BY GREG GONZALES
Jim Sweeney, professor of management science and engineering, thinks the word "sustainability" has become a meaningless buzzword. "How can you be against manufacturing in a sustainable manner?" he asked during a virtual symposium convened April 11 by Stanford's Alliance for Innovative Manufacturing, MIT's Leaders for Manufacturing Program and the University of Michigan's Tauber Manufacturing Institute. "Maybe you should be opposed to justice and goodness and truth." Stanford participants in the symposium, titled "The Business Case for Sustainable Manufacturing," telecast their comments from the Wallenberg Learning Theater.
In Sweeney's view, "sustainability" embodies recognizing two fundamentals -- that "we borrow the Earth from our descendants" and that natural resources are vital to economic activity, personal satisfaction and health and need to be preserved for use by future generations. Sweeney prescribes proactively managing economic activities to ensure future use of natural resources -- that is, being prepared to transform economic activities if conditions change. His underlying theme -- that there is a business case for sustainability, but balancing environmental and business concerns is a complex and dynamic challenge -- was echoed by the other presenters.
Sweeney went on to say that the essential problem, from the economist's point of view, was balancing the societal benefits of "green" practices and regulations with their costs. But balance appears possible, thanks to changing governmental rules, evolving technology and economic considerations. "For many companies -- and probably most companies -- environmentally conscious actions need no longer be contrary to financial considerations," he said, citing examples of profitable "green" technology in compact fluorescent lightbulbs, software distribution via the Internet, hybrid electric vehicles and more efficient refrigeration.
Sweeney also stressed that in at least two crucial areas -- energy management and materials management -- a gap remains between societal benefits and private business benefits. But that gap may be narrowing. He highlighted the success of voluntary programs such as the Energy Star labeling program, which identifies electric appliances that meet strict energy efficiency guidelines set by the Environmental Protection Agency and the Department of Energy.
"This is not the 'hold hands, sing Kumbaya and march happily off into the future [view]' ... with all firms benefiting from environmental interests," said Kenneth Oye, associate professor of political science at the Massachusetts Institute of Technology and director of MIT's Political Economy and Technology Program. "I'm not talking here about win-win, where what's good for the environment is good for business ... [but rather] ways in which regulation can confer specific and narrow benefits on some firms at the expense of others." In his talk on public regulation and business risk, he said the common perception that environmental actions are the enemy of all business misses the trees for the forest.
"Public regulatory standards, test procedures and models should be viewed as important sources of private competitive advantage, and as mechanisms for containing private business risks," he said.
Oye claimed that wise use of regulatory strategy can bolster both a company's supply-side strategies and demand-side strategies (for example, lowering its production costs and increasing sales of green products, respectively). He provided a series of illustrations of firms deriving benefit from environmental regulatory stringency. For example, at the time of debate over the Montreal Protocol on protection of stratospheric ozone, DuPont and ICI were major producers of ozone-destroying chlorofluorocarbons (CFCs) and held patents on costly CFC substitutes. Dupont and ICI eventually supported the Montreal Protocol, which not only advanced a legitimate environmental interest in protecting the ozone layer but also wiped out the market for commodity CFCs -- thus increasing the value of the companies' proprietary technologies.
Another strategy Oye discussed was using regulatory actions to secure production cost advantages over competitors. The mid-eighties saw a dramatic rise in incidents of salmonella poisoning due to changes in food processing technology and preparation in response to consumer preferences and regulatory relaxation under the Reagan administration. Initially, large meat producers supported only weak voluntary standards. But when they realized strict standards also created a cost differential between their technologically proficient and capital-deep ranks and poorer, technologically inept smaller firms, they supported more stringent mandatory standards.
A simple solution
Steve Skerlos, assistant professor of mechanical engineering at the University of Michigan and principal investigator for that university's Environmental and Sustainable Technology Lab, spoke about whether sustainable manufacturing solutions will "self-assemble" -- that is, occur through natural market forces. He said: "The business case for sustainability is simple: Add value!" He described case studies of successful "green" business efforts that reduced costs, increased consumers' willingness to pay more, increased market share and developed new products and markets.
The cost savings represented by new green technologies make a compelling business case, Skerlos said. To illustrate his point, he said the United States consumed two billion gallons of metalworking fluids in 2000. These emulsions of oil, water and stabilizing agents are essential in machining the moving metal parts in automobiles, motors, appliances, compressors, pumps, generators and more. They account for 12 percent of metals manufacturing costs. While the biggest cost is the purchase of these metalworking fluids, disposal costs are also significant. Through his work at a test plant, Skerlos and his associates were able to develop environmentally friendly vegetable oil substitutes for petroleum-based oils, as well as microfiltration techniques to extend the useful life of these fluids virtually indefinitely. That can save a lot of money, as a large plant can typically spend $2 million a year replacing these fluids.
He cited other examples of thoughtful reuse, in end-user products as well as in manufacturing tools themselves. Rapid disassembly of certain cell phone models can help make reuse of components economically feasible and eliminate a significant impact on the environment.
Skerlos ended by saying that while adding business value can drive environmental solutions to "self-assemble," it realistically will take effort on several fronts. Knowledge is essential for consumers and businesses to make informed choices about environmental solutions, he said, and improved public and industry awareness campaigns can help. Corporate involvement (where regulation is necessary) and consistent measurement of benefits also will be crucial.
Greg Gonzalez is a freelance writer.
Stanford Report, May 14, 2003