Carbon dioxide has become the bete noir of the global warming doomsayers with the result that ‘cutting carbon’ is now a Board priority for many businesses eager both to appear greener than green and to respond to government pressures to cap greenhouse gases.
Emissions from heavy industry and coal-fired power stations are, of course, the prime targets but transport and packaging are high on the hit list. Transport (including aviation emissions) is estimated to cause more than a third of the UK’s total carbon emissions, according to Parliament’s Environmental Audit Committee, and this is expected to further increase by around 10 per cent by 2010. Packaging is just as bad and can account for up to 30 per cent of the carbon footprint in many companies.
As Peter Klein, EMEA vice president for Australian-based Supply Chain Consulting points out, there has been little incentive for companies to initiate radical strategies to reduce these levels as it has been all too easy to buy carbon credits. ‘It’s been a simple trade off,’ he says. ‘The cost of carbon credits has been so low that it has been more economical to buy credits that implement change.’
With the price of carbon credits set to rise from next year, this may no longer be such an attractive proposition. Even so, ‘carbon offsetting’ – often of the simplistic ‘plant a tree’ variety – still seems to be gaining in popularity. The tactic can be seen as a superficial solution to the problem with no real reduction in carbon emissions as a result. ‘It does not solve the problem,’ says Claude Boisselet, head of marketing and major projects for DHL Exel Supply Chain. ‘what we really need to work towards is zero level emissions.’
Boisselet argues that there are three approaches that could be taken to greening the supply chain: reducing, replacing or offsetting. Offsetting is the least effective in the long term, reducing tactics help, but ‘replace’ should be the goal and one that requires the most innovative approach.
Replacing fossil fuel with biodiesel, for example, raises issues about increasing cultivation of suitable crops by clearing yet more rainforest. Replacing warehouse heating systems with solar panels on the roof can be a far more effective long-term approach.
‘Reducing carbon emissions really involves making some very tough decisions,’ adds Klein, ‘but there is money in it. We estimate that companies can actually cut costs by 10-40 per cent as a result.’
In the short term, however, if companies are to comply with government pressure to buy credits and offset emissions then some accurate calculation of what those emissions may be is important. Supply Chain Consulting has developed a modelling tool called CarbonView which claims to deliver a reduction in carbon footprint as well as improved business performance. It aims to analyse the carbon emissions resulting from each company activity and then models alternative supply chain scenarios to develop an approach which is both environmentally sound and financially viable.
Carbon visibility platform
Early users include Christian Salvesen which is putting a carbon visibility platform in place to assess the carbon footprint of each stage in the supply chain; this can then be balanced with financial information to improve fleet and warehouse management.
‘You need to look at the carbon issues across the whole supply chain,’ says Klein. ‘Optimising transport is part of it but carbon monitoring has to be integrated with the ERP system to look at optimisation opportunities across the organisation.’
CarbonView is based on Viewlocity’s technology platform so is not embedded with other IT applications within the organisation; it sits over the top so reducing integration costs. Once emission levels have been calculated then companies can compare offsetting costs with the expense of alternative strategies that would actually reduce emissions.
Calculating a carbon footprint for the supply chain is far from easy. A study last year by Lincoln University in New Zealand, for example, concluded that producing dairy products and lamb in that country was more energy efficient than the same activities in the UK – even when a 12,000 mile delivery trip was included. Equally, the argument for reducing ‘food miles’ needs to be balanced against the needs of economies in the developing world: reduce imports of mangetout from Zambia and you may be depriving a generation of African children of basic schooling.
‘We’re certainly seeing more interest in local purchasing, local promotions and local produce,’ says Tony Bryant, business sector manager for food and FMCG at retail software specialists K3. ‘That all brings new challenges for the supply chain with local deliveries and distribution. Do you build small local RDCs and more small delivery trucks, for example, or larger consolidation centres and greater collaboration?’
