Cost and Carbon Reduction through Operational Excellence

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Cost and Carbon Reduction through Operational Excellence

Within the current economic climate and cost pressures, businesses are looking for ways to reduce cost whilst still meeting their sustainability targets. With both customers and investors demanding more understanding of and impact on carbon emissions, this needs to be considered as part of any improvement initiative. Adopting operational excellence can help to achieve both short- and long-term goals across cost and carbon. Focussing on continuous improvement across all business areas, it can create a competitive advantage and enable more effective investment decisions.

Understanding and Measuring Key Operational Drivers

Whilst looking at raw materials and packaging is one of the obvious levers, adopting operational excellence means organisations can directly impact their scope 1 and 2 emissions by looking at internal operations.

Example levers within production process:

Planning
Overheads
Energy
Labour rates
Set-up time
Batch size
Maintenance
Scrap / Waste

Building an operational cost model

Building a complete picture of organisational cost and value drivers, as well as their link to carbon, is complex but vital to understand the current state. Approaching this bottom-up and top-down ensures a holistic understanding of the business and its drivers.

Company-wide data analysis / review (top down) – Data analysis across key financial and operational metrics to understand current state cost and carbon position and key drivers.
Product-level data and processes (bottom up) – Mapping operational processes and value creation, linked to financial and operational data. Auditing processes and core competencies.
Current state operational cost model – Building a cost model to analyse and interrogate costs and profitability and enable modelling of improvement initiatives and their impact.
Opportunities from the cost model lead to modelling future state optimised operation

How Operational Excellence impacts Cost and Carbon

Businesses aiming to optimise their business processes and manufacturing operations can look at identifying waste within their production environment and processes. Improvement opportunities could be identified for example within the following areas:

OEE (Overall Equipment Effectiveness) – Reducing unplanned and planned machine downtime to increase machine output and productivity, e.g. reducing changeover times or machine breakdowns.
Scrap Rate – Improving manufacturing processes or input materials used can improve quality, process efficiencies and the scrap rate. This will reduce material input and associated cost as well as CO2e.
Capacity Constraints – Understanding the factors limiting production output can help make processes more efficient, for example improving material availability through forecasting and supplier management.
Direct Labour Efficiencies – Reviewing, in particular, manual tasks within the process can help identify roadblocks for full productivity and capability gaps within the team and enable more efficient and consistent work.

Future State Scenario Modelling

Utilising the operational cost model, organisations can model any improvement initiatives and different scenarios to understand the impact on cost and carbon. This enables them to gain a holistic picture of potential alternatives and make informed decisions to implement the optimal scenario for their business.

Modelling impact on cost and carbon

Current State – 100% cost, 100% CO2e
OEE – 90% cost (10% reduction), 90% CO2e (10% reduction)
Scrap rate – 86% cost (4% reduction), 87% CO2e (3% reduction)
Capacity – 58% cost (28% reduction), 62% CO2e (25% reduction)

Developing short, medium and long-term strategy

Deciding where to invest and how to prioritise is key to achieving the highest impact for an organisation from a cost and carbon perspective. Understanding and mapping impact as well as investment and effort required can help to make informed decisions.

Future Strategy and Decision Making

Improving operational excellence also means that organisations can have additional funding available to invest in their future-state optimal roadmap. Using the organisational cost model, they can model any future operational alternatives to understand and compare the impact on profitability and capex requirements. A Digital Twin can support modelling and visualising future state manufacturing footprint or set-up and help to develop a strategic roadmap underpinned by a robust business case with a clear ROI.