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Reducing greenhouse gas emissions can be misleading.
William A. Levinson Published: 02/09/2009
Carbon dioxide emissions are symptomatic of energy consumption in manufacturing, especially in transportation. Therefore initiatives to reduce them often cut supply chain costs as well. However, the exaggerated focus on carbon emissions is dysfunctional and it may overlook other cost-reduction opportunities.
One of the most discussed environmental benefits of greenhouse gas reduction is mitigation of global warming. The costs related to greenhouse gas emission reduction are associated with sequestration of carbon dioxide, wind, and solar generation techniques that cannot pass a managerial economic analysis on their own merits, and non-value-adding carbon credit trading programs. Serious questions must be asked as to whether it’s worth hundreds of billions of dollars for marginal mitigation of rising sea levels, desertification, and so on.
However, simply adapting to greenhouse gas emissions could easily be more cost-effective. Humans and other mammals have always adapted to climate change, lower food availability, and the prospect of "greener pastures" through migration. Global warming encouraged Vikings to colonize Greenland hundreds of years ago, and global cooling forced them to abandon it. If global warming turns farmland into desert, it will also turn what is now tundra into farmland.
American industrialists, on the other hand, recognized long before there was even an Environmental Protection Agency or a Kyoto Treaty that it is very profitable to assess a factory's emissions for waste.
“Black smoke is unconsumed carbon—nascent heat—lost energy—wasted coal. A smoking chimney registers money lost.”—How to Get More Out of Your Factory (System, 1909). This is an example of the control surface perspective, which has its origins in chemical engineering's material and energy balances. It begins by drawing a boundary around an activity or set of activities. The engineer then identifies the inputs and outputs which, in the absence of accumulation or depletion inside the control surface, must balance. Application of this technique to a supply chain means that carbon dioxide emissions (an output) must balance an input, which is probably a fossil fuel that costs money.
Chemical engineers go well beyond this concept by looking at everything that goes up the smokestack. Carbon monoxide, in addition to its status as a toxic pollutant, is partially combusted carbon and therefore wasted energy. Hot nitrogen, which is the primary component of stack gases, is wasted heat. Carbon dioxide is, on the other hand, the product of fuel that has delivered all of its chemical energy to the furnace. There’s no point in its recovery unless it can be sold. On the other hand, prevention of its generation (as opposed to scrubbing and sequestration) requires the application of lean enterprise techniques that also improve bottom line.
Reduction of greenhouse gas emissions is, therefore, misleading if it focuses only on the end of the process (e.g., the smokestack). It implies that, if the supply chain isn’t emitting greenhouse gases, no further action is necessary. Suppose, for example, that the supply chain has a fleet of hydrogen fuel cell vehicles that emit no carbon dioxide. We would no more waste hydrogen, electricity from wind turbines, or solar cells, than we would waste gasoline or diesel fuel. Energy, in whatever form, costs money. The metrics and analytical techniques for greenhouse gas emission reduction should therefore focus on the supply chain's energy input costs as opposed to carbon emissions, which are merely a symptom or result of the input costs. For organizations to which greenhouse gas reduction is important, this approach would have exactly the same effect as assessment of the greenhouse gases themselves.
Henry Ford realized long ago that what went up the smokestack or into the waste bin symbolized wasted material, and therefore money. Accordingly, he designed what would now be called a "green" supply chain. In connection with the ISO 14001 environmental management system, Ford's idea shows that it should be a moneymaker as opposed to a costly and time-consuming onus.
Ford's industries extracted chemicals from coal, such as the sulfur that causes acid rain. Ford sold the sulfur as ammonium sulfate (fertilizer) instead of discharging sulfur oxides that modern laws would require him to scrub from his stack gases. This is exactly the thought process that modern supply chains should use to reduce their costs and, as an incidental benefit, reduce greenhouse gas emissions.
Ford also said that it is wasteful to transport water. Consider potato chip manufacture, in which potatoes are sliced and then dried. Water constitutes most of the potato's weight, and its transportation costs money, but it has no value to the potato chip manufacturer or consumer. A strong argument can therefore be made for slicing and drying the potatoes at the farm. The supply chain would then spend far less on fuel, and it would incidentally emit less carbon dioxide. Instead of charging its customers a "green" premium, however, it would pass some of the fuel savings to customers while it kept the rest as profit.
The practical question is, of course, whether ownership of the cutting and drying equipment would be cost effective on a farm by farm basis. If not, several potato farms could share the equipment, thus limiting transportation of water-laden potatoes to a local facility. The Henry Ford thought process invites us to at least investigate the idea.
Global warming may also result in desertification and shortages of fresh water. The politically correct approach is to spend enormous amounts of money to gain what’s at best a slight mitigation of global warming. However, an assessment of the traditional farm's material and energy balances show that agriculture may actually be an obsolete way to produce food.
The above examples show why environmentally-friendly production is often profitable and why complying to ISO 14001 should be a money-maker as opposed to a costly requirement. The next section focuses on the control surface and material balance approach, which requires assessment of all input and output streams.
