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    1. Leadership

    Digital Tools for Circular Economy, Sustainability in Manufacturing

    Nov. 14, 2024
    New technologies enable manufacturers to integrate circular economy and sustainability practices into their business processes, driving competitive advantage.

    Not long ago, industrial manufacturing executives and industry observers seemed to put more weight on circularity and sustainability than they do these days.

    SAP
    Andreas Queck
    Andreas Queck

    More likely, it’s a function of a shift from the marketing front to the accounting and operational realms – for two reasons.

    • The technologies to support circularity and sustainability in industrial manufacturing have matured to the point that they can also contribute to boosting efficiency and profitability. Simply put, sustainability is good for business.
    • Regulators have been busy, particularly in the European Union. The EU packaging rules and battery regulations, the EU taxonomy, the EU Corporate Sustainable and Reporting Directive (CSRD) and other reporting requirements are prime examples (though far from the only ones).

    Hilti Pioneers a Circularity Standard

    Not all of these functions have directly to do with circularity. But embracing circularity is a business decision, one that has serious operational and business-process impacts. Reliable sustainability data, including that related to Scope 3 emissions, is indispensable in understanding where circularity can pay off. At Hilti, the answer was in its tool-leasing business.

    The company’s fleet management business line is a tools-as-a-service offering for professional construction customers that includes tool repairs, maintenance and theft coverage. A tool’s performance is what matters, so Hilti saw this as an opportunity to bring reused and refurbished equipment into the fold. That would save money while reducing its Scope 3 emissions (and by extension, the emissions of the construction firms and contractors using those tools), which comprise 95% of Hilti’s product carbon footprint. It would also mitigate supply chain risks and reduce dependency on volatile raw materials markets.

    When Hilti found no global standard for measuring circularity, they brought in Boston Consulting Group to help them create a circularity score that includes financial as well as sustainability metrics, the latter which Hilti provides to customers. Those metrics are now being codified into its enterprise resource planning (ERP) system, and the program now brings more than three tons of recycled tool components into the fleet management program each year.

    Given the clear consequences of global warming and other factors, it’s hard to imagine governments elsewhere doing nothing. Sustainability reporting is moving in the direction of financial reporting. There will be no avoiding it.

    So, it makes sense that sustainability reporting requirements are the focus of many industrial manufacturers. But to consider circularity and sustainability only through the lenses of compliance and corporate image is to miss opportunities. Sustainability-related data that regulators will make you collect, compile and report on anyway can help you boost sales through sustainable products and services, reduce costs by using secondary materials and components, attract new talent and improve collaboration with suppliers.

    Green Ledgers Treat Carbon Like Cash

    Collecting sustainability data is the big challenge at the moment, and a lot of that’s being done manually. This must – and will – change, not only with respect to an industrial manufacturer’s internal data, but also with that generated by suppliers. And it is changing, in part because the tools to make use of that data can deliver a lot of value.

    What are some of those tools?

    • Emerging sustainability data exchanges enable the sharing of Scope 3 emissions data throughout the supply chain and can spot products or processes with carbon-reduction potential and avoid duplicate emissions counting.
    • AI-powered carbon-accounting software then calculates carbon footprint from the product to the corporate level.
    • Extended producer responsibility systems provide lifecycle views into costs and the environmental impact of design choices while calculating and reporting on EPR fees, plastic taxes and corporate commitments.
    • “Green ledgers” link emissions and financial data, allowing industrial manufacturers to see the linkages between emissions and finances, model out sustainable business scenarios and make decisions that meet both financial and environmental targets.

    Common among all of the above is that they’re embedded into traditional business processes and information systems. Sustainability becomes a part of doing business.

    Circularity and sustainability can be good for the planet and good for business. The requisite digital tools are now in place to help industrial manufacturers turn regulatory reporting requirements into competitive advantage.

    Circularity and System Rationalization at Salzgitter

    Salzgitter AG, a major German steelmaker, is using circularity for drastic carbon emissions reductions and wholesale IT harmonization. Salzgitter’s aims to cut its carbon emissions 95% by 2033 through a combination of recycling, reuse and the advance of hydrogen-manufacturing processes. Its customers are counting on that in cutting their own Scope 3 emissions. To get there, Salzgitter must collect and consolidate emissions data and gain carbon-footprint transparency throughout the company.

    Those drivers provided key impetus to harmonizing a complex IT landscape spanning 150 subsidiaries. There were other motivators: The systems underlying those that make detailed carbon accounting possible also help standardize error-prone workflows, streamline operational processes, and unify sales and service management processes. It’s a work in progress, but the goal is to hone those emissions calculations down to the individual-product level.

    About the Author

    Andreas Queck | Senior product marketing specialist in sustainability and circularity

    Andreas Queck is a senior product marketing specialist in sustainability and circularity at SAP.

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