Using Ariba for getting Supplier inputs for the calculation of the Greenhouse Gas emissions

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Introduction

In this article, I am presenting a Solution Concept – how to use Ariba to support Sustainability topics. I am addressing some of the common problems related with acquiring Suppliers’ specific inputs, necessary for the calculation of the Greenhouse Gas (GHG) emissions. I will present some Solution Concept(s) how Ariba Procurement and/or Ariba Supplier Lifecycle Management (SLP) products can join “force” with SAP Business Technology Platform (BTP) in resolving these problems.

This article is not about Solution itself, but more about Architectural Thinking – reviewing Problem Context, and ideating on possible Solution Concept(s).

Problem Statement

Let’s start with explaining the greenhouse gas “problem”…

When talking about Sustainability and Sustainability reporting, under greenhouse gas emissions, we are basically referring to gasses which are causing the, so-called, greenhouse effect. Now, greenhouse gasses are not something new. They were always present in the atmosphere, but in much lower concentrations. Human activities since the beginning of the industrial revolution have caused an increase of over 50% of the atmospheric concentration of carbon dioxide [1], which is the principal contributor to the greenhouse effect. Most carbon dioxide emissions come from combustion of fossil fuels; principally coal, petroleum (including oil) and natural gas. All this is used in various operations; like production of electricity which is then used in many other operations; or production of the raw materials or (semi-)finish goods; or it is used in transport and logistics; etc.

Of course, it is not only carbon dioxide (CO₂) which causes the greenhouse effect. Other gasses are contributors as well like methane (CH₄), nitrous oxide (N₂O) etc. To simplify the calculation, the potential of each greenhouse gas to cause global warming is expressed in carbon dioxide equivalent (CO2e), so in general when saying “carbon emissions” we actually mean “carbon dioxide equivalent emissions” [2].

But why is all this important?

As stated above, greenhouse gas emissions are causing the greenhouse effect. The greenhouse effect is a process that occurs when energy from the Sun goes through Earth's atmosphere and heats the  surface, but greenhouse gasses in the atmosphere prevent some of the heat from returning directly to space, resulting in a warmer planet [3]. At current greenhouse gas emissions rates, temperatures could increase by 2 C in the next thirty years, which the United Nations Intergovernmental Panel on Climate Change (IPCC) marked as an upper limit to avoid "dangerous" levels [4]. As per Paris Agreement [5] the goal is “to limit global warming to well-below 2°C above pre-industrial levels and pursue efforts to limit warming to 1.5°C”.

And how do we measure greenhouse gas emissions?

To be able to control greenhouse gas emissions rates, we are implementing protocols to measure CO2e emissions, like Greenhouse Gas Protocol [6]. As per Greenhouse Gas Protocol, depending on the operations, we recognize three scopes of the emissions:

• Scope 1: all carbon emissions from own operations, like factories and intra logistics.


• Scope 2: all carbon emissions related to purchased energy


• Scope 3: all external emissions:

Furthermore, operations may be upstream or downstream:

• Upstream: emissions related to all procured goods and services


• Downstream: emissions related to lifecycle emissions of finished products

This article will address, as examples, carbon emission from the consumed electricity (Scope 2, but also relevant for Scope 3 – e.g. operations of leased outlets) and carbon emission from the raw materials (Scope 3).

Problem Context

While for many activities (or operations in general) it is quite possible to calculate carbon emission from internally acquired data e.g. purchased goods and services, for some key operations and/or production activities, we must rely on Supplier provided data e.g.

1. % renewable electricity (out of overall consumed/acquired electricity)


2. % recycled content of the raw material (in packaging)

While carbon emission from consumed electricity can be fairly easily calculated (by applying specific emission factors from the Country, Region or Supplier), all renewable energy should be subtracted from that formula, since carbon emission of the renewable energy is set to zero. Obviously consumed electricity (as a non-stock item) is acquired either through invoicing from the Suppliers or based on (self-)metering. However, it should be noted, in many practical situations % renewable electricity would not come as a direct input from the Supplier in the invoicing process, it would usually be obtained indirectly when the Supplier provides respective certificates stating specific volumes of the renewable electricity delivered in the specific period.

For the second case, in packaging, carbon emission would directly depend on the specific raw material used for packaging. However, the problem here is a bit more complex. The raw material used may be a mixture of the “virgin” (newly produced) and “recycled” material. Clearly, the recycled “part” of the material has a different (lower) emission factor than the virgin one. The problem is in getting the correct information about the percent of the recycled material acquired from the Supplier. An ideal scenario where Suppliers would always provide the same percent of the recycled content for the same material, is not realistic. Actually, this percentage will vary over time, and ordinarily, we will always aim for getting higher percent of the recycled content in each new delivery. Obviously, raw materials (as a stock item) are part of the material master, but we may not consider % recycled content as a material characteristic exclusively, as it may differ in different purchases. So, either we create “new” material each time we get different % recycled content for the “same" material; or we link % recycled content with batches – however, data management & data processing of % recycled content in the backend system, is not in the scope of this article (I have covered this in the separate article Enabling Climate Action and Circular Economy with SAP Batch Management).

