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46                     THE CSR SERIES

        While ideas of greening transportation
        had consumers mainly focu...
THE CSR SERIES                               47

    Even so, in the boardroom –– where historically catalysts for     ...
48                     THE CSR SERIES

reduction in the amount of fuel used when aircraft are on ground
by using ground...
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Green Logistics

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Green Logistics

  1. 1. 46 THE CSR SERIES While ideas of greening transportation had consumers mainly focused on availability and performance of road hybrid and electric cars last year, there was also growing pressure on brand-owners to reconfigure the transportation components of their The to supply chains. By the middle of 2008, the rise in price of a barrel of oil to sustainable logistics over $150 meant manufacturers and transport and logistics service providers were no longer in a position and transportation to do nothing. Richard Brubaker looks at some of the current drivers, barriers, and methods employed by manufacturers and transport and logistics service providers to achieve It was the peak in the price of oil and other resources in 2008 greener supply chains that led many rms to start to seriously accept that the old ways of doing logistics were just not sustainable. No doubt that prior to this, many rms had already made solid environmental commitments, and some were even making progress in achieving those commitments, but when oil went beyond $150 a barrel, manufacturers and F ound at every major node along physical supply chains, logistics transportation rms alike were forced to look for ways to create more and transportation is widely regarded as the glue that keeps e cient (and cheaper) logistics processes and networks to make sure supply chains together. Raw material suppliers ship ore via truck supply chains stayed viable. and rail to processing sites; smelters move aluminium coils to sub- assemblers, who send parts to an OEM, who deliver an air conditioner Manufacturers and brand-owners to a retail store, which is transported to a home for installation. And at In the context of ‘going green’ the questions of what to do; where to the end of product life, a truck comes to take the old unit away. look; how to move forward, and at what cost, are critical to all rms. It is a chain where manufacturers, logistics providers, retailers, and While it is certainly at the very top where the strategic direction for consumers all play a role in de ning how goods and services are boxed, the necessary changes needs to be mapped; for manufacturers, stored, and shipped; and through changes in strategy, operations, and particularly OEM brands, the decision to go green is largely de ned by technology, signi cant green gains can be made. In its recent report their customers. Regardless of whether customers are retail, wholesale, Decarbonizing the Supply Chain, the World Economic Forum said the or industrial, as public awareness has grown, the pressure on global logistics and transport sector represents 60% of the 1,440 mega-tonne brands and publicly listed rms to take responsibility in the area of CO2 abatement potential in global supply chains. sustainability is increasing. Supply Chain Asia July/August 2009
  2. 2. THE CSR SERIES 47 Even so, in the boardroom –– where historically catalysts for to search for big changes to help reduce the fuel consumption volumes organisation-wide change were to either save money or to improve of their eets. It was a time when the message environmentalists had brand image –– implementing a set of drivers that amounts to been pushing for years ––that reliance on carbon-based transportation investing in what would normally have been considered a ‘nice to technologies was unsustainable –– was absolutely undeniable. In the have,’ is often still very di cult. While many manufacturing rms have marketplace, where ideas of sustainability were gaining critical mass already spent considerable time and money on optimising supply and market traction, discussions surrounding the cost structures of chains to reduce delivery times and costs, they are now also faced a ‘2000-mile Caesar salad’ became commonplace. Firms were being with the challenge to re-engineer supply chains once again in order forced to publicly address, to defend their carbon footprints, and to to reduce the environmental impact of their logistics network. develop sustainable mindsets. In Asia, the level of fragmentation that exists in the logistics Cost savings industry –– where margins can be extremely slim and the primary The good news is that a larger and larger number of studies on selling point is often price –– leaves few rms with the size and scale the issue are showing that rms that rework their networks with needed for the investment in the new equipment, software, and environmental impact in mind are buildings required for large and immediate nding e ciencies and cost savings. shifts to more sustainable operations. The reason why most rms have yet E orts are further hampered by regulatory to realise these savings, or even come to systems void of any real consistency, both properly understand them, is largely a internal to a single market like China, and matter of lack of internal capacity. Barriers Most vendors do across markets in the region, and market for manufacturing rms looking to make not have the scale to offer domination by manufacturers of transport changes to their logistics network come really comprehensive green equipment that focus on price as the down, as always, to cost and service, logistics solutions. While primary selling point. and these are very big considerations, Nevertheless, some rms are managing firms like UPS have 1500 to move forward on the issue quite even for rms aggressively looking to create a more environment-friendly trucks in their fleet that quickly. For a firm like Agility Logistics, network. Most vendors do not have the run on natural gas, this is with 3000 in-house vehicles and multiple scale to o er really comprehensive green still only a fraction of what subcontractors, the drive to reduce fuel logistics solutions. While even very large would be needed to gain costs and emissions has been undertaken rms like UPS have 1500 trucks in their both internally and externally. Extensive true economies of scale, operational adjustments have been eet that run on natural gas, this is still only a fraction of what would be