MANUFACTURING COST REDUCTIONS AND ECO
EFFICIENCY : A RELATIONSHIP BASED ON A CASE STUDY
Rosangela Maria Vanalle
Universidade Nove de Julho - UNINOVE, Brazil
E-mail: rvanalle@uninove.br
Elpidio Moreira Costa
Universidade Nove de Julho - UNINOVE, Brazil
E-mail: elpidioconsultoria@gmail.com
Wagner Cezar Lucato
Universidade Nove de Julho - UNINOVE, Brazil
E-mail: wlucato@uninove.br
Submission: 01/04/2014
Revision: 23/04/2014
Accept: 07/05/2014
ABSTRACT
In the search for higher profits or competitiveness,
firms have frequently used structured procedures to reduce their costs and
expenses. However, the environmental consequences associated to those processes
have hardly been considered. Hence, the central purpose of this paper is to
show that it is possible to obtain relevant environmental gains even not
considering the environmental issues as part of the operational cost reduction
efforts. This particular point was verified through a single case study where
value analysis was used to obtain manufacturing cost reductions in a company
belonging to the Brazilian textile sector. Even not considering environmental
aspects as part of the value analysis procedures, when the cost reduction
actions were implemented it was possible to confirm that they also brought significant
improvements to the environmental conditions, which were measured by the firm
Eco efficiency levels before and after the cost reduction implementations.
Keywords: Value
analysis; Eco efficiency; Textile industry.
1. INTRODUCTION
In
the globalized corporate environment many trends resulting from market or legal
pressures end up being adopted by firms. Sustainability is one of these
subjects, comprising its three pillar structure: economic efficiency,
environmental protection and social justice (DESPEISSE et al., 2012; LUCATO et
al., 2013a). Amaral (2002) defines sustainable development in line with the
Brundtland report, i.e., it is the development that fulfills the present needs
without compromising the ability of future generations to meet theirs. The
sustainable development is a subject currently present in the manufacturing
discussions. However it has not been widely explored by small companies in
Brazil or worldwide (SILVA; MEDEIROS, 2004). Most of the researches are still
focused in the large organizations, even though some initiatives can be found
in the literature mostly considering pilot projects to enhance the entrepreneur
conscience regarding the environmental issues (VERFAILLE; BIDWELL, 2000).
According
to the World Business Council for Sustainable Development (WBCSD), the Eco
efficiency means generating more value with less impact (VERFAILLE; BIDWELL,
2000). It aggregates the essential components to enhance the economic and
environmental progress through a more efficient utilization of the production
resources, generating at the same time lower emissions to the environment (SCHMIDHEINY, 2000).
In fact, based on the statements by Battaglia
and Bergamo (2010) and Santana and Massarani (2005), firms have frequently
employed cost reduction techniques like value analysis to pursue improvements
in their manufacturing processes aiming at reducing their costs to increase
their profits or their competitiveness. However, it has been observed in the
literature that when such procedures are employed, very rarely the
environmental aspects are taken into consideration.
Hence,
the central objective of this paper is to demonstrate that in parallel to the
cost reduction efforts, it is possible to obtain significant environmental
gains to be measured through the firm Eco efficiency levels before and after
the cost reduction actions. This was done through a single case study in which
the value analysis was applied to the manufacturing process of a company
belonging to the Brazilian textile sector. In such study, it was possible to
verify that the original objective of the company management when applying the
value analysis technique was solely to obtain manufacturing cost reductions.
After the implementation of the value analysis actions required to lower the
production costs it was possible to confirm that they also brought relevant
contributions to the environment, as the firm Eco efficiency level increased
meaningfully.
2. LITERATURE REVIEW
Value
analysis is a methodology that guides the organization efforts to maximize its
results using problem restructuring in the product design phase (SANTANA;
MASSARANI, 2005). According to Santana and Massarani (2005), the product design
should be defined based on the functions it should perform and not based on its
components. To maximize the final result
to be obtained by a given product, engineers should start from the function
diagnosis and study alternative ways to perform them. This can be done through
the resolution of a functional problem, the implementation of cost reductions
or the improvement of the product performance.
