Optimized Productivity & Cost Structure – Elimination of waste throughout the product design and production value chain to optimize profitability and long-term success of the enterprise. Optimizing product cost structure and operations through use of lean enterprise tools and methodologies.
Green Product and Operations – Optimal use of renewable sources of energy in the product creation, manufacturing, and distribution processes. Use of advanced manufacturing tools and processes. Responsible use of non-renewable energy sources.
Circular Economy – Implementation of circular economy strategies, i.e., maximizing opportunities for product sharing during its life cycle, and product restoration and repurposing at the end of its life cycle. Circular economy strategies should be factored into the design, manufacturing, distribution, use, and end-of-life reuse and recycling of the product.
Community Linkages – Responsible management of relationship between the company and the local community and stakeholders. This includes ethical labor practices and responsive community support.
Sustainable industrialization means growing the business to operate at an ideal scale and performance level to optimize the cost structure and margins, thereby enabling the business to sustain and succeed over time. Reducing waste contributes to both the business profitability goals and environmental responsibility. Sustainable industrialization also means utilizing the latest tools, processes, and emerging trends to responsibly manage the environmental and societal impact of the business. This means optimizing the use of renewable energy sources and responsibly limiting the use of non-renewable fossil fuels.
It also means incorporating product use sharing and end of life cycle reuse opportunities into the design, manufacturing, and distribution processes. For example, BMW recently started a program in the US called ReachNow, which allows customers to hail rides from a specific model BMW and a driver, just as they would an Uber ride sharing service. Customers get all of the convenience of owning a BMW without the cost of paying for the car when it’s parked, thus reducing the impact on the environment. The company is also extending this service to its MINI brand, allowing MINI Cooper owners to rent out their vehicles for set periods of time when they are at work, out of town on business, or time periods when they are not in use.
From a societal standpoint, sustainable industrialization will also drive leadership to operate the company with ethical work practices and have a positive impact on the local community. These actions, done correctly, need not add cost or burden to the company. Sustainable industrialization is industrialization updated and optimized. Putting the team on the field is industrialization, training the team to championship level performance is sustainable industrialization!
2 Million Resistors
In the summer of 2011, during my time in consulting, I made a business trip to Taipei, Taiwan to visit Xinyi Electronics (not their real name). Xinyi manufactured and supplied circuits to my client, a solar energy systems manufacturer based in the US. One component made by Xinyi Electronics was resistors.
Taking a quick flashback to high school or college physics class…Resistors are electrical components that are used to reduce or regulate the flow of electrical current. In this physics class application, they are small devices about 4” in total length, made up of nearly 2” metal leads on each end and a 1/4” long by 1/16” diameter wide metal element in the middle covered with insulation. Thinking about the lab assignments in our physics class, the bands of various colors printed on the insulated element told us the resistance value (measured in ohms) of the part.
In the 1960s, multinational electronics companies had begun to locate assembly operations in small business enclaves in Taiwan. By the 1970s, Taiwan’s local government decided to make electronics manufacturing a core industry. Specializing in the production of a specific product and its internal components can enable a company and region to become quite skilled at it. Success gives them a lot of practice, and the more they practice, the more productive and efficient they become. Quality improves, costs go down, prices can be lowered and market share can rise. Industrial optimization creates a virtuous cycle on the cost structure and income statement of a business.
Fast forward forty years to my 2011 visit to Xinyi Electronics. With great focus, by this time they had achieved over 70% of the global market share for resistors. The high-speed manufacturing equipment and technical know-how developed over the years gave Xinyi the capability, scale, and capacity to build two million of these resistors per day! Seeing so many of a particular product being built at that speed is an amazing sight.
The raw materials, skilled labor, machinery, and government support were all in place for Taiwan to industrialize resistor and electronic circuit production. Over the years, Xinyi had optimized the application and use of these production factors and had achieved a high degree of customer acceptance (the 70% global market share) and outstanding financial performance. Xinyi and its founders were also known to have great relations with the local community in Taipei. Their overall strategy towards environmental stewardship was less obvious to me at the time, but their track record for building and selling products for the alternative energy sector was a positive indicator. Xinyi had achieved sustainable industrialization, or was on the path to do so.
The definition of industrialization does not stop with the manufacturing of a raw material into a product and the assembly of multiple products into a finished good. Developing and newly industrializing nations should aspire to go further up the value chain. While manufacturing adds value to a material, the desirability of the end product increases the magnitude of the value ascribed by the customer. That is, customers are willing to pay more for products that are tailored to their needs and products that they love! After mastering the stages of being assemblers and manufacturers, businesses that industrialize must next work to develop the requisite skills to move to the stage of being innovators and designers of products that customers love. Imagine if the African ingenuity and resourcefulness used to keep those decades-old Japanese taxis on the road in Ghana were trained and applied to vehicle design and vehicle systems engineering. African ingenuity has historically been absent from industrial sectors. How many more devices like the engine stop-start (to conserve fuel like our taxi drivers in Ghana) are in Africa waiting to be invented?
For developing economies like those on the African continent, sustainable industrialization strategies are not just preferred, they are imperative. They are a plan to maximize value creation as opposed to a plan to simply participate. As various African nations begin to industrialize production in various sectors, they must leapfrog traditional industrialization approaches and go all-in on sustainable industrialization. As a country begins a cycle of learning to produce products in a given industry, it is important to learn the tools and processes that are aligned with where the industry is headed in the future, as opposed to where the industry has been in the past. Also, many of the advanced manufacturing tools–such as 3D printing and computer numerical control (CNC) machining–currently in use in developed markets require less up-front capital investment and less production volume scale to pay for them. These tools make manufacturing a more accessible economic alternative. Employing and mastering sustainable industrialization strategies and techniques can help give local companies the opportunity to not only succeed over time, but also become industry innovators and disruptors.
| Conclusion: Going all-in on industrialization can change a region’s position from an industry participant to a potential industry leader. |
Chapter 2 — Why Industrialize Sustainably?
No matter how small the part, our Chinese partners wanted to build it locally.
The first new vehicle developed and launched by my team, during my time as executive chief engineer
