Enhancing Customer Choice through Sustainable Product Configuration

IBM, together with the National Retail Federation, released a report entitled “Meet the 2020 consumers driving change,” which outlined significant changes in consumer buying behavior [1]. According to the report:

As consumers increasingly embrace social causes, they seek products and brands that align with their values. Nearly six in 10 consumers surveyed are willing to change their shopping habits to reduce environmental impact. Nearly eight in 10 respondents indicate sustainability is important for them. And for those who say it is very/extremely important, over 70 percent would pay a premium of 35 percent, on average, for brands that are sustainable and environmentally responsible.

Companies are taking note. The 2021 Global 100 Ranking of the world’s most sustainable companies [2] shows that large multi-billion corporations are taking sustainability extremely seriously:

As can be seen, this list is a collection of very different companies, from Schneider Electric and Ørsted in the energy sector, to Banco de Brasil in the financial sector, to Cisco Systems and Taiwan Semiconductor in the technology sector. The list was meant to be presented at the 2021 Davos World Economic Forum, before it was moved online, showing that sustainability is also top of the agenda for policy makers.

Sustainability and carbon footprint cost are important measures to both consumers and diverse industries. Having the lowest price will no longer be enough.

Customers will insist on seeing the carbon footprint cost for any product choice they make in order to ensure that they can meet their own sustainability goals and preferences.

In March of this year, the EU Sustainable Finance Disclosure Regulation (SFDR) [3] came into effect. This regulation “lays down harmonised rules for financial market participants and financial advisers on transparency with regard to the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability‐related information with respect to financial products.”

What this means is that investors putting capital into Europe, or marketing investments in Europe, will be subject to binding Environment Social Governance (ESG) disclosure obligations. The regulation precedes the new EU Taxonomy [4] for sustainable activities, which will provide a clear definition of sustainability and require investments promoted as environmentally friendly to be clear on their green objectives.

The EU Taxonomy will come into effect in 2022 and is designed to direct more investment towards green projects. Similar regulations are being considered in the US and UK, as the EU directives will apply to companies in these regions operating in the EU area.

While these regulations primarily target the financial industry, the impact will be felt in every other sector as regulations like these redirect funds towards more sustainable projects and companies.

The clear message for product manufacturers is transparency on how your product impacts the environment is becoming an important buyer criterium. Buyers not only want to know the carbon footprint of your product, but also want to know how to configure your product so the environmental impact is as low as possible.

Manufacturers are under pressure to find ways to reduce their carbon footprint. Configuration Lifecycle Management can use carbon footprint information to guide customers towards the most environmentally friendly options, allowing them to make the optimal trade-off between performance, price and environmental impact.

For example, each product component and parameter choice can be associated with a carbon footprint cost. This can be as simple as the energy consumption model with classifications of A+++, A++, A+, A, B, C and so on. Using Configuration Lifecycle Management, the customer can elect that only product configuration options with a rating of A+ or better be presented.

The Configuration Lifecycle Management solution will then automatically remove all product configuration options that do not meet this criterium, with the rules governing the customer choice actively applied to each subsequent choice the customer makes.

Carbon footprint cost can have a larger impact than just financial. One example of this is in product software parameter options, which normally do not have an associated financial cost, but could have a major carbon footprint cost.

As an example, let’s consider pumps from Grundfos. Grundfos offers a broad portfolio of pumps for a variety of applications. Even within a given application domain, there are hundreds of products to choose from, many of which can be configured further. Selecting the most appropriate pump for a given situation can be a challenge, even for trained technicians. Adding requirements for meeting a given carbon footprint budget makes the selection process even more difficult, if not impossible, without access to information on the carbon footprint cost of each component and parameter choice.

Once a product variant has been selected and configured (typically as part of a larger solution), it will at some point be commissioned by a service technician who will have to make sure that the product operates optimally. Even a simple pump product as the one shown below, which basically just has a single software configuration parameter, still offers a large number of choices that require expert knowledge to set correctly:

While there is no additional financial cost associated with each parameter choice, there is a carbon footprint cost, with some settings having a low carbon footprint and others a very high carbon footprint. In a Configuration Lifecycle Management (CLM) solution, the software parameters are set as the customer makes selections in the configuration process, ensuring the software configuration matches the customer requirements.

Configuration Lifecycle Management is about ensuring all functions in an organization have an aligned view on the product variants that can be sold and manufactured. In a CLM solution, the technical features of a product are linked with the commercial features using rules. Traditionally, this means that sales and marketing will introduce parameters that represent the customer requirements and link them to the technical capabilities of the product.

In the pump example, commercial features could include the type of liquid the customer needs to pump, and information about the capacity, with the rules then guiding the customer to select the appropriate pump.

Carbon footprint can be added as an additional commercial feature that needs to be linked to technical information on the carbon footprint impact of each component used in the product.

The Configuration Lifecycle Management solution can use this information to guide the customer during the configuration process. Customers can choose only to see pumps and configuration options that are environmentally friendly. As the customer is guided through the configuration process, the configuration rules will ensure that only low carbon footprint options are presented and that the software settings of the resulting product are set correctly.

[1] IBM Institute for Business Value, Meet the 2020 Consumers Driving Change.

[2] Corporate Knights, 2021 Global 100 Ranking.

[3] Official Journal of the European Union, Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on Sustainability‐Related Disclosures in the Financial Services Sector.

[4] European Commission, EU Taxonomy for Sustainable Activities.