Jan 18, 2023 5 Min READ

Sustainable Logistics as the Next Advancement in Supply Chain Management

5 Min READ
Sustainable Logistics as the Next Advancement in Supply Chain Management

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Spring 2023 Extensiv Supply Chain Scholarship runner up, Tess Porter, is a standout student from ASU with a promising future career in supply chain management. Driven by the rise of green initiatives in logistics, Tess wrote a compelling essay on sustainable logistics as the future of supply chain management.

For those not aware, the Extensiv Supply Chain Scholarship was created to not only inspire fresh and new ideas within the industry, but to find talent as well. In conversations with our warehouse management system (WMS) customers, they shared the difficulty in seeking suitable employees with talented minds. These minds would inspire, create, and lead the future of the supply chain industry. To help the development of our industry, Extensiv created the Supply Chain Scholarship. Our hope is that we can benefit the supply chain industry by finding and aiding like-minded individuals that will lead the future of supply chain and warehousing technology.

Without further ado, here is a future visionary in logistics and runner up for the Spring 2023 Extensiv Supply Chain Scholarship, Tess Porter, and her essay on sustainable logistics.


Sustainable Logistics as the Next Advancement in Supply Chain Management

Supply chains are ubiquitous across every industry and impact nearly every exchange in the economy. Supply chain management is one of the most vital parts of any successful business, thus adapting to fluctuations and shifts in the economic environment are critical for keeping businesses profitable. Recent humanitarian and political issues are influencing the supply chain as both consumers and leaders are pushing for more ethical business practices to combat present issues. Current shifts in consumer demand, political interests, and economic advantages point to sustainable logistics as the next advancement in supply chain management.

Sustainable logistics, colloquially “green logistics,” has been gaining attention in recent years. The current climate crisis has propelled sustainability to the forefront of the public interests, resulting in high consumer demand for eco-friendly products and services. According to a study conducted by Simon-Kucher & Partners, 85% of people globally are shopping “greener” (2021). The study also found sustainability is important when shopping to 60% of people globally, with over a third willing to pay higher prices for greener products (Simon- Kutcher & Partners, 2021). Customers are intentionally choosing where to purchase based off the environmental ethics and habits of companies, thus an environmentally friendly appeal can give a company a competitive edge over their competition.

In addition to consumers pushing towards sustainability, government actions towards sustainability are likely to proliferate as environmental crises grow more threatening. Logistics currently accounts for 24% of all carbon-dioxide emissions and is projected to reach 40% within the next thirty years (CarbonCare, n.d.). Many countries have reacted by creating legislature aimed at logistics. The United States, France, Thailand, the UK, and members of the EU have all recently implemented substantial environmental protection laws. Alongside hard government interventions, soft interventions such as incentives and disincentives are also likely to expand. Incentives, such as tax breaks or subsidies, will aid in pushing businesses towards sustainable practices.

Besides staying relevant in the market, sustainable logistics has monetary benefits persuading supply chain managers to go green. Sustainability is incredibly lucrative, as proven by consumers opting to pay premiums for environmental products. A 2017 survey conducted by KPMG found 75% of the top one hundred revenue-generating companies issue sustainability reports (Chen et al.). These successful companies showcase how sustainability has the capacity to boost revenue. Green logistics can increase sales through a positive company image cultivated by supply chain visibility and eco-friendly company practices. Better company perception comes with better word-of-mouth marketing, more advocacy marketing, and an overall higher chance of gaining new customers and retaining existing customers.

