CRADLE TO CRADLE MANUFACTURING

CRADLE TO CRADLE MANUFACTURING: MOVING BEYOND THE INDUSTRIAL REVOLUTION

Authors
Jeremy Dobbie (MBA 2006) Karen Libby (MBA 2006) Arlan Peters (MBA 2006) Charlie Sun (MBA 2006) WHITE PAPER PREPARED BY MBA STUDENTS UNIVERSITY OF NORTH CAROLINAS KENAN-FLAGLER BUSINESS SCHOOL
AT THE

Abstract
The current manufacturing model for most corporations, born out of the Industrial Revolution, results in a production process that burdens raw material resources and creates significant waste streams, both during manufacturing and at the end of a products life. An alternative model, cradle to cradle design and manufacturing, seeks to address these challenges by making the manufacturing process a closed loop system. In this approach, materials are perpetually circulated within a cyclical supply chain, with all waste products being recycled or reused as material inputs in the supply chain. This paper explains the benefits and challenges of cradle to cradle manufacturing, using two case studiesFuji Xeroxs remanufacturing program and the carpet industrys recycling initiativeas examples. The authors present a framework for implementing cradle to cradle processes, recommending a phased approach to implementation.

Publication Date
2005
2005 Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC, USA. Reprinted by permission. Available online at www.cse.unc.edu. This white paper was prepared by MBA students for class MBA251B Sustainable Enterprise, taught by professors Albert H. Segars and James H. Johnson. It is reprinted for educational purposes. Citations and source accuracy have been reviewed, but cannot be guaranteed; clarifications or comments may be directed to cse@unc.edu.

Keywords: cradle to cradle, manufacturing, ecoefficiency, triple bottom line, Fuji Xerox, Carrier, BASF, Shaw Industries, Interface, carpet industry, Bill McDonough, remanufacturing, recycling, waste reduction, supply chain, closed loop

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CRADLE TO CRADLE MANUFACTURING: MOVING BEYOND THE INDUSTRIAL REVOLUTION

Table of Contents
I. Executive Summary II. The Problem: Current Manufacturing Models Introduction: Historical Perspective III. The Solution: Cradle to Cradle Manufacturing General Description New Metrics: Triple Top Line New Business Model: Service Business C2C in action: Case Studies Fuji Xerox The Carpet Industry Cost-Benefit of Cradle to Cradle Manufacturing Continuum of C2C Full Implementation Plan Conclusion

I. Executive Summary
The continued utilization of a manufacturing model that focuses only on the end product is myopic and has resulted in dwindling raw material sources (clean water, fossil fuels, and minerals), increased pollution, and a tremendous build up of industrial and consumer waste. A new paradigm exists for manufacturing, and this has the potential to turn the manufacturing industry on its head, resulting in a product life-cycle perspective that runs from cradle to cradle. This process reduces costs for the manufacturer, improves the environment, and benefits the consumer by producing products that mirror the lessons learned from nature.

II. The Problem: Current Manufacturing Models

The current manufacturing model, which exists to some degree in all developed and developing countries around the world, was born out of the Industrial Revolution and started in motion a process for building products which does not match the current supply of global resources available to the worlds growing population of 6 billion people. The current model is based on a product-centric view: the most important engineering challenges involve the creation of the product. For this reason, engineers are not incentivized to think about the inputs or the by-products of the production process. This system results in a production process that burdens precious raw materials sources, releases toxic pollution into bodies of water, and requires consumers to dispose of the product when it reaches the end of its useful life. At the very least, this model results in the rapid build up of municipal landfills, and at the extreme it results in toxic chemicals and/or potential future inputs taking up huge amounts of land, affecting society, the environment, and the local communities that have to store this waste.

