Sustainable distribution options

Posted on 13 Jul 2009 by The Manufacturer

Steve Wilson, vice president of supply chain and logistics at Capgemini explains that if you make your supply chain sustainable, it may just return the favour and do the same for you.

The global economic downturn presents more challenges for the supply chain function than ever before, as supply chain managers strive to comply with unprecedented cost pressures. However, a striking conclusion from Capgemini’s Supply Chain Agenda 2009 report was that sustainability both populated the agendas before (32%) and after the beginning of the financial crisis (30%). In many projects both sustainability and logistics costs reduction were achieved, which most likely explains why companies keep on putting effort in it.

Changing consumer behaviour and increased information availability is adding to the pressure on businesses to improve the sustainability of their supply chains, and now more than ever there is a need to adapt and update old models to shape up for the changes required if the current manufacturing value chain is to remain viable.

This can be achieved through various measures such as information sharing, collaborative warehousing and distribution, and transport optimisation.

One of the key ways to ensure efficiency across the supply chain is by sharing inventory and sales information from retailer to supplier. This helps to improve product availability whilst requiring less inventory.

Capgemini analysis has shown that in addition to the benefit of lower working capital, reducing inventory also saves direct cost as warehouse space; stock management and stock obsolescence are all simultaneously reduced.

Nokia and O2 are among the leaders in this exchange of information to ensure that availability performance on mobile phone handsets can be maintained at high levels without the need to build large stocks of inventory. This “collaboration” model is becoming increasingly common and will be essential in managing down overall working capital, particularly for electronic products where product value is high and lifecycles are short. Managing the information flow across the whole supply chain requires closer integration – particularly in the planning processes of manufacturers.

In these challenging economic times it is enlightening to see companies looking beyond their immediate spans of control to find operating cost savings. An example of this in the transport arena is the collaborative transport arrangements that Boots the Chemist and TK Maxx have put in place. In specific regions where it makes sufficient economic sense to justify the additional complexity involved in dovetailing the deliveries of both companies in that region, collaboration has become more prevalent. The overall benefit to both companies is not just present in the form of a reduction in operating cost, but also in the environmental and reputational advantages.

Another significant development in the development of an eco-friendly supply chain are the “green warehouses”, which are continuing to be built, with a focus on reducing energy demand through modern warehouse design and generating renewable energy through solar panels and / or wind turbines. A recent example of using wind power to make a distribution site ‘energy neutral’ is Nike’s 9MW generating capability at its main European distribution centre in Belgium. Nike implemented six wind turbines, each 1.5MW capacity around the periphery of their 57 hectare site. Nike selected lattice towers rather than cylindrical towers as this uses less steel and allowed taller towers (111m to hub) and larger turbine blades (39m long), thereby increasing generating capacity per tower.

For many, sustainable distribution is all about doing what would have previously been called ‘lean logistics’ – the difference is doing it well. The concept of Lean is fundamentally centred on taking out non-valueadded effort, with the “value” being what the customer values about the product or service. The unnecessary activity that lean aims to remove consumes effort and energy and removing it achieves the double benefit of reducing cost and improving the sustainability of the whole operation.

Increasingly though, our clients see taking out cost in conjunction with taking out carbon. Carbon costs money – taking it out reduces waste and saves not just the environment but also hard cash. An example of this is the increased usage of double decked vehicles for dedicated fleets in the UK as they become refreshed.

Tesco and Asda are among several UK retailers that have invested in double-deck vehicles to reduce cost and carbon. Typically double-deck vehicles give 70% more carrying capacity for limited cost. When looked at over the operating life of the asset, it is not a surprise to see increasing numbers of these vehicles on the roads as companies renew their fleet. Other major users of transport, such as Marks and Spencer, are investing in aerodynamically profiled articulated trailers which are 10% more fuel efficient and have up to 9% more carrying capacity than standard vehicles.

By increasing average vehicle fill in this way, businesses can drive significant cost savings and reduce transport miles. For example, Asda have a sustained focused on this area and have increased average vehicle fill by more that 25% over levels achieved 4 years ago.

Other companies, particularly retailers, have been increasing the sustainability of their distribution by reducing the use of “one trip” transit packaging.

For some, this is a transition from cardboard “onetrip” cartons to reusable plastic totes and wheeled merchandise units. Others, such as B&Q, have extended the concept to the delivery of kitchen worktops as these are high value, easily damaged large and previously had been packaged in cardboard which was then thrown away as waste after the delivery. B&Q are now using reusable plastic packaging, generating the economic benefit of reduced packaging and also less scrapping of damaged worktops, with the damage rate falling from around 6% to less than 1%. The sustainability benefits include less transit cardboard waste and all of the additional benefit of avoiding the need to produce and distribute new worktops to replace those damaged in transit.

Continuing this quest for green transportation options, there is growing interest in the use of electric vans for their sustainability and economic benefits – both in the sub 3.5 tonne and 9 tonne categories. The area where electric vans seem to be getting the most traction is in the urban delivery with DHL, UPS and Royal Mail undertaking trials for parcel delivery and the major food retailers including Marks and Spencer, Tesco and Sainsbury’s all trying out electric vans for their short route deliveries.

So in the unprecedented environment we live in today, where many organisations have tried all the traditional levers with some short term gain, leading organisations are applying sustainable and lean principles diligently to their warehouse and transport operations whilst also keeping an eye on the long term strategic network configuration. As such, sustainable distribution represents a new leaner horizon.