Challenges of Sustainability in the Car Industry - Essay Example

Challenges of Sustainability in the Car Industry Grade 29 December Table of Contents Table of Contents 2 Introduction 3Factors That Cause Companies to Incorporate Sustainability in Their Agenda 4 Challenges of Sustainability 6 Recommendations 9 Conclusion 10 References 11 Appendix 13 Appendix 1: PESTEL Analysis 13 Appendix 2: Market Growth Forecasts 15 Appendix 4: SWOT Analysis 18 Challenges of Sustainability in the Car Industry Introduction Sustainability refers to maintenance of the right balance in environmental care, economic progress and social responsibility. This should occur in a way that does not compromise future generations’ ability to meet their needs. A PESTEL analysis of the global automobile industry reveals that innovation is highly associated with the car industry (Refer to Appendix 1 for a full PESTEL analysis). Furthermore, the rate at which urban centres are coming up in the developing world is increasing the market for vehicles. Low carbon emitting technologies are being embraced especially in the European Union as well as other western nations. Governments are offering incentives in order to propagate sustainability goals. However, there has been a shift towards outsourcing manufacturing to developing economies from developed ones. This implies that competition is rife in the automobile industry. Additionally, this model stretches the supply chain across geographies, thus increasing greenhouse gas emissions in production. Sustainability goals may be perceived negatively by auto investors, who may think of them as additional expenditures. Engineering skills are dwindling in the developed world with several innovation decisions being made in outsourcing nations; regrettably, most are not committed to sustainability. Tax regimes and complex human resource systems may be a force to reckon with in the sustainability agenda. Small and medium enterprises are also involved in the supply chain, especially those which provide small automotive parts. Some of them find it difficult to access finance for their work. Incentives for research and development especially with regard to collaboration with other parties may be difficult. Certain governments have led the way in supporting automobile manufacturers and consumers in making sustainable car choices. Consumers are also learning about their role in enhancing intelligent mobility, as environmental concerns do not just end at manufacturing. Several manufacturers are now prioritising environmental issues in production. A number of them want to improve their internal combustion engines. This ensures that waste recovery takes place in production. Additionally, they facilitate the integration of electric machines and combustion engines, thus minimising utility. Environmental issues have also led to innovation in enhancing the energy storage of automobiles and the material production of those items. Lightweight manufacture of products is becoming a key manufacturing goal. However, the infrastructural technologies needed to optimise weight may not be widely available (SMMT, 2013). This report will look into the holistic achievement of sustainability in the car industry. Aspects such as development of regional economies and use of mobility to create an equitable society are all key concerns in this report. The automotive industry has a pivotal role to play in the realisation of sustainable populations. Manufacturers can make wise choices in facility creation. Such companies can also make environmentally friendly products. Several of them work with different partners in order to meet these long term goals. The report will show how the entire business ecosystem of the car industry has been rationalised in order to meet these long and short term needs. Therefore, the analysis is as much about meeting social and environmental needs as it is about ensuring the economic survival of these players. Factors That Cause Companies to Incorporate Sustainability in Their Agenda Certain external forces are causing companies to rethink their strategy towards sustainability. First, environmental and climate change concerns among consumers are one of them. Buyers now require vehicles that will cause less harm to the environment than before. In developed nations, this is certainly true. Europe is at the forefront of these outcries, yet the opposite is true in underdeveloped or developing nations. Additionally, these concerns stem from environmental groups, lobbyists, and hence the government. Political connotations affect business owing to the tax incentives and legislative requirements placed by governments for car manufacturers. Players in this industry also need to move towards sustainable practices because of resource constraints. It is becoming clear that the global population is increasing (Wells, 2013). If current resource usage continues, then future automobile stakeholders will lack the resources to carry out their work. This may also be problematic when car businesses are unable to meet consumer demand. Urban sprawl and congestion in developing nations such as India and China are a reality. Narrow roads are making these areas quite difficult to navigate, so a need exists for vehicles or systems that will solve this problem. Additionally, rapid motorisation is perpetuating even greater congestion in these areas. Demand for automobile products is exceeding its capacity, hence creating problems for those concerned. Businesses are thinking about localisation of production in order to improve people’s lives, and this leads to their sustainability. Regulatory interventions are also causing most people to develop an interest in motorisation. Development of certain levels of outcomes is causing a sharp increase in the incorporation of sustainability in car production. The United States has federally-imposed environmental laws that focus on minimising green house gas emissions. These manufacturers must make compliant vehicles within the same price range or at least at economical prices that will be affordable to consumers. In the European Union, several associations are pushing automotive suppliers to create sustainable vehicles. The Chinese government is facing pressure from the external environment to deal with its emissions (Hamilton, 2010). Energy scarcity is pushing several automobile organisations to consider sustainable practices. Automobile products require energy in order to move. Manufacturers must think of energy sources that are sustainable. Notions of how much a company will contribute to energy security are causing some of