In the business world, green definitely is "in." Whether driven by genuine concern for the planet, spiraling fuel costs, customer and consumer demands or merely the desire to jump on a great PR opportunity, corporations everywhere are beginning to think about their carbon footprint.
So far, few have made environmental issues a strategic imperative or key decision variable, "but that is going to rapidly change," says Mike Kilgore, president of Chainalytics, Atlanta. He predicts that over the next 12 to 24 months, widespread participation in and publicity around initiatives like the Carbon Disclosure Project (see sidebar) will cause companies to aggressively pursue carbon reduction as not only enterprise strategy, but as policy that will drill down into everyday decision making.
As that happens, the supply chain will be in the cross hairs. Transportation involved in product distribution represents a significant energy expenditure. And if the supply chain is defined as encompassing manufacturing and procurement as well as logistics-as it is at many companies-it could well be the largest generator of greenhouse gases (GHG).
"There are different ways of looking at it, but in every instance, supply chain networks play a fundamental role in corporate carbon footprints; there is just no question about that," says Dave Miller, chief operating officer at Con-way Freight, Ann Arbor, Mich. The impact is both significant and unavoidable, he adds. "If freight is moving on a vehicle, regardless of mode, it is using carbon-based energy. Transportation is carbon-based and will be carbon-based into the foreseeable future."
That is why companies typically look first to fuel conservation as a way to cut back carbon dioxide (CO2) emissions. Many actually have been attacking this problem for some time in the guise of fuel economy and cost-cutting efforts. Fortunately, steps taken to achieve those goals also have an environmental benefit.
"We have been working on emissions reductions for at least 10 years, though not with that stated focus," says Dennis Damman, director of engineering at Schneider National, Green Bay, Wis. "The goal was to be more fuel efficient, but when you use less fuel, you have less emissions." Today, both goals are important to the leading truckload carrier. "Environmental considerations now influence what type of equipment and engines we spec, the after-treatment systems around those engines, the kind of tires we use and more," Damman says.
Pressure to reduce carbon output also is coming from customers. " I would say that today most of our major customers have as part of their bid package questions about our emissions footprint and what we are doing to mitigate it," Damman says.
Matt Menner, senior vice president for sales at Transplace, a 3PL based in Plano, Texas, agrees. "We are being called on by our customers to effectively state our strategy around sustainability," he says. "They are using that as a building block within their own organizations to develop green strategies and to potentially create a green message."
As the Supply Chain Collaboration Project (see sidebar) rolls out and more major companies like Wal-Mart apply environmental scorecards to their suppliers, these pressures will only increase, experts say.
One program that brings shippers and carriers together in support of these goals is the EPA SmartWay Transport Partnership. SmartWay is a voluntary partnership between various freight industry sectors and EPA that establishes incentives for improvements in fuel efficiency and GHG emissions. It also provides lots of information and tips on how to reduce emissions and fuel use.
By 2012, SmartWay aims to eliminate from 33 million to 66 million metric tons of CO2 emissions and up to 200,000 tons of nitrogen oxide (NOx) emissions per year. At the same time, the initiative will result in fuel savings of up to 150 million barrels of oil annually. SmartWay members file plans each year indicating how they are working toward helping EPA achieve these goals.
Names of participating carriers and much other information are available on the SmartWay web site (www.epa.gov/smartway). Increasingly, shippers are favoring these carriers when awarding business. "We definitely look for carriers that are in the SmartWay program," says Brian Hancock, vice president-supply chain at appliance maker Whirlpool, Benton Harbor, Mich. "As a shipper, their participation in SmartWay allows us to know that they are working to lower their carbon footprint."