To
Cooper and Slagmulder (1997), the value engineering is a continuous study of
the factors affecting the product cost, to find ways to reach the specified
cost objective without sacrificing the quality and reliability standards. Its
final goal is to reduce the manufacturing costs and related wastes through the
implementation of project and process improvements (LESTER, 2013). Tanaka
(1993) states that value engineering is not just an intellectual work that the
designers and engineers usually perform in their labs and offices. It should be
an effort aiming at improving the factory floor and production.
Conversely,
for an organization to appraise its performance it is necessary the utilization
of performance indicators that will be used to express the results of its
different processes (ABNT, 2004). Verfaille and Bidwell (2000) indicate that
the main objective of using environmental performance indicators is to
contribute with the performance improvement of the organizations and monitor
them with transparent, verifiable and relevant metrics for both the
organization managers and also the remaining stakeholders. Verfaille and
Bidwell (2000) state that the Eco efficiency can be measured by a relationship
considering the two eco-dimensions: the economy and the ecology. This is
accomplished as expressed in equation 1.
(1)
To adequately measure the Eco
efficiency in a company following such general concept, Verfaille and Bidwell
(2000) suggest the utilization of two kinds of indicators. The first is called
the general type and is formed by indicators that can be used by almost all
organizations. Besides being universally relevant, they refer to a global
environmental concern, being their definitions generically established and
accepted.
The
indicators that do not fit into this category are named business specific. In
this case, their utilization will depend on the specificities of one particular
business or sector. These indicators are not less important than those of the
first group even though they are less stringent in their utilization.
The Eco
efficiency performance profile of a company should include both types of
indicators and should be measured in two steps: i) an evaluation through time
of the absolute values of the selected indicators to measure the product or
service value and their respective environmental influence (comparing those
values for two consecutive periods of time n and n+1), and ii) the calculation
and measurement through time of the Eco efficiency ratios (product or service
value divided by its environmental influence). The progress of these two sets
of indicators through time will enable the organization to have an adequate
understanding of its Eco efficiency evolution (VERFAILLE; BIDWELL, 2000). To
establish the general type indicators Verfaille and Bidwell (2000) suggest for
the product or service value: i) the physical quantity of goods or services
delivered to clients, and ii) net turnover. For the environmental influence
they recommend: i) energy consumption, ii) material consumption, iii) water
consumption, iv) green-house gas (GHG) emissions, and v) ozone depleting
substances (ODS) emissions.
The literature that deals with Eco
efficiency shows that its measurement has been done, almost exclusively,
considering the environmental performance of a company considered as a whole (VERFAILLE;
BIDWELL, 2000; SCHMIDHEINY, 2000; KOUSMANE; KORTELAINEN, 2005). However, it has
not been located in the literature any theoretical or practical impossibility
that would not allow the utilization of the same set of indicators to measure
the Eco efficiency of a manufacturing process or even of a single piece of
equipment. Nevertheless, there is a problem to do that.
As
described earlier, the Eco efficiency progress measurement is done through the
simultaneous monitoring of several individual indicators. Hence, there is a
fair probability that different indicators move in opposite directions and, as
a result, the traditional way of measuring the Eco efficiency could not tell if
the Eco efficiency as a whole improved, worsened or remained constant. To
overcome such difficulty, Lucato et al. (2013b) suggested that the Eco
efficiency level of a manufacturing process P, in a given moment t (EPt) could
be calculated by the equation:
(2)
where:
e1, e2, e3, .., en are each one of the n Eco efficiency indicators selected for
the process P and α = 360 º / n. Using the equation 2 it was possible to
determine the Eco efficiency level for the process chosen by this work.
