GOING THE GREEN WAY

Environmental issues have dominated the media headlines recently, with government agencies, businesses and the general public all thinking about how to reduce their carbon footprint on both the local and global environments. Many corporations have followed suit, announcing green packaging programs, recycling initiatives and other corporate social responsibility campaigns to publicly demonstrate their green behavior.

Laudable as these announcements are, it remains the case that inefficient transportation methods in the modern supply chain represent a significant part of the ecological problem. This has been well illustrated by a recent report that found that as much as 75 percent of a company’s carbon footprint comes from transportation and logistics alone.

Today, changing consumer sentiment and the complexity of global trade is forcing companies to modernize their supply chains – with a shift away from the focus being on transport optimization purely in terms of freight cost and utilization, towards one that increasingly considers how the ecological impact of the supply chain on the wider environment can be minimized.

This idea of a “green supply chain” is not new. From its beginnings in Scandinavia and Germany, areas often considered the most ecologically conscious in Europe, it has grown to become a global movement towards green transportation thinking and lean supply chain principles.

UNDER THE MICROSCOPE

We can take as an example the growth in organic food. The dramatic increase in demand for organic produce and the need to meet this with production from a more geographically extended supplier base has necessitated a change in our understanding of the true environmental cost of a product.

From what was originally a choice based primarily upon the ethical conditions in which food is reared or grown, it has now become one of understanding how the products themselves are grown, how they are brought to market, and the carbon impact of all the constituent elements. It’s all very well selecting a packet of organic beans because less pesticides and fertilizers are used in their production, but if getting them on the shelf requires air-freighting them thousands of miles then the choice becomes more difficult to justify.

To compound matters, what if the locally produced organic beans are grown in poly tunnels using artificial heat and light whereas the imported beans grew under “natural” conditions? What now is the best “green” decision and how far do you go in this analysis? Should you, for example, incorporate the environmental impact of the energy source of the power supply for the artificial heat and light as opposed to that of the oil refinery that generated the fuel used for the aircraft flying from the remote supplier? The more you analyze, the more difficult the decision becomes.

Many supply chain professionals are beginning to recognize the importance of efficient green supply chains. The increased awareness within the industry has rightly encouraged companies to rethink their transportation strategies. However, as the modern supply chain consists of hundreds of decisions and processes, each with discrete economic and environmental implications, remodeling a supply chain has to be balanced against the impact on existing relationships and procedures.

So how does an organization tune its supply chain to reflect environmental best practices and at the same time ensure an efficient transportation process to meet demand?

An interesting case study was highlighted in a 2007 UK government report identifying the environmental benefi ts obtained by changing the supply chain model. Supermarket chain Tesco adopted an approach whereby trailers were adapted to be suitable for both pick up from suppliers in pallets and delivery to stores in roll-cages, roles that had traditionally been operated independently.

According to the research, by combining store delivery with supplier pick-up, Tesco was able to reduce total mileage operated by three million miles, reduce fuel consumption by 1.7 million liters, and reduce CO2 emissions by 4,600 tonnes.

At the time, the green supply chain was not a recognized concept, yet it is fascinating to see the environment benefi ts accrued from such innovative processes across the supply chain.

RECOGNIZING COSTS

In the current climate, it is vital that companies can both define and measure each element within the supply chain. Benchmarks can then be rolled out across the network to evaluate the impact of any changes made.

If operating a green supply chain were purely an altruistic exercise then companies would simply choose the most cost-effective carrier using the most ecologically friendly mode of transport and set of assets. However, corporations have to balance this against the need to remain not just efficient but also profi table, which brings into play a far wider set of variables.

Take something as apparently simple as the choice between two road carriers. Assuming both have available capacity, typically the selection will come down to who can meet the required service level at the lowest cost. But what if one has a new, environmentally friendly fleet of vehicles that are driven efficiently, whereas the other has an older fleet, a less rigorous maintenance policy or fewer checks on driving habits? If we are to take account of the resulting environmental impact, then the choice may prove less predictable.

We can illustrate this better by using an example. In this simple scenario (depicted) we have two carriers, A and B, which have both freight costs as well as carbon costs. The freight costs – A1 and B1 – represent the basic freight rates the carriers would charge for their services. As can be seen, all other things being equal, carrier B would be selected.

