Sustainability: On a ReCon Mission
July 1, 2011
by Dan Malovany
When it comes to going green, PepsiCo, Inc. takes a leadership position in more ways than one. For the past five consecutive years, the Purchase, NY-based company has been named an Energy Star Partner of the Year by the US Environmental Protection Agency, as well as one of the “world’s most ethical companies” by the Ethisphere Institute for demonstrating real and sustainable ethical leadership in the food industry. Since 1999, its Frito-Lay business has reduced the overall amount of water it uses by 45%, natural gas by 33%, electricity by 25% and fuel by 8%, according to the company. In all, it partners with more than a dozen leading environmental organizations.
Still, what PepsiCo does to conserve resources is just a drop in the bucket. That’s why the company started an intensive, all-encompassing program three years ago that encouraged selected strategic suppliers — specifically copackers and contract manufacturers of its Frito-Lay and Quaker products — to share its commitment to conservation and sustainability. “In many ways, they are us,” noted Eric Battino, supplier sustainability manager, PepsiCo. “They make our products. The customer doesn’t see their names; they see our names.”
PepsiCo has since expanded the program to include a wide array of snack, beverage, ingredient and packaging suppliers. In all, Mr. Battino said, an army of more than 100 of its suppliers’ manufacturing sites throughout North America have signed up to join forces with PepsiCo to conserve energy, reduce water consumption and minimize waste to landfill.
The heart of the program involves what Mr. Battino calls “RC Bootcamp,” which focuses on teaching the fundamentals of resource conservation (RC, or ReCon), specifically reducing energy, water and waste to landfill. Participating suppliers then move to ReCon Stage One, where Mr. Battino and others tour the manufacturing site and begin sharing the sustainability tools PepsiCo has developed during the past 14 years. The strategy is to first set the stage using PepsiCo’s internally developed profiler to map out and identify the top users of energy, water and landfill. “Basically, it’s an online audit tool on steroids,” Mr. Battino said.
In addition to specific questions that benchmark energy and water usage and material waste, the profiler allows PepsiCo and its suppliers to create a scorecard and develop a hot list or detailed action plan for the selected manufacturing plant. “It’s a flight plan to hit your goal,” Mr. Battino noted. “What it provides is not only a laundry list of things to do but an analysis of the game plan to ensure it’s prioritized and tactics are sufficient to obtain their goals, which may be, for example, to reduce energy by 5% this year.”
After developing the game plan, PepsiCo works with its suppliers to train the trainer who becomes the key supplier’s liaisons and coordinators for rolling out the sustainability program on the plant level. “We’re actually in the trenches with them,” Mr. Battino explained. “We’re walking the floor with them. We’re in their sites training team members and team leaders. We’re working with them to understand their equipment and processes to be successful by providing them new tactics and initiatives that they can use day to day and shift to shift.”
By working in the trenches, PepsiCo and its suppliers take a hands-on approach to solving problems on the production floor. “It’s not behind someone’s desk somewhere,” he said. “When we make a commitment to partner with someone, we’re in it with them and to support their success.”
STRATEGIES AND TACTICS.
If the program seems to have a military feel to it, that’s not surprising. Prior to joining PepsiCo 10 years ago, Mr. Battino spent 22 years in the US Army as a member of the elite 10th Mountain Division, based in Fort Drum, NY. While working in Frito-Lay’s Kirkwood, NY, plant, he spent seven years with Frito-Lay as resource conservation captain for 10 manufacturing plants in the company’s North Division, where he drove results in energy and water conservation through teams, processes and technology before taking on his current position.
According to Mr. Battino, training sessions for team leaders among PepsiCo’s suppliers are regularly held at “host sites” — manufacturing plants that volunteer to hold the events. For the host site, it’s not only about providing fellow suppliers the opportunity to network, share best practices and tap into the vast tools that PepsiCo offers for becoming more efficient. “There’s a big benefit for host sites in the end. Not only do they have all of these people evaluating their site, identifying opportunities, tactics and analysis, they almost end up with a 3- to 5-year plan to drive their energy, water and waste to landfill down significantly,” he said.
