Sustainable Logistics on the Move
Till Dengel, Richard Howells | 14 min read
Putting solar panels on refrigerated trucks. Going paperless in the warehouse. Using accurate, real-time data to address the environmental cost of delivery by product and vehicle route. These and other moves are the focus of supply chain leaders who are working to make logistics more sustainable and less of a burden on the planet.
The reason these actions are high on the logistics agenda: Sustainability is a heavy lift. Carbon dioxide emissions from rising freight transport will climb 16% by 2050, even with countries’ commitments to curb them, according to the International Transport Forum. Without intervention, cities around the world will host millions more freight and parcel delivery vehicles in the next decade, leading to traffic congestion and a proportional increase in greenhouse gas emissions, the World Economic Forum reports.
It all adds up: Finding ways to make the logistics and delivery end of the supply chain more environmentally sustainable is a no-brainer.
“Companies are more interested in the sustainability of logistics,” says Josué Velázquez Martínez, director of the Sustainable Supply Chains Lab at the MIT Center for Transportation and Logistics. “There are more pressures from regulations and from consumers. Companies are really trying to look at different parts of the supply chain.”
And enterprises may be forced to take more actions. Under current rules, many companies underreport or don’t include emissions from their supply chains in their sustainability reports, The New York Times notes. But they soon may be forced to do so as regulators focus on logistics. In the United States, regulators are considering making public companies report emissions along their supply chains. The EU also has a proposed directive that beefs up sustainability reporting rules.
Companies are more interested in the sustainability of logistics. There are more pressures from regulations and from consumers
Josué Velázquez Martínez, MIT Center for Transportation and Logistics
Consumer expectations, regulations, and market demands are putting pressure on business executives to step up their sustainability game. The logistics and distribution systems across the supply chain are obvious places to implement new standards. These will go far in creating a competitive edge as companies spend less money on delivery by using less energy and other resources, get better ROI on their investments, such as truck fleets, and identify better ways to deliver. Add to that increasing consumer awareness of the environmental cost of deliveries and their willingness to make decisions that delay delivery gratification to protect the planet.
But for sustainable logistics to happen, we need to optimize transportation routes, build more efficient warehouses, and use data more often and more effectively. These aren’t easy tasks. There are multiple steps to measuring sustainability to create a real product footprint in terms of CO2 emissions.
No time to waste
Learn why enterprises need to align sustainability ambitions with their actions.
The report “The Sustainable Supply Chain Paradox” from SAP and Oxford Economics found that executives don’t yet know enough about their supply chains, and they’re having difficulties making them more sustainable. They’re still at the stage of setting targets, not implementing them. Almost half of those surveyed said complexity and cost are the two biggest obstructions to getting their companies to be more sustainable.
But increasing pressures are motivating companies to get more visibility into their holistic supply chains and to get to zero emissions or carbon neutral, says Shimon Gowda, manager of supply chain design at Chainalytics. “More companies are trying to just measure what their carbon footprint is looking like in their current network,” Gowda says. “The industry leaders are trying to get closer to what an accurate and precise metric of measure is that you would benchmark your current scenario with.”
Why logistics are a big sustainability target
Logistics are a complex undertaking. They manage the movement of raw materials, intermediate products, and packaging across the globe to manufacturing facilities as well as the distribution of products from where they’re made to where they’re used. Transportation is one of the areas in which getting to zero emissions is a big goal. That includes reducing travel distances and using transportation more efficiently. It’s not uncommon, for example, for delivery trucks to return empty once a delivery has been completed (such truck trips are called “deadhead miles” or “empty miles”).
Take cold chain transportation: We rely on refrigerated trucks to move pharmaceuticals, produce, dairy products, meat products, and beverages. That means keeping trucks chilly inside – but that takes significant energy, and that energy has conventionally been petrol.
There are companies that help make cold chain trucking more sustainable by running the refrigeration on alternative energy sources. eNow, for example, puts solar panels on the tops of refrigerated trailers. And Coldtainer makes portable cold storage boxes.
Companies are working to make cold chain trucking more sustainable by running refrigeration on alternative energy sources.
Established companies such as FedEx and DHL are investing in fleets and equipment such as e-vehicles, as NPR has reported. But focusing only on new vehicles misses important opportunities, says Martínez.
“What I see is that there is a lot of focus on the equipment side, which in the long term is actually awesome,” he says. “But in the meantime, there are plenty of opportunities that, at this stage, companies are not really paying attention to that much.”
When your mileage varies, pick the right vehicle for each delivery route
Those opportunities include areas that Martínez and others are studying, such as transport planning systems that optimize routes, reduce mileage and emissions, and analyze the topographical effects on truck performance.
