Study: Manufacturing companies are making steady improvements in their green performance

By Josh Bond, Associate Editor

PA Consulting Group’s second annual benchmarking study of manufacturing companies shows that the companies under review have improved their green performance since early 2011. The benchmarking analysis is a snapshot of four global manufacturing companies—Siemens, GE, Alstom and ABB—that improved their green performance through various methods.

In a recent interview, Alex Davison, logistics analyst and managing consultant with PA Consulting, said that as industry leaders these large companies are in a unique position to drive change among their suppliers and carriers, as well as within their own organizations.

“Throughout the manufacturing and distribution industries, we’re seeing an increasing level of adoption of green technologies and practices,” said Davison. “It’s a classic case of large organizations using purchasing power and clout to go green while driving out costs.”

While transportation and associated fuel costs constitute the bulk of potential green improvements, both energy costs and customers are pushing supply chains to enhance efficiency. The rise in e-commerce, Davison said, highlights the need for efficient reverse logistics, which can be as important to a company’s bottom line as outbound logistics. Reusable packaging, such as pallets made of cardboard, are also increasingly used, he said.

In order to achieve more efficient product delivery, many companies will have to change the way they think about their supply chains. “In the manufacturing and other sectors, we will see increased sharing of resources between companies,” Davison said, who notes these practices are already underway in retail. “Where previously you wouldn’t see competitor’s products on the same truck, that will change, and it will be mutually beneficial.”

Davison emphasized technology and software that can coordinate such shipments. Similarly, warehouse management systems users are expanding the use of task interleaving, which aims to reduce non-productive man hours and empty equipment.

The companies in PA Consulting’s study were not only evaluated on the use of solar panels and efficient carrier arrangements, but on their renewable product portfolios or products that offered a significant green improvement over previous models. Companies were given weighted scores in three areas – product portfolio, strategy and organization, and transparency and operational performance – to provide a total score out of 100.

For the second consecutive year, Siemens is the greenest company in the sample. ABB improved its overall score and comes second in the PA Consulting Group ranking of green performance. GE ranked third and Alstom remained in fourth place. However, both had made improvements in reducing the gap between them and the top two companies.

Product portfolio
Companies’ contributions to global environmental efforts were assessed and their green products were analyzed. In the 2011 study, Siemens analyzed the life-cycle environmental impact of 49 per cent of its products; in 2012 this increased to 88% of products. The 2012 study showed that Siemens generated 41% of its total revenue from green products, compared to 38% of revenue reported in the 2011 study. Meanwhile, ABB and Alstom increased their range of green products and revenue generated from them. ABB generated 60% of its revenue from green products, representing a growth of 14% in this area. Its performance in life cycle analysis remained the same, at 80% coverage of its products. GE increased its green products revenue share from 20% in 2010 to 22% in 2011.

Strategy and organization
PA Consulting Group looked at how clearly expressed and communicated the sustainability strategy of each company was and how sustainability is embedded within the four organizations. According to PA Consulting Group’s analysis, Siemens continued to perform strongly in this area but Alstom showed most improvement since early 2011. It has improved the clarity and scope of its sustainability strategy by making its environmental information more widely available in the public domain and increasing green awareness throughout the company.

Transparency and operational performance
Using the Carbon Disclosure Project Global 500 Index report, PA measured the transparency of information the companies provide to the public. For the 2012 study, PA used figures from 2009, 2010 and 2011 to assess changes in greenhouse gas emissions as well as energy and water consumption over these years. ABB leads on reducing energy consumption by 11.3 per cent, greenhouse gas emissions by 4 per cent and water consumption by 13.5 per cent. GE reported an improvement of 1.3 per cent in its energy savings, an improvement of 6.4 per cent in its greenhouse gas emissions and 30 per cent in its water consumption since 2009. Siemens already operates efficiently in this area and did not report any further year on year savings between 2009 and 2011.

Edmond Cunningham, greening business expert at PA Consulting Group, said: “This year’s study showed that each company in the sample improved on its early 2011 score, with both ABB and Alstom gaining momentum in making their businesses greener and improving their presence through eco-friendly products.”

“Clear steps must be taken to improve companies’ performance even further in order to make each company truly green, including setting ambitious goals and monitoring performance against those goals,” said Mr. Cunningham. “In most cases, this will require the creation of a management role focusing on implementing environmental objectives. Secondly, these companies do not just need to make great products, but they must design them in a way that minimizes the use of resources in operation, ensuring they are recyclable and eco-friendly.”

Study methodology
PA Consulting Group carried out a benchmarking study of the performance of a sample of global companies (Siemens, GE, Alstom and ABB) in the industrial engineering sector, tracking changes in performance between early 2011 and the middle of 2012.
The 2011 study took place in Q1 of 2011 and used the most recent data available, which at the time were figures from 2009. The 2012 study took place in Q3 of 2012 and used the most recent data available, which was from 2011.

The study was carried out using public data that was available at the time the study took place. This included annual reports, environmental and sustainability reports, corporate websites and the Carbon Disclosure Project report.
? Strategy and organization
PA assessed the clarity of the companies’ sustainability strategy and how well green approaches are integrated into a company’s organization, operations and supply chain. This assessment is worth 15% of the total score.
? Transparency and operational performance
For the 2012 study, PA analyzed how transparent the company is about its environmental performance and its results over the past three years (2009, 2010 and 2011) to assess changes in greenhouse gas emissions as well as energy and water consumption. PA also included results from the Carbon Disclosure Project Global 500 Index report to obtain an objective measure of the transparency of information the business provides to the public. This assessment is worth 15% of the total score.
? Product portfolio
The third element, which has specific relevance to the industrial engineering companies in the sample, analyzed how green products were and the revenue generated from the green products portfolio. PA assessed the size of the portfolio, its growth and the impact of the individual product’s lifecycle on the environment and the proportion of revenue generated by a company’s green portfolio. This assessment is worth 70% of the total score.