Six steps to energy-efficient supply chains

Transportation of raw materials and finished goods consumes 15 million barrels of oil each day—almost one-fifth of the world's daily production. But it wouldn't take much to make double-digit reductions in transportation energy usage, according to "An Energy Efficiency Revolution in Supply Chains," a white paper from the consulting firm McKinsey & Company.

Authors Heiko Bette, Tobias Meyer, and Martin Stuchtey identify six actions shippers and carriers could take to reduce transportation energy consumption by as much as 8 million barrels a day. With oil expected to trade at US $60 to $100 per barrel over the next couple of years, these steps will also significantly reduce costs. They include:

1. Increase the value density of shipped products. Value density is defined as the measure of a product's economic value against its weight or volume. The authors estimate that optimizing value density by redesigning products and packaging could reduce energy usage by 2 to 3 percent and reduce transport volumes by up to 30 percent for some products.

2. Reduce the distance that a product travels. Moving sourcing and production of peripherals and components near the point of consumption would reduce fuel usage. When oil prices exceed US $100 a barrel, the higher costs of transportation start to outweigh the additional cost of nearshore production for many lower-value goods.

3. Change the mix of transport modes. Because air freight and trucking consume more energy, shipping more goods by railroads or ocean could reduce energy usage by some 5 percent by the year 2020.

4. Improve the energy efficiency of transportation assets. Through better design and advanced technology carriers could increase the size of their equipment, reduce drag (surface friction), increase payload, and use more fuel-efficient propulsion systems.

5. Achieve greater efficiency for individual assets. By operating equipment at slower speeds, planning more efficient routes, improving maintenance, and increasing load factors, carriers could boost energy efficiency.

6. Improve the collective use of transport assets and infrastructure. Governments, shippers, and carriers could reduce traffic congestion by, for example, implementing "smart" traffic management systems or making more use of route-planning software to keep vehicles moving.

Based on 2008 shipping volumes, the authors estimate that at a price of US $100 a barrel, these actions could reduce transportation energy consumption by 38 percent by 2020. At $250 per barrel of oil, the savings would reach 51 percent. Savings would result primarily from improvements to "energy intensity"—the amount of fuel needed to make goods available at the location of demand—and would only require a slight reduction in transport usage.

Source: "An Energy Efficiency Revolution In Supply Chains," Mckinsey Quarterly, Mckinsey & Company, August 2009