Andrej, you work with a number of manufacturing companies: what is currently of most concern to the industry?
Several challenges are converging at the moment. For one thing, economic conditions have become tougher. Many raw materials are currently in short supply, and their prices are rising. Supply chains and energy supplies have become more uncertain, and sales are harder to predict due to the volatile economic situation. That in itself is an enormous challenge for many manufacturing companies. They need to make planning, production and warehousing much more flexible, efficient and adaptable than before. On top of this, there are new regulatory requirements and the associated pressure from the financial markets, resulting in an increased need for action.
What are the new regulatory requirements and how do they affect both financial markets and companies?
The regulations relate primarily to sustainability and social responsibility. For example, there is the amendment to the Federal Climate Change Act. It states that Germany should become climate-neutral by 2045. Furthermore, the EU’s European Climate Law also requires member states to reduce their greenhouse gas emissions. In practical terms, we would have to eliminate 262 megatons of CO2 in Germany to achieve these targets. Companies are being held accountable for this. They must reduce their emission levels and publish sustainability information. Up to now, this has tended to affect large corporations, but now it is also the turn of small and medium-sized enterprises, as can be seen from the Supply Chain Act, among other things. This law obliges companies to identify “human rights and environmental risks” in their operations and those of their suppliers, and to take compensatory measures if there is any doubt. At present, this applies to companies with more than 3,000 employees; from 2024, it will also apply to companies with more than 1,000 employees. Under the EU’s Corporate Sustainability Reporting Directive (CSDR), companies with 250 or more employees or sales of 40 million euros or more will also have to provide much more comprehensive sustainability reporting from the 2024 financial year.
Documenting and implementing regulatory requirements entails an increased workload that many companies would like to reduce. Furthermore, sustainability is also in vogue on the financial markets, hardly any company can afford to do so: companies that do not meet the criteria in the areas of environmental, social and corporate governance (ESG) now find it difficult to secure investors and are also less likely to receive loans. The bottom line is that sustainability is not just a nice-to-have that can be used to improve the company’s image. This subject has long been of strategic relevance and therefore needs to be on the agenda of corporate management.
With the right strategy, corporate and sustainability goals go hand in hand.
What can management do in practical terms?
Studies such as those conducted by the digital association Bitkom show that, here in Germany, we could save up to 152 megatons of CO2 over the next ten years through targeted digitization measures. Industrial manufacturing holds the greatest potential in this respect. The main challenge for companies now is to dovetail the digitization strategy with the corporate strategy and to implement it consistently. After all, with the right strategic approach, corporate goals can go hand in hand with sustainability goals. The efficiency and sustainability KPIs that have to be defined as part of the extended reporting requirements are also important indicators of success for digitization projects.
This is precisely where management can start: on the one hand, they must provide the mandate and investments for digitization with courage and conviction, and on the other hand, they must create the framework for measurably successful implementation through appropriate governance structures.
Despite this obvious need, many companies are not yet ready when it comes to strategy and execution. What do you put this down to?
The issue of environmental sustainability has often been somewhat put on the back burner because the return on investment was not visible enough. That has changed now; there has been a significant increase in motivation. Furthermore, we currently find many companies, especially in the SME sector, that have only recently begun to transform themselves digitally, automate processes and use data in all of this. However, only a few have a holistic data and AI strategy. But this need not be a disadvantage: companies that are starting from scratch have the opportunity to focus on sustainability from the outset by achieving measurable improvements in efficiency and thus exploiting synergy effects in implementation. So, when my team and I come into a company, the first thing we do is look at the transparency, the use, and the quality of the data that are there. Companies that are in control of their data and use them correctly can tackle many measures pragmatically and quickly, which pay off in terms of corporate goals and the issue of sustainability.
Sustainable production will only succeed if companies also transform themselves in a digitally sustainable way.
What are these measures in practical terms?
For starters, a company’s carbon footprint can be derived from data on its key business processes. There are now many platforms that offer this conversion. This information is the basis for the legally required reporting, but also for measuring the impact of all further measures throughout the process. These measures can be rolled out throughout the entire production cycle: as early as the planning stage for sales, production processes, material requirements, storage capacity, delivery dates and associated liquidity, AI algorithms help to create reliable forecasts and optimized plans. As a result, overproduction, material surplus and set-up times can be reduced as early as the planning stage. In the production process itself, rejects can be eliminated more quickly, additional work can be reduced and potential machine downtime can be prevented.
Up to now, such tasks have been performed by employees who have many years of experience and can assess all this very competently. However, they do not work 24/7 and, due to the increasingly complex market situation described above, they are confronted with more and more variables and regulations that have to be weighed up. AI-based assistance systems and automated processes take the strain off these employees, improve quality in planning and production, and provide valuable support in aligning them for the long term. There are many more levers that companies can pull with the help of data and AI to ensure sustainable production and digitization.
In addition to production, can digitization itself also be sustainable? What is meant by this?
The fact that digitization is being used to achieve greater sustainability is a wonderful thing! But for these initiatives to have their full impact, companies really need to transform themselves digitally on a long-term, permanent basis. And this can only be achieved if people within the company embrace this approach. In our experience, this is best achieved by getting employees closely involved in all digitization projects right from the start and working together to develop digital solutions such as assistance systems for corporate planning and control. Even in the long term, not every member of staff will have to learn programming or become a data analyst. But an awareness of the relevance and potential of data should certainly become part of the corporate culture, and sustainability should be aimed – in terms of energy, raw materials and human potential.
Ultimately, however, even improvements in efficiency will eventually reach the end of the line. That is why we at Comma Soft are already looking holistically at the principles of the circular economy and exploring how digitization, data and AI can contribute to its success. After all, efficiency is not sufficient as a yardstick for sustainability in the long term.
Do you have questions about how to make your production even more sustainable and how to approach the digital transformation in your company in a sustainable way? Dr. Andrej Fischer and his team will be happy to discuss your requirements and possible solutions with you: Feel free to get in touch.