Not that new fleets are an inherently bad choice, but a new truck isn’t necessarily a better truck, environmentally speaking. Research from the Sustainable Supply Chains Lab found that mileage as touted on vehicle manufacturers’ Websites is about half in real-world terms during actual deliveries. That’s likely because they tested their trucks in different conditions.
Leading with Purpose
Learn how companies are putting sustainability at the core of their strategy.
“They’re probably testing in conditions that are not related to the way that the truck is going to be operated, particularly in the last mile,” he says.
Compare the performance of a truck on a highway traveling at 40 to 50 miles per hour and making three delivery stops with the same truck traveling a very hilly area at 5 to 10 miles per hour and making 20 delivery stops. The performance is markedly different, depending on the vehicle. Older trucks tend to significantly outperform newer trucks on highways; Martínez’s group has found examples of better fuel efficiency up to 15% through a study with Mexican logistics company Coppel. They discovered this by using the average speed, segment lengths (the amount of stops on a specific route), and topographic profile and applying machine learning to classify regions based on those characteristics – some are more residential, some more urban, some are mixed.
Imagine that you can actually communicate [to a customer], ‘If you are willing to wait two, three, four days more, you’re actually going to be able to reduce that footprint by a certain percentage.’
Josué Velázquez Martínez, MIT Center for Transportation and Logistics
Martínez’s group modeled reassigning vehicles according to their analysis so that each were in the areas where they performed best. The results showed a 3% fuel use reduction – no small figure for companies that spend millions in fuel every year. They also did a real-world pilot based on the same thesis using 10 vehicles over a month and saw an 8% savings in fuel use.
“You don’t really need to make an investment but just reassign,” says Martínez. “But if you are going to renew the fleet, then you need to make sure that the new vehicles are located in the regions that you expect and then reassign those you’re going to keep in your operation.”
These results point to how the combination of data and computing capacity and algorithms can improve transportation. Topography matters, but it isn’t usually included in environmental assessments because conventionally the shortest and fastest routes are prioritized and because it’s complex, says Martínez. But it makes sense – going uphill and going downhill take different amounts of energy.
“There’s this huge opportunity in managing this data to use the GPS traces to really capture the facts and make better decisions,” he says. “I call this the squeezing in the part of the supply chain to make sure that you are really reducing emissions as much as possible and still meeting your customer expectations and business goals.”
Same-day delivery is challenging because it means a lot of trips to the same neighborhoods with trucks that aren’t always fully loaded, which increases emissions. The Sustainable Supply Chains Lab did an experiment to see whether consumers make different delivery choices according to how green they are and if they’re willing to wait.
The “green button” experiment found that 52% of customers actually changed their delivery decisions to minimize the environmental impact. The lab tried different ways to quantify that to the customer, such as CO2 reduction and trees saved. When researchers used the example of trees, they found that people were willing to wait an average of up to four more days for their delivery – although 70% said they would, but 52% actually did. But that’s still more than half who made that choice.
“There is the opportunity to communicate supply chain transparency to customers so that they can use that information at the moment of the purchase,” says Martínez. But this isn’t so easy to do. It requires emissions data specific to each order that is displayed when a shopper is making a purchase so that consumer has accurate information and can understand the footprint their decision generates, says Martínez. This requires a lot of analysis and maybe even third-party validation to legitimize the information – but providing it would be a significant edge for brands and their enviro credibility.
“Imagine that you can actually communicate [to a customer], ‘If you are willing to wait two, three, four days more, you’re actually going to be able to reduce that footprint by a certain percentage; you’re going to actually save the environment,’” he says.
The sustainability value of local warehouses
Localizing supply chains by balancing local and distant sourcing and manufacturing is another way to improve supply chain sustainability. Warehousing is an important part of that – building smaller warehouses that are close to demand would reduce travel time and emissions. Warehouses are now the biggest type of commercial building in the United States, and those numbers are increasing, according to the U.S. Energy Information Administration.
Warehouses could be mandated to be energy self-sustaining and designed to be carbon neutral. Alternative energy production – such as a solar panel array on a warehouse roof – seems obvious and, in some areas, is mandated or subsidized. Germany, for instance, has been a proponent of financial support for solar infrastructure. In the United States, there are a host of federal and state incentives.
In Elizabeth, New Jersey, East Coast Warehouse has a solar array on its warehouse that’s one of the largest in the Northeast. Kevin Daly, chief commercial officer, says the company recently installed another 4,900 high-efficiency solar modules that generated over two and a half gigawatts of solar energy in 2020. “Our solar array has really outperformed our expectations,” he says.
The company is expanding to Maryland and Georgia and investigating the use of solar with their warehouses there. Daly notes that this is easier for those who own their buildings, in part because the developer community is concerned about liabilities and the weight that panels can add to a building. Apart from that, it’s an ROI decision, and that often has to do with subsidies, he says.
