Supply Chain Environmentalism: Using Environmental ERP to ...

1 Supply Chain environmentalism : Using Environmental ERP to Manage Environmental Impact for Competitive Advantage and Profit White Paper Enviance 2010 Supply Chain environmentalism : Using Environmental ERP to Manage Environmental Impact for Competitive Advantage and Profit Page 2 Supply Chain environmentalism : Using Environmental ERP to Manage Environmental Impact for Competitive Advantage and Profit White Paper Companies must push the innovative envelope to increase earnings and improve market share in today s challenging economic climate. With consumers wary of the prospect of double dip recession, retailers and suppliers are foreclosed from price increases, and companies across the economic spectrum are substantially constrained from attempting to secure advantage by investing capital to expand capacity or hire additional personnel.

2 Management must innovate within the box to safeguard their company s competitive position or attempt to improve it. For suppliers, distributors, wholesalers or retailers in the commodity goods markets shovels, wrenches, paper clips, bolts, screws, fasteners, screw drivers, paper, the pressures are immense. The bane of the undifferentiated commodity product markets is that competition must inevitably be driven by price concessions and convenience--factors that, for the most part, erode profit margin and reduce shareholder value. Companies competing in the heavily branded consumer goods product categories laundry detergent, dishwashing soap, cleansers, shaving cream, etc. face similar pressures. Both price concessions and massive advertising and promotion expenditures exert downward pressure on profitability and shareholder value. Supply Chain environmentalism is a powerful new approach that will allow companies to improve their competitiveness by optimizing their ability to identify and reduce Environmental costs throughout the Supply Chain .

3 This approach will both protect against cost increases associated with Environmental impacts and allow the companies to differentiate their products as being more sustainable. In the commodity markets and the heavily branded consumer product markets, this ability to both control cost and achieve differentiation will drive profitability and shareholder value. As with all new opportunities for competition, market-leading innovators have Supply Chain environmentalism : Using Environmental ERP to Manage Environmental Impact for Competitive Advantage and Profit Page 3 already become Supply Chain Environmentalist, and the restructuring of the competitive framework is under way. This piece examines the Supply Chain environmentalism phenomenon and describes the technology required to practice this new and important form of competition. What is Supply Chain environmentalism ? Supply Chain environmentalism is defined as the enhancement of competitiveness through either cost reduction or product differentiation, or both, achieved by reduction of Environmental impacts ( greenhouse gas emissions, water consumption, etc.)

4 In the Supply Chain . Studies validate that consumers will reward companies that reduce the Environmental impact of their products without increasing price. Thus, recent reports confirm that the American consumer is concerned about sustainability and, given the choice, will select products that cause the least harm to the planet: 77% of consumers said they can make a positive difference by purchasing products from socially or environmentally responsible companies, and 72% said they have avoided purchasing products from companies whose practices [they] disagree with (BBMG Conscious Consumer Report: Redefining value in a new Economy, June 2009). The power of Supply Chain environmentalism can be seen in markets for every day products. Take for example beer. The production of one gallon of beer requires the abstraction of on average 150 gallons of water. In order to safeguard the margins in beer production, it may be necessary to know that fresh water abstraction carries both significant Environmental and financial costs, and that the majority of this water consumption occurs in the first stage of the Supply Chain crop production.

5 In fact several beer manufacturers are currently under fire from governments and civil society organizations, particularly in countries with increasing water scarcity like India or China. With this knowledge in hand, analysis could be undertaken to identify the feasibility of introducing cost-effective irrigation alternatives that address this Environmental impact. Should such alternatives exist, their implementation would afford a meaningful hedge against cost increase and provide a valuable differentiator that could be used in marketing. Another application for Supply Chain environmentalism can be found with the common wrench, an undifferentiated commodity product sold at the same price everywhere. Retailers of wrenches compete on price and convenience, and suffer a constant erosion of margin as price is reduced and capital is invested to support convenience initiatives.

6 To safeguard the profitability of wrench sales, the Supply Chain Environmentalist will need to assess the Environmental impacts that pose the Supply Chain environmentalism : Using Environmental ERP to Manage Environmental Impact for Competitive Advantage and Profit Page 4 greatest risk to cost in this case most likely the greenhouse gas emissions imbedded in the Supply Chain . By identifying the location of the greenhouse gas emissions, and the opportunities for optimal reduction, the Supply Chain Environmentalist can reduce the risk of cost increases associated with a potential tax on carbon while at the same time differentiating its wrench as the most sustainable. This Supply Chain environmentalism approach requires a fundamental shift in the thinking about Environmental impact and environmentally-related costs. Traditional Environmental management information systems (EMIS) generally are not configured to articulate Environmental emissions and impacts in financial terms.

7 Nor can they generally provide any visibility into either upstream or downstream Supply Chain risks or the financial risks of unregulated Environmental impacts inside a company s operations ( fresh water usage for beer production). A new breed of system the Environmental ERP provides the needed financial analysis while, at the same time, leveraging the data, task management and reporting management power of the traditional Environmental management information system. Environmental ERP for the Supply Chain Environmentalist To be effective, an Environmental ERP system must be capable of analyzing the financial impacts of a wide range of Environmental factors and expressing these impacts in terms of their cost to the company and effect on profitability. The system must provide visualization capability that allows the financial team to quickly identify the Environmental factors that are most likely to have near term adverse effect on costs and profitability and to takes steps to reduce these adverse impacts.

8 In order to provide data that is actionable for financial planning, these analytical and visualization capabilities must extend to all company operations and throughout the Supply Chain , upstream and downstream. Without this end to end analysis, imbedded Environmental Supply Chain costs that will ultimately drive up product cost can neither be identified nor reduced. In evaluating Environmental ERP systems, it is important to determine the breadth and depth of the analytical capabilities. At least one Environmental ERP system presently analyzes 1600 Environmental factors and allows management to assess the relative impact to cost and profitability posed by each of these factors, across the entire Supply Chain . In addition to evaluating the depth of analytics offered by the Environmental ERP system, it is important to evaluate the level of domain expertise possessed by those that designed the system.

9 Environmental ERP providers should possess deep understanding of Environmental issues and their financial Supply Chain environmentalism : Using Environmental ERP to Manage Environmental Impact for Competitive Advantage and Profit Page 5 implications. They should also have a deep understanding of the business processes used to effectively manage Environmental factors, including emissions and consumption management. Robust data management, task tracking and reporting is also fundamentally important to an Environmental ERP system. In its purest and most powerful form, Environmental ERP has emerged as a dramatic extension to Internet-based systems developed to manage Environmental compliance for air, water, waste and greenhouse gas emissions. Companies providing this type of system generally have personnel steeped in the business processes and regulations relating to air, water, and waste data management and compliance, and have deep experience in configuring the system to model and ultimately optimize the business processes used by the customers to manage these Environmental objectives.

10 This type of domain-specific business process automation capability is critical, as it enables the program management necessary to succeed with efforts taken to reduce the financial risks identified Using the financial analytics capabilities of the system. A final factor to consider in evaluating Environmental ERP systems is the platform on which it is built. Cloud platforms have the clear advantage here. A decade ago, the only software delivery option was the traditional client/server platform. This software is housed on-site at the customer organization, which is also responsible for the personnel and IT resources needed to maintain, update and secure the application. Modern cloud computing architecture, however, has transformed software delivery and as a result, customer companies are discovering significant cost and time savings. Cloud-based Environmental ERP software enables quick-scaling and real-time data delivery accessible anytime, anywhere across networks of Supply chains and downstream operations.