Aligning Sustainability and Profitability in Manufacturing

Now it's much more about a practical and data driven measurement and approach to what strategy makes sense over the longer term. Not just to talk about sustainability, but to put into practice this as a concrete piece of strategy.

Welcome to the Manufacturing Executive Podcast where we explore the strategies and experiences that are driving mid sized manufacturers forward. Here you'll discover new insights from passionate manufacturing leaders who have compelling stories to share about their successes and struggles. And you'll learn from B2B sales and marketing experts about how to apply actionable business development strategies inside your business. Let's get into the Show.

Welcome to another episode of the Manufacturing Executive Podcast. I'm Joe Sullivan, your host and a co founder of the industrial marketing agency guerrilla 76 where we help B2B manufacturers grow through revenue focused marketing programs. For many years, sustainable or green business practices have been nice to haves inside of many manufacturing organizations. But when forced to make a decision, most leaders will end up choosing profitability over sustainability. In this conversation today, my guest will tell you how those two things, profitability and sustainability, are becoming much more closely linked. Specifically, she'll break down three reasons why manufacturing leaders should care about this topic and she'll conclude by offering her advice about how to start taking steps in the right direction. Let me introduce her. Lauren Dunford is CEO of Guidewheel, a global software company on a mission to empower all the world's factories to reach sustainable peak performance with cloud powered factory ops. Guidewheel is backed by top tier investors including Greycroft and in 2022 was recognized by the World Economic Forum as one of 100 most promising companies globally poised to make a significant impact on business and society. Lauren brings a dozen years of experience in supply chain and operations and a BA and MBA from Stanford University. Lauren, welcome to the show.

Thanks so much Joan.

Great to be here.

Well Lauren, can you start by telling us a little bit more about your own personal journey and also what Guide Wheel is all about?

Yeah, absolutely. So I'll start with what Guidewheel does. So basically it's factory ops. We take the kinds of real time visibility and plant floor tools that historically were accessible only to very large manufacturers and we make those tools plug and play. The vision is make access possible for any factory of any size, no matter where they are in the world and that that'll have huge benefit for them and their businesses and then also of course, you know, huge benefit for economy, for the planet, et cetera. Then in terms of how the heck I got into this space, I've been obsessed with supply chain operations, manufacturing for A dozen years now. First actually got started in operations at Stanford when I was an undergrad there. Then got off Fulbright to study supply chain and then spent five years actually working out of a fresh food manufacturing plant in Oakland. I was on the accounts team, so I was responsible for 65 million of the west coast business sitting in the plant every day and seeing firsthand how much we tracked very manually, spreadsheets, clipboards, sticky notes. And also saw that manual tracking wasn't because our operations team wasn't fantastic. They were, they were also making great decisions about technology.

We were tracking so manually because the options that existed for real time visibility were heavyweight and would have been so oversized for a business like ours that they would have crushed us. So headed back to Stanford and focused the two year MBA there on how do we apply technology for the plant floor in really smart and elegant ways to make that kind of visibility accessible much more broadly. And that's where Guide Wheel started.

Lauren, we're going to get into some trends in manufacturing that you're seeing shortly and I expect we'll spend a good portion of this conversation talking about sustainability. Can you make the connection for us between that topic and what you're doing at Guidewheel?

Absolutely. So Guidewheel typically starts with core factory operations. What can we do on that plant floor to give real time visibility that drives revenue and margin to hit your business objectives? The way we will usually start by getting that visibility into any piece of equipment, new, old, any make, model or age, is actually through a simple clip on sensor that measures measures the electricity used by that machine as a proxy for how it's running. Running on low, dry running, idle off every cycle and bit of speed becomes very visible as well through that current draw. And so what we've always found magical about these sensors is you clip them on and same day you can have second by second visibility into any piece of equipment to drive those core metrics, revenue and margin. The tie here to sustainability is that by measuring that electricity draw of the equipment, we also can make that accessible with all of the functionality that a manufacturer needs to quantify and reduce their energy consumption. It's a full suite of energy management tools which can also tie in to carbon reporting and accounting, which is something of course we'll dive into on the sustainability side, increasingly important and something that folks are tracking. So we use that electricity draw as a way of getting real time visibility for core factory operations. And then it also has this benefit of all of the environmental sustainability metrics you might want to track. So that's what ties us into that sustainability space as well?

So as CEO of a company that collects data from machines inside of factories, I know you talk to a lot of manufacturing leaders. I'm just kind of curious. From anybody who talks to, you know, who sees as many facilities and talks to as many manufacturing people as you probably do, what are some of the trends you're seeing right now across the industrial sector?

