Sustainably driven supply chains


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Sustainably driven supply chains

  1. 1. By Ayse Bayat, Sekar Sundararajan, H. Robert Gustafson Jr . and Emory W. Zimmers Jr.Sustainabl driven y supply chainsThe drive to go “green” hit The supplier learned lessons on how and being a good steward of the envi-supply chains like a thunderclap in July to initiate a process to use sustainable ronment were consistent goals. The2009. That’s when Wal-Mart announced manufacturing practices as a strategy Wal-Mart sustainability index focusesthat its suppliers would have to improve to reduce costs in the supply chain. The on four areas: energy and climate, mate-sustainability in their supply chains. lessons include the necessity of find- rial efficiency, natural resources, andOne corporation, which we’ll call the ing an executive champion; building people and community.ABC Company, had Wal-Mart as a key organizational support; embedding a As a key customer, the retailing behe-customer when the announcement was systems approach; aligning sustain- moth’s sustainability criteria acceleratedmade. A study of this large, multinational ability metrics with key supply chain ABC’s efforts to initiate a companywideconsumer goods company demonstrates performance indicators; and quantifying project to establish a sustainability base-how to create a more cost-effective supply chain savings and sustainability line. The facility used in this case studysupply chain by being more sustainable. opportunities with data analyses. was chosen as the pilot location for ABC. ABC Company committed to integrate ABC used its baseline sustainabilityits supply chain sustainability goals with Past is not present assessment to model innovative waysits productivity goals to improve both Executives traditionally believed that that sustainability improvements couldoperating and sustainability metrics. making manufacturing operations more cut supply chain costs. The assessmentThe project involved a comprehensive sustainable would put them at a compet- focus areas were derived from Wal-approach that included electricity, utili- itive disadvantage because of additional Mart’s sustainability criteria. For ABC,ties, water and logistics. This approach operating and equipment costs. Back the criteria included electricity audit,helped ABC Company reduce its carbon then, executives treated the need to energy (compressed air, steam andfootprint by 10,000 metric tons a year, become more sustainable as a corporate retort), material usage (solid waste andsaving more than $2 million in annual social responsibility issue divorced from water) and transportation and logisticsoperating costs. This article, however, business objectives. (suppy chain).deals only with the logistics portion as it The Wal-Mart 2009 announcement By the end of the pilot study, theapplies to the movement of materials to changed the game. Its executives were overall assessment identified more thanand from the plant (external) and within operating under the belief that being 10,000 metric tons of carbon footprintthe plant (internal). an efficient and profitable business reduction annually with a return on26 Industrial Engineer
  2. 2. Green manufacturing programs ought to include big stepstoward reducing logistics costs August 2011 27
  3. 3. sustainably driven supply chainsinvestment of 10 times. Of this, more The plant manager formed a cross- picture in mind. The assessment lookedthan 50 percent came from the supply functional team. It was important at sustainability opportunities plantwide,chain improvements. to create an early victory to win over and transportation and logistics were skeptics. The early efforts of collecting major focus areas. Figure 1 demonstratesEn route to savings baseline information and sharing it with how the plantwide effort was divided intoA key first step is to identify an execu- the team led to some surprising findings. various elements.tive to champion, lead and accept the An example was the magnitude of trans- The entire chain of raw materials —investment risks. Sustainability needs portation wasted on high-volume raw from supplier through external storage,executive level commitment. Therefore, materials from across the country and transportation to the plant, and move-it takes a courageous leader to challenge the world. This cost reduction opportu- ment within the plant until the materialsthe skeptics, push the facility and expend nity caused the plant controller, who was were distributed as finished goods —resources to find more sustainable busi- a skeptic, to become an avid supporter was defined and analyzed as a completeness operations. In this example, the after the first milestone meeting. Show- system. Focusing too much on individ-plant manager became the executive ing such measurable possibilities early ual supply chain components could havechampion. The vice president of manu- on