wp erp and environ footprint for manufact

8/6/2019 WP ERP and Environ Footprint for Manufact

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cultural barriers to environmental management ........................................... 2

technological barriers ........................................................................... ............. 3

selecting environmental management tools .................................................... 5

conclusion ..................................................................... ......................................... 7


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ERP and EnviRonmEntal FootPRint ma nagEmEnt FoR manuFactuRERs

erp and environmental

Footprint managementFor manuFacturers

By Pr Hammarstrm,Product director, iFs aB

Government regulators around the world are placing, or preparing to place, new

and more stringent environmental monitoring demands on manufacturers. Europe-

an directives on Registration, Evaluation, Authorization of Chemicals (REACH),

Waste of Electronic and Electrical Equipment (WEEE) and Restriction of Hazardous

Substances (RoHS) affect any company doing business in Europe. These regulations

are also being emulated by state governments in the US, including California.

Investors, with the encouragement of the US Securities and Exchange Commission

and similar bodies elsewhere in the world, are paying more attention to the environ-

mental liabilities of the companies they fund. Several statements of position (SOP)

from the American Institute of Certified Public Accountants (CPA) also dealspecifically with the need for accounting of environmental liabilities in financial

statements of audited companies.

Consumers are looking for proof of claims of environmental responsibility on

the part of companies whose products and services they buy. And manufacturers are

facing green supply chain mandates from their customers, who are intent on making

purchasing decisions not only on the basis of price and quality, but on the basis of

environmental impact and the contribution to global warming.

Manufacturers are under pressure from all fronts to document their environ-

mental impact. This documentation may be intended primarily to prove compliance

with government mandates, compete for business in request for information processes,

or to deliver decision support for sound environmental management practices.

Regardless of how environmental impact is used, within the vast majority of manu-

facturing companies, data on how operations impact air, water and landfills is difficult

if not impossible to get. Adequate information technology (IT) systems are not in

place to collect the data. And data originates from virtually every activity and

department of the company, making environmental management initiatives both a

political and data logistics nightmare.


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ERP and EnviRonmEntal FootPRint managEmEnt FoR manuFactuRERs

In this whitepaper, we will examine not only the technologies but the organizational

dynamics necessary to successfully implement an environmental footprint manage-

ment program that can encompass not just carbon emissions, but all organizationalimpacts on the environment. We will also suggest specific questions that should be

asked of enterprise software vendors that say they can deliver environmental footprint

measurement and management capabilities. A thorough and flexible environmental

program, enabled by enterprise software, can prepare a manufacturer for virtually

any environmental mandate from the private or public sector. But this degree of

flexibility and agility really requires both a firm commitment from management and

a very tight and intimate integration between environmental functionality and the

system where most environmental impact data is already housed enterprise

resources planning (ERP).

cultural barriers to environmental managementData on environmental impact originates from literally every part of a company,

and can take many forms. This means that technologically, environmental footprint

management is a major challenge. But the nontechnical barriers to launching an

effective environmental management program are not to be underestimated, either.

Many of the problems companies experience as they try implement an environ-

mental program of this type stem from the lack of clear ownership. Who within the

company owns the issueis it the production manager, is it a district or regional

manager, the marketing department or someone else? Within many companies, this

is not decided with sufficient clarity, and therefore questions and tasks with regard

to environmental management can tend to fall between chairs.

In more and more companies, there is an assigned environmental manager. This

person may also hold the position of quality manager or production manager. This

is a positive development, but typically, these people still dont have the power to get

things done outside of a very narrow band of responsibility. They can order some

reports from others in the organization, and perhaps induce people to fi ll out some

forms to gather data, but they have very limited hard power. In other companies,

environmental management programs are driven by the marketing or sales depart-

ment. Sales-led initiatives can actually lead to a slight increase in power as the

promise of increased revenue and sales results can motivate a number of people

throughout the enterprise due to either direct fiscal incentives or a general desire to

grow the company.Indeed, some companies have been able to market and brand themselves as green

or environmentally responsible, and have by virtue of this been able to carve a

competitive niche for themselves. But as more and more companies position them-

selves in this way, marketing on the basis of environmental responsibility will depend

on having better documentation and proof points than competitors who are making

the same claims.


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But as successful as sales-led environmental initiatives may be, the mandate to

launch a broader and more effective environmental management program is possible

once it becomes an issue at the board of directors level. Once the importance ofmeasuring and managing an environmental footprint becomes a part of the corporate

strategy and a means of managing board-level risk, a company is in a position to put

much harder policies into place and can in effect force the different departments and

cross functional teams to collaborate around the issue. When the mandate for an

environmental management program comes from the president or CEO, and when

that chief executive is actively involved in advocating for and tracking deliverables,

it is more likely that the required resources will be made available to assure success.

One other alternative situation involves an environmental program being driven

by the CFO. With increased pressure from the investor community, the CFO could

in fact be the high ranking executive with an intimate understanding of the implica-

tions and importance of environmental footprint management when it comes tosecuring investment capital. The CFO also tends to have substantial hard and soft

power within an organization, and can command significant organizational resources

directly and through influence with other C-level and line managers.

technological barriersIt is certainly true that in most companies, not much can happen without a mandate

from the top. But even with that executive mandate and support, many companies are

finding that they lack the technology to efficiently measure their current environ-

mental footprint or make business decisions based on environmental impact.

