Greening the Supply Chain
Earlier this year, IFS North America conducted a study among manufacturing executives that revealed about 77% of them were involved in a green supply chain. The majority of the rest of the respondents expected to be a part of a green supply chain in the next few years.
What this means is that companies are increasingly taking into consideration not only the financial cost of goods purchased from their supply chain partners, but also the environmental footprint of the traditional supply chain, including raw material supply, manufacturing and distribution-directly to a customer or through distribution channels. Companies are also considering the use of hazardous goods, consumption of natural resources like water, discharges to the atmosphere and other environmental impacts during product manufacture, as well as over the product’s lifecycle through disposal and recycling.
The Role of TechnologyWhen enterprise resource planning (ERP) software was first introduced, it promised to deliver a unified vision of what is going on in a company, but that vision was restricted largely to the flow of financial value through the organization. The trend toward the green supply chain means that accounting, IT, sales and other departments are responsible for handling a new type of data: environmental impact data. This data has a great impact on the technology and software that underpin a modern enterprise. It is now necessary for ERP software to enable companies to monitor and manage the environmental impact of their business just as proactively and thoroughly as they can manage financial factors.
What each manufacturer needs to measure and manage from an environmental perspective within its business may depend on the particular company, industry, and the priorities set by both the company and its customers. In the adhesives business, chemicals consumed in manufacture, discharges to air and water, and product impacts after the sale-including offgassing-may be critical.
A strong need exists for an embedded eco-footprint management module in the ERP systems that manufacturers and other companies use to run their businesses. There are a number of reasons for this:
- Embedding environmental measurement and management in ERP is cost effective and efficient, since most of the needed data already exists and can be reused.
- An integrated, enterprise-wide approach handles environmental impact across the entire product lifecycle and the entire supply chain.
- Harnessing the power of ERP allocates environmental impact on the product level and allows aggregation to higher levels in a product structure.
- Using ERP ensures that all transactional and environmental data can be easily and confidently used for compliance, disclosure, and decision support.
The Role of ERPIt quickly becomes clear that the depth and breadth of information required to track an environmental footprint is substantial. To simply ensure compliance with environmental regulations and customer-driven reporting requirements requires deep integration between supply chain management, contract management, bills of materials and routings, multi-site/intercompany transactions, and other enterprise functionality. This data resides within ERP, so ERP is the natural place to handle environmental management functionality.
In addition, the responsibility for overseeing and managing the environmental footprint must be on line managers rather than the administrative staff. Only the executive responsible for managing profit and loss can use this data to balance environmental and financial advantage. Environmental key performance indicators (KPIs) must be analyzed alongside KPIs that relate to business performance, and ERP is the platform used by senior executives to manage the broad spectrum of metrics that ensure business success.
While manufacturers might look at third-party products that purport to offer some degree of environmental management functionality on specific data points, such as carbon production or energy consumption, these point solutions are neither capable nor flexible enough to manage the entirety of the environmental footprint or the changing customer and market demands. In addition, the broad number of integration points makes it very messy (if not impractical) to get these “bolt-on” applications to integrate well with ERP. Such integrations are subject to the drawbacks of all software integration projects. The integration is not stable because the ERP product and the third-party environmental package are not on the same release schedule. This adds increased cost each time either product is upgraded to a new version.
Instead, it makes sense for manufacturers to look at whether the central ERP package carries enough information about each of the components that the company buys or manufactures to help with initial environmental reporting or decision support goals. A next level of sophistication would be an ERP product with an environmental footprint tracking tool already embedded in the package. This delivers a level of future-proofing and simplicity that may become more in demand in the market as manufacturers continue to document their impact on the environment.
Selecting Environmental Management ToolsCurrently, manufacturers with any degree of environmental footprint measurement and management capabilities rely almost exclusively on either stand-alone carbon footprint software or one-off integrations between ERP tools and packaged or custom software. As previously mentioned, a more elegant, affordable and flexible solution involves the inclusion of environmental footprint management directly in the ERP package as a native piece of functionality.
Determining which suppliers truly have this functionality should be a major concern for those evaluating enterprise software packages designed to deliver environmental footprint management. To this end, manufacturers can ask several questions of enterprise software vendors that claim to offer a solution in this area.
Can you track environmental impacts like you can track cost?
