Issue

Currently, there is no process or tool to measure sustainable raw material percentages through the supply chain processes in Syensqo.  The company does not have visibility into the origin of materials and to which extent they are truly sustainable.  Syensqo will have to disclose zero percentages as part of reporting as Syensqo is unable to determine actual percentages.  It carries a considerable reputational risk for Syensqo, which could turn into a financial risk as green investors only consider Green Bond financing opportunities.  Green bonds are fixed-income financial instruments which are used to fund projects that have positive environmental and/or climate benefits.  Syensqo can only be considered for Green Bonds if sustainable raw materials are procured. 

In contrast, Syensqo is making claims to customers about the sustainability of some of their products.  It is contradictory to the annual company reporting stating zero percentages of sustainable raw materials.   Syensqo needs a solution to enable the company to disclose sustainable raw material percentages based on actuals to customers in line with CSRD requirements going forward to alleviate further reputational  and financial risks.    

Recommendation

The recommendation is to implement Material Traceability via Option D using Production BOMs for certified materials.   implement SAP Green Token solution (Option A) to cover the end-to-end traceability of raw materials and related calculations.  It enables a high level of traceability and transparency from source to end product whilst managing supply chain complexities.  It also allows the company to track and report GHG emissions of products that are received and sold in conformance with certification standards.  Further, it provides standard reports with real time data which can be used to support audits for International Sustainability and Carbon Certification (ISCC).  

Unique supply chain collaboration aspects brought by blockchain technology are important to Syensqo in relation to Sustainability.  Whilst Mass Balancing is also of importance, it could be achieved by a standard SAP (Option D) with the use of SAP Green Token.  I would recommend to choose Option D, and then spend time and energy on actually implementing correct Mass Balance across the production process before looking at fancy additional things like blockchain.

Mass balancing is part of offer made to customers.  Selling pure natural aroma e.g. vanillin.  Mass balanced.  Mix of green and non green sources.  Needs to be at material level at future prospect needs to be on invoice.  

Mass balance used for commercial advantage.  requires solid solution.  tbc Gilles quantification.  

Only on criteria used for mass balancing at the moment.  

so far not that many products.  not known if more products going forward.  Recycling applies so several materials.  Vanillin and guar.  not needed if product is already 100% green.    In 2024 aroma is suffering.  

Background & Context

Supply chain sustainability is based on the traceability and transparency of sustainable material usage for commingled and bulk-traded materials.  There is a regulatory drive by the Corporate Sustainability and Reporting Directive (CSRD) to disclose percentages of sustainable raw materials as part of Scope 3 .  It is relevant for non-bio-sourced (e.g. fossil-based plastics to circular plastics) and bio-sourced (e.g. vegetable or animal origins and biodiversity) raw materials.  

Today the information relating to raw material percentages is collected and stored in a redundant, unstructured and non-auditable manner, which is reflected in the current process.   The inconsistency reflects the disconnect between Marketing and the regulatory requirements. 

1. Initially the customer requests a non-GMO certificate. 
2. Questions arrive at the frontline desk.
3. Questions are then forwarded to the Sustainability champion of the relevant GBU.  
4. The Sustainability champion then asks the buyer to send a form to the supplier.  Data needed from supplier is GBU specific e.g. Aroma and food.
5. Alternatively the Sustainability champion contacts Product Stewardship. 
6. The completed forms are finally stored on a personal Google drive. 

There is an argument that 100% of raw materials in scope for this solution because Syensqo must report on a % of biobased materials out of the total quantity of purchased raw materials.  Syensqo needs to secure the traceability of special cases as well as the total.   A dry run exercise that is currently being run by Sysensqo should confirm percentages by end of September 2024.  Whilst the percentages of biobased materials will be smaller, the total set of materials in scope of this is 100% hence supporting the recommendation of a technology focused solution.

Audits

At company level, Syensqo has KPIs on circular sales hence asking each GBU for sales of renewable products twice per year.  There is a lack of transparency as part procurement process resulting in Syensqo having to change as auditors will not accept current way of working.   Circular sales KPIs have been audited for four years by Deloitte.  Since last year these KPIs have been audited by Ernst and Young, which nearly failed in first year.  If audit fails next year then the figures cannot be published in the annual report.   Sysensqo's credit rating as well as credibility might be impacted.   

