Best practices in logistics sustainability

This story first appeared in the Quarter 1/2023 edition of CSCMP’s Supply Chain Quarterly,
a journal of thought leadership for the supply chain management profession and a
sister publication to AGiLE Business Media’s DC Velocity.

Long gone are the days when corporate sustainability was seen as a concern chiefly for companies that branded themselves as “green” or “socially conscious.” Corporate sustainability has now become mainstream in both the service and manufacturing sectors. 

Since 2000, there has been much published in both the academic and business press on various logistics sustainability topics.¹ Some of that published work includes case studies of companies that initiated ways to reduce energy consumption or waste,² emit lower levels of pollution,³ increase recycling or reuse of products and packaging,⁴ and “do more with less.”⁵ In some instances, companies themselves have published guides to sustainability for use by others to develop their own sustainability programs. For example, Nike has created a guidebook on the principles of circular design, supplemented by case studies from itself and other companies, and makes it freely available on its website.⁶

The volume of material published on sustainability in the supply chain reflects what the Massachusetts Institute of Technology (MIT) Center for Transportation & Logistics and the Council of Supply Chain Management Professionals (CSCMP) found after conducting multiple surveys of thousands of logistics and supply chain professionals: Companies are feeling pressure from many stakeholders to become more sustainable.⁷ One of the key takeaways from the research is that sustainability is becoming more common as a part of the duties and responsibilities of many logistics and supply chain professionals. Other research studies have further supported the results of the MIT studies.⁸

After combing through this published work and conducting company interviews of our own, we sought to provide a collection of best practices for sustainability in logistics. (See sidebar, “About this study.”) For this article series, we chose those practices that we felt could be implemented by multiple organizations and accomplished within a brief period of time and/or at a reasonable cost. 

As sustainability is such a broad concept, it is important to identify how the term will be employed in this article. In general, sustainability involves adopting a perspective that considers the triple bottom line of “people, planet, and profits.” Or as, a recent white paper from the Institute for Supply Management said, “sustainability is the ability to meet the needs of current generations without compromising the ability of future generations to meet their needs.”⁹

While all of logistics management has sustainability implications, the major structural components of logistics management selected for inclusion in this first article on “best practices” in sustainability include: (1) purchasing/procurement; (2) transportation; and (3) warehousing.

A follow-up article will examine sustainability best practices in three additional areas of logistics management, including: (1) packaging; (2) reverse logistics; and (3) the use of technology.

Purchasing and procurement

Many logistics and supply chain executives are recognizing the growing importance of sustainability in purchasing/procurement. Indeed, the Institute for Supply Management has conducted numerous surveys of procurement executives and studies on supply chain sustainability over the last decade and has concluded that organizations that seek to improve the environmental, social, and economic impacts of their purchasing practices will “create a long-term competitive advantage for their company."¹⁰ Similarly a McKinsey & Company study found that leading (or “value-creating”) companies were more likely to collaborate with suppliers and value-chain partners on their sustainability agendas.¹¹

Toward that end, many companies have placed additional emphasis on developing responsible sourcing programs that incorporate considerations related to people, planet, and profit as well as potential risk issues. Codes of conduct, supplier audits, supplier selection protocols, shared commitment, defining and setting expectations, and other methods are utilized to manage the process.¹² Other approaches include integrating sustainability with supplier qualifications, monitoring suppliers’ sustainability performance, helping suppliers to improve, and working with value-chain partners on reducing their energy consumption.¹³ For example, U.S. Steel surveyed close to 35 suppliers to collect key environmental, social, and governance (ESG) information from these suppliers. Further interviews were conducted to learn best practices from key suppliers, and the team explored potential opportunities to share best practices with other suppliers. 

Some of the best practices observed in the areas of purchasing and procurement include the following: 

• Conduct rigorous and regular sustainability audits for both new and existing suppliers. Many organizations evaluate new vendors and suppliers regarding their sustainability practices. Most have audit forms that they use in this process. However, only a few firms rigorously evaluate the sustainability of both new and existing suppliers. Typically, existing suppliers are evaluated only every so often, when complaints or sustainability issues are raised, and/or if the supplier is a primary vendor to the organization.

