When supply chain sustainability emerged two decades ago, cargo interests and transportation providers widely viewed it as a cost center and drag on the bottom line. Not at Intel, where green logistics aligned nicely with positive return on investment, proving the adage that preparation is half the battle.
The Santa Clara, Calif.-based semiconductor maker, No. 51 on the 2012 Fortune 500 list, has a highly complex supply chain, with 11 fabrication facilities and five assembly/test factories spread among seven countries, and approximately 30 global warehouses. Intel’s core businesses are manufacturing and operations, but to keep up with market demand, it has become a supply chain leader, ranking seventh on the Gartner Supply Chain Top 25.
The company’s supply chain optimization efforts dovetailed nicely with sustainability that, for Intel, centers on creating products that consume less energy, take less water to build and use fewer environmentally unfriendly materials such as lead and halogens. Each element has a significant supply chain component, said Judi Barker, safety, risk and controls manager for Intel’s Customer Planning and Logistics Group.
Intel takes an enterprise-wide approach to meeting cost and sustainability goals, redesigning processes that touch on planning, forecasting, production, fulfillment and warehouse logistics. For example, there’s been a fundamental shift away from just-in-time manufacturing, in part to switch more goods from air cargo to ocean freight to reduce costs and carbon output. The company now ships some “Cadillac” products such as semiconductors by air, while shipping the fans that cool the chips by ocean.
The question of sustainability versus the bottom line is becoming moot as the cost of noncompliance with environmental mandates is prohibitively high. “The business case is strong and growing; suppliers that do not measure, quantify and manage their greenhouse-gas emissions will soon see their business will move to competitors that can provide better information and clearer evidence of change,” the Carbon Disclosure Project Supply Chain Report 2012 concluded.
At Intel and across the business world, sustainability is a component of broader social responsibility initiatives that include corporate governance and employee engagement. Sustainability is here to stay, with 23 percent of global CO2 emissions, according to the International Energy Agency.
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The introduction of the Greenhouse Gas Protocol Value Chain (Scope 3) emissions standards in 2011 created a common benchmark for companies to measure the greenhouse gas footprint of their entire value chain, including transportation and distribution. Numerous companies that took the lead in reporting Scope 1 and Scope 2 emissions, which refer respectively to direct emissions from owned or controlled sources and indirect emissions from purchased energy, are expected to account for the carbon footprint of their entire supply chains.
Ford Motor, a leader in Scope 1 and Scope 2 reporting, last year reached out to 128 key suppliers — representing about 60 percent of the company’s $65 billion in annual purchases — requesting emissions data related to Ford’s purchases, according to the CDP 2012 Supply Chain Report.
Another key to meeting cost and sustainability goals is collaboration with suppliers, including carriers and third-party logistics providers. Intel, for example, believes requiring suppliers to use hybrid vehicles would inevitably lead to higher transportation bills. A better approach is one the company is taking with suppliers in Oregon, in which the cost of hybrid vehicles for intra-plant deliveries is split between the parties.
“There will be added costs up front, but in the long term, we can reduce fuel costs and negotiate lower rates,” Barker said. “We are a great electronics company, but we rely on 3PLs to transport our stuff.”
Sustainability initiatives at trucking and logistics giant Con-way would never have gathered momentum without early successes and return on investment generated by efforts to reduce fuel usage. As it is, sustainability has become ingrained in the company’s culture in the broader context of social responsibility.
“We went from the basics of idling reduction and speed governing to a belief system that says if we do things right, we get good returns,” said Randy Mullett, Con-way’s vice president of government relations and public affairs.
If sustainability doesn’t always have a quantifiably positive impact on the bottom line, at the very least it’s a powerful magnet for employee recruiting and retention. Customers are demanding it, and research shows it boosts corporate brands, drives customer loyalty and has a positive impact on stock values and court decisions.
“It’s a bit of a leap of faith, but you have nothing to fear if you do it wholeheartedly and executive leadership champions it,” Mullett said.
When Con-way first embraced sustainability, it was all about reducing fuel costs and responding to mandates. Along with other major trucking companies, Con-way began modernizing its fleet, turning back speed governors to 62 mph, equipping trucks with aerodynamic fairings to reduce wind resistance and installing auto shutoff controls to minimize idle times.
The company installed efficient fluorescent lighting in its facilities and new cargo loading systems to maximize space. It teamed up with APL Logistics to offer day-definite ocean shipments from 11 Asian ports, reducing carbon emissions by 95 percent over air freight deliveries.
Something unexpected happened in the process: Employees and customers began to perceive Con-way as one of the good guys, a far cry from the way the transportation industry in general was first perceived. Sustainability became the third element in the traditional logistics paradigm of cost versus service. Supply chain optimization now offered the dual benefits of environmental stewardship and lower costs. Customers of Menlo Worldwide Logistics, Con-way Inc.’s global logistics subsidiary, started asking about supply chain re-engineering and near-sourcing to reduce their own carbon footprints.
