Fireside Chat – Stephanie Feraday and Guests

Stephanie Feraday: We’ve got two special guests joining us today to talk about sustainability. But before we get there, let’s just recap a little bit about some of the risk drivers that we saw this morning. We saw, or yesterday, we saw the risk drivers from the market through inflation, geopolitical supply chain, labor shortages, sustainability and from advanced simulation and digital technologies as an enabler. So what we’re going to talk about this morning is we’re really going to focus on sustainability. So, Catherine Kniker from PTC is joining us. She’s the Executive Vice President and Chief Strategy Officer, and she also runs marketing at PTC. And she’s responsible for positioning the company for success by really driving where PTC plays, who PTC serves, and how PTC wins. In this role she really is involved in the strategic functions incorporating corporate strategy, corporate development, marketing, and sustainability. And since joining PTC in 2016, she’s led the company through several acquisitions that have really accelerated PTC’s SaaS journey. And uniquely expanded and strengthened PTC’s capabilities, making it easier for industrial companies to achieve their digital transformation goals. And has really set PTC apart from the competition. She’s also credited with building a partner ecosystem to help solve PTC’s customers greatest challenges.

The Digital Transformation Journey

SF: And in 2022, she launched a formal initiative to identify and help quantify the ways that PTC’s customers can use PTC’s products to achieve their own sustainability goals. We also have Lasse Lundberg Nowack joining us from Vestas. He is the leader of Vestas’ Digital Engineering Department, and he drives a paradigm shift in product development through the strategic fusion of hardware and software digitalization and automation. And with more than two decades at Vestas, he’s spearheaded programs and initiatives aimed at optimizing new product development quality, customization speed and cost efficiency. And Lasse’s depth of experience and knowledge spans the European community, the US, and the Indian markets and with roles ranging from driving cost-cutting, cutting-edge digital capabilities for R&D to continuously challenging design engineering methodologies. His technical and managerial leadership within Vestas, Vestas’ Wind Turbine towers and foundation to drive the broader goal of integrating sustainability into Vestas’ engineering capabilities and supply chain. He also serves as the initiative‘s voice at various events, including at PTC’s live works in Boston this year.

SF: So we’re really happy to have them both join us this morning. So what I’d like to do right now is just ask each of you, before we get in and start talking about specific sustainability questions from a market perspective. CK, why don’t I start with you in terms of what is PTC hearing from customers about their goals and next steps to become more sustainable?

Catherine Kniker: Great first question. It’s a top three agenda item for all of our customers. So our customers, for those that don’t know PTC, are typically companies, industrial companies or manufacturing companies that make physical products. So, when you think about sustainability, there’s probably three things that we would think about: Dematerialization, energy consumption, and waste. And these are big issues for all of our customers. And so, those are issues, and then how to track and how to manage and there’s a lot of emphasis on tracking right now. We got to get to the how to manage.

SF: Right, exactly. Great. All right. And at Vestas, Lasse, what does sustainability mean to Vestas?

Successful Digital Transformation

Lasse Lundberg Nowack: Well, obviously, being a company within the renewable sector, you could say sustainability is really one of our core values, that goes without saying. But in the context of digitalization, PLM, and costing. You could say in a nutshell, what we are trying to drive is to make choices related to sustainability, a conscious choice, in how we design things. And I usually say that what we want to do is we want to empower the engineers to make good choices, conscious choices, when they’re in the design phase. But we also have to accept that in some cases some design choices have already been made. So for instance, we’re not going to switch our wind turbine towers to plastic anytime soon. They’re going to continue to be made out of steel for many, many years to come. And in that respect, we want to make sure that the choice of supplier can be configured as part of our configuration and sales frontend so that you can say, again, the choice of sustainability becomes a conscious choice also for our customers, and we want to be able to offer them the opportunity to source from various vendors and then find it again as when you are a designer finding the right trade off, “What do I do? Where do I want to place my money? Do I want to pay a little bit more for a more sustainable production method? Or do I go with the cheaper option, which may be associated with a higher carbon footprint?”

SF: Okay, great. So let’s maybe segue to some of the broader market questions that we’ve been talking about behind the scenes. How will sustainability regulations and initiatives really impact manufacturers competitive? So I’ll pass this one to you Lasse.

