andreas vogel, sap research th, 2008...fleet managers business value fleet fuel consumption building...
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SYSTEMATIC THOUGHT LEADERSHIP FOR INNOVATIVE BUSINESS
Green 2.0
Project Overview
Andreas Vogel, SAP ResearchFebruary 15th, 2008
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Table of contents
SAP Research
Today’s SAP offerings
Policy motivation for footprinting
Market motivation for footprinting
Economic input-output life cycle analysis
Architectural approaches and discussion
Environmental accounting
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SAP Research – be a world-class thought leadershippartner to SAP and SAP’s customers & partners
Pretoria Brisbane
Palo Alto
Montréal
ShanghaiSophia
Antipolis
Walldorf Karlsruhe
Dresden
Belfast
St.Gallen
Darmstadt
Campus-based Engineering Centers
SAP Labs-based Research Centers
Over 325 Researchers Worldwide
Cooperate with > 200 industrialand university partners
SAP Research managedgeographically and collaboratively
SAP ResearchAmericas and China
Prepare the groundwork for SAP’s future growth
by acting as SAP’s IT trend scout identifyingemerging IT trends
by researching and developing in strategicallyimportant SAP business areas as well as
by leveraging entrepreneurial inventive talent
Structure Mission
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Internal Strategy
Identify industry trends that need research andadvanced development
Work with various product groups for earlytechnology transfer
Serve as reviewers and advisors for variousproduct groups
External Strategy
Work with external industry and universityresearch collaborators to scout trends andcustomer requirements
Leverage North American and Chineseuniversities and industrial partners
Work with key startup companies and venturecapital firms to identify cutting edgedevelopments
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Sensors
Data aggregation
Sensor networks
Energy andemission reductionOperationalefficiency
Emission tradingCompliancereporting andmanagement
Enterprise
Site
• Energy costsavings
• Risk reduction• Cost of
compliance
• Risk reduction• Cost of
operations
SAP Scope
ProcessEngineers
EnvironmentalEngineers
ComplianceManagers
Auditors
Executive Management
CommodityTraders
Risk Managers
FacilityManagers
FleetManagers
BusinessValue
Fleet fuel consumptionBuilding electricity use
TravelEmployee commuting
Direct Emissions Indirect Emissions
Environmental Management SoftwareSolution stack and today’s offerings
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Solution Stack
The basis for managing the environmental impact ofindustrial operations is the measurement of therelevant data, its aggregation and validation. Wedistinguish between direct and indirect emissions.
Direct emissions are measured directly at the sourceand SAP relies on a variety of partners to provide thesensor equipment and the measurement data.
Information about indirect emissions such aselectricity or fuel consumptions or miles flown can befound in companies’ ERP systems.
All the data points will be aggregated across theenterprise using the solution EnvironmentalCompliance offered jointly with partner TechniData.
Business value
We have identified three areas of business value:
Compliance – reducing the cost of compliancethrough automating the data collection, validationand reporting process (EnvironmentalCompliance)
Carbon Credits – are a financial asset similar to acommodity, Environmental Compliance and ERPTreasury create an inventory of allowances andcarbon emissions providing the insight andaccount platform for trading carbon credits whichcan be an important cost factor in production
Operational efficiency – analysis of operationaland emission data allow energy and emissionreduction (Energy Management Composite);saved energy and carbon credits can have a hugeimpact on the bottom line
Users and user interfaces
Many people with very different job functions areinvolved of managing the environmental impact of acompany. From a unsuitability point of view, it isimportant that they can continue to use the tools theyhave instead of being exposed to new solutions. Forexample, environmental dashboards will be shown inthe enterprise portal, environmental risk will behandled by the Risk Management Solution, ERPTreasury becomes the “book” for carbon credits, etc.
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Post Kyoto Discussion
Source: Wikimedia Commons.
