Green performance map: visualizing environmental ...

DRAFT to 20th International EurOMA Conference in Dublin, Ireland, 7-12 June 2013

Green performance map: visualizing environmental KPI’s Martin Kurdve ([email protected]) School of Innovation, Design and Engineering Mälardalen University, Sweden Magnus Wiktorsson School of Innovation, Design and Engineering Mälardalen University, Sweden

Abstract This paper analyse the current practice in environmental key performance indicator (KPI) allocation and presents an industrially applicable tool, focusing on the link between KPIs and environmental sustainability. The empirical base for the paper is a study of operational KPIs and environmental performance control within two Swedish manufacturing companies, on corporate, plant, and workstation level. It is concluded that the presented Green Performance Map gives managers, environmental specialists and improvement teams a common but comprehensive view of the manufacturing’s environmental performance and a method to collect, visualize and prioritize improvement efforts. Keywords: Performance measurement, Environment Management Systems, Production system

Introduction Creating economic sustainability by environmental sustainability has become a successful strategy for many businesses, leveraging on new revenue streams and improving cost control. The information gap for effective environmental management is however evident, where the operational data on for instance carbon management is not collected, communicated and acted upon on a frequent basis in many organizations (Riddleberger and Hittner, 2009). Companies choose to measure environmental performance by different reasons (Dias-Sardinha and Reijnders, 2001; Thoresen, 1999). From a macro perspective, environmental performance indicators (EPIs) are measured due to authorities and external stakeholders control and monitoring of the company. From a micro perspective the individual company sets goals, control and monitor product performance and performance of processes, as well as lead process and product improvements by EPIs (Thoresen, 1999). The joint evaluation of environmental, social and economic performances is increasing in use, by the “triple bottom line” or sustainability performance evaluation concepts (Dias-Sardinha et al, 2003). Swedish industry has been early adopters on adding environmental protection to the core company goals since the 1960’s (Noren and Strömdahl, 2007), and thus has collected experiences of different routes on incorporation of these into operational level.


But still, the environmental performance is to a large extent a top-down process, with the primary stakeholders interested in EPIs on aggregate levels. Meantime, lean management, closer linked to the continuous improvement efforts on operative levels,has developed monitoring of business performance including noneconomic performance measures (Rother, 2010) such as cycle time and defect rates, but not yet to a large extent including environmental figures like carbon footprint and hazardous waste (Soltero, 2007). Concluding, the gaps still exists, where environmental experts report abstruse figures on carbon footprint and hazardous waste, while operational experts focus on operational measures like cycle time and defect rates. Recent research calls however for the merger of lean and green improvements in manufacturing, enabling a comprehensive improvement effort (EPA, 2007; King and Lenox, 2001; Tice et al, 2005; Westgaard and Winkel, 2011). It is not enough with a structured environmental management work and an organization of specialists within the company to take care of environmental improvement (Ayers and Green, 1997). Instead operational management needs to take ownership of the environmental performance and operative personnel (operators, maintenance, technicians etc) need to get involved in the continuous improvement work concerning environmental aspects (Kurdve et al., 2012). The purpose of this paper is to analyse how to close the hierarchical gaps (between management and operative level), as well as functional gaps (between environmental management and operations management) in the case of visualizing environmental management and key performance indicators (KPI’s). The objective was to analyse the current state of practice in environmental key performance indicator (KPI) allocation and to present an industrially applicable tool, focusing the link between KPIs and environmental sustainability, and covering the wide array of sustainability dimensions to consider in striving for operations excellence. Frame of reference: environmental management in a lean context Lean manufacturing can be seen as a system with a set of rules or principles (the management system), a set of methods and tools (the practice system) and a performance management system (PMS) with KPI’s (Jayaram et al., 2010). The sociotechnical system of people and machines needs to be aligned with this corresponding ‘lean system’. It is crucial to set up this ‘lean system’ to be self-sustained and continually improving (Rother, 2010; Stålberg et al., 2012), therefore the managerial monitoring and control should focus on supporting improvements rather than on operational control (Liker, 2004; Berglund, 2011). The concept of Hoshin Kanri is a concept aligned with lean manufacturing to cascade objectives, including quality, financial, and environmental, health, and safety goals, all the way down the organizational hierarchy and across a variety of operations through a catchball process (Soltero, 2007). Still, instead of “blindly” breaking down management level goals, the monitoring and control system should focus on target states rather than on individual KPI’s. The operational control is kept at operational level and management focus on coaching improvements (Rother, 2010). As reported by e g Salloum (2013), there is a wide acceptance on the value and necessity of creating a linkbetween the PMS and strategy; creating alignment between the two components will provide information on whether the strategy is beingimplemented and encourage behaviour consistent with it. In order to create the alignment between a target condition and actions, practice in lean manufacturing witness that a single numerical goal is not enough (Rother, 2010; Soltero, 2007), often several targets or performance measuresneedto be monitored in