I'll dive into a few of the trends and also just want to frame it in terms of how impressed I am with the resilience and leadership and just incredible way that leaders in manufacturing are responding to some very tumultuous times economically. Our customers just amaze me every day and I feel so lucky to get to work with them and support them. So in terms of concrete trends, we still of course see talent as the major one. That's what comes up in almost every conversation. For a while there it was just huge challenge finding day to day labor and folks to run machines. That's alleviated just a little bit in the past couple weeks and months that we've seen for some industries. All of this of course very industry dependent, but there's still a big talent concern of so much valuable knowledge retiring as the as many folks in the workforce retire, so much valuable knowledge that needs to be transmitted to that next generation. So talented, almost always number one in any conversation. Three additional trends that we continue to see. Supply chain for sure being a big one dependent on the industry. But raw material shortage, long lead times getting much better now over the past few weeks and months as well. But was definitely a concern of course, as I'm sure you've heard loud and clear with others. And then the other two that we tend to see are first of all a real kind of uncertainty around how the macroeconomic situation is going to affect demand and how to plan ahead from a capacity perspective, just broad uncertainty. I have no secret knowledge there of how things will play out, but a lot of questioning and watching very closely among the leaders I speak with. And then lastly more so in some industries than others. But regulation increasingly playing a role, especially around the topic of environmental sustainability and some rules that are likely likely to come down in that space as well. So the four trends would be talent, supply chain, macroeconomic uncertainty, and then that that regulatory impact dependent on industry.

Great. Well, the first two topics, there are ones I've covered from a variety of angles on this show and you and I were talking about that recently. I think where I'd love to focus some of our conversation today is around an area that I know is one of your passions, and that's sustainability as it relates to manufacturing. So I think we're going to do a deep dive there and I'd love to start by maybe just hitting on what are some of the key reasons that manufacturing leaders care or at least should care about sustainability in their operations.

Yeah, and for purposes of this conversation, when I say sustainability mean environmental sustainability and of course we come in with a particular focus there on the energy management side. So just of course it's a broader term, but that's where we'll focus. And just to kind of start off on that topic, I'll share the three main reasons that we see folks really starting to care now about sustainability in a big way and the caveat that this is a word that lots of folks have said for years and previously we were watching it closely. Some folks would care. What we've seen in the past year or so is that sustainability has become a real and concrete driver of business value in a very different way than it was previously. So that's really where Guidewheel and I tend to watch it, is when is this going to matter and move the needle meaningfully on business value relative to other levers that our manufacturing leaders have. And the three reasons we're seeing there are, first of all, from a customer facing side, whether it's B2B or B2C, there's an ability for environmental sustainability to open up access to new markets and channels and really be a competitive differentiator with customers. That's changing in a very real way. The second area is with investors happy to dive into that more but just increasing real effort to not only talk about but also quantify on that sustainability side and the investing landscape. And then the third being that regulatory area. So customers, investors, and that regulatory area being the reasons we see this becoming more and more of a driver of business value.

Great. Well, I think it provides a nice framework for this conversation if we kind of go into each of those buckets one by one and break down down what you're seeing. Let's start with, you know, the first one on that list. Tell me how sustainability in this context can affect new market penetration and resulting revenue growth.

Yeah, definitely. So I'll start with the B2B side. So we'll touch on B2B and B2C. Because of course, very different in both of those areas on the B2B side is we're seeing more and more large companies, whether it's ones who are anticipating regulation from the SEC or just taking a Because they have pressure from customers, kind of want to make sure that they're anticipating sustainability as something that'll be important to their business value, saying, hey, we want to not only set goals for environmental sustainability, but back those goals up with data. And so what that tends to look like is larger companies setting targets for whether it's net zero carbon emissions reduction, net zero carbon emissions, or carbon emissions reduction in three areas. Scope 1, scope 2, and scope 3 representing getting farther and farther away from the core business operations. Scope three is where for the manufacturers that we mostly work with, this tends to play a big role. And Scope three is all of the broader emissions from the supply chain and use of a company's products. So an example here would be when ge, GE says, hey, we're going to make very real emissions reduction targets and apply those out to Scope three or another large company doing that, that tends to affect anyone who's supplying that company with goods. Because it means that one of the criteria that that company is looking at in terms of who suppliers are and what they're tracking for their supplier base becomes carbon emissions. So that data becomes even more important. And what we're seeing right now is largely a shift towards that tracking rather than it being, you know, firm or black and white. But tracking that data can become a differentiator then as a supplier for those larger customers. What we're then seeing for folks on the end market being consumer side. So B2B, it's that big companies are setting goals, and more and more it's a differentiator to be tracking carbon emissions as a supplier for B2C. And this can be for B2B manufacturers that are selling to other folks whose end markets are consumers or retailers. So packaging selling to food companies who sell to Target or Walmart, et cetera, would be an example. What we're seeing is that more and more of those large retailers are also setting very concrete goals around carbon emissions. And that's having then the same effect in terms of their supplier bases. They need to be able to quantify that Scope three, the supply chain emissions. And so carbon emissions is becoming something where if you're selling to a large retailer or your customers are selling to a large retailer, tracking that is becoming more and more important. I think for a stat there, the number of large retailers who had set emissions reduction goals doubled from 2019. And it's now at, I think, 65 global retailers. And the trends folks are seeing are continuing to increase there. So all of these are leading indicators, from what we can see of an increasing trend in really quantifying that supply chain carbon emissions impact.

