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Can ERP save the world?
Maybe not by itself, but several ERP and other enterprise applications vendors are making the case that software can play a vital role in starting and supporting corporate sustainability initiatives.
Some vendors are also starting to show the way by introducing features and implementing programs for reducing carbon emissions or setting other sustainability goals.
As well-intentioned and potentially valuable as these capabilities are, and as much as customers have expressed interest in climate change and greater supply chain transparency, questions remain as to how committed companies are to setting and following through on sustainability goals.
Sustainability is a complex subject, but corporate initiatives and features from vendors tend to take two tracks right now. One is carbon reduction efforts, which focus on reducing a company's CO2 production; the other is the adoption of a circular economy model, where companies design, build and distribute products with the intention of keeping them or their components in the economy as long as possible.
Sustainability efforts are having an effect on the bottom line, as investors increasingly consider ESG (environmental, social and governance) standards to evaluate a company's future financial viability.
Sustainability driven by customer demand
ERP giant SAP has been a leading corporate sustainability voice. At Sapphire Now, SAP emphasized sustainability and announced several new products designed to enable companies to track carbon reduction and implement circular economy models. However, other enterprise vendors are also making it a priority.
IFS, an ERP vendor that focuses on industry-specific applications, has made sustainability a top corporate priority, with a multiyear strategy to improve its operations and to enable its customers to realize their goals to reduce carbon and implement a circular economy model.
The sustainability strategy is being driven by increasing customer awareness and demand, and the topic is becoming more important at the C-level, according to Darren Roos, CEO of London-based IFS. This was not always the case.
"We brought a sustainability solution to the market a few years ago, but there was very little uptake for it, because it was just a bit before its time," Roos said. "At that time, sustainability as a topic was something that typically sat as a file that was opened only when the board needed to address it as a topic. Clearly that's not the case today. Clearly there is a much greater focus on it."
IFS' manufacturing-focused ERP products provide a way for companies to build sustainability into processes like manufacturing, supply chain and distribution, and centered on each company's needs, he explained. This is helpful for tracking carbon reduction and also helping to build the circular economy.
"It's customer first, customer driven, how do we figure out what it is that customers are looking for us to help them do," Roos said. "This might be environmental management, carbon emissions tracking."
Acumatica, a Seattle-based cloud ERP firm that shares a corporate parent with IFS, has also committed to running a more sustainable business.
Going climate neutral
In July, Acumatica received Climate Neutral Certified status from Climate Neutral, a nonprofit in San Francisco that works with companies and consumers to reduce global greenhouse gas emissions.
In July, Acumatica met the Climate Neutral certification by reducing its carbon emissions and by enabling customers to reduce their emissions by moving from legacy, on-premises ERP systems to Acumatica's cloud-based ERP platform, according to Jon Roskill, CEO of Acumatica.
Acumatica's goal for the next few years is to be able to run its cloud on fully sustainable energy, Roskill said.
"That will be the next major milestone, because [one thing we're doing] is taking these on-premises systems to the cloud," he said. "These are running today on years' old servers. It's very inefficient. It's burning through a lot of electricity. It's very underutilized -- typically only 10% to 20% utilized -- so it's much better to move them to a modern data center-hosted, properly cooled, highly efficient, highly utilized server."
Customer demand is driving companies to ask more questions about where and how goods are being produced, said Kevin Samuelson, CEO of Infor, an ERP vendor based in New York.
"[Sustainability] is a very hot topic right now for sure. It's a big issue with customers across all of our industries," Samuelson said. "Much of this centers around reducing waste, which is certainly front and center in ways that are obvious, but also in ways that perhaps are one or two dimensions away, but also have a huge impact."
Infor's suite of industry-focused ERP products -- which includes manufacturing, distribution, retail and energy -- can enable customers to reduce waste and inefficiencies, he said. However, Infor does not have any products or capabilities in its products that specifically address sustainability issues.
"There's our asset management product. When you think about impact on the environment, managing assets is right at the top of the list," Samuelson said. "Also, a lot of the work we do around supply chain is around gaining efficiencies there, and there's a ton of pollution in and around supply chain."
Coupa, a cloud spend management platform vendor based in San Mateo, Calif., is approaching sustainability and ESG issues from a procurement perspective.
Coupa's spend management applications can enable companies to better understand who their suppliers are, design supply chains and create a variety of scenarios that model different ways to move goods as efficiently as possible. This can look at things like the tradeoffs between speed of delivery and carbon footprint impacts, said Donna Wilczek, senior vice president of product strategy and innovation at Coupa.