them to think of different technologies such as electric or hybrid vehicles. Also, energy choices must be such that they can be scaled to accommodate thousands and millions of automobiles. Challenges of Sustainability In the wake of the above drivers for change, companies in the global car industry are largely dwelling on making fuel-economical vehicles. They are now working towards reduction of emissions within their countries. One way of achieving these goals is through creation of green vehicles. Car industry stakeholders must consider supply chain management issues. Compliance with legislation and consumer demand and taste preference issues must also be addressed. They must streamline their operation processes in order to stay sustainable. Product planning is a difficult endeavour by itself. Auto makers need to consider needs and requirements of the market as they embark on this aspect of production. Sustainability often compounds this process because green specifications narrow down the material specifications for producers. The social and environmental impact of resource choice should be carefully done, and this often makes it difficult for automobile manufacturers to carry out their work (Atkinson, 2000). During the production process, companies must find ways of determining how to control the environmental effect of their products. They need to track what gets into the product, in order to determine what it will emit. This means that companies need to invest in various technologies that will have these mechanisms. Sometimes, such approaches can complicate the overall process. Product design and development should control the level of environmental compliance. However, this may be a challenge when the manufacturer lacks the engineering and design tools needed to implement such an idea. Aspects such as fuel efficiency, emission control and vehicle weight reduction should be controlled. In developing nations, this may be a challenge because of infrastructural concerns. On the other hand, manufacturers in the developed world may still be reluctant to embrace these tools because of the effect it has on their production costs. Sometimes, product design alterations may also change performance, which may minimise consumer satisfaction. The problem of managing systems is also another issue that must be tackled during the production process. Emission guidelines and fuel efficiency goals have caused some manufacturers to create electric or hybrid vehicles (Ceschin and Vezzoli, 2010). These cars are getting even more complex due to the incorporation of intelligent braking or automatic control. One company cannot simply make one component of the vehicle system and presume that this is adequate to meet sustainability needs. It needs to be integrated into different aspects of development, and that could take up a lot of time when planning and allocating resources. Organisations that intend to meet sustainability goals are also facing the challenge of integrating all their functional teams. A highly sustainable motor vehicle is one in which all parts are integrated. This means that companies must facilitate the sharing of data between various stakeholders. One vehicle may have about three thousand parts or more. Communication between different teams is imperative for success. Some companies are facing a challenge with this as they still insist on maintaining functional silos. These entities may resist information sharing because of performance tracking issues. It is necessary for companies to think of new incentives to facilitate this integration. When it comes to actual manufacturing, sustainable practices must optimise processes and equipment use. This may encompass making power and water consumption choices that will lead to conservation. Sometimes, this may take the form of water recycling, material recycling and energy efficiency in production. The key challenge in this component is maintaining the right environmental balance for the product (Schwanen et al., 2011). It is difficult for companies to know the exact environmental footprints of their plants. Several factories do not have mechanisms for knowing their resource usage. Even facility designs may prove to be a challenge in the automobile industry. Digital manufacturing is quickly becoming a trend for these institutions. However, automobile manufacturers may have to redesign their facilities from scratch or even consider moving to other locations. These issues are further compounded by the presence of most facilities in developing parts of the world (Figge and Hahn, 2005). Product use is a critical determinant of the manufacturing process for these entities. Companies are thinking of the sustainability of their products in practical use. Some of them have introduced repair services; they recycle components and work on the performance of the automobile. They may try to make their vehicle easy to dissemble or create a high fuel efficiency automobile. The key challenge with this component is including it in the pricing of the product and convincing customers to pay for those value additions. Regulatory compliance is another challenge for car makers. A number of them are finding that they have to meet their compliance requirements. This means that the internal auditing and governance system needs to support these processes. Recommendations The situation appears promising for auto makers taking on sustainability (Refer to Appendix 4 for a SWOT analysis). A TOWS analysis is critical in this endeavour. The WT (weaknesses–threats) strategy for car companies would be to move from being reactive, environmental-compliance entities into performance-focused and sustainable businesses. Organisations, especially those in the West, which dwell too much on regulatory compliance, may encounter inefficiencies in production that hurt them. The best way forward is to refrain from waiting for these attacks on them (Matthews, 2013). The WO (weaknesses–opportunities) strategy dwells on the creation of cultures of innovation and collaboration. Lack of technology and commitment to the development of new innovations is what prevents firms from being truly environmentally sustainable. They can embrace that opportunity and thus sharpen their chances of success. This strategy also goes with the implementation of technologies and various processes in the firm that will lead to achievement of long-term sustainability goals. The ST (strengths–threats) strategy that the organisation should focus on is expansion of a consumer culture that promotes the relevance of sustainable practices. Since several companies already