In a recent survey research project conducted by IFS North America, 83 percent

of manufacturing executives participating indicated that they saw the importance in

measuring and managing their environmental footprint. Yet 48 percent said that

they could not measure their environmental impact at all within their ERP system,

with only 7 percent saying they had comprehensive capabilities directly in their

ERP system. Only 3 percent said they had functionality through an integrated

third-party software product. The remainder of respondents said that they had

varying degrees of limited capabilities. Sixty three percent of respondents said they

would like their ERP vendor to offer environmental footprint management embedded

directly into the solution as a standard component. This survey data points to a real

and immediate need for ERP products with built-in environmental footprint

management capabilities to help manufacturers meet the current demand for reliableenvironmental impact data.

As is often the case in areas of the business ERP does not address or addresses

poorly, many companies are using ad hoc systems like Microsoft Excel spread-

sheets or other tools that are obviously limited in their capability, require extensive

manual intervention and keep data segregated from the rest of the enterprise. But

this is on its face a very poor approach given that every activity in business has both


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a cost impact and an environmental impact. If you move something, if you buy

something, if you manufacture something, if you are consuming something, if you

turn a l ight bulb on, if you turn on a computer, it all has an environmental impactso you really need to keep track of pretty much anything that you do inside the

company in order to measure an environmental footprint. So if you want to do it in

a credible way, you need to actually keep track of activities across the enterprise, and

that is extremely hard to do when your environmental management system stands

alone, apart from the rest of your enterprise system.

Adequately tracking environmental footprint data is virtually impossible while

using ad hoc systems like spreadsheets because outside of an enterprise application, no

combination of spreadsheets is comprehensive enough to do the job. Mastering the

environmental footprint, after all , requires that we actually look across the entire

product lifecycle from the raw material sourced from mines, forests, etc. to the end

user or customer. You must actually see what affect your product has when it is used,and what will happen when it is eventually disposed of or decommissioned. True

environmental footprint management can involve a complex and huge body of data

and the natural place for that data and where most of it is already to be found is

within the enterprise system, the ERP system. After all, environmental accounting

and financial accounting are very much alike in the sense that everything that you

do has a financial impact and needs to be tracked in ERP and similarly, everything

you do has an environmental impact that can also be managed in a centralized way

within ERP.

Yet even a tier 1 ERP system that had its origins before the current trend towards

service oriented architecture (SOA) may be more of a hindrance than a help when it

comes to measuring an environmental footprint. Many very robust and popular

enterprise software suites were not initial ly designed to track and manage environ-

mental impacts, and are designed in such a way that it is difficult for the vendor to

simply add a new layer of functionality that would accomplish this.

This is one reason that some enterprise software vendors have gone so far as to

purchase companies that offer carbon footprint solutions. They are unable to simply

add broad, environmental management capabilities to their existing ERP products,

and are therefore opting to sell additional software packages that would require an

expensive integration project to interact with the rest of their product portfolio.

And even then, the resulting capability would be limited to carbon footprint measure-

ment to the exclusion of other environmental impacts.On the other hand, a truly modern enterprise application built from the ground

up on SOA is comprised not of a single block of code, but rather on thousands and

thousands of small bits of functionality that interact with each other in a uniform,

established fashion. This allows the product to be developed in new directions more

quickly, and also allows companies using this software to reconfigure and change the

way they are using the system more easily. In these modern enterprise suites, it is


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easy enough to simply add new software components that interact with the existing

functionality in order to track environmental impact data, using in essence the same

conduits or pipes for data that are typically used to track values like cost and revenue.This SOA-enabled approach not only drastically reduces cost and complexity by

an order of magnitude, but it allows for a more flexible, agile solution that can be

configured to meet specific environmental measurement and management needs.

An integrated environmental footprint management tool ought to be configurable

to track not just carbon emissions, but all environmental impacts a manufacturer

may want to report on or manage. It also delivers a more usable solution because

users are not forced to learn two separate software programs with separate and

divergent interfaces and navigation conventions.

These enterprise software packages with embedded environmental management

functionality will be particularly important for middle market companies, but as

they increase in popularity, will become the preference of the largest enterprises aswell. Why is this? Very large enterprises with several billion dollars in annual revenue

or more often already have a myriad of enterprise systems running within their

business, and they have become accustomed to building and maintaining numerous

integrations. These large industries may even have a substantial IT department or a

standing budget for a consultancy firm that integrates various software products for

them and maintains those integrations.

Middle market manufacturersthose with between $100 million and a couple

billion dollars in revenuecannot as easily afford to maintain numerous integrations.