LN: Well, I think it’s something that is honestly, maybe, is worrying all of us a little bit because we’re not entirely sure what to come. And I also think that with some of the things that we’ve heard yesterday from Peter, there’s maybe some uncertainty about whether or not be as a globe or as a species actually capable of making transition that we are supposed to make, and I think that if we fail to see some of the goals achieved, there will be even more pressure and then potentially even more regulation to further accelerate it. So it’s really a matter of how prepared are we going to be? It’s like the three little pigs, how much of an effort are we making right now to prepare for whatever might come? Because I don’t really think everybody is completely sure what’s going to come. So anything that you can do to prepare yourself and prepare your business for, again, conscious choices about how you run your business is, I think, really key.

SF: Yeah. Great. And I’ll ask you as well…

Regulatory Compliance

CK: Yeah, I agree. I agree completely. I think the gentleman in the front audience said they just did an audit and there were 17 different regulations that you’ve got to comply with. It’s overwhelming for companies right now. I think the one that’s fast and furious is CSRD, particularly for European companies, they all have to track and report to that by the end of ’24. And for non-US companies exporting into Europe that you need to have that done by ’25 if you have over, I think it’s 150 million in revenue in Europe. So often regulations come, like the SEC one, they’re talking about it and talking about it, but nothing has come. But CSRD launched and it’s effective the end of ’24. So, that is really spurring a lot of people to scramble to get the reports in place. But I agree with Lasse that don’t let just the regulation be your guide.

CK: Figure out what you can do above and beyond.

SF: Right. So really building it into your overall strategy and having it as part of your whole go-to-market in terms of building the right products with the sustainability goals incorporated.

LN: I also think that some of these things are about asking some of the simple questions because if you think about cost as an example, there’s nobody that would… You could say, “Look at… ” You’re funny if you said, “I want to do a roll up of my cost of my entire product.” How is that any different from doing a roll up on your carbon footprint? It’s the same type of exercise. It’s just that today we lacked some of the data to do it effectively. But as solutions get more and more integrated, I definitely see that as something that will be sort of second nature to us once we get this data collected and get the solutions integrated.

SF: Right. So just getting over the initial hurdle of changing your processes and your focus.

LN: Absolutely.

SF: Yeah, great. What do you think of the consequences of not focusing on sustainability? Customers behaviors are changing pretty quickly. Now we’re starting to see customers wanting to buy sustainable products, whether they’re consumers or businesses like Tristan just talked about. What do you think of the ramifications of not moving forward?

Digital Transformation Initiatives

CK: I think it’s multifaceted. If you’re a company and you don’t have a sustainability strategy, it’s harder to attract employees. It’s starting to be a criterion for the employees that you want to track. And the last speaker talked about having a motivated workforce around this topic. I personally experienced that in the last year. We rolled out our own, even though our footprint is very small relative to a manufacturer’s footprint, but we thought we should walk the walk with our customers and, oh my, the people that came out of the wood work once we launched a formal sustainability initiative, it was very motivating to employees. So I think one; you’ll attract better talent, two; there’s the piece that you spoke about, the customer piece. I think people… There’s lots of studies that say people desire to buy from more greener products. They have a hard time figuring that out today, just to be clear but I think you can, at least for the foreseeable future, charge a differentiated price for a greener product. I don’t know how long that lasts. I’d love your opinion on that, but in the short term, there’s a price differentiator or a… Yeah, differentiator uplift available. But honestly, I think if you focus on efficiency and some of the larger topics that you talk about in costs all the time, sustainability and cost and efficiency will actually go hand in hand most of the time.

LN: Yeah. We definitely also see some of the same effects that you just mentioned where you could say people are changing otherwise really good careers and joining us because they want to be part of the transition, which is of course good for us. But on the cost side I think that, and this is just my personal opinion of course, I think it’s just a matter of time because before as a society we really realized that the cheaper option is actually to go with sustainable solutions.

LN: Because when once we see the long-term effects of global warming and all the other things that could potentially be the consequences of not reacting in time, this will actually be the more affordable choice. I do, however, also agree that in the short term there is a price gap, somebody has to pay for the transition we have to make, there is expansion of the entire electrical grid, there is the transition from, let’s say, coal-fired furnaces to electrical arc furnaces for steel production. And somebody has to pay for that, of course.

