ENERGY SUSTAINABLE MANUFACTURING … · 2018-06-15 · This is the executive summary of “Sustainable Manufacturing Transformation — Securing Opportunities from the Emerging Energy

This is the executive summary

of “Sustainable Manufacturing

Transformation — Securing

Opportunities from the Emerging

Energy Cloud”, a white paper that

Navigant will publish at the end

of 3Q 2018. The white paper is

intended for all parties that are

interested in better understanding

the intersection of energy and

materials and how this transition

is accelerating the SMT. The paper

will delve into more details about

the Sustainable Manufacturing

Transformation and elaborate on

how manufacturing companies

can navigate the transformation

by detailing the Transformational

Wave Framework. Additionally,

the paper will provide specific

case studies allowing the reader to

understand the SMT through the

lens of different industries.

JAN VRINS Global Energy Practice Leader

RENÉ GROOT BRUINDERINKDirector

JAN-WILLEM BODEDirector

VIKTORIJA STOJCHEVAConsultant

navigant.com

Securing Opportunities from the Emerging Energy CloudExecutive Summary

DEFINING THE SUSTAINABLE MANUFACTURING TRANSFORMATION

The global manufacturing industry operates at the intersection of energy and

materials, and the energy sector is going through a major transition. During the next

5-15 years, Navigant expects massive disruption across the entire energy value chain

primarily fuelled by multilateral efforts to address climate change and a shift toward an

increasingly clean, distributed, mobile, and intelligent energy ecosystem. At Navigant,

we call this the Energy Cloud, an ecosystem that describes how policy, regulation,

technology, and market changes will disrupt and transform the energy system.1 At the

same time, sustainability goals and the need to reduce carbon emissions are driving

a major shift in material flows towards a more circular and resource efficient system.

The transforming worlds of energy and materials are converging into a broad and

revolutionary Sustainable Manufacturing Transformation (SMT).

Amid this transformation, current production systems will become more sustainable,

responsive, and digitized. These systems will be built on new manufacturing

technologies and geared towards adoption of sustainability and circularity, contributing

to considerable greenhouse gas (GHG) emissions reductions. Interconnectedness

with other value chains including the energy system will enable further production

system optimization. This transformation will create additional value for customers,

shareholders and other stakeholders through optimized and responsible operations.

ENERGY

SUSTAINABLE MANUFACTURING TRANSFORMATION

1. Navigant Consulting, Inc., Energy Cloud 4.0, 1Q 2018, www.navigant.com/-/media/www/site/insights/energy/2018/energy-cloud-4-capturing-business-value.pdf.

SUSTAINABLE MANUFACTURING TRANSFORMATION

2

Navigant has identified six megatrends that are shaping the direction of the transformation: climate action, energy system transition,

circular economy, anything as a service (XaaS), additive and micro-manufacturing, and industry 4.0 (Figure 1). Since the manufacturing

ecosystem is complex, the effect of these disruptive trends will differ from one business to another. Nevertheless, no value chain will

remain unaffected.

Figure 1: Mega Trends Sustainable Manufacturing Transformation

CLIMATE ACTION

ENERGY SYSTEM TRANSITION — ENERGY CLOUD CIRCULAR ECONOMY

•

• E.g.: An increasing number of

setting out commitments to reduce

their GHG emissions through formal

Sustainable Development Goals

(SDGs) and Science-Based Targets

(SBTs).

• Move from a traditional energy

system toward a clean, distributed,

mobile, and intelligent energy system.

• E.g.: Increasing penetration of

renewables, distributed energy

resources, and continuous

development of multi-carrier energy

conversion options (electricity-heat-

fuel) will support increased need for

flexibility and alternative fuels.

• Decouple economic activity and the

consumption of finite resources, and

design waste out of the system.

• E.g.: Product redesign (system

design/intelligent design) will

be made to fit the CE principles

(recyclable, reusable) without

compromising product functionality.

Redesign also encourages further

material use optimization (material

use reduction, enabling for reuse, and

enabling for recycling).

XAAS

ADDITIVE AND MICRO-MANUFACTURING INDUSTRY 4.0

• Move from an ownership model

toward a leasing/temporary

ownership model.

• E.g.: New, ownership-less business

models, such as carsharing platforms

and apparel leasing will acquire

significant market share.

• Move from large-scale centralized

manufacturing to local, small-scale,

decentralized manufacturing.

• E.g.: On-demand manufacturing and

factory on a chip will become the go-

to options for production of a variety

of products.

• Make use of smart value chains

composed of modularly structured

components that communicate with

each other, fully computerizing and

optimizing production and supply

chain processes.

• E.g.: Exchange of information

between unit operations and

between manufacturing plants about

maintenance requirements or quality

and quantity of supply will be done in

an intelligent and automated way.

Companies in di�erent sectors are

Reduce GHG emissions arising from

business activities due to increasing

regulatory pressure, demands from

shareholders for more corporate

accountability on key environmental

issues, and changing consumer

preferences toward sustainable and

less carbon-intensive materials

and products.

