Sustainability Is the New Frontier in Supply Chain Network Design

As companies respond to increasing demand for sustainable products and services, the role of supply chain network design in supporting and furthering their green goals is gaining in importance.

There are many ways to use the analytical power of network design tools to make supply chains more sustainable. Leading practitioners such as Penske Logistics are using their deep experience to help shippers meet their sustainability goals as well as their cost and service targets.

Main Routes to Greener Networks

Since there are multiple tools and analytical methods to choose from, it can be helpful to think in broad terms when leveraging network design to support sustainability. Here are three examples.

Shrink the carbon footprint of freight operations. A clear route to greener supply chain networks is to reduce the volume of fossil fuels burned by freight vehicles. Penske designs freight networks that minimize the number of miles traveled without compromising service standards.

For example, Penske used its proprietary ClearChain^® technology suite to create inbound and outbound integrated network designs for a large appliance manufacturer that wanted to optimize its Midwest regional network. The analysis increased load utilization while reducing overall miles covered by 12%.

Reduce waste and maximize resource utilization.These are not new goals in the supply chain industry. However, minimizing waste and maximizing resource usage are also key weapons in the drive toward a more sustainable future. In supply chain terms, these goals can be met in various ways — such as optimizing the number of DCs and warehouses in a network or streamlining freight operations.

A company in the food business that shipped frozen product to warehouses for final delivery to customers asked Penske to evaluate its distribution network. "They wanted to know how many distribution centers they should have and where the facilities should be located," says Amy Ilyes, vice president of logistics engineering for Penske Logistics. Penske developed a design that optimized DC capacity and freight transportation. "We often redesign supply chains for customers, taking into account variables such as warehouse locations, the distribution of suppliers and the pooling of loads," adds Ilyes.

Support green operations. Supply chain networks are critical components of green operations. An example is circular supply chains, which require specialized design elements to support the "make-use-return" philosophy on which circularity is based. Used product or components must be moved between various nodes, including pick-up and storage points, recycling or refurbishment centers, and manufacturing plants. It is often necessary to configure these nodes and the product flows between them to support just-in-time production schedules.

Penske helped to create a closed-loop recycling network for aluminum manufacturer Novelis North America. The network moves finished aluminum coils from fabrication facilities to auto production stamping plants in several locations. The aluminum scrap generated by the stamping process is transported to a re-melt facility to be used in new coil production.

Applying the Tools

Having decided where supply chain network design can improve sustainability performance, companies must then apply the tools in the most effective way.

This is no mean feat. Network design is not without its challenges, the most common of which are software and data, internal resources, and an effective process. Many companies choose to work with experts such as Penske, who have deep experience with execution as well as design.

Smart practitioners leverage the lessons learned in developing broader design solutions. Here are some critical requirements from a sustainability perspective:

• Establish your goals. What do you want to accomplish in terms of your green agenda?
• Define your timeline. When does the new or modified network need to be implemented? What extraneous factors could impact your timeline such as the duration of current facility leases or impending supply changes?
• Determine your process. How often will you evaluate your distribution network design? Freight networks constantly change in line with shifting market conditions and company strategies.
• Define measures of success. What are your baseline and best-in-class measures for sustainability in your industry?
• Prepare for change management. Are the right incentives in place to meet your network sustainability goals?
• Choose your method. Will you use in-house resources, or will you fully or partially outsource the design project to a consultant or 3PL?

Green Gains Emerging

Supply chain network design has already proved its worth. For example, Penske research has shown that approximately 80% of supply chain costs are related to network design. A good design initiative can achieve as much as 10% to 15% in supply chain cost savings.

Sustainability represents a challenging new frontier in the network design space, but the benefits could be just as impressive.