Our Chattanooga, Salt Lake City, Clearfield and Ogden client – Kenco Logistic Services LLC – Painting the Supply Chain Green

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Corporate culture is a big part of environmental stewardship when it comes to supply chains.

There is no doubt about it: sustainability and green initiatives are hard at work in extended supply chains. The focus on sustainability is occurring at a time when the overall global energy balance is changing. These energy balance changes have rendered positive impacts on logistics and facilities in some cases, but in other cases, energy management concerns remain unchanged.

Consider these recent energy production and consumption trends:

U.S. oil imports fell 9 percent in 2013, fueled by new drilling techniques in shale deposits in North Dakota and Texas. At the same time, U.S. crude oil exports to other parts of the world rose by 11 percent (or 7.7 million barrels per day). This trend, which looks like it will continue into the foreseeable future, has already created 1.7 million new jobs in the U.S. between 2008 and 2012. It has kept money in the U.S. and reduced the U.S. trade deficit by $63 billion in 2013.

Unfortunately, this surge in onshore energy production has not necessarily benefitted supply chain logistics because of its dependence on diesel fuel. While gasoline prices will trend lower (they still remain relatively high, due to offshore demand), diesel prices could go much higher. “Diesel is where I am really worried,” says Tom Kloza, a senior oil analyst for Oil Price Information Service (OPIS). “We could see much higher prices — as much as $50 per barrel above crude or around $4.00 per gallon wholesale. Retail prices could get close to the 2008 crazy period when they reached $4.75 or higher.”

Kloza says that the boom in U.S. and Canadian oil production coming from shale-based crude is better suited to making gasoline than diesel. “Most of our crude is super light and super sweet,” Kloza explains. “Our refineries were not really built to process it. [The upshot is that] refineries running it will make more gasoline than diesel. Some estimates are that they will produce 10 percent to as much as 17 percent less diesel.”

In addition to economizing in the face of fuel price pressures, especially for diesel fuel, many supply chain operations are turning toward greening their facilities, since buildings, including warehouses and distribution centers, account for 40 percent of U.S. energy consumption. These pressures have also prompted industry professionals like Jim Huston, manager of system engineering for W&H Systems, to urge companies to focus on greening their facilities. Huston estimates that companies can save 5 to 20 percent on their energy bills without a significant capital investment in their warehouses if they focus on greening their buildings.

While companies that own supply chains focus efforts on hard assets like warehouses and distribution centers, there is also a growing awareness that technology itself consumes energy and contributes to carbon footprints. Major contributors to energy consumption are data centers, including those belonging to cloud services providers that boast they can help their supply chain clients reduce their carbon footprints and save money. Mindful of the role data centers play in contributing to carbon footprints, some cloud services providers are focusing on reducing carbon footprints and maintaining carbon neutrality in their data centers. The data centers’ push toward carbon neutrality matters to supply chain clients of these cloud providers, since many include the green progress of their vendors in their overall sustainability report cards that they both maintain internally and submit to regulators.

Finally, government and inter-company requirements concerning “green” supply chains and sustainability are on the rise. In October 2009, President Barack Obama signed Executive Order (EO) 13514, Federal Leadership in Environmental, Energy and Economic Performance. This EO called on federal agencies to set and meet specific sustainability related targets throughout their operations. GSA has since leveraged its purchasing power to promote sustainable procurement and energy-cost savings among its suppliers. Major enterprises like Walmart, Mattel, Coca-Cola and Philips all require their suppliers to participate in their sustainability initiatives as a condition of doing business. Most of these companies offer their suppliers help in the implementation of green practices, realizing that many might lack the resident expertise to undertake this work on their own.

Clearly, the movement toward green practices has become an integral ingredient of supply chain strategy. The question now is where the best results in green practices and sustainability can be achieved, and how the return on sustainability investment should be gauged.

Getting a Solid Return

Return on investment (ROI) is a critical element in sustainability and green practices because, in addition to greening their practices for regulators and their own sustainability missions, companies want to see reductions in their costs of operation.

Unsurprisingly, the place in the supply chain where many companies find it easiest to realize an immediate, hard dollar return on investment is in transportation and logistics.