Countries that have signed the Kyoto Protocol andRatified itRatification in progressNot ratified itNo position (not signed)
175 Parties have ratified the Protocol.36 countries and the EEC are required to significantlyreduce greenhouse gas emissionsNotable exception is the United States137 countries have ratified the protocol, but have noobligation beyond monitoring and reporting emissions
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The Kyoto situation
While the Kyoto protocol has been widely signed,there are two issues with the current situation
1. One of the largest CO2 emitters, the UnitedStates, has not ratified the agreement
2. 137 countries have ratified the protocol, buthave no obligation to reduce emissions, amongthem heavy CO2 emitters like China and India
This significantly limits the overall CO2 emissionreduction.
Post Kyoto discussion
The discussion about the Kyoto successor is infull swing. Two of the main, intertwined discussionpoints are
How to bring the US on board?
How steer developing nations, specificallyChina and India, towards reductions in theiremissions?
The discussion is often focused on the two largestCO2 emitters: USA and China. Some of thecommonly voiced arguments include the followingones (stated in an oversimplified form):
USA: we only reduce if China reduces.
China: we still need to develop our economy.
On the next page, we propose an investigation,using China as an example, on the ownershipand responsibilities of foreign of CO2 emissions.
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Who Owns China’s Carbon Emissions?
381 million tons
CO2 Imports CO2 Exports
1490 million tons
China’s 2004 CO2 footprint:4732 million tons
2004 net CO2 export was 1109 million tonsRepresenting 23% of China's total CO2 footprint:
Source: Tyndall Briefing Note No. 23 by Tao Wang and Jim Watson
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The imbalance of the carbon world
According to a study1 by the NetherlandsEnvironmental Assessment Agency, Chinaovertook the US as the world largest emitter ofCO2 in 2007.
China and more than 130 developing nations whosigned and ratified the Kyoto Protocol are underno obligation to monitor and to reduce theirgreenhouse gas emissions.
The rationale behind this is that the developednations should not deny the developing nationsthe same growth opportunities they themselvesenjoyed through the past decades.
However, a lot of the manufacturing industriesmoved from their original locations to thedeveloping nations which are offering a lower-cost workforce and often less stringentenvironmental regulations while the bulk of themanufactured goods are still consumed in thedeveloped world.
The Tyndall Briefing Note No. 232 studies andquantifies this phenomenon using statistical dataabout China’s economy of 2004. More than 1billion tons of CO2 representing roughly ¼ ofChina’s carbon footprint have been produced forgoods and services which have been exported.
Who owns the exported CO2 footprint?
A reasonable answer seems to be the consumerof the products, i.e. the importing nations.
Ownership comes with responsibilities
Let’s assume that the importing nations acceptthe responsibility for the CO2 emissions producedabroad. The economic models currently beingused to underpin the Kyoto Protocol and EU ETS3
are not equipped to address this situation.
SAP Research will be focused on investigatingnew economic models suited to handle thesequestions.
1 http://www.mnp.nl/en/dossiers/Climatechange/moreinfo/Chinanowno1inCO2emissionsUSAinsecondposition.html2 http://tyndall.webapp1.uea.ac.uk/publications/briefing_notes/bn23.pdf3 European Union Emission Trading Scheme
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An Approach to Solving the CO2 Export
Exporting goodsand services
$$$
Goal:CO2 emission reduction
CO2 Exporter CO2 Importer
CO2 import tariff
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Policy discussion
SAP Research is contributing to the policydiscussion. As multi-lateral discussion haveshown to be very complex, we think that unilateralaction may be the next best choice. Such amechanism could be a carbon tariff which isimposed by countries with CO2 reduction goalson imports from countries without suchcommitments.
The amount of tariff could be established by theamount of CO2 emissions embedded in theimported goods and services and the marketvalue of carbon credits by the local carbonexchanges in the importing nations / regions.
Some associated such tariffs with protectionism.We argue however that such tariffs establish aequal playing field by establishing a common costfor carbon emissions on a global level.
Furthermore, we suggest that the tariffs are beingre-invested in the exporters industry with theobjective to increase the carbon efficiency ofthose operations.
IT Implications
Making this proposal work requires the accuratetracking of the carbon emission embedded ingoods and services as they cross regulatorydomain boundaries. This is a non-trivialinformation management and audit challengewhich can only be managed (at reasonable cost)with modern software solutions.