But let’s now assume two things. First, that a carbon factor is at least recognized if not applied. This could be in the form of either a straight taxation payment or some form of carbon offset. Second, that Carrier A has the lower carbon footprint. We can then see that the fully loaded cost may now favor Carrier A rather than Carrier B, the cost of AT being lower than the cost of BT.

In this example, companies will be interested in evaluating a number of cost elements including:

1. The freight cost payable without carbon loading being imposed, i.e. B1

2. The additional freight cost payable by selecting a more carbon-friendly carrier (A1 minus B1)

3. The respective fully loaded costs including both freight rate and carbon loading (AT and BT)

4. The carbon cost resulting from the optimized carrier selected, i.e. AT minus A1

Similarly, when one looks at the more traditional areas of transport optimization – such as consolidation of shipments – this has typically been based upon the ability to optimize freight utilization while meeting required service levels at minimum cost. Again, in the case of the green supply chain it will also be necessary to introduce the variable of environmental impact, if by altering the shipment date this could lead to greater efficiency.

In this case the resulting carbon offset may be shared between producer, transport provider and customer. In this scenario, the demand to have “the shipment by 09:00 tomorrow morning at whatever the cost” may need to be revisited!

THE TECHNOLOGY KEY

When you consider the hundreds of processes and decisions involved in a supply chain it is understandable why the challenge of assessing the carbon footprint, let alone reducing it, is one that many companies may be hesitant to attempt.

Technology is available that can sit across the entire supply chain network and can apply specific business rules and logic in conjunction with powerful algorithms. What is crucial is that the engines behind such technologies are designed to maximize transportation based not just on the traditional factors such as cost and asset use, but also flexible enough to incorporate these new environmental variables.

With today’s complex globalized supply chains, it is also necessary to be able to understand, evaluate and optimize all transportation, both domestic and international, both inbound and outbound, and from simple point-to-point to complex multi-modal, multi-leg and cross-docking operations.

Through such technology the end-to-end visibility of logistics data, when available in the granularity and timeliness required, can be specifically tailored to the decision-making requirements of every collaborative partner in the global network.

For many regional or global companies this lack of visibility leads to “maverick” spend – typically airfreight or courier – which can form a significant proportion of overall transportation expenditure. When the information available is inaccurate, out of date, or simply not believed, the desire to be able to “see the inventory on the receiving dock” results in rush orders being placed and shipments being delivered that duplicate those already in transit.

This is one of those situations where information really can be more valuable than inventory and the savings in terms of carbon expenditure are obvious.

By utilizing such technology in conjunction with the wider environmental strategies, together with appropriate statistical analysis, it will be possible to benchmark the current supply chain in terms of its environmental impact across different geographies and modes.

Having achieved this, it is then possible to more accurately incorporate the carbon impact of any supply chain decisions, whether strategic or tactical, such as switching points of production, moving between different modes of transport.

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THE ROAD TO GREEN IN ASIA

Although progress is being made, much more needs to be done before Asian supply chains turn a shade of green, according to GLOBAL INTELLIGENCE ALLIANCE.

In an ideal world, stronger manufacturing companies could take advantage of spare capacity during times of slower economic activity to upgrade, restructure and improve their resource efficiencies and waste management. Right across thousands of manufacturing and processing facilities in the Asia Pacific, many factory owners and managers have sought to do just that.

In the shoe industry in China, exporters had to take measures to ensure their products passed both governmental and customers’ quality checks. “We initiated several measures: firstly, we used environmentally friendly, internationally approved glue; secondly, we use recycled paper for our shoe boxes; and thirdly, we installed an air filtration system in our manufacturing plant”, explained Mr S, the ex-general manager of a small-medium-sized shoe factory in Guangzhou.

In Kolkata, West Bengal, India, a CETP (common effluent treatment plant) complex has been provided by the government to help treat wastewater generated by the leather tanning industry, according to Mr L, a leather goods exporter.

Life however, is never that straightforward. Based on research carried out by Global Intelligence Alliance, much more needs to be done before Asian supply chains turn a shade of green.

