In my experience, most conversations about sustainable supply chain initiatives have revolved around manufacturing and transportation. From the reduction of waste created by production plants to the introduction of electric and alternative-fuel vehicles, major improvements have been made in these aspects of the supply chain without any signs of slowing down. However, with the ever-increasing growth of eCommerce sales, distribution networks need to be strongly considered as the next frontier of “green” initiatives.
But why take on these projects now?
According to a study by Bloomberg, Capital IQ, and McKinsey & Company, the average top 50 publicly traded consumer-packaged-goods companies are valued by two broad categories:
- Current cash flows, which account for 49% of the valuation
- Projected growth of future cash flows, accounting for the remaining 51%
While this statistic can explain increased valuations for companies addressing emerging desires of consumers, it is also painfully evident when new regulations are imposed on unprepared organizations. And, though governing administrations may fluctuate on their strictness, it is a near certainty that more and more sustainability regulations will be introduced rapidly over the coming decades. Most will have a runway period, possibly 5 to 10 years, with specific goals to achieve and financial penalties for noncompliance; however, your companies stock price will not be given the same courtesy. Those that are already positioned to meet certain carbon footprint benchmarks will proudly announce so on their next earnings report, while those that are not will watch the ticker tape with anxiety and scramble to start the process.
Some of the lowest hanging fruit for improving the sustainability of your distribution network are obvious but can be met by serious resistance within a company.
- Go paperless. Removing traditionally paper-printed items from your fulfillment centers and replacing them with technological alternatives can yield major savings in costs while being nearly unnoticed by customers. Replacing customer invoices with emailed receipts or providing an e-gift card option, can save millions in paper, printer, ink, and maintenance costs, as well as increase productivity.
- Utilize upcycling. Scrap product or otherwise unsellable materials almost always have revenue potential. Upcycling is commonplace in cut-to-order operations – take many scraps from different materials and combine them to make a new, sellable product. Those leftover 2-inch strips of cloth you have after cutting your customers orders could make a marketable patch-work quilt.
- Or downcycling. If you don’t feel that upcycling aligns with your business model, downcycling can be just as impactful. Breaking down your scrap product into its raw materials can produce a vital component for a complimentary business or charity.
- Provide reusable packaging. An interesting waste prevention project is being piloted by UPS and a partner recycling company, TerraCycle. A new reusable packaging system for direct-to-consumer shipments called “Loop” is being tested in Paris, New York, New Jersey, and Pennsylvania. Like the milkman model, UPS will be sending products to customers in durable, branded containers. After the customer removes their items, the containers are then collected, cleaned, and reused for another delivery, removing thousands of tons of disposable packaging.
Despite all this, the highest returning sustainable initiative in distribution networks goes back to the fundamentals of logistics: having the right product in the right place at the right time. Coupling the increasing density of urban populations with the rise in online sales, now is the time to begin adopting new and aggressive inventory planning to reduce final-mile costs while simultaneously offering faster delivery options to consumers.
In an interview conducted by Supply Chain Dive, Karina Bursa of Logility says “Multi-echelon inventory optimization (MEIO), for example, is a significant contributor to sustainability efforts by optimizing the placement of inventory to efficiently and cost-effectively serve customers across broad geographic networks. Customer service improves, costs go down, obsolescence is dramatically reduced, and sustainability goals are achieved.”
While the challenge may be daunting, the opportunity to capture market share through inventory positioning is the largest win-win-win scenario when it comes to improving your business, improving customer service, and reducing your carbon footprint.
Learn more about how we are helping some of the world’s largest organizations build more sustainable supply chains while maximizing their return-on-investment at Bricz.
Contributor: Jonathan Brashears, Manager at Bricz