Use of Life Cycle Costing Management Technique at Glazer\'s, Inc.

¶ … Management

Rationale for the use of life cycle Management at Glazers

LCM (Life Cycle Management) is a framework which manages and scrutinises the performance and sustainability of services and goods. This framework aims to achieve the long-term objectives of the business, and gives less stress on the short-term objectives. For getting a more sustainable value chain, organizations are making use of this framework, which would in turn improve their economic and social performance. Businesses throughout the world are making use of this framework for many purposes, like to improve their standing within the market, to strengthen the relationships with the stakeholders and to produce more environment friendly goods.

LCM urges the companies to look away from their own processes, and focus on activities which are not under the direct control of the company. Such activities include the upstream and the downstream operations that become a part of value chain. In previous days, more stress was given on the production line but now days as the trade takes place on national as well as international platform, so it gets necessary to incorporate LCM in Glazer's, to give it an international touch. This would enable the business to meet more challenges.

Sustainability and the bottom line

Many opportunities can be availed by Glazer's if their sustainability challenges are met. In today's world where there are so many inflexible stakeholders and even the resources are so scarce, one needs to address the problem of sustainability, which would lead to the emergence of new business models. While answering the questions on sustainability, the leading companies, like Glazer's, discovered business models which were new and more profitable.

After meeting the sustainability challenges, a company gets ahead of its competitors who are not able to face these challenges. Those companies which successfully offer their customers what they currently desire and what they would be looking for in future are making a safe place for themselves in future.

LCM is such an approach that it benefits every business irrespective of its size. These days sustainability is regarded as a growing concept and every company which wants to see itself high up in the future, need to plan before hand. Hence, Glazer's should ensure making use of LCM.

Section 2: In-depth analysis of the Life-Cycle Costing management technique

A value chain is fundamentally connected to the suppliers, the distributors, the consumers and the end- customers. An industry wide worldwide chain is made by the synchronised interactions of individual or local value chains. Different economic sectors are mobilized when a mix of goods and services are offered to the customers. If sustainability within supply chain is enhanced, then corporations can achieve a sustainable value chain management.

What sustainability approaches can companies use?

In three categories the sustainable consumption approaches can be grouped:

1) Innovation: Innovation is a process under which a business offers new and much better products and services to the customers. For maximization of societal values and for becoming more environmental friendly, companies have started incorporating provisions.

2) Influencing the choice: Marketing and awareness programs enable the customers to get the knowledge about the goods and services which makes it easier for them to make selection.

3) Editing choice: It refers to participating with others in removing the unsustainable goods from the markets or by means of market mechanism.

At this end, sustainability tools which can be used are LCS (Life cycle assessment), LCC (Life cycle costing), and green procurement, factoring in consumption patterns of customers and then making them sustainable.

Working with suppliers and outsourcing

Without keeping an eye on the bigger picture, profitable solutions cannot be reached. Production can have significant impacts on environment and it can even act as a socioeconomic burden for the world. The manufacturing and distributing task is always complex as it involves producers, suppliers, designers, retailers and consumers. All these people are interlinked and they affect each other in one or the other. Networks and interlinks can be managed and addressed by making use of LCM.

Life cycle Management Workflow

While the differences between products and sectors were being highlighted from the past few years, now the difference between risks and opportunities along with the efforts of the management and the value chain are highlighted by UNEP/Wuppertal Institute Collaborative Centre on Sustainable Consumption and Production (Schaller et al., 2009). If we consider the overall situation, then an inconsistent type of managerial effort is seen as far as compliance is concerned. Under production phase often problems are not identified, in fact problems take place in the downstream or upstream chains. There is 80/20 mismatch, under which the management's efforts are devoted towards 80% of the problems, while the rest requires more time (Steiner, Valdivia and Mozur, 2009).

Management should start focusing on the more environment friendly ways of doing the work. They should adopt safer ways of extracting the resources and even the production methods used should not harm the environment. Companies need to pay attention towards the usage phase as well. Those areas where the supply chain ends, gives greater opportunities of improvement, which could be brought in social, environmental and business performance (Steiner, Valdivia and Mozur, 2009).

For the implementation of LCM, businesses have adopted a number of strategies. In addition to the organizational strategies, following are also some tools: green procurement, LCC, LCS, ecological and carbon footprint, environmental product declaration, energy and eco labelling, environment performance indicators and sustainability assessments with approaches. All these tools are essential for implementation (Steiner, Valdivia and Mozur, 2009).