In both cases, Enterprise or Company has a limited number of Suppliers providing electricity or specific packaging raw materials. This may prove to be a beneficial point – for easier adoption of the digital collaboration within the supply chain– at least with those Suppliers.

Solution Concept(s)

Ariba Invoicing for % renewable energy

Ariba Procurement solution provides number of standard integrations via CIG (Cloud Integration Gateway) enabling collaboration with Supplier (Trading Partner) on POs (Materials, Services, Charges etc.), Inbound/Outbound Receipts, Invoices, Payment Receipts etc.

Figure 1. Ariba CIG integration diagram

An Enterprise or Company reporting greenhouse gas emissions may use Ariba Invoicing solution, to collect electronically breakdown of invoiced volumes (or charges) split on those produced from the renewable sources, and those produced from the other sources.

In all cases, collaboration with registered Suppliers is a key:

1. Registered Suppliers are contractually obliged to provide in Vendor Invoice breakdown of the delivered electricity produced from the renewable sources, and those produced from other sources. Vendor Invoice itself is based either on charges or non-PO Contract invoice.


2. Vendor Invoice is approved (or returned).


3. Through Ariba invoicing integration with the S/4HANA ERP backend system, Vendor Invoice would provide “volumes” (charges) of the delivered electricity produced from the renewable sources (*).
   


4. In S/4HANA ERP system, received information on electricity produced from the renewable sources, and those produced from other sources, can be used:
   - to generate costing reports (renewable energy cost vs. non-renewable energy cost)
   - import into the Emission Management system only volumes of electricity produced from the non-renewable sources.
   - etc.

(*) Additional programing in SAP BTP/CPI might be needed to convert received inputs into format needed for further data processing in S/4HANA ERP

Figure 2. Ariba Procurement for % renewable energy

What are the shortcomings of this approach?

• Invoicing may be happening in the different time period compared with the sustainability reporting needs, therefore we are dependent on metering (automated or manual) at the specific day in a month. Metering, however, does not provide any information about the source of the electricity consumed.


• For outlets (either owned or leased) electrical energy supplied may not come as a separate charge, but rather as a fixed or variable utility charge.


• Suppliers may not be willing to provide such breakdown on their own, but they would be willing to provide certificates, proving specific electrical energy volumes are coming from the renewable sources.

Alternative approach with Ariba SLP

To compensate for some of the shortcomings of the previous approach, Ariba SLP provides a “cool” option to collect Suppliers’ certificates using Modular Questionnaire. What does this mean?

1. For registers Supplier of the electricity, we can launch (automatically or manually) periodically Modular Questionnaires, using certificate question, and set of predefined questions which Supplier must fill-in – e.g. indicating volumes of delivered electrical energy from the renewable sources within specific period (in which this electrical energy have been delivered)


2. Ariba authorized users will verify the input – if the entered volumes and period corresponds to the attached certificate, Modular Questionnaire responses are approved.


3. Using existing Supplier Data API With Pagination, we can expose Suppliers’ responses to other systems via SAP BTP/CPI


4. SAP CPI or SAP BTP app (side-by-side extension of the S/4HANA ERP system) can be used to (*):
   - collect automated reading from IoT devices;
   - collect manual readings (where no IoT automation is available);
   - “convert” Modular Questionnaire provided response on the renewable energy volumes in the appropriate period (in case collection, measurement reading, and reporting periods are not equal)
   - share consolidated volumes to Emission Management solution which will be calculating overall carbon emissions for the Company operations. For carbon emission calculations, volumes of the renewable energy are subtracted from the total measured volumes.

(*) Alternatively, above logic can also be built in the Emission Management solution itself.

Figure 3. Ariba SLP for % renewable energy

Ariba Buying for % recycled content

As earlier mentioned, Ariba Procurement solution enables collaboration with Supplier (Trading Partner) on Material POs, Inbound/Outbound Deliveries and corresponding Invoices.

Here as well, collaboration with registered Suppliers is a key:

1. Registered Suppliers are contractually obliged to provide in the Delivery Document either breakdown of the recycled and virgin raw material and/or % recycled content for each delivery.


2. Delivery Document is approved (or returned).


3. Through Ariba integration with the S/4HANA ERP backend system, the Delivery Document would provide either “split” or % recycled content information in the Inbound Delivery Document for each delivered batch (which is linked with the Purchase Document) (*).
   


