Article contributed by Lance Healy, Banyan Technology
Featured in the CU Quarterly, June 2008
Freight and logistics is often the third or fourth largest cost center of a company’s operations. Freight also lives at the very epicenter of carbon emissions. Thus, with better control over its freight, a company gains both increased profitability and control over its single largest source of carbon emissions.
- Most companies’ freight expenses fall between 6 and 12 percent of its total annual sales.
- Freight expenditures represent almost 7 percent of the nation’s overall gross domestic product.
- Over 75 percent of an average company’s carbon footprint comes from transportation.
- Nearly 78 percent of every barrel of crude goes toward transportation.
These statistics highlight the magnitude of the environmental issues facing our nation and our world. Though some of the most publicized green steps might be likened to firing a moist spitball into a forest fire, each person should continue to do his or her part to slow down consumption. In addition to those personal steps, however, we need to create much more significant change.
Since abandoning all existing transportation fleets is not a ready possibility, we turn our focus to alternative fuels. Current bio fuels are considered by many to be counter-productive to the environment as they demand more resources and produce less efficient fuels while simultaneously helping to augment global food prices. Hopefully, we will learn from this example to explore technological innovations and eventually produce a scalable, sustainable solution.
The near future will introduce huge new geopolitical entities like Asia, India, and Latin America as more active players in the energy-consuming, pollution-emitting industrial base. China’s demand for diesel fuel alone has nearly doubled since 1995’s consumption rate of 1.5 million barrels per day (bpd) to 2 million bpd in 2005, according to the China National Petroleum Corp. China is expected to break 4 million bpd by 2015. As an industrial leader, the US needs to develop solutions to implement at home and then offer to the rest of the world.
Sustainable transportation cannot wait for government intervention. The business community must take responsibility and approach this issue with vigor to pull more resources and talent into focusing on the issue of sustainable transportation, both for the sake of the environment and to control the effect of transportation costs on financial stability.
It was big news in 2005 when oil broke $50 per barrel. The headlines just three years later in early 2008 splashed $100 per barrel. Within a few months into the same year oil broke over $125 per barrel. Most companies do not have contingency plans or strategies in place that outline what to do when crude oil hits $300 and $500 per barrel, which is a looming prospect in the not-too distant future.
What do we do in the mean time?
Focus some of the resources of your resident Six Sigma ninjas or lean gurus on reducing your environmental impact with a focus on freight. Take control and change what is within your grasp. Simply maximizing the capacity of delivery trucks can reduce a company’s fuel consumption by as much as 30 percent. Remember, too, to consider indirect ways to affect freight costs. For example, packaging is the latest major concern for consumers and inventory analysts. Eye For Transport’s July 2007 report shared that in 2006, Wal-Mart discovered that they could save $2.4 million in shipping costs and 1 million barrels of oil annually by eliminating excessive packaging from a single private label toy line, not to mention 3,800 trees.
Control is only as good as the ability to measure, and the process of coordinating freight contains the most assumptions, averages and often the least accountability of any major purchasing practice. Assumptions such as awarding carriers by region, state or three-digit zip codes were necessary when the proper toolset for measuring did not exist. Average pricing and service indexes became necessary without the ability to communicate directly with carriers. Today, robust and easy to use web applications directly connect carriers, suppliers and customers on real-time collaborative platforms.
Although LTL freight carriers service many of the same areas, individual pricing and services vary by each company’s mix of clients, terminal locations and equipment availability. Working directly with a carrier’s matrix of business exposes information that can help in the decision-making process, such as the carrier’s distance from the terminal, or if they already have an anchor client near your shipment-receiving locations. These and other factors are reflected in their pricing.
White-washing these differences by focusing on average industry pricing and service time indexes or by making routing assumptions actually creates a false operational efficiency and may result in additional costs and less efficient travel time for carriers. Conversely, real-time communication illustrates which carrier is right for every shipment; this typically reduces carbon emissions and costs by 19 percent. By taking advantage of a carrier’s strong points and handling shipments more effectively, companies achieve greater operational visibility and control while also reducing their carbon footprint.
Collaborating internally among multiple warehouses enables companies to combine operations and save fuel by reducing loads and empty miles. Adding carriers to the mix creates a truly proactive system that minimizes waste for all parties. This same model further expands collaboration between suppliers and customers for backhauls, dwell time reductions and continuous moves for truckload. All of these applications of the technology save costs, time and fuel.
Take advantage of the technology available and create a truly collaborative platform – one that serves as a system of record to enable your ninjas, engineers, and analysts to reduce waste, tighten packaging and collaborate with customers and suppliers to both reduce costs to the bottom line and lessen the negative environmental impact.
Below are some suggested logistics efforts to consider (acknowledging that some of them are spitballs) accumulated from the EPA and a variety of other sources.
- Vehicle re-routing to reduce miles
- Eliminate idling at loading docks
- Strategic warehouse and distribution center placement
- Emissions measuring and/or reductions
- Product re-design and packaging
- Explore the EPA’s SmartWay transport program
- Returnable containers versus crated
- Moving air to surface routes
- Maximizing load and monitoring fuel usage
- Leveraging collaborative green logistics technologies
Take action, challenge assumptions, and take control. And thank you for taking those first steps.