Terms like footprint and value chain are going to be used in section 3, so definitions of these terms are being provided here. There are three very important tools, namely; LCC, LCA and CMM (capability maturity model). A summary of these tools is given in this study. These three tools can be used by the companies to proceed in different circumstances. With every unique situation a new solution or way is going to be followed. Therefore, flexible tools are required by the organizations.

Besides LCA and LCM, other approaches are also used by businesses. The tools which are developed by WBCSD comprise of global water tool, framework to measure impact, corporate ecosystem service review, resource kit, and sustainable purchase of wood, GHG protocol and guides for paper-based products (Global Water Tool, 2007).

What is a value chain?

A corporate value chain comprises of a complete product portfolio of the company, while a product chain completely covers one product. If the social and economic impacts are brought into consideration after every step in a chain, then the value chain can be made more sustainable.

When a product makes a move in its life cycle i.e. when it moves from one phase to another, its value increases. Let us take an example of a mobile phone that is being manufactured.

Firstly, the product is designed and then processed for development

Selection of raw materials take place, and then they are supplied to the desired destination

The manufacturing process takes place. After developing the product, the mobile phone is marketed, packed and then distributed.

Mobile is retailed, purchased by someone, used, and then services also take place.

Finally, recycling takes place, and then it is disposed off.

What is life cycle management?

The framework that manages and analyses the sustainable performance of services and goods is known as LCM.

LCM is an approach of business management that is utilized by many organizations and businesses for the improvement of their sustainability performance, and it is a method which can be utilized by both large and small firms. The main purpose of this is the surety of a much better stable and maintainable value-chain management. According to Remmen et al., (2007), LCM can also be utilized to organize, manage, analyse and target product related activities and information to a rapid improvement with the life cycle of product.

LCM can be much favourable to businesses with an aim of continuous growth by making the product sustainability and life-cycle thinking in an operational condition. Many businesses are working hard to reduce their operational procedures and minimize their socio-economic and environmental problems as well as looking for ways to maximize their socio and economic values.

What is life cycle assessment?

The awareness of value chain or the life cycle along with addressing and understanding the impacts of any development in the consumption and manufacturing of products on our environment has been increased sufficiently. LCA, one of the basic tools for this purpose, has been introduced by the International Standardization Organization (ISO) (ISO 14040/14044, [2006]).

LCA is the evaluation and the collection of inputs and output, and other interferences with the potential or current environmental impacts and aspects throughout the life cycle of a product, such as resources utilization and the consequences for the environment due to the releases, from raw material to the manufactured good, use, end of life-cycle, recycling and disposal or termed as cradle to grave.

LCA can help:

To identify the prospects for the improvement of the product's performance at several stages of their life-cycle related to environment.

To inform the decision makers in non-government or government firms, regarding the importance of priority setting, strategic planning, and process or product design/redesign.

To select the concerning indicators of the environmental performances which also include techniques of measurement.

To market things like implementation on the eco-labelling scheme, environmental claim or the declaration of the environmental product.

LCA, thus, is a tool which helps to improve the efficiency of resources. The organizations and stake-holders are able to recognise the "hotspots" in the supply-chain in terms of opportunities and potential risks. In broader vision, LCA ensures the implementation of the improvements as it will affect the life-cycle thus preventing the burden of other impacts of environment or stages. The design for sustainability and eco-design has the LCA-centred information for the product design tools (Crul and Diehl, 2007).

What is social life cycle assessment?

S-LCA (social life cycle assistance) is used for assessing the social features, and negative and positive impacts of the product throughout the life-cycle. Moreover, it focuses on the processing and the extraction of the raw material, manufacturing, distribution, utilization, reutilization, sustainability, re-cycling and disposal. It also makes use of site specific data and generic, which can be qualitative or quantitative, and accompaniments LCA with social features. Furthermore, S-LCA can be individually applied or in collaboration of LCA.

S-LCA is helpless in providing the answer regarding the production of a particular product, whereas it can provide information to think about and making a decision regarding the product.