4. In S/4HANA ERP system, received information with % recycled will be used to track recycled content from raw material – Goods Receipt to finish goods – Goods Issues
   - general recommendation would be to use SAP Batch Management or similar solution, or any “custom” calculation which will consider % recycled content is not an attribute of the Material Master, but an attribute of the delivered batch.

(*) Additional programing in SAP BTP/CPI might be needed to convert received inputs into format needed for further data processing in S/4HANA ERP

Figure 4. Ariba Procurement for % recycled content

This approach would in general provide all necessary information and full automation. Still, in some cases there might be some challenges:

• Suppliers may not be willing to provide such breakdown on its own, they would rather provide only certificates and/or % recycled content indicative “range” for the specific quantities or specific period of deliveries.

The approach with Ariba SLP

To address the issues when Suppliers provide only indicative and periodical information on % recycled content of the raw materials, we can use Ariba SLP and Modular Questionnaires:

1. Registers Supplier of the specific raw materials(*) will be asked periodically to fill-in Modular Questionnaire –for each raw material (from the group of raw materials of interest) to provide for the specific:
   - % recycled content “range” or
   - quantities with specific % recycled content or
   - any other form of information about % recycled content for the supplier raw materials – based on contractual terms (e.g. split of the costing part for the recycled and virgin part of the raw material);
   - in addition, Suppliers may also upload any supporting certificates.


2. Ariba authorized users will verify the input – if required inputs are correctly entered, Modular Questionnaire responses are approved;
   - in case no manual verification of data and certificates is expected, an approval step may be skipped – and responses may be “approved” automatically.


3. Using the existing Supplier Data API With Pagination, we can expose Supplier responses to other systems via SAP BTP/CPI.


4. SAP CPI or SAP BTP app (side-by-side extension of the S/4HANA ERP system) can be used to:
   - calculate average % recycled content for the specific period – in case only % range is provided in the Modular Questionnaire;
   - find all Inbound Delivery Documents in S/4HANA ERP backend for the specific period – based on the Modular Questionnaire input period;
   - mark all received quantities for the relevant raw materials with % recycled content attribute;


5. In S/4HANA ERP system received information with % recycled will be used to track recycled content from raw material – Goods Receipt to finish goods – Goods Issues.
   - general recommendation would be to use SAP Batch Management or similar solution, or any “custom” calculation which will consider % recycled content is not an attribute of the Material Master, but an attribute of the delivered batch.

(*) Ariba supports integration of the Material Master from S/4HANA ERP.

Figure 5. Ariba SLP for % recycled content

Conclusion and the outlook

Any of the above ideas can be put into production – with more-or-less effort.

When inputs from Suppliers are needed, collaboration is a key. The good thing in these examples; electrical energy and specific raw materials are usually sources from a limited number of Suppliers – so in many cases we should be able to implement processes with Ariba Procurement or Ariba SLP. Ariba products do have such capability and can help us collect Suppliers’ specific inputs, necessary for the calculation of the greenhouse gas emissions. 

In addition to this, SAP BTP/CPI has necessary capabilities to either transform inbound data in the format backend S/4HANA ERP might need – using Low-Code/No-Code CPI environment; or to extend backend functionalities – using BTP side-by-side extensibility options,

Other applications for ESG data collection

Getting the information about the renewable energy and the recycled content is not the only information that we need to collect from the Suppliers. For Environmental, Social & Governance (ESG) reporting, many Companies may also need to collect from Suppliers:

• Good Agricultural Practices (GAP) certificates – this is a voluntary certification program providing assurance of proper usage of soil amendments, field sanitation practices, products traceability and food defense etc.


• CO2e footprint per raw material – to report CO2e footprint of the individual products placed on the market, we need to collect CO2e footprint for each purchased raw material. Here as well, CO2e footprint for the same raw material may vary from delivery to delivery.

Stay tuned...

Keep following relevant blogs and community resources, post and answer questions, and read other posts on the sustainability topic.

And of course, share your thought and comments on my article, in the comments section.

About the author

I have been an IT professional for more than 20 years, with over 10 years of experience in Enterprise and Solution Architecture. My key focus is Enterprise Integration, of applications, systems, and processes.

Sustainability is obviously a "hot" topics catching my attention lately.

References

[1] https://en.wikipedia.org/wiki/Greenhouse_gas

[2] https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Glossary:Carbon_dioxide_equivalen...

[3] https://en.wikipedia.org/wiki/Greenhouse_effect

[4] https://en.wikipedia.org/wiki/Intergovernmental_Panel_on_Climate_Change

[5] https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement

[6] https://ghgprotocol.org/