Based on one-on-one interviews amongst Asia Pacific executives in the region, Global Intelligence Alliance predicted in June 2009 that China, India, Australia and Indonesia would be the first four to emerge from the global economic malaise.

Conversely, the Asia Pacific countries that have proven themselves to be more resilient to the recent economic downturn of 2008-09, countries such as China, India and Indonesia, also happen to have the least stringent environmental regulations, based on data from the United Nations.

The key factors inhibiting more green practices fall into two main categories:

Category 1: Management Factors

There is a lack of management commitment and supply chain partner support, with many firms fearing high upfront costs and long payback periods for any changes to “green supply chain management (SCM)” practices. There is insufficient green SCM knowledge by many players, especially among the most egregious polluters, with the “inhibitors (in the Kolkata leather tanning industry) being ‘money’ and ‘drive’… no initiative to change or will to learn, by most tanneries”, said Mr. S.

There are widespread cases of wilful ignorance, with many in China’s shoe industry “ignoring the source of their leather and how environmentally friendly it is, only showing European or American customer quality control teams, a batch of internationally approved leather materials” said Mr. L.

Category 2: Government regulations

The new environmental regulations affect all international businesses because countries worldwide are starting to harmonize their environmental regulatory regime with each other. It’s becoming a global phenomenon. It started in the major market economies and has produced knock-on effects on supply chains in other regions. Emerging economies and less developed countries have since followed suit.

For example, Europe’s stringent RoHS, WEEE and REACH regulations have forced suppliers in Asia and other countries to change their processes first, with national governments belatedly trying to harmonize their laws with the commercial reality.

However, the biggest problem is enforcement of the environmental regulations in Asia. “Sure there must be lots of environmental laws – but I don’t know exactly what they are. The leather goods industry is virtually the only industry left in West Bengal, so the state government may be a little lax,” said Mr S.

SOME POSITIVE SIGNS

“The best chance for change is through government, not customers. Customers don’t have that level of pull with tanneries. But compliance from the likes of Wal-mart and Marks & Spencers will trickle down eventually to the raw material level. Right now, compliance is limited to the factory level. But moving forward, they will trickle down, maybe in five to 10 years” said Mr. S.

From a regulatory standpoint, there are encouraging signs with the approach changing generally from “end-ofpipe” pollution control to “process and pollution prevention”, and more emphasis on products. Instead of only performance requirement regulations like emissions standards, material mandates and extended producer responsibility are being specified.

For example, RoHS-like laws are being passed that place restrictions on hazardous materials. WEEE-like laws are extending financial responsibility to the manufacturer-level and making companies responsible for the collection and disposal of their products.

Governments across Asia are starting to change their incentive structures and initiate change, albeit some reluctantly. For example, China has recently changed the performance assessment system for mid to lowerlevel government officials to include environmental sustainability as well as economic growth.

And in Thailand, local residents were recently granted an injunction by its Central Administrative Court to stop the commencement of 76 industrial projects worth over USD12 billion in its Map Ta Phut industrial park, over environmental compliance issues. Although the government has appealed this decision and sided with the private sector, the courts may ultimately play a role in forcing more emphasis on initiating systemic change.

WHAT’S STILL NEEDED

Looking ahead into 2010, global manufacturing, procurement and supply chain directors will need to continue to push for greater change within their Asia Pacific supply chains.

Use the downturn

Many Asian countries serve as global manufacturing bases, and their recovery will be tied to how the rest of the world performs. History has shown that a slight dip in Western consumption can produce severe problems among Asian suppliers, both amongst direct manufacturers and subcontractors. There is a great deal of operating leverage between Asian manufacturers and Western markets today.

Global Intelligence Alliance believes that Western businesses can use this leverage to push for more environmentally sustainable manufacturing, sourcing and logistics practices in the Asia Pacific region.

For example, downstream customers such as Wal-Mart have been pressuring suppliers in Asia to go green. Stricter environmental regulations in Europe have influenced Asian governments to pass similar laws. In addition, companies are starting to see the tangible cost and efficiency advantages of a greener supply chain.

Companies across many sectors, especially those in the fast moving consumer goods as well as the food and beverage sectors, are under pressure to publish sustainability reports and enforce environmental standards. This impacts players along their supply chains such as logistics providers and packaging companies.

