Analyst Insight: Shareholders want companies to be more environmentally conscious in their supply chain operations. Still, some of the means of mitigating carbon can be cost prohibitive, and managers want to avoid paying the price. Multiple technology-based operational improvements can provide both real environmental and operating cost savings.
Shareholders and consumers want companies to be green.
The Wall Street Journal headline says it all: “Companies Face Another Packed Year of Sustainability Shareholder Votes,” with 160 pro-environment proposals this year, up from 154 in 2022. The paper continues, “A recent study by Boston Consulting Group found that 82% of companies are willing to pay more for sustainable shipping, but the premium they are willing to pay falls far short of the investment needed to reduce emissions significantly.” Simply put, the cost of renewable fuels and electric trucks is too high for the perceived non-tangible benefits.
But something has to be done to reduce transportation emissions. TransportGeography.org data says transportation contributes about 15% of the total greenhouse gases and 22% of total CO2 emissions. Transportation represents about 75% of supply chain costs in U.S. consumer products companies. More than half of this is "deployment" — moving products to customer-facing distribution centers. Improving efficiency in this area, which the shipper controls from end to end, presents a substantial cost-saving opportunity.
Deployment Inefficiency = Green Losses
In many large supply-chain networks, a great deal of deployment losses generate negative environmental impacts. These include:
Deployment Volatility is Costly in Dollars and Emissions
Most shippers recognize the impact of volatility on their operations, and some may even understand the impact that volatility has on carriers. A recent study by MIT's Chris Caplice shows that "72% of shippers saw lane volume volatility as a problem.” Much of the volatility is caused by shifts in customer ordering patterns, which translates into supply-planning systems taking compensating actions. As customers place requirements on the distribution center, these planning systems determine replenishment needs and adjust safety stocks.
Unfortunately, this generates a very volatile supply plan. Studies of several large consumer products companies show this problem on virtually every lane. In one example, a lane from the Midwest to a customer-facing distribution center in the Northeast, the number of loads per day ranged from 1 to 24. In some cases, the wild swings happened from one day to the next. The "spikes" forced the shipper to scramble for carrier capacity and forced a move to truck transportation when the intermodal suppliers couldn't meet the need. Costs spiked, and carbon emissions spiked.
Smoothing this volatility is not a trivial endeavor. Even state-of-the-art supply-planning systems focus on an individual lane and send inventory to meet customer service requirements. There is, as discussed above, a significant gap between what is planned versus what can be reliably and economically delivered by the sites and carriers. A naïve approach — simply limiting the number of daily shipments on any lane, will generate customer-service issues. Similarly, managing on a lane-by-lane basis misses supply chain-wide issues. It is like squeezing the balloon in one place only to see it pop out elsewhere. No, a holistic, network-wide approach is required.
Technology Can Substantially Reduce Volatility and Drive Environmental Improvements
Enter technology. Rather than looking at one lane for one day, technology must consider all the ship sites, receiving locations, and modes for the next 30 days. Over those 30 days, a decision made today on, for example, space utilization, impacts tomorrow, and so on. This holistic, time series approach is a constrained, network–wide approach to deployment optimization. Volume spikes can be pulled forward or moved back over the horizon. Importantly, high-need products can be pre-positioned, obviating any customer-service issues by optimizing the supply plan and total cost. Kimberly-Clark reviewed how they perform this in their CSCMP innovation award submission. This approach enables the following:
Using fewer trucks to deploy the same amount of product
A study of 258,000 heavily laden trucks traveling over weigh-in-motion scales in Georgia showed that 90% could carry 2000 pounds or more. More than 50% of loads could accept at least 10% more product on the load. For a variety of reasons, trucks are underloaded. These reasons range from the load's poor up-front design to the loader's competence in making the shipment axle legal.
Once the capacity of a vehicle is known, load-building optimizing technology can design loads that meet, but not exceed, that capacity. And good load building ensures the following:
Many low-quality load builders that look at just weight and cube leave everything to the person on the dock. With the high turnover of warehouse labor, in some cases, the loader may not be able to make a legal, damage-free load. This can result in several issues, including needing the truck to scale and return, adding cost, and creating unnecessary emissions, not to mention a painful disruption on the dock. Often, in this situation, a needed product is left off – with potentially serious customer-service consequences.
Studies across many companies in multiple industries show that using an optimizing load builder that considers axle weight, product stackability, and other real-world constraints can generate savings in the 4-8% range. That's 4-8% fewer trucks on the road and 4-8% fewer emissions. And this is not just "pie-in-the-sky" talk; companies like Unilever count these savings towards their environmental goals.
Helping the Carrier Eliminate Deadhead Miles
While transportation forecasting helps big carriers, smaller carriers, which transport most of the freight moved in North America, plan around commitments to ship a given number of loads on a given lane on a given day — aka the tender. What if this tender can give them more notice? That will enable better planning and less deadhead, resulting in environmental benefits by reducing empty miles. As the early bird gets the worm, the first shipper to tender generally gets the capacity. This can generate substantial cost savings and on-time improvement while helping the environment.
The problem with giving carriers a commitment five days in advance (versus two, three or four, which are the common lead times) is that the supply-planning signal is not as accurate five days out as it is one or two days in advance. Many companies have come up with a way around this. They have provided the carrier with a tender without details of what will go in the shipment. For the most part, the carrier doesn't care. They only care whether the shipment is refrigerated or dry or contains hazardous materials.
Creating a placeholder stock transfer enables the load to be tendered, allowing the carrier to plan more days in advance. The optimizing load builder must prioritize the most needed product or grab requirements from future days to fill the loads. Many of these steps, from leveling to optimizing the filling of pre-tendered loads, can be automated, further enhancing planning processes. Better transportation plans lead to lower emissions.
Optimized load building, 3-D load diagrams with detailed picking instructions, smoothing, and early tendering technologies drive true green savings.
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