Building sustainability in logistics

operations: a research agenda

Asoke Dey, Paul LaGuardia and Mahesh Srinivasan
College of Business Administration, The University of Akron,
Akron, Ohio, USA
Abstract
Purpose The purpose of this study is to examine the current state of sustainability efforts within
the eld of supply chain management, more specically supply chain logistics operations, and to
identify opportunities and provide recommendations for rms to follow sustainable operations. This
study also aims to stimulate further research within the area of sustainable logistics operations.
Design/methodology/approach The reasons why it is important to implement sustainability
into supply chain operations is discussed. Based on a review of the extant literature, various areas
within the logistics function where sustainability can be implemented are then presented. Some
short-term and long-term recommendations for the successful implementation of sustainability in the
logistics function of supply chains are provided.
Findings There has been very little work done to understand the role and importance of logistics in
an organizations quest towards sustainability. For rms to implement a sustainability strategy in
their supply chain operations, the logistics function needs to play a prominent role because of the
magnitude of costs involved and the opportunity to identify and eliminate inefciencies and reduce the
carbon footprint.
Practical implications Firms in their quest for sustainable logistics operations must start early
and start simple. A top management commitment is required for such efforts to be successful. Also,
rms need to be able to visualize and map out their supply chains and benchmark their sustainability
efforts with other rms in their industry.
Social implications Firms need to follow sustainable practices in their overall operations and in
their logistics operations in particular because not only does it have nancial and other intangible
benets, but it is also the right thing to do. Firms have a great social responsibility especially with
respect to use of non-renewable sources of energy and materials and also with respect to how their
products are used and handled once they reach the end of their life cycles.
Originality/value This paper is the rst of its kind which examines the state of sustainability
within the eld of supply chain logistics operations and identies areas and sets the agenda for future
research in this eld.
Keywords Sustainability, Logistics, Green, Transportation, Sustainable development,
Supply chain management
Paper type Research paper
An important challenge organizations need to overcome has to do with how they perceive
sustainability. They might not say this, but most rms act as if sustainability is about being
less bad [. . .] people dont get excited about incremental changes [. . .] They need a more
ambitious vision [. . .] A cool part of sustainability work is uncovering the assumptions that
lead people to do things in a way thats out of touch with the companys larger reality [. . .]
(Prokesch, 2010).
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/2040-8269.htm
All authors contributed equally to the preparation and submission of this paper and are listed in
alphabetical order.
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Management Research Review
Vol. 34 No. 11, 2011
pp. 1237-1259
qEmerald Group Publishing Limited
2040-8269
DOI 10.1108/01409171111178774
Introduction
The focus of corporate strategy has traditionally been about increasing the bottom line
throughcost reduction and increased sales. However, growing concerns over issues such
as the limitation of resources, global warming, greenhouse gases (GHGs), and consumer
health have increased the urgency for rms to incorporate sustainability into their
strategies (Lee, 2010). With the development of the internet and 24-hour news, every
company is constantly under the watchful eye of the public. Unsustainable practices
hidden in the supply chain has the potential to become public information extremely
quickly, leaving a companys brand value damaged and shareholders displeased. This is
no more evident than the effect that the recent oil spill off of the US Gulf Coast had on the
stock value of British Petroleum (Moss Kanter, 2010; Gross, 2010), the severe nes
imposed on Shenzhen Energy Group after an ocean tanker transporting coal struck the
Great Barrier Reef (Huang, 2010), and the consumer boycotts that threatened Nike after
the public was made aware of sweatshops (Kenyon et al., 2000).
With the rise of todays conscious consumer, adding sustainability into the
corporate strategy has become about meeting the expectations of investors while taking
into account the long-term impact that operations have on the community and
environment (Prokesch, 2010). A focus on supply chains is a step towards the broader
adoptionanddevelopment of sustainability, since the supplychainconsiders the product
from initial processing of raw materials to delivery to the customer (Seuring et al., 2008;
Linton et al., 2007). Since supply chain managers are engaged in every facet of the
business process including logistics, strategic planning, information services, marketing
and sales, and nance, each manager is in an ideal position to carry out sustainability
initiatives (Sarkis, 1998). For supply chain managers, it is important to understand that
day-to-day decisions have the potential to affect millions of stakeholders either positively
or negatively (Murphy and Poist, 2003). If a decision is determined to have negative
impacts at any point in the future, then it is not sustainable and not worth the risks
associated. Though adding sustainability throughout the organization takes creativity,
many rms have learned howto use it to differentiate themselves fromtheir competitors,
reduce costs, and improve services to their customers (Gold and Seuring, 2011; Pedersen,
2009). The interaction between sustainability and supply chains is the critical next step
from recent examinations of operations and the environment (Corbett and Kleindorfer,
2003) and operations and sustainability (Kleindorfer et al., 2005).