LN: But I think that there will be a growing pressure to make this transition because the society is. Where, whatever companies you could say situated will be adding pressure on them to be part of the transition because, as a society, they have to pick up the bill.

LN: And I think that the expectation for the company is that you pay your part in it. We will of course support you on this transition, but you have to pay your part as well.

SF: Exactly. This isn’t on our agenda, but I read an interesting article last night about how they’re having to slow down supply chain imports through the Panama Canal because they don’t have enough water. And so if you think about some of the global consequences of doing nothing, it’s going to impact products, it’s going to impact our ability to deliver products, it’s going to have really far-reaching ramifications.

CK: For sure. Anybody who’s a climate change denier at this point isn’t watching what’s happening in the world.

CK: There are huge impacts.

Transforming Business Models

SF: Yeah. So how can manufacturers transform their business models so that they’re not impacted by sustainability, but to actually use it as a growth driver? What do they need to do? What decisions do they need to make? And I’m going to pose this one to you, Lasse.

LN: I think it’s back again to this thing about making the conscious choice, do you make the choices available to the design engineers to your supply chain so they can make good choices? And don’t just leave it to, say, individual efforts, it’s something that needs to be part of your strategy and it needs to be conscious choices. And of course, in some cases it may require that you do some co-investments, that you work with your supply base on making the transition because it’s going to be expensive for them as well. So, partnerships will also be part of it, I would think. But if we can take the first important step, and in our entire, you could say, design and PLM and digital environment, make it about the conscious choice, I think it will really help drive us in the right direction.

SF: Do you have any thoughts in terms of dropping down a level? How to encourage or enable engineering teams and sourcing teams to actually get there?

LN: Yeah, so you can say we’ve already seen some wonderful demos of it, it’s already possible. You can do these comparisons, and I think that part is an important, or that type of solution is an important step in the right direction, but you also got to think about, as I said earlier, that you have raw materials that are not going to be subject to change.

LN: So in that regard, it’s about setting up your digital infrastructure in your PLM system in such a way that you have your connection or your digital thread between your parts, your semi-finished parts, your raw materials. And we are also using Ansys as our base material database. So really transforming all your data into, you can say, digital data objects, so you can expose the data to the right people. And then, as with different parts, where you can have alternate suppliers, you can do the same thing on your raw materials. Have alternate suppliers, and then you can set up your systems or your configurations in such a way that you can say, “Okay, do I have a preferred supplier basis?” Is the more carbon-friendly one, or you can say, “Let’s assign some attributes to these raw material parts, depending on what carbon footprint they have.” And say, “Dear customer, do you want to go with option A or B? We can configure the supply chains in such a way that you can go with whatever choice that you want to have.” Again, making it a conscious choice. And I think we are… I think most companies could do that right now if they wanted to.

SF: Great.

Successful Digital Transformation

CK: At PTC, this is a place where we’re being very active. So raw materials on one end. So integrating with Ansys Granta, changing the material object in PLM so we capture all the sustainability attributes, then the downstream manufacturability, all of the information that’s captured from aPriori, feeding that back into a common data model so that then it becomes super easy to do BOM, bill of material rollups, etcetera for companies because running around trying to capture everything doesn’t work over the long haul. So, that’s a big area of investment working on the partner side as well as the core of PLM. And so I was talking to Jill from GE Appliances. So our goal is to at least put out the data structure and the data model pretty soon so that people, whatever they’re doing now, we won’t have to retrofit it when it’s available in PLM.

LN: I think Catherine, at least something we have been discussing as well is the future connection of PLM systems. As everything moves to SaaS or cloud-based solutions, it should, at least in theory, be easier to connect things.

CK: That’s right.

LN: Because when you think about it, today, where do you store the information about cost of your supplier’s items that you buy from them? It’s typically in your own system. But as you need to store more and more information about them how sustainable are they? What cost? It could be other things like are they using child labor? Or whatever it might be. It’s a lot of data all of a sudden and how do you incentivize your sub suppliers to become more assertive about what they are changing about their company and becoming more attractive, not just from a cost-based point of view, but from the point of view of all these other data sets? I think that we need to rethink how we connect data in this regard.

CK: Yeah, that’s good.

