Sustainability & ERP – more than reporting? A conversation with IFS CEO Darren Roos

Profile picture for user brianssommer By Brian Sommer May 7, 2021 Audio mode
Summary:
Sustainability is definitely a top executive concern these days, but where are ERP vendors in this matter and are they doing a good job of it? IFS recently made a major commitment here as CEO Darren Roos explains.

sustainability

ERP vendor IFS recently announced a major commitment to sustainability. It intends to embark on a 3-year program to make a positive environmental impact for itself and its customers. It has appointed a ‘sustainability ambassador’ and has created a fund-raising module to assist in sustainability causes around the world.  Let’s look at sustainability & ERP generally and then dive into IFS’ efforts.

Historically, ERP vendors have seen sustainability as something to track or report. That’s it. These solutions don’t really do much and do very little to make the world a better place.

One major ERP player announced with some fanfare their ‘solution’ a couple of years ago. This ‘module’, and I use that term loosely and generously, was simply a spreadsheet report. The module’s logic was to search the Accounts Payable subledger and capture that month’s electric, fuel, natural gas and water bills. It also scanned T&E receipts looking for charges for air, rental car and taxi travel. The first version of this module would simply provide a view of what the company spent on certain items that might have a carbon footprint or environmental impact.

From a sustainability perspective, this is nothing more than a very small baby step to driving any change in a firm’s environmental impact. I was so appalled at the incompleteness and uselessness of this ‘solution’ I derided it as an ‘exercise in incrementalism’ – a comment many other industry analysts have remembered for years hence. I stand by those remarks.

To prove my point, I subsequently asked this vendor what changes they’ve made since the creation of this tool. Well, they said that they’re now tracking their travel more closely.

Sustainability in practice

Sustainability and environmental management are multi-faceted animals. In my client dealings, I see plant managers and executives struggle with individual decisions daily. They wrestle with items like:

  • Can we ask our workforce to work at nights because the power we’d consume at night is hydro-electric not hydrocarbon based? It turns out a lot of people don’t like to work the nightshift as it messes up their circadian cycle. I get it – do right by the environment and do wrong by employees (and vice versa).
  • How do we account for carbon consumption of fuel if the time of day determines what kind of energy is used for production? The cost accounting and application of fuel costs is often done via monthly allocations of fuel or electricity bills. For companies to make better decisions re: lower carbon consumption, they need to know exactly which batches or products consume more energy and time their production to use non-fossil fuel-based energy sources. Most cost accounting solutions were either never designed for this or weren’t implemented to do so. Furthermore, few plants are equipped with readers/sensors to record energy consumption by batch, machine or other unit of measure. Sustainability initiatives need real-time, not month-old data.
  • We looked at moving to geothermal, co-generation or other options but none of these were as cost effective as our current energy source. Economics, in the short-term, may not favor some sustainability changes. In fact, many firms have noticed how local these decisions get with different tax incentives, rebates, etc. being available in different jurisdictions. In some markets, firms can sell their excess solar or wind electric capacity into the grid. In others, they cannot.
  • The decision to make some sustainability changes may not be practical given the current capital plant. Some plants may be land-locked or unable to support a solar farm. Some facilities may be located close to a key natural resource (eg: a paper mill) and the energy options available are quite limited. Retrofitting some plants could be cost-prohibitive.
  • To implement some energy or environmental improvements, we’d have to close old plants and build a greenfield facility elsewhere. This could trigger short and long-term job losses if the company can’t rework its existing plant without shutting down entirely. Some decisions may accelerate the EOL (end of life) determination for a plant if it can’t be easily altered.

Some executives are really worrying about water, too. While carbon footprint affects global warming, access to clean water is an essential need and a resource that must be protected. For some firms, fresh water used to be virtually unlimited and almost free. Now, my clients want to reuse as much water as possible. They don’t want to overload local treatment facilities with any wastewater that results from their production process.

What this implies are new measurements and systems are needed to track recovery, purification and reuse of water.

Depending on the industry, executives can also be concerned about dust and other particulates that emanate from their production methods. These items can be a health risk to the workers and to the community. They can, in some cases, be deadly.

There are other matters that warrant tracking like disposal of byproducts, heavy metals, acid rain, etc. This makes sustainability a multi-faceted and complex subject. A lightweight tracking tool is not sufficient for a solution set.

