Globalization, modernization and development
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Published: Thu, 13 Apr 2017
The present era of globalization, modernization and development is the resultant of extreme exploitation of natural and human resources in developed as well as developing countries. But the limitation of these resources leads the business or corporate world to explore the methods of handling and exploiting them to fulfill the current and future needs without any compromise. Therefore, being sustainable is becoming the most important factor for any developmental process. In this regard, manufacturing companies are also pushing themselves to achieve various dimensions of sustainability, such as social, economical, environmental and technical. Sustainability, in case of manufacturer, is measured by evaluation of products, processes or systems that effect its operations. It requires assessment of all the factors that affect the manufacturing facilities and then developing strategies to reduce their impact. Therefore, the manufacturing companies are always under pressure to develop strategies to allocate their resources efficiently for value creation, because of increasing prices and competition. As traditional approach related to quality and price can not be ignored, the manufacturers are intensely focused on areas like energy, water, emission, waste, production, awareness, etc., so as to increase value of product by increasing benefits and reducing costs. This paper reviews how few changes, in allocation of various resources and processes can result in value creation. It also includes the various sustainability initiatives adopted by Maruti Udyog Limited to manufacture its small car, named ‘A-Star’. It also analyzes the concept of green manufacturing as well as sustainable manufacturing used by the company.
Keywords: Sustainability, value creation, resource allocation, green manufacturing and sustainable manufacturing.
Traditionally, the manufacturing system was assumed to be sound if it can provide opportunity for continuous improvement, hence results in increase in production and operational quality. In such a system, the production system was designed to improve process capability and operational performance. However, the proper attention was paid towards product nonconformities and process off-specifications . Because this kind of system resulted in lesser wastes and emissions due to reduction of rejected parts . The manufacturing companies were only emphasizing on good quality in lesser price and optimal use of resources. As it is rightly said for these kinds of manufacturing units by David C. Korten that Economists know the price of everything and the value of nothing .
Therefore, now days, manufacturing system is viewed from different perspective. Revolutionary production-systems thinking directed at the identification and elimination of all forms of non-value added activity, or waste, from an organization . The manufacturing systems are designed for value creation. As said by Henry Ford, “If it doesn’t produce value, its waste” . So, it directs an organization towards the waste elimination from all the sources. Because, manufacturing industries are additionally under the economic pressure to compensate increasing cost and create adding value . So, it has become necessary to design products as well as processes for value creation.
Besides value creation, the manufacturing systems are viewed from the broader characteristic of sustainability these days. The idea of sustainability has come to represent the rising expectations not only from economic viewpoint but also from social and environmental performances of manufacturing system . So, the manufacturing system is not only limited to value creation but to sustainable value creation. This means that the manufacturing companies are finding their way to sustainable development by using methodologies of increasing the efficiencies (economic, ecologic, social) into the production system by producing products with less energy, less material, and less pollution [4,16]. Some of objectives of a sustainable manufacturing system can be,
- Improving resource efficiency and waste management
- Examining the product design and processes involved in manufacturing.
- Trying to ensure economic growth without causing environmental pollution.
- Examining how to stimulate innovation and investment to provide cleaner technology
- Providing awareness and training to employees .
Quality Vs Sustainability
According to Caplan (1990) “Quality is process dependent” which means that the quality can be attained by effective product and process design . Deming, Juran, and Crosby, made the claim that quality programs would increase efficiency, rather than just raise costs. Crosby’s famous words that “Quality is free.” made the important point that businesses can make breakthroughs by seeking quality . According to Feigenbaum(1991), “Quality is the most cost-effective, least capital-intensive route to productivity” . Thus, quality and productivity objectives are not different according to traditional view. But sustainability takes quality thinking to the next level to include creating a healthier, safer society by integrating environmental concerns into manufacturing and design efforts .
Value and value creation
The term “value” has a wide range of meanings. Value can be defined as the financial worth gained by increasing either tangible (physical) or intangible (e.g., goodwill) assets as a result of expenditures for environmental management and compliance . A company that consistently increases its return on investment and its profit margins has added economic value in the financial market. However, such value can be created only by using human ingenuity (social capital) to convert raw resources (environmental capital) into economic value (financial capital) . Fig.1 shows the process of value creation. The process starts with acquiring knowledge of existing things, that is, existing environments which includes social, natural and economic environments. Then these existing situations are analyzed and synthesize for finding solution for further improvement. Finally, the optimal solution is implemented for desired value creation.
Figure 1:- Process of value creation .
