Green Is Good Business

Nov. 1, 2008
Look at the list Tony Hollis offered recently at the Council of Supply Chain Professionals annual conference and it is clear that a well-run supply chain contributes to sustainability

Look at the list Tony Hollis offered recently at the Council of Supply Chain Professionals annual conference and it is clear that a well-run supply chain contributes to sustainability. The director of innovation and technology management for Exel says it is one of the responsibilities of an outsourced logistics provider to increase value for the customer by improving efficiency and productivity. His view of the partnership between user and supplier targets five areas to focus attention on sustainability. Each contributes to overall best practice and greater productivity and efficiency. In effect, doing what's right for logistics is also improving the environment.

First on his list is fleet optimization. At 27.9%, transportation is second only to electricity generation for producing greenhouse gases in the United States. One gallon of gasoline burned is equal to 20.4 pounds of CO2, according to Christopher Polovick environmental protection specialist, US EPA Smart Way Transport Partnership. A gallon of diesel fuel burned produces 22.2 pounds of CO2. To reduce greenhouse gases, Polovick suggests moving more product per shipment, using less fuel to move each unit (through steps like shifting to more efficient modes), and he suggests reducing the number of moves and handling between origin and the final consumer. Basically, his prescription is for fleet and network optimization.

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Next on the list for Exel's Hollis is energy efficiency. He suggests opportunities exist for companies of all sizes to benefit. One example he offers is a lighting initiative at a California distribution center. Replacing existing lighting with new fluorescent technology and motion sensors required an initial investment of $185,000, he points out. The local utility was offering an incentive which amounted to $79,000, yielding a net investment of $106,000. For the first year, the estimated savings were pegged at $118,349. When final calculations were done, the actual first-year benefit was $181,777, amply paying back the actual cost and nearly reaching the level of the unadjusted investment.

Putting that into perspective, Hollis offered numbers calculated by GE Lighting indicating CO2 emissions were reduced by 3,613,632 pounds.

Innovative technology plays into Hollis' list, including automation inside the distribution center. He notes that accreditation under the Leadership in Energy and Environmental Design (LEED) program targets five areas for facilities. Energy and atmosphere receive 27% of the consideration, indoor environment quality is 23%, sustainable sites is 22%, materials and resources 20% and water efficiency 8%. There are many options that contribute to these areas and can provide near- and long-term savings and benefits. Solar and alternative energy sources for a portion of the operation reduce emissions and save energy costs. Packaging reductions and recycling lower consumption of materials and resources.

Sustainable supply chains will be evolutionary, not revolutionary, says Hollis. The combination of implementation cooperation and collaboration with supply chain partners and changing the behavior of employees and suppliers will take time and close communication of sustainability as a value. Including green initiatives in measurable performance indicators and as part of continuous improvement goals also ensures they are taken seriously and become a part of day-to-day operations. (Many of the continuous improvement tools such as network optimization also contribute to green initiatives.)

Initiatives are about to become more formal and externally driven. The US is putting voluntary programs in place, such as the SmartWay Partnership. SmartWay is designed to include shippers, carriers and intermediaries. In the Carbon Disclosure Project, companies define their current carbon emissions profile. The Regional Greenhouse Gas Initiative involves electric utilities in 10 eastern seaboard states. A similar Western Climate Initiative extends to seven western states and four Canadian provinces.

The European Union has moved forward with an Emissions Trading Pilot Program. The program started in 2005 and measures CO2 emissions only. There are 27 countries in the program, which is described as a cap and trade type program.

The cap and trade program sets a maximum limit for emissions but allows companies to sell unused portions of their quota to other companies. For the system to work, close monitoring is required. The EU experience has shown no indications of abuse and it has resulted in modest carbon emissions abatement, according to Johannes Wieczorek, head of division, Freight Transport and Logistics, German Federal Ministry of Transport Building and Urban Affairs.

A report by the Pew Center for Global Climate Change notes the economic impact has been imperceptible. The European economy was not “wrecked” by the program, says the report, nor has there been any evidence of “carbon leakage” through trade.

“The EU has done more than any other nation or set of nations in limiting green house gas emissions,” said Eileen Clausen, president of the Pew Center. “The implementation of their cap-and-trade system has been a key part of their efforts,” she continued. The EU experience offers valuable lessons for the US Congress as it considers a cap-and-trade system for the US, said Clausen.

The extension of the carbon trading system to the aviation industry has drawn fire from the International Air Transport Association (IATA). The trade association representing international air carriers says the decision by the European Union Council was made without discussion and now the 27 EU member countries will be required to turn the directive into national law within 12 months. “Crisis is not the time for rubber stamps,” said the IATA leadership, referring to the rapid adoption process of the cap-and-trade system.

IATA Director General and CEO Giovanni Bisignani pointed out that the airline industry is not opposed to emissions trading and has adopted positive initiatives to address climate change. IATA suggests that sealing the trading scheme into law will create a €3.5 billion cost for the industry. Under the EU Council decision, airlines flying into or out of European Union airports will be included in the emissions trading program from January 1, 2012 and emissions will be capped at 97% of the annual average for the years 2004 to 2006.

As the second largest producer of greenhouse gases, transportation will clearly receive significant attention from regulators as emissions programs move from voluntary industry efforts to legal requirements. On a more individual level, efforts to optimize supply chain performance and efficiency will continue to yield financial benefits for the entire supply chain at the same time they quietly and almost invisibly help to green the supply chain. However, more members of the global supply chain community are making noise about their green initiatives. Many fit easily into the five areas Exel's Hollis highlighted: fleet optimization, energy efficiency, innovative technology, changing behavior and sharing responsibility. The following pages offer some examples of how carriers, logistics service providers and their users are meeting the greensourcing challenge.