Cradle-to-Cradle Design at Herman Miller: Moving

towards Environmental Sustainability

Case-Analysis
Submitted by:
Sumit Saurav, IIM-Visakhapatnam
12/7/2018
There is a very famous saying,” It’s not just about doing things right, it’s also about doing the
right things.” The C2C initiative adopted by Herman Miller should be seen in this light. The
company was founded as the Michigan Star Furniture Company in 1905, and after getting
purchased by D.J. De Pree, it got renamed in 1923. It is D.J. De Pree believe that Heman Miller
should not satisfy itself only by offering innovative and novel products. But also demonstrate
moral purpose by caring about the environment and producing environment-friendly products.

I strongly feel that the Herman Miller did an excellent job with the implementation of the C2C
protocol. The company has initiated the project in the year 1997 and sent a strong signal to the
whole company concerning the C2C process through their obvious commitment to the program.
The company demonstrated its strong commitment by forming a high-level advisory team that
included representatives from Advanced project, Engineering, Materials Research, Supply Chain
Management, Environment Health and Safety, Finance and Marketing to work alongside MBDC
to develop the practical means of the C2C design process.

The other factor that demonstrates the strong commitment of the company towards the
development of a sustainable C2C system is the fact that even after spending a considerable
amount of money and resources over the program the company did not rush to implement it.
Instead, the company allowed the team to study the protocol for three years and only when it felt
that enough of the C2C process has been defined to implement the C2C protocol on a product
from beginning to end it went ahead for implementation.

The company continued its strong commitment by constituting the DfE team. The team was
mandated to create evaluation standard using which the pipeline/existing products could be
evaluated for their environmental impact, creating a database for the suppliers’ materials and
establishing the disassembly guideline for the future product. This step of the company was very
important for bringing a paradigm-shift in the mindset of its suppliers and employees.

Another crucial aspect of the implementation of the protocol was the redesigning of various
process. The company relooked into the engineering, supply chain management, manufacturing,
and designing process to institute C2C protocol. The DfE trained more than 300 Harmen Miller
employees; the training consists of an overview of the C2C protocol, a comprehensive
explanation of the DfE process, and sessions to provide hands-off experience to the employees.
Apart from it the company also invested $100,000 in IT engineering and $ 300,000 on materials
assessment fee for MBDC.

Acknowledging the role of stakeholders in the successful implementation of the protocol, the
company also invested considerable energy in apprising them about the advantages of
implementing the C2C protocol. The company had achieved the support of suppliers by pitching
the advantages of the implementation of the new protocol and using the threat of ending the
relationship as the weapon of last resort. By taking such a serious stance vis-à-vis suppliers,
Herman Miller has demonstrated its strong commitment towards the protocol.
The only decision where Herman Miller top management did not take decisive stance was the
question of selecting the suitable channel to close the loop. The company is still mulling over
three alternatives that it has. First, it could collect the chair itself. Second, retailers could collect
them. Third, a third party collector will collect the chairs. The company would have done better
if it had closed this issue also. Nevertheless, this issue will not affect the implementation of the
protocol in the initial years, but for making the protocol sustainable, the company has to find the
solution to this conundrum.

The decision of Herman Miller to undertake the strategic environmental initiative can be
attributed to various reasons apart from its stated corporate environmental goal.

The first reason for this initiative is the moral purpose it will serve, it will give Herman Miller
the tag of the company which not only manufactures and provides the innovative and uniquely
designed product but also will make it an environmental leader of the industry.

The second reason for the initiative is growing awareness among the consumers about the
environmental footprint of the products they buy and use. More and more consumers/
companies are becoming savvy and consider the environmental footprint of the manufacturer
before buying their products and find more value in the company’s product which has a
minimum footprint. Thus, realigning the environmental goal of Herman Miller with its business
goal.

The third reason is the right prediction on HM’s part about the change in regulatory approach
toward the industry. HM is rightly expecting that in future environmental regulations will
become tighter and more stringent, which will apply serious constraints on the way companies
function like the use of energy, material, and waste disposal. Therefore it is only plausible to
address the regulatory mandates in advance while running any business. Apart from this, HM’s
leadership in setting industry standard will provide it a competitive advantage over its peers who
are yet to adopt environment-friendly processes and materials.

The fourth reason could that the C2C protocol design reshapes the manufacturing processes so
that will help HM to circumvent pollution or waste by creating products that are regenerative and
can be recycled into the equally valuable product. This kind of product design will provide
leverage to HM over its competitors as they can capitalize on the revenue by providing savvy
consumer options that they did not have previously.

Ultimately, HM’s C2C protocol design will help it better position the company for overall
environmental sustainability.

I strongly believe that Herman Miller should use TPU in the Mirra Chair arm pad instead of
using PVC in it. A company that is driven by moral purpose has to make qualitative judgment
vis-à-vis its strategy and product which it intends to pursue. There is no denying the fact that the
decision of using TPU over PVC will increase the cost incurred by the company and there is
uncertainty about the how enthusiastically consumers will react to the new product. Often the
decision comes down to what kind of perception a company wants to create in the mind of
consumers, and a negative image can drastically shorten the life cycle of the company.