"There's no one single solution that's going to help a business with their entire ESG responsibility. It doesn't exist," Wilczek said. "That's why you see companies using ERP capabilities for some components, but they're adding capabilities to these extensions like our business spend management application."
Coupa has new capabilities, called Sustainable Business Spend Management, that customers can configure to optimize carbon footprint reduction and the identification of diverse suppliers, she said. The idea is to provide easier ways to get sustainability initiatives going.
"It's one thing to have goals. It's a whole other thing to have to execute on them," Wilczek said. "A few years ago everyone was setting year 2025 goals around carbon footprint reduction. Now, 2025 is right around the corner, so some organizations have gotten started or haven't moved fast enough, which is what our technology is designed to address."
Sustainability may not be ERP difference maker
While few doubt the importance of sustainability as a topic today, there are questions about whether adding sustainability capabilities to ERP systems will entice new customers to implement the systems or existing customers to upgrade to new versions.
The issue may be more important for European-based companies, rather than North American ones, for example, said analyst Cindy Jutras, president of Mint Jutras, an enterprise systems research and advisory firm in Windham, N.H.
"Everyone's talking about sustainability, but it's not a call to action," Jutras said. "Nobody says, 'I'm going to have a sustainability issue, therefore I need a new ERP.' But, if they do have a sustainability initiative and they're looking for a new ERP, and there are some features that can help them on that sustainability journey, that will be a plus."
For Jon Reed, analyst and co-founder of Diginomica.com, an enterprise computing news and analysis site, the emphasis from vendors on sustainability is too idealistic rather than practical, which comes off as a little tone deaf to the challenges companies are facing right now.
"Companies right now are figuring out how to survive and transform, so [ERP vendors] need to help them with things like cost control, energy reduction, waste reduction -- the things that are part of the sustainability conversation that are much more practical," Reed said. "So let the vendors have that more practical conversation about sustainability because that speaks directly to what companies are struggling with right now, which is how do they get through all of this operationally."
In general, the applications that support sustainability initiatives haven't really been all that good as yet, he said.
"They've been more about reporting and compliance, but we need active monitoring capabilities like sensors that can capture anything useful on every single thing," Reed said. "[ERP vendors] need to slice and dice that and provide alerts and predictions on downtime, waste, energy loss, energy savings or scenario planning around moving to alternatives."
More and cheaper alternative energy sources becoming increasingly available may provide the impetus for companies to start getting more serious about sustainability, he said.
"When we first started having these conversations, a lot of these alternative energy things were almost hypothetical," Reed said. "But it's getting more serious now, and in a lot of areas, you're starting to see where the cost of alternative sources is going down and it's becoming more impactful."
Hidden sustainability costs in IT manufacturing
But sustainability can't just be an add-on to an ERP system. If change is going to happen, sustainability needs to be addressed by manufacturers and consumers if real gains are to be made, said Clare Hobby, global director of purchaser engagement at TCO Development.
The IT manufacturing industry is rife with hidden sustainability costs, for example. Computers have become more energy efficient, but a study by TCO Development indicates that about 80% of a computer's lifetime emissions happens in the manufacturing process.
Based in Stockholm, TCO Development is a nonprofit organization that evaluates and certifies IT hardware manufacturers on their manufacturing and supply chain environmental and social responsibility efforts.
The IT industry has become adept at selling consumers new machines every three to four years, a model that causes an enormous carbon footprint when all that hardware churn is added up, said Hobby.
"We're used to getting a new machine every three to four years, but these machines are really made to last an awful lot longer," she said. "So we're perpetuating that 80% emissions over and over again. As users, we need to be smarter at stopping that three-year lifecycle."
All parts of the IT industry need to play a role in advancing sustainability, Hobby said.
Manufacturers also need to figure out their role in the circular economy and design for longer product use as a goal. Buyers need to take responsibility and source products and components more responsibly. Consumers can have a big impact on sustainability if they use products even one year longer.
"We have to rethink that whole business model and do better with things like refurbishing or remanufacturing, using it longer or making sure it has a second life with another user," Hobby said. "We can't keep doing this virgin manufacturing as often as we're doing it now, because that's where all the impact is. This is a time when users and buyers can start to really influence a different business model."
Jim O'Donnell is a TechTarget news writer who covers ERP and other enterprise applications for SearchSAP and SearchERP.