A consolidated view of financials. Visibility into order demand throughout the supply chain. Accurate, up-to-date data on inventory levels and placement. These are all business metrics that metals manufacturers now commonly track, thanks, in part, to advances in enterprise software.
Well, get ready to add a new metric to the mix. Widespread concerns about greenhouse gases and global warming have led to myriad regulations regarding carbon emissions, once the domain of scientists and environmental crusaders. As a result, metals companies - and other manufacturers - will soon be required to track and report on their carbon emissions. Europe has been the most aggressive in requiring businesses to track their carbon output, but the United States took its first significant steps this summer with the Low Carbon Economy Act of 2007, introduced by Sens. Jeff Bingaman, D-NM, and Arlen Specter, R-PA. The bill proposes limits on carbon emissions and sets the stage for a cap-and-trade system, modeled after Europe's, where companies can buy and sell carbon emissions credits on the open market. Although still a long way from ratification, the bill would likely mandate that companies track and report on their carbon emissions as well as execute credit transactions with other manufacturers.
The problem is that most U.S. steel and metals makers don't have a clear picture of their carbon output. Nevertheless, most companies are committing significant portions of their IT budgets to environmental compliance, according to a recent survey by AMR Research Inc. In fact, nearly 54% percent of companies surveyed worldwide said they have already committed or plan in the next 12 months to commit IT dollars to environmental initiatives, specifically those relating to reducing energy use and emissions.
Most of these investments will be aimed at expanding core ERP and supply chain platforms with new capabilities for tracking carbon emissions. The extensions won't just provide a static view, but will add dashboards and other business intelligence (BI) tools to capture and monitor performance in real time. "This is an enterprise performance management issue, not a compliance issue," says Nigel Montgomery, research director at AMR. "We have a list of things we adhere to: We need to maintain good quality; we have to keep costs down and be efficient in production runs. The emissions issue, while covered from a regulatory point of view, was never prioritized. What's changed is that emissions has crept up the importance ladder so it's now one of those things we have to take into account, just like Six Sigma."
While steel companies have perhaps done more than other industries to track and control carbon emissions, much of their work has been at the operational level, usually managed and maintained by individual plants. The proposed legislation and a potential cap-and-trade system would demand a consolidated view so that management has visibility into a company's total carbon footprint. Moreover, the bar will be raised so that companies not only are reporting on their emissions, but also have the visibility to factor emissions output into their daily business decisions and execute potential trades. "For example, a supply chain director considering expediting an order for a customer needs to be aware of what the implications of that decision are in terms of carbon output," Montgomery explains. "We already have visibility of cost and customer service information to make those kinds of decisions, but we've never had information surrounding the environmental impact."
Balancing Act
Recognizing an opportunity to help manufacturers get a grip on these new requirements, enterprise software leaders are starting to inject carbon emissions tracking functionality into their product lines. SAP AG, Microsoft Corp., and Lawson Software Inc. are actively exploring this area, while Supply Chain Consulting in Australia is already offering a tool set and services to help companies capture, analyze, and optimize their carbon emissions footprint.
Supply Chain Consulting's CarbonView, available now, contains an underlying database of key greenhouse gas emissions data that can help users establish their baseline carbon footprint. The software also builds on the company's Viewlocity supply chain visibility system to extract relevant data in real time from core ERP and logistics systems to create a live view of carbon emissions, as well as Carbon Modeling and Optimization tools to help manufacturers develop better processes with an eye toward optimal carbon output.
"In the steel industry, CarbonView could be applied to try to balance the reduction of carbon emissions with financial performance," says Peter Klein, management director, CarbonView, for Supply Chain Consulting. "You would look at what types of fuel are we using, what is the transportation model - essentially, where are the opportunities to reduce our footprint and at what cost?"
Lawson and Microsoft are seeing interest from U.S. customers in applying technology to manage carbon emissions - the first step being to establish a baseline. As part of its Corporate Social Responsibility (CSR) Initiative, Lawson is building an extension to its ERP platform that captures core emissions data and provides BI tools, such as dashboards and reports, to help companies marry emissions data to manufacturing data to make strategic business decisions, says Jeff Frank, Lawson's vice president of marketing and champion of its CSR effort. The company plans to release the system in spring 2008 for its food and beverage industry customers, with versions for the metals industry, among other manufacturing sectors, to follow shortly thereafter.
Microsoft, too, is working on an environmental extension to its Dynamics ERP platform. The Dynamics Snap add-in, targeted for release early next year, will provide an environmental dashboard on top of Microsoft SharePoint products and technologies and Dynamics, allowing companies to report on four Environmental Protection Agency indicators, including greenhouse gases.
The process is complex, says Jennifer Pollard, Microsoft's senior product manager for Dynamics, since much of the data that is required to get a total picture of carbon output isn't necessarily stored in the ERP system. "In order to truly understand the [carbon emissions] impact, a lot more detail and information needs to be captured and put into the ERP system," Pollard says. You have to look at the overall business process, she adds. Say, for example, that you are pulling information on current energy costs. What is typically entered into an ERP system is the amount of the energy bill, not the mix of energy or the amount consumed.
Unfair Advantage
Not only will the process add complexity, but the requirement to participate in a cap-and-trade system that's not universal for metals manufacturers across the globe is bound to create unfair advantage, says Thomas Danjczek, president of the Steel Manufacturers Association, which represents 70% of the companies in the U.S. steel industry. "Greenhouse emissions is a global issue, not a U.S. issue, and it needs a global solution," he says. "If other countries [such as China] don't have to comply, that puts U.S. steel companies at a disadvantage."
Seventy percent of the U.S. steel industry uses electric arc furnaces (EAF) to produce steel from recycled materials, Danjczek notes, so those companies are already doing more than their part to decrease greenhouse gases. "U.S. emissions per ton of steel in terms of greenhouse gases is approximately 40% less than elsewhere in the world," he says.
Nevertheless, metals companies will eventually have to deal with some sort of regulations and trading system regarding carbon emissions. But there's still a long way to go to bring metals makers up to speed on what's required from an IT standpoint, says Perry Zalevsky, metals industry principal for SAP, which offers the SAP Environmental Compliance xApp composite application with partner TechniData. The xApp provides emissions management functionality and can serve as a basis for trading in emissions certificates.
The challenge for most metals manufacturers, Zalevsky says, is that they aren't set up from an IT infrastructure standpoint to capture and monitor real-time data, nor are they well-versed in the BI technology required to do proper analysis.
"The government will continue to strengthen the laws and lower emissions standards, and as they get tighter, metals companies are going to have to watch closely and see where they can cut or make improvements from an emissions standpoint," Zalevsky says. "They just don't have the data to make those decisions today."