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This paper applies to SAP SCM 5.0 and SAP EHS Management (Sustainability Solutions in SAP) and in a larger context is also applicable to similar Enterprise Applications (ERP).
This paper focuses upon the concept of Sustainability reporting in organizations using SAP. The premise of this paper is focused on a simplistic concept of a futuristic KPI- a green index extracted from an Enterprise application systems (SAP SCM, SAP ECC 6.0, other ERP) which measures the ecological cost of manufacturing, transportation and disposal across the Supply chain on a real time basis.
Author(s): Vidhya Harish Iyer
Tata Consultancy Services
Created on: 11 January 2012
Author(s) Bio :
Vidhya Iyer is an Integration Lead for the SAP rollout of a regional template for a CPG major across the India geography. She has about 10+ years of experience in the ERP industry, and understanding of various Supply Chain methodologies and practices across diverse verticals.
Table of Contents
Sustainability and CSR
Corporate Social Responsibility is closely associated with Sustainability in today’s marketplace and there is a great focus on Sustainability reporting in the Performance Scorecard of Fortune 500 Companies. In Information Technology the scope of sustainability is to an extent limited to energy consumption and zero discharge facilities. This whitepaper focuses on the maturity of Supply Chain Reporting in ERPs with respect to Sustainability KPI. It is essential for organizations to determine, track and disclose sustainability data since it would be a fair picture of how our everyday lives and the lives of generations to come are impacted.
ERP and Sustainability
The premise of this paper is focused on a simplistic concept of a futuristic KPI- a green index which measures the ecological Cost of Manufacturing, Transportation and Disposal across the Supply Chain on a real time basis. This green index is tracked and measured on an organization wide scale in its ERP system and is part of its Performance Dashboard Reporting
Traditionally ERP systems have been focused on Bills of Material, Planning and Scheduling, Logistics and Asset Management. More contemporary solutions have focused on a collaborative approach towards development of a lean and agile supply chain network. Current performance KPI in Sustainability Reporting is mostly focused on Packaging, Energy and Emissions, Waste and Water, Safety, Health and Wellness.
Sustainability Solutions in ERP
Most of the sustainability solutions described in the table below are focused on energy efficiency, greenhouse gas emissions, solid waste and discharge.
Theory of the ‘Green index’
The idea of sustainability in ERP in a very large sense is not just limited to reporting on an organization’s electric and gas bills to determine their carbon footprint. The real challenge is to incorporate a green index at every step of the supply chain like a value added tax and include product and SKU level waste data from manufacturing sites, calculate emissions for the various operations that the product undergoes, securing consignment-level emissions figures from transport providers, obtaining “real time” energy consumption information from relevant utilities, etc. However it is to be understood that incorporating sustainability in the core of ERP system (not just the exterior façade of reporting) would not only be a systemic challenge but a huge disruptive innovation. When environmental regulations kick in, customers would be bolted out of the blue to incorporate the sustainability KPI as part of their statutory reporting and will no longer have the luxury of time to wait for their vendors to research and incorporate sustainability into ERP.
Resource optimization programs in ERP would now need to include and assess the ecological impact of the products that are to be made. We would need to incorporate some level of cost accounting related to carbon footprint in the product’s standard or actual cost. To get true data which would give us accurate reports, it is important to have these values populated by the system on a real time basis. The entire framework and interdependent modules of an ERP system such as Logistics, Transportation management, resource planning and scheduling, Costing, Fixed asset accounting etc would be affected. At every stage of the product’s manufacturing and selling cycle there would be a need to incorporate a sustainability or ‘green’ index. Even the starting point of the Supply chain – the request for quotation phase would need to support the additional costs of the carbon footprint or the environmental index.
Again this would be a very holistic and long drawn process, since regulatory bodies would need to publish a set of handbook of green index for consumables, emissions and disposables.
In future, the true sustainable cost of a product might be the greatest key value differentiator between two products. As consumers move towards a more pro environmental stance and get mature about environmental issues, all organizational offerings would need to be adapted to be inclusive about the green index. There is also the concern that we may arrive at some shocking statistics. It may not be surprising to find out that the ecological cost of manufacturing a product may far exceed its benefits or utility in the present day. This concern is more from a future policy making perspective. Government and regulatory bodies would then need to classify these products as unviable and they could be made available for sale with a huge sales tax component (environmental). Arguably, this would serve as an incentive for organizations to produce ‘greener’ products per se.
Incorporating the green index in ERP solutions
A beginner’s simplistic solution from an ERP perspective would be to incorporate a green index in the material master, resource master, green overhead (green index) for facilities like electricity, storage, maintenance, shipping, transportation and disposal. This would automatically be captured as part of the bill of material and the routing. This index is to be further accumulated and would be a part of the standard or actual cost calculation of the finished good or the system could just capture this separate cost as the ecological cost of manufacturing or selling a particular product. As a starting point, much of the defined index would be empirical. As sustainability solutions mature, we would have an industry handbook available on the green index for most widely used consumables in manufacturing. Going further in the supply chain the Sales order would incorporate the green index for shipment and transportation of that product, Asset Disposal also would need to factor in the green index for environmental impact. Eventually, we could even end up having a green budget for manufacturing, transportation, facilities, emissions etc within an industry to benchmark and track performance. A futuristic possibility would be printing the green index or green cost on the product wrapper, similar to MRP. For the discerning or rather environmental conscious customer, this could help in selecting the right product. This index could also be embedded as a part of the SCOR model and a KPI to measure the impact of the index at various levels of SCOR could be devised. Currently environmental metrics within the SCOR framework are with respect to emissions and waste generated within the supply chain.
Publishing an industry wide handbook of green index will indeed be a humongous task; this would require the services of cloud applications such as Microsoft’s Windows Azure Datamarket. This product enables the discovery, exploration and consumption, analysis and transformation of data from trusted public domains and commercial data sources.
The caveats lie in conceiving and evolving a model with appropriate data points that are framed by government and regulatory bodies as appropriate to a certain industry. However a solution in the lines of a supply chain green index looks imminent in the face of rapid environmental changes and a global focus on sustainability.
ERP, Green Index and Sustainability