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Use ERP modernisation to drive efficiency and sustainability
Evidence of global warming is everywhere, and as organisations update legacy ERP, there is a golden opportunity to build in sustainability KPIs
As a university student back in 1974, a few things really excited me. Seeing The Who and Led Zeppelin live and on fire was one. Another was the totally obvious mess that humans were making of our planet. So I did a PhD on combustion-generated air pollution.
Since then, Greta Thunberg, Sir David Attenborough and others have captured everyone’s attention on our environmental crisis. In the past two years, this has resulted in the issue of sustainability rocketing up the agenda of big business, small and medium-sized enterprises (SMEs) and even the public sector.
Smart leaders of businesses and organisations know that by looking through a “green lens” into their enterprise, they can manage their environmental footprint. This means they can squeeze energy costs, reduce wastage and become much more efficient. This leads to huge cost savings and, potentially, more revenue from new green products and services. So profitability and sustainability are inextricably linked.
There are so many examples of smart enterprises out there that are already carbon-negative – which means the amount of carbon dioxide emissions removed from the atmosphere is bigger than that put into the atmosphere from their operations – or have saved vast sums of money from their bottom line.
One of the best examples I have come across so far is the huge applied technology company 3M. Its vast range of products spans from face masks and coatings, through to building materials and industrial products. As a leading manufacturer, waste management has always been one of its top business priorities. Its Pollution Prevention Pays programme has saved an incredible $2.3bn since 1975. Is that big enough for you?
For over 20 years, leading enterprises have been quietly publishing annual sustainability reports, which build up a picture of their environmental footprint, including greenhouse gas emissions, energy consumption, water consumption and waste production. These reports showcase major projects under way to both reduce this footprint and save money. They also list all the environmental audits and certifications achieved. These typically include footprint reduction targets as well, signed off at board level.
Sustainability has become so strategic that even major financial investors, such as BlackRock, have declared that climate change will be the focal point of their entire investment strategy. In the public sector, countless councils across the country have publicly declared a climate emergency. So, sustainability has become a top issue for investors, enterprises large and small, councils, communities – and even householders like you and me.
Sustainability in ERP
Managing bottom-line costs, top-line revenues and overall financial reporting has long been the domain of enterprise resource planning (ERP) in the back office. To enable and support sustainability initiatives, ERP must now add a “green line” to calculate the impact on the environmental footprint of any business initiative.
This means extending ERP systems of record and basic business processes, such as order-to-cash or procure-to-pay, to address the environmental impact. This will generate a whole range of new embedded business process key performance indicators (KPIs), for example greenhouse gas emissions per site, per product or per unit of revenue.
Ideally, these new KPIs will be produced on a real-time basis, in order to manage the green line as effectively as possible.
This ERP transition is already happening. SAP has produced sustainability reports for its own business since 2008. At its 2020 Sapphire user conference, CEO Christian Klein announced a Climate 21 strategy, in which SAP will help its customers to address sustainability and to gradually build this green line into S/4 Hana, its strategic ERP solution. SAP’s mission with Climate 21 is “zero emissions, zero waste and zero inequality”.
Read more about sustainability
- More enterprises need to build sustainability ecosystems, incorporate sustainability into their business strategy and develop sustainability policies.
- In this Q&A, IFS CEO Darren Roos discusses how enterprise systems like ERP can enable companies to develop and manage more effective sustainability initiatives.
It is unclear when SAP will actually be in a position to deliver this green line product capability. But by the end of 2021, the company hopes to release significant new functionality within new S/4 Hana modules (on-premise and cloud editions) called Environment Management.
This is targeted to include, initially, product compliance management for the chemicals industry, as well as indirect greenhouse gas emissions management. The former will provide automated compliance reports for regulatory requirements throughout the product lifecycle, plus labelling and transportation management for hazardous materials. The driver here is to increase sales through streamlined product development, with embedded compliance.
In addition to embedded ERP functionality, SAP already offers a range of generic sustainability software products, including SAP Environmental Health and Safety (EHS), SAP Profitability and Performance Management (PPM) analytics and SAP Product Carbon Footprint Analytics (PCFA, which is evolving into SAP Product Footprint Management).
At its first Sustainability Summit in April 2021, SAP announced further products by the end of 2021 that would include sustainability reporting and circular economy-driven manufacturing.
What can SAP customers do right now?
To maximise the value from large SAP ERP investments in the longer term, smart SAP customers have always maintained their own internal team of SAP experts after they go live. This team is usually termed an SAP Centre Of Excellence (COE). It typically integrates business and IT technical experts from the enterprise who really know both their own ERP business processes in detail and how the complex SAP application software has been configured to enable them.
The primary role of the SAP COE is to keep these processes running reliably and fully up to date. A highly effective SAP COE provides both agility and huge cost savings.
Research shows that the most successful SAP COEs measure and optimise business benefits from their previous SAP investments. This is achieved by working with business process owners to identify KPIs for these processes, for example order-to-cash cycle time. These KPIs are regularly measured to both improve the processes and demonstrate the business value predicted in business cases.
Sounds easy, yet most enterprises find it hard in practice. The SAP Business Scenario Recommendations, Solution Manager and SAP Signavio products, as well as several third-party BPM software tools, offer many thousands of standard KPIs for this purpose.
All SAP COEs can renew their focus on measuring business value by addressing sustainability initiatives. They can directly support sustainability reporting and audits. They can also take part in business-led green lens projects to help reduce the current environmental footprint of the enterprise.
As a first step, SAP COEs can utilise the existing EHS and PPM products, plus the currently free PCFA analytics content, to measure sustainability KPIs, for example greenhouse gas emissions per unit of product weight or revenue. This takes them up the sustainability learning curve and at the same time generates direct business benefits of cost savings and increased business efficiency.
A second logical step with this strategy is to then optimise ERP and supply chain business processes to exploit the embedded sustainability KPIs as SAP rolls these out in its S/4 Hana product roadmap. In this way, enterprises will use “smart ERP” to dynamically balance profitability and sustainability.
But this is just the beginning of the art of the possible. What if modern technologies could truly optimise these core processes? Or integrate internet-of-things (IoT) sensor data to optimise business assets? What if the much-heralded predictive analytics technology could predict optimum product fulfilment for your top five customers, six months out, showing you the direct impact on your greenhouse gas emissions?
In 2021, we all have to get active, we have to challenge our employers, partners and customers about what they are doing in sustainability. In the future, ERP will help us respond to this inescapable challenge.
Derek Prior spent 19 years as an analyst specialising in ERP at Gartner and is a non-executive director for resulting.