Sustainability Innovation Leaders - Profit
In this installment of leaders, we will be covering two companies and a philosophy:
- We'll start with Packsize, a unique on-demand box creation system for shipping and fulfillment operations, especially those which are e-commerce centric.
- From there, we'll transition from discussing the negatives of shipping air to the positives of rebuilding heavy iron when we take a look at Caterpillar's Remanufacturing operations.
- And we'll close with a talk from Michael Porter, a leader in business strategy and long-time Harvard business professor, who is discussing the power of profit for social good.
Since Profit is usually covered in depth in public financial filings like 10K (and not GRI), I will be using VISAS to discuss the innovations and how the companies communicate the innovations more so than the sustainability reports.
Please watch the following 3:26 video.
Video: Packsize: Packaging for all business types (3:26)
Shipping boxes are loaded with inefficiency: either you inventory a tremendous number of different sized boxes and pay a high price per box due to low volumes, or you limit the number of sizes and waste money and material on void filler (i.e. Styrofoam peanuts) and pay unnecessarily high shipping costs due to empty volume. Packsize is a machine that creates perfectly-sized boxes on-demand as an order is fulfilled. Very little, if any, void fill is needed, and shipping costs are reduced significantly.
With the advent of major online retailers and e-commerce being a major area of growth, parcel shipments reach new records virtually every year. During the holiday season in 2014, FedEx saw a 9% increase in shipments to 290 million, and UPS an 11% increase to 585 million. Despite this massive growth over the past decade, the box itself had remained unchanged and inefficient.
Furthermore, one has to question the sustainability of brands shipping massively oversized boxes, as well as how much they are wasting on those boxes.
Not terribly inspiring, but accurate:
"We are the global leader in On Demand Packaging®. With Packsize as your packaging company, making boxes is easier than printing labels. Smarter packaging means fewer planes, fewer trucks, and less material."
The patented software and equipment is the real star of the Packsize offering. They hold multiple patents for the machinery, and it provides speeds sufficient to meet the demands of even high-volume shippers like Staples and REI. It is smart enough to size boxes exceptionally well and with minimal waste. Furthermore, a little bit of business model innovation in that the machines are leased for $1 per year to companies, with Packsize making its money on the cardboard supply (and therefore, actual usage).
The technology, while simple in concept, is a game-changer.
Very little on the emotional side, though Packsize does share some case study videos from satisfied companies. It also does a nice job with some white papers on use cases.
They do leverage their client list heavily in most materials, and it speaks volumes: Staples (the world's second largest online retailer), Rubbermaid, GE, Crutchfield, REI, Andersen Windows, and more.
For what sustainability materials they do have, structure is lacking. It is mostly trivia on packaging waste more than covering how many tons of GHG are prevented from correctly-sized boxes, etc.
They're a company making what is a highly sustainable product and using sustainability buzzwords, but they might not really understand sustainability.
Please watch the following 4:18 video.
Video: Caterpillar Remanufacturing Overview (4:18)
It all actually started as a favor in 1973. Ford, a major customer, asked Caterpillar to supply it with rebuilt truck engines. "It was something we had to do," according to Steven L. Fisher in a 2005 Bloomberg article.
The real insight would come when Caterpillar realized how profitable the remanufacturing division could be.
To make profit multiple times on the same Caterpillar part while providing customers with outstanding service and a factory warranty. An engine connecting rod can be rebuilt up to seven times during its life, and CAT Reman will turn a profit on every single one of those "seven lives" while keeping that iron out of a scrap yard or landfill.
To give you a feel for the size of the Remanufacturing division, it remanufactured 500,000 tons of equipment from 2004-2014, and revenue is predicted to grow at at roughly 20% annually.
From "The Benefits of Remanufacturing":
GOOD FOR CUSTOMERS
Cat remanufactured parts and components provide same-as-new performance and reliability at fraction-of-new costs—while reducing the impact on the environment. And over-the-counter availability gives customers more options at repair and overhaul time. The results are maximum productivity and lower costs.
GOOD FOR BUSINESS
The remanufacturing program is based on an exchange system where customers return a used component (core) in return for our remanufactured products. Reman options are one more way we support our customers and help lower owning and operating costs.
GOOD FOR THE ENVIRONMENT
Caterpillar is a global leader in remanufacturing technology, recycling more than 120 million pounds of end-of-life iron annually. Because we are in the business of returning end-of-life components to same-as-new condition, we reduce waste and minimize the need for raw material to produce new parts. Through remanufacturing, we make one of the greatest contributions to sustainable development—keeping nonrenewable resources in circulation for multiple lifetimes.
While the program may seem straightforward, the logistics of returns, fulfillment, and refunds, let alone the thousands of remanufacturing processes themselves, are daunting. Caterpillar is famously tight-lipped about its manufacturing processes, but to be able to resurface and rebuild parts with service lives in the tens of thousands of hours is an engineering achievement, however it is accomplished.
Caterpillar gives the Reman division significant airtime in both its Sustainability Report as well as its core marketing, sharing stories of both success and satisfied customers.
They are especially proud of the fact that their "take back" percent, that is, the percentage of parts that are returned for remanufacturing, hovers between 93% and 95%.
They capture achievements in a few different ways throughout their CSR and marketing materials, and all are illustrative: lbs of EOL material remanufactured and placed back into service, % of total parts remanufactured, etc.
They do a solid job of making sure that the emphasis they place on the Reman program in their sustainability program is reflected in their sustainability goals in a meaningful way. In fact, two of their nine major sustainability performance measures are Reman specific indicators.
Caterpillar now considers remanufacturing in the product design process so that it may become ever more efficient... and profitable.
Please watch the following 16:24 video. If the video is not displaying on the page, please view it on the Ted website. A transcript is available on the external site as well.
Video: The case for letting business solve social problems (16:24)
While I do find that Porter makes quite a few good points in this lecture, I tend to be more of a fan of his writings on the topic (namely his paper you read on the last page).