When we first started planning for our Sustainability Exchange, we expected this first-time event would draw 60 participants. Instead, we had 157 registered attendees. And as our own Dr. Stephen Stokes pointed out, that figure equals the number of software, services, and automation vendors currently targeting some facet of the sustainability market.

Listening to presentations by Nike, PepsiCo, Dow Chemical, GE, and Owens-Illinois, it was clear that one of the primary drivers was the need to manage or reduce energy costs—and there’s an excellent reason for this. One presenter cited numbers from the World Economic Forum that showed energy rates have increased by 44% since 2003. They’re expected to rise another 45% by 2017.

Forget utilities: We’re coming off the grid and saving/making money

Presenters at the Exchange came up with some very clever solutions to get off of the grid or dramatically lower energy bills:

• Nike’s Dawn Vance showed a slide of one of her company’s facilities in Belgium. The site is powered by six windmills and a solar array that produces more than enough energy. In fact, Nike has a 10-year agreement to sell power back to the local utility.
• PepsiCo’s John Phillips showed local television news coverage of his company’s use of wind turbines and solar panels at its Chicago headquarters as well as the solar farm that’s powering a Frito-Lay plant in California. The most impressive tale may have been the installation of solar panels on top of what had been an open-air employee parking lot in Phoenix. In addition to pulling the plant off the grid, the panels provide employees’ cars with coverage from the brutal summer sun. PepsiCo has also worked a deal with a Midwest university, providing oat hulls left over from the Quaker Oats manufacturing process. These by-products provide 14% of the school’s energy needs.
• Since 2005, Dow Chemical’s Henry Ward said his company has cut its global energy consumption by 900 trillion BTUs, reduced solid waste by 1.6 billion pounds, and cut water use by 183 billion pounds. Overall, the company has saved $5B on a $1B investment in sustainability projects.

We’re redesigning our supply chains...

In order to reduce energy spend and greenhouse gases (GHGs), companies have to rethink their supply chain processes from sourcing through transportation and distribution. Once again, we were intrigued by some of the initiatives.

• Returning to Nike’s Belgian operations, the company located the facility next to a river, which allows the company to use barges to move products. The barges replaced 96% of the trucks used before.
• In 2008, Dow’s purchasing and supply chain organization conducted 312 projects. The teams saved $85M by reducing ton miles, increasing asset utilization, and optimizing distribution networks. The company is also looking at safer transportation. Since 1999, Dow has reduced chlorine rail shipments by 80% while retaining its role as the world’s largest producer. Instead, it shifted most of the distribution to pipelines. This saved 200,000 gallons of diesel fuel.

...And focusing on eco-PLM, too

We first wrote about the concept of eco-PLM in 2004 after a trip to Japan where we were introduced to the term by the former chief innovation officer at Hitachi. At the time, global technology companies were very focused on design for environment and meeting the requirements for WEEE and RoHS:

• The eco-PLM concept is alive and well. Nike uses software to help guide product designers to produce more environmentally friendly products. For example, as people begin working on the next athletic shoe or apparel, they’re given information on the chemical make-up of the raw materials and solvents and guided toward environmentally preferred materials. They’re also informed about the potential waste of material from inefficient cutting processes.
• Nike is also focused on the end of the product lifecycle. Its Reuse-A-Shoe program recycles old running and tennis shoes and turns them into Nike Grind, a material used on the surfaces of playgrounds and basketball courts.
• If you’ve ever eaten Frito-Lay’s SunChips, you may already know that they will be shipped in 100% decomposable packaging starting next year.
• And Dow is developing sustainable products, too. Today, 5% of its products fit this description, with plans to double this number by 2015. At the conference, Mr. Ward talked about building plastic substitutes out of sugarcane.
• Since announcing its ecomagination initiative in 2005, GE has been working to double its initial $1B R&D budget for sustainability products. At the same time, the eco line of products and services has grown to more than 80, up five-fold since its inception.

Not so sure about carbon labeling, though

As it turned out, one of the more controversial presentations concerned one speaker’s presentation on Wal-Mart’s planned carbon-labeling initiative. Dr. Kevin Dooley teaches supply chain management at the W. P. Carey School of Management at Arizona State University. During his talk, he described his school’s role in helping the company develop a Sustainability Product Index for items sold through its stores. The index spans from raw materials to manufacturing, distribution and retail, and consumer use and disposition. ASU is helping to devise the index for chemical-intensive products (like laundry detergent, for example), personal care items, and electronics.

Dr. Dooley was followed by Jay Scripter of Owens-Illinois, who described the challenges of preparing a meaningful index. He noted that glass products produced in a country relying on nuclear energy will have a far more favorable rating than those produced by other energy sources. He said the difference in energy efficiency could differ by a factor of 10,000. Yes, 10,000. Although he didn’t say so, the index number will be rendered meaningless if suppliers develop an average for product produced in a wide array of countries.

After the conference, we talked to one of the attendees about the carbon-labeling and sustainability index. This person described the efforts as unrealistic: “How do you account for engineering of formula changes? Do customers understand or even care about the number?” Good points.

Another attendee saw this as a Wal-Mart plan to further drive “Every Day Low Prices” by pushing deeper into the supplier’s supply chain for potential cost savings. It’s an interesting idea worth pursuing.

Today, it’s an Excel world. What about tomorrow?

I opened this article by noting the number of attendees was eerily similar to the 157 vendors that have announced products and services for the various sectors of the sustainability market. Ironically, with one exception, there was very little discussion of third-party software and services. If a company had a carbon calculator, there was a near 100% probability it had built it on a huge Microsoft Excel spreadsheet.

Many of the vendors in the audience are betting that energy management and carbon footprint discussions will soon move from the facilities or sustainability departments up to the board room. In our view, this will be important to establishing sustainability as an enterprise software category.

What do you think?

Do you see a broad sustainability market, or is it a point application market focused on energy, emissions, waste, and water? Should software be a one-stop shop, or would there be a huge portfolio of sustainability application offers as they exist today? Is there a role for leading utilities, or are the smart energy-intensive companies working on going off grid? Will this be the next big enterprise market a la ERP or SCM, or will it stay far more fragmented like the e-commerce or shop-floor markets?

As always, I welcome your feedback and ideas—brichardson@amrresearch.com. And don’t forget to stop by my blog, The Future of Enterprise Software.