Various concepts and theories were put forward for value creation. Some of which are Porter’s (1985) value chain framework, Schumpeter’s (1934) theory, Barney (1991) Resource Based Value theory, etc., that are discussed below.
According to Porter’s value chain framework, the value chain analysis identifies the activities of the firm and then studies the economic implications of those activities. These activities are classified as primary activities and support activities. Primary activities deals with the activities which have a direct impact on value creation, and support activities are those, which affect value only through their impact on the performance of the primary activities. He defines value as ‘the amount buyers are willing to pay for what a firm provides them’. Value can be created by differentiation along every step of the value chain, through activities resulting in products and services that lower buyers’ costs or raise buyers’ performance .
Schumpeter (1934) pioneered the theory of economic development and new value creation through the process of technological change and innovation. He viewed technological development as discontinuous change and disequilibrium resulting from innovation. Schumpeter identified several sources of innovation (hence, value creation) including the introduction of new goods or new production methods, the creation of new markets, the discovery of new supply sources, and the reorganization of industries.
Barney, 1991 Resource Based Value theory postulates that the services rendered by the firm’s unique bundle of resources and capabilities may lead to value creation. A firm’s resources and capabilities are valuable if, and only if, they reduce a firm’s costs or increase its revenues compared to what would have been the case if the firm did not possess those resources .
So the different researchers have different approaches towards the concept of value creation. There are different indicators defined by the researchers which result in the value creation.
World Commission on Environment and Development defined sustainable economic progress as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” . Elgin also observes, ”if we do no more than work for a sustainable future, then we are in danger of creating a world in which living is little more than ‘only not dying” . It has been said because; our ecological demands already exceed what nature can supply. This ”ecological overshoot” means, the stock of natural environmental capital is depleting. Therefore, business enterprises need to grow at least enough to keep pace with the economy, but defining growth and the ways & means of growth need to change .
Earlier, the industries were only limited to environmental laws and regulations set by Government bodies. Traditional understanding of environmental management was limited to “cleaning up the mess” after production is completed. Environmental management in many companies is oriented to compliance, remediation of contaminated land, and reduction of targeted hazardous materials . Then, they start talking only about green production which was only limited to eco friendly products and processes. It is a very proven fact that eco-factories are not only the solution if they are producing the unsustainable products . Therefore, companies are proactively coming forward to develop sustainability. Many of these companies are now going beyond environmental performance and are now beginning to discuss sustainability. Sustainability pushes the environmental envelope and challenges companies to consider issues such as the environmental impact of the materials they select, the social implications of their products and operations, and in some case the need for their product at all . However, successful sustainability initiatives often require fundamental product redesign and operational rethinking . Therefore, achieving solutions to environmental problems that we face today requires long-term potential actions for sustainable development . In long term, sustainable enterprise resilience can be defined as the “capacity for an enterprise to survive, adapt, and grow in the face of turbulent change,” and at the same time, “to increase shareholder value without increasing material throughput”. Sustainable enterprise resilience within the framework of industrial ecology creates multiple business opportunities through green technologies, reduction of raw material and energy use .
Dimensions of Sustainability in Manufacturing
The Institution of Chemical Engineers (IChemE) published a set of sustainability indicators in 2002 to measure the sustainability of operations within the process industry. The different
Figure 2: – Indicators of sustainable development .
Indicators given in this figure have considerable impact on the manufacturing system. It includes environmental, economic and social indictors. Environment indictors further include resource usage, emissions, waste and effluents, etc. In this regard Dowlatshahi introduced the concept of Reverse logistics and product recovery (including reuse and remanufacturing) reduce costs, enhance profits, and provide strategic advantages in such industries as automobile parts which means that a product that is designed for disassembly, remanufacturing, or reuse can have positive environmental impacts by using less resources [2,6]. Economic indicators include Profit, financial value and tax, investments, etc. Finally, social indicators include workplace, society, etc. So, these indicators have to be maintained for sustainable development of industry. Another view of these indicators has been given in figure 3, which is directly related to sustainable production.
Figure.3: – Efficiency and sustainability .
In figure 3, the holistic view of production system has been given. If the overall effectiveness of the industry has to be improved then the company has to pay proper attention towards economic, ecological and social factors of production, which in return result in sustainable production. It supports the idea given in figure 2.
