Sustainability in 2021 is to ERP what multi-tenancy was to ERP in 2005.

SAP recently made sustainability an anchor piece of their online user conference messaging. Looking at the real-time chat stream during the event, many viewers got caught up in management’s enthusiasm regarding this do-good focus.

You can read about SAP’s announcements here.  You can see the aspirational tone of its  announcement in their announcement’s second paragraph:

With our application portfolio, industry expertise, and extensive business network, we aim to enable emissions reduction and help tackle the ocean plastics crisis. We aspire to infuse sustainability into all relevant core business processes by focusing on regulatory compliance, operational excellence, and responsible innovation and growth — going beyond the traditional scope of value creation.

The announcement describes a couple of new capabilities that will be available later this year.

But SAP is not alone in targeting sustainability as a focus area for the ERP suite. And while we should applaud this focus on sustainability, it’s not a simple, cut-and-dried functional space to conquer. Actually, it’s quite nuanced and often requires access to OT (operational technology) not just traditional IT (information technology).

But, BEFORE you going running into your Executive Committee or Board of Directors meeting stating your willingness to spearhead your company’s sustainability initiatives with updated ERP software, you might first want to find answers to the following.

The carbon our employees generate

Sure, an ERP system can collect some of the airline, taxi and ride-service expenses your employees incurred. This is a matter of reading the travel & entertainment (T&E) or Accounts Payable databases for specific kinds of charges. But this will only give you a fraction of the carbon related data your workforce consumes on a daily basis.

To be complete, will your ERP system:

• Know how much fuel your workers use in travelling to/from their home to your office? Will your ERP vendor require you put dongles in the OBD II connector in every employee’s car to measure mileage, speed, etc. so that fuel consumption can be determined?
• Clash with your HR team if HR does not allow you to collect this information as it could be a privacy violation of workers?
• Know what fuel powers your workers’ vehicles and how that impacts your footprint? How could an ERP system know if a worker has an electric car, rides a bike or takes a specific kind of public transit? Can it know whether the power for recharging electric vehicles is coming off the grid or is produced via solar power? And, how can an ERP calculate the footprint for a worker that uses a combination of travel mediums during the week (e.g., bus and train one day, car the next day)
• Be able to calculate the carbon impact of a hybrid automobile?
• Know how WFH (work from home) can help reduce this carbon footprint? Is the ERP system smart enough to know which employees worked which days from home or the office?
• Determine what the carbon footprint of your contract workers, temps, consultants, etc. is? If you think it’s tough to determine this with your own workers, try to determine this about third parties!

The carbon our manufacturing process releases

Some manufacturing processes will result in the release of carbon dioxide (CO2) into the air. Fermentation, composting, baking, brewing, etc. are all examples of this phenomena. The trick is to find a way to calculate the specific amount of CO2 being produced at a given point in time. Because some of these processes are impacted by weather, choice of grain, humidity, temperature and other factors, the exact amounts can be difficult to calculate. Moreover, sensors that measure such things can be expensive to acquire, more expensive to implement and their outputs difficult to integrate into an ERP system.

Regarding your ERP system:

• Does your ERP system have specific sensors already integrated with its solution to record the CO2 being off-gassed?
• Does your ERP track by-products likes gases, water vapor, etc.?
• Are these sensors part of the base solution?
• Do these sensors require the use of a specialist firm to install and calibrate?
• Do the vertical extensions of the ERP software have specific carbon dashboards that align with your industry and its production methods?
• Does your ERP system have benchmarks to see if your production methods are more/less carbon friendly vis-à-vis competitors?

How smart is our ERP re: energy?

Where you make a product and what time of day it is produced will trigger different carbon footprint values. For example, some locations encourage manufacturers to produce goods at night when all of the electricity being produced is hydro-electric (i.e., not fossil fuel based). Some parts of the world get their energy via nuclear, wind, solar, fossil fuel, geothermal and/or hydroelectric means and your plants’ locale dictates the power used and carbon generated.