Below we outline approaches to architect anddeploy such information technology solutions.
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Creating a Carbon Label
Tens of thousands of suppliers
Problems encountered
Accuracy of models and measurements
Data aggregation across the supplychain
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1 http://www.carboncommentary.com/2007/10/01/202 http://www.carbon-label.co.uk/pdf/methodology_full.pdf
Retailers’ rivalry
UK based retailer Tesco announced in early 2007that it plans to put carbon labels on all its 70,000food lines. Tesco is using a methodology calledLife Cycle Analysis, putting a greenhouse gascost on every element of a product’s move fromfarm to plate.
Wal-Mart announced to assess and manage theenergy footprint of its suppliers. It will be assistedby UK based Carbon Disclosure Project (CDP).
Mark&Spencer and other retailers made noiseabout similar activities.
UK based CarbonTrust has created aCarbonLabel2 for publishing the CO2 footprint ofconsumer goods.
Impossible dreams?
The company quickly realized that the statedgoals were very ambitious and started to rethinktheir plans.
Problems encountered
Chris Goodall of the Carbon Commentaryprovides an excellent analysis1 of the issues:
Accuracy of models and measurements
Data aggregation across the supply anddelivery chain
Research proposal and SAP value add
The first type of problems are related to naturalscience and measurement methodologies andmeasurement equipments. SAP does not haveexpertise in this area.
Managing large amounts of data withincompanies and between companies is a corecompetency of SAP.
We plan to investigate how existing SAPtechnology, specifically Supply ChainManagement and Product Lifecycle Management,can be applied to these problems and whatmodifications and extensions will be needed tohandle environmental parameters.
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Building upon CarbonTrust’s Carbon FootprintMethodology
AssetsMethodologyModelsProcess maps
Proposed extensionsCreating templates for industries and / or classes ofproducts, e.g.
Food productsDrugsMotor vehicles (based on IMDS)
Consider operational phase in selected industries(fuel and energy consuming products and services)Extend beyond carbon footprint, consider wider rangeof environmental parameters(other air and water emissions,heavy metals, recyclability, etc)Software tools for managing andanalyzing process maps (acrossenterprise boundaries)
Source: The Carbon Trust
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1 http://www.carbon-label.co.uk/pdf/methodology_full.pdf2 Supply Chain Management3 Product Lifecycle Management
CarbonTrust defines the baseline
UK based CarbonTrust has announced thecreation of a CarbonLabel and has published theCarbon Footprint Measurement Methodology1.This paper sets the baseline for determining thecarbon footprint of goods and service.
Specifically, the paper provides a five stepmethodology as shown above. The key tool foranalyzing the footprint is the process map whichidentifies all the steps from raw materials tofinished products and the associated carbonfootprint of each step.
Opportunities to build on
The CarbonTrust methodology does not considerthe operational phase of products due todifferences in usage, e.g. bread vs. automobile,which would make it difficult to compare productsof different characteristics.
We propose the introduction of templates fordifferent classes of products (by industry). Weexpect a twofold benefit:
A more detailed defined template supportsthe accuracy and auditability of the carbonfootprint measurement and aggregation
It enables the consideration of the operationalphase for classes where it is appropriate andenables meaningful comparisons within theseclasses
Furthermore we would like to expand themethodology by tracking and aggregating otherenvironmental parameters such as air and wateremissions, heavy metals, recyclability.
Software Solutions
We are also interested in creating software toolsfor managing and analyzing process maps. Aparticular interesting aspect is the management ofthe process across enterprise boundaries.
On the one side we are investigating the retrofit ofexisting technology such as SCM2 and PLM3 for
such purposes. On the other side we areexploring the use of advanced, Web2.0 inspiredcollaboration technologies.
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Snow White's (or Eve’s) Dilemma
Snow White’s question:To buy or not to buy?
It depends on:Time
Space
Average vs. dynamiccarbon label
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Snow White’s Dilemma
Snow White’s dilemma illustrates the complexityof the carbon label concept. Snow White’sproblem is to choose between an apple grownlocally (in California) and one from New Zealandfrom carbon footprint perspective.
