If you asked any number of shippers or logistics providers a year or so ago what they thought about green business practices, they generally agreed that it was a ‘good idea’ driven mostly by consumers and marketers, but many were doubtful about the actual ROI and even less certain about when and where they would embark on any meaningful initiative to green their own operations.

However, the events of the last year, namely the astronomic rise in fuel prices coupled with a downward spiraling economy, have kicked green initiatives into high gear. And let’s face it, while most businesses truly care about the environment, they are first and foremost in business to make money and beat out the competition. Fortunately, they’re quickly discovering that green is a great way to get there.

Where we are today

The latest logistics study from Capgemini, Georgia Institute of Technology, Oracle, and DHL—the 2008 13th Annual Third-Party Logistics Study—found that 86 percent of the executives polled agreed that a green supply chain is somewhat or very important today and are almost unanimous (98 percent) in their belief that green supply chain initiatives are somewhat or very important to their companies’ futures. Yet, when asked about ROI, using green as a factor in selecting 3PLs, and changing transportation modes, the opinions were mixed: about one-half of 3PL users are optimistic about taking action and reaping benefits from green initiatives, while the other half are either unsure or even pessimistic. “Clearly, there is widespread uncertainty about how to move forward with green supply chain initiatives,” concluded the study’s authors.

Obviously, you have to know where you are first before you can begin to move forward. The Results Group (www.resultsgroup.com), a California-based consulting firm, has developed a Green Enterprise Maturity model to help companies with that task. It categorizes companies in one of four groups:

Complier. Green initiatives in the company’s supply chain and operations are accidental by-products of ‘business as usual’ efforts and there are no metrics for measuring results.

Dabbler. The company has made isolated attempts to improve supply chain and customer support operations, and ‘point measurement’ of green is present in metrics, but is not full spectrum.

Consistent Improver. Consistent efforts are made across the supply chain and customer support with demonstrated trends in results. Environmental performance is also a factor for supplier selection. As for metrics, green coverage is good but not integrated with business metrics.

Enterprise Optimizer. Supply chain and customer support function as integrated entities in optimizing resource usage; green is becoming a key component of the company’s operational strategy for long-term structural advantage; and collaboration is found with suppliers/partners to develop innovative ideas benefiting both companies. Furthermore, green is integrated with business metrics (such as carbon released per dollar of revenue).

According to Emily Rodriguez, a senior consultant with The Results Group, most companies today are still amongst the Dabblers. “We’re not so sure you’d even find many Fortune 500 in the Consistent Improver category, and certainly there are few Enterprise Optimizers,” she says.

Although many companies have cited costs as an obstacle to going green, Rodriguez believes that’s less of an issue today than simply being overwhelmed. But, like most challenges, you begin by breaking it down into manageable parts, she advises.

“A big part of what we do is to educate clients first,” Rodriguez explains. “We also remind them that they can’t adopt every green initiative that comes along. They need to be discerning; that’s being business-minded.” Another point that clients often miss when it comes to green, is that it ultimately boils down to being a competitive issue. “Competition is what drives business decisions,” she says, “just like when hazardous materials regulations were introduced and everyone had to get rid of lead solder, for example.”

Rodriguez also says that many clients lack strategic plans when it comes to green initiatives. “They may start out by saying they want to reduce their waste by 25 percent, but they don’t have a baseline. They don’t really know how much waste they’re generating today. Furthermore, they’re confused as to what sustainability really means. And, what is carbon neutral? Does that mean we just have to buy carbon offsets?” she says.

Shan Hoel, Director of Communications for Transgroup Worldwide Logistics (www.transgroup.com), sees similar problems. “Unless you have a qualified baseline to start from, it’s very difficult to formulate an effective strategy,” he says. “Companies need to look at their entire supply chain and choose one or just a few areas and start there to get their baseline. Once a company knows where they’re at, they can begin to search out green opportunities.”