As a whole, S-LCA follows the framework of ISO 14040 but there are some common aspects augmented at every stage of study which may differ. UNEP Guidelines for the Social Life-Cycle Assessment (2009; also see UNEP/Sustainability, 2008) of the products offers a methodology for the development of inventories of life-cycle. A life-cycle inventory is explained for the indicators (like number of created jobs) interlinked with the impact classes (local employment) relating to 5 basic stakeholders (workers, consumers, local community, society, and value chain actors).

The impact groups for local community are: access to material and immaterial resources, migration and delocalization, respect of native rights, cultural heritage, healthy and safe living conditions, local employment, security for living and community engagement.

What is life cycle costing?

LCC or life cycle costing is used for the calculation of total cost of any product (services and goods) produced along the life-cycle from the acquisition to the disposal, inclusive of installation, design, maintenance, operation, recycling and disposal.

LCC can be utilized for various purposes including a common use as the selection studies are related to both the optimization and comparisons for various products and trade-off designs. The energy sector mostly focuses on selection of source for many services, whereas the construction mainly utilizes affordable studies. The public sector, on the other hand, utilizes LCC for decision sources and private sector uses it as a support tool for design.

What is environmental life cycle costing?

The extension of traditional LCC is environmental LCC which measures the costs related to the life-cycle of a product and are enclosed by one or many actors. These actors are suppliers, customers, manufactures, end of life actors or end users. Environmental LCC is exclusive of external costs that are irrelevant to the actual monetary flow and analysis or decisions at hand but may include external costs of the social or environmental effects. These external costs thus allow anticipation of the future and help in decisions pertaining to it (Rebitzer and Hunkeler, 2003).

Traditional LCC comprises of costs which are directly borne by the actors involved in the financial transactions and are not complemented by any other social and environmental analyses. These costs are confined only to the economic costs represented by the dotted line in Figure 2. Moreover, only some parts, like excluding end-of-life present in the lifecycle, are addressed.

From the perspective of economic terms, environmental LCC is equivalent to LCA. It revolves around covering core economic aspects regarding product-related sustainability. A traditional LCC is also extended by environmental LCC by acquiring complementary LCA with an equivalent functional unit and system boundary. Due to this, it is referred by the term environmental LCC. In order to represent all facets of sustainability, it could only be used in conjunction with an environmental or possible social assessment such as S-LCA and should not be used alone.

The pivotal purpose is the provision of a comprehensive product assessment system which detects hidden cost drivers, plans technology developments required for new product offerings, compares trade-offs and total costs pertaining to alternative technologies, informs decisions on replacement and upgrade of capital equipment and development of carbon-trading strategy, and much more (Hunkeler et al., 2008). Thus it caters as an effective tool for management accounting, which is also referred as cost management, but is in no relation to the domain of financial accounting.

What is the capability maturity model?

CMM lends a hand to companies in attaining or stepping ahead of the next evolution level in business management. This tool deals with five maturity level while acting as a framework as well. The gradual move of an organization from complaint strategy towards sustainability successfully executes the model to higher levels of capability or maturity.

Company case studies

Leading companies are applying life cycle management for creating value after realizing its importance and significance in making value chains more sustainable.

Life cycle management and related tools were used by Dow, 3M and UTC for preventing pollution and reducing the concern over materials. Risk analyses also used them for maintaining a right for operating under pressure from non-governmental organizations, civil society and demands resulting from the new legislative initiatives.

Life cycle management was also utilized by Eskom, 3M and Veolia Environment with the goals of enhancing efficiency and saving money through the reduction of energy, conservation of water and reduction in the usage of materials.

Life cycle management is used by Veolia Environment for supporting key choices in technology.

It is used by Eskom for supporting core investment decisions

It is used by Alcan Packaging for product development.

Dow, Veolia Environment and Alcan Packaging deal with final consumers and customers and thus consider sustainability as a core competitive advantage.

The idea of partnering with suppliers and customers for attaining minimum impact within complete value chain is beneficial to the society and creates value as well. Life cycle management provides positive bottom-line consequences to each company and benefits them overall, provided it is managed effectively and implemented by considering direct and indirect effects.

Cooperation implies the generation of core systemic approaches which reinforce gains attained through technical and process solutions involved in distribution and production cycles. The adoption of a sustainable value chain approach lends a hand to businesses in meeting challenges pertaining to climate change, water scarcity, poverty, resource depletion, demographic shifts and globalization. This will ultimately be instrumental in reshaping the world and the way of doing business. Thus, business leaders play a central role in ensuring sustainable development.