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Introduction: Historical Perspective

The Industrial Revolution began in the early 1800s, at a time when science and engineering skills were growing at a tremendous rate. The result of this new level of understanding was the development of steam driven locomotives, mass production capabilities, and the explosion of gadgets, ornaments, and domestic clutter. 1 Instead of relying on individual artisans to make products at the town or village level, mass production facilities could be set up in urban centers, and products could be shipped across the globe. In addition to the scientific knowledge available at this time, two other key factors influenced the development of this model of manufacturing: abundant raw materials and low population levels. In 1800, nearly 60% of exports from the UK crossed the Atlantic. 2 On the return trip home, those same ships were full of raw materials from the U.S. In 1800, the U.S. population was 5.3 million people. On a per capita basis, the cotton, water, grain, and wood available for manufacturing must have seemed endless. Even on a global scale, the world population in 1800 was only 980 million. The manufacturing model developed under those conditions could not possibly anticipate the needs of a modern world with a population of over 6 billion people. The traditional manufacturing system is a product of the Industrial Revolution framework where the raw materials are extracted from the earth, products are made in the factory, and the waste is dumped in landfills. Consequently, our environment is spoiled and the costs to society are prohibitively high.

III. The Solution: Cradle to Cradle Manufacturing General Description

Cradle to cradle (C2C) manufacturing is a model that mimics the raw material use observed in the Earths natural ecosystems. In nature, raw materials are constantly built up and broken down in diverse production processes, but few of the by-products of these processes end up as waste. Instead, organisms tend to cluster, and utilize the by-products of one process for other distinct processes in the same vicinity. By learning from the more efficient manufacturing processes found in nature, industrial manufacturing can reduce both raw material use and waste. The C2C model could transform the manufacturing industry by developing processes where the end products are created within a closed-loop system, i.e., materials are perpetually circulated within a cyclic supply chain. Maintaining the raw materials in a closed loop system instead of a linear system maximizes material value while protecting the environment; traditional waste products remain within the production facility rather than ending up in a landfill. The C2C manufacturing paradigm has the potential of spawning the next industrial revolution. 3 This new model offers a compelling alternative to the traditional manufacturing system.

New Metrics: Triple Top Line

The most successful businesses are, by design, innovative, proactive, and strategic.

1 2

MacLeod, C., Industry and Invention. www.bbc.co.uk, 2001. Ibid. 3 McDonough Braungart Design Chemistry, LLC, http://www.mbdc.com/c2c_home.htm. W05-003 2

Traditional thought about manufacturing, to date, has often placed financial goals at odds with environmental stewardship and social equity. Businesses have evolved in their treatment of nonfinancial issues. With regard to the environment, that evolution has moved from post-industrial apathy, to regulation compliance, to eco-efficiency. The latest guiding principle is that of the triplebottom-line whereby businesses measure the merits of their decisions, products, processes according to how they perform financially, environmentally, and Triple-Bottom-Line Triple-Top-Line socially. The triple-bottomEnd of Pipe Design Design for Sustainability line framework is an important tool for discussing Create restorative products Mitigating Liabilities the interaction between financial, environmental, Balances Compromises Wholly positive processes and social spheres. Slows Down Impact Increase Regeneration However, even operating from the perspective of the triple-bottom-line, businesses usually seek to maximize their economic gain while trying to minimize their impact on the environment. The result is that the triple-bottom-line becomes a tool to balance compromises and mitigate impacts, rather than eliminate them. What if you could produce products that were wholly positive products that enhance the well being of nature and culture while generating economic value? This is the basis of the Triple-TopLine paradigm. Design for the triple top line follows the laws of nature to give industry the tools to develop systems that safely generate prosperity. In these new human systems, materials become food for the soil or flow back to industry forever. Value and quality are embodied in products, processes and facilities so intelligently designed, they leave footprints to delight in rather than lament. When the principles of ecologically intelligent design are widely applied, both nature and commerce can thrive and grow. 4 This idea of the Triple-Top-Line helps fuel innovation in design and is key for the successful design of cradle-to-cradle products.

