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November 18, 2017
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Commentary: Five ways to ramp up supply chain sustainability

Comment
Taking the time to model and analyze both the supply chain costs and environmental impacts of key supply chain decisions can help you be both profitable and sustainable.

Starting in the mid-2000s, climate change and greenhouse gas (GHG) emissions began moving to the top of many companies' lists of business concerns and priorities. The focus on those issues grew as the global community became hyper-aware of the effects of climate change and how the habits of individuals as well as organizations were playing a contributing role. Companies that made greenhouse gas emissions and sustainability a priority were also gaining positive public relations and increasing consumer loyalty.

Unfortunately, these initiatives took a back seat during the financial crisis as companies were forced to prioritize corporate survival over reducing their environmental impact. At the same time, many influencers in the business world felt that sustainability initiatives were costly and had little to no positive impact on the bottom line.

Since recovering from those difficult times, many organizations have restarted their sustainability efforts because they want to be good corporate citizens and have the money and workforce available to make a real change and minimize their carbon footprint. As they do so, many are also realizing that they were wrong to believe sustainability initiatives would negatively impact their bottom line. The opposite is actually true; sustainability is an area that can help boost the bottom line and provide a true competitive advantage for companies that choose to implement sustainable practices and policies. For example, recycling parts can help realize savings across manufacturing processes; increased supply chain efficiency can help to minimize "empty miles" spent traveling; and using renewable energy sources can reduce operating costs incurred from month to month.

Supply chain management plays a critical role in any company's sustainability efforts. To implement sustainability programs that really have an impact—on both the environment and your business—you must begin to "think green" during the supply chain planning and design process, not afterward. Doing so will help you to operate efficiently and responsibly while also increasing profitability. Here are five methods supply chain professionals can implement to help reduce GHG emissions and positively impact the sustainability profile of their organization:

  1. Revisit the "structure" of the global supply chain with sustainability as a primary objective. Supply chain structure refers to the overall, end-to-end physical footprint, from suppliers through to the final delivery leg. Typically, the structure is optimized to maximize service or to minimize cost, but when considering sustainability metrics, some additional factors come into play. For example, if you consider the source of energy powering a facility, you may find significant opportunities to reduce GHG emissions, often within only a few miles and within similar cost constraints. A facility with a primary energy source that is nuclear or geothermal, for instance, will yield major emission reductions compared to a facility fueled by coal.
  2. Analyze your transportation routes to reduce empty miles and wasted resources. Creating smarter and more efficient transportation processes and routing will not only help to reduce GHG emissions, it will also save money on such things as gas and hours on the road. To accomplish this, it's important to model and optimize routes and resources to ensure that you are keeping up with such fluctuations as changing market conditions, shifting demand, variable fuel costs, and changing traffic patterns. When you run these models, you might find that you aren't running the most optimal route and are instead traveling farther and for longer than is necessary. This not only trickles down to your bottom line and increases costs such as fuel expenses, employee wages, and depreciation of assets but also emits more pollutants into the environment. Route-optimization software often identifies a 20 percent or more reduction in miles and can help identify opportunities for backhauls and better asset utilization, which leads to a more sustainable transportation network.
  3. Evaluate the impact and benefits of an emission-regulated fleet. Deciding whether to pursue a major investment in updated equipment, such as the purchase of an emission-regulated fleet, or vehicles that meet regulatory limits for the maximum levels of engine exhaust emissions, can be daunting. With proper modeling software, supply chain leaders can identify the cost trade-offs between investing early in new equipment versus doing nothing or phasing out an existing fleet over time. These models can also help companies determine the environmental impact of each scenario and the overall return on investment. This approach will allow you to make a decision using concrete figures and push toward a solution that will be the most environmentally and cost-friendly in the long run.
  4. Optimize inventory placement throughout the multiple echelons of the supply chain. Inventory is an amazingly challenging issue for supply chain professionals. Hold too much and you increase cost and working capital; hold too little and you risk major service delays or lost sales. A proper inventory strategy can reduce cost and improve service while also having a major impact on sustainability. For instance, a company can choose to increase safety stock at distribution locations to allow for the use of ocean freight instead of air. In certain situations, the reduction in shipping costs and emissions from switching to ocean freight from air will be greater than the increase in inventory holding costs. As another example, to reduce overall capacity requirements, which would result in lower facility energy usage, a company can consolidate certain slow-moving items at one distribution location instead of spreading them throughout its network. The key is to include sustainability metrics within the digital models used to optimize inventory placement and properly evaluate the trade-offs.
  5. Design packaging to optimize capacity utilization and handling efficiency. While packaging design has made significant strides in the last few years, many products are still packaged for overall aesthetics or production cost. This means that packaging may be bulkier than necessary, and therefore the total number of products per pallet or container is much higher than needed, or that companies are paying to transport "air" (the empty space within packages). Packaging design software can help you optimize space utilization, improve stacking, and reduce the amount of empty air. This leads to better overall capacity utilization, which has a significant impact on sustainability throughout the supply chain. A bonus can come into play if you are able to use recycled or reusable components in your packaging material.

What's listed above are only a few examples of how sustainable initiatives can help increase profitability in the supply chain. There is no longer a trade-off between going green and growing revenue, and companies looking to increase their business should be seriously considering sustainability practices as part of their long-term growth strategies. Modeling and visualizing their end-to-end supply chain costs can help businesses implement the right changes to achieve these goals. Doing this will not only reduce a company's carbon footprint, it will also help to maintain a competitive advantage and empower decision makers to make a positive impact on their bottom line.

Toby Brzoznowski is the co-founder and executive vice president of LLamasoft.

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