During a 2008 online seminar titled "Lean to Green 3: A Path to Sustaining Your Profits, People, and Planet," Denise Coogan and Dean Schroeder from the Society of Manufacturing Engineers used the term "dumpster diving," which involves the literal examination of a company's waste containers to see what the process discards. As an example, the presence of used packaging material in a waste bin reveals purchasing and disposal costs that might be avoidable through the use of returnable containers.
I have described this concept as "keep your eye on the doughnut hole." The doughnut is the product, while the hole contained whatever was thrown away during its manufacture. Ford's workers saw a piece of sheet metal (the product) with several holes and asked what happened to the metal that had been in the holes. The metal discs went back to the blast furnace for recycling, but the workers discovered that two such discs could be pressed together to make a radiator cap. This is an example of what Coogan and Schroeder call upcycling, or conversion of waste into a product. Upcycling is superior to recycling which, in this example, would be to return the discs to the blast furnace. Ford also "upcycled" slag from his blast furnaces through conversion into cement and paving materials.
The traditional bill of materials (BOM) accounts only for materials and parts that go into the product, but a material and energy balance requires assessment of all input and output streams. I recommend a bill of outputs to account for everything that comes out of the system. As an example, if a ton of aluminum enters the factory in the form of metal billets, or a ton of steel enters as coils, the same ton must leave the factory either as product or waste (e.g. from machining processes). Horace Lucien Arnold and Fay Leone Faurote, authors of Ford Methods and the Ford Shops (Adamant Media Corp., 2005) noticed the same problem with the manufacture of piston rings at the Ford Highland Park plant:
“The foundry supplies the machine shop with 13,000 pounds of [piston] ring pots per day, worth, at 2.5 cents per pound, $325 per day. The machine shop produces about 14,000 rings per day, 1 5/12 ounces each, say 1,240 pounds of finished rings from 13,000 pounds of ring stock, 11,760 pounds of stock, worth $294 wasted for the pleasure of cutting it into chips and using snap-ring piston packing. That is to say, $325 worth of ring-stock is supplied to the machine shop, $294 of this value is wasted, and $31 of stock value utilized in the finished work.”
Henry Ford recognized this problem very quickly and he advocated welding as opposed to casting, because cast metal parts require far more machining. The key lesson is that attention to the content of the "doughnut hole" as well as the "doughnut" itself is instrumental to the recognition of waste. This is why attention to carbon emissions can indeed result in cost reductions, but it’s not an adequate measurement.
Suppose that a company wishes to reduce carbon emissions for public relations purposes. It would probably look at its "carbon footprint" in terms of direct and indirect fossil fuel consumption from transportation and energy consumption respectively. Techniques for more efficient transportation include:
On the other hand, obsession with the carbon footprint can work against just-in-time (JIT) production systems. Fuel economy as the predominant consideration discourages JIT deliveries of small loads because it’s more fuel efficient to deliver as much as an eighteen-wheeler can carry. This is only one way in which carbon emissions as a metric can produce very dysfunctional results.
Energy from fossil fuels is the other component of the carbon footprint. The electric bill is a prominent part of any company's expenses—hence the common use of fluorescent lights even though they aren’t as friendly to the human eye as incandescent lights. Chemical and mechanical engineers meanwhile look for ways to extract the last bit of work and heat from steam before it returns to the condenser and boiler. In other words, in order to save money, most companies are already looking for ways to reduce energy waste. This is why there’s little point in measuring carbon emissions from the company's electric power supplier.
Furthermore, suppose that the electricity comes from a nuclear or hydroelectric source or—and this is the Kyoto Treaty advocate's dream—an on-site solar or wind generator. We would no more waste electricity from solar or wind power than we would waste electricity from a coal-fired power plant, especially because we can sell whatever we don't use to the power grid. In this context, it’s best to focus on the input side of the ledger, i.e. "How much electricity goes into the system, and how is it used?"
A supply chain's carbon emissions are, like any other nonsaleable output, evidence of potential waste in the system. The absence of such emissions doesn’t, however, mean an absence of waste when energy comes from noncarbon sources. In contrast, the control surface or material and energy balance assesses all material and energy flows, much as a good accounting system balances debits and credits. This in turn compels all material and energy wastes to become visible. When good engineering and lean manufacturing practices suppress these wastes, any carbon emissions beyond those absolutely necessary to deliver value to the customer will take care of themselves.
William A. Levinson, P.E., is the principal of Levinson Productivity Systems P.C. He is an ASQ Fellow, a certified quality engineer, quality auditor, quality manager, reliability engineer, and Six Sigma Black Belt. Levinson is the author of Henry Ford’s Lean Vision: Enduring Principles from the First Ford Motor Plant (Productivity Press, 2002). He holds degrees in chemistry and chemical engineering from Penn State and Cornell Universities, and night school degrees in business administration and applied statistics from Union College.
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