Understand the region

Global executives also need to have a keen understanding of the local practices and unique regulatory landscape of each Asian country they operate in, in order to be effective in encouraging better green practices.

Japan has led the way in Asia, enacting a comprehensive set of laws covering domestic environmental policy, global climate change, air, water, waste & recycling. It was one of the first countries to pass extended producer responsibility laws for collection and disposal of end-of-life products, but unlike the EU’s RoHS Directive, it does not mandate material restrictions.

South Korea has enacted a comprehensive set of laws covering environmental policy, air, water, waste and recycling. Taiwan has a similar set of laws and is now in the process of passing a RoHSequivalent law. China has passed its own RoHS-equivalent regulations and has also enacted a comprehensive set of laws on air, water, and waste. Enforcement remains an issue and it is still developing extended producer responsibility legislation.

India, on the other hand, has bundled many laws into the broader Environment (Protection) Act, with less liability seen along the supply chain. Material mandates are largely concerned with direct health impacts and have not moved clearly to encompass a broader range of materials beyond those that are directly related to health.

Southeast Asian laws are termed as “environmental regulation” and tend to be broad and sweeping. Some countries such as Thailand have deferred jurisdiction to local government agencies. The lack of clear accountability may have implications in terms of encouraging corrupt practices by less ethical stakeholders.

Singapore is the leading country in Southeast Asia with rigorous regulations from definitions to registration of materials, and licensing for various control points.

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MOVING FASTER WITH GREEN

With the impact of climate change and the prospect of volatile oil costs, the pressure is on for fast moving consumer goods (FMCG) companies to become more efficient and environmentally responsible. TIELMAN NIEUWOUDT reports.

To save the planet, companies have been told to reduce energy consumption and waste and to reevaluate product design. The market is saying, what is good for the environment is also good for the brand. Companies are employing a number of conventional and unconventional strategies to minimize the bad (e.g. energy consumption) and to maximize the good (e.g. ingredients).

Historically, fast moving consumer goods (FMCG) companies’ green initiatives focused mostly on public relations. Few companies were involved in actually promoting and implementing programs. Green initiatives were presented most often as part of a strategic vision, with clear tactical goals taking a back seat. But increasingly, FMCG companies are spending more time researching their options and identifying appropriate green solutions.

THE BIG CHILL

In the beverage industry, vending machines are an integrated part of the supply chain strategy, especially in more developed markets such as the US, Japan and Europe. Vending machines and corporate coolers provide “within arms reach” availability and merchandised products. Manufacturers’ cooling strategies have always been focused on keeping the lights on and the compressor running around the clock in order to increase sales potential.

Unfortunately, conventional coolers and vending machines consume significant amounts of energy as they rely on inefficient compressors and light bulbs. With increased pressure on companies to act, companies such as Coca-Cola, Pepsi and McDonalds are taking action. Coca-Cola is currently spending US$40 million to research next generation refrigeration technologies.

Current research is focusing on reducing the energy consumption of compressors and light bulbs as well as developing greener vending technology. The company unveiled a hydrofluorocarbonfree (HFC) vending machine used at the 2008 Summer Olympics in Beijing, and by 2010, plans to have 100,000 HFC-free refrigerators and vending machines operating around the world.

MORE LOAD, LESS AIR

Transportation is another area that is currently undergoing changes. Fierce competition and a traditional go-it-alone mentality have kept FMCG companies from collaborating. However, higher oil prices and the “green wave” are breaking down these barriers.

One example is in load consolidation. Load consolidation aims to maximize the space used for shipments and transport of goods by combining manufacturers’ products that would have otherwise been shipped at less than truck load (LTL).

Solution providers, such as CaseStack, ship the products of manufacturers by combining many separate deliveries heading to the same distribution center. After calculating the capacity, weight and stackability of products, the loads are consolidated and transported to the distribution center. Some carrier initiatives use advanced algorithmic technology to do this. This allows FMCG companies to significantly reduce transport cost, especially for companies where seasonality is a major factor.

By eliminating LTL, companies also reduce “shipping air”. Shipping air is a concept referring to wasted space during transportation. This could significantly contribute to limiting carbon emissions by reducing the number of ships and trucks needed for transporting goods.

