Delivering on the Promise of Green Logistics

In 2011, the Environmental Defense Fund (EDF) approached Dr. Edgar Blanco, research director of the MIT Center for Transportation & Logistics (MIT CTL), to develop a series of case studies designed to help companies embrace “carbon-efficient” strategies in logistics operations. The case studies would provide examples of financially viable logistics strategies that reduce greenhouse gas (GHG) emissions (primarily CO₂) by reducing the amount of fuel and energy consumed to move products along the supply chain.

Three companies from different sectors — Boise, Inc., Ocean Spray and Caterpillar — were selected to participate in the project. The enterprises were at various stages of implementing logistics initiatives and were unsure of the GHG impact of these projects. In addition to providing technical details on how to assess the environmental impact of logistics initiatives, the case studies showed that collaboration is often at the center of achieving the expected financial and environmental benefits.

Companies worldwide have been working hard to reduce their carbon footprints. And one of the biggest challenges in that effort is the process of moving goods from point A to point B — the collection of transport and storage activities commonly referred to as “logistics.”

The ships, trucks, trains, airplanes, shipping containers, and warehouses that the logistics function uses to deliver products and services both locally and globally account for almost 6% of the GHG emissions generated by human activity. The EPA12 estimates that freight movements consume over 35 billion gallons of diesel fuel each year in the U.S. Burning this fuel produces more than 350 million metric tons of CO₂, which is over 20% of all the GHG emissions generated by transportation-related fuel combustion. These emissions are neither declining nor stable — they’re growing, and fast.

There are known logistics strategies that can both significantly reduce CO₂ emissions3 and produce cost savings. So why aren’t more companies embracing these strategies in their efforts to cut GHG emissions levels and improve their carbon footprints?

One key obstacle to implementing these strategies is that they require significant internal and external collaboration. The logistics function supports multiple business activities and related decisions. It’s driven by client-supplier relationships, outsourcing arrangements, cost-sharing, and coordination between trading partners. Add constantly shifting standards, relatively complex GHG computations, and differences between the strategic and tactical objectives of the participants, and it’s easy to appreciate why logistics is often regarded as a tough environmental nut to crack.

Yet with the right collaborative approach, this need not be the case. Three case studies based on real-world projects prove the point.

These three companies — Boise, Inc., Ocean Spray and Caterpillar — successfully collaborated with (respectively) customers, a competitor, and suppliers to implement logistics-related operational changes that achieved profitability while reducing the environmental impact of the business. A collaboration with two independent third-party organizations, the MIT Center for Transportation & Logistics (MIT CTL) and the Environmental Defense Fund (EDF), helped them navigate the technical details and build both the internal credibility and momentum needed to carry the initiatives forward.

Customer Collaboration: OfficeMax & Boise, Inc.

Boise, Inc. manufactures a wide range of packaging and paper products, with reported earnings of $2.56 billion in 2012.4 The company operates mainly in the U.S. and has long-term relationships with many customers.

Among the most important of these is with retailer OfficeMax, which until 2004 was Boise’s parent company under the name Boise Cascade Company. Although Boise now operates separately from its former ownership, the two companies still work closely together, with Boise supplying a majority of OfficeMax’s paper products.

Ross Corthell, general manager at Boise’s Trucking Division, and his team are constantly looking for ways to deliver products more efficiently while satisfying their customers. Truck transportation offers the flexibility and speed Boise needs to meet delivery promises. However, moving products by truck also accounts for the largest percentage of the CO₂ emissions associated with logistics operations. Rail transport is more cost effective and emits much less carbon per equivalent weight and distance, but it’s also slower and less flexible than trucking.

How can a company capture the carbon-cutting advantages of rail without sacrificing the customer-service benefits that come with truck-based delivery systems?

For Boise, the secret to carbon savings was found in collaborating with customers.

Carload Direct Improves Efficiency

Corthell’s team developed two initiatives in concert with their clients. For the first project, called Carload Direct, Boise called upon its long-time partner OfficeMax. Prior to the initiative, shipments from Boise to its customers were routinely moved by truck to the retailer’s facilities, even when the destinations were accessible by rail. OfficeMax became a test case for switching to direct-by-rail shipments. The two companies’ longstanding relationship helped Boise negotiate the change, but Corthell’s team was still tasked to make sure the transition did not disrupt OfficeMax’s ordering process.