Transplace also is increasing its use of SmartWay carriers. In addition, the 3PL provider has made participation in the SmartWay program a criterion for being considered a favored, "platinum" carrier. "Starting in 2008, you have to be a SmartWay carrier and have an active plan on file with the EPA to be in our platinum program," Menner says. "We feel strongly enough about this that we are willing to reduce our platinum carrier base by making SmartWay participation a requirement." Menner hopes this action will drive more carrier participation in the program. "We are going to keep actively pushing our carrier base to become more involved and to be more environmentally conscious," he says.
One of SmartWay's key focus areas is reduction of engine idling. An idling truck burns nearly one gallon of diesel fuel per hour, according to EPA. Reducing unnecessary idling could save nearly $3,000 in fuel costs, cut air pollutants, and eliminate 19 metric tons of carbon dioxide annually, per vehicle. To realize these savings, many truckers are equipping their tractors with idle shutdown switches.
It's important to adjust the timing on these switches correctly to achieve maximum fuel efficiency, says Miller. "When we first put these on our trucks at Con-way Freight, we set them to shut down after 10 minutes," he says. "Then we moved it to five minutes and recently moved all the way down to three minutes." To avoid having the engine shut down while sitting in traffic, the timer can be reset by physically tapping the accelerator. "What we are trying to do is avoid the unnecessary idling that takes place when somebody pulls into a parking lot or a shipper's yard and runs in to find out where to back in," he says.
Often drivers are reluctant to shut down their engines in very cold weather. This is especially true for drivers who have to sleep in the cab. To address that problem, Schneider now specs all of its tractors with diesel-fired cab heaters, says Damman. "These heaters use one-tenth the fuel of an idling diesel engine so they significantly save on fuel while also providing drivers with a warm environment for sleeping." Schneider also has worked to better insulate its trucks so less heat needs to be generated, he says.
Idling is not only an issue for trucks. Railroads, which also participate in SmartWay, are working to reduce locomotive idling time. "More than half of our current fleet and all of our new locomotives are equipped with automatic start/stop," says Mark Stehly, assistant vice president for environmental issues at BNSF, Fort Worth, Texas. Idle control for locomotives is a little more complicated, however, since large locomotive engines can be harder to restart. Software in the automatic start/stop devices senses outside temperature and battery condition to determine whether the locomotive will restart if it is shut down, Stehly explains. "Generally, if the temperature is above 40 degrees, the engine will shut down after a set time, typically 15 minutes." At least one engine is kept running to ensure that the brakes don't lose air pressure, he adds.
Many other techniques also are being employed to make equipment more fuel efficient. "We work with our engine suppliers to define the best way to set up our engines," says Damman. "We look at where we should add limiters to road speed, what are the best torque and horsepower curves for getting the most efficiency, how we should limit the engines in certain gears to promote better shifting by the drivers-all to save fuel and reduce emissions."
Schneider also is working on a battery-operated air conditioning system to keep its drivers cool during hot weather without using fuel. "We have been developing this with a couple of suppliers and working as well with our tractor OEMs," he says. "We've made a lot of progress and we believe that in six months to a year we will have a zero-emission technology to provide air conditioning in the truck cab. We are pretty excited about that."
Ryder System, Miami, has launched a RydeGreen line of tractors in partnership with Freightliner, coupled with specially configured trailers from Great Dane and Utility. Fuel and emissions saving features on the Freightliner sleeper include an auxiliary power unit to reduce idling, lower wind resistance, an automated direct drive transmission and fuel efficient drive tires. The Great Dane and Utility trailers feature weight-saving designs and materials, side skirts, low rolling resistance tires, gap reducers, and automatic tire inflation systems.
Stonyfield Farm, Londonderry, N.H., is the first customer to order RydeGreen vehicles, which will be part of the dedicated fleet that Ryder manages for the dairy and food company. "We have so many capabilities with this dedicated fleet that we will be able to help Stonyfield have an even more positive impact on the environment than they already have," says Mark Swenson, vice president of business development at Ryder. "The onboard computer technology is tremendous as far as monitoring drivers' patterns of shifting, hard braking and fuel economy," he says. "All that is electronically captured so we can understand how drivers are performing and improve our driver training."
