ERP critical to achieving sustainability goals in 2022

Sustainability is a major priority for businesses in 2022, driven by internal goals, customer demand and regulations. ERP systems are at the center of sustainability projects.

Sustainability will become more important in the year ahead, and ERP systems are sure to play a central role in enabling companies to establish and track their goals.

While it's been talked about for years, and many forward-thinking companies have implemented initiatives to meet goals like carbon reduction, sustainability now appears to be an intrinsic part of boardroom discussions, according to industry experts.

That newfound focus is accompanied by changing strategies and is noticeable in many industries, but especially in manufacturing. For example, global manufacturers will shift their sustainability strategy from purchasing carbon offsets to reducing carbon, according to Forrester Research's "Predictions 2022: Smart Manufacturing."

Carbon reduction will be a particularly prominent sustainability goal in the automobile industry, according to the report, as Volvo is moving to green steel, or steel produced without using coal, and Mercedes-Benz is targeting carbon-neutral vehicles by 2039.

Manufacturing will continue to move away from carbon-producing energy sources, according to the report. For example, China has pledged to no longer invest in coal-burning plants abroad. There are also European-centered projects like Gigastack, Hybrit and Oyster designed to power energy-intensive industrial processes with hydrogen produced with renewable energy.

"None of this will be easy or cheap (ArcelorMittal's CEO suggests that green steel could be 60% more expensive), but industry is finally beginning to absorb the pain of moving in the right direction," the Forrester report stated.

Chart showing four of the driving forces behind business sustainability efforts
The pressure for businesses to adopt more sustainable practices is coming from several sources.

An evolving ERP story

Because so much of the data and processes related to sustainability resides within ERP systems, they have become central to the sustainability story. In the last few years, ERP heavyweights SAP and IFS have made sustainability a top priority and released several products designed to help companies initiate and manage sustainability programs.

Joshua Greenbaum, principal, Enterprise Applications ConsultingJoshua Greenbaum

One of the advantages of centering sustainability initiatives on the data found in ERP systems is that it can help businesses move past the "performative" side of sustainability, where claims are made without data to back them up, resulting in greenwashing, according to Joshua Greenbaum, principal of Enterprise Applications Consulting, an enterprise industry analysis firm in Berkeley, Calif.

"What I like about [the ERP sustainability efforts] is that we can get past the performative side of sustainability and get into the actual hardcore business value of sustainability," he said. "That's when things get very interesting."

Sustainability has a big part to play in important goals like building resiliency into supply chains, he said.

"Sustainability also matters a lot for the ability to be cost-effective in as many markets as possible," Greenbaum said.

German ERP heavyweight SAP is one of the most outspoken vendors on sustainability and has several products aimed specifically at enabling companies to implement and manage environmental, social and governance, or ESG, and sustainability initiatives.

Christian Klein, CEO, SAPChristian Klein

In a fourth quarter 2021 earnings call in January, SAP CEO Christian Klein described sustainability as a topic "near to my heart," which he said is reflected in SAP's corporate vision.

"Climate change is an imperative for businesses today, and SAP has its own very ambitious sustainability objectives, but we go one step ahead," Klein said. "We want to enable our customers to become more sustainable enterprises."

SAP recently launched several products designed to enable companies to tackle specific sustainability goals, including SAP Sustainability Control Tower, which provides an enterprise-wide view and analysis of sustainability goals; SAP Responsible Design and Production for building sustainability into product design, manufacturing and distribution; and SAP Product Footprint Management for capturing the overall carbon footprint of products.

Jim Sullivan, head of product management, SAP SustainabilityJim Sullivan

One reason for the product push is that sustainability has become a top issue at the highest levels of corporate leadership, said Jim Sullivan, head of product management for SAP Sustainability.

"Undoubtedly, even within our own board and the amount of activity, action and discussions going on -- it's become not just an issue the board occasionally listens to, as in the past," Sullivan said. "It's become an issue where each area of the board is taking an active and proactive role."

Sullivan pointed to SAP's internal goal to achieve net-zero carbon emissions across all of its operations by 2030 and the efforts of SAP customers, such as the giant consumer products company Colgate-Palmolive, that are using SAP products to set and track sustainability goals like carbon reduction.

Corporate boards need to react to several forces, Sullivan said, including increasing pressure from regulatory bodies; from consumers, who are voting with their pocketbooks for sustainable products; and from employees, who increasingly want to work for responsible firms.

However, sustainability is a complex problem, and companies need to consider different and often competing factors when they design and manage sustainability goals, he said. For example, companies may want to source products from recycled plastics, but those sources may come from halfway around the world; or a product may be labeled as carbon neutral, but say nothing about the amount of water used in production.