The benefits of the change, carbon-wise, were obvious. A traditional truckload shipment comprises about 20 tons of product, whereas a railcar carries around 70 tons — yet rail transportation is considerably more fuel efficient than trucks despite moving more weight.

With the help of MIT CTL, Boise quantified these benefits by comparing the CO₂ emissions associated with transporting Carload Direct shipments by truck versus rail.

The main drawback to the process is that a rail solution required customer orders to be “staged” [meaning, warehoused] until there was enough freight to fill a boxcar. This meant that the time from order placement to delivery was potentially extended, while running the risk that inventory needed by stores would be stuck in a warehouse. The saving grace? OfficeMax’s ordering volume. By coordinating orders, Corthell’s team was able to determine when enough OfficeMax orders were available to “pool” into a Carload Direct shipment and when a regular truck shipment was the best option.

The solution may seem straightforward, but it required extensive cooperation between the transportation departments at Boise and OfficeMax. For example, ordering processes had to be adjusted and coordinated to take account of the change in product flows. Not every SKU was suitable, so the teams had to select products that could be part of the pooling system. And the changes had to be made without altering the inventory positions of either enterprise.

Are such opportunities available to every company? No — but many companies where they are available don’t take advantage of them out of concerns about the risk of adverse effects on service. In Boise’s case, Corthell, as general manager of logistics, was behind the project and made sure that his team had all the resources needed. He also provided the assurance needed by OfficeMax and other client companies that the changes Boise was making would not adversely affect service levels.

Did the special relationship between Boise and OfficeMax make the changes easier? Surprisingly, the answer is “No” once more.

One critical lesson learned was the importance of introducing change gradually, to give the organizations time to adjust. For example, the team maintained a flexible truck schedule to mitigate any perceived risks of the Carload Direct initiative.

At the same time, the savings had to accrue to both the supplier and the customer for it to work. The shift from using a mix of truck and rail to primarily rail between the major Boise and OfficeMax distribution centers eliminated more than 2,600 tons of CO₂, the equivalent of saving over 264,000 gallons of fuel consumed by road vehicles. Both companies benefitted from this greener supply-chain solution.

For CO₂ Savings, No Idea Was Too Crazy

Boise’s second project started with an internal “no idea is too crazy” brainstorming session. Corthell credits Bensenville, IL, distribution center manager Ron Tomaczewski with the idea. “He saw rail cars with room in them all the time, but not enough for a full pallet. We were constrained in such a way that we could not put in another pallet. Also, we were not ‘weighing out’ [maximizing the full weight capacity of] the cars. There was a lot of innovation done to make this happen. The carbon footprint was the extra benefit.”

Boise redesigned its pallets and loading procedures to accommodate a half-pallet, which allowed them to reorganize pallet stacking and maximize shipping capacities for their loads. Once the operational configuration was solved, Boise needed to work with its customers to allow orders that included a half-pallet size.

They created new SKUs and modified ordering and receiving systems to allow for the new half-pallet product configuration. Boise realized that this was a win-win situation; the half-pallet solution was a perfect fit for companies that shipped seasonal and low-demand products.

Using just 930 railcars in 2011 reduced the company’s CO₂ emissions by 190 tons. In addition to improving the environmental performance of Boise and participating customers, the smaller, half-pallet unit gave Boise and its customers more order flexibility.

Competitor Collaboration: Ocean Spray & Tropicana

Boise’s example is one way that companies try to use rail service to reduce both costs and emissions. Another method is using intermodal transportation — that is, combining modes of transport, such as road and rail, or road and air — to optimize logistics operations. Road-rail intermodal provides the convenience of point-to-point service that trucking offers, in combination with the cost-efficiency and environmental gains that rail brings.

Identifying opportunities for using intermodal can be challenging. The respective transportation services must mesh seamlessly in order to maintain service standards and avoid delays that can result in the costly build-up of inventory.

Ocean Spray captured such an opportunity in an unconventional way: it collaborated with a competitor.

Ocean Spray is an agricultural cooperative owned by more than 700 cranberry growers in Massachusetts, Wisconsin, New Jersey, Oregon, Washington, Canada and Chile, as well as 35 Florida grapefruit growers. The organization posted fiscal 2012 gross sales of $2.2 billion and net proceeds of $338 million.