Sustainability has another way to increase profits besides boosting revenue: decreasing costs. According to the 2020 Global Supply Chain Report by the CDP, “Companies are facing up to US$120 billion in costs from environmental risks in their supply chains within the next 5 years” (2021). Many businesses recognize incorporating green logistics is necessary to prevent these costs. For example, the tech giant Hewlett-Packard has used energy efficient programs to save themselves and their participants a total of $119 million in electricity since 2010 (Hewlett- Packard, 2022). Upstream, the sustainability reports released by HP declared their suppliers have also saved $465 million from reduction initiatives in 2020 (Hewlett-Packard). Companies such as HP can reduce energy expenditures through greener alternatives such as energy-efficient LED lighting, geothermal HVAC systems, solar panels, and wind turbines. Another example of a company reducing costs through green initiatives is IKEA. The furniture company has cut transportation costs by roughly $189 million by switching from wood pallets to 90% lighter corrugated cardboard pallets (Wilner, 2011). Despite possible high initial startup costs, businesses are finding incorporating sustainability is leading to overall higher profit margins as “sustainability” and “efficiency” often overlap.

The innovation of technologies and strategies available regarding sustainability are accelerating as the global urgency of the climate crisis rises. Supply chain managers can now transport products with materials such as cornstarch bags and biodegradable peanut dunnage. Rice husk, for example, is durable, affordable, biodegradable, and potentially pollutant absorbing. For ink, there are now a plethora of non-toxic options, such as water-based, soy, UV, and algae. Electric vehicles and equipment are becoming more sophisticated and will likely continue to popularize. Hyperloop systems powered by magnets are in discussion, as they have the potential to be clean yet high-speed transportation. Additionally, new fuels such as hydrogen, bio-LNG, and CNG are prospective. Hydrogen is a renewable form of energy suited for cars and portable energy. Hydrogen’s only byproduct is water when consumed appropriately and can be produced from multiple accessible resources. Bio-LNG, which stands for “liquefied natural gas,” is carbon neutral and involves methane and carbon dioxide from unwanted organic wastes. Bio- LNG’s cousin CNG is similar as they are both methane based and emit less carbon than conventional natural gases. However, this “compressed natural gas” is nontoxic and in a condensed form. All these promising solutions demonstrate how sustainable technology is advancing and gives a glimpse into what logistics may hold down the road.

There are numerous indicators currently suggesting sustainable logistics is the future of supply chain management. Global attention is focusing on the environmental crises, which is pushing government bodies to increase protective laws and incentives for sustainability. Consumers are demanding more sustainable and organic products, and their shopping habits are changing to reflect those demands. Many businesses are finding eco-friendly practices raise profit and improve company image. And with all the new advances in sustainable technology, going green is becoming more accessible and prominent every year. Recognizing sustainable logistics as the next advancement in supply chain management is critical if managers wish to keep their business relevant in the coming decades.

References

CarbonCare. (n.d.). The Responsibility of Transport and Logistics. [Web page]. Retrieved from https://www.carboncare.org/en/climate-change.html#:~:text=The%20Responsibility%20of%20Transport%20and24%25%20of%20global%20CO2%20emissions.

CDP. (2021, February). Transparency to Transformation: A Chain Reaction. [Web page]. Retrieved from https://www.cdp.net/en/research/global-reports/transparency-to-transformation.

Chen, P., Ballou, B., Grenier, J. H., & Heitger, D. L. (2019, October 10). Sustainability Assurance’s Link to Reporting Quality. Journal of Accountancy. https://www.journalofaccountancy.com/news/2019/oct/sustainability-assurance-link-to-reporting-quality-201919354.html.

Hewlett-Packard. (2022, May 12). 2021 HP Sustainable Impact Report. [PDF]. Retrieved from https://www8.hp.com/h20195/v2/GetPDF.aspx/c08228880.pdf.

Simon-Kutcher & Partners. (2021, October 25). Recent Study Reveals More than a Third of Global Consumers Are Willing to Pay More for Sustainability as Demand Grows for Environmentally-Friendly Alternatives. [Web page]. Retrieved from https://www.simon-kucher.com/en-us/about/media-center/recent-study-reveals-more-third-global-consumers-are-willing-pay-more-sustainability-demand-grows-environmentally-friendly-alternatives.

Wilner, T. (2011, December 1). IKEA Expects 10% Transport Savings from Pallet Replacement. Environment + Energy Leader. Retrieved from https://www.environmentalleader.com/2011/12/ikea-expects-10-transport-savings-from-pallet-replacement/.

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