  
  

  One manufacturer of consumer package goods, however, annually sends out surveys to existing suppliers and regularly visits their physical locations. What makes this program innovative is that the firm is consistent in conducting these sustainability audits and supplements the surveys and regular visits with unscheduled visits to these suppliers. While it is too costly to conduct unscheduled visits for every vendor or supplier, they occur frequently enough that the suppliers must always be prepared for a visit. The result is that there is more sustainability consistency among these firms. 

  Too often, many firms conduct thorough evaluations of new vendors and suppliers, but evaluations become ad hoc after the initial evaluations. For this company, there are additional costs to make these unscheduled visits, but vendors and suppliers that do not meet the organization’s sustainability standards are eliminated sooner rather than later.¹⁴

• Use a digital platform to encourage sustainability among supply chain partners. In 2021, Eni, an energy company with a presence in 66 countries, launched Open-es, a digital platform for sustainable supply chain development. According to Eni, “Open-es is open to both suppliers and clients, and it enables all companies to measure, monitor, and share their sustainability performances and the ones of their supply chain with a simple and flexible approach, so that they can play a leading role in the growth of their industrial ecosystem in terms of sustainable development.”¹⁵ By September of 2021, more than 2,400 companies from 47 countries and 57 industry sectors had joined the platform.¹⁶ Eni won the Procurement and Supply Management Excellence Award,  a special award for “supply chain value” assigned by ADACI (the Italian Association for Procurement and Supply Management), in part for the launch of Open-es.




• Provide financial incentives to suppliers for sustainability efforts. The spice and seasonings company McCormick & Co. has partnered with the International Finance Corporation (IFC) and Citibank to give financial incentives to suppliers that make improvements in social and environmental sustainability. Under the program, McCormick’s suppliers can qualify for discounted rates on short-term working capital financing when they meet certain sustainability standards set by McCormick for labor conditions, health and safety practices, crop management, environmental impact, farmer resilience, and women’s empowerment, among others. Suppliers with a higher performance level on these standards are eligible for greater discounts.¹⁷

Transportation

There have been several innovative approaches taken by organizations to further improve the sustainability of transportation. Many of them focus on reducing the carbon emissions associated with transporting products in the supply chain, which represents an enormous usage of fossil fuels and can have a significant impact on pollution. All transport modes are attempting to reduce carbon emissions and to make general sustainability improvements. Most transportation firms have instituted various programs to reduce the use of fossil fuels and/or reduce pollutants through higher levels of efficiency. Examples include reducing empty miles, using vehicles that can run on alternative fuels, adopting electric vehicle (EV) technology (although this has been limited thus far), and more optimal routing and scheduling of equipment.¹⁸ Some innovative approaches to sustainability are provided below.

• Focus on making the last mile more sustainable. The use of urban delivery vehicles, coupled with increased road congestion, is forecast to increase emissions by 30% by 2030.¹⁹ Companies are introducing new strategies and tactics to reduce those potential emissions. For example, in a solution that combines both transportation and packaging, Amazon utilizes artificial intelligence to determine the optimal size of box for shipments and was able to reduce outbound packaging by 33% in five years, or the equivalent of 915,000 tons of packing materials.²⁰ This not only provides cost savings to Amazon but also reduces waste and increases trucking-capacity utilization, reducing carbon emissions.