PARTNERS & CRITICS

For FMCG companies it is increasingly important to manage the flow of materials from the supplier all the way to the end consumer. Companies are starting to take a more holistic approach through implementing green sourcing, procurement and certification programs. By following an end-to-end approach, companies are getting more involved in the lifecycle of the product.

For example, multinational SC Johnson created Greenlist, a raw material classification system. Greenlist classifies raw materials according to their environmental and health impacts and characteristics. The system also creates a comparison table with other similar raw materials. Each ingredient is given a Greenlist score which is then made available to SC Johnson laboratories around the world. The company shares the system with suppliers, who are encouraged to use the ingredients that score high on the list.

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‘GREEN MEANS MUCH MORE THAN A FOCUS ON VEHICLE EMISSIONS’

CARIN TEN HAGE, director of TNT PLANET ME, tells Logistics Insight Asia what green logistics means to the multinational logistics giant.

Q: Is green logistics just another market fad?

A: Our environmental commitment is not a “nice-to-have” at TNT, but an integral part of our business strategy. The environment is one area of our broader Corporate Responsibility (CR) commitment. We take this responsibility very seriously as it reflects our conviction that TNT’s greatest potential to contribute to society is by running our business in a responsible manner.

Sustainable development makes sense, both ethically and economically. If issues like global warming and social inequality are not addressed, they will hinder business development. On the other hand, successfully realizing our ambitions, including our goal of becoming the world’s first zero-emission transport company, will create value for each of our stakeholders. That, in turn, will be good for our business. Our objective thus is not just to be responsible but also influence others to be so.

TNT also recognizes that working along the value chain is very important in our effort to become a zero-emission outfit. We work together with governments and NGOs, subcontractors and suppliers, customers and other companies to find the most innovative solutions possible.

Q: So when a logistics company wants to go green, what are the various environmental impacts it intends to reduce?

A: To TNT, going green means much more than a focus on vehicle emissions. Our ambition is to become the world’s first zero-emission transport company, and achieving that goal will require a dramatic reduction of emissions in all areas of our operations – our vehicles, airplanes and buildings account for 99 percent of our emissions.

Planet Me is our commitment to dramatically improve the carbon efficiency of our global operations and engage our employees and extended network in joining us in our efforts. Launched in 2007, our environmental program comprises investments in alternative vehicle fuels and technologies, network optimization efforts, driver training in safety and fuel efficiency, aviation optimization projects and construction of best-in-class green offices and depots.

Q: Given the investments required, are there any long-term financial gains in going green?

A: Yes, TNT does see a long-term gain. In fact, we see it even as a license to operate. We notice a trend of increasing interest with our stakeholders in our environmental efforts and, even broader, when it comes to corporate responsibility efforts. For example, we see our customers enquiring more and more about our corporate responsibility profile before engaging in business. Besides, there is often a sound business case to green logistics as lowering emissions goes hand in hand with lowering the expenditure on fuel.

Q: Do TNT vehicles have diff erent emission profi les – EURO3, 4, 5, etc – depending on in which part of the world they are used?

A: TNT runs an extensive fleet of both small and large vehicles in many different regions across the world. Between these regions, but also between countries within a region there can be large differences regarding the availability of various technologies, the availability of fuels, the business case for using a certain technology and the operational requirement. The accumulation of these differences does indeed cause differences between local and regional fleets. However, wherever we function, there is one common strand underlying our operations – the effort to use the most fuel-efficient technology which is affordable to the company.

Q: Would you consider increasing the proportion of biofuels in your vehicular fuel consumption?

A: Like many other new technologies, biofuels are still in the early stages of development. This implies that there is still a lot to be learned about these technologies. At TNT, we are convinced that electric propulsion is the most efficient solution. We will therefore aim to replace as many vehicles as we can with electric vehicles over the years to come.

For the time being, however, electric propulsion is not the best solution for our line-haul fleet, which means that alternative solutions are needed. These will certainly include biofuels, but it is too soon to say which biofuels will form the best solution. It is clear that there are many different kinds of biofuels with even more ways of producing them from a wide range of resources.