Urban consolidation centres have been seen as one way for reducing city centre HGV traffic and pollution as well as over-all carbon emissions. On paper the model is ideal but in practice there can be problems. Before joining K3, Bryant worked on supply chain issues at Marks & Spencer and recalls a joint project the company trialled with Safeway in Cambridge. ‘In principle using a single truck to deliver to both companies’ stores was not a problem,’ he says, ‘but commercial issues were the stumbling block. Should you have a Safeway logo on one side of the vehicle and M&S on the other? And what happens if one pallet has to be left off because there’s not enough space. Is it the Safeway pallet or the M&S one?
Hurdels to collaborative distribution
In future such commercial issues may have to take second place to carbon if emission levels are to meet Kyoto targets. ‘There are significant hurdles to collaborative distribution,’ agrees Gavin Chappell. ‘Obstacles include how to manage delivering another company’s product on a company vehicle and how to ensure that deliveries on shared vehicles can be made at the most efficient times.’
Organisations like the IGD and ECR are already arguing the case for greater collaboration. ECR UK’s ‘Shared deliveries to far flung places’ initiative suggests that five companies could save 40 per cent of vehicle miles by closer collaboration on transport and distribution networks in northern Scotland. ‘The modelling was based on calculations of journeys made over a week using estimated rather than actual payloads,’ says Gavin Chappell, ECR UK’s co-chair for collaborative green distribution. ‘So more research needs to be done but the potential for mileage and cost savings to other remote areas could be immense.’
Other successful projects have included an Eddie Stobart and Coca Cola venture which co-ordinated the two company’s distribution networks so that empty Stobart trucks could be used to shift Coca Cola consignments with a resulting 500,000 mile reduction in empty vehicle traffic over the past three years.
‘IT can certainly play a part,’ says Bryant. ‘In the Safeway/Marks & Spencer project it helped develop better space utilisation in truck loading.’
Such consolidation may be better managed under the aegis of an independent logistics services provider. DHL, for example, has already been involved with a number of urban consolidation centre projects. Its UCC serving Bristol city centre has been running since 2004 and is used by around 50 retailers who have, in total, reduced the number of visits their vehicles make to the city centre by 70 per cent. Support for this scheme came primarily from the local city council with financial backing from the EU and it is obviously an area where Government investment could help.
Web-based systems and service-oriented architecture can also help by pulling together the various inputs about delivery schedules and space requirements from disparate corporate systems for some form of central management.
Greater collaboration may also be needed for home deliveries as multi-channel operations grow. It is not unusual to see fleets of Tesco, Sainsbury, Waitrose, Ocado and Asda delivery vans in suburban areas most evenings. One could argue that these are effectively reducing the use of private cars for shopping trips so are environmentally friendly – although if the shopping trip is part of an existing journey to school or work then that argument is rather less valid.
Flagged time slots
Ocado already has a system – initially developed several years ago by Descartes – on its website whereby shoppers see a little green van symbol against a time slot if someone in the same area has already booked a delivery during that window. The system has proved very effective in encouraging shoppers to opt for these flagged time slots so reducing the number of journeys to the same district.
It may be some time before we see the grocery chains sharing home delivery vans but Tesco has already experimented with delivering orders to secure refrigerated/ambient storage units placed in the car park of a Hammersmith apartment block. Shoppers can retrieve their goods at a time to suit them by using a smart card to unlock their particular storage unit, while Tesco benefits from a single delivery drop for multiple customers that can be scheduled to reduce total vehicle miles. The project ran into problems since residents of the upmarket block used in the trial were not typical or enthusiastic Tesco shoppers, but the scheme has since been extended to Ocado which residents view rather more favourably.
Switching more traffic to rail can also help in some markets. In Canada, Wal-Mart moved deliveries to 10 of its stores in Nova Scotia and Prince Edward Island from road to rail last July. It calculates that the move has already reduced carbon emissions by 2,600 tons. The company is introducing a ‘Supply Chain Sustainability Scorecard’ this autumn which will embrace not only rail transport but also electric vehicles and reusable plastic crates instead of cardboard.
