Five manufacturing trends to accelerate sustainability progress

Learning Objectives:

• Learn how Corporate Sustainability Reporting Directive (CSRD) compliance will set new expectations for manufacturing companies to become more sustainable.
• Understand how manufacturers can use modular design and product circularity to decarbonize product offerings.
• Learn how digital transformation helps support manufacturers in capitalizing on sustainability and profitability.

Sustainability insights

• The Corporate Sustainability Reporting Directive (CSRD) will significantly impact manufacturers operating in the EU, pushing over 50,000 companies to comply with stringent emissions and reporting standards starting in 2024.
• Advanced digital technologies like AI, IoT, and PLM are crucial for manufacturers aiming to meet sustainability goals, enabling them to optimize designs, reduce emissions, and enhance efficiency, potentially capturing billions in annual sales by 2030.

Recent years have brought significant challenges to the manufacturing sector in the United States. Supply chain instability and ongoing workforce shortages have created a landscape of uncertainty. Manufacturers must tackle these challenges with an added layer of preparation for The Corporate Sustainability Reporting Directive (CSRD). CSRD is new European Commission legislation aimed at driving more sustainable business practices at companies that operate in and export to the EU. While this legislation originates in the EU, any company that intends to exceed €150 million annual revenue in the EU needs to be compliant. Starting in 2024, more than 50,000 companies will need to comply with CSRD emissions reductions and reporting requirements.

Many companies have set ambitious decarbonization commitments. More than 6,000 have signed up through the Science Based Targets initiative, 66% of Fortune 500 companies have pledged net zero, and net zero targets cover 65% of the annual revenue of the world’s largest 2,000 companies. However, analysis has shown these commitments haven’t been translated into action. Net Zero Tracker found only 4% of company net-zero commitments are accompanied by a clear plan for how to achieve that goal.

Among discrete manufacturers, the opportunity to decarbonize supply chains and product offerings is hitting an inflection point. Over the next year, we expect CSRD to act as a forcing function that changes the way they approach sustainability, which will kick off a wave of aggressive decarbonization.

This is possible due to the rapid advancement of digital technology over the past few years. Technology such as artificial intelligence (AI), Internet of Things (IoT) and product lifecycle management (PLM) will play a leading role in turning discrete manufacturers’ commitments into reality. Those who prioritize digital transformation and product innovation now will be able to capture potentially of billions in annual sales by 2030.

This shift is expected to manifest in five ways in the near future.

1. Sustainability and profitability working together

Sustainability has long been thought of as a cost center rather than a value center. Research conducted by Capgemini in 2022 found 53% of respondents believed  the cost of pursuing sustainability initiatives outweighs the potential benefit. Contrary to this sentiment, the same report found organizations prioritizing sustainability were outperforming organizations that weren’t.

While it’s true there can be upfront costs associated with implementing sustainable practices, the long-term benefits often outweigh these initial investments. Sustainability can drive efficiency and cost savings, innovation, risk mitigation and enhanced competitiveness, making it an integral aspect of a manufacturer’s overall strategy rather than another cost center.

In fact, as McKinsey noted, “Companies that reduce costs and emissions simultaneously can gain market share and finance further decarbonization efforts through the additional cash generated. Leading companies typically go after the first 20 to 40% of decarbonization while also reducing costs, leading to an improvement in EBITDA.”

This idea should take root as manufacturers realize how sustainability and profitability can work together. Thanks to the acceleration of digital transformation, discrete manufacturers are at a stage of digital maturity where they can leverage the tools that align their financial goals with the decarbonization of their product offerings.

One example of this is generative design, which uses generative AI to create optimal designs from a set of requirements and constraints. Users define the design problem, and the engine determines an array of optimal solutions no human could. It can achieve what would take designers weeks or months to do by themselves in a fraction of the time, which opens the door for previously unfeasible designs.

Some manufacturers are leading by example, leveraging generative design and 3D simulation within their computer-aided design (CAD) software to create and test parts that use 10 to 15% less material than conventionally designed parts.

Among discrete manufacturers, the opportunity to decarbonize supply chains and product offerings is hitting an inflection point. Courtesy: PTC

2. Using sustainability as a core product design factor

The decisions made during the product development phase are estimated to determine over 80% of all product-related environmental impacts. Material and component supplier selections are often a top two footprint contributor. For energy-intensive products like cars, customer use can be an even bigger contributor.

The bottom line is the decisions that contribute to Scope 3 emissions offer the greatest opportunity to make significant reductions. In 2024, we expect to see manufacturers start embedding sustainability criteria into the fabric of design decisions.