3. METHODS
As mentioned before, the central
objective of this paper is to generate theoretical knowledge and practical
insights on how the firms could use the improvements in their manufacturing
processes as a tool to also generate an increase in their Eco efficiency level. To reach that goal, the following
research question was established: The
implementation of actions aiming to reduce the manufacturing cost of companies
through the utilization of the value analysis technique could also generate, in
parallel, improvements in their Eco efficiency level?
To
answer that question this paper investigated the value analysis practices and
the Eco efficiency level in a dyeing and
washing company belonging to the Brazilian textile sector. The case study
method was selected because the research involved questions of the “how and/or
why” type and also investigated an actual phenomenon in a real context where
the borders between them were not clear Yin (2009).
To select the company considered in
the case study, Patton (1990) recommends the utilization of purposeful
sampling, i.e., cases from which the researcher could extract relevant
information about the subjects that are significant for the research. Among the
several strategies proposed by Patton (1990) to choose purposeful samples, this
paper considered the typical case sampling in which the organization to be
chosen should present a structured method to implement improvements in its
manufacturing process.
In line with this assumption, two
criteria were established to select the company to be considered in the case
study: i) it should have recently implemented cost reduction projects using
value analysis, and ii) it should grant the researchers full access to the data
and information required to support this research. Following these criteria, it
was chosen a small textile company located in the state of Parana in Brazil
which dedicated to dyeing and washing jeans clothes. It is a small national
family owned firm employing about 50 people and with a US$ 3.5 million annual
net turnover.
As
a procedure to collect data in the elected company, it was decided to use the
semi-structured interview because it is considered the best option when
researching through a case study (Bryman, 1995; Collins and Hussey, 2003).
Patton (1990) also endorses this recommendation recognizing that this data
gathering technique should be employed whenever the researchers need
flexibility to obtain information. To conduct the interviews and assure a
uniform content in all them, an aide-memoire
was prepared containing the relevant questions to be asked during the
conversations with the interviewees.
As
a result of the interviews, it was possible to note that the company under
study did not take into account any environmental issues as part of its cost
reduction efforts. To evaluate if those actions would also impact the
manufacturing process environmental conditions, the researchers measured the Eco
efficiency levels of the dyeing and
washing area before and after the cost reduction implementation. To do that
they initially defined the environmental performance indicators for the process
area under evaluation, following the recommendations made by the WBCSD (VERFAILLE; BIDWELL, 2000).
As product or service value it was
decided to use the monthly average net turnover and after a thorough evaluation
of the dyeing and washing process the following indicators were selected to
describe the environmental influence: electric energy consumption, the firewood
consumption (used as heat source to power the boilers) and water
consumption. As a result three Eco
efficiency ratios were established
following the WBCSD concept (product or service value / environmental
influence), as shown in Figure 1.
Figure
1. The Eco efficiency indicators
selected for the dyeing and washing process
Indicators |
Product or service value |
Environmental Influence |
Eco efficiency ratios |
e1 |
MNT Monthly net turnover [US$] |
MEEC Monthly electric energy consumption [Kwh] |
MNT / MEEC [US$ / Kwh] |
e2 |
MNT Monthly net turnover [US$] |
MFC Monthly firewood consumption [10 cm3] |
MNT / MFC [US$ / 10 cm3] |
e3 |
MNT Monthly net turnover [US$] |
MWC Monthly water consumption [10 cm3] |
MNT / MWC [US$ / 10 cm3] |
It should be mentioned that according to the
recommendations made by Lucato et al. (2013b), the utilization of the equation
2 described earlier in this paper requires that the values assumed by the Eco
efficiency ratios (e1, e2
and e3) should have the same orders of magnitude, reason why the
units of measurement shown in Figure 1 were considered in this study. Once the Eco
efficiency ratios were defined, the next
step was to consider the selected ratios in the equation 2 to calculate the Eco
efficiency level of the dyeing and
washing process as follows:
(3)
By
using the equation 3 it was possible to calculate the Eco efficiency level of the process under evaluation before
and after the cost reduction implementation.