gets the team believing in the mission. resulted in suboptimizing the overallfacturing supported the project with The sustainability drive required an objective.the caveat that the plant manager had embedded systems approach to iden- The supply chain was divided intoto meet his cost performance numbers. tify synergies across the processes when internal and external material movement.This ensured that any sustainability streamlining. The most important aspect Internal was defined as all materialinitiatives were tied to cost savings. of the assessment was keeping the big movement within the walls of the facility divide, conquer Project manager Project supervisor Lehigh ABC Lehigh ABC Lehigh ABC Lehigh ABCBaseline assessment mentor Company liaison mentor Company liaison mentor Company liaison mentor Company liaison Electricity audit Energizers Environmental Transportation 7 weeks 5 students 3 students management and logistics 3 students 2 students Compressed air Usage and ammonia Process wastewater Rail vs. truck Sourcing Steam Rainwater Internal material movement Metering Natural gas Solid waste stream Commodity/ LED lighting Coolers Building climate distance/volume Data collection, data analysis, creation of baselines, preliminary identification Opportunity development of sustainability improvement opportunities Pareto analysis for identification of most promising improvement opportunities, categorization of project 5 1/2 weeks components (cross system, single team, future study), creation of coordinated sustainability matrix (two days) Electricity audit Energizers Environmental Transportation management and logistics Analysis of feasibility of implementing improvements Estimated timeline for implementation Estimated cost of implementationFigure 1. A systems approach helped break down the plantwide sustainability effort into various elements.28 Industrial Engineer
  4. 4. — warehousing, material handling, and external material movements and supplier source, outside storage require-production and distribution. External finding ways to eliminate or minimize ments, mode of transportation (truck,was defined as all material movement the non-value-added steps in the process. rail and intermodal), related operatingfrom raw material sourcing, transporta- Due to their unique characteristics, costs and environmental impacts. Thetion from supplier to plant and all storage the internal and external elements were distance traveled was the primary factorof raw material outside of the facility — analyzed separately in parts of the data in determining the carbon footprint ofprocurement and transportation. collection process. However, the final the shipment. This provided insight Many believe that what is measured analysis examined all elements of both into opportunities and trade-offs whenis improved, and sustainability has internal and external supply chains choosing alternate sources and differentmany connotations. It is important to as a whole. Remember, the decisions modes of transportation. Switching fromquantify key metrics that are clear to made on one part could and did impact one transportation mode to anotherthe organization and are consistent another. The systems approach also could save money and cut carbon costswith other supply chain performance took refrigerated storage, pallet design without compromising service levels.measures. This will support aligning the and stretch wrap into consideration. High-volume materials were identi-goals of internal and external stakehold- Many different data sources were used fied, and the location of every vendorers so they work collaboratively toward to understand the supply chain compo- that supplied them was mapped to visu-improving supply chain sustainability. nents in detail. The sources for external alize the opportunities. Transportation The primary goal was to maximize analysis included the ERP system, plant costs were compared to illustrate thesupply chain performance, which included and corporate employee interviews and cost differences. Figure 2 compares theincreasing throughput and material avail- collaboration with transportation and transportation costs between truck andability, reducing operational costs and logistics companies. The internal analy- rail delivery for selected raw materials.improving labor efficiency. The sustain- sis involved time studies, interviews The results indicate that shipping byability goals were subordinated to the with forklift drivers and data from ware- rail was consistently cheaper, except forsupply chain goals of delivering prod- house management systems. Raw Material No. 1.ucts on time for customers. This process The internal analysis primarily focusedaligned the supply chain and sustainability A moving analysis on forklift movement. Even thoughgoals. Sustainability became doing more The primary focus of the external move- they are powered by electrically chargedwith less movement. ment analysis