If we will do some quantitative analysis of the effect of selecting TPU hand arm pad over PVC
arm pad ( the assumption of the calculation is given in Exhibit-2). We will notice the following
things:

 The operating margin and gross margin for the company will reduce by approximately
2% in the above scenarios. But we have to keep in mind for calculation we have assumed
the sales price of the chair constant. However, Herman Miller significant pricing power
in case it adopts new C2C strategy because of its better positioning over its peers.
 The company has forecasted the future demand, and breakeven point in case of chair
having TPU arm pad is around 81% of the forecasted demand, only 4% higher than
estimated breakpoint 76.65% of the forecasted demand in alternative case. Therefore,
regarding the risk associated with the decisions both of them are comparable.

No doubt there is resistance from some department about the use of TPU in arm pad. But going
by Heman Miller track record and its commitment to environmental sustainability we have
noticed they have successfully developed the Mirra Chair with all the component falling under
either yellow or green category except for PVC used for arm pad. This makes no sense that after
coming this far, the company should stop any short of 100% yellow or green parts, and settle for
anything below 100%.

While there is no doubt, there is inherent risk in any decision associated with overhauling
manufacturing, designing, engineering, supply chain management and marketing of any
company. This case is all the same except for the kind of reward this risk can deliver to the
company is way higher the cost of taking the risk( as we have seen the company will lose 2% of
the margin in worst case scenario). The chosen strategy also aligns with the culture of the
company, so there is no point why Herman Miller should adopt the C2C protocol and use TPU in
arm pad of the Mirra Chair.
Exhibit-1

Year 2002 2001 2000 1999 1998 1997 1996 1995 Average for 7 Years
Gross Margin Year Wise 30% 34% 37% 35% 38% 35.7% 33.9% 35% 35%
Operating Marging 0.408% 11% 13% 12% 12% 9.7% 7.2% 0.369% 8.174%

Exhibit-2

Assumptions:

 The price of the chair is assumed to be constant at $750.

 Based on the average gross and operating margin of the company in the last eight years.
It is assumed that the gross margin is 35% and the operating margin is 8.17%
 The effect of inflation is not taken in the calculation.
 The calculation in done to find the worst impact of the strategic choice.

Year 2003 2004 2005 2006 2007

Forecasted Unit 23,000 65,000 97,000 128,000 145,000
Selling Price/Unit $ 750 $ 750 $ 750 $ 750 $ 750
Revenue $ 17,250,000 $ 48,750,000 $ 72,750,000 $ 96,000,000 $ 108,750,000
Gross Margin(with PVC) 35% 35% 35% 35% 35%
Cost of Good Sold(with PVC) $ 11,212,500 $ 31,687,500 $ 47,287,500 $ 62,400,000 $ 70,687,500
Cost Of PVC Arm Pad@10% of the COGS $ 1,121,250 $ 3,168,750 $ 4,728,750 $ 6,240,000 $ 7,068,750
Cost of TPU Arm Pad@30% more than PVC $ 1,457,625 $ 4,119,375 $ 6,147,375 $ 8,112,000 $ 9,189,375
Cost of Good Sold(with TPU) $ 11,548,875 $ 32,638,125 $ 48,706,125 $ 64,272,000 $ 72,808,125
Cost/Unit(With PVC) $ 487.50 $ 487.50 $ 487.50 $ 487.50 $ 487.50
Cost/Unit(with TPU) $ 502.13 $ 502.13 $ 502.13 $ 502.13 $ 502.13
Gross Margin(with TPU) 33.05% 33.05% 33.05% 33.05% 33.05%
Operating Margin 8.17% 8.17% 8.17% 8.17% 8.17%
Operating Profit(with PVC) $ 1,410,023.80 $ 3,984,849.88 $ 5,946,622.13 $ 7,847,088.99 $ 8,889,280.50
Operating Cost(with PVC) $ 4,627,476.20 $ 13,077,650.12 $ 19,515,877.87 $ 25,752,911.01 $ 29,173,219.50
OperatingCost(with TPU) $ 4,647,476.20 $ 13,097,650.12 $ 19,535,877.87 $ 25,772,911.01 $ 29,193,219.50
Operating Pofit(with TPU) $ 1,053,648.80 $ 3,014,224.88 $ 4,507,997.13 $ 5,955,088.99 $ 6,748,655.50
Operating Margin(with TPU) 6.11% 6.18% 6.20% 6.20% 6.21%
In-Case of TPU
Contribution $ 247.88 $ 247.88 $ 247.88 $ 247.88 $ 247.88
Fixed Cost $ 4,647,476.20 $ 13,097,650.12 $ 19,535,877.87 $ 25,772,911.01 $ 29,193,219.50
Break Even Point 18749 52840 78813 103975 117774
% of Sales Forecast 81.52% 81.29% 81.25% 81.23% 81.22%
In-Case of PVC
Contribution 262.5 262.5 262.5 262.5 262.5
Fixed Cost 4627476.197 13077650.12 19515877.87 25752911.01 29173219.5
Break Even Point 17628.48075 49819.61951 74346.20142 98106.32765 111136.0743
% of Sales Forecast 76.65% 76.65% 76.65% 76.65% 76.65%