New Business Model: Service Business

One of the challenges of cradle-tocradle production is how to Product Model Service Model encourage businesses to take responsibility of their products Refrigerators Refrigeration from the beginning to the end of the Coolness/Warmth Air-Conditioners/Heaters product life cycle. Traditional linear manufacturing practices do Cars Transportation not account for the cost of disposal, pushing those costs down the chain Solvents Per sq inch degreasing of users until they rest squarely on the shoulders of society. Is there a way in which businesses can take responsibility of disposal and reap the benefits of maximizing the utility of the product they create? A new logic is shaping business thinking. Instead of providing products many businesses are providing services defined directly by customer needs, and taking advantage of the improved efficiencies they create in producing those services. One example is Carrier, the worlds leading manufacturer of air-conditioners. Rather than just producing air-conditioners, Carrier is experimenting with providing air cooling services. Their reasoning is that customers do not want a product as much as they want the service that product
4

http://www.mcdonough.com/writings/design_for_triple.htm 3

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offers. Carrier guarantees that it will maintain ambient air temperature with in comfortable range. Any efficiency gained in providing that service goes directly to Carriers bottom line, encouraging the company to be as sustainable as possible. Furthermore, Carrier is partnering with other service providers to retrofit buildings so that they need less air-conditioning. In doing so Carrier is redefining its product from air-conditioners to comfort services. Benefits to the Provider: Bottom line gains from maximizing efficiency Reduced volatility in sales Novel business solutions driven by service relationships Quicker, more direct connection to customer needs Opportunities for innovative partnering

Benefits to the Client: 5 Payments are with pretax dollars Frees up bank credit for other investments Expenditures are more steady, consistent, and predictable Easier to adjust service according to changing needs Eliminate "Hidden Costs of installation and disposal Interest Rate Stability Lower assets and capital investments improve ROA and ROI measurements.

C2C in action: Case Studies

Fuji Xerox Fuji Xerox is a manufacturing company based in Tokyo, Japan. It has research facilities in both Palo Alto, CA and Nakia, Japan. In addition to these R&D centers, the company has manufacturing facilities in the Peoples Republic of China and Taiwan. The sales and marketing offices are in the U.S., Southeastern Asia, China, Taiwan, Japan, Australia, New Zealand and South Korea. Fuji Xerox, also known as the Document Company, manufactures most office equipment. The company is considered a poster child for corporate social responsibility especially with respect to the environment. In fact, Fuji Xerox was the first company in Japan to achieve the status of zero landfill use for their used products. 6 Remanufacturing within Fuji Xerox started in the 1980s when the company began to lease office equipment to customers and take back used machines at the end of their useful life. Xerox would then disassemble these machines and sell the used parts to independent contractors who would then resell them to customers. However, as the quality of these parts deteriorated, Fuji Xerox decided to bring everything in-house. 7 The new program was called the asset recovery process. In this process, the used parts were combined with some brand new components to rebuild machines to the original product specification. The quality of these remanufactured products was comparable to that of the new ones. This invention at Fuji Xerox was dubbed the Cyclic Supply Chain. Figure 1 demonstrates the invention. The success of Fuji Xeroxs program could be attributed to the integration of its information systems. The recovery rate of products is currently at 98 percent and the efficiency of stock replenishment for distributors and consumers is also improved. The integration of
5 6

http://www.interfaceinc.com/us/services/Leasing Fuji Xerox, http://www.fujixerox.com.au/environment/eco_manufacturing.jsp 7 Ayers, R, Ferrer, G, and Leynseele, T.Y., 1997 Eco-Efficiency, Asset Recovery and Remanufacturing, European Management Journal, vol.115, no. 5, pp. 557-574. W05-003 4

information system not only was critical to the recovery process, but also played an important role in facilitating knowledge sharing within the supply chain. According to the Fuji Xerox management, the benefits of the cradle to cradle manufacturing technique include: Reduction in waste; lower disposal costs. Improved communication with stakeholders. Improving existing manufacturing systems after studying stress on earlier manufactured components.

The innovative capability was a pleasant by-product of adopting the cradle to cradle design technique. For example, the R&D group at Fuji Xerox has improved BOM costs by redesigning a 15cent spring on a roller that now saves the U.S. affiliate $40 million annually.