operate in environments where consumer demand for automobiles is high, they could use this need to inform them about the relevance of sustainability and thus counter the threat of cheaper, non-compliant products from other nations. Therefore, consumer education should target members of developing nations (Tol, 2005). The SO (strengths–opportunities) priority dwells on embracing digital manufacturing. A key strength of sustainability is that it fosters the mastery of the production process. An opportunity available to firms to leverage this strength is the use of digital manufacture. This would ensure that integration occurs seamlessly and in a highly effective manner. Conclusion An analysis of the car industry shows that sustainability fosters integration and mastery of production, and it also prompts organisations to become more innovative. Sustainable practices often optimise processes and equipment use, so some governments support sustainable manufacture of automobiles. Currently, demand for automobiles is high, and this could provide a ready market for sustainable vehicles. Companies may also face certain difficulties such as tax incentives and government requirements in the current economic climate. Challenges in developing a scalable energy source for vehicles also exist. Consumer demand, technology streamlining and regulatory compliance make it difficult to maintain the right balance while sustainability narrows material choices. Nevertheless, car industry players have certain opportunities open to them. In the western market, consumers are now interested in learning about manufacturing processes. Conversely, in developing nations, localisation of production is necessary to enhance sustainability. Firms should educate developed nations about the relevance of sustainability. They need to convince consumers about value addition in sustainable production. Sharing information and breaking functional silos can yield integration. Companies can embrace digital manufacturing or create internal systems that support compliance. References Atkinson, G., 2000. Measuring corporate sustainability. Journal of Environmental planning and management, 43(2), pp. 235-252. Ceschin, F. and Vezzoli, C., 2010. The role of public policy in stimulating radical environmental impact reduction in the automotive sector: The need to focus on product service system innovation. International Journal of Automotive Technology and Management, 10(2), pp. 321. Figge, F. and Hahn, T., 2005. The cost of sustainability capital and the creation of sustainable value by companies. Journal of Industrial Ecology, 9(4), pp 47–58. Hamilton, C., 2010. Requiem for a species: Why we resist the truth about climate change. London: Earthscan Publications. Matthews, R., 2013. US automotive industry: Efficient vehicles and sustainability initiatives. [Online] Available at: http://www.greenconduct.com/news/2013/09/07/us-automotive-industry-efficient-vehicles-and-sustainability-initiatives/ [Accessed 28 December 2013] Schwanen, T., Banister, D. and Anable, J., 2011. Scientific research about climate change mitigation in transport: A critical review. Policy and Practice, 45(10), pp. 993–1006. Senxian, J., Jenkins, B. and Rowell, A., 2009. Sustainable mobility: Automotive industry challenges, opportunities and role of PLM. Cambridge, MA: Sustainability Guild LLC. SMMT, 2013. 2013 Automotive sustainability report. [Online] Available at: http://www.smmt.co.uk/sustainability/ [Accessed 28 December 2013] Tol, R., 2005. The marginal damage costs of carbon dioxide emissions: An assessment of the uncertainties. Energy Policy, 33(16), pp. 2064–2074. Wells, P., 2013. Sustainable business models and the automotive industry: A commentary. IIMB Management Review, 25(4), pp. 228–239. Appendix Appendix 1: PESTEL Analysis Political - Some governments create systems to support sustainable choices in the industry - Poor infrastructural development by governments ruins sustainability efforts Economic - Manufacturing has been outsourced to developing countries - High degree of competition - Investors think of sustainability as an additional expenditure - SMEs lack finance for green goals Social - Urban centres are increasing the market for sustainable vehicles - Innovation decisions are made by outsourcing nations, which are not committed to sustainability - Complex workforce systems impede sustainability - Consumers are becoming more aware of their role Technology - The automobile industry is highly innovative - Research and development collaboration still minimal - Technologies needed to optimise production processes may not be easily available Environmental - Europe and the West are embracing low carbon emitting technologies - Outsourcing increases product lifecycle and thus product emissions Legal - Tax incentives in manufacturing bases may not support sustainability - Legislative requirements may push automakers to become sustainable Appendix 2: Market Growth Forecasts Market growth forecasts (cars, millions of units). Source: http://www.sciencedirect.com/science/article/pii/S0970389613000608 Appendix 3: Performance of the Automotive Industry Appendix 4: SWOT Analysis Strengths - Sustainability fosters integration and mastery of production - It prompts organisations to become more innovative - Some governments support sustainable manufacture of automobiles - Sustainable practices must optimise processes and equipment use - Demand for automobiles is high, and this could provide a ready market (Tol, 2005) Weaknesses - Tax incentives may impede sustainability agenda - Government requirements are hard to meet in the economic climate - Challenges in developing a scalable energy source for vehicles - Consumer demand, technology streamlining and regulatory compliance make it difficult to maintain the right balance - Sustainability narrows material choices Opportunities - Consumers are now interested in learning about manufacturing processes - Localisation of production to enhance sustainability - Educate developed nations about the relevance of sustainability - Sharing information and breaking functional silos can yield seamless integration - Embrace digital manufacturing - Convince consumers about value addition in sustainable production - Create internal systems that support compliance Threats - Other countries such as China are not committed to sustainability, thus making compliant vehicles uncompetitive - Sustainability specifications may compromise vehicle performance and hence consumer satisfaction - Product recalls due to too much focus on one dimension of production, i.e. sustainability Read More