Designing an Eco-Friendly Aftermarket Network

Sept. 1, 2009
Follow these four steps to make your aftermarket parts and returns networks more environmentally sustainable.

Manufacturers, particularly those in the automotive and industrial products industries, are devoting considerable effort to minimizing the environmental footprint of their production processes. From sourcing recyclable materials and eliminating contributions to landfills to reducing the energy usage and carbon emissions of their engines, these companies are doing more than just “talking green.”

But have you considered what happens after a finished product leaves the showroom? Over the life of an automobile or other kind of industrial equipment, parts wear out or break and have to be replaced. Sometimes, parts and products have to be returned for repair or disposal. The way you design and operate your aftermarket parts-delivery and reverse logistics networks can either extend your green strategy or dilute its effectiveness. After all, considerable carbon emissions are generated in the storage, transportation and delivery of parts to retail dealers and their customers.

The good news is that most efforts to green up the supply chain involve using resources wisely, and that's almost always attached to lower costs. With optimally designed aftermarket parts-delivery networks, industrial companies — from automakers to construction equipment manufacturers — have been able to not only cut costs and improve customer service but also reduce fuel consumption, cut greenhouse-gas emissions and minimize waste.

If you're seeking to green up your own aftermarket networks, there are four primary ways to achieve this:

  1. Design a more efficient distribution network.

  2. Design a More Efficient Network

    Optimize transportation modes.

  3. Take the guesswork out of returns and repairs.

  4. Incorporate green packaging.

Let's look a little closer at these recommendations and their contributions to green operations.

Optimize Transportation Modes

A critical first step is to take a look at your current aftermarket parts network. A basic analysis will include questions such as: How many distribution facilities do you have, and where are they located? How close are they to your retail outlets and customers? What are your service-level agreements (SLAs)? What percentage of shipments require air product versus ground in order to fulfill those SLAs?

The more miles your parts have to travel — and the greater the percentage of air transport required versus ground transport — the greater the impact of your network on fossil-fuel consumption and emissions.

With the right redesign, your aftermarket network could be simplified and the number of distribution centers reduced — all while speeding deliveries and minimizing the number of stops along the way.

Network design always involves a delicate balance between cost, speed-of-service and environmental considerations. And, it's the first step toward earth-friendly aftermarket services.

Optimize Transportation Modes

Another milestone in greener aftermarket networks involves optimizing transportation modes. Most aftermarket parts are delivered via one of three modes: DDS (dedicated delivery services), a mode that typically transports only your company's aftermarket parts to designated dealer or branch locations; LTL (less-than-truckload), in which you share the truck space, fuel usage and emissions impact with other companies; and small package, which consolidates multi-shipping networks that are designed to maximize efficiency and minimize miles traveled on shared delivery vehicles.

While each transportation mode has its environmental advantages, one size does not fit all. You should choose a mode that best accommodates the size and weight of the parts you're shipping along with the geographic density of your customer base. For example, dedicated delivery routes (i.e., milk runs) are ideally designed to minimize the number of vehicles required and miles traveled and use environmentally friendly returnable shipping containers. Most routes inevitably have to incorporate trips to dealers or branches in outlying or rural areas. Depending on the size of the shipment to the dealers in remote locations, it can be both more cost effective and less environmentally impactful to replenish the remote dealer or branch location via LTL or small package. (See Figures 1 and 2 on page 30.)

For maximum flexibility, consider relying on a third-party logistics provider (3PL) that offers all three modes of transport, so you can mix and match modes to fit your network design and help minimize your carbon footprint.

And, what about your replacement and referral parts network? Don't forget to look there for more opportunities to optimize for green. These are parts that are out of stock at the regional distribution center and have to be ordered by dealers and retailers through a separate network. The urgent nature of these orders can necessitate express-air services that can burn more fuel and offset green progress elsewhere. Overseas manufacturers with extensive dealer networks in the United States have an even bigger challenge: Parts deliveries often have to cross borders.

Even international referral-parts networks can be designed to minimize environmental impact. A leading construction OEM turned to my company, UPS, to design and operate a direct-to-store parts-referral network that bypasses all distribution centers. From Europe, UPS receives orders from U.S. dealers and consolidates these orders into single, daily shipments that are air-shipped to the United States. Once there, the consolidated shipment is cleared once by Customs. Then, UPS separates the shipment into individual orders and delivers the parts to dealers — often within 48 hours — via its domestic small-package network.

