Tips for Sustainable and Optimized Logistics
Good for the Environment and the Bottom Line
By Michael Forhez, Senior Principal, Consumer Products & Retail Practice, and Anil Pahwa, Senior Principal, Retail, CPG and Logistics (RCL), Infosys Consulting
A report by the UK's Office of National Statistics1 shows a 10 percent fall in greenhouse gas emissions over twelve years. However, in the same period, the transport sector's emissions increased 47 percent despite advances in fuel efficient engine technologies and improved transportation planning systems. The picture is not very different in other developed economies, including North America.
A large percentage of the carbon footprint of a typical consumer product comes from transportation -- either from the movement of raw materials or finished goods distribution. Yet companies gather statistics about transportation infrequently and often don't know the environmental impact of their supply chains. This lack of key information and analysis is, perhaps, one of the reasons transportation and logistics departments are lagging with respect to environment related improvements, something many corporations have begun to take note of as part of their commitment to sustainability.
Most forward leaning companies are now putting emphasis on designing programs -- and tasking managers -- to produce specific and measurable results as they relate to sustainability initiatives in this space. In this article, we will focus on understanding the impact and remediation options for the carbon footprint of road transportation.
Realities and Challenges in Logistics
While road transportation offers the most flexibility, it is also the second least efficient mode of transport as relates to CO2 emissions, with air transportation having the largest carbon footprint/ton-mile. The following facts cast further light:
> Total freight shipment volumes are expected to increase by 25 percent to 30 percent by the year 2020 according to the U.S. Department of Transportation estimates2.
> Road transportation forms about 70 percent of the freight carried in the United States3 -- about five times more than rail. At the same time, CO2 emissions from transporting a ton of freight the same distance by road is 15 to 20 times more than rail4.
By Michael Forhez, Senior Principal, Consumer Products & Retail Practice, and Anil Pahwa, Senior Principal, Retail, CPG and Logistics (RCL), Infosys Consulting
A report by the UK's Office of National Statistics1 shows a 10 percent fall in greenhouse gas emissions over twelve years. However, in the same period, the transport sector's emissions increased 47 percent despite advances in fuel efficient engine technologies and improved transportation planning systems. The picture is not very different in other developed economies, including North America.
A large percentage of the carbon footprint of a typical consumer product comes from transportation -- either from the movement of raw materials or finished goods distribution. Yet companies gather statistics about transportation infrequently and often don't know the environmental impact of their supply chains. This lack of key information and analysis is, perhaps, one of the reasons transportation and logistics departments are lagging with respect to environment related improvements, something many corporations have begun to take note of as part of their commitment to sustainability.
Most forward leaning companies are now putting emphasis on designing programs -- and tasking managers -- to produce specific and measurable results as they relate to sustainability initiatives in this space. In this article, we will focus on understanding the impact and remediation options for the carbon footprint of road transportation.
Realities and Challenges in Logistics
While road transportation offers the most flexibility, it is also the second least efficient mode of transport as relates to CO2 emissions, with air transportation having the largest carbon footprint/ton-mile. The following facts cast further light:
> Total freight shipment volumes are expected to increase by 25 percent to 30 percent by the year 2020 according to the U.S. Department of Transportation estimates2.
> Road transportation forms about 70 percent of the freight carried in the United States3 -- about five times more than rail. At the same time, CO2 emissions from transporting a ton of freight the same distance by road is 15 to 20 times more than rail4.
> Smaller trucks and vans produce about twice the CO2 emissions than heavy trucks.
> Large trucks produce twice as much CO2 emissions/ton-mile when they are 65 percent full than when they are completely full -- and this number rapidly increases as the load factor falls4.
> Vehicle fuel economies and loading factors are continuing to improve due to technology advances, but the impact is not visible at a global level due to the explosion in vehicle-miles traveled.
These realities, as well as an intensely competitive business environment, have forced conflicting objectives on consumer goods manufacturers and retailers. Traditional business goals such as keeping shelves full and providing consumers with choices conflict directly with sustainability objectives such as maximizing vehicle fill rates and minimizing vehicle miles. At a macro level, the shift from a manufacturing to a service economy, online retailing and adoption of just-in-time inventory reduction practices require smaller trucks and lower load factors that drive down transport efficiencies.
