ERP Systems have long been at the core of manufacturers business systems landscape, helping manufacturers manage costs, quality, traceability and compliance. Many of these same considerations are helping manufacturers meet their own Environmental, Social, and Governance (ESG) objectives and comply with evolving ESG directives.
Vendors are adding tools and functionality to enhance and extend those capabilities. Manufacturers that ignore these trends may fall behind – suffering an increasing administrative burden of compliance; or worse, failing to comply, facing fines or losing customers.
At a time when Environmental, Social, and Governance (ESG) considerations are taking centre stage, manufacturers are actively seeking ways to align their operations with sustainable practices. Lumenia Consulting has been working with manufacturers for over 25 years, identifying and implementing opportunities to improve processes, supported by ERP and related systems.
Common objectives recur. Manage quality, minimise waste, optimise inventory, comply with regulations, align demand, throughput and supply to name a few. More and more Lumenia is encountering objectives relating to sustainability and ESG. Some driven by evolving regulations, some by organisations that are pushing the boundaries and leading by example.
“Manufacturers are actively seeking ways to align their operations with sustainable practices… ERP systems can support these objectives in a variety of ways.”
ERP systems can support these objectives in a variety of ways. In many cases they can provide the data that enables organisations to look at operational processes through the lens of sustainability. Reduction in waste is not just about minimising cost, it can also reduce environmental impact. Supply chain management and traceability is not just about cost, safety and compliance anymore, it can also support ethical supply chain management. Let us consider some examples:
Energy management and resource optimisation
ERP systems have long been used to track resource usage to enable cost analysis by batch, lot or unit as appropriate. Sometimes this is based on retrospective data capture and standard inputs. Sometimes it involves connection to manufacturing execution systems and shopfloor equipment.
Increasingly digitalisation of manufacturing has meant more sensors, real-time data and advanced analysis and modelling capabilities, sometimes supported by AI tools. Historically such analysis might have exclusively focused on reducing cost or improving quality. A virtuous side-effect might have been reduced carbon emissions or reduced environmental impact by minimising waste.
Increasingly ERP solution providers are adding capabilities and modules to look at this data and these processes through a lens of sustainability – modelling the carbon impact of different production plans, process routings and material usage. This can provide carbon measurement reporting for compliance, and, in the more sophisticated examples, tools to proactively adapt production plans, process routings, bills of materials and recipes to minimise carbon emissions.
Supply chain visibility and sustainable sourcing
Many ERP systems provide vendor evaluation and onboarding workflows and allow the management of approved vendor lists and the implementation of procurement strategies. Such capabilities have long been used to optimise the supply base from the perspective of cost and quality.
Restricting trading with suitably certified or accredited suppliers and concentrating or diversifying supply as appropriate to avail of volume discounts or, alternatively, to minimise risk and maintain competition amongst the supply base. Similar capabilities are now being employed to integrate sustainability criteria into vendor selection processes and ensure that supply chain partners share commitment to ESG principles. Verification of environmental and ethical labour standards is increasingly as important as verification of raw materials quality. ERP controlled sourcing processes can help assure compliance with organisational, regulatory and even consumer requirements in this area.
Workforce management
Social responsibility is a key aspect of ESG. ERP systems can support initiatives in this area in a number of ways. For manufacturers ERP often helps to ensure compliance with health and safety regulations – for example, ensuring operators are suitably certified to perform certain tasks, tracking incidents, managing corrective and preventative actions, supporting HSEQ audits, and so on. If a broader HCM element of an ERP solution is implemented it can be widened further to support diversity and inclusion reporting, deployment of employee wellbeing initiatives and more.
Where to start?
Depending on the extent to which ERP is being used to manage operations, manufacturers can leverage standard ERP functionality to support ESG initiatives and compliance. Where the ERP touchpoints with current processes are light, opportunities may be realised by increasing the ERP footprint in areas such as manufacturing operations, supply chain, HSEQ and workforce management.
Manufacturers that already have mature implementations supporting these processes can evaluate new tools that their ERP providers are bringing to market to support and drive sustainable business processes and ESG compliance. Compliance with ESG regulations is becoming an increasingly important requirement for all manufacturers. It makes sense to consider how the tools currently in place, like ERP systems, can be leveraged, optimised, augmented or replaced to best position your organisation for a more sustainable world.
Meet the Lumenia team and the leading ERP solution providers at the Lumenia ERP HEADtoHEAD event, taking place on 13-14 March in the DoubleTree by Hilton, Milton Keynes. Hear about ERP trends, good practices to follow and pitfalls to avoid when embarking on an ERP transformation programme. Find out more at https://erpheadtohead.com/
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