Railroads also are working with OEMs on equipment. BNSF and GE are researching a hybrid locomotive that would store and reuse braking energy now dissipated as heat. "If we can figure that one out, we could save somewhere in the vicinity of 10 percent on fuel costs. We are not quite there, but we hope to have a workable design ready by 2009," says Stehly.
Regular new diesel locomotives are 15 percent more fuel efficient that old ones, "so retiring old locomotives is an important part of what we do at BNSF," says Stehly. "The key is to have the discipline to take the old ones out of the fleet."
One of BNSF's more productive initiatives is the use of low-torque bearings on freight cars, he says. "This basically reduces friction between the wheel and the rail by as much as 50 percent and helps the wheels roll more easily," he says. "Over the length of a full train, it can reduce the total train drag by maybe 1 percent to 2 percent. For one change, that's a big deal."
Another fuel-saving technique is to lubricate track curves with rail-friction modifiers. This controlled lubrication mitigates the extra friction that occurs around curves caused by the wheels on either side of an axle having to move at the same speed, even though the outside wheel is traveling a greater distance than the inside wheel. This lubricant, which is being used by a number of railroads, can reduce friction by close to half, Stehly says. "You don't want to reduce it by too much or the locomotive will have difficulty pulling the train," he says.
Another interesting innovation at BNSF is aimed at reducing the aerodynamic drag caused by gaps in intermodal trains. The railroad is cutting eight feet out of the center of existing 48-foot well cars so that they hold 40-foot international containers without a gap. "With international trade growing, we need more wells for 40-foot containers," Stehly says. This move not only reduces drag but also cuts weight, for even greater fuel efficiency. "Most people don't realize that on our heavily traveled lane between Chicago and Los Angeles, we have to lift all that freight a total of 25,000 vertical feet, so taking weight out is actually a big item." This change costs BNSF in terms of flexibility of its intermodal fleet, he says, but the savings are worth it.
Moving more freight off the road and onto rail intermodal is a fuel and emissions saving strategy on its own and, as such, is one of SmartWay's core goals. For long distances, EPA says, rail intermodal can cut fuel use and greenhouse gas emissions by 65 percent compared with truck-only moves.
Logistics provider Transplace improved its use of intermodal by 25 percent last year over 2006, says Menner. "Converting truckloads to intermodal is a priority for where it makes sense from a service perspective," he says. "From a carbon footprint standpoint, it's a huge improvement over throwing another truck on the road."
Lean and Green
As corporate sustainability strategies take hold, modal choice will just be one of many operational decisions in which carbon contributions will play a role. "We are beginning to have conversations with customers about understanding and mapping out their carbon footprint," says Andres Kinder, director of marketing for supply chain solutions at Infor, an enterprise software provider based in Atlanta. "They want to see where they can reduce their carbon footprint without impacting profit. I think it will be an important topic over the next few years."
The good news, again, is that efforts toward a more efficient and lean supply chain often have green benefits. "I believe there is a direct correlation between supply chain efficiency and carbon efficiency," says Jonathan Wright, a London-based senior manager in Accenture's supply chain practice. "Lean does equal green."
"An efficient supply chain that is designed to minimize waste and improve velocity, inherently should also be a green one," agrees Kinder. But he warns that there is a curve of diminishing returns. "As you move further toward minimizing carbon, you will reach a point where costs go up," he says. "That's why companies will need to start modeling their supply chain from a cost and carbon perspective."
Kilgore notes that trade-offs will become more difficult as companies grab the low-hanging fruit. "When you start to dig down on these energy efficiency and green opportunities, there are still enough of them out there that it's pretty easy to have a positive ROI," he says. "Even today, though, you could have a positive ROI on a green initiative that still might not deliver as much ROI as another opportunity in the supply chain. The trade-offs will get harder as time goes on." Companies need someone specifically focused on reducing the carbon footprint and the right decision support tools to get the best results, he says.