So just to clarify, are we talking about the Walmarts and targets and big box retailers of the world saying.

We.

Will by some date have X percentage of the goods that are stocked on our shelves for consumers that meet these sorts of regulations, or is that kind of what you're hinting at here?

Yeah, great question. What we see is often it's a little bit more general than a very specific commitment to what's on the shelves. What they're generally looking at is their supply chain overall, of which a piece of that is the things on the shelves and then a piece of that is transportation and logistics and all of the other things as well. So I think it varies based on the retailers from what I've seen. But definitely the overall trend is more and more folks starting to care and want to quantify whether it's to get a baseline at this moment or to drive improvement over time. And what that means for the folks selling into those retailers or selling in to people who are selling into those retailers is that thinking ahead around how you can differentiate yourself from a competitive position, sustainability is becoming a more and more concrete way to do that.

There's really a trickle down effect that starts way upstream, huh?

Exactly. Yep.

Okay, let's take a quick break here. I want to let a couple of our strategists at Guerrilla 76 tell you about something pretty cool that we're doing right now for marketing folks in the manufacturing. Peyton and Mary, Take it away.

Yes. So I'm Peyton Warren. And I'm Mary Keough. Twice a month we host a live event called Industrial Marketing Live. Right now we have a group of 50 plus industrial marketers from a variety of manufacturing organizations. We meet up digitally to learn, ask questions, network and get smarter. Every session has a designated topic and one of our team members at gorilla76 opens up by teaching for the first.

Half hour or so.

Topics have included how to get better at a manufacturing webinar, getting started with paid social on LinkedIn, how to optimize your website for conversions, creating amazing video content, and so much more. After we break it down, we open it up to Q and A so we can help you apply all of this in your own businesses. This is pure value, no cost, no strings attached, no product or service pitches, just a 100% unadulterated learning experience. Oh, and on top of these live sessions, we've also opened up a Slack channel where our attendees bounce ideas off each other and learn together all week long. Between Sessions. We're building a true community of manufacturing marketing professionals here. So if you or someone at your company has the word marketing in his or her job title, please consider telling them about it. They can visit industrialmarketinglive.com to register. We'd love to see you there.

So Lauren, tell us next about what sustainability in a manufacturer's operations can mean to private equity firms or other potential investors in those companies.

Yeah, definitely. And this is interesting because it's coming at various levels of investment as well. So wanted to kind of touch on first the trends that we've seen among investors in private equity firms. So the GPs or LPs in those firms and then how the firms themselves are starting to in deal diligence and then also in portfolio management of the companies that are in their portfolio. Care more and more about this from an LP perspective, we're seeing similar trends in terms of the investors in those private equity firms setting their own ESG targets which include include environmental sustainability as one component and that those targets and reporting requirements are starting to trickle down quite a bit to the private equity firms themselves. And the impact of this net is that not only is environmental sustainability something that's becoming more and more tracked, so something that folks anticipate getting questions about and want to be able to be prepared for those questions in a data based way, but it's also something that's starting to drive increases in business value from manufacturers who can speak to that ESG or environmental sustainability component. Because from a deal diligence perspective and something that I think a stat I saw was 93% of private equity firms are willing to say no to a deal for ESG reasons. So becoming really important as a, you know, a factor that could put the deal at risk. And then more and more are also starting to look at environmental sustainability as a driver of both business resilience and business value over the longer term. Ties back of course to that that conversation about customers. So in that deal diligence process it's something that's increasing the valuation commanded by businesses that do have a real strategy and data driven story. There are once you're in that portfolio, it's also something where the number of board meetings that are including KPIs related to environmental sustainability and ESG is another one that's doubled in the past few years. So if you're part of a private equity portfolio, odds are that you're at in an increasingly environment where you're going to need to report out on what those environmental sustainability metrics are in your board meetings, because the private equity firm wants to be able to report out in turn on the metrics around their portfolio to their investors. There's also this additional dynamic of large pots of money. I think it's a trillion dollars globally at the moment that are in dedicated ESG funds. So that money is available for folks that are really concentrating on ESG as a key differentiator and is a separate thing from where we usually play in, which is folks who are looking to drive revenue and margin and all the things that we would normally care about in terms of growth of our manufacturing business and are part of more traditional portfolios, but looking to make sure that they're ahead of the game in terms of where that business value will be driven over the longer term.