In essence, environmental impacts are a cost, and they are driven by the same types of activities that drive financial cost. Every manufacturer keeps track of the costs to some extent, including standard cost or actual cost, at varying levels of granularity. Everything that is purchased, every time materials or products are moved, every manufacturing activity, and every business process drives cost and also carries an environmental impact. How does the environmental footprint management solution take advantage of the existing costing system to reduce complexity in measuring environmental impacts?
How is the environmental management tool linked to supply chain and materials management?
One major contributor to the environmental footprint of a manufacturing company is its supply chain. Manufacturers need to understand what their products are made of on a raw material level; the environmental impact of creating, manufacturing or mining those materials; and the impact of transporting them to the plant.
How is the environmental management tool linked to manufacturing operations functionality?
Once the environmental impact of the supply chain is understood, manufacturers need to keep track of their operations and manufacturing processes. How will a solution help a company see how much energy these processes consume, what emissions are associated with them, what chemicals they consume, and what potentially dangerous chemicals (e.g., lead, cadmium or mercury) are involved?
How will the environmental management tool track environmental impacts?
The environmental management tool will need to allow manufacturers to measure how the product is used, how much energy it consumes and whether it emits any substances (e.g., cadmium or lead) when in use.
How will the environmental management tool help us measure and plan for the end-of-life impacts of the product?
If some portions of a product are poisonous, end-of-life disposal or decommissioning can be a major concern. But even under ideal circumstances, attention will need to be paid to how much of the product can be reclaimed or recycled, how product design impacts the ease or difficulty of recycling, and how any potentially dangerous substances within the product are to be handled. This type of data must be on hand for every part across the product structure, which means that manufacturers need to keep track of product structures at a very granular level of detail.
How much flexibility to change, expand and reconfigure the environmental management tool will we have, and what is the cost of that flexibility?
Environmental measurement and management requirements are not static. New regulations will be promulgated. New reporting demands will be placed on manufacturers by their customers and the market. New products will bring new challenges. An environmental management solution that can measure only one impact, like carbon emissions, is of little value. Moreover, environmental management solutions that rely on extensive integrations that are limited in capability or expensive to change and expand are equally undesirable.
When it comes to environmental management, a manufacturer ought to start small and plan to expand their program over time as needed or desirable. A company should make an initial decision based on what should be measured first. Immediate environmental reporting demands might need to be satisfied, or other obvious environmental impacts might receive priority. For instance, a company that manufactures adhesives may want to measure impacts stemming from solvents used in manufacture. That company may eventually extend its environmental footprint management program to manufacturing and aftermarket considerations, but measuring impacts stemming from solvents is the best place to start. For any manufacturer, it makes little sense to invest heavily in a solution that will meet only immediate needs and will require additional major investments to expand and be reconfigured over time.
Case in PointCasco Adhesives, part of AkzoNobel, has signed an agreement with IFS to upgrade and extend its business applications to streamline processes and improve environmental management. The extension includes the implementation by Casco Adhesives of IFS Eco-footprint Management, which will be used to analyze and document the environmental impact of its operations throughout the value chain.
Located in Kristinehamn and Nacka, Sweden, Casco Adhesives has been using IFS Applications since 1994. Today, the company uses IFS Applications to control and monitor financials, production, and logistics. In addition to IFS Eco-footprint Management, the recent upgrade includes:
- The new IFS Enterprise Explorer user interface to increase user productivity
- IFS Trade Management, a new component designed for companies with more advanced requirements within trade and distribution, and increased support for product development in the process industry
Eco-footprint Management enables environmental impact to be traced along the entire value chain, from raw material procurement and production to distribution and the use of products in the field. The system makes it possible to analyze businesses from a holistic perspective and gain an overview of environmental costs.
“Whether our customers need to meet legislative requirements or be proactive in their environmental efforts, this is exactly the type of tool they require,” said Glenn Arnesen, IFS Scandinavia CEO. “IFS has invested in speed and agility, and can already meet customer demands by offering this tool as an integrated part of the ERP solution. The tool will help our customers manage risk at the board level, position themselves in the market, and fulfill increasing stringent legislation.”
IFS Applications for the chemical industry provides support for all critical business processes, including material compliance, batch balancing, recipe management, quality management and demand planning. The application suite also includes solutions for enterprise asset management, product lifecycle management, customer relationship management, finance and human resource management.
Embracing GreenThe green supply chain trend is good for the environment. It will also be good for manufacturers who embrace it and leverage the right technology to document their environmental footprints for customers and the market.
For more information, visit www.ifsworld.com. Casco Adhesives’ website is located at www.azkonobel.com/cascoadhesives.com.