SAP: Measure, Analyze, Decide
"Internally, at the board level, you have a chairman or CEO who is looking for a key differentiator, and there are more and more proxy battles depending on the industry sector."
By Maryruth Bresley Priebe
"What kinds of initiatives might a company, like Apple Computer [APPL], want to think about investing in to become even more competitive in the coming years?"
THE GREEN ECONOMY asked Scott Bolick, VP of Sustainability Solutions at SAP. After mentioning that he couldn't make specific recommendations for Apple, he noted that the conversation around controlling costs of energy and other resources was reaching higher up in corporations.
"When we look at how the world's changing, we believe that how business was done in the past is not going to work going forward. You're starting to see board rooms and investors asking questions that they weren't asking a few years ago."
Robin Meyerhoff, Director of Sustainability Public Relations at SAP, added that customers are increasingly using reporting and analytics to improve overall business performance.
"Since measurement, reporting and analysis is now automated and much quicker, companies can more quickly see how they're doing against key performance indicators (KPIs) and pro-actively address shortcomings. Because the process of measuring and reporting is so much more efficient, they can also expand the number of KPIs they set."
SAP focuses on four key areas, which follow the logical steps in decision making:
- Set targets,
- Engage in change,
- Manage risk, and
- Report to stakeholders.
Setting Targets: Energy and environmental resource management
"In order to drive behavior that will change in an embedded environmental footprint, companies need to show goals." Setting targets in order to manage energy and other environmental processes is a two step process: measure what you have, and then develop a strategy that is realistic and appropriate.
Measuring resources across a company can be a daunting task. The starting point is a data collection system that allows management to view usage across many departments and operational areas. As a starting point, Mr. Bolick pointed to SAP's partnership with the CDP (Carbon Disclosure Project), which has lead to a lightweight Emissions Reporting Tool that can standardize carbon disclosure and analysis. CDP is an independent, not-for-profit organization working to drive greenhouse gas (GHG) emissions reduction and sustainable water use by business and cities. They also work with major investors -- including banks -- to analyze long term carbon risk in investment portfolios. Registering for free at the CDP website gives users access to numerous reports, tools, and case studies. Joining is voluntary, but many major corporations, such as SAP, are members and pride themselves on their high reporting scores.
The reason to focus on GHG output is that carbon is an effective measure of energy use, especially across a complex supply chain. The "cleaner" the process, the less GHG is emitted. Signing onto the CDP and using the tool is a cost efficient way to start collecting information and, as Mr. Bolick said, to select the most efficient and highest ROI initiatives. He added that in addition to internal monitoring," As companies take energy seriously, they need to know how to benchmark themselves against their peers. "Moving too aggressively, compared to others, could have a negative effect on cost competitiveness and their innovation pacing. Low goals could leave a company behind as competitors streamline their operations. Companies who subscribe to SAP's Business Intelligence on Demand can use SAPs analytical tools along with CDPs data to compare their metrics against companies targeted by geography, enterprise size, or industry.
Since this is not just quantitative data, but also qualitative, companies can see what their peers are putting in place. This helps executives make strategic decisions about where best to invest time and resources. Companies know that energy is a major issue, Mr. Bolick added. With oil at over $100 per barrel and price volatility that has been 40% more volatile in the first decade of this century compared to the last decade of the last century. This rise in prices puts increased pressure on all industries, especially those with energy as a high percentage of their operating expenses. In addition, customers are beginning to ask about a company's policy regarding energy conservation, as those policies affect prices and possibly availability for chemical and other processes that use petroleum as a raw material. Rather than treating energy costs as indirect overhead, companies want to account for it as a direct material so they can manage its consumption like any other material. For manufacturers, this is particularly important. They need to be able to more accurately anticipate how they'll be using energy and how it will impact their bottom line.
Case Study: $129 Million in Savings Across 16 Different Plants An example that Mr. Bolick cited is Valero. Valero is a single refinery company that expanded to 16 plants, largely through acquisition. There was little similarity across their acquisitions, and therefore seeing "the big picture" was difficult -- if not impossible. What Valero needed was manufacturing information and intelligence that could aggregate data at 8 different levels across all their unique platforms. The goal was to ensure that every day the executive team could look to see the consumption at each plant, narrowing down to individual machines if needed. With the system in place, Valero has seen savings of over $129 million per year in energy: more than making up for the cost of the system.