"What we hope to do from the strategic level with tools like the Control Tower is allow companies to make strategic decisions with the balances and trade-offs, and then push that to operational systems where people can make those trade-offs on a daily basis," Sullivan said.

Sustainability hits the bottom line

IFS, which focuses on manufacturing and field service management and is based in London, has also made sustainability a priority.

Marne Martin, president, service management, IFSMarne Martin

Marne Martin, president of service management at IFS, also sees higher interest in sustainability from top corporate levels, in part because it is beginning to affect the bottom line in real ways.

"Sustainability is more and more top of mind, and we're seeing that now finally come through in boardroom polling and shareholder polling, as well as when you look at private equity and other funds," Martin said.

Customer attitudes, particularly among younger consumers, are driving companies to begin making changes that address sustainability issues, which means companies need to measure criteria like carbon emissions and analyze the data to avoid greenwashing, she said.

Supply chain is one of the main areas that companies can begin to address sustainability goals, according to Martin.

"Sustainability and the pandemic are both pushing businesses to make changes to retool supply chains now," she said. "While they're thinking about adding resiliency, part of that is making supply chains more sustainable, reusing what they can reuse so that they're not so vulnerable for getting rare earth minerals from China or making sure things arrive at their plants in time."

In 2021, IFS launched a Sustainability Module designed to enable customers to track sustainability progress in short-, medium- and long-term goals, in conjunction with tracking business goals, according to Martin.

"If that's done well, the short-term goals will have value not only in and of themselves, but build the stepping stones or milestones toward their bigger long-term goals that might require capital investments or new globalized goals that take more time," she said.

Small improvements can have big benefits

Emphasis on sustainability goals will continue to grow in the year ahead, and ERP systems can help companies improve efficiencies, thereby leading to sustainability gains, said Kevin Beasley, CIO of VAI, an ERP vendor in Ronkonkoma, N.Y., that focuses on SMBs in manufacturing, retail and distribution.

Kevin Beasley, CIO, VAIKevin Beasley

Even relatively small changes can add up to big sustainability benefits, Beasley said. For example, VAI's ERP and systems like it can help companies consolidate orders from various locations, resulting in fewer shipments and more streamlined logistics, and leading to improved fuel consumption, power usage and waste management, he said.

The incentive to focus on sustainability often comes from VAI's customers, who are increasingly aware of environmental hazards and see how improving efficiencies in transportation and logistics can help, he said.

Transportation absolutely has to modernize, and that's where you'll get the biggest carbon footprint reduction. ERP systems are a key to making that happen.
Kevin BeasleyCIO, VAI

"Transportation absolutely has to modernize, and that's where you'll get the biggest carbon footprint reduction," Beasley said. "ERP systems are a key to making that happen."

VAI's S2K Analytics product includes sustainability-specific reports and dashboards that can help businesses consolidate logistics processes and reduce their carbon footprint, he said.

"These are areas where you can use an analytics application as the tracker to prove the sustainability," Beasley said. "Especially if you try to collect carbon credits, you have to be able to produce some sort of information regarding how you're actually reducing footprints."

Using ERP systems to optimize supply chains or manufacturing processes is a good idea in general, but doing so also can align with a company's sustainability goals, said Kevin Samuelson, CEO of Infor, a top-tier manufacturing-focused ERP vendor.

Kevin Samuelson, CEO, InforKevin Samuelson

For example, using Infor's capabilities for manufacturing execution and even moving legacy ERP systems to the cloud can result in massive waste reduction, Samuelson said.

The difference in the year ahead is that these moves will be made with much more attention to the ROI, he said.

"The friction we've seen in the market is the balance between wanting to do the right thing from a sustainability perspective, but not a huge cost," Samuelson said.

Jon Roskill, CEO of Acumatica, a cloud-native ERP vendor, agreed that the cloud can play a major role in helping companies meet sustainability goals. Moving an ERP system from energy-inefficient legacy servers to highly efficient cloud servers can reduce a company's environmental impact by up to 72%, according to Roskill.

Jon Roskill, CEO, AcumaticaJon Roskill

Acumatica, which shares corporate parentage with IFS, has also said it's making sustainability a priority. The company is working with some customers to use its existing ERP product to track sustainability goals and to bring out targeted sustainability modules by the end of 2022, Roskill said.

There are great opportunities with an ERP system, and the lowest-hanging fruit is in manufacturing, he said, because it gives full visibility across all processes, and you know exactly what's going on at all stages.

"So it's very easy to apply benchmarks to each stage and find out what you're actually doing in terms of CO2 emissions or whatever dimension you want to measure waste on, and then feed that into dashboards that allow you to have visibility and control to be able to act on it," Roskill said.

Jim O'Donnell is a TechTarget news writer who covers ERP and other enterprise applications for SearchSAP and SearchERP.

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