Together with many experts, we will try to find out which biofuels will offer the best potential for TNT’s fleet and offer a good balance between some of the trade-offs that need to be made with most of them.

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‘SUSTAINABILITY IS PART OF OUR LONG TERM BUSINESS SUCCESS’

CHRISTOPHER ONG, vice president, business development, First Choice & GoGreen – Asia Pacific/EMEA, DHL Express, elaborates on the green logistics policy adopted by DHL.

Q: What does going green mean to DHL?

A: The DP DHL (Deutsche Post DHL) GoGreen program puts emphasis on improvement of carbon efficiency – carbon emission per kg of shipment – rather than on absolute reduction in carbon emissions, as we know that as we grow our business, our operational facilities and equipment that use energy grows in tandem, resulting in the inevitable absolute increase in our carbon footprint.

Hence, the program aims to minimize the impact of our carbon footprint resulting from our growing operational facilities by improving our carbon emissions per kilogram of shipment by 10 percent in 2012, and 30 percent in 2020, from our 2007 carbon efficiency level.

Carbon Accounting is a critical component of the program, as it allows us to measure and effectively manage the carbon footprint of the business. This also aids us in assessing the impact of the different abatement levers, and a more important requisite in developing greener products for our customers.

DP DHL strongly believes that sustainability is part of our long term business success. We opt to measure the impact to carbon efficiency for each of the GoGreen projects, in terms of its holistic benefit to the environment, and not only on financial gains.

Q: How is the concept of green logistics perceived within the organisation?

A: DP DHL’s GoGreen program is a product of innovative and conscious planning of the company to support its long-term strategy on sustainability and business policy of being a responsible global company. We feel there is a strong need to take serious action to achieve carbon efficiency and it is imperative to let our 500,000-strong staff get engaged in the program and leverage the power and commitment of our employees to share ideas and best practices to deliver to our promise.

This is done through effective cascading of the GoGreen programme to all our facilities, increasing awareness and launching various activities in line with DP DHL GoGreen’s objectives. Also worthy of mention are the “Lights-Off at lunch-time” in most offices and sites across the Asia Pacific, information fairs and “green-movie” screenings, car-pooling and using public transport and voluntary cleaning of public places (parks, beaches, rivers etc.) as part of global Volunteer Day activities.

Q: What steps can be taken to ensure that green virtues propagate down the chain?

A: The conceptual framework of the DP DHL GoGreen climate protection programme is that it is practical, measurable and sustainable. In the Asia Pacific region, our workgroup is structured in a way that it is easy to cascade across functions and at different levels of the organization. For example, there are GoGreen Champions in each country from different functions who are responsible in deploying, managing and measuring the carbon emissions at local levels.

Being a global logistics player, we also fully understand the critical impact of its GoGreen climate protection programme to the whole supply chain. Conversely, DP DHL’s major global customers realize the importance of the GoGreen program as an inherent part of their own strategy on sustainability and corporate responsibility. Thus, we believe that all participants in the total manufacturing/ supply chain share equal responsibility in enabling and ensuring sustainability in business practices.

Q: How do you deal with varying legislations – in terms of stringency – in diff erent countries?

A: It is always the company’s policy to adhere and comply with the local laws and regulations as a minimum requirement in our business operations anywhere in the world. DP DHL is operating in over 220 countries across the globe at different levels of economic development. In order for the business to thrive and for us to be sustainable in different market situations, we need to adapt to the economic and market realities where we operate in. Thus, there is a need for us to deploy the appropriate equipment and infrastructure that meets the specific market and economic conditions without compromising the quality of service and DP DHL’s standards.

Q: Your views on biofuels as a vehicular energy source?

A: There are different kinds of biofuels in the market today, depending on the technology and sources of its raw materials used in the production. The first-generation biofuels, which are made from feedstock that could instead be part of the animal or human food chain, are thought to be unsustainable, given the rising global population and food shortages.

The second-generation ones, which use a variety of non-food crops including waste biomass, stalks of wheat, corn, wood, among others, are probably a better alternative. However, many of these secondgeneration biofuels are still under development.

Considering the current state of those alternative energies, I would say that it may be too early to consider increasing their proportion in the current consumption for operations.