Hart & Milstein (2003) have explained two important concepts for sustainable value creation, which are, Global drivers of sustainability and Sustainable value. In short, global sustainability is a complex, multi-dimensional concept. Creating sustainable value thus requires that firms address each of the four broad sets of drivers. First, firms can create value by reducing the level of material consumption and pollution associated with rapid industrialization. Second, firms can create value by operating at greater levels of transparency and responsiveness, as driven by civil society. Third, firms can create value through the development of new, disruptive technologies that hold the potential to greatly shrink the size of the human footprint on the planet. Finally, firms can create value by meeting the needs of those at the bottom of the world income pyramid in a way that facilitates inclusive wealth creation and distribution .
Figure 4: – The Hart-Milstein matrix for assessing the value of sustainability .
The concept of sustainable value has been shown in the figure 4. Firms are challenged to reduce waste from current operations (pollution prevention), while simultaneously moving toward more sustainable technologies for competencies (clean technology). Firms are also challenged to engage in extensive interaction with external stakeholders, regarding both current offerings (product stewardship) as well as how they might develop economically sound solutions to social and environmental problems for the future (sustainability vision) .
Conceptual and analytical frameworks that are discussed above guide sustainability practices at multiple levels. Firms use these frameworks to motivate sustainability initiatives, to educate employees, and in decision-making. Viewed together, these frameworks can guide firms in encouraging and launching sustainability initiatives, in evaluating their success, in integrating environmental considerations into the allocation of resources, and in designing products to gain competitive advantage from sustainable business .
Case study of Maruti’s “A-Star”
The products of automobile industry touch our daily lives by providing personal mobility for millions. But there are some challenges that are faced by the industry such as deterioration of local air quality, global warming and the treatment of scrapped vehicle. Every automaker has worked in the direction to save environment and the considerable improvements are also made in this direction. As there are competitive pressures to reduce cost, the automakers are driven towards resource productivity and minimization of waste to achieve economies of scale . A recent World Energy Council (WEC) study found that without any change in our current practice, the world energy demand in 2020 would be 50-80% higher than 1990 levels .
Maruti Udyog, India’s leading automaker whose parent is Suzuki from Japan, has also paved its way towards sustainable development by incremental changes in few things that resulted in big savings. Last year Maruti ran program to reduce part of each component by 1 gram. Interestingly, Maruti has reduced its electricity consumption per vehicle by 20 per cent in the last nine years, water consumption by 46 per cent, and land fill waste by 67 per cent. The carbon dioxide emission has declined 27 per cent in seven years. It has become a zero discharge company and recycles all its water [2,20]. Here, our main focus is towards A-Star which is global car of Maruti. Therefore company bagged an order of 35000 A-star from Nissan in Europe recently . As explained by European regulations about the concept of end-of-life-vehicles (ELVs), A-Star is designed in such a way that 87 per cent of car can be recycled [14,20]. In this direction, Maruri has taken some other initiatives also to become sustainable, which are,
When the Indian market was offering only two tube light configurations i.e., 42 watts and 36 watts, Maruti tied up with a small manufacturer for 28-watt tubes. In the factory there is provision for three CFL lamps and company managers realized that the room would have enough illumination with two lamps of 36 watts in each holder. So the third lamps were taken out. This seems to be a small step but if we look towards energy savings in a year time, then they are huge .
In the assembly line, where axles are installed, the components are placed on an inclined bar on which they slide towards the worker due to gravity which helped in eliminating the use of conveyor belts .
Water pumps in cooling towers were made to consume less electricity by slightly reducing the size of the impeller .
The power supply of machines, that run intermittently, was cut to save energy .
The compressed air used to run various tools used to go into the shop floor at 28-29 degrees centigrade allowed to rise its temperature to 32 degrees because of no harm .
Earlier waste water from all sources was dumped into Government sewers, for which company was paying Government. But now after the improvements in treatment processes no sewer is discharged into Government sewers and all waste water is recycled by the company .
Company has used steel crates rather than wooden or board packaging for storage and transport of components coming from Japan. After use the steel crates are folded and sent back for reuse. The thousand of parts coming from Indian vendors are supplied in reusable plastic bins to avoid wastage .
To implement sustainability principles, firms need clear objectives . It is a fact that only those programs that are implemented effectively and communicated to all employees result in value for the organization . So this study reveals that by combining sustainability in manufacturing system, how a company can reduced water, electricity, and general energy usage, and lowered waste disposal costs .
Today, there is a challenge before manufacturing industries to become sustainable. Since the raw materials are finite and there are increasing demands, therefore, companies are moving towards change in product designs, various stages of processing, consumption and use of raw materials so as to encourage optimum reuse and recycling, thereby avoiding wastage and preventing depletion of the natural resources stock. Thus, sustainable value creation in the manufacturing system is the key to address various problems of the production and operations in industry.
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