Monday, September 29, 2014

Sustainable Furniture Case Study

Efficiency and best practice have always been fundamental to J T Ellis & Co., furniture manufacturers of Huddersfield in West Yorkshire.

We never set out specifically to be a sustainable company. The fact is that the way we run the company lets us tick most of the sustainability boxes.

Ellis Furniture supplies kitchens and bathrooms to the retail sector and kitchens, bathrooms, bedrooms and a whole range of specialised furniture to contract clients. These include care homes and hotels, and schools, universities and other buildings in the public sector.

 PFI has not been universally popular, but its been good news for us.

PFI operators frequently have an obligation to maintain a building and its facilities for decades. Ellis uses traditional glue and dowel construction with high quality timber, which means they offer a quality product that lasts for years - and at a competitive price. Every product from Ellis Furniture has a 10-year guarantee, but in practice it will last much longer than that. Indeed, in a corner of the companys showroom theres a suite of student furniture that was originally installed in Durham University in 1985. Its clearly seen a lot of use but its still functional. In principle it could be refurbished and re-used.

What makes a sustainable business?

First of all, the fact that Ellis makes durable and long-lasting products clearly demonstrates sustainable use of resources. Unfortunately, at present no-one gets recognition for making durable products. In the UK, where we generate 117 million tonnes of waste each year, the longer a product lasts the greater effect it has on reducing that figure - a contribution to sustainability that really shouldnt be ignored. Secondly, the company carefully controls its raw materials. Wherever possible, timber comes from FSC (Forest Stewardship Council) certified sources, which means that every tree harvested comes from managed forests, and every tree is recorded and replaced. Walnut and cherry from the US are managed in a similar way but certified by a different body. Other countries have their own schemes. What is noticeable on the Ellis factory floor is that every stack of timber is tagged with details of origin. For every product shipped, the company knows exactly where the raw materials came from.   

I raised the question of energy security. How sustainable is a manufacturing business when there are predictions of national electricity blackouts within the next two years? Like most businesses, their energy supply is in the hands of the government, the generators and the weather. Its just not practical to have a complete back-up generation system, and its not as though the factory is producing anything perishable that needs refrigeration or chemical reactions that must be held at a critical temperature. Of course there are essential services that must be protected so theres a UPS in the computer room which will permit a managed shutdown of IT without loss of data. Theres also one diesel back-up unit on site. It sits next to a massive water tank which feeds the sprinkler system. Every Monday its fired up to prove its ready and waiting should an emergency occur.

And renewable energy?

What about renewables? A 200,000 square foot factory has a lot of roof area and its no surprise that solar panels are under serious consideration. They will never supply all the factorys needs, but the current subsidy regime means they will make a significant saving and certainly more than pay for themselves.
Another aspect of energy is more problematical. Ellis Furniture has to dispose of waste, and offcuts of timber and strip are collected by a company which remanufactures them into particle board. All very green, although Ellis still has to pay for the waste to be taken away. Enter the government with its subsidies for biomass boilers. The policy was set up to support electricity generators such as Drax Power - operators of the UKs largest power station - to convert to more environmentally-friendly biomass. (Whether it is truly environmentally friendly is a debate for another day!) In view of the massive investment involved, some £700m, the government has confirmed that the scheme will stay in place at least until 2037. Back in Huddersfield the regulations mean theres a choice between recycling the timber waste at a cost and saving money on energy by burning it in a biomass boiler. It's a simple choice. Burning it in a boiler is not as green as recycling it, but this is business.

Why ISO 14001?

Putting in an environmental management system (EMS) to ISO 14001 was in response to public sector clients. A lot of the implementation involved documenting practices and procedures which the company already had in place. The fact that the EMS has been installed means that clients immediately know that Ellis Furniture meets recognised standards. Indeed, having the standard is frequently a condition of tendering. Clients know that the EMS is revalidated each year, in this case by BSI, which is an added incentive to the company towards continuous improvement. With this in mind Ellis undertook a lean manufacturing project, which led them to a fundamental re-arrangement of the factory layout. They freed up enough space to allow them to give up off-site storage facilities and save the cost. The revised layout improves productivity as the work now comes to the operatives, following a logical flow, and they no longer have to follow the work.

What about packaging?

Most Ellis products are sent out without packaging. The majority of the business is with the public sector and contract customers. The company delivers these orders on its own transport, securing units to the sides of the van and separating them with blankets, which of course are used again and again. Units for the retail market are packaged in cardboard as the company does not handle delivery to the final consumer and needs to make sure they arrive safely. At least the cardboard can be recycled.

And finally

Ive often said that sustainable business is good business. It makes sense to get the standard and get the credit for it.  Ellis Furniture proves the point that good businesses are generally sustainable.

Thanks to Tom Ellis, Joint MD, JT Ellis & Co    

Wednesday, September 24, 2014

Flourishing in a Not-for-Profit World

This week Donnie Maclurcan presented his view of the future at Leeds University as part of the CASSE autumn programme.

