Material efficiency is the ratio of the quantity of finished products to the quantity of input materials procured and processed for this purpose. The less material is wasted or lost within the value chain, the higher the material efficiency. And the higher the material efficiency, the lower the carbon footprint.
Material efficiency increasingly important
Not so long ago, many companies did not even know the term “material efficiency”. In the meantime, material-efficient production has become an essential competitive factor for many companies. The energy crisis has once again highlighted the fact that numerous states – above all Russia and China – are trying to gain exclusive access to valuable raw materials and are restricting foreign companies’ access to their raw material sources. Material efficiency is also important when it comes to reducing a company’s carbon footprint, because more efficient use of materials also results in lower CO2 emissions.
Materials are continuously rising costs
Material costs account for around 45% of total costs in an average manufacturing company in normal times. Due to the bottlenecks and thus price increases in the procurement markets, the current percentage is likely to be much higher for many companies. Since the beginning of the Corona pandemic, world commodity prices have risen practically continuously, as figures from the Hanseatic World Economic Institute and the German Bundesbank show, and the Russian raid on Ukraine has pushed commodity prices even higher.
Development of world commodity prices
(Source: HWWI; Bundesbank, quoted from IKB Information Rohstoffpreise 04.03.2022)
Material costs are thus growing much faster than productivity in many companies. This shows that material efficiency improvement should be an ongoing effort for most manufacturing companies.
How can supply chain management help increasing material efficiency?
Measures to improve material efficiency are generally equated with technical improvements of the product. The focus is then on measures to change production processes or to reduce waste, as well as design measures. These are the decisive levers for increasing material efficiency indeed.
However, there is also potential in the planning and control of supply chains as well as in the right logistical structuring of the product portfolio: the annual inventory-related material efficiency losses, which can be traced back to these causes, amount to 5.5 to 9 % of the inventory value or quantity! Savings achieved here have a direct effect on a company’s carboncarbon footprint by the same percentage.
Forecasts and disposition processes ultimately also affect the carbon footprint
Let’s look at the causes in detail: First, there is the internal and external diversity of variants to be considered. The more alternative products and product variants there are on the market, the greater the danger that finished products or associated semi-finished products and raw materials have to be scrapped because of lacking market demand. The more diverse the assemblies and individual parts for a product are, the greater the danger of having more than necessary in stock.
The worse and vaguer the demand forecasts are, and the more they reflect the company’s sales desire rather than the market’s need, the higher the inventories generally turn out to be. Pre-production in advance of demand in turn leads to unnecessary inventories.
Inappropriate scheduling procedures and strategies and incorrect, unmaintained master data lead to poor scheduling. This results in insufficient readiness to deliver or excessive stocks.
Less shortfalls create less carbon dioxide emissions
Poor readiness to deliver may lead to partial deliveries, subsequent deliveries and extra transports and thus to additional CO2 emissions.
As the level of stocks increases, so does the amount of material that cannot be used and is later scrapped and thus wasted This wasted material has unnecessarily caused CO2 in its production and delivery and its disposal will require further CO2 emissions.
Three of the most important levers, as our now quite extensive experience with projects to increase material efficiency shows, are the architecture of the value chain, a suitable design of the product portfolio and demand-driven scheduling. These levers contribute massively to minimising the risk of scrapping due to omitted requirements or incorrect planning. In special situations, we were able to reduce material waste by up to 29%, which also cut CO2 emissions by the same percentage.
