Growing interest in sustainability from asset intensive organizations - Part 1
Guest Post by
Bob Ferrari, the Executive Editor of the Supply Chain Matters Blog, and a periodic guest blogger on the Infosys Supply Chain Management blog.
Increasingly, it is noticed that while discussing asset management, clients are expressing new interest in sustainability. Hence the aim of this two part series is to explore further on sustainable operations and client pain points. The first part in this series has views from Bob Ferrari, Founder and Executive Editor of the Supply Chain Matters Blog and featured guest blogger on the Infosys Supply Chain Management Blog. Based on this, in the second part, Praveen Agrawal from Infosys will further list down the areas in which asset intensive organizations are going to focus more on sustainability based on the current research which Praveen and his team are doing.
1. Praveen Agrawal: Asset intensive organizations, which have traditionally been focused on maintenance, inspection and regulatory compliance, seem to have reached maturity in these areas. Do you see the industry starting to shift its focus to sustainable operations and green assets? If so, how are they going about this?
Bob Ferrari: In my view, asset intensive organizations will continue to shift their focus to sustainable operations, but I believe more education and changed cultural thinking needs to occur. This segment, which is the umbrella for companies that operate in the energy, oil and gas, pulp and paper, and utilities sectors have the productivity and efficiency of all assets as a key determinant of profitability. In that light, the ability to monitor real-time asset performance data and leverage smarter means of consuming energy and resources helps asset intensive companies move to the next dimension of efficiency and opens up new opportunities for industry competitiveness.
In light of the increased concern regarding our environment and consequent sustainability concerns among consumers and customers, companies within multiple industries are increasingly placing additional emphasis and increased visibility on green-related initiatives. The most obvious visible aspect of the increased emphasis is certainly related to the continuing trend of higher costs and decreased supply availability of fossil fuel based energy. Concerns in long-term availability among other key resource areas such as water, minerals and rare earth materials also add to the need for higher levels of sustainability practices. Increasing population and extraordinary climate change, declining natural resources and increased regulatory guidelines add to the need for organizations to adopt sustainability practices not to demonstrate commitment but and continue to be more efficient and cost competitive in overall asset and value-chain resources.
A growing core of what the Financial Times recently described as "belief system" companies have concurred that sustainability practices add to positive customer buying perceptions as well as bottom-line results. They have publically declared quantitative as well as qualitative milestones for their companies and their supporting value-chains. Manufacturing companies such as Coca-Cola Company, Dow Chemical, Dupont, Nestle, PepsiCo, Procter and Gamble and Unilever are quite active in this area. The Times also described the category of "sustainability capitalists", companies that view sustainability ventures and practices as a means to either branch out into new business opportunities or become more efficient in their value-chain and operating practices.
Asset intensive industry players have the unique opportunity to shift asset management to a new dimension of efficiency and also be viewed as an environmentally responsible supplier.
2. Praveen Agrawal: There has recently been a lot of discussion around new concepts such as smart buildings, control automation, smart sensors, etc. Can we realistically expect these high end technologies to become widely adopted? Are organizations ready to spend the money required? Is there a real business case?
Bob Ferrari: I believe that there are certainly opportunities related to smart sensor and building technologies, but like any new advanced technologies, the economics and the business cases have to align. This may take more time for broader adoption, but early movers where the economic and business benefits are more obvious, can be the likely first-movers in this area. Cooperative efforts and partnerships among government and industry will also help in the learning in these efforts. The utility industry is a likely candidate for first-mover since governmental regulations and mandates drive the current economics and business cases.
Wider-scale adoption is dependent on consistency in regulatory policies and guidelines across local and national governments, the availability of incentives to accelerate industry-wide adoption efforts, and more education as to benefits for consumers and businesses. There have been some initial negative aspects to smart sensors monitoring energy use within household environments which must be addressed by added education and demonstration as to the benefits for consumers themselves. Smart buildings in industrial and commercial sectors has more positive uptake.
3. Praveen Agrawal: Along similar lines there is also a growing trend into greening of data centers and other IT assets; what trends do you see here and do you think asset management systems will have a big role to play in making IT more sustainable?
Bob Ferrari: In an August 2011 research study, Professor Jonathan Koomey of Stanford University estimated that electricity used by data centers worldwide in 2010, likely accounted for 1.1 to 1.5 percent of total electricity use. That consumption was reported as 1.7 to 2.2 percent of U.S. electrical use. Those numbers represent a considerable opportunity for smarter asset management and green data center practices to provide positive benefits in multiple dimensions. With the current explosive growth of data consumption and Internet use, the opportunities are obvious that green IT can make a quantifiable difference in overcoming excessive carbon and greenhouse emissions. More efficient IT equates to lower costs.
As Praveen Agrawal noted in a previous Infosys blog commentary, there is a scope of "green" virtually everywhere- offices data centers, vehicles, and buildings. Power consumption among data centers themselves has long been identified as a prime opportunity, and server hardware manufacturers and service providers have come together in forming the Green Grid, a non-profit consortium whose mission is "To become the global authority on resource efficient data centers and business computing ecosystems."
The critical need to cool data centers can represent up to half of energy consumption associated with data centers with the other half obviously associated with the server equipment itself. Opportunities exist to couple real-time energy consumption of these assets in a central application to determine energy consumption patterns and opportunities. This same information can be tied to energy optimization methods to make decisions related to energy management and efficiency. Heat regeneration or even data center consolidation are also opportunities for more efficient use of energy. Like most decisions, more-timely, up-to-date information can help teams determine if assets are performing to optimal parameters or if alternative actions need to take place.
4. Praveen Agrawal: Broadly speaking, where do you anticipate the biggest progress to happen for asset heavy industries when trying to become more sustainable?
Bob Ferrari: I anticipate that that sustainability progress for asset heavy industries will come from two areas.
First, asset manufacturers, sensor automation and control providers need to continue with efforts to incorporate features where assets provide real-time sensing data as to energy consumption, efficiency, and performance. Smarter, more energy efficient assets that can communicate their status allows other software technologies such as centralized asset management to harvest important trending, real-time usage, and savings opportunities. Manufacturing assets that incorporate precision control options and historian databases are the basis of a more intelligent asset, one that can modified and controlled as required with day-to-day production or energy requirements.
The second aspect of this relates to how asset-intensive firms view the performance of their assets. Traditionally, financial measures such as return on assets or return on invested capital have led to asset-scale philosophies of operating assets for the maximum amount of available time at the highest output levels. Many asset-intensive firms find themselves in what Mercer Management Consulting initially described as a "cost/price treadmill", unable to break away from existing industry players. Merger and acquisition activity involving other companies to gain industry leverage adds to the asset management challenge. Larger, optimally efficient plants sometime exclude niche or other ad-hoc business opportunities.
A philosophy of re-shaping product portfolios and/or business opportunities, where smarter more flexible assets are leveraged to meet the needs for revenue, cost, efficiency and sustainability objectives, adds a different dimension for industry competitiveness. A good example of this has been Dow Chemical's product transformation and its description of "Moving at the Speed of Small".
The notion comes down to thinking a bit differently, that smarter asset management, real-time monitoring, coupled with sustainability and product objectives opens up new opportunities to compete for business and revenue growth.