The US climate spend package, which was passed on the 12th of August marks a change in the world’s attitude to carbon footprints. This legislation provides $369bn of funding towards renewable energy generation and reduction of carbon emissions, and is estimated to reduce America’s emissions by 40% by 2030.
As the US is the second highest emitter of carbon in the world after China this represents a fundamental shift in the world’s response to climate change: arguably a more significant change than the outcomes of the UN Conference of the Parties in Glasgow (COP26) as it demonstrates a monetary commitment rather than policy.
The belated reaction by governments has been preceded by corporations in the private sector who have had the added incentive to clean up their operations through the interest in the general public in greener alternative products and services.
According to research by ACEA, the European Automobile Manufacturers’ Association, the overall CO2 emissions from car production in Europe has been reduced by 45.9% between 2006 and 2021, but more needs to be done.
This week IgniteSAP is looking at what Automotive manufacturers have been doing to achieve this, and how with new initiatives utilising technology and services from companies like SAP, the automotive sector likely to eventually bring about a zero emissions industry and widespread adoption of electric vehicles.
A recent report by IDC has pointed out that the impact of sustainability on the automotive industry has caused substantial changes to their business operations.
“rising pressure from governments, regulatory bodies, stakeholders, and consumers has pushed these initiatives to the forefront of the industry. As younger consumers enter the market, they will often make purchases based on the sustainability reputation of a company. This has implications for traceability, visibility, and the ability of companies to accurately measure their carbon footprint, water consumption, and so forth”
This means that automotive manufacturers are now able to measure the carbon footprint of their extended business network: not just their own but their suppliers carbon measurements so that the carbon footprint of each product can be calculated in a meaningful way. As a consequence this information can be passed onto consumers and can be considered a way in which to differentiate themselves from their competitors.
The imperative to make all aspects of manufacture, from the production plant to the distribution of vehicles, more efficient has recently been made more acute as the cost of energy in Europe is rising due to the Ukraine war.
As well as the need to reduce emissions in car production, the emissions that the cars themselves create (disregarding electric vehicles) will now be subject to tighter regulation. Under the European Green Deal package agreed to in December 2019, the EU will reach carbon neutrality by 2050, but the EU’s “Fit for 55” energy and climate package increases the speed of carbon emission reduction from the current 40% reduction, to 55% by 2030.
The supply chain for the production of a vehicle covers many countries, and a wide network of business partners. The modern smart vehicles, which have a much larger amount of electronic technology built into them require supply chains to extend across the world resulting in many shipping miles.
According to the European supply chain organisation Clepa, a modern vehicle comprises of 30,000 parts and each of these parts may consist of up to 30 sub-components which will have passed through up to 15 countries.
In order to get their extremely specialised electronic components assembled and shipped, car-making companies employ other corporations to do this on their behalf. The extended business network is necessarily complex and this is difficult to maintain under recent macro-economic conditions.
In 2021, in order to compensate for changes in the conditions under which their supply chains needed to operate, manufacturers and their suppliers, including dealers and distributers and even software developers created a new digital ecosystem using SAP and other technologies in order to promote the sharing of secured data across the automotive sector’s value chain as a whole.
Among the companies making up this network are the biggest names in European car manufacture: BMW, Mercedes-Benz, Volkswagen and Volvo, and some of their largest suppliers like ZF and Bosch.
Using a system built on the SAP Business Network, Catena-X allows these corporations to gauge supply and demand pressures at each stage of production and also gather information to inform their strategies for achieving Environmental, Social and Governance objectives.
Paige Cox, SAP’s senior vice president, chief product officer and head of SAP Business Network has commented:
“…decentralised industry networks such as Catena-X can achieve an unparalleled level of multi-tier supply chain visibility, spanning not only traditional supply and demand metrics but a wide range of social- and compliance-related attributes as well, positioning businesses and their trading partners for maximum resilience, sustainable innovation, and mutual growth for the long run.”
Commenting on establishment of Catena-X in an interview, Hagen Heubach Global VP of the Industry Business Unit Automotive at SAP, and Board Member of the Catena-X Automotive Network said:
“The automotive industry is completely under transition. There is a huge shakeup, with the semiconductor crisis – our chip shortage and raw material shortage. These are key things we’re trying to address with the automotive alliance… When we launched it, we talked together with the key players of the industry… We found out … there is so much more value along the value chain or supply chain that is still buried. And we have so much more potential to optimize, if we all move this away from a classical peer-to-peer connection, to a network-based approach.”
One of the most interesting aspects of this alliance is it includes members from private companies and also is being part-funded by the German government as it will contribute to Germany’s reduction in carbon emissions.
Open cooperation requires mutual trust between the members and it follows that an open-source design approach has been adopted. This will bring flexibility and agility to the project as many contributors will have access to the development process
The Catena-X alliance will be addressing material traceability using the SAP Logistics Network. Paige Cox explained:
“It is an end-to-end traceability and recall-management option to help capture and analyse the product genealogy from raw materials to finished product… material traceability enables them to strengthen transparency and sustainability by connecting the entire supply chain. The cloud-based technology fosters the accountability (and facilitates the analytics) necessary to support recalls and provenance analysis and integrates snugly with an organisation’s existing ERP solution.
… the very same material traceability option can equip businesses to ascertain whether a product or process meets designated compliance criteria. For example, does a vehicle’s originating factory observe environmentally sustainable business practices? Does an automotive manufacturer or supplier uphold a commitment to diverse hiring and contracting policies? Does it validate compliance with non-coercive labour standards throughout the supply chain as legislation around the world increasingly requires?”
The alliance provides the means of material management to allow the automotive sector to operate in line with the principles of a circular economy, a practice which if adopted could reduce carbon emissions by 45% and material waste by up to 90% according to the Ellen MacArthur Foundation.
Electric Vehicles are clearly going to contribute a large reduction in the emissions associated with the automotive industry. But in order to bring these into use they are going to require all of the same improvements in the manufacturing supply chain that are required currently by smart cars.
Although this discussion is not primarily focussed on the emissions reduction inherent in the adoption of electric vehicles in corporate fleets and in private use, there is also a role for companies like SAP to provide the interconnectivity of infrastructure necessary to maintain EV services.
Automotive manufacturers will need to collaborate with utilities companies, regulators and other companies like SAP to ensure that this large network of EV services like charging stations are connected through the cloud.
Now 90% of SAP Labs France fleet vehicles are electric and they decided to develop remote software to manage the status of its charging stations. This solution is now publicly available and helps corporate fleet managers to have visibility into resources for charging and helps them to manage charging access and maintenance.
The role for SAP in such a network cannot be underestimated as 80% of automobile manufacturers are committed to electrifying their products in the near future.
As the world catches up with the present need to make businesses and organisations more sustainable in every way, the role of IT consultants in providing the means to do so is going to grow exponentially in importance.
The automotive industry, because it is so large and so varied, is an excellent barometer of the manufacturing sector as a whole, and all of the same principles of hyper-connectivity as demonstrated in the structure of the Catena-X alliance will eventually be adopted to create comparable alliances in other areas of business.
The spotlight is on automotive manufacturing because it is the most visible industry that is addressing its emissions. IT consultants specialising in SAP will be needed to implement these sweeping changes to business operations in the automotive industry, but as sustainability becomes embedded in businesses across the world the need for competent professionals to integrate and administer the systems will also grow at an accelerating rate.
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