(Source: Navigant)

SUSTAINABLE MANUFACTURING TRANSFORMATION

3

These six megatrends will both drive and enable three major overarching system changes, which we call transformational waves

(Figure 2). The transformational waves will create opportunities for manufacturers to differentiate and drive new value to their

customers and shareholders.

Figure 2: Transformational Waves

FROM TO

Energy Procurer Energy Prosumer

Significance for Your Business

1. Value di�erentiators• Value creation for utilities via energy flexibility

2. Cost impacts• Increased process e�ciency and energy flexibility• New products and services

TraditionalManufacturing

Supply ChainManagement

On-DemandManufacturing

Full SystemOrchestration

1. Value di�erentiators

2. Cost impacts

• Customized, on-demand products• New products and services• Reduced time to customer

• Less waste, feedstock materials, and transport• Flexibility in the manufacturing process• Reduced inventory management• Increased e�ciency in decision-making

1. Value di�erentiators• Better environmental performance of products• Product transparency

2. Cost impacts• Reduction of bottlenecks, less waste, and greater optimization in least cost supply• Residual material streams matched to potential buyers

From Traditional Manufacturing to On-Demand Manufacturing

Driven by customer demand and enabled by digitization, circularity

and the Energy Cloud, local, small-scale, on-demand manufacturing

of customized products will grow. Technologies such as additive

manufacturing, micro-manufacturing, and process intensification

will play a key role in this transformational wave. Local production

will reduce delivery time and improve supply chain transparency.

New, technology-enabled, digital platforms will connect consumers,

designers and producers of customized products. The increased

number of small industrial energy consumers will demand more

from the energy system, and flexible (potentially local, on-site, e.g.,

distributed) energy resources are needed.

From Energy Procurer to Energy Prosumer

Driven and enabled by climate action and the Energy Cloud, current

energy systems will become more distributed, interconnected and

have more energy carrier flexibility. Industrial energy prosumers

(or flexumers) will emerge, owning and operating on-site energy

resources (distributed generation, storage, microgrids etc.). In

addition to renewable energy production, industry players will also

produce future energy carriers (Power-to-X) such as hydrogen and

ammonia. Industry can also play a role in transportation, marketing

and storage of these energy carriers. Manufacturers will profit from

being flexible in their use of energy carriers (e.g., electricity vs

natural gas) and from dynamic pricing models (i.e. utilizing the least

cost source at a given time). Optimizing the manufacturing supply

chain and energy system will create new opportunities for existing

manufacturing products (e.g., using ammonia as a fertilizer or as

energy storage).

From Supply Chain Management to Full System Orchestration

Driven by climate action and circularity and enabled by

industry 4.0, separate supply chains will combine into larger

networks. The main premise of circularity, closing material

loops, will play a key role in this transformational wave.

Digital platforms, potentially blockchain-enabled, will be used

for product and material trading. They will show the exact

composition and costs of the products and materials traded

(for virgin and recovered material), while matching supply with

demand. Additionally, these platforms will track environmental

performance and provide supply chain transparency, which

becomes increasingly important in a sustainable economy.

The trading platforms will create a need for advanced logistics

orchestration. Navigant expects this transformational wave to

start in material supply chains where the technical challenges

related to reusing and recycling are limited. However, under

expected more stringent waste management regulations,

this transformational wave will also affect the post-consumer

utilization of more complex materials (e.g., composite plastics).

(Source: Navigant)

SUSTAINABLE MANUFACTURING TRANSFORMATION

4

NAVIGATING THE SUSTAINABLE MANUFACTURING TRANSFORMATION

The SMT will increase consumer value and have an impact

on the bottom line of manufacturing businesses, affecting

shareholder value (see Figure 2). At the dawn of this major

transformation, companies need to demonstrate leadership

and vision to navigate through the changing environment

and proactively accelerate the transformation. Companies

that have an outlook on the transformation of their business

environment and build robust long-term strategies will be

successful. In the short term, companies should be pragmatic

and execute no-regret actions to pursue opportunities.

Here are the specific steps Navigant recommends for

manufacturing companies that want to navigate the

sustainable manufacturing transformation successfully.

Explore Scenarios to Develop Robust Long-and Medium-Term Strategies

Future scenarios capture unique combinations of the

transformational waves and how they impact a company’s

business environment. The transformational waves are

not mutually exclusive; a business can undergo these

transformations simultaneously and at varying speeds,

i.e. different levels of maturity. Because the impact of the

transformational waves on companies is highly variable and

depends on the sector, regional economy, market demand,

regulatory issues, environmental factors, the energy system,

and other external drivers (e.g., CO2 price), a scenario with

a unique combination of transformational waves plays out

differently for different companies.

Navigant has designed the Transformational Wave Framework

(TWF, Figure 3), to help manufacturing companies design

long- and medium-term scenario-based strategies. The

TWF helps companies to understand the impacts of a

transformational wave scenario in a systematic way. The first

step is to define a plausible transformational wave scenario.

Subsequently, the current state of the company and its

surrounding industrial and energy ecosystem (peers and value

chain actors) are mapped, and the scenario developments

are translated to the industrial ecosystem on a granular level.