SF: Yeah, that’s very true. What about setting goals internally for your teams? Is that something that you’re doing or looking to do in terms of setting carbon reduction goals or is that… How does that fit in if at all?

LN: Yeah, well at Vestas being within the renewable space. Obviously, we have the opinion that we need to show the way, take our own medicine, if you will. So we have some overly ambitious targets, also not just for our products but also, we have a very large and sizeable service fleet that go around to the various wind turbine sites, we are transitioning to EVs and doing all kinds of stuff. And we have also last year successfully demonstrated a solution for how we can recycle our blades as well, so right now we are finishing the last bits of that technology project so that we can actually recycle the blades. And then another thing we have essentially solved the last major puzzle that we needed to solve, and then you can say the rest that is made out of steel, whether it’s cast iron or Regulus, you could say, carbon steel can be recycled as it is, and then you can essentially recycle the whole thing. Yeah.

SF: That’s fantastic.

Digital Technologies Choices

CK: Our situation is different, we’re a software, but software supplier, but we have signed up to the science-based target initiative, and we, like Tristan said, we’re waiting for our baseline to be validated and our goals to be validated, but yeah, we’ve set, over the course of a year, set our goals and with the goal of being net zero by 2050. The other thing that we did is across our entire software portfolio, every product needs a sustainability, I’ll say, chapter to their business plan, so if you’re the [0:20:38.2] ____, the spare parts management software product manager, what are you doing from a sustainability perspective? Obviously inherent in that product, the less spare parts you use, the less embodied carbon, the more efficient the spare parts are located, the less energy that is used to go out and fix, but what are you doing to make that savings in CO2 language easily accessible to the customer? So that’s just one example, but every product now at PTC needs to say what their sustainability track is, our plan is. So it’s a big change.

SF: That’s great. Given the conference we’re at, I would be remiss if I didn’t bring cost into the conversation. So how can manufacturers balance the demands of the new sustainability regulations where they might have to change products or add features with cost goals and margin goals? How do you think manufacturers can achieve that to ensure that their financial position is the same or better?

LN: I’ll repeat what I said before, I really think it’s about a conscious choice, having the data available to make that conscious choice, and in all honesty, as we also saw from the presentation earlier today from Boeing, it’s not a trivial thing, is some of these trade-off discussions are quite complex, and what is really the better solution my dear? But I think the key thing here is that you have the data available for you to make those decisions, and the better your tools, aPriori or other tools, can support in this regard, the better you are off, don’t just leave it to chance or the good will of the people.

SF: I think Tristan has showed as an example where they were able to reduce carbon footprint and then the cost as well. Do you think they’ll go just hand-in-hand as a result of what they’re doing or does it need to be more deliberate than that?

LN: Yeah, well, I think that it depends on the specific context that you’re in, but I also think that… Who’s to say that some of these regulations won’t lead to increased taxes. I think Peter mentioned this as well, on whatever causes you to use carbon to produce whatever you’re producing. So let’s say that some of these taxes increase, it will of course directly impact your cost, and then it’s again a tradeoff it’s just that it’s maybe moving in the direction of being more favorable also in terms of the cost for the types of designs that use less carbon.

CK: But I don’t think it’s all the cost increases, in fact, if you think about dematerialization like using generative design technology, I guess there was a presentation yesterday from Eaton doing that, running it through aPriori and back and landing on the very specific design. Well, if you use less material, there’s less material, but then if that part lives in a vehicle, there’s less weight in the actual use of the vehicle, so there’s actually a lot of… To me, right now, there’s more cases where you reduce material, you reduce waste, you reduce energy consumption, it’s actually reducing costs in a lot of cases, and there’s a lot to be picked off on the efficiency side before you have to pay more for things like green steel or stuff in your products.

SF: Right, yeah, so it’s this cumulative benefit that you get by really focusing on that, I think that’s a good segue to maybe talking about some of the regulations. What are some of the sustainability regulations that really have significantly influenced the manufacturing industries operations and sort of product development approach? We’ll start with you and then we will go to Lasse.

CK: Well, I think most people in this room would be familiar with REACH and RoHS and the implications, what that led to in terms of high tech in electronics, data catalogs and what that meant.

CK: Like I said previously, CSRD is coming fast and furious from a… I’ll say a reporting framework, I think from a reduction framework, we like the science-based target initiative to frame how you reduce and so therefore your entire product development needs to line up to that. We particularly think just… I think you all would… And many of the presentations are about designing for sustainability.

