fundamental change is just not that simple, and generally once those driving the programme reduce their involvement, the process is prone to break down. There are however significant benefits to be had from successful implementation, and while I am no change management expert, my advice would be to choose the individual tools that will add value for you and implement those rather than a full-on implementation of a bunch of approaches which may just add bureaucracy to your organisation simply because they are considered part of TPM. More important is the development of a culture of teamwork and a focus on performance.

The above are the primary maintenance philosophies that are practiced. There are further derivatives such as predictive maintenance, opportunity-based maintenance and others, but all of these are based on these core philosophies.

Which then would be the preferred approach for organisations wishing to be sustainable and productive? Clearly run-to-failure and time/age-based preventive maintenance have too many drawbacks to be considered viable. RCM represents a rigorous methodology and is in my view the best approach for determining maintenance tasks. It does not however address the need for participative engagement between plant operators and maintenance personnel, or answer questions as to who should carry out maintenance tasks. TPM attempts to do this, but lacks the rigour of RCM as regards task development. The correct approach is therefore to use a mix of RCM and TPM, with the former used for task development (including the development of autonomous maintenance tasks) and the latter used to build teamwork between plant operators and maintenance staff. The principle of assessing condition before executing tasks can be executed in practice through inspections and the use of condition monitoring technologies.

A maintenance philosophy alone cannot guarantee reliability. Successful implementation of a chosen philosophy requires a significant maintenance infrastructure encompassing comprehensive task development, planning and scheduling, skill development, spares selection and acquisition, execution, performance management and many other aspects of maintenance management. I will explore these in future posts, but all of them, and others, such as development and execution of the business processes needed to support plant maintenance, begin with the philosophy chosen. While the philosophy you choose should draw on best practice, it should ultimately be an approach adapted to your needs and resources. 

TAKING A RISK-BASED APPROACH TO SUSTAINABILITY AND OPERATIONAL EXCELLENCE IN MANUFACTURING

Manufacturing risks extend beyond
the boundaries of the site

Risk management tools are employed in some shape or form on most manufacturing sites. The two most common areas in which they are used are for safety and plant maintenance purposes, where risk- based approaches are used to identify potential failures and devise mitigation strategies to prevent these failures from occurring. In theory, the development of integrated quality management systems encompassing safety, food safety, product quality, environmental issues and more recently issues such as energy efficiency should involve some kind of risk assessment. In fact, a risk assessment should be the foundation of such systems. 

For reasons I refer to below, many organisations tend to gloss over this important step and their risk registers are not as comprehensive as they should be. They tend to identify risks through some kind of brainstorming process, which is not in itself a bad approach, but can lead to a “high-level” assessment of operational risks if the process is not sufficiently focused. The problem in manufacturing environments is that some very large risks tend to have very small origins – the v-belt that is not tensioned correctly and catches fire, burning down the facility; the valve that passes and contaminates large quantities of food products; the extraction fan that is never switched on and increases long-term occupational health problems for employees through solvent inhalation....I could go on. While management teams can and must identify strategic risks, operational excellence is largely about small details.

One of the major impediments to rigorous risk assessment is that it is resource-intensive. In the maintenance environment, Reliability Centered Maintenance (RCM) is an example of an approach that is shunned due to the amount of resources required to partition a manufacturing plant to the required level of detail, identify failure modes at the component level and then devise maintenance tasks to prevent failures using decision trees. However, without making this investment in time upfront, potentially catastrophic failures can go unidentified, and while the maintenance programme may be improved after such failures occur, the costs incurred in learning lessons in this way can be very high.  

A second challenge for those wishing to identify risks comprehensively is that this requires subject matter expertise. If a group of people spends a considerable amount of time conducting risk assessments but lacks this expertise, the chances are the risk assessment will have serious shortcomings. So resources will ultimately be committed but wasted, leading to disillusionment with the process when unforeseen incidents occur. It is therefore vital that significant investments are made in technical training and coaching, in order to equip employees to participate productively in risk assessment events.

By now you can see where I am going with this. Comprehensive, rigorous risk assessment is an essential element of any strategy aimed at sustainable, stable, continuously improving operational performance. Of course, risk assessment is only the first step, solutions still need to be developed and implemented to mitigate each individual risk in order to realise the benefits. The philosophy is simply that if we can identify and mitigate every risk, we will achieve excellence. This is in essence a lofty goal, since in practical terms, we will never be able to prevent every potential incident. However, if we try our best to eliminate every risk, those that remain will be small in number, and can be handled as they arise in line with PDCA. If we chose to deal with every risk after the fact with no risk identification upfront, we would be fire-fighting, and if your facility tends to operate in an unstable fashion, chances are your risk management practices need review.

The machinery through which risks are mitigated is comprised of the various management systems in place. Quality Management Systems specify overarching policies, how manufacturing process units should be operated, the parameters to be measured, reporting, corrective actions and the like – essentially everything that needs to be in place to ensure that excellent product quality, high levels of safety, responsible environmental performance and other key objectives are realised. These are however not the only systems through which risks may be managed. Preventive maintenance programmes are a vital component of risk management in the manufacturing environment. Human resource risks also require serious consideration, and require standardised and rigorous processes and standards for their management. Cost control procedures are a further example of tools employed to manage risk. Many of these supporting systems reside in IT platforms. The organisations that are best at developing and implementing quality management systems integrate these disparate systems into the overall quality management system through explicit linkages.  In general, the greater the number of unique systems you have to integrate, the more difficult the task, and if you could build an integrated system from the ground up you would have the ideal management system.

The complexity of quality management systems and the other programmes manufacturers may be implementing at any point in time (such as continuous improvement programmes for example) can lead to bureaucracy and confusion. In many cases a fixation with the system rather than its efficacy means that results are erratic and do not exhibit sustainable improvement. I am not knocking quality management systems or continuous improvement programmes, both of which are important vehicles for the achievement of operational excellence and sustainability. I do however believe that there is a need for manufacturers to “get back to the basics” insofar as obtaining and harnessing a fundamental knowledge of their operations is concerned. Risk assessment provides an ideal vehicle for doing so. It does however mean examining physical and business processes in minute detail, and yes, this is time consuming and requires a lot of skill and knowledge to do effectively. Once this has been done, the mitigation measures developed, if implemented rigorously, will however go most of the way towards solid, repeatable operational performance. Quality management systems provide the ideal vehicle for execution of these mitigation measures. Continuous improvement programmes require this sound foundation to be effective. Risk assessment therefore lies at the heart of the well-oiled manufacturing machine, particularly if the same approach used to identify risks is also used to unearth opportunities.  In a future post I will give you an example of a detailed, integrated, process-level risk assessment that will illustrate how powerful this approach can be as a platform for operational excellence and sustainability.

Copyright © Craig van Wyk, 2013. All rights reserved