Repackage and transport to warehouses

Used parts Returned for remanufacturing

Raw Materials

Test & Validate

Sort & inspect

Manufacture

Warehouse

Clean & Reprocess

Remanufacture

Engineering Development

Distribution

Consumer

Figure 1: Fuji Xerox Cyclic Supply Chain

The Carpet Industry The evidence supporting the need to recycle carpet waste is overwhelming. Every year, 4 billion pounds of carpet are discarded in the United States, of which only about 1 percent is recycled. Carpet waste is especially problematic because it consumes enormous amounts of landfill space due to its bulk. The incineration of discarded carpet releases toxic chemicals, including dioxin, into the air. 8 Carpet and its production processes are highly petrochemical intensive. It takes two pounds of fossil fuel to turn one pound of feedstock into carpet. 9 Various players in the carpet industry are redefining manufacturing and business processes to utilize cradle-to-cradle production and business models that are more sustainable.

8 9

http://www.informinc.org/fact_CWPcarpet.php#note13 Hawkins, P; Lovins, A; Lovins, L. H. Natural Capitalism 1999, p. 139 5

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In the past five years Shaw Industries, one of the largest carpet manufacturers in the United States, found ways to recycle old carpet retrieved from its own customers. The recycled material is now cheaper than an equivalent amount of new raw material. In order to take advantage of the cheaper inputs Shaw Industries redesigned its $150million-a-year business of carpet tiles. Its entire carpet tile business is now made of material that Carpet Industry Ecosystem can be recycled. The company also guarantees buyers that it will recycle all carpet squares, and Up-cyclable Inputs an 800-number is stamped on the back of each BASF Nylon 6 tile for customers to call to have the tiles picked up. 10 One of the problems with the recycling process, however, is that many recyclable materials get downgraded into products of lesser value. This is called downcycling. Downcycled products ultimately end up in landfills. In answer to this problem BASF created a product called Nylon 6 which is highly stable and easily depolymerized into its precursor, caprolactum.
Recycling Companies Honeywells Nylon 6
Recycling Plant

Carpet Companies Design for recycling Service providers Reclamation services

Much of the heat used in the process can be recovered, and caprolactum can be re-polymerized and made again into Nylon 6. The entire process recovers more than 99 percent of the energy and materials used to make nylon 6 carpet yarn. 11 In 1999, AlliedSignal (now part of Honeywell International, Inc.) invested over $80 million in a carpet recycling plant that turns Nylon 6 into caprolactam. Honeywell claims that its carpet-to-carpet recycling program "will reduce oil use by 700,000 barrels, energy use by 4.4 trillion BTUs, and greenhouse gas emissions by 67 percent" each year. 12 More importantly, partnerships between BASF, carpet manufacturers and recyclers like Honeywell could create closed-loop systems for the carpet industry. Interface Inc. is taking advantage of such systems and reaping the benefits of improved efficiencies through two business models. One is a leasing program in which Interface takes responsibility for the full lifecycle installation, maintenance, and recovery of the carpet for a monthly fee. 13 The second is the ReEntry Program in which Interface reclaims existing carpet tile or broadloom and either recycles, downcycles, or repurposes it. Interface guarantees that the old carpet will not end up in a landfill and will reclaim any brand whether or not it is an Interface carpet. 14

Cost-Benefit of Cradle to Cradle Manufacturing

The number one goal for manufacturers worldwide is to produce quality products at the lowest possible cost. Included in these costs are the cost of raw material acquisition and the cost of waste disposal costs which are more significant today with increasingly strict legislation. According to one research study, in the U.S., there are over 70,000 remanufacture firms with total sales of $53 billion and average profit margins exceed 20%. 15 An additional benefit of using cradle to cradle design as indicated by the Fuji Xerox story is employee creativity. In fact, companies utilizing this model enjoy a competitive advantage from increased employee creativity. In Fuji Xeroxs case, the staff in the eco-manufacturing unit of the company perfected the cradle to cradle design process through trial-and-error. As a result, the company gained valuable insights on the usability and life