4. CASE STUDY
As stated before, the case study was
developed in two consecutive phases. Initially, the value analysis implemented
by the firm under evaluation was deeply appraised by the researchers and the
resulting economic gains were registered. Then, based on the information
obtained, the researchers calculated the Eco efficiency level of the dyeing and
washing process before and after the value analysis implementation. Results are
reported as follows.
4.1.
The Financial Gains Resulting
from the Value Analysis Implementation
The value analysis implementation
was performed by the company under study following the subsequent steps. As an
initial stage, the objectives and goals for the cost reductions were
established. As a performance indicator to gauge the reduction intents the some
attributes of the manufacturing cost was defined. Also the implementation team
was put together comprising one chemist and two manufacturing engineers.
Finally an action plan was established considering the products and process to
be evaluated.
As
a second step, in the information phase, new options for raw material and
process suppliers were searched. In parallel all the process sheets were
revised and some typical product / process routings were selected to enable the
determination of their respective manufacturing costs. Then the analysis phase
began with the implementation team developing several meetings to collect
process improvement ideas and possibilities of cost reductions as well as to
evaluate eventual impacts on the organization resulting from the planned
modifications. The time required to implement the changes was also assessed. As
a result of this process, the implementation team proposed to replace the
current type of chemical products, adopting in parallel a new dyeing and washing
process to comply with that adjustment.
In
the creativity phase the revised specifications were presented to several
chemical product vendors, asking for their comments and suggestions to reduce
costs and increase output. The best alternatives according to the value
analysis team were tested in real life by means of pilot runs in which all the
manufacturing organization took part and emitted their respective comments
regarding each alternative tried. As a result, a new set of raw materials and a
revised manufacturing process were selected by the implementation team as part
of the judgment phase. Finally, in the implementation stage the selected raw
materials were acquired in quantities required to support the production needs
and the new process was put in place according to the plans established for
that purpose.
Consequently,
the aforesaid actions enabled the firm to accomplish significant cost
reductions as shown in Table 1. The gains obtained as a result of the value
analysis implementation took into account the monthly average consumption for
each resource considering two comparable periods: the second half of 2011
(before the implementation of the value analysis) and the second half of 2012
(after the implementation of the actions described above and allowing some time
for the process to stabilize). However, it is important to point out that the
volume of dyed and washed products in those two periods were significantly
different as the average monthly net turnover increased more than 60% as shown
in Table 1 (from US$ 211 thousand in 2011 to US$ 351 thousand in 2012). To
consider the effects of such a growth on the gains obtained, it was calculated
what the consumption of each resource would be in the second half of 2012,
assuming that no improvement actions were implemented. Then, comparing the
actual consumption of each item against those latest numbers it was possible to
determine the actual amount of cost saved.
As can be seen, cost savings were
significant: it was possible to obtain a 42.8% reduction in the raw material
cost, 45.7% decrease in the electric energy cost, 43.9% cost improvement in the
firewood cost and 10% savings in the cost of water consumption. In total it was
possible to save almost 43% in the considered items of the manufacturing cost.
Table
1. Cost savings resulting from the value analysis implementation
(Average Monthly Values in US$) |
W/o Value Analysis [S2 2011] |
W/o Value Analysis [S2 2012] |
With Value Analysis [S2 2012] |
Reduction [US$] |
Reduction [%] |
Net Turnover |
211,058 |
350,992 |
350,992 |
||
Raw Material Consumption |
31,153 |
51,808 |
29,614 |
22,194 |
42.8 |
14.8% |
14.8% |
8.4% |
|
|
|
Electric Energy Cost |
12,883 |
21,425 |
11,637 |
9,788 |
45.7 |
6.1% |
6.1% |
3.3% |
|
|
|
Firewood Consumption |
13,221 |
21,987 |
12,327 |
9,660 |
43.9 |
6.3% |
6.3% |
3.5% |
|
|
|
Water Consumption |
1,644 |
2,734 |
2,471 |
263 |
9.6 |
0.8% |
0.8% |
0.7% |
|
|
|
Total |
58,901 |
97,953 |
56,049 |
41,904 |
42.8 |
27.9% |
27.9% |
16.0% |
|
|
4.2.