In warehouses, putting the most important and fastest-moving SKUs where they can be quickly and easily accessed means less energy used by forklifts moving things around.
Daly expects more warehouses to adopt solar and other forms of alternative energy. “I’m sure that as technology continues to be perfected, it’ll become even more efficient and more beneficial to everybody,” he says.
Smarter warehouse management systems
Companies are using smart technologies to optimize daily warehouse operations.
Running the internal workings of warehouses and deliveries has become more sustainable as well. East Coast Warehouse has moved to tablets and mobile devices for dispatching and getting rid of paper as much as possible – and this in an industry that’s always used a lot of paper.
With digital options, truck drivers can stay in the trucks and use tablets to do all the paperwork, including the bills of lading, which can be sent directly to the consignees digitally. More than reducing paper, this makes for better transparency. The proof of delivery – where, when, and who signed – can be put into a transport management system and automatically archived.
“So that process, which was a lot of [staff] hours and a lot of manual operation in scanning and paper, has really become much more manageable if you’re doing it the right way,” Daly says.
Optimizing operations with a warehouse design is something that more companies are interested in, says Gowda of Chainalytics. Getting back to the basics of organization and doing things like putting the most important and fastest-moving SKUs where they can be quickly and easily accessed means less energy used by forklifts moving things around.
“Just trying to streamline this can really bring about a lot of change, even in terms of greenhouse gases because you’re really optimizing your operations, which is trying to make the best use of your resource available on the floor,” Gowda says.
Shimon Gowda, manager of supply chain design at Chainalytics, says there are a growing number of companies with corrugated recycling facilities within their warehouses so that they can reduce waste and keep boxes out of waste systems. For example, if a warehouse has a corrugated facility, cardboard can be recycled into boxes the sizes and shapes needed for specific products.
“This really drives and promotes reusing your packaging material and trying to consume less,” she says.
Sustainable logistics requires data
The question is, as always, “How good is your data?” Because the way things were done using historical information and assumptions on things like truck emissions is no longer enough.
Now there are third-party companies that provide tools to find the actual CO2 emission info for a truck using real data at the operational level, which can deliver info through dashboards to enable more strategic thinking and actions and create a more holistic supply chain.
Another big goal for many brands and manufacturers is the ability to break down emissions by product, from design to decommissioning. Consumers want this info, and it has the potential to be a significant brand differentiator if it’s done well and communicated accurately (that is, without unsubstantiated claims, or “greenwashing”).
More attention is being paid to reverse logistics, says Gowda, because now companies are driving more analytics and visibility to understand the environmental cost of the entire product life cycle. Chainalytics customers now want to run scenarios in which greenhouses gases are the primary focus and priority instead of costs, an area in which a digital twin is useful.
“Answering those kinds of questions becomes a little challenging without having a full-fledged digital twin platform,” says Gowda. “But we are definitely better than we were a decade ago, where we really do have the ability to understand our impact and also try and create more solutions to drive toward greener supply chains.”
We really do have the ability to understand our impact and also try and create more solutions to drive toward greener supply chains.
Shimon Gowda, manager of supply chain design at Chainalytics
Streamlining supply and demand forecasts can also improve sustainability, says Gowda. All along the supply chain, each entity has its own forecasting metric. But, she says, if there’s a flaw upstream, that gets repeated and magnified downstream. This can lead to overproduction by every company in that chain, and overproduction can mean waste or excess product sitting in warehouses after it’s traveled around the globe. “This is the exact kind of scenario that we really want to avoid when trying to move toward a more sustainable carbon neutral environment,” she says.
The supply chain concept called “collaborative planning and forecasting replenishment” is gaining ground. It’s another example in which a digital twin plays a key role because everyone in the supply chain can see one another’s data transfers. For example, a manufacturer can see the end retailer’s forecast three months in advance. If there’s a problem, it’s more likely to be identified and fixed sooner. “This can really drive toward circular economy because you’re really being minimalistic with your consumption, with your transfers, with everything,” she says.
As businesses become more focused on assessing the true environmental impact of their supply chains and logistics, deliveries will become more streamlined and less wasteful and will generate fewer emissions. And that will keep the environment and customers happy.
A note from the editors: Discover more sustainable logistics ideas and practical examples in The Circular Economy Goes Mainstream; 5 Supply Chain Truths for a Post-COVID-19 World; and By Land, Sea, and Air: Emerging Technologies to Tackle Climate Change.
Meet the Authors
SAP Insights Newsletter
Ideas you won’t find anywhere else
Sign up for a dose of business intelligence delivered straight to your inbox.