Whirlpool and Stonyfield Farm are two companies firmly committed to this path.
Whirlpool first established a corporate office for environmental control in 1970. "As a company, we recognized that our products use a lot of water and energy and that we needed to be involved in mitigating that," says Hancock, who notes that 90 percent of Whirlpool's corporate environmental impact occurs during its products' use. The company helped develop the Energy Star appliance standards in 1979 and has continued to drive product improvements. Energy efficiency of its home appliances has improved by 70 percent since 1972, Hancock says.
In the supply chain, Whirlpool has focused on three areas: reducing the company's manufacturing footprint; eliminating redundant or inefficient warehouses and making remaining facilities greener; and transportation efficiency. The company has worked hard to streamline its network since acquiring Maytag in 2005, Hancock says. "Through 2009 we will have closed more than 100 facilities, which represents 31 percent of our total facility space. That improves our carbon footprint because we are moving from an inefficient network into a more efficient network," he says.
As part of that network redesign, the company is building more than 10 million square feet of new warehouse space this year and next. "Each of those facilities is being built with sustainability as a core part of the design," Hancock says.
The company also is working to improve transportation efficiency. All shipments from factories and about 70 percent of shipments from DCs move as full truckloads, Hancock says. "We have stratified our inventory to move the product as few times as possible to maintain the level of availability necessary to be competitive," he says. Additionally, Whirlpool encourages its transportation partners to eliminate empty miles. "Last year, for the first time, we put all of our freight into the same bid-inbound, redistribution and outbound," says Hancock. "This gave our trading partners the ability to optimize their own networks without our telling them to optimize around us," he says. "They can use our freight to create backhauls for themselves, and we think this will eliminate a significant number of deadhead miles."
Whirlpool also is using more intermodal. "If we can get more freight on a train, it will not only minimize our carbon footprint, but also eliminate congestion in the cities where we deliver," says Hancock.
New Hampshire-based Stonyfield Farm, which has had 19 consecutive years of double-digit growth, has introduced a variety of green initiatives since being founded in 1983, mostly around production of its organic dairy products. In 2006, the company conducted a full eco-audit that included the supply chain. This led to the creation of mission action plan teams or MAPs, says Ryan Boccelli, director of logistics. "We made a strategic and comprehensive effort to engage Stonyfield Farm employees in the company's mission to improve the environment and reduce GHG emissions," he says.
Last year the transport group focused on optimizing lanes and truck utilization, shipping all orders complete "and other basic stuff that is not rocket science," Boccelli says. Maybe not, but it created a big bang nevertheless. "By getting our employees to focus on the efficiency of our business, we reduced the carbon footprint of our transportation network by 40 percent in 2007," he says. Not satisfied with that, the company will add fuel conscious RydeGreen equipment to its fleet this year. It also is working with Ryder to analyze its supply chain network. "We want to see where is the best location for our plants and DCs, not only to meet customer delivery expectations, but also to lower our carbon footprint," Boccelli says.
He adamantly contends that pursuing green is good for the bottom line. "The initiatives that we have undertaken have not only had a great positive impact on the environment, they have saved Stonyfield a lot of money," he says. "We are seeing about a 14 percent decrease in costs year over year. That's a message that we want to get out-doing what's right for the environment and shareholder value are not mutually exclusive."
That realization is key to making a business case for sustainable practices, says Dan Sanker, CEO and co-founder of Case-Stack, a 3PL provider based in Santa Monica, Calif. "Companies will adopt these practices not because it is a nice thing to do but because it saves them money and makes them more efficient and improves the quality of their whole operation. I think sustainability will be the biggest thing since the internet and will dramatically change how we do business."