Environmental Impact
Resulting from the Value Analysis Implementation
As described earlier in this paper,
the objective considered by the firm chosen to support the case study was to
apply the value analysis technique to obtain cost reductions in its
manufacturing process. Environmental concerns were never considered throughout
the value analysis implementation process.
Nevertheless, to answer the central
research question proposed by this work (can the value analysis technique also
generate improvements in the Eco efficiency level?) the researchers obtained the required
information that allowed them to calculate the Eco efficiency indicators as proposed in Figure 1.
For that purpose it were obtained
the average monthly consumptions for electric energy (in Kwh), for firewood (in
10 cm3) and for water (also in 10 cm3), considering the
two reference periods: second half of 2011 and second half of 2012. Those
values were related to their respective average monthly net turnover to
calculate the Eco efficiency indicators
as proposed by this study. The results are presented in Table 2.
Table
2. Calculation of Eco efficiency indicators and respective process Eco
efficiency levels
(Average Monthly Values ) |
|
W/o Value Analysis [S2 2011] |
With Value Analysis [S2 2012] |
Variation % |
|
Net Turnover (R$) |
|
211,058 |
350,992 |
||
Electric Energy Consumption |
Kwh |
28,781 |
31.972 |
||
e1 [US$ / Kwh] |
7.33 |
10.98 |
49.7 |
||
Firewood Consumption |
10 cm3 |
25,400 |
23,700 |
||
e2 [US /10 cm3] |
8.31 |
14.81 |
78.2 |
||
Water Consumption |
10 cm3 |
34,500 |
51,900 |
||
e3 [US1/10 cm3] |
6.12 |
6.76 |
10.5 |
||
Eco efficiency Level |
EM |
22.66 |
48.76 |
115.1 |
|
As can be seen, the indicators show
an Eco efficiency increase of 49.7% for
electric energy, 78.2% for firewood and 10.5% for water. Moreover, the
utilization of the formula (2) above enabled the calculation of the Eco
efficiency levels for the dyeing and
washing process, before and after the value analysis implementation. It
increased from 22.66 in 2011 to 48.76 in 2012, resulting in an improvement of
more than 115% in the process Eco efficiency level.
5. CONCLUSIONS
Sustainability
has currently been a relevant theme in corporate discussions. However, it has
not been considered in the vast majority of small companies, where short term
survival ends up defining all the strategic and operational priorities. The
case study presented by this paper confirmed this statement by showing the
utilization of a structured tool to reduce manufacturing costs (value analysis)
that did not consider the environmental impacts resulting from the actions
taken.
Nonetheless,
by measuring the Eco efficiency level of
the manufacturing process under analysis it was possible to demonstrate that
the activities defined to reduce costs also generated relevant environmental
improvements, representing an important contribution to the sustainability
level of the company and giving a favorable response to the proposed research
question.
Hence,
this paper brings some contributions to the body of knowledge of Production and
Operations Management as it demonstrates that cost reduction processes can also
bring environmental improvements, even if they have not been formally
considered in the cost savings procedures. At the same time, the content
presented here brings for the practitioners the idea that the environmental
impacts of their manufacturing activities can be reduced without additional
costs or investments.
On the contrary, as it was possible
to verify in the case presented, the environmental improvement was obtained by
simply measuring the respective Eco efficiency indicators and Eco efficiency levels before and after the cost reduction
implementation. Usually, actions aimed at reducing the manufacturing costs can
also favor an environmental gain.