And what's ahead

Like others who are developing an expertise in green logistics, Hoel emphasizes the importance of collaboration, which is a key component for creating a future strategic plan. “One of the first things a shipper can do is to identify logistics partners who have already established green initiatives. If the shipper is using an asset-based carrier, for example, find out about the carrier’s equipment and if they have no-idling policies. Maybe they use APUs (auxiliary power units) on their trucks, which mean they use a fraction of the fuel required to heat and cool the cab. In fact, Wal-Mart has saved $25 million and 100,000 tons of CO2 emissions per year just by installing APUs on their fleet.”

Hoel also points to the U.S. Environmental Protection Agency’s (EPA) SmartWay (www.epa.gov/smartway) program as a good example of collaboration. The program, begun in 2004, aims to reduce emissions in the supply chain. Most of the more than 700 members are trucking firms, but railroads and shippers are increasingly being represented. Companies that participate in SmartWay save money, reduce fuel consumption, and are recognized for their social responsibility and leadership.

The EPA is strengthening its presence in the green arena with another program called the Green Suppliers Network (www.greensuppliers.gov). The Green Suppliers Network is a collaborative venture among industry, the EPA, and the U.S. Department of Commerce’s National Institute of Standards and Technology Manufacturing Extension Partnership (NIST MEP). Specifically, the Green Suppliers Network works with large manufacturers to engage their small- and medium-sized suppliers in low-cost technical reviews that employ Lean and Clean methodologies to increase productivity, reduce waste, and boost profitability.

At the recent eyefortransport Sustainable Supply Chain Summit in San Francisco, Kristin Pierre, an executive with the Green Suppliers Network, noted that 5 years ago, only 12 percent of companies de-selected suppliers for failing to meet sustainability criteria. Today, that number has risen to 32 percent, and within the next five years it’s estimated that 76 percent of companies will choose not to work with a supplier if they don’t meet sustainability criteria.

“Green and ethical is no longer an option; it’s a necessity,” stressed Pierre. While most companies are familiar with lean methodologies, the addition of “clean” practices boosts the costs savings, she explained. Clean opportunities can be found in energy and water conservation, reduction of water pollution and air emissions, and reduction of solid waste and hazardous waste.

One supplier that participated in the Green Suppliers Network—a subsidiary of Johnson & Johnson and manufacturer of Listerine mouthwash—reduced its annual waste by 200,000 gallons and saved 40,000 gallons of water annually, which helped it attain savings of $250,000 annually. An executive with the company remarked, “We had never looked at product packaging, water use, or energy use as part of our lean discussions. We now know how wasteful our practices really were and understand the connection between lean initiatives and clean benefits.”

The Green Suppliers Network assessment costs $4,500 and takes 2 to 3 days to complete. Furthermore, companies need not worry about the federal government getting a glimpse into their operations either, assured Pierre, because the assessment team does not include EPA personnel and all information is confidential.

Richard Yim, Vice President, Products and Marketing, for SmartTurn (www.smartturn.com), a provider of on-demand inventory and warehouse management system (WMS) solutions, also appreciates the relationship between lean and green, particularly in the warehouse environment, which is still very paper-intensive. Indeed, Yim estimates that about half of the 500,000 to 600,000 warehouses in the U.S. still rely on paper rather than an automated system.

And, what does it really cost to run a warehouse without an automated system? A lot more than one might imagine, starting with shipping inaccuracies. “On average, we’ve found that warehouses that use a paper-based system have about a 90 to 91 percent shipping accuracy. But, it jumps up to about 99 percent with an automated system,” says Yim. Improving shipping accuracy also helps bring down labor costs, whether that means fewer trips up and down the aisles or not having to re-create shipping documents. It also means a warehouse is better able to identify consolidation opportunities, which means savings in time and fuel.

Boosting shipping accuracy has other benefits, too, says Yim. “Roughly 50 percent of the cost of running a warehouse is related to the picking process. So, when you pick the wrong item because of an error in the receiving process or because something was put away incorrectly, you are not using labor efficiently. Not to mention, sometimes there are different picking policies for different customers—last in, first out, or first in, first out—and if those processes aren’t sorted out efficiently in an automated fashion, you’re just wasting labor resources.”