was storing and moving batteries, forklifts have a substantial The internal and external material raw materials from suppliers to the impact on emissions. The forklift move-movement became the critical indicator plant. All incoming raw materials were ment in the distribution center wasof both sustainability and supply chain identified and prioritized by weight. divided into order selecting (loading),improvements. Therefore, the efforts The top few were analyzed further for truck receiving (unloading) and linefocused on understanding all the internal frequency of receipts, distance from receiving. The process of loading was what’s cheaper carbon Raw storage truck footprint estimated material location location weight loads miles (Co2 lbs.) truck cost rail costRaw material 1 Vermont Direct 3,317,260 94 330 63 $77,550 $452,289Raw material 2 Wisconsin Wisconsin 22,793,750 625 1,000 2,272 $987,500 $912,500Raw material 3 South Dakota Direct 918,697 26 1,313 93 $73,736 $49,841Raw material 4 California Missouri 1,791,744 20 2,900 15 $102,080 $84,680Raw material 5 California Missouri 819,394 22 2,900 130 $112,288 $93,148Raw material 6 Wisconsin Missouri 1,415,318 38 1,780 138 $132,574 $98,754Raw material 7 South Dakota Missouri 1,154,601 31 1,780 110 $117,180 $79,205 $1,602,908 $1,770,417Figure 2. For most raw materials, shipping via rail was less expensive than shipping via truck. August 2011 29
  5. 5. sustainably driven supply chainsdivided into running, trailer preparation, materials are transported from long bad weather could prevent the materialswrapping and stationary times for the distances on trucks. Rail solutions have from reaching the plant when needed.forklifts. The stationary time is related a high initial setup cost but low opera- This plant had unused on-site stor-to the forklift, not operator movement. tional costs. Rail cars can store up to four age space that could minimize off-siteTime studies of the loading process truckloads of material and have a lower handling, reduce storage costs and keepidentified various non-value-added carbon footprint than trucks. However, the material available.activities, including time wasted while truck shipments are predictable and, Minimize non-value-added time:the pallets were being wrapped. The time at first, cheaper to set up. Often these The internal movement of forklifts couldfor each activity and the total number of trade-offs can be managed. be made more efficient by addressingpallets in each truckload determined an Alternate sourcing. Several raw unnecessary movement due to distribu-average time per pallet. materials were sourced from across the tion center layout, wrapping of pallets The ideal time for each operation was country due to unit price and availabil- and unreliable load plans.estimated by minimizing the non-value- ity. In some cases, using nearby vendors Several recommendations were devel-added activities and comparing them to could reduce the distance traveled and oped for each opportunity. A cost/the actual times. The comparison identi- the risk of running out of production benefit analysis showed the payoff andfied opportunities to reduce the time the materials. But alternate sourcing is a return on investment. For example,forklift spent on unnecessary activities. strategic decision that should be consid- although switching most transportation ered carefully lest it negatively affect to rail could reduce costs substantially,The “hows” of sustainability other facilities in the manufacturing this was not always feasible because ofThe project’s internal and external network. facility location and current contracts.analysis yielded several opportunities Evaluate on-site or closer stor- Other recommendations such as usingto improve the supply chain and make it age locations: Some key raw materials a returning truck to carry recyclablemore sustainable. were stored in central locations for use material could be implemented right Shift modes of transport (rail or in multiple facilities. These external away without significant initial invest-intermodal vs. truck). Several raw storage solutions could add costs. And ment. The supply chain performance like a hand in a glove CO2objective recommendation potential savings footprint Action requiredInternalReduce forklift movement 8 additional trucks loaded/day 18 tons/yr. Reduce wrapping time 20 minutes/day/forklift 4.16 tons/yr. Additional stretch wrap machine Implement Better pallet design Test on line Dependable load plans 10 minutes/day 2.17 tons/yr. Follow-up project Improve distribution center layout 60 minutes/day 11.7 tons/yr. Follow-up project Create algorithm for truck dock Implement scheduling On-site storage $133,000/yr. Better availability and less handling with savingsExternalReducing external Alternate sourcing Needs strategic sourcing movement study and corporate involvement On-site processing equipment $540,000/yr. Internal investmentReduce transportation cost Raw material brought by rail $650,000/yr. 3,512 tons/yr. Requires corporate instead of truck involvement and approvalReduce energy cost Rationalizing cooler capacityFigure 3. Reducing internal and external movements demonstrates that supply chain improvements and sustainability go together.30 Industrial Engineer