Sure
enough, this work has some limitations. First, as it involves a single case
study, the conclusions obtained cannot be generalized. Also, the work developed
herein considered only one kind of manufacturing process in the context of the
textile industry. It is a fair supposition that the same results could not be
obtained in different situations. As a result, to enlarge the possibilities of
consideration of the results found by this paper, future research should be
developed assuming a bigger number of firms, comprising different manufacturing
processes belonging to different industrial sectors.
6. ACKNOWLEDGMENTS
The authors are grateful to the Research
Backing Fund of UNINOVE – Universidade Nove de Julho for the financial support
to develop this work.
REFERENCES
ABNT – ASSOCIAÇÃO BRASILEIRA DE NORMAS
TÉCNICAS. 2004. NBR ISO 14031: Gestão
Ambiental – Avaliação de Desempenho Ambiental – diretrizes. ABNT, Rio de
Janeiro.
AMARAL, S. P. (2002). Indicadores de sustentabilidade ambiental,
social e econômica: uma proposta para a indústria de petróleo brasileira.
In: VI Simpósio Ítalo Brasileiro de Engenharia Sanitária e Ambiental – SIBEASA,
Vitoria, ES, Brazil.
BATTAGLIA, D.; BERGAMO, E. S. (2010).
Análise de valor e engenharia de valor: uma ferramenta de redução de custos em
um projeto. P&D em Engenharia de
Produção, v. 8, n. 3, p. 102-115.
BRYMAN, A. (1995). Research methods and organization studies.
Routledge, London.
COLLINS,J.;
HUSSEY, R. (2003). Business research
methods. McGraw-Hill, New York, NY.
COOPER,
R.; SLAGMULDER, R. (1997). Target costing
and value engineering. Productivity, Portland.
DESPEISSE,
M.; MBAYE, F.; BALL, P. D.; LEVERS, A. (2012). The emergence of sustainable
manufacturing practices. Production
Planning & Control, v. 23, n. 5, p. 354-376.
KUOSMANE,
T.; KORTELAINEN, M. (2005). Measuring ecoefficiency of production with data
envelopment analysis. Journal of
Industrial Ecology, v. 9, n. 4, p. 59-72.
LESTER,
A. (2013). Project management, planning
and control. 6th ed. Elsevier, Waltham.
LUCATO, W. C.;
VANALLE, R. M.; SANTOS, J. C. S. (2013a). A practical
evaluation of the industrial environmental practices and performance in the São
Paulo metropolitan area. Espacios (Caracas), v. 34, n. 6, p. 3-13.
LUCATO, W. C.; VIEIRA JR., M.; SANTOS,
J. C. S. (2013b). Measuring the ecoefficiency of a manufacturing
process: a conceptual proposal. Management
of Environmental Quality, v. 24, n. 6, p. 755-770.
PATTON,
M. Q. (1990). Qualitative evaluation and
research methods. Sage, Newbury Park.
SANTANA,
A.; MASSARANI, M. (2005). Engenharia do valor associada ao
DFMEA no desenvolvimento do produto. SAE - Society of Automotive Engineers, São Paulo.
SCHMIDHEINY,
S. (2000). Ecoefficiency – creating
more value with less impact. WBCSD – World Business Council for Sustainable
Development, Geneva.
SILVA, G. C. S.;
MEDEIROS, D. D. (2004). Environmental management in Brazilian companies. Management of Environmental Quality, v.
15, n. 4, p. 380-388.
TANAKA,
T. (1993). Target costing at Toyota. Cost
Management, v. 7, n. 1, p. 4-11.
VERFAILLE,
H. A.; BIDWELL, R. (2000). Measuring
ecoefficiency – a guide to reporting company performance. WBCSD – World
Business Council for Sustainable Development, Geneva.
YIN,
R. K. (2009). Case study research:
design and methods. 4th ed. Sage, Newbury Park.