Sanker is such a believer that he opened a new CaseStack regional office in Fayetteville, Ark., and moved there himself. He explains that in 2005 Wal-Mart chairman Lee Scott spoke to a board meeting of the Center for Retailing Excellence at the University of Arkansas, on which Sanker serves. "He talked a lot about sustainability and that really got me thinking," Sanker says. CaseStack subsequently started a bio-diesel program and accelerated its consolidation programs. "There is a lot going on at the University of Arkansas Walton School of Business with the retailing center and the new Applied Sustainability Center," he says. "People are starting to call this area the 'Green Valley' and we wanted to be a part of that and help find solutions."
As the Whirlpool and Stonyfield examples show, there are a range of tactics and tools available to companies embarking on the path to sustainability. To begin this journey, however, it is necessary for a company to understand its starting point.
"It is very difficult for a business to say, hand on heart, that it is going to reduce its carbon footprint if it hasn't got a baseline to start from," says Accenture's Wright. "Very few businesses out there can say what their carbon footprint is today, and you have to know that to start to drive year-on-year improvements." Having a tool that would enable businesses to baseline their carbon emissions is essential, he says.
Vendors already are on the case. LLamasoft, a supply chain optimization and simulation software company based in Ann Arbor, Mich., recently added a new tool to its Supply Chain Guru network design solution that can help companies model and calculate their carbon footprint. To do that, LLamasoft incorporated research from the U.S. government, the Carbon Trust and other organizations, says CEO Don Hicks. An important part of this solution is aimed at helping companies define the appropriate scope of the calculation. "Looking at only a piece of the problem is not sufficient, because if you model only GHG emissions from your direct activities, the answer would be to outsource everything," Hicks says. "If you only do a small part of the problem, you really do none of the problem."
"Early efforts have been focused on obvious areas like packaging and transportation, but future programs must take on a more holistic approach across the product life cycle," says Patrick Connaughton, research analyst with the Forrester Group, Cambridge, Mass. Moreover, businesses will need to track not only their own carbon footprints but also their trading partners' compliance with environmental standards, he says.
Edgar Blanco, research associate at MIT's Center for Transportation and Logistics, agrees. "Measuring the carbon footprint of the supply chain requires a broad view," he says. "Of course, there may be some very basic, low-hanging fruit that can be addressed without analysis, but we are big advocates of taking a step back and looking at the whole supply chain. Otherwise you may end up putting your efforts in something that may be good public relations but of little impact."
After calculating a baseline carbon footprint, LLamasoft's simulation and optimization model analyzes the existing supply chain network and potential changes, Hicks says. "Our type of solution basically drains the blood from decision making by putting numbers behind it," he says. "We turn it into a math problem and come up with an answer that tells you not only the dollar cost and service implications but also the carbon impact." The ability to include a carbon calculation is being added to new versions of Supply Chain Guru at no additional cost, Hicks says.
Looking ahead, the LLamasoft tool also includes carbon offsets as a decision variable. While the market for offsets today is still developing and "looks a little like the Wild West," Hicks believes that offset purchases will become part of some companies' strategy. "Our solution will optimize the use of offsets based on a company's carbon goals and the world market price," he says.
TransGroup Worldwide Logistics, Seattle, Wash., already offers a carbon offset service that it believes is unique in the market. Its optional TransNeutral program uses a weight-based calculation to determine the amount of CO2 that shipments emit, then offsets that with a contribution to emission reduction programs through the Chicago Climate Exchange (CCX), thus enabling customers to neutralize the carbon impact.
Participating customers can monitor the offsets associated with their shipments through a quarterly report from TransGroup. "TransNeutral is simply a convenient and effective way for our customers to mitigate the climate-affecting impact that their shipments have on the environment," the company says on its web site.
Carbon offsets are very popular because they are an easy way out," says Blanco. "They can be a valuable strategy but they should not be a company's main strategy. They should not be used to avoid looking at the hard decisions."