One of Ocean’s Sprays most significant logistics expenses — and a major contributor to its carbon footprint — was the need to ship product from its Bordentown, New Jersey distribution center over 1,000 miles to another distribution center in Lakeland, Florida. By coincidence, both of these distribution centers are located a short distance (60-65 miles) from rail yards used by a competitor, Tropicana, which shipped orange juice north from Florida in special refrigerated boxcars.

Tropicana itself had a key difficulty when it came to logistics. Although it could send product direct from Florida up to the CSX rail terminal in New Jersey, that’s where the efficiencies ended. Once offloaded, the refrigerated rail boxcars were often traveling empty back to Florida, an obviously inefficient use of fuel that cost Tropicana both money and additional emissions.

Tropicana’s third-party logistics (3PL) provider, Wheels Clipper, saw an opportunity to help its client while earning the trust of a new customer. The company approached Ocean Spray and proposed that they operate an intermodal lane from New Jersey to Florida that would put Tropicana’s empty orange juice boxcars to use on Ocean Spray’s behalf. The goal was to save Ocean Spray money (and reduce emissions) by allowing them to switch from trucking their cranberry juice to sending it more efficiently by rail, while also saving Tropicana the cost and emissions associated with empty cars returning south.

The plan provided environmental benefits and lowered costs for both companies.

The environmental gains were not easy to compute, however. This required Ocean Spray to compare the emissions generated by both intermodal and truck movements. Arriving at the latter value was difficult because Ocean Spray contracts with outside carriers to transport its products, and in many cases does not have the required fuel consumption data for the trucks used by these external carriers. MIT CTL helped the company to solve the problem by using an emissions factor to complete the calculation.

But there were potential downsides. To make the idea work, Ocean Spray would have to change its relationships with existing logistics providers and work with a new 3PL, using a mode the company was unfamiliar with. Even more challenging, the arrangement required Ocean Spray to collaborate with one of the company’s strongest competitors in the beverage business, Tropicana. Yes, Ocean Spray would reap key benefits — but so would its competition. Did this really make business sense?

The potential ROI if the project succeeded made it clear that it did. Using the intermodal solution would save Ocean Spray over 40% in transportation costs compared to the previous trucking method, and reduced its GHG emissions by a whopping 65%. Meanwhile, Tropicana would eliminate most of the costs and GHG emissions of the boxcars’ return trip from its ledger — a significant reduction in each metric, at the price of some (admittedly complex) process changes.

After mulling it over, Ocean Spray decided that the plan did make sense, and reconfigured its load planning processes to make shipments compatible with the rail mode. Of course, the changes weren’t strictly one-sided: Tropicana and Wheels Clipper also needed to change their operating procedures to communicate railcar availability to Ocean Spray. To guarantee the on-time delivery of all shipments, all the participants worked to improve supply chain visibility. For example, they improved the flow of information between the parties on the status of shipments and potential delays. As the intermediary, Wheels Clipper helped to ensure that this information was delivered to the relevant parties in a timely fashion.

An extensive test phase also helped the partners meet their goals. During several pilot runs, the companies were able to coordinate load pickup and delivery within required time windows, and confirm that product was being handled properly. The trials also revealed potential problems. For example, the new intermodal solution added one to two days to transit times, and Ocean Spray had to adjust its logistics operations to avoid having a negative impact on customer service. Yet in the end, the fact that there was a clear ROI for both shippers gave incentives to the participants that helped them to move the project forward and make it successful.

Supplier Collaboration: Caterpillar & Part Suppliers

“Internally, we are looking at ways to make our own operations more efficient. Externally, we are trying to find ways to make our customers more efficient,” says Terry Goff, Caterpillar’s director of emissions regulation and conformance. But projects to redesign logistics systems to make them more carbon efficient often involve suppliers.

There are unique roadblocks to these collaborations. Relationships with suppliers vary, and can range from market-based agreements such as negotiated supply contracts to closer affiliations that involve joint product development. Even when close ties exist, there is often strong resistance to changing the inbound supply chain.

Zena Onstoff, a “Blackbelt” of inbound logistics and packaging at Caterpillar, led a project that overcame these obstacles with an idea that was both simple and highly effective.

Cat’s Global Mining Division makes specialized trucks for the mining industry. Over the past 30 years, Caterpillar has produced nearly three times as many trucks as its closest competitor. The company assembled its 50,000th rigid-frame construction and mining truck in 2009.