order to know if the target condition is satisfied(Rother, 2010). This applies of course also toenvironmental targets. For example, asingle target to reduce fossil fuel use by 50% in internal logisticsmay be achieved by using more electrical transportation (and buying non-fossil produced electricity) or by changing to biofuel, both of which are valid options towards this single target. However, a re-designed internal logistics system could lead to a more efficient condition where transportation is reduced by 50%, and a combination of all three options could give further advances but requires more specification than the singletarget of reducing fossil fuel. To add to the complex situation, Salloum and Wiktorsson (2011) points out that the performance measurement system need to be dynamic and sensitive to changes in the external and internal environment of an organisation, deploying changes to internal objectives, ensuring alignment at all times and that gains achieved through improvement programs are maintained. In successful lean practices the goals and KPI’s are not translated straight from management level down to operational level, instead the challenges are cascaded down to each managerial level, for each level the goal state is envisioned and the corresponding set of KPIs are set up (Soltero, 2007). In order to manage this,agoal state may often be visualised for the wanted parameters, e g by a value stream map(Kurdve et al., 2011) The need of visualising a goal state could be argued to be pivotal for environmental management since environmental aspects are often measured in several different units and sometime complex to understand (Kurdve and Daghini, 2012). In order to measure more than single targets, a balanced set of KPIs is built. However it is important to also describe the target state in words. As with other KPIs, if used in a narrow way, suboptimisation, that may hurt the entire operation, may occur. A barrier seen in several studies is to give a complete view and understanding of the system performance (Romvall et al., 2011) Material and method In order to fulfil the purpose of this paper, the study was designed in a step wise manner. The study was initiated by empirical data collection concerning environmental goals, key performance indicators (KPI) and performance control atone case company. Following this state-of-practice description, a pre-developed visualization method for environment management was applied to two case companies’ KPI’s at plant and team level. Finally the current practice was analysed and contrasted to the application of the visualization method. The method was analysed with respect to its applicability as a link between KPIs and environmental sustainability, and its possibility to coverthe wide array of sustainability dimensions needed in striving for operations excellence. Case companies The empirical base for the paper is a study of operational KPIs and environmental performance control within two Swedish manufacturing companies, on corporate, site, and workstation level. The companies are two of the largest and most successful Swedish manufacturing companies, they have a significant global presence and well institutionalised lean based production systems. One Swedish plant from each company has been involved in the study; a body plant at company A, where a welding line and the outbound logistics operations were studied, and a machining plant at company B where a machining cell was studied. Collecting data on environmental management at the case companies


Data on the overall environmental strategies and key performance indicators were collected from internal documents from the companies, gathered by personal interviews and in workshop format with key informants.The overall set of key performance measurements has been analysed based on the environmental strategies of the companies. Cause and effect diagrams were drawn at case company A for several of the KPI’s and how the non-environmental KPI’s will affect environmental goals. On operative level, data on the procedures and key performance indicators for the specific lines were collected by personal semi-structured interviews and workshops with operators and other key informants. Introducing the visualization method to be tested: Green Performance Map The Green Performance Map (GPM) method is a visual analysis tool/method that can be used by teams to identify, prioritise, measure, and follow up actions on environmental aspects for that team (Bellgran et al 2012). It is aligned with ISO 14001 but can also be used on its own. The GPM shows different levels of the operation, giving a complete view and understanding of the system performance (Romvall 2012). The general GPM is illustrated in figure 1. An input output map of the process is drawn with four input categories; Energy, Product material, Process material and Water, and four output categories; Product output, Non-product-output (waste material), Emissions to air (including noise and heat), and Emissions to water and soil (including risks of emissions to surrounding soil and water). These categories are in line with the Material Flow Cost Accounting approach in ISO 14051 and the mass flow balance approach in ISO 14031 (Jasch, 2009; Romvall et al., 2011). All aspects identified in the process or operation is classified into the categories (although some items may appear at more than one place), and drawn or placed into the map. For the case of using the GPM in a KPI visualisation perspective, each aspect is linked to measures. This use of the GPM was the primary scope of this study.By using the company goals and priorities together with process knowledge, appropriate measurements for the aspects were chosen and actions prioritised, planned and performed. The resulting prioritization is drawn into the map and Figure 1. The Green Performance Map chosen KPI’s are followed. with eight input and output categories Data representation in the visualization method The breakdown of company environmental targets into operational targets is visualized in the different levels of GPM’s. The environmental goals were drawn into a Green Performance Map and analysed with regards to general Sustainable development targets. In addition, in case company A, the environmental strategic targets were connected via actions to non-environmental performance targets. Method applicability validation In analysing the applicability of the GPM as a visualising component in a performance measurement system (PMS), the current practice was contrasted to the use of the GPM.