Finally, the company assesses which business models would

work best in this scenario, and identifies which assets and

capabilities it can leverage and which additional assets and

capabilities are needed. Companies that are successful are

those that look beyond their business boundaries and factor

in the transformation of their value chains.

Based on the insights from exploring various scenarios,

companies can then develop robust strategies that work across

scenarios, and position themselves as leaders in the SMT.

Figure 3: The Transformational Wave Framework

Supply ChainManagement

EnergyProcurer

Full System Orchestration

EnergyProsumer

Current state Future state

Cradle

Grave

Cradle

Grave

Closing loops

Speed of transformational wave Have NeedBusiness model

Production Line

Suppliers

Recycling Partner

MaterialsKnowledge

Capital

Logistics Systems

1. Define a Transformational Wave Scenario

2. Map Current and Future State of Industrial Ecosystem

3. Assess Business Models and Identify Assets and Capabilities

Client InteractionPlatform

TraditionalManufacturing

On-demandManufacturing

• The high-level scenario is a plausible combination of the transformational waves• Multiple plausible scenarios can be constructed to test robustness of strategies

• The company and its surrounding industrial ecosystem (including value chain and competitors) are mapped• The impacts of the transformational wave scenario on the industrial ecosystem are assessed at a granular level

• Business models are designed that capture value in the future industrial ecosystem• Gaps in required assets and capabilities are identified

(Source: Navigant)

SUSTAINABLE MANUFACTURING TRANSFORMATION

5

Respond Rapidly to Emerging Opportunities to Create Short-Term Value

Transformation opportunities mature over time. The transformations in the industrial space threaten existing products, services, and

business models, and offer opportunities for incumbents to enter. The numerous opportunities are at different stages of development

and are continuously evolving. Navigant anticipates opportunities will mature over time on an opportunity curve. This opportunity

curve (Figure 4) shows how the short-term value from an opportunity increases over time, then levels out and eventually marginalizes

or even disappears.

Figure 4: The Opportunity Curve (example)

Short-term profitability of opportunity

Time

Window ofopportunity

Innovate No-brainers Innovate or exit

NuclearFusion

CarbonCapture andSequestration

On-demandmanufacturing

Lowcarbonproducts

Big data & data analytics Smart logistics

Increased recycling/ Circularity

Demand-sidemanagement

(Source: Navigant)

Companies should continuously monitor a pipeline of opportunities. In Figure 4: The Opportunity Curve (example), we map a range

of industry opportunities, but the relevant opportunities will differ for each sector or company. The speed at which opportunities

progress along the curve differs depending on the type of the opportunity and can be affected by changing consumer preferences,

changing regulatory landscapes, and innovation. Companies that are successful in the transition will be those that have a good

understanding of the various opportunities, where they are on the curve, and how they are expected to progress along the curve in

the next few years.

Responding rapidly in the window of opportunity is key for short-term value creation. The opportunity curve is a pragmatic tool

that helps companies to prioritize and focus efforts on where acting on opportunities results in short-term value and competitive

advantage. Companies must be agile and enter the market at the right time (what we refer to as the window of opportunity) to gain

the first mover advantage. Doing so enables companies to appropriate most of the value that lies in the opportunity.

SUSTAINABLE MANUFACTURING TRANSFORMATION

©2018 Navigant Consulting, Inc. All rights reserved. W65608

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This publication is provided by Navigant for informational purposes only and does not constitute consulting services or tax or legal advice. This publication may be used only as expressly permitted by license from Navigant and may not otherwise be reproduced, recorded, photocopied, distributed, displayed, modified, extracted, accessed, or used without the express written permission of Navigant.

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About Navigant

Navigant Consulting, Inc. (NYSE: NCI) is a specialized, global professional services firm that helps clients take control of their future.

Navigant’s professionals apply deep industry knowledge, substantive technical expertise, and an enterprising approach to help

clients build, manage, and/or protect their business interests. With a focus on markets and clients facing transformational change and

significant regulatory or legal pressures, the firm primarily serves clients in the healthcare, energy, and financial services industries.

Across a range of advisory, consulting, outsourcing, and technology/analytics services, Navigant’s practitioners bring sharp insight that

pinpoints opportunities and delivers powerful results. More information about Navigant can be found at navigant.com.

PURSUE QUICK WINS, IMPLEMENT FAST AND ADJUST

To gain momentum quickly and create immediate value,

companies should look for quick wins and build additional

initiatives on top of these early successes. Some of the

return should be re-invested in the transformation program.

Strong governance and top executive support are required.

Additionally, rapid action requires a set of organizational assets

and capabilities (e.g., quick decision-making processes, ability

to rapidly implement opportunities and adjust to achieve the

outcomes), as well as a network of strategic partners.

IN CLOSING

The identified mega trends are already affecting businesses

and will increasingly continue to do so. Without strategic

understanding and preparation, companies might face

disruption anywhere in their own value chain and possibly

other value chains. Companies that are successful in the

transformation are the ones who both react now and capture

existing opportunities but also prepare a plan for action to

capture the long-term opportunities.