“Every time we peeled back a layer of the onion, we found new depths to sustainability,” Mullett said.
Sustainability as a component of social responsibility is now a cornerstone of Con-way’s enterprise-wide vision, part of a new corporate mindset that includes lean methodologies, process re-engineering, employee involvement and waste reduction.
“It totally changed our mindset,” Mullett said. “All these things combined to strengthen our culture and advance our bottom line.”
The next step in sustainability is to build on what’s been learned internally with external stakeholders. As part of that process, a growing number of Menlo Worldwide Logistics employees are being trained in value stream mapping to help customers build sustainable supply chains.
Menlo operates 85 percent of its network miles using SmartWay-approved carriers and has a no-idling policy at distribution centers.
Con-way is expanding its carbon- reduction efforts, experimenting with low-resistance tires and has a pilot program under way in Chicago using natural gas-powered trucks. Current electric and hybrid technology is inadequate for use with heavy-duty trucks, Mullett said.
New and existing mandates worldwide pose compliance challenges to shippers, carriers and 3PLs alike. As of Aug. 1, ships operating within 200 miles of North American coastlines must comply with stringent sulfur emissions standards promulgated by the International Maritime Organization. The standards will increase costs significantly for all ships, but carriers have had a long time to prepare, said Roger Strevens, vice president, global head of environment at roll-on, roll-off and multipurpose cargo carrier Wallenius Wilhelmsen Logistics.
WWL in 2011 added two Mark V vessels to its fleet, with two more expected by the end of 2012. The Mark V, the world’s largest ro-ro vessel with a cargo capacity of nearly 4.9 million cubic feet, uses 15 to 20 percent less fuel per unit transported than its predecessor because of a streamlined hull and an advanced turbo generator, which produces electricity from exhaust heat. By recycling exhaust, the generator also reduces emissions of sulfur dioxide and carbon dioxide by 5 percent.
The Mark V also features a high-tech ballast water treatment system to help prevent the introduction of invasive species into foreign waters.
WWL operates more than 60 pure car-truck carriers and ro-ro vessels, carrying about 2.3 million vehicles, project cargo and equipment annually.
Sustainability is a mainstay of WWL’s business model for several reasons. WWL was formed in 1999 as a merger between two family owned companies — one Swedish and one Norwegian — whose owners have always taken the long view. Today, that translates into a commitment to sustainability. Other reasons are market-driven, as a growing number of customers demand that 3PLs have sustainability programs in place.
Fortunately for WWL, the numbers add up. If a Mark V vessel saves 20 percent on fuel costs, it makes sense to add it to the fleet. “Since fuel is by far the biggest cost to our overall operations, that’s a strong incentive for us to make vessels as efficient as possible,” Strevens said.
WWL has developed two templates for zero-emissions facilities and vessels. The Castor Green Terminal concept integrates terminal, processing and distribution activities into a single site while eliminating carbon dioxide and other harmful emissions from terminal and processing activities.
The E/S Orcelle is WWL’s model for a zero-emissions vessel that uses fuel cells, wind, solar and wave power for propulsion. While zero-emissions vessels are unlikely to ride the waves anytime soon, WWL hopes to incorporate elements of the design in future vessels.
Employee involvement is central to WWL’s sustainability goals. Last year, the company undertook an enterprise-wide learning campaign to help employees understand those goals so they can better contribute to their achievement.
“It’s very hard for people to change their ways and adapt to new routines, which is why the learning part is so critical,” Strevens said.
WWL cut its carbon dioxide emissions by 4 percent last year, putting the company on target to reach its goal of a 30 percent reduction in emissions by 2015. The company operates its vessels with low-sulfur fuel at sea and uses fuel with even lower sulfur content for auxiliary engines at berth.
Damco, the forwarding and logistics arm of A.P. Moller-Maersk Group, helps its customers reduce their environmental footprints through services such as its SupplyChain CarbonCheck, a Packaging Optimisation Service and ongoing work with the Clean Cargo Working Group.
The Clean Cargo Working Group is an initiative devoted to helping carriers and shippers collaborate to improve the environmental performance of the marine container shipping industry. Founded in 2003, it includes carriers that collectively represent 60 percent of global container volume and major shippers such as Wal-Mart, Nike, Nordstrom and IKEA. 3PLs were invited to join in 2010, and Damco, DHL and Kuehne + Nagel are the current 3PL members.
Despite the recession and continuing economic uncertainty, none of Damco’s customers are pulling back from sustainability drives. If anything, they are expanding those efforts. “We have seen an increase in demand for carbon check and package optimization services,” said Sarah Flagg, Damco’s head of green logistics. “We have more projects going on right now than in any other previous year.”
Contact David Biederman at email@example.com.