Space dimensions
We assume that all parameters of the growingand harvesting the apples are the same in bothlocations. So the first and obvious differentiator isthe space dimension. Shipping an apple fromNew Zealand to San Francisco has a largercarbon footprint than shipping one from a nearbyorchard. So the decision seems to be clear.
Time dimension
Well, don’t rush to the check-out line yet. There isalso the time dimension to be considered. Whendo you buy the apple?
In the Northern hemisphere’s fall, your local applecomes straight from the tree to the producestore’s shelf.
But what happens when you buy the apple in thespring? Your local apple spend about half a yearin a chilled warehouse and the air conditioninguses a lot of energy with it’s (energy sourcedepending) carbon footprint.
Spring would be of course fall in the Southernhemisphere and the apple would come straightfrom the tree on to the ship and from there to thestore.
We now have the trade-off between the six monthstorage and thousands of miles transportationand the outcome isn’t that clear anymore.
Conclusions
Don’t buy apples in spring, buy seasonable localproduce.
Carbon footprints of goods and services arecomplex and dynamic.
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Total CO2/Environmental Footprint – CarExample
Design and Production Operation Recycling / Disposal
Designing a car is a multi-billion businessProduction processRaw materials (steel,aluminum, etc)Half-product (paint, plastics)Components (seats, tires)
Gallons of gasoline per mileCO2 from burning gasCO2 from producing anddelivering gas to car
ServiceParts (tires, batteries)
Recycling (steel, aluminum)Disposal (paint, battery, tires,plastic)
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1 http://greenmesh.com/2007/03/unraveling_the_hummer_vs_prius.php2 http://www.mcdonough.com/cradle_to_cradle.htm
As Snow White’s dilemma illustrated, it is important toconsider all the dimension which may have an impacton the carbon footprint.
Hummer vs. Prius
Now, let’s have a look at another popular consumerproduct: the automobile. The debate of what is the“better” car is often reduced to a single dimension, themiles-per-gallon number.
There are two major issues with this approach. Thereis an opinion piece1 comparing the Hummer with thePrius which, while not scientifically investing the topic,certainly helps illustrating the issues.
Entire lifecycle
For a having meaningful comparisons of theenvironmental impact of products it is important tomeasure and aggregate the impact across the entirelifespan of goods and services. Important work hasbeen done by William McDonough and MichaelBraungart published in their book “Cradle to cradle”2
We see there three major phases:
Design and production
Operation
Recycling and disposal
The car example shown above illustrates this nicely.
Global warming vs. other environmentalimpact
The other important issue is to not limit the view onCO2 and Greenhouse gases. While it is useful to havethe public debate focused on these parameters, it isimportant to look at all the parameters which have anenvironmental impact.
Proposed research
We intend to study the following problems in thiscontext
Software support for tracking environmentimpacting parameters
A taxonomy for comparing different types ofenvironmental parameters
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Economic Input Output-Life Cycle Assessment
Categorized the U.S. Economy into 491 sectorsMeasures the entire life-cycle of a product, from rawmaterials to recycling/disposalTraces the transactions along this pathTraditionally used to measure economic valueadded at each stepAdapted to measure environmental impact of eachstep
Wassily LeontiefNobel Prize 1973
HarvardMark II
Invented by Wassily LeontiefData obtained from U.S. Department of CommerceIn 1949 – One of the first economic modelsdeveloped using a computerContinues to be used for economic planning
Definition and Usage
Historic Background
Provide the environmental footprint of the“average” product per category, e.g. theaverage American car
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EIOLCA exampleGHG footprint of the average American car
Sector GWPMTCO2E
CO2MTCO2E
CH4MTCO2E
N2OMTCO2E
CFCsMTCO2E
Total for all sectors 1260 1060 114. 24.9 53.2
221100 Power generation and supply 375. 371. 0 0 4.51
331111 Iron and steel mills 137. 137. 0 0 0
484000 Truck transportation 117. 115. 0.179 1.61 0
562000 Waste management and remediation services 54.8 8.67 46.1 0.067 0
336300 Motor vehicle parts manufacturing 44.8 44.8 0 0 0
481000 Air transportation 35.0 34.5 0.044 0.372 0
331312 Primary aluminum production 27.4 9.24 0 0 18.2
211000 Oil and gas extraction 25.6 4.30 21.3 0 0
212100 Coal mining 23.5 1.56 21.9 0 0
336110 Automobile and light truck manufacturing 21.5 21.5 0 0 0
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GranularityThe biggest bang for the buck
Final Product
Across the phases of life cycle Along the supply chain
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Granularity is important success factor for carbontracking. On the one hand, there’s the danger ofover-engineering the system by trackinginsignificant details. On the other hand, there’sthe danger of becoming meaningless fro analysisby not measuring enough and working withaverages and estimates instead.