Typical design criteria includes cost, performance, risk, time-to market, durability, reliability, manufacturability and so on. With CSRD, factors such as the footprint of materials, the footprint and decarbonization trajectory of suppliers, the ability to reuse, remanufacture and recycle components and energy efficiency will be added to the mix. The decarbonization trajectory of suppliers is especially important. This may result in situations where suppliers with more aggressive plans are selected over cleaner suppliers who have a less ambitious decarbonization ramp.

As manufacturers progress through the design phase, technology will be key to enable the rapid iterations in product design needed to meet CSRD-mandated reduction commitments. This looks like using CAD and PLM tools to assess the environmental impact of materials and suppliers, choose the right manufacturing process up front, lightweight designs, and run 3D simulation to verify and iterate on designs digitally, reducing physical prototyping. By using these tools to optimize designs and manufacturing processes early and often, manufacturers can innovate faster and reduce costs.

3. Using IoT to reduce factory emissions

While factory emissions only account for 1 to 10% of overall emissions, they represent a significant portion, or even the majority, of the operational Scope 1 and Scope 2 emissions that manufacturers can reduce, making them a priority in 2024. In the factory, the Internet of Things (IoT) plays an integral role in optimizing energy use, reducing waste, and improving overall equipment effectiveness (OEE). But many manufacturers remain hesitant about IoT adoption due to perceived challenges such as implementation costs, effort, and disruption.

CSRD should push manufacturers toward factory modernization. IoT will shift from a competitive advantage enjoyed by early adopters to a non-negotiable for any manufacturer that needs to reduce energy use and carbon emissions. Using IoT sensors to monitor emissions from manufacturing processes, manufacturers can accurately measure their carbon footprint and comply with regulations. They can also identify energy-intensive operations and implement optimization strategies to reduce overall energy usage by monitoring energy consumption in real-time. For example, one supplier of logistics and energy equipment used IoT-enabled energy management software to reduce energy consumption by 13%.

Beyond this, IoT also powers bottleneck analysis, which identifies top OEE-hindering constraint priorities on the factory site, allowing manufacturers to uncover opportunities to increase efficiency and reduce waste. Running this analysis early in the production cycle further reduces errors and defects, preventing waste and rework.

4. Increased investment in circularity and modular design

Circularity is a fundamental aspect of sustainability that emphasizes minimizing waste, promoting resource efficiency, and creating a closed-loop system in which materials are reused, refurbished, remanufactured and recycled. In 2024, we expect manufacturers to increasingly prioritize circularity, with modular design emerging as one of the most impactful long-term strategies to decarbonize product offerings.

Modular design involves creating products with interchangeable components that can be disassembled, reused, repaired, upgraded or recycled. Modularity increases product longevity and circularity as parts and components get reused and remanufactured, rather than sent to a landfill. Modularity also enables more efficient factory tooling and reduces the costs of market-demanded product variations. Technology will play a critical role in enabling modular design, as digital tools are needed to tame the downstream complexity that comes with modularity. This can look like equipping frontline workers with digital tools that provide 3D work instructions and filter instructions and parts lists to their serialized configurations.

5. Tipping point for product-service systems (PSS)

The adoption of product-service system (PSS) models has been ongoing for many years, but much like IoT, many manufacturers are hesitant about the risks and investment required. While it is a transformative change, moving to the more customer and service-centric PSS model comes with many advantages such as recurring revenue streams and enhanced customer relationships.

However, what may be most convincing to manufacturers is the extended producer responsibility (EPR) for high-value assets included in CSRD. EPR requires manufacturers to be responsible for the entire lifecycle of their products, meaning they need to find ways to reduce materials use, enhance product reusability, recyclability and improve waste management.

A product-service system incentivizes manufacturers to make products more modular and repairable, extend the life of products through service, and prioritize refurbishment, remanufacturing, and responsible end-of-life management. This alignment between product-service system models, circularity and predictable revenue, positions PSS as a key strategy for reaching the sustainability goals outlined in CSRD.

In 2024, there will be an opportune mix of government regulations, technology advancement and consumer pressure. Will this be the year those empty commitments turn into action? No guarantees, but for discrete manufacturers, the future looks bright for sustainability progress.

Sustainability insights

The Corporate Sustainability Reporting Directive (CSRD) will significantly impact manufacturers operating in the EU, pushing over 50,000 companies to comply with stringent emissions and reporting standards starting in 2024.

Advanced digital technologies like AI, IoT, and PLM are crucial for manufacturers aiming to meet sustainability goals, enabling them to optimize designs, reduce emissions, and enhance efficiency, potentially capturing billions in annual sales by 2030.

Do you have experience and expertise with the topics mentioned in this content? You should consider contributing to our WTWH Media editorial team and getting the recognition you and your company deserve. Click here to start this process.