Infor also has added a carbon calculation to its network design tool. "Carbon footprint measuring is still an early science," says Kinder. "We use the values out there for different modes of transport and different tonnage weights of products, standards that have been published by government agencies, independent benchmarks from respected sources and a little intellectual property that we have built in." In the next release of its solution, in April, "all of those values will be built in as background tables, so a company with very little knowledge of its carbon use will be able to key in some values from their supply chain and get a pretty good estimate-a place from which they can start working to reduce their carbon impact. The first step is for companies to appreciate the opportunities and challenges and this tool enables that."
Adding carbon calculations to network optimization may eventually change some critical supply chain decisions. "I think we could see more manufacturing coming back on shore so that product is transported shorter distances," says Kilgore. "But there are many factors impacting that, such as the weakening dollar."
"We already see some organizations favoring near-shoring rather than off-shoring," says Kinder. "We can't definitively say that this trend is being driven by green considerations, but I do believe that this trend will accelerate as green becomes a bigger issue."
However, companies should not be too quick to rearrange their supply networks based on early results of such calculations, warns Nigel Topping, client partner for the Carbon Disclosure Project. "We are at the beginning of this whole learning process," he says. "We are trying to facilitate the learning that needs to precede action and we counsel against rash decisions-though in our experience rashness is not a typical corporate failing."
Too Much Stuff
In addition to network design, companies should look to better demand planning as way to reduce carbon footprint, says Robert Byrne, president of Terra Technology, Norwalk, Conn., a developer of demand sensing and inventory optimization software. "If you look globally, there is probably somewhere between $5tr and $10tr in business inventory, which equates to about $1,000 worth of inventory for every man woman and child on the earth," he says. "It takes lots of energy to make that stuff, to store it and to move it around. If we focused more on improving the accuracy of our demand picture and having more flexible sources of supply, we could eliminate a lot of that."
Anand Iyer, a fellow with i2 Technologies, Dallas, agrees. "People talk about having the right inventory at the right place at the right time, but from a green perspective, it also is important to talk about inventory that should not have been built regardless of whether you get it to the right place at the right time. The question to ask is whether you have avoided some activity while keeping true to the economic objectives of your supply chain. And that is a much harder thing to accomplish. It requires that companies be able to update their forecast at least once a week in accordance with what is going on in the market."
Sustainability also needs to be embedded into new product design, says Adrian Gonzalez, director of the logistics advisory council at ARC Advisory Group, Boston. "Most consumer products are designed with the assumption that they'll be thrown away someday. "As a former product development engineer, I know that my design decisions and material selections would certainly be different if I had to take the product back at the end of its useful life, disassemble it, and re-introduce the materials back into manufacturing or nature," he says.
Many of these changes may take regulatory action to really catch on in the U.S., says Forrester's Connaughton. "I don't think we will see major shifts here until there are some regulations to act as a driver. Companies are willing to take on green initiatives when it makes sense for them financially, but when it comes to making a trade-off, it's a much more difficult decision."
Whatever the driver, the one thing that people need to remember is that "all these multiple opportunities are just that-opportunities," says Jon Johnson, director of the Applied Sustainability Center at the University of Arkansas. "They are not manna from heaven; they don't just fall from the sky. You have to get down and do the work. But for those willing to do that, we are finding a surprising number of ways to achieve business objectives as well as objectives for sustainability."
Con-way Freight. www.con-way.com
Schneider National, www.schneider.com
Ryder System, www.ryder.com
Stonyfield Farm, www.stonyfield.com
Applied Sustainability Center, http://asc.uark.edu/
Forrester Group, www.forrester.com
MIT Center for Transportation & Logistics, ctl.mit.edu
TransGroup Worldwide Logistics, www.transgroup.com
Carbon Disclosure Project, www.cdproject.net/
Terra Technology, www.terratechnology.com
i2 Technologies, www.i2.com
ARC Advisory Group, www.arcweb.com
Carbon Disclosure Project Focuses on Supply Chain
2007 SmartWay Excellence Award Winners
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