CO2 emissions which don’t have an overallsignificant impact don’t need to be tracked.Instead we propose keeping the tracking systemsimple and use average data, e.g. from economicoutput-output tables, for these data elements.
The critical question is where to draw the line.This requires a thorough analysis of thecomposition of the carbon footprint.
Lifecycle analysis
The first step is the analysis of the three steps ofthe lifecycle. As the schematic view abovesuggests the impact of the different phases maysignificantly vary on the type of product.
Supply chain analysis
As shown above at each level of the supply chainyou should identify the components and materialswhich contribute most to the carbon footprint. Theeconomic input-output are a useful tool for aninitial analysis.
The Carbon Trust’s methodology suggest to focuson the components and material which represent90% of the carbon footprint.
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800-pound-gorilla-driven approach
Supply ChainCollaboration Software
Supplier I
Supplier IV Supplier V
Supplier II Supplier III
ERP SCM
High-level architecture BenefitsLeverage existing SAP investments (SCM,SCM collaboration)Tightly coupled relationship betweensuppliers and manufacturer / retailersEnables proprietary SCM extensions forcompetitive advantage
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Centralized catalogueSoftware-as-a-Service (SaaS)
Manufacturer A
Manufacturer C
Manufacturer B
Supplier I
Supplier IV Supplier V
Supplier II Supplier III
Componentand materialcatalogue
Upload(env.) data
Query(env.) data
High-level architecture BenefitsMinimal impact on suppliers andmanufacturer
Business processIT landscape
Minimal deployment and maintenancethrough SaaS approachLow-cost deployment, no major investmentnecessary through SaaS approachNo master-data issues through singlecentralized databaseNo n x m connections necessary throughpublish-subscribe architectureStream-lined information sharing throughcomponent and material catalogue
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Example: automotive industryInternational Material Data System (IMDS)
Source: EDS
Industry-wide material and componentcatalogueAlready contains environmental parameters(hazardous materials, recycling info)Centralized system, operated by EDS
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There are a number of ways to approach thearchitecture of CO2 emission tracking systemand we have been showing a couple ofapproaches above. However, they must satisfythe following requirements:
Small investment
No (major) changes in existing processes
No major IT projects for deploying the solution
The 800-pound gorilla approach
This architectural approach addresses the aboverequirements by leveraging an existinginvestment in a supply chain collaborationsoftware.
Essentially all what is required, is the extensionsof the data types in a purchase / work order.
Centralized catalogue as SaaS
This architecture choice takes a differentapproach. It addresses the requirements byplacing most of the complexity into a centralized
server which would be operated and maintainedby a 3rd party. Companies participating in CO2tracking would only need to publish their datathrough web services – a minor financial andtechnology investment.
This approach has been proven to be successfulwith similar solution in slightly different contexts. Agood example is from the automotive industry: theInternational Material Data System (IMDS).
In fact, this system could be easily extended totrack the carbon emissions of material andcomponents.
However, a standardization will be necessary andthere’s only room for one repository per industryand region. Those repositories would need to befederated through standardized interfaces.
The standardization through an official bodyneeds to be investigated. A good start will be ad-hoc industry standards supported by majorplayers.
SAP Research will work towards a pilot in theconsumer goods / retail industry and is engagingwith key partner and customers.