John Lovenburg, vice president, environmental at Burlington Northern Santa Fe (BNSF), explains that many publicly traded companies with shareholder resolutions for sustainability ask for annual carbon footprint reports they can use in their own corporate sustainability reports. “Rail plays a major role in reducing transportation [carbon] footprints, and we have to provide value in this area,” says Lovenburg. He adds that client companies like to receive the railroad carbon reports because they can use the gains from their transportation to make positive impressions in their own sustainability reports.

“Railroads are able to provide four times the fuel efficiency and 75 percent less greenhouse emissions than trucking,” says Lovenburg. “It reduces supply chain costs, allowing businesses to be more competitive in the global market. A BNSF train can move one ton of freight 500 miles on a single gallon of diesel.”

Just as important to company supply chain managers is understanding the velocity at which they must deliver orders to their customers, and then finding the optimal combination of logistics to get orders to customers in time. This velocity of order delivery isn’t necessarily the fastest that orders can be placed into customer hands. Instead, it is the science of getting orders to customers when they expect them — but not before they expect them. Timing the velocity of orders is beneficial for green practices and sustainability, especially when an order’s delivery timeframe enables a company to send goods by slower but more fuel-efficient rail, with trucks providing ground support for the first mile (loading onto the train) and last mile (unloading and local delivery) of the shipment. By using intermodal shipping schemes like this, companies can reduce their fuel and overall transportation costs, as well as their carbon footprints.

Optimizing Warehouses and DCs

There is also abundant incentive for companies to improve their supply chains’ performance in warehouses and distribution centers, given the major role that facilities play as energy consumers and as contributors to company carbon footprints.

LEED certifications, which recognize best-in-class building strategies and practices, have provided guidelines for company green building practices. In this area, John Garrett, CEO of Facilities Management Advisors, points out that “Nearly all of the points needed for LEED Certification (40 points) can be achieved through the energy and atmosphere category (35 points). It is by far the largest category within the rating system, and emphasizes the combination of energy performance and renewable energy, which has been shown to lower costs by up to 50 percent in the first year alone.”

Accordingly, companies are switching to energy-efficient lighting. They are installing sensor switches that will automatically de-activate lighting when no one is an area of the building for a prolonged period of time. They are also “greening” their warehouses and distribution centers by reducing point-to-point “travel distances” in the warehouse via renovating floor layouts and also improving product locations for “greener” results. Many organizations have reduced waste by recycling packaging material and by replacing old equipment with energy-efficient office and material handling tools. The most successful organizations have also actively engaged their employees to come up with “green” ideas that will make facilities more energy efficient and carbon footprint-friendly. This employee participation often brings in “low tech” and highly affordable (and achievable) solutions that a professional environmental consultant might not even think of.

The point isn’t lost on environmental practitioners like Garrett, or on industry researchers like Forrester. Forrester Research, according to Garrett, believes that an effective corporate social responsibility (CSR) program can contribute to a business profit increase of up to 35 percent, in addition to promoting sustainable business practices and fostering improved green programs and overall environmental stewardship. “Today we are seeing increased awareness and active participation by business professionals in the development of CSR policies,” says Garrett. “Organizations are becoming more involved in green initiatives by adopting sustainable processes and practices, adapting products and services to the low-carbon economy and innovating in all areas of their business.” The major “shakers and movers” of these programs have been staff employees and managers charged with sustainability responsibilities.

“This is a societal issue, and the initial internal challenge is always engaging the culture of the company,” says Deni Albrecht, Kenco’s leader of sustainability. Susan McPherson, a senior vice president at Fenton, whose focus is in CSR and sustainability, agrees. McPherson’s ten “keys to sustainability success” center on employee involvement and company culture. They include communications practices like reaching out to employees where they are (e.g., break rooms, conference rooms, parking lots, etc.); displaying sustainability goals and progress reports so employees can readily see and be reminded of them; aligning departments throughout the company so they convey the same sustainability messages; and encouraging interest, participation, competition and feedback as employees engage themselves in corporate sustainability practices.

When employee involvement is combined with green lighting, energy consumption, building construction and workflow optimizations on the floor — warehouses, distribution centers and manufacturing facilities are better able to deliver improved ROI from sustainability investments and improvements.