Great sustainability tools should help executives do more than report consumption. They need to:

  • Provide guidance – Tools are supposed to make people more productive and provide them leverage. Executives need to know their options and be informed as to local costs, regulations and savings opportunities. This is a big data opportunity and one that’s often left to local plant operators to discover on their own. Maybe evaluation worksheets and knowledge bases would help. One of the better tools I’ve seen was an energy audit toolkit offered by a major utility firm. I thought it was one of the more complete and insightful tools I have seen. However, the data this toolkit needs may not be accessible or available in many firms.
  • Access to low-cost sensors, readers and instrumentation as well as the tools that make sense of the data these generate – Just because an ERP has ‘integration capabilities’ doesn’t necessarily mean that their tools will work with the carbon dioxide monitors your firm just bought. It’s amazing the chemical reactions and byproducts that emanate from the production of things, including food. Fermentation and germination vats will off-gas large amounts of carbon dioxide. Some anti-bacterial preservative treatments will generate sulphur compounds like sulphur dioxide and/or sulphuric acid. Water is frequently expelled into the atmosphere when goods are baked or dried (like paper). Businesses need to measure more than raw material, work-in-process (WIP) and finished goods inventories. They need to also measure every input and output of the conversion processes – even those items we can’t see.
  • Document the entirety of the value chain and see where big sustainability problems are even if they are not directly the responsibility of the firm – Firms that rely heavily on overseas suppliers to produce many of their products, components and/or product subassemblies may look good, on paper, regarding sustainability goals. That is only because their reporting efforts are too selective and only look at the sustainability metrics that originate wholly within the four walls of their firm. A review of the EH&S standards indicates that companies must look back into the supply chain to understand the total impact of one’s products and services on the environment. This is a big shortcoming of ERP systems as they are designed to focus on a company’s INTERNAL transactions. Whatever is happening outside of the firm is generally not in the purview of an ERP solution. This has to change.

IFS and sustainability

I had a chance to chat briefly this week with IFS’ CEO Darren Roos about the firm’s new sustainability goal and asked him about the drivers behind the recent announcement. He said that:

  • The firm’s Swedish owners are very serious about sustainability. It’s a huge concern in that part of the world and IFS needed to have a market response for it.
  • IFS wanted to make sustainability reporting ‘sustainable’. On this point, I concur as I see many firms struggle to pull together basic sustainability data every year just for their annual report. The current methods and practices desperately need reimagining and transforming. You can’t be serious about sustainability if it only gets measured and reviewed once a year.
  • IFS wants to help customers measure their progress in achieving their sustainability goals.

Roos also recognizes the issue with sustainability programs needing to address the entirety of the value chain. He believes that customers can’t “send the problem somewhere else”.  Again, I concur.

He also noted that his customer CEOs are “definitely worrying” about sustainability. I know from my clients that CEOs and boards are definitely focused on this subject today. It has been a growing concern, in my opinion, as more and more people have accepted the impact of humans on the warming planet, floating oceanic trash, volatile weather and more. Smart executives want to be in front of this matter.

IFS issued a fairly comprehensive press release on their sustainability program. It’s a good read and is available here. One item that may be particularly interesting to the technology readers seeing this is this comment regarding cloud computing:

When deployed in the cloud, such as on Azure, IFS Cloud is 52-79 percent more energy efficient than compute equivalents deployed in traditional data centers, and storage is 71%-79%  more energy efficient than storage equivalents deployed in traditional enterprise data centers.”

Well, if that doesn’t get firms more motivated to shift compute loads to hyperscalers and decommission their energy consuming data centers, what then?

My take

Sustainability is one aspect of corporate social responsibility (CSR). Too many application software vendors focus exclusively on a charitable program or two and completely omit the environmental aspects of CSR. That’s not right.

Sustainability applications are very new, incomplete and poorly understood. From my own experience, I recommend ERP and other vendors send their product managers and developers to customers to work through sustainability reporting and change issues. This primary research will be enlightening and richly inform their product direction.

The world needs real-time sustainable solutions that do much, much more than just report status on an annual basis. Creating the applications that make a difference should be the goal here. The question is: who will be the leaders in this?  Will you?

This month’s Harvard Business Review has a sobering piece titled “Overselling Sustainability Reporting” (HBR reprint R2103K).  Everyone, and I mean everyone, should read it as it gives a lot of clues as to why simply reporting on sustainability matters isn’t driving change and isn’t enough.”