  
  

  Meanwhile retail stores such as Walmart and Target are adding fulfillment space in existing stores to minimize their last-mile delivery costs. For items that are available online and in stores, shipments can be made to customers from the stores where the products are already located, either from backroom stocks or store shelves. Fulfilling from the store saves the company from making parcel or less-than-truckload shipments to customers from distances that are farther away from the final destination.²¹




• Utilize multi-trailers with a single power unit. Suzano, a Brazilian paper and pulp company, has launched a “hexatrain,” the world’s first trailer truck with six semi-trailers, capable of transporting up to 200 tons of cargo.²² It has resulted in cost reductions and 2.4 times lower carbon dioxide emissions per cubic meter of wood transported.²³ Because of highway restrictions in Brazil that limit weights to 74 tons, special permits to move heavier loads were required. The company was able to go from using 35 “tritrains” on its farms in the Brazilian state of Mato Grosso du Sol to only 19 “hexatrains.” As a result of running fewer trucks, the company has been able to decrease its pollutant emissions as well as lower its operating costs.²⁴

  
  

  In the United States, companies have experimented with transporting three trailers with a single power unit. One example was on the Florida Turnpike, which has limited access and longer distances between entrances and exits, allowing for fewer vehicle stops. If safety concerns can be met, more products could be transported at a lower cost per unit and fewer emissions from using only one power unit to move the trailers.

• Adopt end-to-end transportation management systems (TMS) that include sustainability considerations. Companies are also reducing carbon emissions by utilizing transportation management systems and routing software to minimize travel distances and increase their ability to adjust shipments while still in transit. This reduces overall miles driven and saves money while having the added benefit of improving service levels. On his company blog, Martin Verwijmeren, CEO and founder of the supply chain software company MPO explains, “Capabilities like smart route optimization and dynamic partner and carrier selection allow [companies] to input all [their] requirements and constraints, and then plan and execute order flows against the lowest carbon footprint.”²⁵ Additionally, the TMS can incorporate sustainability issues when calculating equipment capacities to allow firms to book equipment to capacity, maximizing equipment and reducing empty miles. The ability of a TMS to be visible to multiple members of the supply chain will also allow sustainability visibility to occur, allowing trade-offs to be implemented across many supply chain member companies.

Warehousing

Similarly, there are many components of warehousing that touch on sustainability. On a basic level, for example, sound warehousing practices involve protecting stored products from contamination, which results in less spoilage and waste. Similarly, by having products available in the right locations to meet expected and unexpected circumstances, a thoughtfully planned distribution network can help eliminate the need for additional backup equipment, transportation, and facilities. Another example is the energy usage in temperature-controlled facilities. 

In recent years, many warehouse facilities have focused on implementing green solutions that reduce both waste and cost, including upgrading their lighting, implementing better stormwater management, using electric forklifts, reducing paper records, and using solar power, to name just a few.²⁶ Here are few more innovative approaches to consider:

• Develop warehousing strategies to meet customer requirements associated with nearshoring and local sourcing. Trends such as nearshoring will facilitate just-in-time strategies and make it easier for firms to reduce their carbon footprints by reducing inventories, optimizing product movements, and optimizing supply chain network design. 
• Use multifunction forklift trucks. Combilift, a forklift manufacturer, has found that its multipurpose forklifts help its customers reduce their carbon footprint because they require a smaller fleet as a result. Combilift’s "three-in-one" forklifts can act as a sideloader forklift (for long loads), a counterbalance forklift, and a narrow-aisle forklift. When combined with efforts to make the interior layouts of warehouses more space efficient, Combilift customers have been able to create up to 50% more storage space and reduce their carbon footprint by an average of 80 tons per year.²⁷ (Historically, increasing space utilization in a warehouse has been viewed primarily from cost and revenue perspectives. Now more companies are realizing that better space utilization also has benefits in terms of sustainability. Quite simply, the smaller the warehouse, the less energy, and other resources, it consumes.) 
• Design/redesign warehouses and distribution centers to minimize the building’s carbon footprint. Many new distribution centers or warehouse structures are being consciously designed to meet rigorous sustainability standards. For example, the “New Logic III” distribution center in Tilburg, Netherlands, has achieved a BREEAM (Building Research Establishment Environmental Assessment Method) certification score of 99.48%. BREEAM is a sustainability certification method for buildings that uses 10 different measurement categories, including factors such as energy usage, water usage, waste disposal, and pollution. Designed to resemble a long tube, New Logic III was constructed with 11,620 solar photovoltaic panels, making the building both carbon and energy neutral.

