3 Ways to Increase Sustainability and Profit through Smart Logistics

Nearly all of the150 largest companies in the world have a Chief Sustainability Officer at VP level or higher. Corporate Social Responsibility (CSR) is a major talking point in many annual reports and conferences. This is all good and proper, but many of us have a feeling that it is simply window dressing we are witnessing, and not a lot of concrete action.

One sector to take real, hands-on action is in transportation. In the United States in 2011, 27% of the greenhouse emissions came from the transportation sector, and more than one-quarter of that is from the transportation of goods.

Smart logistics in transportation is about cutting costs and emissions by minimizing the miles trucks drive every day on our roads. It is improving sustainability, hands-on, and real, positive environmental impact can be achieved by three very straightforward methods:

1. Distribution Network Optimization is about finding the right number and locations for your distribution centers (DCs) to create the optimal balance between the costs of transportation, warehousing and inventory to achieve the required service levels. Transportation, on average, accounts for about half of the total logistics costs so it is the primary consideration in determining the optimal distribution network. The results vary depending on situation, but a 15 – 20% reduction in payload distance (ton-miles) is standard. The reduction is due to trucks not moving, so you don’t have to fake any emissions tests. The bonus is that your cost savings are about as substantial.

2. Freight Negotiation is about finding the carrier for whom your shipments will generate the least new miles driven by better utilizing existing capacity. The best example is that if a carrier has a flow in the reverse direction of your transportation needs, the carrier would then transport your goods rather than driving back deadhead. It is financially beneficial to both parties, as the carrier earns money it otherwise would not have and you get much better rates. You are of course negotiating the profit margin, too, but that is not where the major savings come from. The environment benefits from reduced emissions from having one less truck on the road during the former deadhead haul.

3. Freight Planning is about making your shipments as efficient as possible. Three examples of smart logistics in freight planning are: pooling multiple shipments into one, load planning to perfect the balance between weight and volume to optimally fill a truck and route optimization of your own fleet. All three examples reduce the emissions in a way that makes an impact on the environment while improving your bottom line by minimizing the ton-miles you accrue.

Seven Trends in Logistics

1. Warehousing; In-House or Outsourced?

On one side, the 3PL providers are getting better and have all the credentials needed, which is tearing down a lot of the walls of resistance towards outsourcing. On the other side is the feeling of lost control and freedom that could be needed as logistics is getting even more important. There are a lot of other reasons, but everybody is talking about it.

2. Ocean Freight

At CSMCP this was the topic for of many discussions and it is changing the thinking in many companies. The intensive rate hikes the last year and the unreliable capacity are some of the problems to wrestle with. It is also a part of the background to the on-shoring, even though it is more anecdotal than substantial statistical facts this far. On-shoring will make the list soon.

 

3. White Glove Services

The term used to refer to companies carrying the furniture into the living room. Now it is often used to refer to the value added services in conjunction with the delivery of a physical product. This service is getting more integrated in the physical product and treated more as a source of revenue than a nuisance. The final yards of the delivery is getting more important as the only physical contact with the customer for many companies.

 

4. S-a-a-S

The Software-as-a-Service concept has enabled smaller companies to operate good and modern WMS and TMS, which facilitates a smaller revolution when it comes to efficiency.

 

5. Intermodal Traffic

It has been talked about for a while and now nobody wants to miss the train (!) The increase in domestic container shipments on rail increased by 7% in the third quarter of 2014 over the same quarter in 2013 according IANA.

 

6. Fuel Prices

The gas price has decreased by 78 cents per gallon from May 2014 to November 2014. What will this mean for the trucking industry? Will the carriers change the fuel surcharge formulas?

 

7. Distribution Structures

Partly connected to the number 1 on the list. With the economy taking off and volumes increasing, we see a lot of companies reevaluating their distribution networks. The managements have learned that there are big savings to be had by optimizing the distribution networks and don’t want to miss out.

Establish Davis Database Presentation at CSCMP

Establish’s consultants Conrad Ross and Piotr Pregner will be presenting the 2013 Establish Davis Logistics Cost and Service Database at the CSCMP annual global conference in Denver 22 October.

Establish Davis Logistics Cost and Service Database is an ongoing annual survey that manufacturers, distributors and retailers participate in to receive a customized logistics benchmarking report of logistics cost and service. The benchmarking database is the longest running, since 1976, and with most entries in the logistics industry. The findings are presented annually at the Council of Supply Chain Management Professionals (cscmp.org) Annual Global Conference. Participation in the Database is free and confidential. It’s easy to participate on-line and our logistics consultants are ready to help you, should you have any questions.

Collaborative Logistics: The Who, What, Why and How

I interviewed Paul Van den Brande who discussed Collaborative Logistics. This interview was originally published my blog on the Kinaxis Supply Chain Expert Community at TheFutureofSupplyChains.com

During the time of the interview, Paul Van den Brande was a Partner at Just in Time Management Group in Belgium. Paul discussed collaborative logistics: who, what, why and how… He sees that the future of outsourcing and 4PL logistics includes the side effect of collaborative logistics and carbon footprint reduction.

What is Collaborative Logistics?

Today, collaboration means that competition works together through a neutral third party so that the data and confidential information is segregated. There is no direct access to confidential information between players in that field. This is a broad perspective because you can have broad collaboration between different suppliers delivery their products into one buyer, or buyers who have different suppliers and bring them in one truck/aircraft/ship. They would have to delivery at certain times. Collaborative logistics means competitors working together to service a common customer, or as a customer bundling competing suppliers (ie trucking companies) into one truckload to maximize utilization, have return loads, etc.