So, Lauren, we've talked about the impact of sustainability on one, new market penetration and two, attracting investors. You mentioned that a third reason manufacturing leaders should care about sustainability is because of anticipated changes in regulations in this area. Can you tell us more about that?

Yeah. And this is one where I think my recommendation is watch it or, you know, track. Track this, because I don't personally know the exact ways that this are gonna. This is gonna impact the manufacturing space, and I don't think anyone does. So flagging this as something to watch as every leader is wanting to get ahead in the strategies that they're building. On the regulation side, there are two.

I personally am watching. The first is SEC regulations around carbon emissions for very large companies. Those scope 1, 2, and 3 with scope 3, the emissions from the supply chain being 1, where as those larger companies are held accountable to reporting on their emissions, that a lot of that will in turn trickle down to their supply chain in a very real way. These regulations are still being discussed. Who knows if they're even going to be passed. Lots of details still to be firmed up, but something to. To track quite closely because the impact could be so huge if they end up coming through and because a lot of those large companies are thinking very proactively about those potential regulations as well. And then the second one being the recent Inflation Reduction act, which created large pools of money that are dedicated to areas of renewable energy. So if your business touches anything that touches those areas, something to think about in terms of solar and heat pumps, pumps and other forms of clean energy that will need to be manufactured and will have associated packaging and components and things that will trickle through the supply chain, that there may be a vastly increased demand for those things. So watching the regulation from that perspective and then also watching the Inflation Reduction act regulation, from the perspective of it's actually set aside and increased pools of money for projects that can concretely decrease emissions emissions. So in energy intensive industries there are dedicated funds to support projects that can actually dive in and help take those emissions down. There's also a dedicated pool of funds for projects that can track and kind of lay the groundwork for those emissions reductions as well. So lots of exciting stuff on the kind of changes in the overall market, what's being produced, as well as in terms of the potential funds available for some of these projects.

Lauren, you've covered a lot here around sustainability. What tangible advice can you offer our manufacturing leaders that are listening today who want to start putting some of this into action?

Yeah, I think the big piece of advice is that the most thoughtful leaders I see are starting to watch this space in a very real way now. For years people talked about sustainability. You know, you put up a sustainability area on the website or you know, you put green in someplace. Now it's much more about a practical and data driven measurement and approach to what strategy makes sense over the longer term. Not just to talk about sustainability but to put into practice this as a concrete piece of strategy. So thinking about it from those three areas of customers and market access, investor and then regulation for your business, you know, of course it'll depend on your strengths and the markets you serve. But thinking about this as a lever that is a very tangible driver now of business value for those three areas. What pieces of those areas might be tailwinds that you as a leader can take advantage of or think about in building your strategy? What areas might be headwinds that you want to get ahead of and make sure that you're not increasing the vulnerability of your business. So the big takeaway is sustainability is now really something to watch and one of those levers where similar to talent to supply chain, to the macro economy and matching demand with the capacity you have. It's a key lever that can tangibly move the value of your business if you manage it as a leader in the right way.

Great advice. Really good conversation today. Lauren, I appreciate you doing this.

Thanks so much Joe. Same.

Can you tell our audience how they can get in touch with you and where they can learn more about Guidewheel?

Absolutely. So we're@guidewheel.com, g U I D E W H- and Lauren Dunford. I'm on LinkedIn. Don't hesitate to message me. Very responsive and always up for a chat about any of these topics. We really learn so much from our customers. Build based on what is most valuable to the manufacturing space and whether it's a thing that you wish existed and that folks would build from the tech standpoint, whether it's a request you have or just want to catch up. Always that project chat.

Perfect. Well again, Lauren, thanks for doing this today.

Amazing. Thanks so much, Joe. Appreciate it.

As for the rest of you, I hope to catch you on the next episode of the Manufacturing Executive.

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