Because the direct-to-store network consolidates shipments, bypasses distribution centers and leverages the small-package network, parts get there quickly and with as little environmental impact as possible in a cross-border transaction.

Take Guesswork Out

Products that have to be returned for replacement or repair — reverse logistics — has a surprising impact on green aftermarket success. Think about what happens when a part or product has to be returned. The return transport burns additional fuel and creates new emissions. Replacement products must be manufactured and shipped, meaning that additional raw materials are consumed, and more transportation is needed. To make matters worse, time-starved dealers and customers sometimes have trouble figuring out returns procedures, and there are challenges to get the right part to the right location in the committed timeframe.

To help minimize the carbon impact of reverse logistics, take the guesswork out of the returns process for your customers. Start by designing an efficient returns network, using many of the same optimization processes that you apply to your aftermarket parts network. Then, communicate clearly to customers the precise steps they need to follow when returning a product or a part.

To make it easy for them to drop a part in a package and ship it to the right place, offer an easy-to-integrate returns technology platform. A Web-based system that lets customers type in the part or product number and automatically print out accurate shipping labels not only simplifies shipping but also helps you track the progress of the product returns.

A leading auto manufacturer recently discovered the value of easy-to-follow returns. The carmaker adopted a returns-on-the-Web (ROW) system customized by UPS. Before the carmaker introduced the returns technology, dealers were often shipping warranty parts back to the wrong service facilities. All these mis-shipments impacted customer satisfaction and burned a lot of fossil fuels.

Today, using ROW, dealers simply access their internal dealer Web site and enter a part number. The correct returns information is instantly auto-populated into the electronic forms, and a shipping label prints out, ready for UPS pickup. Parts that can be repaired are refurbished, further minimizing carbon emissions throughout the product lifecycle.

Incorporate Green Packaging

In today's challenging economic climate, the wise use of resources not only makes cost sense, but green sense, too. Packaging is an important part of the equation. There are three effective strategies for incorporating green packaging without sacrificing business objectives: minimize damage risks; incorporate appropriate sustainable packaging materials; and maximize your product-to-package ratio.

To minimize shipping damages via packaging, use the right damage-resistant packaging. In general, the stronger the box or container, the lower the risk of damages. Stronger materials usually mean using additional materials and adding more weight, which can run counter to green principles. Check the specifications of the product manufacturer and use packaging with just enough strength to provide damage protection — and nothing more. You may find that some 100% recycled content may not have the strength you need to keep your product intact. Also, be sure to have your packaging tested by a third-party lab, one that tests to an industry standard known as ITSA 3A from the International Safe Transit Association.

The next green packaging consideration is the use of sustainable materials. Loosely defined, sustainable packaging is packaging that uses less of the world's raw materials, contains non-toxic elements, can be recycled and even reused, creates minimal landfill waste and costs less to transport. Some key considerations for incorporating sustainable packaging materials include: use recycled materials when appropriate; balance lighter-weight, lighter-volume materials with damage risks; match material type to product-shipment requirements; and consider using reusable packaging.

The final consideration is maximizing your product-to-package ratio, i.e., cube optimization. Stated simply, you need to right-size your packages, fitting your orders into packaging dimensions that are as small as possible without threatening the integrity of the order.

To maximize your product-to-package ratio, have on hand a variety of box and package sizes. Any savings you'll realize from a one-box-fits-all strategy will likely be wiped out by higher transport costs. Do an analysis to determine the right variety of package sizes that will snugly fit your products without raising the risk of damage. Also, use automated systems to choose the right package. Warehouse management systems can be configured to select the right package/box size depending on the characteristics of the order. Finally, hire a third-party package lab to make recommendations. Experts can analyze your products and order characteristics to help you determine the minimal size that will protect your orders while controlling transport costs and environmental impact.

Green is as green does. You can start with environmentally friendly sourcing and manufacturing practices, but don't forget about the other end of your supply chain: aftermarket parts and returns.

Dan White is vice president, industrial and automotive sectors, for UPS, a global provider of supply chain and freight services.

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