needed or to be able to guarantee undertaken, with drivers trained to reduce to gain true economies of scale, or to be a green service quality idling times, reduce speed, and monitor able to guarantee a green service quality throughout their network. fuel consumption; while the firm has throughout their network. also invested heavily in greener fleet The process for a manufacturer to technologies and developed a policy develop a more sustainable approach to where suppliers with environmental transportation and logistics in any really management systems are given preference e ective way needs to begin at the very in subcontracts. top. It should also be approached at the level of a strategic development imperative for the rm. Di erent approaches Among many rms that appear to be addressing the issue with this The business models of other logistics providers in the region have level of sincerity, starting with a single product family –– including review necessitated a di erent approach. Some rms operating through of logistics vendors serving the product, location of suppliers, mode of partnerships and loose affiliations of vendors, for instance, are transportation, packaging, and frequency of shipments –– is a common auditing contractors and identifying those able to support them in approach. In this approach, optimising the manufacturing process, which developing greener operations. The result is often a shift from smaller, can be loaded with transportation waste, and reviewing processes with independent, transport service providers, to providers whose eets are key vendors in order to understand how one might t into their own plans large enough to warrant investment in new equipment; preventative to optimise their networks for backhaul, multimodal operations and green maintenance on old equipment; IT such as trip optimisation software, logistics products and services, are very important. and sta training. Similar to working with vendors to achieve innovations such as Looking for ways to improve network planning and e ciency JIT networks, tying sustainable objectives to the strategic e orts of has also been a focus operationally, something that for rms such as vendors to improve carbon footprints will embolden those vendors FedEx, which have traditionally had a strong infrastructure network to make further e ort and investment in the area. focus, has come fairly naturally. For FedEx, network optimisation has been a continuous job because it means lower cost and better service. Transportation and logistics rms However, following a process of commissioning 30 di erent teams to The impact of the price of oil in the summer of 2008 was enough to look into network issues related to the environment, the rm found catalyse a lot of e ort on the part of logistics and transportation rms areas where it could make signi cant environmental gains, such as July/August 2009 Supply Chain Asia
  3. 3. 48 THE CSR SERIES reduction in the amount of fuel used when aircraft are on ground by using ground power units to keep systems running; reducing fuel use, carbon dioxide emissions and noise by using ‘continuous descent,’ Decarbonising which keeps the plane in idle during approach whenever possible; and converting engines used by ground support equipment at some the supply chain: airports from gas-fuelled to electric power. On top of operational e orts, and e orts centred on changes to recommendations from the business strategy, several of the larger providers are also involved in the development of new technologies to improve efficiency World Economic Forum and reduce environmental impact. Hybrid and electronic vehicle technologies for delivery trucks; solar panel-driven cargo ships, and Recommendations for logistics and transport providers technologies focused on improving port e ciencies, are all products currently being tested in various locations and over time versions of them will be incorporated into operating transport eets. Common hurdles and common interests With the underlying assumption that to improve the system, multiple actors need to come together, it is important to highlight that there are shared problems that can be worked through together. Recommendations for shippers and buyers In Asia, even before considering technological improvements, the high level of fragmentation and widely varying infrastructural through alternative sourcing conditions are perhaps the two greatest barriers to change in the area of greener supply chain transportation systems, and they are barriers faced by both manufacturers and logistics providers. Unlike the markets in North America and Western Europe, the Asian tools and use landmass is still largely disjointed logistically. Many parts of China have only recently been brought into the national network; land routes through Southeast Asia into China are still poor, and the seaports of Recommendations for policy-makers places such as Vietnam are lagging far behind market demand. These conditions are matched by a high level of fragmentation among logistics and transportation service providers, with few having a really comprehensive presence across all Asian markets. With ongoing consolidation in the transport and logistics sector, and very large levels of investment in infrastructure across Asia (larger still when you include current stimulus packages), the coming ve to ten years o er new opportunities for cooperation among supply chain partners for sustainable improvement in the industry. The key to really e ective solutions is for actors to work together. While actions such as investing in a new technology, or improving the mpg of a diesel engine, have their place, the greatest progress is achieved through an holistic approach that requires rms to develop new levels of visibility and strategies that leverage the resources of several partners to tackle common problems in developing a more e cient and sustainable approach to the transport and logistics component of supply chains. So whether the motivation for change comes from customers, new regulation, or NGOs, each rm will need to nd their internal motivation for change di erently while aligning with the common goals of others. Without partners, and without common goals, practices will continue either as they are or changes will nd themselves too di cult to measure and build on. Resources for further information: Rocky Mountain Institute MOVE program – www.move.rmi.org Innovation Center for Energy and Transportation – www.icet.org The Logistics Institute - http://www.tliap.nus.edu.sg Supply Chain Asia July/August 2009