According to a study my company, IFS North America plans to release later this month, the vast majority of manufacturers do not have the software technology in place to manage their environmental footprints.
This study, based on a survey of more than 260 manufacturers conducted by RBInteractive Research Group of Waltham, Mass., revealed that almost half of manufacturers lacked the enterprise technology to manage their environmental footprint at all, and another 28 percent had only limited capabilities.
Manufacturers were asked to what extent their enterprise-wide software allowed them to track their impact on the environment in the area of carbon footprint, solid waste, air and water pollution, product lifecycle and product end-of-life impacts.
When it comes to the ability to measure environmental impacts, middle-market manufacturers did more poorly than did companies with more than $1 billion in revenue. Among companies with between $250 million and $999 million in revenue, only 20 percent of respondents said they were tracking some environmental measures but not others in their enterprise software, while 36 percent of companies with $1 billion or more in revenue said they had this capability.
A Pressing Need for Environmental Decision Support
As manufacturers –- and more importantly, their customers -- base more of their decisions on environmental factors, finding the data on which to make these decisions will be difficult without quality data.
A manufacturer may be designing a new product, and will want to know how they can design for minimal impact on the environment, taking into consideration the materials used, air, water and solid waste impacts of the manufacturing process, the total energy consumption and environmental impact of the product over time, and its end-of-life impacts that stem from disposal or recycling.
Moreover, that manufacturer's customer, be it Walmart, the federal government or another manufacturer, will likely want documentation to prove that its vendors comply with various environmental guidelines.
Walmart, for instance, now expects its vendors to provide environmentally safe products in recyclable or biodegradable packaging. And in October of 2009, President Barack Obama signed an executive order that outlined a series of actions that federal agencies must take to reduce their environmental impact.
Agencies must, for instance, look into the feasibility of having vendors report on the greenhouse gas emissions of products and services they are selling to the agency. This data would use to drive purchasing decisions, and could also result in rewards being offered to suppliers who change their practices to minimize their environmental impacts.
This market pressure adds to an existing layer of regulatory documentation that, like documentation driven by market-based requirements, is easier and less costly to produce with an automated system.
Middle Market Challenged
The fact that middle market companies have a harder time measuring their impact on the environment than enterprise-level companies should come as no surprise. One they reach critical mass of around $100 million in revenue, or even smaller, manufacturers tend to run their business on an integrated enterprise software system, typically referred to as enterprise resources planning (ERP) software.
This software has evolved over the last 20 years to enable very effective measurement and management of cost, revenue, profit, inventory levels and productive capacity throughout the enterprise. These ERP software packages have not, with very rare exception, been designed to measure environmental cost.
This means that environmental measurement must be accomplished by purchasing separate software and then integrating it with the ERP system of record. Even if the additional software license cost may be manageable by a middle market manufacturer, the integration project may prove too risky and expensive. So in many cases, a manufacturer may try to measure environmental impacts through essentially manual processes, which obviously limits the amount and quality of data points that can be tracked.
Manufacturers with a billion dollars or more in revenue tend to run several ERP systems across different divisions, and regularly budget millions of dollars to integrate them and maintain these integrations. Indeed, major consulting companies are aggressively promoting consulting operations designed to help the very largest of manufacturers measure and track their environmental impact.
The increasing need for environmental management functionality and the unmanageable cost of integrating ERP with third party environmental solutions, it surprising that 83 percent of manufacturers said this software functionality was somewhat or very important, and 63 percent said they would like to see their enterprise resources planning (ERP) software vendor include this functionality as an embedded feature in their products.
Manufacturers with more than $1 billion in revenue, perhaps due to their knowledge of the ongoing cost of maintaining these integrations, actually expressed greater interest in embedded environmental footprint management functionality than smaller manufacturers. Sixty-nine percent of these largest manufacturers said they would be interested in seeing their ERP vendor offer this as an embedded product feature.
More Than a Technology Problem
But implementing environmental tracking and management program presents challenges beyond the obvious technical ones. Manufacturing companies, with their departmentalized structures, may need to be at least partially reorganized to allow for a more holistic, company-wide view of environmental impacts.
If the plant manager tries to reduce the environmental impact of the manufacturing process by outsourcing a component to a supplier who will simply release the same discharges somewhere else, this will not reduce the overall environmental footprint of the manufacturing company. So by definition, each department needs to work cross-functionally to reduce environmental impacts.
Manufacturers have become better and better at working cross-functionally to cut costs and increase throughput. But unless the environmental officer or whoever is heading up a corporate sustainability effort has as much power in the organization as the CFO, it is unlikely that actual decisions will be made based on environmental outcomes.
Pär Hammarström is Product Director in charge of IFS' Eco Footprint Management solution, an embedded component in the company's enterprise software suite, IFS Applications. He holds a degree in Applied Mathematics, has studied Industrial Engineering and Computer Science and has 20 years of experience in the field of ERP systems.
Photo CC-licensed by Flickr user dana.ocker.