Suppliers then can get advanced training during ReCon Stage Two. During this stage, PepsiCo and suppliers focus on how to optimize operations on a manufacturing facility’s major systems. When exploring energy conservation, for example, the companies typically target combustion, steam, compressed air and refrigeration systems. “In most plants, those four [systems] account for 65 to 75% of energy used,” he said.
A graduate of the Florida Institute of Technology with a master’s degree in logistics, Mr. Battino views equipment and the overall process much differently than he did when he first joined PepsiCo, and he’s trying to get the company’s supply chain to do the same. “I was used to looking at equipment from a reliability perspective and making sure I had a program in place with mechanics who were skilled enough to make sure the equipment ran correctly,” he noted. “Now, I am looking at it from a whole different perspective. I look at how efficient it is — not only if it’s running right. The two are connected but not the same. When you start looking at any piece of equipment from an efficiency level, you really have to dive deep into details that you normally wouldn’t dive into.”
With a fryer, for example, Mr. Battino not only explores how it operates mechanically and electronically but also how the fryer integrates into the overall processing line and how to make it operate more efficiently. Specifically, he determines the fryer’s energy and water usage as well as waste production.
Optimizing a piece of equipment saves money, but it also has other benefits. “When I’m making an oven use energy more efficiently, the temperature of the oven is more stable,” Mr. Battino explained. “I don’t have side-to-side variation in temperature or very little variation in moisture. The process is more stable so the [product] quality is improved, and a lot of times, you can improve the throughput of the oven.”
Likewise, spending a little bit more on an energy-efficient motor usually means getting better windings, bearings and seals. Product quality improves in the long run, he said, because the better-built motor is more reliable, which reduces downtime.
FYI ON ROI.
After optimizing an oven, the next step involves exploring simple modifications such as adding waste heat recovery, upgrading burners or adjusting the fuel and air mixture to improve the operation even further. With existing facilities, the goal involves identifying the opportunity to conserve resources, quantifying how much it costs and figuring out the payback to make a good business decision. “If it’s a 3½- or a 4-year payback, we say, ‘Let’s go for it.’ What we found at PepsiCo is that the expected rate of return in resource conservation projects is much lower than the actual return on investments as a whole,” Mr. Battino explained. “We usually get what we expected or a little better return; then we start tweaking it and get even more of a return out of the project. For ReCon projects, we have actually lowered the hurdle rate and made it easier to fund these projects at our sites.”
In addition to a robust ROI, many ReCon projects are low-risk, especially when compared with investments in equipment for new product launches. In some cases, the project may simply involve stocking energy-efficient T-8 lamps that use 25 watts and have the same lumens as a previous generation that required 32 watts. No project or significant capital investment needs to be made all at once. As lights burn out, a bakery or snack operation replaces them with more energy-efficient ones. “It’s one of the quickest ways you can lower costs that go directly to your bottom line,” he said. “How much effort does it take to turn off a switch, close a valve or lower the air pressure on a compressed air system? It’s a great way to mitigate increases in commodities. It’s a great motivator to get people to become more sustainable.”
Perhaps the most efficient sustainable initiatives to lower overhead costs involves eliminating rubbish. Again, Mr. Battino said, the investment is minimal. “There is very little technology needed to reduce waste to landfill,” he explained. “It mostly involves training people and changing the process. If you develop the right procedures and get people engaged, you can establish a good system for segregating waste for a vendor to recycle.”
Because of the success of its supply chain sustainability program, PepsiCo is expanding it internationally this year. “This started off as an experiment, but since it has been so successful, it’s going global,” Mr. Battino said.
He added that the impact of sharing sustainable practices pays off exponentially when major companies work with their supply chains. By requiring suppliers to make a commitment to sustainability, PepsiCo is simply accelerating the process of what many of its suppliers would have done in the long run.
For Mr. Battino, who drives a hybrid vehicle to work each day, sustainability is all about an investment that has a perpetual payoff in controlling costs. That’s why PepsiCo is making the investment with its supply chain. “We’re not afraid to share what we learned over the years,” he said. “We put a lot of time, effort and money into developing the tools that we have. Basically, they’re our tools that we are giving to [our suppliers], and we want them to be successful. I’m really proud to be a part of a company that’s willing to do this and puts its money where its mouth is and that makes it important from the top down.”