Point in fact, it may be quite difficult to know exactly how your firm’s energy was produced as many different generation sources may be providing power to the regional grid. Personally, I haven’t seen a utility bill yet that gives this breakdown (although it may exist in some markets). If your firm has its own power generation capability (e.g., a co-generation facility), then it will know its energy sources and their corresponding carbon footprint.

Regarding your ERP system:

• Does it really know how much of your electric usage was from fossil fuel power?
• Automatically credit you back for power you put back into the grid? How will this impact the carbon calculations?
• If you generated power in-house and sold some of it back to the utility grid, is the ERP system sophisticated enough to know the carbon footprint differences in excess power that was due to solar generation versus fossil-fuel based?

ERP and the air we breathe

Manufacturing, farming and other pursuits can trigger the release of particulates, VOCs (volatile organic compounds), toxins, unspent fuels, and more into the air we breathe.  Instead of addressing the processes that create these problems, some firms choose to outsource some aspects of their production to third parties, especially to third parties in countries with lax environmental and safety standards. This can lead companies to only report the things they DIRECTLY produce and ignore the problematic particulates their suppliers are responsible for.

Regarding your ERP system:

• Does it account for the carbon you firm captures and/or removes from the air (e.g., forests capture significant amounts of atmospheric CO2).
• Does it account for non-carbon materials removed from potential emissions (e.g., sulphur compounds)?
• How, if it all, will the ERP system treat airborne particulates (e.g., dust, fibers, etc.) that are placed into the air during production, shipping and handling?
• Is there functionality to handle irritants, allergens, toxic and other minute by-products and their impact on people and the environment?
• How can the ERP system know, with accuracy and certainty, the environmental standards that suppliers are supposed to be meeting?
• Will the sustainability reporting within the ERP system also include the actual performance of your firm and its suppliers? How will it pierce this veil of secrecy?
• If your ERP system has a supplier network, how can it audit the sustainability practices, metrics, etc. reported by the suppliers in this network?

ERP and water

Water doesn’t even appear in many ERP bill of materials yet it is used to cool products and machines. It can be a major ingredient (e.g., soft drinks) and it can also be discharged into sewers. For many firms, wastewater is a monthly expense item that a local municipality will take care of. For other firms, the access to clean water is a key ingredient but viewed as a low-cost, no worry component. Corporate awareness has grown to a point where many firms now see water as something to conserve, protect and treasure.

Water recovery and treatment are material concerns today. The costs to treat water (either for reuse or before discharging) are rarely tied back to individual products or batches in many firms.

Regarding your ERP system:

• How does the system account for an ingredient like water that can be used, cleaned and reused countless times?
• Does your current ERP system record how much water is used in producing each product? Does it record how much water is lost via steam output or evaporation? How would this get measured and reported?
• Does the ERP system capture data quality metrics and how are these used and reported?

ERP, sustainability and packing/shipping materials

A critical sustainability focus of many firms deals with the amount of material that gets sent to landfills every day. Much of this is packaging and shipping material.  Interestingly, few ERP systems track which suppliers are sending your firm an abundance of non-recyclable or non-returnable shipping and packaging material. Think of this as a blind spot in a kind of reverse logistics space.

I’m not sure an ERP is needed to solve some of this problem. In a plant tour I did at a Toyota automobile manufacturing facility, it was pointed out to me that suppliers had to pack out anything that didn’t go into a finished car. This 116-acre plant had no trash dumpsters – NONE! That’s why all of the supplier shipping materials/bins/etc. were reusable. Like in campgrounds, if you pack it in, you pack it out.

Regarding your ERP system:

• Does your ERP have logic to track, fine and disallow the use of non-returnable materials by suppliers?
• Does your ERP track all of your shipping and packaging materials? Do you know what the eventual disposition of these materials are?

Reverse logistics and the environment

If your firm sells products, it likely has to deal with returns of unsold, warranty, repair and broken products. Even web-retailers have to deal with these items. The issue with this is that the reverse logistics transportation causes the expenditure of fuel by freight carriers and post offices. It also creates a disposal problem for your firm as all of that packaging that these products came with must be dealt with.

