EVP, Industry Principal at Logility. Digitally transforming multi-tier supply chains through digital twins, AI and advanced analytics.
An August 2021 article by Sue Doerfler of the Institute for Supply Management titled “U.S. Durable Goods Manufacturing Sets Record But Can’t Offset Demand” cites a report by the Baltic and International Maritime Council that states that online orders are increasing and U.S. durable goods manufacturers have responded well.
According to the article, “Manufacturing lagged during the coronavirus pandemic, and total durable goods manufacturing through the first half of this year is 15.5% ahead of the same period last year.”
The BIMCO report notes that the output was 1.6% higher than the first six months of 2019, indicating that durable goods manufacturing has returned to pre-pandemic levels. But during that same period, retail sales grew by 20.8%, hence the report’s title; record production nonetheless fell short of high demand.
BIMCO’s Chief Shipping Analyst Peter Sand stated: “Around half of U.S. manufacturing consists of durable goods. They compete with billions of dollars worth of imported durable goods every year. The recovery in U.S. manufacturing will not put an end to the high demand for U.S. imports.”
If that weren’t enough, durable goods manufacturers are under mounting pressure to implement environmentally and socially sustainable business practices. In its May 2019 Risk Atlas report, S&P Global said this about the environmental risks of the durable goods industry: “We believe the consumer durables sector … can significantly contribute to hazardous and non-hazardous solid waste generation and energy use.”
Doesn’t durable equal environmentally sustainable?
No, it doesn’t, but it’s a fair question. When we examine the building blocks of sustainability commitments, durability can be a key element of a company’s sustainability strategy.
While it’s true that sustainability favors long-lasting goods, durables often require significant amounts of energy to produce and use. According to ACS Publications, “Durable goods drive two-thirds of global households’ final energy footprints.”
ACS calculated the energy footprints of 200 goods across 44 individual countries and five world regions from 1995 to 2011. In 2011, ACS found the total global households’ durables-related EF broke down this way.
• Ten percent due to the production of durables.
• Seven percent due to consumables and services.
• Fifty-one percent in energy used to operate.
According to Merriam-Webster, “durable” means “able to exist for a long time without significant deterioration in quality or value.” Sustainability is more concerned about the potential harm something will bring to the environment, people or the economy than how long something will last.
Durability is the basis for sustainability.
Director of Sustainability at Arc’teryx Drummond Lawson has been using his Bora backpack for 22 years, according to Amer Sports. The long lifespan illustrates the design philosophy that better durability equals less environmental impact.
Amer Sports says its lifecycle studies reveal that the manufacturing and sourcing of a garment comprise approximately 65% of the environmental impact over its usable life. But lifespan matters. According to Amer Sports, “Making a cheaper, simpler, lighter and less durable pack of the same size would have had less impact in manufacturing. But if you spread the impact of a Bora to its lifecycle of 22 years, you get significant benefits compared to building and replacing three or four less durable backpacks over the same time.”
Recipe for sustainability: Start with the right technology.
What does it take for durable goods manufacturers to embrace sustainability in a way that fosters the levels of loyalty and trust enjoyed by companies like Arc’teryx? Certainly, stakeholder commitment on the order of what former Unilever CEO Paul Polman spelled out in his book Net Positive: How Courageous Companies Thrive by Giving More Than They Take can help.
But it also takes consistent investments in modern, purpose-built technologies. The concept of “purpose-built” is important here. It means, among other things, that your enterprise resource planning system is not the right technology for developing and maintaining a sustainable supply chain. Given the substantial investments many companies have made in ERP, this will be a bitter pill to swallow.
Here’s how to start.
First, let’s explore that question from a corporate leadership perspective. Only the C-suite can decide if sustainability is to be embraced as strategic. That decision can’t be delegated because the potential ripple effects are significant. Consider:
• Should sustainability be moved from marketing, where it typically starts, to operations, where it can mature? In other words, is it fundamental or fanfare? Would forming a BOD committee send the right message and create momentum?
• What are the implications for overall sourcing strategy and supplier collaboration? Should you emphasize near-shoring and reduce the total number of suppliers in order to improve collaboration or chase the lowest price by switching core suppliers every six to 12 months?
• Can sustainability become part of every job? How will compensation plans be updated?
Second, those charged with implementing the solutions that support sustainability must create a rollout plan, preferably one that offers some quick wins. An assessment of the current state is a logical starting point but requires creating a digital replica or “twin” of your entire supply chain. Surprisingly few companies can do this; according to a McKinsey survey, only 2% of companies have visibility of their third-tier suppliers.
Visibility is imperative for enabling the three pillars of sustainability – environmental, social and governance – and without it, there is no reasonable or acceptable way to measure and quantify supply chain improvements and share that information with your stakeholders.
Sustainability is no longer a project.
The U.S. durables sector has indeed bounced back since the height of the pandemic, but achieving environmental and social sustainability will remain a challenge. While the focus on long-lasting products may offer some inherent advantages relative to other industries, it’s clear that longevity by itself does not equal sustainability.