Data Centers: The New “Green Frontier”

While most companies have focused their “greening” efforts on buildings and transportation, an emerging area of concern is technology, and specifically data centers.

For many businesses, the role of data centers in energy consumption initially surprises. This is because most supply chain managers and industry executives have been hearing about how technology (and specifically cloud-based supply chain solutions) can reduce carbon footprints and promote green practices.

To be sure, they can — but data centers also have their own carbon payloads to manage, whether they are corporate data centers or data centers belonging to cloud services providers.

Not long ago, the EPA cited data centers as a major source of energy consumption in the U.S. In 2011, The EPA set an efficiency target for government data centers: a 20 percent reduction in carbon footprints. In Europe, EU members set a 2012 goal of cutting combined emissions of greenhouse gases by 8 percent below their 1990 levels.

Data center-centric companies like Google are letting users know that its data centers use 50 percent less energy than conventional data centers, employing techniques such as using outside air in cold climates or reusing nearby water sources for data center cooling. Google says that it is the only Internet company to have eliminated their impact on climate change since 2007. Facebook also shares its data center footprint information with users.

There is natural concern about public perception, as the majority of data centers continue old-fashioned energy usage practices that heavily rely on fossil fuels.

One supply chain cloud provider that has departed from traditional energy practices in its data centers is WiseTech Global — and it is making a difference.

“We did hot and cold air containment research that we applied to our data centers,” says WiseTech CEO Richard Smith. “We focused on those areas of the data center that require cooling, keeping temperatures at 20 to 22 degrees Celsius in “cold aisles” where computers are inwardly facing, and ensuring that there is no mix with hot air and that the areas remain stable. The rest of the data center might stay at 30 degrees Celsius.”

By using this and other energy-saving approaches, Smith says that WiseTech has improved the energy efficiency in its data centers by over 40 percent.

“We also looked at our computer processors,” adds Smith. “Most businesses buy computers with high processing speeds, but this also requires more electrical power. We used an alternate strategy by buying processing at lower speeds, but with more cores. This reduces our power consumption and works well for a cloud system.”

To Do Lists

“Greening” supply chains will continue to be on corporate “to do” lists for the foreseeable future, with some businesses placing greater emphasis on sustainability than others. In many cases, pressures from regulators and customers will force the issue. In other cases, businesses will make voluntary choices to adopt a corporate responsibility practice that includes sustainability.

Mike Kirschner, president and managing partner of Design Chain Associates, a supply chain consulting group, says that most companies are currently just focusing on dealing with the regulations as they come up — but that the day could come when the sustainability data that companies are gathering for compliance could deliver a competitive advantage. “In certain markets and with certain classes of products there’s definitely a competitive advantage to being able to say that your product is environmentally preferable,” Kirschner says. “You just have to be very sure about what you’re saying and that no one can prove otherwise.”

Meanwhile, companies with supply chains should consider these key sustainability practices:

Go for the low-hanging fruit.

Logistics, a major source of fuel consumption, is an obvious first-line target for reducing energy consumption. “Greening” buildings with lighting, insulation, recycling and streamlined workflows is also easily achievable with minimal cost impact.

Engage your employees in the effort.

Employees “live” in the facilities and the operations that you’re trying to improve. Actively engaging them in green efforts pays off. Today, 86 percent of large companies have a full-time person focused on sustainability, and growing numbers of businesses are developing “green teams” as a means of marshalling their employees’ best ideas in a push to “green.”

Don’t leave data centers off the energy-efficiency list, whether they are yours or someone else’s.

“When we put our customers optimally into a cloud environment, it can reduce their carbon footprints by 25 percent because they are sharing a data center with others,” says Smith. “This data center operates 24/7, and not just eight hours a day. The data center remains idle for the remainder of the time, yet it still consumes 85-95 percent of the energy while doing nothing.”

Data centers are major contributors to energy consumption. This is one of the arguments for considering cloud-based solutions that reduce the need for large in-house data centers. It is also a reason to ask your cloud provider about the energy efficiency measures it is taking with its own data centers.

By Mary Shacklett – World Trade 100