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How Effective Revenue Management Can Reduce Carbon Emissions

by Gloria Kee, Vice President of Product Management, Model N May 7, 2024

Sustainability is a business necessity.

The U.S. Securities and Exchange Commission’s new climate disclosure rules underscore the mounting pressure on businesses to prioritize environmental sustainability.

About 85% of chief investment officers indicate that environmental, social and governance (ESG) factors are a significant consideration when making investment choices, and 84% of consumers say poor environmental practices will drive them away from a brand.

Another survey from sustainability management company Optera found more than 50% of manufacturers making emission reduction projects a priority in 2023. Revenue management is one lever through which manufacturers can lessen their environmental impact.

The correct anticipation of market demand plays a crucial role in reducing a company’s overall environmental footprint. Ordering and producing too many products contribute to a needless increase in carbon emissions generated by material sourcing, manufacturing, and transportation. These excess products also require electricity and climate control in storage, and if they aren’t sold before the next iteration hits the market, the old ones may end up in a landfill. At the same time, underestimating demand can lead to smaller, less energy-efficient production runs, and expedited shipping with a higher carbon footprint.

Effective revenue optimization can improve demand forecasting for more efficient supply chain management. The identification of market appetites requires analyzing a multitude of factors with data from disparate sources, including supply chain disruptions, macroeconomic conditions, complex pricing structures, and information and terms from hundreds of contracts.

It’s arduous and ineffective to evaluate this information with manual workflows. To better manage operations, manufacturers must invest in revenue management process improvements.

Revenue management software enables automated data collection, streamlining of workflows and complete datasets. Artificial intelligence-powered analytics provides a holistic market view and uncovers subtle trends that could impact sales. For example, a manufacturer might notice seasonal shifts in product demand or new buyer preferences.

Manufacturing leaders can use this information to more accurately anticipate demand. In addition to optimizing production levels, they can identify hot markets and strategically engage suppliers to minimize emissions, such as ordering parts from a vendor in or near a high-demand region. Accurate forecasts and thoughtful procurement result in increased revenue and reduced environmental impacts.

It’s a market reality that sustainable products cost more to produce. This fact creates a pricing challenge. Do manufacturers charge less to entice customers to buy? Or do they charge more to cover the production costs? The debate is playing out in the marketplace. Data and analytics can help guide pricing strategy.

AI analyzes all customer contracts and other sales and market data to understand what buyers are willing to pay for sustainable products, and breaks down market segments to create targeted pricing strategies. Revenue-management tools consider historical sales data, competitor pricing, demand forecasts, contract structures, and revenue goals to suggest optimal pricing. The information helps manufacturers sell their sustainable products while also maintaining appropriate margins. In addition, sales data and effective pricing build the case for future investment in sustainable products, eventually lowering a company’s carbon footprint.

Effective revenue management helps gather data for environmental reporting and decarbonization initiatives. The more granular the emissions data, the more effective it is. Sales data helps reveal vendor and product-level emissions.

Typically, the largest carbon emitters are a manufacturer’s biggest suppliers or customers by spend. By identifying these partners through an effective revenue-management system, leaders can gather vendor-specific emissions numbers for supply chain emissions reporting, and build strategies to reduce overall environmental impact.

Manufacturers can partner with a sustainability consultant to identify the carbon footprint of each product. Combining that information with complete sales data enables organizations to calculate the emissions resulting from the production and use of that product. As a result, leaders can strategize approaches to make the most popular products more sustainable.

Forward-thinking business leaders recognize that strong environmental stewardship and financial success are increasingly intertwined. Revenue-management practices, including precise demand forecasting, strategic pricing and granular data analysis, can help manufacturers boost their bottom line while also reducing their carbon footprint. As companies face increasing pressure to operate sustainably, revenue management will play a crucial role in achieving both financial and environmental goals.

Gloria Kee is vice president of product management at Model N.

This article was originally published on SupplyChainBrain.

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