Sustainability: Hard for business, harder for ERP vendors
"Everyone, we’'re currently meeting with customers to see what sort of requirements they might have in the sustainability space. With this input, we hope to someday craft a reporting solution to help customers understand what their carbon consumption really is."
HOLD IT RIGHT THERE
ERP vendors don’t get sustainability. They think it's about collecting all of a user's electric and gas bills to determine their carbon footprint. They think it's a reporting exercise. If they can develop a spreadsheet with more rows and columns than the next ERP vendor, then they have achieved some sort of market leading, product excellence crown of achievement.
NO
Putting sustainability into ERP solutions will be very intrusive, very disruptive and expensive, if it is done correctly. Why? Well, sustainability requires new ways of looking at:
- which products to make - what the true costs of a product are including costs for carbon offsets - which production facilities should/should not be used to achieve optimal business, financial and ecologic outcomes - how product scheduling should be optimized to take advantage of lower emission, lower carbon generating, etc. plants and machinery - etc.
Let’s examine this further. In an ERP solution today, does a cost accounting module account for carbon offset costs as part of a product’s actual or standard cost? No. Some solutions might allow for a user to add a new cost item for this but can the system automatically drop in the correct cost based on:
- the specific machinery used (some machines use more energy than others) - the time of day the product was made (i.e., some products may be made at night with hydroelectric power instead of daytime production using natural gas powered electricity) - the location where the product was made (i.e., some facilities have naturally lower energy consumption or take advantage of solar/wind energy) - whether recycled or virgin packaging was used - etc.
Pre-sustainability cost accounting is passé in the new world. Cost accounting needs to be re-worked.
Now look at production scheduling algorithms. These optimization formulas were created to simultaneously solve several variables to produce optimal production schedules. These algorithms try to reduce the amount of machine down time, increase the likelihood of customers receiving promised products on time and meeting the target cost requirements of the products to be made. But these algorithms were not designed to assess the carbon footprint of each product that could be produced. These algorithms will need to be re-worked.
Look at the product quotation module. This functionality lets a product or design engineer build out a product specification, cost it out and price it. It helps companies, especially make-to-order manufacturers, decide what to make and how much to charge for it. As designed, these systems do not explicitly support additional cost concerns that sustainability might introduce. How would a package help a product designer/engineer determine where a product should be built, what machinery should be used, etc. to achieve needed profit levels while also incurring low carbon offset costs, low impact on the environment, etc.? This functionality needs to be re-worked, too.
In all, I believe ERP vendors will need to re-work their fixed assets, order entry, job costing, production scheduling, logistics, transportation management and many more applications if their solutions are to really support sustainability. It might be easier to determine which modules won’t be impacted by sustainability than to identify the ones that are.
When I heard a major ERP representative give a comment like the one at the top of the post, I was apoplectic. This firm was approaching sustainability in manner consistent with adding some minor, bolt-on functionality to the core product. They didn’t realize that these changes will be significant and when new legislation for sustainability (e.g., Cap and Trade) kicks in, their customers will need it (all) immediately. Customers will not have the luxury of time to wait for this ERP vendor to:
- spend a year or two collecting requirements from a few ‘strategic’ customers - spend another year ‘studying’ these requirements and getting approvals for development work to proceed - spend two-three more years developing the needed functionality for the initial release - spend another year hand-holding the alpha/beta version of the product with a limited release group of customers - then, finally, after seven years or so finally start rolling out a functionally light or insignificant version of the product to the general market.
No, sustainability is not like analytics. It won’t be something you can bolt to the exterior of the ERP suite and add a little something to it every few months. Sustainability functionality will be big, disruptive and important. When it is needed, all of the functionality will be needed at once.
Sustainability is a great example of what’s wrong with innovation in ERP today. Vendors have forgotten how to innovate. The fact that this ERP representative is asking customers and bloggers for ideas and items to put on their development list is appalling. The vendor should already know, by their own assessment, what needs to change in their product line to support sustainability. If they have to ask me, they are doomed.
Innovation is not (and please understand this point) about order-taking but you’d swear that’s how ERP vendors see it. Innovation involves imagination, empathy and the anticipation of future market needs/demands/wants. That’s the part ERP vendors don’t get.