Onstoff’s initiative focused on the North American inbound parts logistics for Caterpillar’s manufacturing facility in Decatur, Illinois. She had been working on the idea to reduce the weight of the thousands of returnable packing containers that Caterpillar used to transport parts from suppliers. This idea had been brewing inside the Caterpillar Production System (CPS), a Six Sigma-enabled process that constantly looks for improving manufacturing and operational efficiencies. Replacing the heavy metal packing containers with light-weight plastic units and streamlining shipping processes cuts the weight of shipments, which translates into less fuel consumption and reduced carbon emissions.

However, the effort required Caterpillar to coordinate with multiple suppliers in different countries. It was a daunting challenge, particularly when long-established practices have to be changed. Some of these containers had been in circulation for more than 50 years.

Still, the case for the change was strong. Prior to the carbon footprint study, Caterpillar’s internal analysis had determined that the fuel savings from light-weighting inbound containers would be significant. Yet Caterpillar had been slow to adopt the plastic containers because of several internal organizational and budgetary constraints. As a CPS Six Sigma Blackbelt, Onstoff jumped at the opportunity to work with MIT CTL researchers to perform an environmental analysis of the initiative and build a stronger case for the change.

The first step was to carry out a detailed analysis of the inbound flow of containers. MIT CTL analyzed 16 weeks of transportation data that included detailed information about North American suppliers, number of parts shipped, and delivery dates for three of the flagship mining trucks. The data included over 15,000 truck deliveries of 1,400 different item numbers from more than 200 suppliers that ship directly to the Decatur manufacturing plant. The Caterpillar and MIT teams determined that 9.5% of shipments were eligible for packaging light-weighting.

By reducing the shipping containers from 130–200 pounds each to 20–40 pounds each, Caterpillar could reduce CO₂ emissions across the Caterpillar North American network by 130 tons. Moreover, Caterpillar determined that the fuel savings gained from the introduction of lighter containers would offset the capital expenditures within two years. Onstoff and Goff could now present a strong environmental case, on top of a viable financial benefit, to all internal and external stakeholders affected by the packaging changes.

“As a result of the study, the Decatur team outlined a process to move from its current packaging procedures to the lighter-weight options, all while following the Caterpillar Production System principles,” says Goff. “The new packaging process also drove changes in other areas such as receiving and transportation. This project brought visibility to opportunities Caterpillar can capture to substantially improve internal processes by initiating moves to lightweight packaging.”

The cooperation of suppliers was key to the project’s success. It would take time to roll out the new plastic containers across Caterpillar’s extensive supplier network. Also, owing to their light weight the plastic units are easier to misplace, and container tracking mechanisms had to be put in place that encompasses the distribution of parts.

Summary

These three projects highlight the power of collaboration to unlock the huge potential for reducing the carbon footprint of logistics, and by extension, the environmental performance of participant organizations.

The lessons pertain to three primary collaborative partners: customers, competitors, and suppliers. While the importance of collaboration was the central thread, each project highlighted a particular set of challenges and solutions.

Customers were willing to engage as long as their service expectations and risks were acknowledged and mitigated throughout the change. For example, Boise made a special effort to ensure that switching shipments from truck to rail transportation would not require its customer, OfficeMax, to carry more inventory.

Rivals needed transparency, well-defined mechanisms of information exchange, and a neutral third party to jump-start the collaboration. In the collaboration between Ocean Spray, Tropicana, and Wheels Clipper, for instance, one of the keys to success was improving the flow of shipment information between the parties, thus promoting greater operational transparency and trust.

Suppliers are generally familiar with collaborative partnerships, so in this case the barriers tended to be more around giving a higher priority to competing initiatives within respective organizations. Caterpillar already had a strong case for reducing the weight of the returnable containers it used. Still, the change required the close cooperation of Cat’s suppliers, and involved reconfiguring the inbound supply chain, a significant undertaking. One of the challenges the manufacturer faced was persuading its busy suppliers that the effort was worthwhile.

In addition to the vital role of collaboration, all three case studies showed that well-defined measures of success and slow rollouts guaranteed “stickiness”. Other common ingredients of success include a committed champion willing to go the extra mile to keep the process moving, opportunities to leverage and sell the initial wins of the project, and using this momentum to implement specific strategies.

Although the initiatives were cost beneficial, quantifying the environmental benefits provided the logistics teams at Boise, Ocean Spray and Caterpillar an even larger motivation to keep pursuing future opportunities.