  
  

  Alnatura Produktions, a German food, cosmetics, and textiles retailer, also focused on reducing its carbon footprint when it redesigned its warehouse in Lorsch, Germany.²⁸ The warehouse is built entirely from wood sourced from sustainably managed forests. While the all-wood design is unique, the building’s true innovativeness lies in how it was constructed. The building rests on a base slab submerged 2.5 meters into the ground. Because ground temperatures are static compared to aboveground temperature fluctuations, with good insulation, the building does not need any additional heating and cooling. Combined with solar panels on the roof, green space around the building, and rainwater infiltration areas, the carbon footprint of the warehouse is minimized. Energy savings, as well as more comfortable working conditions for employees, have made the facility a “win-win” situation.

Innovation abounds

Logistics sustainability initiatives are increasing and are not limited by geography or industry. The examples included in this article are illustrative of the some of the innovations occurring around the globe. It is hoped that readers will gain a broader understanding of the breadth and scope of innovations taking place in logistics management and be inspired to create their own innovative practices and strategies.

Innovation has always been a way of gaining market share, increasing revenues, reducing costs, and gaining competitive advantage. With the increasing importance of sustainability to both consumer and business customers, organizations that develop and implement creative and innovative strategies and tactics can gain a competitive advantage within their industry. In a follow-up article, areas of packaging, reverse logistics, and technology will be examined, and additional best practices identified.

Notes:

1. See for example T. Laosirihongthong, D. Adebanjo, and K-C Tan, “Green Supply Chain Management Practices and Performance,” Industrial Management & Data Systems, 113, no. 8, (August 2013), 1088-1109; and M.-L. Tseng, M. D. Islam, N. Karia, F. A. Fauzi, and S. Afrin, “A Literature Review on Green Supply Chain Management: Trends and Future Challenges,” Resources, Conservation & Recycling, 141, (2019), 145-162. 

2. B. Marchi and S. Zanoni, “Supply Chain Management for Improved Energy Efficiency:  Review and Opportunities,” Energies, 10, no. 10, (2017), Open Access Journal, 1-29.

3. C. Lee, “The Supply Chain and its Impact on the Environment,” Warehouse Anywhere, (July 27, 2019): https://www.warehouseanywhere.com/resources/environmental-impact-of-the-supply-chain

4. G. Forger, “Sustainable Packaging is Ready to Make its Mark,” Supply Chain Management Review, (September 1, 2019): https://www.scmr.com/article/sustainable_packaging_is_ready_to_make_its_mark, and B. Jaekel, “There is a Way for Packaging to be Sustainable,” Supply & Demand Chain Executive, (May 26, 2020): https://www.sdcexec.com/sustainability/article/21134654/there-is-a-way-for-packaging-to-be-sustainable

5. V. H. Villena and D. A. Gioia, “A More Sustainable Supply Chain,” Harvard Business Review, (March-April 2020): https://hbr.org/2020/03/a-more-sustainable-supply-chain

6. “Circularity: Guiding the Future of Design,” Nike, (2019): https://www.nikecirculardesign.com/

7. MIT Center for Transportation & Logistics and Council of Supply Chain Management Professionals, “State of Supply Chain Sustainability,” Cambridge, MA: MIT Center for Transportation & Logistics, 2022.

8. See for example, Coyote Logistics and Martec Group, “Sustainable Supply Chain Management:  Driving a Smarter, More Sustainable Future,” white paper (2020): https://resources.coyote.com/coyote-default/supply-chain-sustainability-research-study, “Supply Chain News:  Gartner Says Circular Economy Practices to Increase,” Supply Chain Digest, (September 23, 2020): https://www.scdigest.com/ontarget/20-09-23_Gartner_Circular_Economy_Practices_to_Incease.php?cid=17151&ctype=content, and IFS, “Turning the Circular Economy into Growth,” white paper, (March 2021): https://www.dynamiconlinedoc.com/ifs/ifs123-003/index.html

