With everyone thinking green these days, businesses are looking for ways to reduce their carbon footprint. Supply chains have the potential for the most green gains and exporters are in a good position to lead. Here are some considerations for a more eco-conscious supply chain.
Environmental issues have dominated the media headlines recently, with government agencies, businesses and the general public all thinking about how to reduce their carbon footprint on both the local and global environments. Many corporations have followed suit, announcing green packaging programs, recycling initiatives and other corporate social responsibility campaigns to publicly demonstrate their green behaviour.
Laudable as these are, it remains the case that inefficient transportation methods in the modern supply chain represent a significant part of the ecological problem, well illustrated by Eye For Transport’s Green Transportation & Logistics Report that found that as much as 75 percent of a company’s carbon footprint comes from transportation and logistics alone. Today, changing consumer sentiment and the complexity of global trade forces companies to modernise their supply chains with a shift away from the focus being on transport optimisation purely in terms of freight cost and utilisation, towards one that increasingly considers how the ecological impact of the supply chain on the wider environment can be minimised.
This idea of a green supply chain is not new. From its beginnings in Scandinavia and Germany, areas often considered the most ecologically conscious in Europe, it has grown to become a global movement towards green transportation thinking and lean supply chain principles.
Take as an example the growth in organic food: the dramatic increase in demand and the need to meet this with production from a more geographically extended supplier base has necessitated a change in our understanding of the true environmental cost of a product. From what was originally a choice based primarily upon the ethical conditions in which food is reared or grown, it has now become one of understanding how the products themselves are grown, how they are brought to market, and the carbon impact of all the constituent elements. It’s all very well selecting a packet of organic beans because less pesticides and fertilisers are used in their production, but if getting them on the shelf requires air-freighting them thousands of miles, then the choice becomes more difficult to justify.
To compound matters, what if the locally produced organic beans are grown in poly tunnels using artificial heat and light whereas the imported beans grew under natural conditions? What now is the best green decision and how far do you go in this analysis? Should you, for example, incorporate the environmental impact of the energy source of the power supply for the artificial heat and light as opposed to that of the oil refinery that generated the fuel used for the aircraft flying from the remote supplier? The more you analyse, the more difficult the decision becomes.
Many supply chain professionals are beginning to recognise the importance of efficient green supply chains. A recent study found that 94 percent of European supply chain professionals rate green issues as a business priority. The increased awareness within the industry has rightly encouraged companies to re-think their transportation strategies. However, as the modern supply chain consists of hundreds of decisions and processes, each with discrete economic and environmental implications, remodelling a supply chain has to be balanced against the impact on existing relationships and procedures. So how does an organisation tune its supply chain to reflect environmental best practices and at the same time ensure an efficient transportation process to meet demand?
An interesting case study was highlighted in a UK government report identifying the environmental benefits obtained by changing the supply chain model. The example was Tesco, which adopted an approach whereby trailers were adapted to be suitable for both pick-up from suppliers in pallets and delivery to stores in roll-cages, roles that had traditionally been operated independently. By combining store delivery with supplier pick-up, Tesco reduced total mileage by 3 million miles, reduce fuel consumption by 1.7 million litres and reduce CO2 emissions by 4,600 tons. At the time the green supply chain was not a recognised concept, yet it is fascinating to see the environment benefits accrued from such innovative processes across the supply chain.
Define and measure
In the current climate it is vital that companies can both define and measure each element within the supply chain. Benchmarks can then be rolled out across the network to evaluate the impact of any changes made.
If operating a green supply chain were purely an altruistic exercise then companies would simply choose the most cost-effective carrier using the most ecologically friendly mode of transport and set of assets. However, corporations have to balance this against the need to remain profitable, which brings into play a far wider set of variables.
Take something as apparently simple as the choice between two road carriers. Assuming both have available capacity, typically the selection will come down to who can meet the required service level at the lowest cost. But what if one has a new, environmentally friendly fleet of vehicles that are driven efficiently, whereas the other has an older fleet, a less rigorous maintenance policy or fewer checks on driving habits? If we are to take account of the resulting environmental impact, then the choice may prove less predictable.
We can illustrate this better in a simple scenario where we have two carriers, A and B, which have freight costs as well as carbon costs. The freight costs, A1 and B1, represent the basic freight rates the carriers would charge for their services. As can be seen, all other things being equal, carrier B would be selected. For the sake of the example let’s now assume two things; first that a carbon factor is at least recognised if not applied. This could be in the form of either a straight taxation payment or some form of carbon offset. Second, we assume Carrier A has the lower carbon footprint. We can then see that the fully loaded cost may now favour Carrier A rather than Carrier B, the cost of AT being lower than the cost of BT.
In this example, companies will be interested in evaluating a number of cost elements including:
- The freight cost payable without carbon loading being imposed, i.e. B1
- The additional freight cost payable by selecting a more carbon-friendly carrier (A1 minus B1)
- The respective fully loaded costs including both freight rate and carbon loading (AT and BT)
- The carbon cost resulting from the optimised carrier selected, i.e. AT minus A1
Similarly, when one looks at the more traditional areas of transport optimisation such as consolidation of shipments, this has typically been based upon the ability to optimise freight utilisation while meeting required service levels at minimum cost. Again, in the case of the green supply chain it will also be necessary to introduce the variable of environmental impact, if by altering the shipment date this could lead to greater efficiency. In this case the resulting carbon offset may be shared between producer, transport provider and customer. In this scenario, the demand to have the shipment ‘by 9 tomorrow morning at whatever the cost’ may need to be revisited.