Yim also says that a WMS can help reduce physical inventory. “Some companies perform a physical inventory once a year, or once a month, once a week, and some even once a day. They require the entire warehouse crew to go into the warehouse and count boxes. Naturally, it’s highly labor-intensive. But with a WMS, that is eliminated.”

Choosing an on-demand solution such as that offered by SmartTurn versus running a server on company premises is another way to cut costs and run a greener operation. “It costs between $900 and $1400 per year just in electricity to run a single PC server in your warehouse,” says Yim. Aside from being more cost-effective, the other advantages of opting for an on-demand service supported by an enterprise-class server include improved visibility, superior backup ability, and a true mission-critical system, he adds.

Meanwhile, Tom Wright, a consultant (www.sustainablebizness.com) who works with companies such as Whole Foods, takes a more holistic view when it comes to green strategies. He urges companies to adopt a cyclic principle, where there is no “away” (throwing something away is not an option), where there is no “end of life” (everything is a nutrient is a closed-loop system), and where everything has a “next life.” Wright observes, “We’re up against a culture that works on a linear system; it’s not a cyclic principle as is should be.” For instance, the ideal hierarchy, according to Wright is Redesign, Rethink, Reduce, Reuse, and finally, Recycle. “The simple idea is to redesign commerce so that it mimics a natural ecological cycle,” he explains. Adding that we need to move away from the cradle-to-grave mentality and replace it with a cyclical process: cradle-to-cradle. Companies need to ask themselves if the materials they use are safe and healthy for human and ecological systems. They also need to pay more attention to reverse logistics—do we know where this stuff comes from, where it goes, and how to get it back into a closed-loop, zero-waste cycle?

Although many companies see the green movement as more than a little daunting, the good news is there are more resources and information available today, and it’s only going to get better. wt

Sidebar: Green Industry Growing in Sacramento

The city of Sacramento is fast becoming a magnet for clean and green technologies due to several factors, including access to state policymakers (the city is the capital of California), strong relationships with researchers at UC Davis, and an ample supply of intellectual capital in the renewables sector, thanks to the expanding number of national and international firms setting up shop in the region.

The work that’s being done in Sacramento and state-wide has ramifications for all companies who are moving in a green direction, whether it involves new technologies that will make their warehouses, facilities, and supply chains more cost-efficient and environmentally friendly, or help shape future regulations that will impact businesses across the U.S.

Clean technology is one of the leading industries in the region, explains Robert Burris, Deputy Director, Sacramento Area Commerce and Trade Organization (www.sactoedc.org). The region is not only attracting clean energy firms in the solar sector, like Dutch-based Ecostream (www.ecostream.com), Solar Power Inc. (www.solarpowerinc.net), and Bloo Solar (www.bloosolar.com), but also companies like Marquiss Wind Power (www.marquisswindpower.com) and Jadoo Power Systems (www.jadoopower.com), a leader if fuel cell technology.

Millions of dollars in venture capital is also pouring into the region. Last year, clean technology in Sacramento attracted more than $50 million in venture capital.

“The region’s proximity to the leaders in energy efficiency research at UC Davis, and California’s attention to policy and the incentives it offers to clean technology, makes Sacramento a logical choice for this work,” remarked Dr. Barbara Grant, Managing Director of American River Ventures (www.arventures.com), during the second annual Clean Energy Showcase at Sacramento State University in September. “A majority of our investments in the last three years have been made with entrepreneurs who are providing a platform to energy efficiency and intelligence.”

Jack Crawford, General Partner of Velocity Capital in Folsom, echoed the enthusiasm for clean technology. “We are looking to put one-third of our investment fund into clean tech companies in this area,” he said. “We think this is a great opportunity for superior returns for our investors. We are seeing many VC firms outside the area take a much closer look at what we can achieve here.”

As the market for clean energy continues to develop, Sacramento is projected to create 10,000 new jobs and $5 billion per year in direct economic activity in the next ten years. In addition, Sacramento’s impressive growth and potential has attracted both national and global attention. Earlier this year, the city was one of twelve U.S. cities to receive a Solar America Cities grant for $200,000 from the U.S. Department of Energy to support the advancement of solar energy, including the installation of more solar-panel systems.