Initially, the corresponding company-wide KPI’s and the practice of breakdown of company goals and KPIs to operational level goals and KPI’s has been analysed and discussed. Acomplementingway of using GPM at operational level has been applied and compared to literature on how the PMS should support continuous improvements. Results The empirical results are presented in two steps, initially the current practice of environmental performance measurement is presented and analysed for the two case companies, followed by an application of the GPM method to the case companies on three levels: corporate, line management and operational workstation level. Operational KPIs and environmental performance control in the case companies Company A’s corporate values are Quality, Design, Environment and Safety; these values govern their integrated Business Management System (BMS) including EMS (Environmental Management System) and QMS (Quality Management System). Their production system, based on a Lean inspired management, builds on a top-down control in nine focus areas, or pillars, where one is Safety & Environment. The production system has its basis on variation control and stability and contains 5 principles to challenge losses and variation. Environmental improvement methods are developed by experts and implemented within the Safety & Environment pillar. None of the principles stated are specifically aimed at environment but they all have been stated in a general way, in order to be applicable for all pillars. The environmental strategic targets for production include seven areas; Zero environmental accidents, Water footprint, Total waste management, Sustainable transportation, Air emissions, Soil and ground water. Company A measure and control their performance with a number of performance measurements categorized under headlines (QCDISPE); Quality, Cost, Delivery, Improvements, Safety, People development and Environment. Each of these contains a few key performance measurements that are standardized in the operation in order to support comparisons between processes and plants. Overall improvements for the last four years of over 25 percent can be reported in some of these, (e.g. Q,C,P) and significant improvements also on environmental performance (Nord, 2012). In a workshop, a number of the non-environmental KPIs (QCDISP) were connected with activities and to environmental performance measures and vice versa in order to find synergetic and conflicting goals. As an example valid for outbound logistics,as illustrated in Figure (2a), the avoidance of accidents would result in positive effects on Safety targets (LTI), People (absenteeism), Environment (zero environmental accidents and sustainable transports). Similarly, activities for efficient and stable scheduling for transports such as reduction of empty runs, filling efficiency and route efficiency will not only have positive effects on Environment (sustainable transports), but also on Cost (transport cost) and Delivery (on-time delivery) as shown in Figure (2b).

Figure 2a (left) and b (right): Key Performance Indicators tree example for Company A


Company B’s business objective is to deliver products and service with maximized performance, quality, speed, safety, flexibility and total economy. Sustainable development is seen as an integral part of the business process. A lean and six-sigma inspired production system governs improvement and change initiatives. The corporate environmental strategy points out the importance to optimise the use of natural resources and minimise emissions to air, land and water. Environmental performance is followed on a regular basis with measureson; use of electricityand fossilfuel, carbon dioxide emissions, water consumption,waste volumes and wastewaterfrom processes. On plant level, environmental performance goals for the coming 4 years cover: reduction of energy use of 10% (in absolute numbers), reduction of CO2 from use of fuel and electricity by 10%, reduction of water consumption by 10%, increase of recycling above 42% of material waste, reduction of waste to landfill, reduction of quality-scrap to less than 2.9%, increase recycling and use material more efficient. In addition, the company has two measurement goals: start proper monitoring of fossil fuels in externaltransportation and start monitoring the amount of released process water to community sewer. Applying the GPM to the corporate environmental targets of the case companies Following the initial documentation of environmental management and KPIs at the two companies, the GPM method was applied to the data concerning both top environmental goals, as well as detailed environmental KPIs at the companies. Company A has a long history of marketing its environmental concern and thus environmental goals for their products has been sustainable materials, vehicle efficiency and alternative propulsions.However environmental targets for production have merely concerned energy efficiency. Recently the environmental strategy for production has broadened and includes seven areas with subareas, covering all types of environmental concerns as illustrated by the GPM in figure 3. Similarly, the different sub-goals under each of QCDISP can be drawn into the GPM visualisation; Quality goals will reduce residual material, energy and material input, Cost goals will be connected to reduction of all expensive input and output and Improvement performance will affect also environmental performance positively. However, as briefly described above, also Delivery and Safety goals will have a positive

Figure 3. Company A’s strategic environmental goals illustrated by the GPM

Figure 4. Company B strategic environmental goal areas, illustrated in the GPM


connection to Environmental targets. Of the non-environmental performance targets monitored, none had a clear negative impact on environment although Cost limits could limit how fast positive environmental improvements can be implemented. Similarly the environmental performance targets could not be seen as affecting any of the other performance measures negatively except for possibly some cost measures. Figure 4 illustrate the GPM mapping of the corporate goals for company B. Applying the GPM to the plant-management level of environmental targets At one of company A’s plants, the managerial level of environmental aspects has been visualized in a GPM. Significance and management decision prioritise the aspects marked in red and performance measures and goals for these can be constructed. Ecoefficiency KPIs can be constructed by dividing the measure for the aspect with the produced number of unitsas exemplified in figure 5. Elektricity X kWh

Fuel Gas X kWh

Ventilation

Diesel X kWh

Lights

CO 2

Steel plate 133 kton Cost

Pressurised Air Aluminium 2,1 Mm2 Cost

NO X

VOC