Opportunities for CO2 Reduction
What seems clear is that for sustainability initiatives to be successful in the long run, they must help a company reconcile competing objectives -- those that support environmental friendliness as against others that support profitability. Despite challenges, a number of companies are making strides in this area. These early leaders have managed to overcome internal and external difficulties while realizing that what is good for the environment can also be good for the bottom line. Some notable examples include:
> Hannaford Bros., a Maine-based grocer with more than 150 supermarkets in the Northeast, has, since 2005, cut fuel use under the EPA's SmartWay Transportation Partnership by 115,000 diesel gallons, with a corresponding cut in carbon dioxide emissions of 8,700 tons. This was accomplished, in part, by switching from single to tandem trailers5.
> Staples, the office supply company, successfully saved more than 540,000 gallons of diesel and $1.5 million in 2007 by modifying truck fleets that limited top driving speeds6.
> By integrating sites, fleets, deliveries and collections, Marks & Spencer General Merchandise' operation reduced mileage by 14 percent7.
In retrospect, such changes seem almost like common sense, yet surprisingly few companies implement them. Why? Reasons range from not having enough focus or executive sponsorship to a lack of understanding as to which technologies and process changes can positively drive improvement. On the technical side, sustainability initiatives for road transportation can be broken down into three categories for targeted improvement, including: Vehicle Mileage, Load Factors and Route Selection.
Improved Vehicle Mileage: Surprisingly, the top three opportunities for improving mileage have nothing to do with vehicle design. While designers continue to focus on improving fuel economy -- with updated engine designs, low rolling-resistance tires, more aerodynamic bodies, light weight materials and more efficient transmissions - to drive down fuel consumption, fleet owners should place emphasis on:
> Monitoring and modifying driving styles by reducing harsh braking, increasing distance in cruise control and driving at a lower torque
> Reducing idling time
> Reducing maximum speed to 60 to 65 mph
Improved Load Factors: Transportation management has come a long way in improving load factors for outgoing shipments. Today's fleets typically employ algorithms that use shipment location and date information to consolidate shipments by size, product compatibility and trailer types. Companies have used these and other solutions to reap both cost and sustainability related benefits for several years now.
But, even greater benefits can be extracted from optimization techniques. While traditional solutions consolidate shipments after orders have been created, they do not attempt to influence the shipment dates themselves. Since small changes in these dates do not often affect overall service levels, they can be tweaked without having a significant negative impact on customers.
By not attempting to influence shipments dates, classical solutions have been leaving a large savings opportunity on the table. A new breed of solutions is emerging that shifts optimization to the point of order creation and release. In addition to classical load building/truck routing algorithms, these solutions employ techniques that:
> Perform shipment clustering based on spatial and temporal proximity on orders before they are executed
> Suggest opportunities to adjust requested delivery dates in real time to drive greater consolidation of loads
This ensures savings are maximized at the time of execution.
Improved Route Selection: Optimized route selection can range from simple, remedial measures, to more advanced techniques. In either case, due to the complexity of transportation networks, automation is now playing a larger role with definite benefits. According to one study, automated route selection has the potential to reduce total distance traveled by up to 20 percent. Pre-coupling inbound shipments with backhaul opportunities can provide further benefits. In addition, by avoiding congested routes, fuel consumption can be improved through idling reduction, lower torque driving and less braking. These measures, one that reduces miles traveled with the other improving efficiency, employ optimization techniques similar to order clustering as described in the previous section. When the above are combined, they have the potential to yield substantial, even compound, results.
Conclusion
In summary, fleet and logistics managers have as great -- perhaps an even greater -- opportunity as other department heads to impact their enterprise in the cause of sustainability, while simultaneously protecting and even enhancing profitability. However, as with every shift in process and practice, these same managers should, if they have not already done so, conduct a comprehensive gap and impact analysis to understand where new investments are warranted, and balanced, so as to ensure that what is good for the environment can also be good for the bottom line.
References:
1 UK's Office of National Statistics report dated April 8, 2004
2 U.S. Department of Transportation Freight Management and Operations
3 U.S. Department of Transportation Freight Management and Operations - http://ops.fhwa.dot.gov/freight/time.htm
4 Data Deficiencies, Inconsistencies and Opportunities in the Analysis of Freight, Energy and CO2 Relationships by Professor Alan McKinnon, Logistics Research Centre Heriot-Watt University EDINBURGH, UK
5 Environmental Leader article dated June 26, 2007 http://www.environmentalleader.com/2007/06/26/hannaford-cuts-emissions-with-smartway/
6 Environmental Leader article dated September 23, 2008 http://www.environmentalleader.com/2008/09/23/staples-saved-over-540000-gallons-of-diesel-in-2007/
7 http://www.isotrak.com/casestudies/downloads/tea_isotrak_pressrelease.pdf