CK: 80% of the footprint is determined back up at design, so if we can put information into the hands of the engineers and the designers in a simple way, and actually, I think that’s a bit of a challenge to make it… We’re hitting engineers and designers with a lot of information, so how can we make that simple so that trade-off decisions are easier? And there’s lots of progress happening there. I think that’s the biggest change. So go way upstream and correct the problem before it happens, because after the product is designed, it’s much harder to change.

SF: Very much. What regulations are you concerned about?

Digital Transformation Initiatives and Sustainability Regulations

LN: Well, one of the things that was already mentioned that is happening in the EU, which is really pushing the agenda of sustainability quite aggressively, and they’re rolling out new regulations, it’s almost left right and center, it’s really forcing us to rethink how we do things. But I also think that, if I have to give an example, one of the things that we are obligated to do now is essentially to upload our bills of materials to some databases so that we can later on prove what was our entire, you could say, use of specific materials. It could be both in terms of documenting our carbon footprint, but also to prove that we didn’t use any type of materials that were banned in the EU or whatever it might be. But I think it’s just a matter of time before some of those people that put those regulations in place are coming to the realization that, “What about products that are highly configurable?” when you push over a bomb that’s highly configurable what kind of transparency do you really have? I think some of those solutions will have to be re-thought and that you will see some of these things where you are doing…

LN: Some of these somewhat old-fashioned, accrued uploads of data is not really a very elegant solution, and that as a response of that they will then ask the various companies, “Fix this in your own systems, create the transparency in your own system, and then when we audit you or ask you to somehow document that you are meeting the targets, we will expect you to do that off of your own systems.” At least this is what I think will happen because I’m really struggling to see how they’re really going to ensure accuracy on the data when there is such an old-fashioned way of doing it.

CK: Do you think the source of truth for that should be PLM?

LN: Absolutely.

CK: That was a set up.

LN: Yeah. I don’t see how you would do it in any other way.

SF: Right. Exactly. Otherwise, it’s too distributed, it’s just impossible to. Yeah. One of the regulations that we’ve been hearing a lot about in addition to CSRD is CBAM which is all around… That we think might really impact products, are you concerned about that particular regulation or can you provide any context for that? CBAM is the Carbon Border Adjustment Mechanism for those of you who…

LN: Yeah, I don’t know if I have any particular opinions about that particular topic, to me, it’s more of just the same thing just in a different form.

SF: Yeah, it’s just one of many.

CK: Yeah. Again, I think it’s a pretty informed viewpoint is if ISSP is standardizing the reporting frameworks and CSRD… If you follow that then you’ll probably be fine for CBAM, you will probably be fine for a bunch of these other… That a lot of them are subsets underneath that. And there’s more urgency right this minute on CSRD.

SF: Great. If you think of the standardization in reporting that’s coming down for sustainability, if you think of a number of years ago there was, I don’t know if you’re familiar with the IFRS standards, the financial reporting standards that came down and they had to align it with US GAAP. How do you think the standardization reporting will play out in the sustainability space?

CK: I think ISSP is providing the standard framework and it’s being used across the globe, the reporting requirements are only going to go one way, they’re going to increase, but if you follow that broad framework, I think a lot of… Like when SEC comes out with, I think it’ll be subsets, fingers crossed, subsets of some of these frameworks. So that’s the way I see it playing out. I think you have to look at so many acronyms, TCFD for climate risk, I think that’s another one. And then SPTI for actually setting your reduction goals, less about reporting and more about what you’re going to do about it.

SF: International requirements, we’ve talked a lot about sort of Europe, and then a little bit about what’s happening in the US. What are you seeing on the broader international front in terms of sustainability regulations that might be approaching us that we need to think about or be aware of in the Asia-Pac region or other parts of the world?

Worldwide Digital Transformation Projects

CK: Yeah, I just came back from Korea and China, and… Or not, Korea and Japan. And they… At least all the conversations I had over there, this ISSP was the standard framework that folks were honing in on, but it’s much the same set of requirements, it’s probably not as intensive, it’s not probably, it’s not as intensive as what you see happening in Europe, Europe is at the heart of the intensity right now, but it’s if you want to sell your goods in Europe at any significant quantity, you got to get on board.

