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Reducing the Costs that Matter

Sharing their learnings on cost reduction at the recent Lavery/Pennell Sustainable Innovation Breakfast were Pepsico, Nestle, Shell, Rexam, the University of Cambridge, Imperial College London and 2degrees. This note summarises the discussion. Do Some Costs Matter More than Others? Economists and managers have focussed traditionally on reducing labour costs. This resulted in the loss of 1.5 million UK manufacturing jobs from 1998 to 2011, reducing manufacturing labour costs from £100 billion p.a. to around £75 billion. But the £25 billion p.a. saved previously kept staff in meaningful employment, supported their households, and stimulated the economy through spending. And the loss of those staff (representing over a third of UK manufacturing jobs) has placed increased burden onto the welfare system and in many cases resulted in economic hardship for individuals and their communities. At the same time, non-labour manufacturing costs, comprising mostly raw materials and energy, have increased from £335 billion in 2004 to £345 billion in 2011 – an annual increase of 0.4%. Compare the impact of a 3.7% p.a. improvement from 1998 to 2011 (a similar rate achieved in labour headcount reduction) which would have saved £122 billion p.a. in costs by 2011. This 35% overall reduction in non-labour costs would have substantially improved the UK’s competitiveness and boosted exports, in turn creating more jobs and wealth. While the economic benefits resulting from a focus on non-labour costs attractive, so are the environmental and social benefits: Reduced biodiversity damage from mining and energy extraction Reduced transportation and refining impacts, including water take and waste Reduced greenhouse gas emissions Improved balance of payments for the UK from reduced importing...

How Purpose Drives Sustainable Innovation in Leading Companies

At the 19 January Lavery/Pennell Sustainable Innovation Breakfast, leaders from Unilever, Marks and Spencer,  Interface, Virgin, HCT, AB Sugar and the WBCSD shared insights into how purpose is driving successful sustainable innovation. This note summarises the discussion. The Value of Purpose Purpose is the reason why companies do what they do – not to make profit (which is a result of the company’s actions) – but the true problem that they are solving and the core of the company’s business. Purpose can create value for businesses by addressing increasing expectations of staff (who more-and-more choose to work for organisations who share their beliefs), consumers (buying from authentic brands that they trust) and communities (who provide a licence to operate). This was illustrated in the findings of a 2014 Deloitte survey which showed significantly higher growth expectations and staff engagement levels in companies with a strong sense of purpose (see Figure 1). Figure 1: The Impact of Purpose And purpose can and should drive innovation, with a sustainability-related purpose driving sustainable innovation. How Purpose Drives Innovation To fuel and encourage innovation, a company’s purpose provides: A compelling reason to strive for improvements that connects with the hearts and minds of staff (especially if the purpose is sustainability-related) Focus – which is vital for corralling creative effort A long term aim – enabling multi-year R&D initiatives A stretch target – requiring and empowering all staff to contribute their ideas Senior executive support Alignment reaching from the top to the bottom of an organisation around shared intentions – in part because purpose provides a simple end goal that is easy to understand,...

Paris Agreement supports sustainable innovation

The Paris Agreement on 12 December 2015 is great news for sustainable innovators. Key Points of the Agreement (full text here): Agreement to keep global average temperatures “well below” 2°C above preindustrial levels and pursue efforts to limit the temperature increase to 1.5°C Non-binding, depending on countries’ own “nationally determined contributions” which were submitted prior to the Paris summit and which result in a global annual emissions total of 55GtCO2e – which is estimated will result in a global temperature rise of 2.7°C. So beyond the national plans, which themselves require significant cuts beyond current programmes, additional reductions are still required to achieve 2°C (considered to require a global annual emissions of 40GtCO2e). Developed nations will set up a $100B p.a. fund providing “climate finance” to help poorer countries to adapt to climate change and reduce emissions. “Encourages” the voluntary cancellation of units issued under the Kyoto Protocol, including certified emission reductions that are valid for the second commitment period towards eliminating the accumulated surplus of credits, which would delay action. Why it is significant The Paris COP (and its lead-up) saw significant support for action to address GHG emissions from many sectors of society including business, investors, the church (e.g. the Pope’s second encyclical) and of course all 200 governments at the negotiation. We believe that underlying the Paris summit is a maturing of global thought to a position of acceptance and the development of a rational plan to tackle the problem. We have seen a progression consistent with Elizabeth Kubler-Ross’s model of the stages of change[1]: denial, anger, bargaining, depression and acceptance. The drive for a 1.5°C...

Circular economy creates office furniture savings

You can now buy as-new remade office furniture for less than half the new recommended retail price, thanks to the circular economy. Used and recyclable have limits While used office furniture has always been an option, it has traditionally involved compromising on quality. And some manufacturers produce furniture that can be recycled, but this does not usually provide cost savings for buyers. Remanufacturing is better Remanufacturing involves none of the quality compromises while bringing substantial cost and environmental savings. Here is how Rype Office, an award-winning furniture company using Circular Economy principles, does it: Rype Office takes the long life components of used furniture, like steel frames which last for hundreds of years, and rebuilds the rest of the piece around them. Modern precision equipment and the latest resurfacing technologies produce high quality pieces that look like new – a real alternative to expensive new furniture. Those long life components are the most expensive and environmentally harmful to make new, so the cost is reduced by half and the environmental footprint by more than two thirds. High quality furniture at a good price For example, the remanufactured Orangebox G64 shown below (a leading ergonomic chair still in production having sold 1.3 million) is indistinguishable from new. Rype Office sells it for £240 compared to the new recommended retail price of £600. End of life savings too Consistent with the principles of the Circular Economy (as espoused by the Next Manufacturing Revolution, the Ellen MacArthur Foundation, and The Great Recovery), Rype Office offers to lease its furniture or buy it back furniture at the end of each life. This saves customers...

Building disruptive new businesses

This video offers practical lessons on how to create a disruptive business, with details on building a circular/remanufacturing business. Greg Lavery explains how Lavery/Pennell has fashioned its own disruptive business model and created Rype Guides and Rype Office, a furniture remanufacturing startup that is challenging the UK furniture industry. This presentation occurred at the July 2015 EPSRC Industrial Sustainability conference in...

New Report on Remanufacturing

The UK’s All-Party Parliamentary Manufacturing and Sustainable Resource Groups yesterday released a new report presenting the economic, social and environmental potential of remanufacturing and recommending a range of government support measures. Drawing on evidence including Lavery/Pennell’s Next Manufacturing Revolution and New Industrial Model reports, the publication is well timed to influence party manifestos in the lead-up to the 2015 General Election. Dr Greg Lavery was a member of the Steering Group. The report can be downloaded here: Triple Win: The Economic, Social and Environmental Case for...