It holds a different level of risk at product level, where products are sold at higher price due to being sustainable e.g. the purchase of palm oil which is certified sustainable.  Audits are possible from customers at random and fines and commercial disputes are possible due to breach of contract.  

Certification

The mass balance approach is an important milestone on the pathway to a circular economy and bioeconomy. It has been designed to trace the flow of materials through a complex value chain. The mass balance approach is used among other in ISCC Pl us certification .  ISCC Plus is a voluntary sustainability certification for e.g. plastics and chemicals to reflect that traceability along the supply chain is given.

Conforms to EUDR (EU Deforestation-free Products Regulation).  Introduced in 2023 and mandatory from December 2024.  EUDR carries fines for non-compliance of up to 4% of annual EU revenue)

Current Landscape

No impact on current Sustainability landscape as currently managed using Excel files only.  

SAP GreenToken

SAP Green Token is a chain-of-custody business application designed to help organizations trace and account for certified sustainable versus conventional products throughout the supply chain network.  Organisations can trace the inbound material’s origins from their suppliers and outbound product sold to downstream partners.  It is a SaaS (Software-as-a-service) cloud stand-alone solution.  SAP GreenToken has been previously investigated by Syensqo in 2023 when it was decided to await the implementation of SAP S/4HANA.  It has been implemented as a solution for other companies in the extended chemicals industry e.g. Eastman Chemical and DIC Corporation. 

The solution capabilities include the following:

• Mass balance accounting
• Traceability and transparency of attributes
• Managing supply chain complexity
• Accessibility and onboarding
• Certification management
• Reporting and auditing
• Data privacy and process transparency
• Automation via integration:
  • Open APIs for non-SAP systems.
  • Integration with SAP sustainability solutions e.g. SAP Product Footprint Management (PFM).

Using the principles of mass balance, tokenization and blockchain, SAP Green Token acts as a multicommodity platform that enables the accounting of the full chain-of-custody of commingled raw materials to their origin.  By combining Tokenization, Blockchain and Mass Balance the solution supports certification management for e.g. ISCC+.

Use Case Example:

Track and Trace

The chain of custody feature provides transparency into all materials as per inventory and what materials they are comprised of.  It also provides key information on the materials, the number of sustainable and conventional volumes transferred, along with the identity of the member who provided the material.  This level of transparency is only available for upstream members of the network. The supply chain member accessing chain of custody won't have this level of transparency for downstream members of the network.

The material provenance view shows the original raw material from which the selected product or material was derived, regardless of the intermediary conversions or transformations. It gives visibility of the sustainable qualities of raw material from its original source and introduction into the supply chain.

The primary source of input for the SAP Green Token application is through the upload of structured files in a comma-separated values format (CSV). The CSV files can be from any 3rd party system, which are uploaded on the Imports screen.  Uploading CSV files automatically drives other features within SAP Green Token, such as volume requests and the creation of volumes, and creating or updating entries on the inbound delivery screen. These include:

• Inbound Deliveries CSV
• Conversions CSV
• Pending Orders Fulfilment CSV
• Goods Issued CSV
• Sales Inquiries CSV

So the blockchain part of the solution is not actually used? The whole point of a blockchain is to have a provably immutable  ledger that is shared by multiple parties who do not need to trust one another. Syensqo could consume from this the certified information published by a supplier, and in turn publish its own information, without the risk of someone modifying it along the way. If I'm not doing that, but just uploading CSVs, then there is no value of the "blockchain" aspect being realised here. 

Sustainable and conventional (non-sustainable) commodities are traced through your supply chain and production processes using mass digital twins (tokens) on a blockchain. This allows transparency from different origins to be measured by counting the tokens. Each organization or member of the supply chain forms part of the network. Members of your supply chain network that are onboarded into SAP Green Token are referred to as 'online' members, while those that are not are 'offline' members.  There are slightly different workflows for interacting with online and offline members.