9. Institute for Supply Management, “Programs, Goals, and Resources: A Recipe for Sustainability,” white paper, (2022): https://www.ismworld.org/globalassets/pub/research-and-surveys/white-papers/ism_2022-sustainability-white-paper.pdf

10. Institute for Supply Management, ibid.

11. A. Granskog, E. Hannon, S. Hieronimus, M. Klaeyle, and A. Winkle, “How Companies Capture the Value of Sustainability: Survey Findings,” McKinsey Report, (April 28, 2021): https://www.mckinsey.com/business-functions/sustainability/our-insights/how-companies-capture-the-value-of-sustainability-survey-findings 

12. J. Gentry, “Driving Responsible Sourcing in Global Supply Chains,” SupplyChainBrain, (January 28, 2020): https://www.supplychainbrain.com/blogs/1-think-tank/post/30728-driving-responsible-sourcing-in-global-supply-chains

13. Granskog, ibid

14. Company interview

15. Eni, “Eni: Open-es, the Digital Platform for the Development of Sustainable Industrial Supply Chains, Goes Live,” (March 31, 2021): https://www.eni.com/en-IT/media/press-release/2021/03/eni-open-es-online.html 

16. Aclima, “Open-es, the Digital Platform for the Sustainable Supply Chain Development,” (September 17, 2021): https://aclima.eus/en/open-es-the-digital-platform-for-the-sustainable-supply-chain-development/

17. Sustainable Brands Staff, “McCormick & Co. Partners to Offer Suppliers Sustainability-Linked Financing,” Sustainable Brands, (August 4, 2021): https://sustainablebrands.com/read/finance-investment/mccormick-partners-to-offer-suppliers-sustainability-linked-financing

18. A. Moul, “Six Ways to Cut Emissions in Warehousing and Distribution,” SupplyChainBrain, (August 15, 2021): https://www.supplychainbrain.com/articles/print/33475-green-warehousing-delivering-on-the-business-imperative-of-sustainability

19. Madeleine Hillyer, “Urban Deliveries Expected to Add 11 Minutes to Daily Commute and Increase Carbon Emissions by 30% until 2030 without Effective Intervention,” World Economic Forum, (January 2020): https://www.weforum.org/press/2020/01/urban-deliveries-expected-to-add-11-minutes-to-daily-commute-and-increase-carbon-emissions-by-30-until-2030-without-effective-intervention-e3141b32fa/

20. M. Huckeba, “How E-tailers are Greening the Last Mile,” SupplyChainBrain, (June 30, 2021): https://www.supplychainbrain.com/articles/print/33289-how-e-tailers-are-greening-the-last-mile

21. Huckeba, ibid.

22. “Hexatrain with Six Semi-trailers for 200 Tons is Already Operating in Brazil” (December 18, 2019): https://estradao.estadao.com.br/caminhoes/hexatrem-com-seis-semirreboques-brasil 

23. Suzano, Infographic, 2020, https://storage.googleapis.com/stateless-site-suzano-com-br/2020/05/9e7ffb1f-infographicsuzano.pdf 

24. Hexatrain, ibid

25. Martin Verwijmeren, “How Can a Transportation Management System (TMS) Promote Sustainability?” MPO blog, (Nov. 30, 2020): https://www.mpo.com/blog/transportation-management-system-promote-sustainability.

26. A. Moul, “Six Ways to Cut Emissions in Warehousing and Distribution,” SupplyChainBrain, (August 15, 2021): https://www.supplychainbrain.com/articles/print/33475-green-warehousing-delivering-on-the-business-imperative-of-sustainability 

27. Combilift, “Empowering our Customers’ Sustainability,” (2021): www.https://combilift.com/us/sustainability

28. Swisslog, “In Harmony with Nature: A Model Holistic Logistics Concept,” Case Study, undated, https://www.swisslog.com/-/media/swisslog/documents/intralogistics-automation/case-studies/casestudy_alnatura_eng_web.pdf?rev=a04ebd05044c4e2f95dd21a158df5b99