Donnie’s thesis is that all organisations will be, or should be, Not-for-Profit (NfP) by the middle of the century. He started by explaining the difference between NfPs and the third sector, which used to be almost totally dependent on handouts. Now, 53% of NfP revenue is self-generated and used for the organisations’ social purpose. By contrast, in Donnie’s view the traditional capitalist for-Profit (fP) businesses are socially divisive and exacerbate economic inequality. This is not due to paying exorbitant salaries, but results from capital gains, dividends and inheritance. Apparently, just 85 individuals in this world control wealth equivalent to that owned by 3.5bn people. The constant growth of fPs brings ecological devastation.

Donnie challenges the accepted wisdom that states that competition and self-interest are what make society work. He believes that the centralisation of wealth and power creates social and economic stratification and a compulsion to consume. He challenges the myth (the American Dream) that anyone can be wealthy. In fact only 5% of Americans ever move from their original social/economic position. 

What should be done? Central market regulation? Concentrating power in the hands of the state is no better than concentrating it in the hands of the rich, and the line between the rich and the state can easily become blurred. Strong regulation can stifle innovation. Growth continues. Self-regulating capitalism? Donnie does not believe that we can rely on fPs to innovate the world out of ecological disaster. From his work on nanotechnology he does not even believe that fPs could achieve decarbonisation in time to avoid disaster. Self-regulating capitalism is still capitalism; still reliant on growth.

The Alternative Solution is the Not-for-Profit Enterprise, where the organisation socialises its profits. In other words it either uses its profits to further its social purpose or donates its profits to organisations benefiting the community. There are no shareholders demanding dividends and no owners who can turn a profit by selling of all or part of the business. 

NfPs are better because NfPs can outperform traditional businesses. The example of the credit unions versus the banks in the US was quoted, although Donnie did admit that in the US credit unions get special tax breaks. NfPs use freeware rather than expensive mainstream software. Employees are more motivated, empowered, working in organisations with a flatter structure. NfPs create open source research rather than licensing their intellectual property (IP) in order to make money from users as the traditional fP would. The motivation and commitment from working for an NfP can lead to remarkable productivity gains. The quoted example was that car manufacturer WIKISPEED could develop in 8 days what would take Toyota 30 years. (The politest thing I can say about that statistic is that I don’t believe it. Let’s not overstate the case now.) Examples of NfPs are Mozilla, creators of the Firefox browser, and Wikipedia.

“Working together is better” There’s more concern about the origin of products. NfPs are more ethical and they never plan for obsolescence. The wide availability of digital resources means that the barriers to entry to many businesses are very low. Capital costs are falling and crowd-funding, a completely new source of finance, is widely used by NfPs. For larger investments shares should be replaced with community bonds as has been tried in Canada. Holders receive a fixed return but have no part in the ownership of the enterprise and no right to a share of the profits, (although they can lose their total investment if things go wrong.)

Profits should be a means to an end, not an end in themselves. For this to happen, for the world’s wealth to be equitably distributed, NfPs are necessary, although not sufficient.

What do I think?

Undoubtedly global inequality needs to be tackled, and at first sight universal Not-for-Profit seems an ideal solution. I have a number of concerns. In the traditional model a company borrows money to set itself up. Service companies, ideas companies, software companies can be set up for pocket money. Manufacturing companies, retailers, farms, transport, power generators and heavy industry need significant investment. Some is borrowed as fixed interest bonds. Interest is paid whether profits are made or not. If it all goes wrong, bondholders get part of anything that’s left: shareholders get nothing. Nevertheless, shareholders invest. They support the company, they take the risk. If there’s no profit there’s no dividend. If it goes wrong shareholders can lose their whole investment. They invest in the knowledge that they are taking a risk and they expect to be rewarded for that risk with dividends in the good times and increasing value of their shares. They share in the growth in the value of a business that they have helped create. All businesses are risky, some more so than others. We need innovation, but innovating businesses can be the most risky of all. If we go to a total NfP model, who takes the risk? 

If we’re going to convert existing businesses to NfP who is going to buy out the existing shareholders, and what will they spend the money on? And if we nationalise everything are we ready for the backlash?

Can every enterprise be a social enterprise? Will we find people who will be motivated by every occupation? Even the dirtiest jobs?

I asked what would happen to pensions if there were no more shares for pension funds to buy. Buy bonds instead, but the increasing reach of the social sector and growing support for the elderly will mean a reducing requirement for pensions. Really? Sounds like David Cameron’s Big Society. (RIP) If I have foregone consumption throughout my life to assure a comfortable retirement I expect to enjoy it in proportion to the savings I’ve made, not rely on universal handouts!

I think climate change, resource depletion and the whole range of sustainability issues are the crucial priority of the moment. Not-for-Profit may be a useful context, but it's only one aspect of the big and threatening picture.

Donnie’s presentation was delivered with clarity and confidence without a single note or slide and kept our attention throughout. Lots to think about. After a struggle I’ve pre-ordered his book: How on Earth. I look forward to reading it and learning more.