10 11

Smith, Rebecca. Beyond Recycling: Manufacturers Embrace 'C2C' Design; Wall Street Journal. Mar 3, 2005. pg. B.1 http://www.mcdonough.com/writings/promise_nylon.htm 12 http://www.informinc.org/fact_CWPcarpet.php#note13 13 Hawkins, P; Lovins, A; Lovins, L. H. Natural Capitalism 1999, p. 140 14 http://www.interfaceinc.com/us/services/Reclamation/ 15 Lund, R., 1998 :Remanufacturing: An American resource, Proceedings of the Fifth International Congress for Environmentally Conscious Design and Manufacturing, June 16 and 17, Rochester Institute of Technology, Rochester, New York. W05-003 6

of the components. In todays knowledge-based society, a learning organization will have strategic advantage over its competitors. One of the common arguments against C2C is the additional cost of training employees and small scale economy. However, this argument is flawed. Consider the case of Fuji Xerox. The company not only created a profitable C2C business model but also scaled this model globally. 16 Cradle to cradle manufacturing will also benefit the consumers. Manufacturers with reduced input costs will be able to pass some of the savings on to their consumers. Further, the society is better off due to a reduction in the waste going into landfills and less environmental deterioration. Fuji Xerox has created a transferable business model for other multinational corporations. It has demonstrated that C2C can be integrated into operations to increase competitive advantages, to provide profits, and to enhance branding. As demonstrated by the recent success of the carpet industry, the service business model works well with the C2C manufacturing process because the products remain under the control of the manufacturer. Thus, used carpet pieces become inputs in the supply chain and reduce raw material costs for the manufacturer. The savings found in the system do not end with the manufacturer. They are passed on to the consumer in the form of regular lease payments which can be expensed and reduce the customers tax payments.

Continuum of C2C
Although the theory behind cradle-to-cradle design implies feasibility, even superiority over traditional manufacturing models, achieving the ideal state in the short term is a practical impossibility. Given the challenges of remanufacturing inputs, the high capital investment to redesign production lines, and the variability across industries and products of potential re-use, manufacturers can choose from continuum of production designs to begin to incorporate sustainability. As the process and industry matures, they can strive to move toward the most sustainable approach.

Traditional Industrial ecosystems

Linear production Intake primary resources Sell final goods

Eco-Efficient

Clustering of firms Allows for continual reuse Little-to-nothing to landfill

Closed-loop
Reduce ecological impact Reduce resource intensity

Product flows from consumer to manufacturer Repossess products

Traditional Manufacturing In this approach, still the most common manufacturing design worldwide, production operates in a linear pattern. Supplies and inputs are purchased from new, fed into an assembly line, manipulated into final product which is sold to the consumer, and wastes discharged to the environment via landfill, dumping, or emitting.
16

Giuntini, R., and Gaudette, K., 2003, Remanufacturing: The next great opportunity for boosting U.S. productivity. Business Horizons, pp.41-48 7

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Eco-Efficiency This moves manufacturing steps closer to sustainability. Production lines are not altered. Instead, attention is paid to reduce the ecological footprint at all steps of the process, from sourcing to assembly to disposal. The term was first coined by the World Business Council for Sustainable Development in 1992. 17 The strategic factors behind this approach include: de-materialization, closing production loops, service extension, and functional extension. Closed-Loop Production Most forms of eco-efficiency generally continue to bring in supplies and emit wastes, albeit with lower environmental impact. The next logical step is to recapture discarded materials into inputs. Some industries, such as electronics and computing are more advanced than others in introducing recycling and remanufacturing into their supply chains. Because disposal of hazardous products is more costly, these companies have demonstrated a financial benefit from recycling these products into others. Industrial Ecosystems In this, the holy grail of cradle-to-cradle design, networks of manufacturing processes are configured in close proximity to each other. Effluent from one process is fed immediately into another process as an input. An obvious advantage of such a configuration is the avoidance of transport time and expense. Environmental gains of recycling are often mitigated by the environmental damage caused by emissions of shipping.

