SAP PaPM and Sustainability: Optimizing Costs and Impact

[YauheniKavaleu]

Hi dear colleagues. Today i want to present my perspective for relation SAP Profitability and Performance Management with Sustainability topic, and why CO2 calculation has direct relation with Management accounting.

How SAP PaPM cans support sustainable business development?

Let`s start.
A carbon footprint is the total amount of emissions produced throughout the lifecycle of a product. From a cost management perspective, it is essential to consider not just the financial aspect of each process but also its environmental impact. This is especially relevant in times when businesses are undergoing "green" transformations. SAP PaPM helps account for the carbon footprint by integrating managerial accounting methods, such as the ABC Costing approach, and allowing companies to see how much CO₂ is produced at each stage and for each resource.

The carbon footprint is typically broken down into three categories:

• Scope 1 (Direct emissions): Emissions created directly by the company (e.g., burning fuel for equipment).
• Scope 2 (Indirect emissions): Emissions related to the consumption of purchased energy (e.g., electricity used to power machines).
• Scope 3 (Other indirect emissions): Emissions related to the company’s activities but occurring outside its boundaries (e.g., transportation of raw materials or waste disposal).

SAP PaPM Capabilities for Carbon Footprint Calculation

SAP PaPM provides features that make it an excellent choice for carbon footprint management, breaking down cost calculations at every production stage and resource level. It allows businesses to:

1. Integrate carbon coefficients into cost calculations: PaPM links CO₂ emission coefficients to each component or raw material. This way, when producing a product, the system calculates how many emissions are associated with each ton of raw material and each production stage.

2. Account for emissions in all three categories (Scope 1, Scope 2, and Scope 3): The system considers both direct and indirect emissions, giving companies a complete view of their carbon footprint.

3. Calculate emissions for every production process: The system accounts for CO₂ emissions created during every stage of production, such as smelting, molding, and transportation.

Example of Carbon Footprint Calculation in SAP PaPM

Let’s look at a simplified example of how SAP PaPM can help calculate the carbon footprint for a steel manufacturing company. In this case, we want to calculate the CO₂ emissions for one production cycle from ore extraction to the final product.

Input Data

Imagine a metallurgical plant producing steel products. We have the following three main stages, each linked to specific emissions:

1. Ore extraction and transportation (Scope 3):

   • For each ton of steel produced, 1.5 tons of ore are required.
   • Transporting 1.5 tons of ore generates 0.5 tons of CO₂ emissions.

2. Steel smelting (Scope 1):

   • Smelting one ton of steel requires a certain amount of coal, producing 1 ton of CO₂ emissions.

3. Electricity consumption (Scope 2):

   • The plant uses electricity to process one ton of steel, which generates 0.3 tons of CO₂ emissions.

Now, let’s see how PaPM helps us calculate the total carbon footprint, please see below.

Calculation Steps in SAP PaPM

1. Data collection and creation of the calculation model:
   In PaPM, we integrate data on raw materials, energy, and emissions. We set emission coefficients for each stage and specify which Scope applies to each process.

2. Calculate emissions for each stage:
   PaPM uses the data to calculate the carbon footprint for each production step:

   • Ore extraction and transportation:
     0.5 tons of CO₂×1 ton of steel = 0.5 tons of CO₂

   • Steel smelting:
     1 ton of CO₂×1 ton of steel = 1 ton of CO₂

   • Electricity consumption:
     0.3 tons of CO₂×1 ton of steel = 0.3 tons of CO₂

3. Summing emissions for the entire production cycle:
   PaPM aggregates emissions for all stages, giving the total carbon footprint for one ton of steel:

   0.5 tons of CO₂+1 ton of CO₂+0.3 tons of CO₂ = 1.8 tons of CO₂

So, the carbon footprint for producing one ton of steel is 1.8 tons of CO₂.

Please take a look for short example below.

The main idea is that if we know all the costs incurred in the production of a particular product, and we have data on the CO2 emission coefficients for each material or raw material, used in the production process, we can easily calculate CO2 emissions both for each production stage and per unit of product. PaPM enables a deep dive down to the material level, providing information on the CO2 emission factor. This will allow us to model possible scenarios for raw material use to reduce emissions during production and make informed management decisions about the selection of specific materials. As a result, we can optimize not only emissions but also reduce production costs, if there is a business need to do so.
Let's consider the modeling aspect in more detail below.

Using A/B Scenarios for Optimization

Now, let’s look at how A/B scenarios in SAP PaPM can help reduce the carbon footprint and optimize costs. Let’s assume the plant is considering switching to renewable electricity.

• Scenario A: Using traditional electricity, which creates 0.3 tons of CO₂ per ton of steel.
• Scenario B: Using renewable energy, which reduces CO₂ emissions by 50%, lowering emissions to 0.15 tons of CO₂ per ton of steel, but increases the cost by 10%.

By comparing these two scenarios, SAP PaPM shows how each option affects both the carbon footprint and the overall cost. If reducing CO₂ by 0.15 tons per ton of steel makes the product more attractive from a sustainability perspective and justifies the cost increase, the company can opt for Scenario B.

The Benefits of Using PaPM for Sustainable Business Practices

SAP PaPM helps businesses address key challenges:

1. Optimizing costs and reducing carbon footprint simultaneously: A/B scenarios allow businesses to consider the financial and environmental consequences of choosing different raw materials and production processes, helping them achieve optimal outcomes.

2. Gaining a competitive advantage: Companies that integrate environmental metrics into their business processes are more attractive to customers and investors who care about sustainability.

3. Transparency and reporting: The ability to accurately track and model scenarios enables businesses to monitor their progress towards sustainability goals and communicate this to stakeholders.

Conclusion

SAP PaPM is not just a tool for cost management, it is a comprehensive solution for managing carbon footprints and modeling sustainable business scenarios. Its capabilities for scenario modeling and emission tracking allow businesses to optimize production processes while achieving environmental sustainability. Ultimately, this helps companies improve profitability while strengthening their position in the market as environmentally responsible and sustainable enterprises.

Thank you for taking the time to read this article. If you notice any mistakes or inaccuracies, please feel free to point them out in the comments. 

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