This is because implementing and maintaining complex, one-off integrations costs

almost as much for a middle market company as it does for a Fortune 100 company,

but the middle market company has a lot less revenue with which to amortize that

cost. So middle market companies will have a real need for out-of-the-box solutions

for environmental management because they have the same if not greater environ-

mental reporting requirements placed on them by the market, customers and regulators

but have a smaller budget for compliance.

selecting environmental management toolsCurrently, manufacturers with any degree of environmental footprint measurement

and management capabilities rely almost exclusively on either standalone carbon

footprint software or on one-off integrations between ERP tools and either packaged

or custom software. Above, we have established that a more elegant, affordable andflexible solution involves the inclusion of environmental footprint management

directly in the ERP package as a native piece of functionality. Determining who truly

has this functionality and who does not should be a major concern for those evaluating

enterprise software packages designed to deliver environmental footprint management.

To this end, here are seven questions to ask enterprise software vendors that

claim to offer a solution in this area:


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Q #1:c y k k y k ? Because that is

exactly what environmental impacts are a cost, and they are driven by the same

types of activities that drive financial cost. Every manufacturer keeps track of thecosts to some extent, including standard cost or actual cost, at varying levels of

granularity. Remembereverything that is purchased, every time materials or

products are moved, every manufacturing activity, every business process, drives

cost and also carries an environmental impact. How does the environmental foot-

print management solution take advantage of the existing costing system to reduce

complexity in measuring environmental impacts?

Q #2: hw k y

? One major contributor to the environmental footprint of a

manufacturing company is its supply chain. Manufacturers need to understand what

their products are made up of on a raw material level, the environmental impact ofcreating those materials, manufacturing them or mining them and the impact of

transporting them to your plant.

Q #3: hw k f

fy? After all, once you understand the environmental impact of your supply

chain, you need to keep track of your own operations and your manufacturing

processes. How will a solution help you see how much energy these processes

consume, what emissions are associated with them, what chemicals they consume and

what potentially dangerous chemicals like lead, cadmium or mercury are involved?

Q #4: hw w k ?

The environmental management tool will need to allow you to measure how your

product is used, how much energy it consumes, does it emit any substances when in

use, can substances like cadmium, lead or other substances leak from it, etc.

Q #5: hw w f

-f-f f ? Particularly if some portions of a product can be

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 certainly how any potentially dangerous substances within the productare to be taken care of. This type of data must be on hand for each and every part

across the product structure, and that means you need to keep track of your product

structures at a very granular level of detail.


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Q #6: hw fxy , x f -

w w , w f fxy? Environmental measure-

ment and management requirements are not static. New regulations will be promul-gated. New reporting demands will be placed upon you by your customers and the

market. New products will bring with them new challenges. So 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. Indeed, when it comes to environmental management a manu-

facturer ought to start small and plan to expand their program over time as needed

or as it becomes desirable to do so. An initial decision ought to be what should be

measured first. There might be immediate environmental reporting demands that

must be satisfied, or obvious environmental impacts that receive priority. For

instance, a company that manufactures industrial chillers may want to measureimpacts stemming from refrigerants like ammonia, Hydrogenated Fluorocarbon

Refrigerants (HFCs) and Hydrogenated Chlorofluorocarbon Refrigerants (HCFCs).

Eventually, for that industrial chiller company, an environmental footprint manage-

ment program may be extended to manufacturing and installation operations, but

measuring impacts stemming from these chemicals is the best place to start. It is

obvious, though, that 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.

Q #7: hw w ,

w? And how much will it cost each time I upgrade my ERP package to

uplift any necessary integrations? What are the costs associated with maintaining

this solution over time?

conclusionManufacturers about to commit to an enterprise software solution that includes

embedded environmental footprint management need to do extensive due dil igence.

They need to ensure that they are actually getting ERP with a native, built-in module

that is pre-integrated with the rest of an enterprise suite. The degree to which other

parts of an enterprise suite must be implemented in order to feed data into the

environmental footprint solution will vary from one manufacturer to the next. Butin the case of IFS Applications, the one additional module that is required in all cases

is the inventory module, because IFS Eco-footprint Management is a parts-driven

system that tracks environmental impact by component part. Most manufacturers


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would also want to implement manufacturing-related modules because that wil l

deliver the requisite product structures, work centers and other manufacturing data.

Other modules from the IFS Applications suite can drive additional data into theEco Footprint Management module, ranging from project data, supply chain

management data and even service management and product lifecycle data.

So once again, when it comes to evaluating ERP vendors claims in the area of environ-

mental footprint management, the phrase caveat emptor certainly applies. Ask

questions about the flexibility and broad capabilities of these tools. Ask questions

about not only initial purchase cost but about the cost to reconfigure or expand the

type of data included in an environmental footprint. And be sure to think not only

of your immediate needs, but of how your needs could change in the coming years

and how the various enterprise solutions can continue to accommodate these changing

environmental needs.


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www.iFsWorld.tHis document may contain statements oF PossiBle Future Functionality For iFs soFtware Prod-ucts and tecHnology. sucH statements oF Future Functionalit y are For inFormation PurPosesonly and sHould not Be interPreted as any commitment or rePresentation. iFs and all iFs Prod-uct names are trademarks oF iFs. tHe names oF actual comPanies and Products mentionedHerein may Be tHe trademarks oF tHeir resPective owners.

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