Why do Collaborative Logistics now?

The cost effectiveness is the major driver. In classical outsourcing to a non asset based carrier neutral company/4Pl, the savings will be 10% on average. If you do collaborative outsourcing the savings can go up to 20%. You can also realize a 5-10% improvement in service levels to the retailer. It is cost effective to pursue collaborative logistics. Also, the data is organized better and the soft savings are tremendous, without having to lay-off people or to necessarily shifting the trucking companies or logistics providers you are working with. The trucking companies or logistics providers are just a layer on top. What you need is strong software due to the increasing complexity of operations as more parties enter.

Who is Currently Doing Collaborative Logistics?

A year ago there were some emerging projects which have now come into play. In France, collaboration has been put together with Glaxo Smith Kline, Henkel Cosmetics and Colgate. Henkel in France collaborates with three other FMCG companies. This is made possible by their logistics provider. The usual logistics challenges of availability, increasing congestion on roads and fuel price volatility were becoming even more strained in this environment. Henkel recognized that they needed to make a significant change in their supply chain. Their solution was industry ”pooling”, which involved Colgate, GlaxoSmithKline (GSK) and Sara Lee. This collaboration with three other FMCG companies and a logistics provider required a cultural shift within the company, as well as commitment from all parties.

These leading companies have been sharing their experiences of collaboration across the supply chain. At a recent supply chain conference which focused on horizontal collaboration, strategies discussed included:

• Sharing knowledge, experience and expertise

• Consolidating goods flows

• Sharing transport vehicles and network capacity

• Sharing logistics infrastructure

• Sustainability objective drive collaboration

They are delivering into the big department stores similar to Walmart. All of the suppliers to this large retailer used the same logistics company. They decided to consolidate everything to get full truck loads and to organize empty pallets. They optimized full truckloads arriving at dedicated times with fast turnarounds. This started mid 2010. The cost savings are tremendous. Paul thinks they can do even better by using fourth party logistics, rather than third party logistics.

As these platforms continue to be built and put into operations, other stores can collaborate to grow the platform and the benefits and profits are shared with all of the players.

Other companies using collaborative logistics include food manufacturers such as Heinz, Henkel, Proctor & Gamble, Nestle Waters, Colgate Palmolive and Kimberly-Clark.

How to get Started with Collaborative Logistics?

You first need data. You can either start from retail companies or from suppliers. It is either a pull or a push situation. Today, Paul is speaking with some retailers who are dealing with the big manufacturers of computer hardware. The retailers need to meet a minimum sales volume, otherwise their contracts are stopped. This is dramatic for the distributor because they have service level agreements in place and customers to service. The distributors proposed to the big hardware producers that collaboration may need to be considered due to quantities not being met. The proposal is to create a collaborative logistics platform whereby everyone wins. This platform is currently being created.

About Paul Van den Brande

Paul has been in freight forwarding for a long time and he has always had the newest business models and technology in mind. In previous discussions Paul talked about outsourcing logistics to 4PLs. He sees that the future of outsourcing and 4PL logistics includes the side effect of collaborative logistics and carbon footprint reduction.

Supply Chain Analytics

Dustin Mattison from TheFutureOfSupplyChains.com interviewed Edith Simchi-Levi who discussed the role of analytics in supply chain and operations strategy.

Most supply chain professionals are familiar with the book titled Designing and Managing the Supply Chain. Edith Simchi-Levi was one of the authors of this very well-received book talks about supply chain analytics. Supply chain analytics are used to solve logistics network modeling problems. Supply chain analytics and logistics network modeling is a source of competitive advantage for many companies. It allows them not only to understand what their business is doing, but also come up with new solutions and ideas for where they are going.

Key Takeaways

• The capabilities in the analytics themselves have improved quite a lot in the sense that you can solve bigger problems and much faster.
• In the context of supply chains, analytics are used to solve problems, such as network design, which can use optimization techniques.
• Analytics is an area of investment and competitive advantage because it helps you understand what your business is doing and find new solutions and ideas for where your business is going.
• Complexity has increased due to the Internet and there is more data available- 
• Analytics requires a deep understanding of both supply chains and modeling techniques.

The interview in its entirety can be seen here.

About the Author

Dustin Mattison | Blogger on TheFutureOfSupplyChains.com

About the Interviewee

Edith Simchi-Levi | VP Operations

Logistics Network Modeling and Value Networks

Dustin Mattison from TheFutureOfSupplyChains.com interviewed Verna Allee, who discussed connecting human interactions and business processes. 

The complexity of logistics networks has increased dramatically in the past decade. Logistics network modeling of supply chain processes has become increasingly important. However, the supply chain is not just about business transactions; it’s also about how relationships are built and how people interact around key decision points and action points in the supply chain. Human interactions and business processes need to be better connected so that we can see behind the business processes and reveal the hidden networks of human interactions.

Key Takeaways

• Instead of evaluating work as a process or quantifiable production line, the roles, interactions and deliverables that the end product rests upon should be highlighted.
• The networks of human interactions are predicated on patterns and activities that can be analyzed to determine gaps and disconnects and avert future problems.
• Processes are often translucent in the supply chain, but behind the processes is a hidden network of human interactions that is of critical importance.

The interview in its entirety can be seen here.

About the Author

Dustin Mattison | Blogger on TheFutureOfSupplyChains.com

About the Interviewee

Verna Allee