Full Implementation Plan

Even with management support and availability of capital, the shift from a traditional manufacturing model to a cradle-to-cradle design is dramatic, time-consuming, and expensive. As such, manufacturers can use a phased approach to integrating sustainability The Framework The framework below can be used as an initial structure to approaching cradle-to-cradle design. There is no ideal configuration that all companies can strive for. Instead, organizations should examine the most appropriate and achievable configuration specific to their product that meets their sustainability goals.

Ensure leadership commitment Create culture and human resources practices emphasizing sustainability

People

Processes

Choose sustainable products by examining supply specifications and ingredients Redesign processes to close the technical loop using recovered products

Cradle to Cradle

Partnerships
Apply for certifications by third-parties to prove commitment to sustainability Approach other manufacturers in same or different industries, who can utilize your waste or from whom you can purchase inputs

17

World Business Council for Sustainable Development. Eco-efficiency. http://www.wbcsd.org/templates/TemplateWBCSD5/layout.asp?type=p&MenuId=NzA&doOpen=1&ClickMenu =LeftMenu 8

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The Last Mile Attaining the last step in the cradle-to-cradle design process of creating industrial ecosystems is perhaps the most challenging. It involves constructing or moving plants to stay in close proximity to the supply sources. At this point, other companies enter the picture. The sustainability network extends beyond the control of a single management team. Negotiations on location, responsibility for transporting materials, and pricing must be factored into planning and cost estimates. Co-location in industrial ecosystems not only yields potential cost savings and reduced environmental impact, but it also creates a setting for idea generation. Like-minded employees and leaders must also intermingle to share best practices and innovative ideas. Synergies from immediacy need not be underestimated. But how do companies match up with others who can utilize their byproducts? Organizations such as the Triangle J Council of Governments and their Industrial Ecosystem Development Projects use a combination of geospatial software tools and survey data to plot locations and byproducts (see screenshot to right). Even without plant relocation, this project identified potential partnerships for 48% of participating facilities, all within a several county radius around Research Triangle Park, North Carolina. 18 Metrics In order to judge success in reducing environmental impact, appropriate metrics must be devised before altering practices or presuming success. Companies must candidly uphold themselves to these metrics and focus efforts on areas in which they fall short. Regular assessment and public availability are also key components to progress toward sustainability in both culture and business practices. Specific metrics will vary widely by industry and product, but examples include: Water consumption per unit of product Energy consumption by product line Energy from renewable sources Solid waste diverted from landfills Interface reports these metrics on their website and annual reports: 19

18 19

Triangle J Council of Governments. http://www.tjcog.dst.nc.us/indeco.htm Interface Sustainability. http://www.interfacesustainability.com/metrics.html 9

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Considerations of Cradle-to-Cradle Design Prove economic viability. The best way to combat organizational entrenchment is to demonstrate tangible cost savings or enhanced revenues. Traditional models for calculating Return on Investment (ROI) may not show favorable results, but incorporating previously un-captured information such as customer loyalty and environmental externalities may make the switching costs more palatable. Come prepared to illustrate these models. Engage in public policy. City and regional incentives can help foster the creation of industrial ecosystems through favorable tax arrangements. Much of the early progress for incorporating cradle-to-cradle will come from forward-thinking organizations such as BASF and Interface rather than by heavy-handed government policies. Still, governments can create an environment that rewards companies for adopting innovative, environmentally friendly techniques. 20 Scrutinize all business functions. Incorporating cradle-to-cradle does not stop with production and sourcing. Creative commerce functions such as product servicing instead of sale provides for more control over environmental impact and customer touch-points.

Conclusion
The C2C model has the potential to reinvent the manufacturing process. By reducing the amount of raw materials used, maintaining the value of the raw materials, and utilizing the by-products of one process to fuel a second process, the materials used and the wastes created can be dramatically reduced, affecting the financial, environmental and social impact of the production process. This model holds a great deal of potential, but will most likely require a period of transition to limit the capital costs required to retrofit current manufacturing facilities.

20

Gertler, N. Industrial Ecosystems: Developing Sustainable Industrial Structures. Massachusetts Institute of Technology, May 1995. 10

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