Not all e-commerce and ERP systems have reverse logistics functionality. Fewer still have functionality to track/record the materials these products came with. And fewer have any way to determine the carbon impact of all of those various products.

Regarding your ERP system:

• How can it determine the amount and kinds of packaging material that were used to ship these goods?
• Will it delineate those goods that are sent unopened vs. opened but still viable vs. opened and used?
• How will it determine the environmental impact of disposing of defective or broken items especially if the items are full assemblies, subassemblies or individual parts?

Sustainability, ERP and service firms

Service firms want to be sustainable, too, and they use ERP solutions. There are some important differences in how they’ll be more environmentally friendly vs. a products company.

First, there’s a real challenge in deciding how to staff specific people on certain client projects. Traditionally, service firms like to maximize billings and satisfy clients. To that end, they’ll want their Resource Management functionality to find available staff with the most appropriate skills to assign to a given client. However, in a sustainable-sensitive world, the service firm needs to add one more factor into its resource application algorithm: proximity to the client. In that fashion, travel (and its related fossil fuel expenditures) can be minimized.

Regarding your ERP system:

• Does the software know the right way to assign staff to clients so that earnings are optimized and the environment is harmed the least?
• Is the ERP system smart enough to know what work tasks are being completed remotely and which ones are completed on-site?

ERP and sustainability in general

Let’s keep some perspective re: ERP and sustainability. ERP systems were not originally designed to possess sustainability functionality.  They were designed to process and report business and operational events. Many of these events were destined to be recorded in the financial accounting applications within the ERP system.

Most ERP systems take decades to flesh out their core ERP functionality. These systems are huge in scope and often have modules to support manufacturing, accounting, HR, payroll, warehousing, CRM, distribution, transportation and more. Vendors have added MES and other shop floor capabilities recently, too.  And, that’s before you drop a wagon load of new sustainability requirements into the mix. In fact, the data model, analytics and reporting functionality in most ERP systems possesses little data of a sustainability nature. You should not expect a fully-baked sustainability solution to be present in your ERP solution today.

We’re in the very, very early stages of having solid sustainability functionality in most ERP solutions. Remember that and set your expectations accordingly. You’ll be lucky if your ERP can do some basic, monthly reporting. How much it can do to help your firm actually improve its environmental impact could be quite limited. What this means is that you should separate a vendor’s intent from what its products can do now.

My take

I’ve been documenting the efforts of ERP vendors re: sustainability for quite some time. In 2009, I did this piece for ZDNet. I went deep in that article on the changes that would be required in areas like cost accounting before a great sustainability solution was possible. I’m still waiting. (note: I re-read that 12-year old piece. It’s still a good read and still on target.)

I also wrote a piece a few weeks ago on IFS’s sustainability commitment. I found IFS’ vision to be fairly pragmatic and reasonable while avoiding some of the hyperbolic zeal of some of their competitors.

While I am a big fan of sustainability and other corporate responsibility initiatives, the devil is in the details. When you try to implement a sustainability program in your firm, you’ll quickly discover just how much work is involved and how many wish-list items you’ll be adding to your ERP vendor’s enhancements to-do list. And it may turn out that the work you must do collect the data may have less to do with an ERP system and more with wiring up your operational technology. Data may some day end up in the ERP but the origin of the data may be a few sensors, integrations and calculations removed from the ERP.

I could write a couple of hundred pages on this subject so any piece like this will be incomplete. My best advice to clients is to treat sustainability like an IT strategic planning project. You’ll want to find out what information is already being collected, document the (paper-intensive, spreadsheet riddled, etc.) processes that summarize the findings, understand the level of automation in place to collect the data, and, then create a thoughtful, sequenced plan to improve things. When you have this plan, you can cost it out, see what kind of help is out there and what software and hardware you’ll need to acquire. Only then will you be ready to have that discussion with the board. Do the work and you’ll help your firm be a better corporate citizen….