Process workflows include:

• Conversion Workflow
• Outbound Workflow
• Inbound Workflow
• Consumption Workflow
• Multisite Workflow

Example for online partner inbound workflow:

1. Consolidate relevant deliveries for the delivery period:  automated upon integration with SAP S/4HANA.  
2. Extract delivery information to Inbound Deliveries CSV:  extract the inbound deliveries identified and consolidated in the step above and populate the Inbound Deliveries CSV manually or automatically if configured appropriately in the ERP system.
3. Import the CSV into SAP Green Token: entries on the Inbounds screen are created by uploading volumes in CSV files using the Import CSV button on the overview screen or by dragging and dropping files on the Imports screen.  After uploading an inbound deliveries CSV, you can review all inbound delivery transactions on the Inbounds screen.  The Inbounds screen provides details on the delivery of certified and conventional materials.  Users can view different attributes associated with the materials as well as the status of the order.
4. Fulfilment request generated and inbound delivery entries created.
5. Request fulfilled by upstream partner.
6. Tokens received and your balance is updated.

Certification and Reports

Green Token allows the company to track and report GHG emissions of products that are received and sold in conformance with ISCC+ standards.  It is accomplished by the persistence of attributes to the certified tokens associated to an inbound and conversion order.  ISCC GHG attributes are provided out-of-the-box with Green Token. The attributes can be assigned to any material to track and report against manufacturing and delivery processes.

The Reports view includes a set of complementary reports which can be used to support audits for International Sustainability and Carbon Certification (ISCC).  The data for these reports is generated in real time through the day-to-day transactions that are executed in SAP Green Token.  It reduces the level of effort and the margin for error in pulling supporting details from disparate systems.  The following reports are available:

• Conversion Audit Report
• Material Balance Report
• Material Movement Audit Report
• Order Audit Report
• Transaction Audit Report

Assumptions

• There is a current RFI to replace Ethixbase for use case 1 (company information), which is not in scope for ERP as there is an immediate need for implementation due to the termination of Ethixbase in December 2024.  Use case 2 (product level information), for which there is no time constraint, is covered by the ERP Rebuild project based on this Key Design Decision Document.

Constraints

Capture any constraints or limitations inherent to the recommended option. This could be aspects which, if changed or removed in future, could cause the decision to be revisited or invalidated. For example, a constraint might be that a new product has significant gaps in important functionality, which caused an older alternative to be recommended. If those gaps are closed in future, this might cause the decision to be invalidated.

Impacts

Describe the impact of the decision on other aspects such as other processes, infrastructure, other SAP modules or systems, data cleansing and migration, developments, automations, interfaces, in-flight projects, etc.

• There is an impact on integrated supply chain processes (inbound and outbound) e.g. procurement and manufacturing.  
  • Every raw material in question must be batch managed, which is possible by managing the batch mix where multiple deliveries arrive in one tank.

  • An assessment will be required to understand the impact on the logistics and supply chain teams for materials which are currently not batch managed today.

• The relevant master data requires support and governance.  For example, it is implied that the vendor or Syensqo have a responsibility to capture some metadata. 

  • Required attributes in case of electronic vendor communication (e.g. ASN) to be included in electronic communication channels.

  • Required attributes in case of manual vendor communication to be entered at point of receipt by the warehouse personnel based on paperwork from the vendor.

• Potential integration impacts with Ariba (if any) are to be confirmed.

• Segregation capability to identify which raw materials are being consumed in which process may require changes in production.

• There is an argument that 100% of raw materials in scope because Syensqo must report on a % of biobased materials out of the total quantity of purchased raw materials.  Syensqo needs to secure the traceability of special cases as well as the total.   A dry run exercise that is being run by Sysensqo at the moment should confirm percentages by end of September 2024.  Whilst the percentages of biobased materials will be smaller, the total set of materials in scope of this is 100% hence supporting the recommendation of a technology focused solution.

• There might be a financial impact in capital expenditure (CAPEX) to allow the implementation of the process e.g.:
  • Deployment of IT solutions to capture the metadata from the vendors
  • Technology improvements e.g. mobility solutions for the warehouse e.g. scanners to collect or enter specific information
  • Potential requirement to use more tanks to store the products from the vendors independently.

