The Stern Report on climate change, produced for the British government in 2006, predicted that the overall costs of climate change will be equivalent to losing at least five per cent of global gross domestic product every year.
And this is where lean thinking comes together with the need to ‘go green’ (be that in the conservation of energy and resources or the reduction of carbon emissions). Lean thinking, which is already built into the best companies’ DNA, argues that ‘less is more’: not less in the sense of limiting consumption, but ensuring that the process of production uses fewer natural resources. A lean approach to manufacturing will cut out waste and inefficiency (saving those scarce natural resources), enabling the process to be redesigned so that it becomes more sustainable, while the products retain their quality and are cheaper to make. A lean approach is rooted in measuring the use (and waste) of resources, and that information — about the amount of carbon that has been emitted during a product’s manufacture and distribution, for example — can then help consumers make ‘green choices’.
Take concentrated washing detergent, for instance. Traditional washing detergent is bulky and heavy, requires a good deal of packaging and is expensive to transport — all of which eats into the profits of the companies which make and sell it. Concentrated washing detergent, by contrast, is a much more economic prospect, requiring less packaging and therefore costing less to transport — it also allows clothes to be washed at lower temperatures, thereby reducing energy consumption. It has been calculated that if everyone in the world switched to using it, we could reduce CO2 emissions by over 4 million tonnes, the equivalent of taking one million cars off the road.
This shows the power, economic effectiveness and potential of lean thinking: remove the waste — unnecessary packaging and travel costs — and you save money and cut carbon. Toyota’s Ohno knew he needed to get the maximum from the resources he had. In essence, that’s the challenge we have on a global scale today. Lean thinking provides us with the route to be green and to consume, and for our economies to grow.
Many would disagree with the premise underlying that statement. They would argue that one answer to the problems we face — the impact of a growing population on our environment, and climate change — is to cut back consumption. They point out that if we continue with the current rate of consumption, our planet will require the natural resources of three planets the same size. They believe we have no choice but to back-pedal: governments should tax more, people should consume less and economies should grow more slowly, if at all. In their eyes, most major corporations — manufacturers, retailers and so on — are the enemy, and are responsible for greedily and inefficiently using up the planet’s resources. Even when those companies have sought to claim green credentials they have often been treated with scepticism, their initiatives being dismissed as nothing more than PR-grabbing ‘greenwash’. (In fairness, the charge has sometimes been justified.)
This is an understandable view, but in my mind it carries with it an intractable problem of its own: it’s difficult to reverse hundreds of years of material progress in the West, and it’s very hard indeed to justify denying progress to developing nations. Arguably, an attempt to hold back consumption will hit the poor much harder than the rich.
There is an alternative, and that is for us to learn how to maintain and even increase consumption sustainably. For me, this is the only realistic option, as the irrepressible desire for a better life is part of human nature. History is full of failed attempts to stamp on that wish and give up on our innate craving for personal security, well-being and progress.
Sustainable consumption depends on people accepting and living by the underlying principle of lean thinking: that less is more. This does not mean having to accept ‘less’ of what they desire, but desiring goods and services that use fewer natural resources. It means making it easier, cheaper and more logical for consumers to go green — to save energy themselves and to buy green goods. And it requires no less than a complete rebuilding of the entire supply chain to make it lean.
So much for the theory. What did this mean for a company such as Tesco in practice? For a start, we had to operate in a lean manner, rooting out wasteful activity that consumed unnecessary resources throughout our operations. The total of all direct emissions from Tesco’s UK operations alone adds up to some 2.5 million tonnes of carbon: that compares with around 36 million tonnes emitted by the many businesses which supply Tesco’s UK operations. So we set ourselves a challenging target to reduce carbon emissions across our global supply chain by 30 per cent by 2020. Overall, we wanted Tesco to be a zero-carbon business by 2050 — which means that any carbon the business still emits will be matched by extra renewable energy that Tesco generates for others to use. To the cynical, that might sound like a publicity ploy, but it’s worth bearing in mind that Tesco’s annual gas and electricity bill for the UK alone was £200 million in 2011. The measures we have so far put in place are now reducing the company’s global energy bill by £150 million annually.
Various practical steps were — and are still being — taken to bring about greater efficiency. We started to relocate our depots to bring them closer to the stores they service; we looked at the design of our lorries to make them more aerodynamic, thereby saving fuel. Much of our focus, though, was on the stores themselves, which account for around 70 per cent of Tesco’s emissions.
Lean thinking started to be applied to store design back in the mid-1990s, and by 2007 we were building new stores that used only half the energy of ones built ten years earlier. But to be zero carbon by 2050 required radical new thinking, not incremental change. We therefore took our whole approach apart and scrutinised our processes closely. In doing so we discovered, to our horror, that only 14 per cent of the average Tesco store was recycled when rebuilding was required. This seemed unjustifiably wasteful. Consequently we introduced a target to reuse everything, setting ourselves the challenge of designing new stores that will be as easy to dismantle and reuse as they are to assemble. (At one store we managed to reuse almost 60 per cent of the materials we shipped out — a big change in well under ten years.) Bearing in mind that, thanks to daily wear and tear, the average Tesco store has no more than a 3o-year life, this offers the prospect of huge future savings.
We also wanted to see whether we could achieve our goal of becoming a zero-carbon company immediately, by actually building a zero-carbon store. This was quite a challenge. A modern store has evolved over time and balances carefully all of its many functions. A busy store serves 50,000 customers a week. It may have a turnover of £2 million a week. Something like 200,000 cases of goods containing 40,000 different types of products have to be ordered, delivered, unpacked, displayed and sold. So every store must fulfil the needs of both customers and staff alike.
Thinking ‘lean’, we looked at an entire store’s operations, measuring emissions from all its activities. We were helped by work at our Cheetham Hill store, where we had researched how to save energy and cut carbon. We found that, of the heat used in this store, 37 per cent was lost by ventilation and 8 per cent was lost through the building fabric. As far as electricity was concerned, 23 per cent was used for lighting. Refrigeration was the biggest problem. Refrigerators removed 54 per cent of the store’s heat and consumed 37 per cent of its electricity.
We used these insights to design our new zero-carbon store. Out went steel and concrete and in came timber. Out went halogen and fluorescent lights, in came LED lighting technology — a pioneering move for a retailer. In, too, came natural light and natural ventilation — a return to older, more traditional building designs which had to make clever use of nature to light, heat and cool buildings because there was no mechanical alternative. We insulated the store and changed the type of glass to lessen heat gain and loss (which requires artificial heating and cooling). We designed completely new refrigeration systems, using different gases which did less environmental damage, and we put doors on all our fridges.
We also needed a renewable power source big enough to power the store. So we developed a combined heat and power plant. Powered by reusing waste vegetable oil from food manufacturing, the unit produced enough surplus power for nearby housing.
The outcome of all this was the world’s first zero-carbon store, opened in 2009 near Cambridge. It operated as we had hoped and met its targets. Just as importantly, customers liked the store, in part because the timber construction created a warmer, more welcoming atmosphere. All the innovations were explained on signage around the store, which reassured customers about its impact on the environment.
Management in 10 Words by Terry Leahy (Random House, Rs 499).