Operations Management / Supply Chain Management

Module 04.03 Key Concept: Product and Service Design for Sustainability

Corporations have a social responsibility to be aware of how products and services affect people and the environment.  Stakeholders usually have strong opinions about environmental, social, and ethical issues and doing what’s right can be beneficial to all stakeholders.  Sustainability refers to meeting the needs of the present without compromising the ability of future generations to meet their needs.  It is much more than just “going green” and includes employees, customers, community, and company reputation.

From a system perspective, Sustainability requires looking at a product’s life from design to disposal, including all the resources required. The product or service itself is a small part of much larger social, economic, and environmental systems. Understanding systems allows more informed judgments regarding sustainability.  This includes what is referred to as the “Triple Bottom Line” – People, Planet and Profit.

From a “People” perspective, all decisions affect people. Globalization and outsourcing complicate the business environment and supplier selection and performance criteria are important.  Materials must be safe and environmentally responsible to protect worker safety and the global community.

From a “Planet” perspective, the planet’s environment must be preserved.  Thus companies must look for ways to reduce the environmental impact of operations and to conserve scarce resources. Carbon footprint and greenhouse gas emissions (GHG) are often stated in regulations and sustainability initiatives.

From a “Profit” perspective, social and environmental sustainability do not exist without economic sustainability and staying in business requires making a profit.  Other pertinent measures of success include risk profile, intellectual property, employee morale, and company valuation.  This is referred to as social accounting.

Product design plays a crucial role in Sustainability strategy and goal achievement. Life cycle assessment valuates the environmental impact of a product, from raw material and energy inputs all the way to the disposal of the product at its end-of-life.  The goal is to make decisions that help reduce the environmental impact of a product throughout its entire life with emphasis on the “3Rs” (reduce, reuse, and recycle).  Design decisions affect materials, quality, cost, processes, related packaging and logistics, and how the product will be processed when discarded.  Within the design project is is important to incorporate a systems view to lower environmental impact and identify alternative materials where possible to meet sustainability objectives.  The obvious objective is to identify an approach that gives lowest total cost.

Both Production and Logistics strategies / logistics can have a major impact on the Total Life Cycle Ownership Cost of a Product.  Production operations can take steps to reduce the amount of resources in the production process such as energy, water and environmental contamination / remediation.  This reduces the cost and minimizes environmental concerns.  Logistics operations can reduce costs by achieving efficient route and delivery networks: get shipments to customers promptly, keep trucks busy and purchase low cost fuel.  A comparison of Life Cycle Ownership Costs for two different vehicles is shown in the text.  From this analysis it is clear that a higher up-front investment cost can actually result in lower total costs over the lifetime of a product.

The Break Even Point in this case is based on the average life time of the vehicle and is equal to the point where Total Cost of Ownership for one option is equal to the Total Cost of Ownership of the other one.

From a financial investment perspective, the Payback Period can be used to provide a high-level assessment of the attractiveness of an investment.  If we invest $$$ how long will it take for us to recoup this investment?

 The Leadership Team must determine if this is sufficient to justify investment.  The decision often depends on the Risk Profile of Company Leaders and major Stakeholders.