SF: So it’s just not the same urgency there.

SF: Yeah, interesting. Any perspective on the international front?

LN: I agree with your assessment. I really think it’s Europe that’s pushing the agenda in terms of the strictest regulations, so if you understand what they’re doing and they keep up the pace and you can sell your products in Europe, I think you would probably be fine everywhere else.

SF: That’s great. Let’s change a little bit. We talked a little bit about product development and we touched on supply chain, but how are people going to really enable Scope 3 working with their supply chains to achieve goals? Because you’re removed from that. Is there an approach that you’re taking or that you’re seeing, Lasse, that people are using to engage their supply chains to drive the outcomes?

LN: Yeah, but to be honest with you, it is a struggle, as I said to one of the other participants in the conference that master data has never really been very sexy, but I think it’s going to be because, as I said before, we are obligated to upload our bills of materials and we have had issues with lack of incorrect mass, and whenever you have these sort of crude methods that we have today, it’s more or less just saying, “Okay, we have this item, it’s made up of cast iron and it weighs this much hence the carbon footprint is this much.” It’s not a data set that is embedded on the specific part itself, it’s just some algorithms that are trying to take your bombs and trying to figure out what is a realistic assessment of your carbon footprint? Is this the accuracy we’re talking about right now? But as we move along, I would obviously expect, to come again back to the point about integrating this with PLM, that this data would be something that is maintained and that you have accurate master data on this stuff and you don’t have to do these, you could say, assessments or somewhat inaccurate estimations and for that to be accurate, you obviously need to be in control over all your master data.

LN: And secondly, even for those companies that have the best discipline in terms of master data if you have multiple suppliers which is most often the case, they could have different carbon footprints depending on how they’re manufacturing things. So I think we’ll set new standards for how you sync data with your suppliers. I think that’s something we need to rethink how we actually do that.

CK: For sure. And if you look for most manufacturers, scope three purchase goods and services is a huge, it’s 80-plus percent of the footprint, so this is a problem we have to solve with the data and then making it… I think it was Tristan who said a lot of these suppliers are much smaller and their ability to report, etcetera, so I think some of the bigger OEMs need to help the supply chain because by helping them, you’re helping yourself, but I think making it easy to interact with the data is at the core of it, and even feeding information to the supplier back and forth, I think will be critical going forward.

SF: Right. Alright, well, we’re down to our last couple of minutes, maybe stepping out of your shoes as being part of Vestas, I’ll ask you this one to start, are there specific industries or sectors within manufacturing that face unique challenges regarding sustainability regulations?

LN: Yeah, I think that some of the sectors such as steel manufacturing, manufacturing of concrete, it’s a lot of materials on a yearly basis within these sectors and I think it’s going to be tough for them, especially with production of concrete, it’s going to be a journey for them. I think that within steel manufacturing it’s probably going to be an, somewhat, easier transition, but still, because some of the technologies are already available, but it’s still going to be expensive to do of course, there’s a lot of infrastructure to pay for, but I would probably pick those two sectors as some of the ones where we would see the most impact and yeah.

Maximizing Digital Transformation Efforts

CK: Yeah, I don’t disagree with that at all. Automotive and the whole battery initiative, we heard Peter’s point of view on Monday, how do we… That whole value chain in terms of what happens to the batteries, not only the creation of them, but then how they get disposed. That’s a huge area of focus in the automotive sector right now, and so a heavy… We hear the headlines on EV and we hear the headlines on fuel cell, but there’s a lot of downstream implications for some of the early rollouts of EVs, so, big, big focus area for automotive.

SF: Right. Well, thank you both very much for joining us this morning. I think as we just finish the session and we think about what role can manufacturing simulation software play in managing sustainability, I think we heard about, it can play a role in innovation and R&D, and it’s particularly important there to have the biggest impact as well as in the design and prototyping stage, process optimization, like in steel and other areas, supply chain management, how do we work with our suppliers and really help them help us? And then driving energy efficiency in terms of how we bring our products to market.

SF: I think that sums up some of the key points, I think, that we talked about this morning, and then clearly having a clean master set of data that you can work from that you can actually access and utilize to respond to the regulations and see where you are. So thank you both very much for joining us this morning. Really appreciate it.