Business Rules

The decision may translate into business rules which enforce the decision and will require configuration. List these business rules here. For example, "An Outline Agreement cannot be created via the RFQ process. An awarded RFQ can only result in a Purchase Order". 

The solution is relevant for product level information for non-bio-sourced and bio-sourced raw materials.  

Options considered

Option A: SAP Green Token

• Ensures traceability as part of Procurement (Sourcing/Buying)
• Substantiates sustainability claims to derive value based pricing (Marketing/Selling)
• Reduces Scope 3 emissions as part of Supply Chain (Transporting)
• Follows trajectories to meet targets as part of Reporting (Finance/Regulatory)
• Supports access to green financing
• Meets ESG expectations (customers/regulators/investors/disclosure)
• Identification of raw materials consumed in which production process is possible with with different materials code (preferable) or with batch management and classification. 
• Requires batch management of all raw materials including an assessment to understand the impact on the logistics and supply chain for materials which are currently not batch managed. 

• Master data governance e.g. responsibility of vendor or Syensqo to capture some metadata. 

  • Required attributes in case of electronic vendor communication (e.g. ASN) to be included in electronic communication channels.

  • Required attributes in case of manual vendor communication to be entered at point of receipt by the warehouse personnel based on paperwork from the vendor.

• Potential financial impact in capital expenditure (CAPEX) to allow the implementation of the process e.g.:
  • Deployment of IT solutions to capture the metadata from the vendors
  • Technology improvements e.g. mobility solutions for the warehouse e.g. scanners to collect or enter specific information
  • Potential requirement to use more tanks to store the products from the vendors independently.

Option B: Hentrac

• Small start up company founded in 2022.
• Niche alternative. 
• Specialises in supply chain traceability. 
• All batches are identified throughout the entire production and distribution process by setting up parallel or sequential production processes.
• E2E mass traceability solution using a designated platform. 
• Combines production data with sustainability information, which is exportable. 
• Notifications of breaches.
• Very small use case, only ISCC plus audit.  
• Demo scheduled for Syensqo in September 2024.

Option C: Do Nothing

• No product life cycle management. 
• Continued use of Excel files.
• No ERP integration. 
• No central data repository.
• Issues as described would remain 

Option D: Mass Balance using Production Order BOMs

Custom solution using SAP standard functionality for mass balancing via the use of production orders (virtual process orders), which decompose the certified raw materials after goods receipt and to compose the certified finished product before shipping.   The solution guarantees the proportions of certified/uncertified finished products the business sells are compatible with the quantity of certificates received.  It allows demand management of certified and non-certified products. 

Material Management:

• Management of certified and uncertified raw materials as different material codes.  Every sustainable raw material requires a certified material.  Certified finished goods have separate material codes.

BOM Management:

• Use of BOMs where the uncertified raw material is composed by the certified materials and generates the certificate as co-product (additional material).  
• BOM is composed by the uncertified finished goods and the proportional quantity of the certificate.
• BOM as link between purchasing and selling purchased or produced raw material.  
• Audits in previous implementations for e.g. palm oil and soy have been successfully passed using this solution. 
• Identification of certified vs uncertified raw material consumed by the different production processes is not possible with this solution.  
• CSRD mandatory requirement of segregation is most important as foundation for all other processes, which is not covered by this solution.
• Expiry dates of certificates is reflected as shelf life.
• Traceability of certifiable material usage via goods movements and stock of certificates.
• Different material masters upon purchase, then use consumption of certified into normal material via purchase order.   
• Might still need to batch manage receipt of received materials. 
• Requires creation and confirmation of process orders. 
• Between goods receipt and creation of BOM is a grey area. Conversion immediately upon goods receipt.  Certificates stays until consumes by finished product. 
• Process order check is possible if certificate consumption was not made.  
• One or more process order would use up the remaining certified stock as needed until empty?
• Multiple certified stocks could be used on one process order.
• One certificate per raw material number meaning each certified raw material will have a unique certificate.

Evaluation

See also

Change log

Workflow history