  6. 6. and sustainability improvement werecalculated for each recommendation. riding the railsFor each feasible recommendation, an Supply chain managers are looking at rail to cut their company’s carbonimplementation plan was developed, as footprint and save money. Railroads can carry a ton of freight two to foursummarized in Figure 3. times as efficiently as trucks. But in the past, customers have worried about reliability, and rail hasn’t been seen as a sexy investment or solidCashing in supply chain alternative.The logistics and “green” improvements This is changing, as exemplified by Berkshire Hathaway Chairmancould wind up saving ABC $1.2 million Warren E. Buffett’s decision to spend $26.5 billion to buy the rest ofeach year. In addition, the company could Burlington Northern Santa Fe railroad, reported Bloomberg Businessweek.reduce this facility’s carbon footprint Since the buyout, dividends have totaled more than $3 billion. Theby more than 3,500 metric tons annu- continuing economic recovery, combined with rail’s fuel efficiency andally. These results were a major part of improved reliability, has Burlington executives buying 200 more loco-the assessment project’s overall annual motives and more transfer facilities. Recent years of capital investmentsavings of $2 million and 10,000 metric by Burlington Northern and other railroad companies have more trainstons of carbon emissions. In addition, meeting their schedule.they could save enough time for workers “People need to know that the trains are going to run on time,”to load an additional eight trucks each Tompkins Associates logistics consultant Chris Ferrell told, a 15 percent improvement. “They don’t mind that you’re a day and a half slower; they just want to The logistics results demonstrate that make sure that you’re a day and a half slower every time.”supply chain performance, costs and Each year, organizations spend about $300 billion shipping goodssustainability indices can be improved between cities. A Burlington Northern executive estimated that rails onlysimultaneously. The recommendations get about 13 percent of that business. Rail’s sweet spot is for hauls longerwere reviewed by management and than 750 miles. For example, a company could save $1,002 and half itscurrently are in various stages of imple- carbon emissions by using rail to send a freight container the 2,020 milesmentation. Based on the company’s from Los Angeles to Chicago, according to Burlington officials.own ROI standards, the return on thesustainability project was estimated tobe 10-to-1 without considering grant savings and sustainability opportu- Lehigh University. He co-founded the interdis-offsets. With grants, the return doubled. nities through data collection and ciplinary Innovation and Leadership Residency The case study taught participants analysis. d program and is an advisor to the Nationalseveral lessons about using sustainable Society for Leadership and Success at Lehighmanufacturing as a strategy to reduce Ayse Bayat is a senior in industrial engineering chain costs and carbon emis- at Lehigh University. She has worked on severalsions. The key elements for success are projects through the Enterprise Systems Center Emory W. Zimmers Jr. is professor of indus-as follows: and is minoring in engineering leadership. trial and systems engineering, the director of the Enterprise Systems Center, and the direc-1. Identify an executive to champion, Sekar Sundararajan is president and founder tor of the National Science Foundation’s lead and accept the investment risks. of Libra Consulting. He has worked across Center for Engineering Logistics and Distri-2. Pilot and build support by ensuring multiple industries including consumer goods, bution (CELDi) at Lehigh University. His early success. automotive, industrial goods, retail and logis- research interests include computer control3. Embed a systems approach to iden- tics. He has more than 20 years of industry of industrial systems, agility applications tify synergies across processes when experience in strategic operations, agile manu- in manufacturing, logistics and distribu- streamlining. facturing, sourcing and supply chain. tion systems, new techniques in multimedia4. Ensure sustainability metrics support distance learning, entrepreneurship and lead- existing key performance indicators H. Robert Gustafson Jr. is the Leadership ership development. (KPI) of the supply chain. Fellow and managing director of the Enterprise5. Quantify the supply chain cost Systems Center and an adjunct professor at August 2011 31
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