Managing Change: Sustainable Supply Chain.
"In order to drive behavior that will change in an embedded environmental footprint, companies need to show goals," Mr. Bolick added. The challenge for corporate leaders, with goals to reduce energy and GHG, is that resources are used and managed locally -- at the operational level. For many companies this means that there is not enough visibility across the organization.
A company-wide data collection system can input data from automated devices on the shop floor or from data historians (applications that collect data from shop floor on health, energy, water and more), and output that data in easy-to-read dashboards that can be viewed by people up and down the supply chain. That means that everyone, from the guy on the floor to the CEO, has real time visibility. That transparency helps drive organizational change, because everyone can be a participant, and view the results of behavioral changes in real time.
Case Study: Quality Control and Enhancement Mr. Bolick mentioned is Danone, which makes a wide range of yogurt and other milk, water and juice products: in fact, they market 35,000 separate SKUs (product numbers) across 30 countries. Their brands include Activia, Dannon, Stonyfield and many others. In an extremely low margin business, efficiency and uniformity is critical. The system developed, with SAP, allows Danone brands to compare the footprint -- carbon, water and energy -- of one cup of yogurt produced in one place to that produced in another. Internally, Danone can see if the footprint of a product produced in one place has changed over time and develop strategies based on those fluctuations. Each manager, across all their locations, has access to the tool. Mr. Bolick noted an unexpected plus in that the transparencies lead to managers talking to each other to solve problems and pass along best practices. For example, a manager in one country could see, and then ask, how a manager in a similar plant in another country was getting better results for the same or similar product.
Increased visibility also drives another key element of sustainable supply chains: making sure that products do not contain substances that are harmful to people or the environment. That can only happen by getting insight into massive amounts of data across the supply chain so that a medical device manufacturer, for example, knows exactly what chemicals are used in every component, sub-component and product their company develops or ships. Investing in compliance makes financial sense: regulations like REACH and RoHSin, in the European Union, ban dangerous chemicals. The cost of non-compliance can be very expensive. Increasingly, consumers, NGOs and industry consortiums are putting pressure on companies to disclose exactly what is in their products. To meet these terms companies must have complete visibility across their supply chain. Mr. Bolick believes that SAP customers can achieve compliance 75 percent faster than companies not using SAP software.
Reporting: Risk and Operational Management
"Rather than treating energy costs as indirect overhead, companies want to account for it as a direct material so they can manage its consumption like any other material." The final step is reporting, to ensure compliance across a very wide range of issues.
As Mr. Bolick pointed out, "The business community can't stand bad press -- or injury -- from OSHA violations. Pro-active prevention in mining, oil and gas industries prevents real threats to business continuity."
Case Study: Safety An example is Baker Hughes, a global oil and gas services company. Baker Hughes has used SAP's Environment, Health and Safety Management software to implement a proactive and risk-based approach to operational safety. As a result, they now have one global incident management system that covers 51,000 employees in 90 countries. This creates a holistic, cross systems incident reporting, investigation, analysis, and prevention system, which has led to better communication, faster knowledge transfer, and a renewed commitment to proactive safety.
Sustainability reporting and analytics
Increasingly, questions are being asked by investors, shareholders and boards of directors. Some large nonprofits and pension funds are demanding to see more analytics and a longer term resource reduction strategy as a part of their due diligence. Baker Hughes data collection not only monitors safety, but cost-effectively monitors water emissions management and reporting. A small but growing number of private equity funds, such as Reference Capital, Portfolio 21 and Calvert Investments, offer funds based on sustainability metrics or responsible environmental policies, and major investment firms such as Deutsche Bank and Bank of America Merrill Lynch (A CDP investment member) have global research departments with a focus on carbon and water. In addition, regulatory agencies are asking for environmental information: SEC (Securities and Exchange Commission) started asking for companies to report on their Carbon Risk in 2009; state environmental departments are being pressured by citizens to control air pollution; and local city authorities are increasingly worried about water conservation and grey-water reclamation. As these pressures mount, it is easy to imagine that in five years -- or less -- energy and water data will be as routine as a profit & loss statement for businesses.