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The complete environmental assessment
Enterprise footprint
Measuring of direct andindirect emissionsAggregation of plant andenterprise level
Product level footprint –EnterpriseAssign environmental impactto each step in productionAccount for it
Product level footprint –Supply chainShare environmental dataacross the supply chain for acomplete environmentalfootprint of goods andservices
PEnvironmental Compliance
P Green 2.0
Project Bean Counter
P Green 2.0
Project Footprint
SAP/TechniData already provide a solution(Environmental Compliance) to assess theenvironmental footprint of a plant and an enterprise.SAP Research will investigate the how this is brokendown on a product level, within the enterprise(Project Bean Counter) and beyond the enterprise(Project Footprint).
The complete environmental assessment as numberof components. For now we will focus the three areasshown above: assessment of plant / enterprise,breaking this done on a product level, and adding theimpact from the supply chain.
Future extension will cover the complete life cycle,specifically the usage and end-of-life phases.
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Environmental Accounting – Overview
ProcessEvery process step hasenvironmental impactGet measurements (mostly)from existing sources, e.g.run-time of machine, materialuses, etc
LogisticsExtend logistics documents tocapture environmental data
Cost AccountingInclude environmental data inproduct cost accountingRoll-up cost across costcenters per product
stock
production
transportation
Suppliers Enterprise Customer
Cost accounting
GoodsReceived
Productionorder
Productionorder
Productionorder
Transportationorder
GoodsIssued
Transportationorder
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Leveraging ERP
The framework for Environmental Accounting isalready available with ERP, specifically withlogistics and product costing.
On a very high-level, we only need to extend thecurrent accounting mechanisms by adding non-financial parameters.
Critical factors to be investigated
Impact on ERP
We think that it is critical for the adoption ofenvironmental accounting that the currentaccounting processes and their implementation inERP stay unchanged. ImplementingEnvironmental Accounting should be additive andshould ideally not require a new version of ERPsoftware.
Availability of environmental data
Creating new processes for collecting data forenvironmental accounting would create a majorchallenge to its adoption.
The case study we are currently conducting withCSH Chico and Lundberg Family Farms showsthat the company is already collecting virtually allof the necessary for a variety of purposes, mostlyfinancial accounting.
The challenge at hand is to bundle and normalizeall this data and assign it to the product costaccounting processes.
During Spring 2007, we plan set-up an ERPsystem configuration for environmentalaccounting to show the feasibility and to get anestimate of the necessary effort.
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Background
Green 2.0 external:https://wiki.sdn.sap.com/wiki/x/FOQGreen 2.0 SAP internal:http://research.pal.sap.corp:1080/wiki/Green2.0Green 2.0 blog:http://andreasonsoftware.blogspot.com/
Andreas VogelSAP Research Palo [email protected]+1 415 341 3438
ContactCustomer Engagement
Information
Getting feedback on approachEstablishing working relationships witha select group of (five to eight)customers towards footprintingsolutionsIdentifying one or two companies forpilot deployments
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Andreas recently returned to research when hejoined SAP Research where he started the projectGreen2.0.
Prior to joining SAP Research, Andreas held avariety of executive positions at SAP: as amember of the Corporate Consulting Team headvised the chairman, the CEO and executiveboard members on strategic topics, as VicePresident Product Management he led theinitiative to service-enable (Enterprise SOA)SAP’s core product ERP and managed the globalroll-out of ERP 2005, helped with the creation of anew business unit Governance, Risk andCompliance and produced a business plan forSAP to become a leader in EnvironmentalManagement Software.
Andreas also worked for a number of start-upsand Silicon Valley icons, Borland (Chief Scientist)and VMware (European Business Development).He was also founding CTO of Mspect, a companydedicated to quality of service monitoring forwireless data communication such as textmessaging, now owned by AC Nielsen.
Andreas holds an MSc and a PhD in ComputerScience from Humboldt University Berlin,Germany and held post-doctoral researchpositions at the Universite de Montreal, Canada,and the Distributed Systems Technology Centerin Brisbane, Australia. He co-authored four bookson various aspects of distributed systemstechnology and enterprise software, all publishedby J. Wiley & Sons, has written tens of journalpapers and conference contributions and holds anumber patents.