Gleaning Green Benefits

Companies are growing increasingly aware of the relationship between a green supply chain and a cost-effective one.

When the global economy was chugging along at full speed, environmentalists in the transportation and logistics sector often had a hard time getting senior managers to see the economic benefits of creating a green supply chain. There were suggestions the economic downturn would dampen whatever interest there was as companies hunkered down, preferring to preserve cash than to invest in new initiatives.

But with global economy mired in the worst economic recession in decades, “there is now a high level of awareness and buy-in” about the notion that green supply chains are also more cost-efficient, said Derek Kober, vice president and program director at the BPM Forum, a nonprofit business group that recently surveyed executives at 125 major companies.

“The terrible economy is forcing every company to consider bottom line improvements and more competitive practices,” Kober said. “Corporate and industry environmental consciousness is creating the need for more sustainability measurement and momentum.”

Eighty-five percent of survey respondents said their company management subscribes to such principles as “enhanced trading partner visibility, flexibility and new levels of verifiable sustainability across the entire demand and supply ecosystem.” The respondents said they understood there were “clear-cost, compliance, and carbon-reduce advantages to embracing” such principles.

The problem, however, is most companies did not follow through, Kober said. Only 20 percent used a single hosted platform to improve visibility. “Companies know they need to do this,” he said, “not just from an environmental standpoint but from a bottom line standpoint, but there is a long way to go.”

Kober said he was surprised by “the lack of leadership in pushing these things forward.” The initiatives involve not just operations, but finance, IT and customer service. “The challenge is that there needs to be someone at the top pushing it, like the CEO or COO,” Kober said.

“Many people know that this is a problem, but they are so preoccupied with right-sizing their company, just to be viable or survive,” said Rich Becks, senior vice president of strategic supply-demand solutions at E2Open, the technology provider that underwrote the study.

A key challenge is the absence of standardized performance metrics, Kober said. Another is that many companies focus their “green” initiatives only on their own factories, offices and distribution centers, ignoring the environmental performance of supply chain partners.

“Some companies have been recognized because their supply chains are carbon neutral, but that misses the point,” Becks said. “Studies show that between 50 and 80 percent of carbon footprint is outside their four walls,” especially now that so much activity has been outsourced to suppliers and service providers in foreign locations. Many U.S.-based multinationals have become largely “brand owners,” no longer manufacturers, so it is increasingly difficult for them to monitor the carbon footprint of all their partners.

That’s where gaining visibility via a standardized global platform comes into the picture. In the absence of such visibility, “How do you know how those products are made?” Becks said.

Fully 100 percent of respondents in the transportation, retail and distribution sectors agreed on the benefits of such strategies, probably because rising energy costs have such an obvious impact in those sectors, Kober said. Laggard sectors included food and beverages (57 percent) and automotive (75 percent).

Jim Butts, senior vice president of transportation at C.H. Robinson Worldwide, said the third-party logistics company has intensified its efforts to collaborate with shippers in various ways that lower their carbon footprint. This includes planning and increasing shippers’ lead times and mode selections, and providing methods for measuring the carbon emissions of the truckload carriers they use.

“We work to increase the productivity of the capacity they use by reducing idle time, load to mode optimization, with consolidation” and other types of analysis and rationalization. Partnering with carriers is also critical, Butts said. “We increase carriers’ equipment utilization; we use technology to provide them options to reduce empty miles.”

UPS said in its latest sustainability report that ground-to-rail shifts prevented absolute emissions of 1 million metric tons of CO2 in its U.S. package operations in 2008 because tractor-trailer transportation is four times more energy-intensive than rail. “Whenever possible, we also shift our express packages from air to ground (aircraft are six to eight times more energy-intensive than tractor trailers),” the report said. Overall, UPS’s shifts from ground to rail and from air to ground prevented absolute emissions of 3 million metric tons of CO2 last year.

UPS plans to reduce the carbon emissions of its aircraft — which account for 53 percent of the company’s carbon output — by 20 percent by 2020.

Becks said he hopes public pressure to take action will build after the U.N. Climate Change Conference in Copenhagen reports in December that the Kyoto estimates of climate change “way underestimated” the damage. When the recession ends, perhaps by 2010, “companies will be extremely lean, and they will be ready to compete” in an environment of “resource and carbon constraints.”

Contact Alan Field at afield@joc.com.