‘Our new rules for supply chain sustainability will cover everything from fuel use to facilities and equipment standards,’ says Lesley Smith, Wal-Mart Canada’s vice president for supply chain. ‘As always the business case and payback is twofold: a better operation with better environmental effect.’
The company calculates that by switching 20 of its trucks to electric power it will save 40,000 litres of fuel and more than $1.5million each year. In addition, the plastic crates have cut $3.3million in packaging costs and reduced waste by more than 1,400 tons and carbon emissions by 10,000 tons: this initiative is now being adopted as best practice by Wal-Mart worldwide.
Wal-Mart is not alone in its enthusiasm for electric vehicles: TNT Express, Royal Mail and Home Delivery Network are among many currently trialling electric vans. They may seem greener but if the electricity they use is generated in a coal-fired power station the total carbon footprint may be little different – or possibly worse – from conventional diesel.
In Europe reusable plastic food trays are already widely used and are increasingly RFID tagged as well. ECR is actively encouraging use of ‘retail ready packaging’ (RRP) with product stacked in cages or other containers ready to be wheeled into place on the retail floor. Milk cages are perhaps the most familiar example we currently see in our supermarkets. RRP is believed to improve on-shelf availability by speeding replenishment while RFID can help ensure that goods are used in date order so helping to minimise waste. Retailers already taking to RRP have seen significant sales improvements: according to ECR Sainsbury, for example, found sales increased by 7.7 per cent when it introduced display ready merchandise units for carbonated drinks, while an Asda RRP project for chilled products saw sales of cooked meats increased by 4.8 per cent due to improved availability.
RRP could also help reduce the amount of cardboard used in store – especially if reusable plastic or wire outers are introduced – but retailers also need to reassess the amount of packaging they use on individual products as well. ‘They need to think about why they use the packaging they do,’ says Peter Klein. ‘Is the cardboard box necessary or would hard plastic be as good.’
In parts of Europe reusable glass bottles are still commonplace: would they be more energy-efficient than plastic? ‘Glass bottles use a lot of energy to create,’ says Deloitte consumer business consulting partner, Gerry Boyle – a contributor to the company’s recent report on the food and beverage industries in 2012 (www.deloitte.co.uk/foodandbeverage) – ‘but disposable plastic bottles involve considerable carbon emissions. Re-introducing reusable glass bottles could be an interesting possibility and one that might appeal to consumers concerned about packaging waste.’
Tony Bryant sees even greater use of technology in-store to combat packaging and signage needs as well. ‘Most retailers still use cardboard promotional material,’ he says, ‘but digital signage can reduce that dramatically. Companies may send the cardboard for recycling so they give themselves a tick in the box for good environmental practice but if they calculate the cost and carbon involved in printing and distributing the material and then sending lorry loads of marketing collateral to recycling centres, they could well find that digital units are both more cost effective and more energy efficient.’
The same is true of electronic shelf-edge labels, with improved battery life and technological developments finally making such tags both cost effective and robust to maintain. The ability to change prices quickly in response to consumer demand – or fresh produce heading for its sell-by date – can also help reduce wastage and the carbon emissions associated with disposing of unsaleable products.
Then there is the little matter of refrigeration – as consumers shiver past the frozen food displays in our supermarkets. Closed containers rather than open shelves could be more energy-efficient as would ensuring that the door to cold rooms is kept closed in store back stock areas. ‘Maybe the frozen food section in the store should be in a closed area to reduce energy needs,’ suggests Klein.
Now that really would be a radical option for supermarkets to adopt.
Claude Boisselet, Dhl Exel Supply Chain
‘Carbon offsetting does not solve the problem. What we really need to work towards is zero level emissions.’
Tony Bryant, K3
‘We’re certainly seeing more interest in local purchasing, local promotions and local produce. That all brings new challenges.’