According to SETAC, UNEP (2007, 2008) and other business partners, in order to facilitate consumers in selecting sustainable products and services, it is important to gauge products from a lifestyle perspective. These must entail information regarding those aspects of the product that are relevant to sustainability, especially on the usage and end stages of the product's lifecycle.

The combination of sustainability aspects put together in research and development, and the consequent maintenance and engineering process, is another key point for cooperation. This includes the entire process of managing a product's properties and description through all stages of its lifecycle, primarily from the business view point in order to enhance the overall end-to-end process of product development to deliver top quality business value.

SETAC, UNEP (2008a) and business partners are working in a collaborative effort to provide solid contribution to business and consumers through highlighting strategies and product criteria that address important lifestyle issues.

The above mentioned organizations propose the following steps for companies to move forward:

Identify your accomplishments - Keep a close eye on other companies and organizations and observe examples that can be most important for your own business environment, such as the markets and culture. Do some internal research and look around for success stories within your organization to strengthen and enhance your value chain. Have a brainstorming session with your colleagues on viable ideas for your organization, classify potential advantages and challenges that you may have to come across from the examples you have chose. Discuss in detail with the top management and carry on to the next step with the chosen option(s).

Increase awareness - Start with increasing awareness within your organization. The integration of lifecycle management based on sustainability internally helps the strategy planning of the company and stakeholder dialogue to come together to match public and customer expectations. It also helps to reflect a good image of the company in the internal programs of the company's work to promote the sustainability of its value chain.

Spread the word - Seek to communicate with customers, channel partners and all the other relevant stakeholders as they are a vital part of the company's value chain and can make a great difference. They should be part of the overall improvement as that denotes overall success.

The rapidly evolving world demands the attaining of sustainable development practices by organizations. An example of this was the 2008 financial crisis how important innovative thinking is.

Along with being eco-friendly, these practices have proved to be beneficial for businesses as well. It is such businesses that generate ideas in regard to attaining sustainable development.

Business practices are increasingly being changed by shifts in economic development on a global scale, demographics, and the effects on humans and nature. Leading global organizations in the future are more likely to be those that efficiently and effectively tackle the global challenges faced by the world, such as resource depletion and water scarcity.

Section 3: Applicability of life cycle management to create value at Glazers

Implementing LCM through varying methods that were used by organizations in the day-to-day operations is focused upon in the above section, which included economically designed approaches, green procurement methods, LCA, LCC, labelling, environmental product declarations, analyses of carbon and ecological footprints, indicators of environmental performance, an approach in line with sustainable development as well as those vital for execution and implementation.

Companies already on the path to advanced sustainability have a more apparent link with LCM, initially starting as a means of controlling and preventing pollution (3M and Dow), due to increased pressure from NGO's, extensive legislation initiatives and civil society.

Glazer's will be able to save money and increase efficiency by adopting LCM as all other such programs initiated in the 1990s have targeted decreasing use of energy and other materials along with minimum amount of water. Furthermore, an important objective of environmental impact is efficient mitigation (3M and Eskom).

Glazer, like other companies, can utilize LCM to influence decisions regarding technology, investment and new product development (Eskom, Ford Packaging).

Whereas some companies consider LCM to be a long-run investment, others view it as an already evident short-run gain.

A competitive advantage can be achieved through sustainability, for firms that deal directly with final consumers (Alcan Packaging and Veolia Environment). The issue has raised concern among both consumers and members in the value chain, thus Glazers should seek to weigh the costs of LCM vs. its numerous advantages.

Partnering within the value chain benefits the society. For instance, the objective of materials stewardship, which was formulated by top mining companies, was to ensure optimal and efficient use of all minerals and metals, through effective collaboration with channel partners.

As evident, by using LCM, Glazers too will become a part of a sustainability approach that tends to have a positive long-term impact on organizations.

As more and more businesses are collaborating with each other, companies do not have to face the challenge alone. Cooperation implies the generation of systemic approaches. This lends a hand in attaining beneficial gains through technical and process solutions present within the distribution and production cycles. The adoption of appropriate approaches for enhancing the sustainability of value chains will be instrumental Glazer's in meeting the challenges of twenty-first century.