However, although many papers have focused on the idea of sustainability within the
supply chain context (refer Seuring and Muller, 2008; Srivastava, 2007 for review), there
is very little work done to understand the role and importance of logistics in an
organizations quest towards sustainability. A logistics operation represents the
integrated management of all the activities required to move products through the
supply chain and subsequently, the logistic cost can be dened as the monetary
expression of all kinds of consumed labors in the course of product displacement
(BinA and Chaoyuan, 2005). For most rms, logistics costs is substantial and ranks
second only to the cost of goods sold. According to the International Monetary Fund
(IMF), logistics costs average about 12 percent of the worlds gross domestic product
each year (Ballou, 2004). As for the impact that logistics has on the environment,
according to the Council of Supply Chain Management Professionals, logistics can
produce up to 75 percent of a companys carbon footprint (The Council of Supply Chain
Management Professionals, 2008). The combination of monetarycost andenvironmental
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impact that logistics contributes to operations makes it a key area and there exists a need
to explore opportunities to strengthen logistics and make it more efcient. Addressing
this need is central to the research agenda of this study where we focus our attention on
the area of logistics in the supply chain.
Specically, we posit that there are numerous areas throughout the rms logistics
operations where sustainability can be implemented. We break down various areas in a
rms logistics function into the supply chain, value adding chain, distribution chain,
and the reverse logistics chain. For each of the logistic functions, we identify
opportunities for introducing and continuing sustainable operations. Also in this
study, after providing examples of todays leading rms and how they dene
sustainability, we take a more detailed look at why all rms must begin implementing
these practices immediately. We make the case that a number of factors will force rms
into making changes to their logistics strategies. Every logistics manager needs to
understand the relevance of each factor with his/her rms logistics functions and start
incorporating the ideal practices to achieve sustainability in the rms operations. With
multiple examples of rms performing at both rst-class and below standard, we
present areas within the logistics function where sustainability can be implemented,
including both short- and long-term recommendations.
The remainder of the paper is organized as follows. First, we discuss the reasons
why it is important to implement sustainability into the supply chain operations. The
various areas within the logistics function where sustainability can be implemented are
then presented. Finally, we provide some short- and long-term recommendations for
the successful implementation of sustainability in logistics function of the supply
chains.
Why the logistics function need to implement sustainability?
Logistics involves the activities to obtain incoming materials and distribute nished
products to the proper place, at the desired time, and in the optimal quantities
(Markley and Davis, 2007, p. 767). Specically, the components of a typical logistics
system are: customer service, demand forecasting, distribution communications,
inventory control, material handling, order processing, parts and service support, plant
and warehouse site selection, purchasing, packaging, return handling, salvage and
scrap disposal, trafc and transportation, and warehousing and storage (Figure 1). The
process can extend from the raw material source through production and distribution
to the point of consumption and the associated reverse logistics. Firms work with its
trading partners (suppliers, shippers, distributors and customers) to improve their
logistics activities and hence, greatly improve business performance (Sandberg and
Abrahamsson, 2011) and reduce the logistics cost (Baykasoglu and Kaplanoglu, 2007).
Logistics cost can be calculated as the sum of manpower and material resources that
can exist in every stage of material movement such as packaging, loading, unloading,
transportation, storage, processing in circulation and logistics information
(Ballou, 2004).
For rms to implement a sustainability strategy in their supply chain operations,
the logistics function needs to play a prominent role (Mollenkopf et al., 2010; Goldsby
and Stank, 2000). An interesting example is the logistics rms of Europes chemical
industry. Fewof the initiatives that managers of these logistics rms have implemented
are full asset utilization, increase of unit size to small lots to full loads, cost-to-serve
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reduction and elimination of waste (Young, 2009). Such actions along with enhanced
integration of various supply chain components and conformance to social systems and
ethics surrounding the workforce based on quality and working conditions; have
contributed to sustainable logistics and helped rms reduce their carbon footprint
(Young, 2009). Wilson (2010) points out that enhanced eet tire management for the US
dairy and ice cream delivery trucks would not just reduce manufacturing cost and
improve performance but can be an important step towards a sustainable logistics
program. Byrne (2007, p. 22) identify sustainable physical asset management as the
topmost priority for supply chain managers that could minimize or eliminate
energy-intensive storage, reduce travel times, and increase truckload utilization.
Extant literature on logistics and supply chains also stress the importance of
sustainability (Carter and Rogers, 2008) and energy efciency (Halldorsson and Kovacs,
2010). Abukhader and Jonson (2004) conducted a detailed literature review on
environmental issues in logistics and observed weak ties in knowledge about
implementation between the logistics and the environment discipline. In a research note,
Halldorsson and Kovacs (2010) point out that it needs considerable rethinking on the
operational level to consider aspects of energy efciency, which have been largely
neglected in the logistics and the supply chain literature. In a 2008 survey of CEOs of
large 3PL rms, ve most important reasons for establishing their rms sustainability
programs identied are desire to do the right thing, pressure fromcustomers, desire to
enhance company image, desire to attract green customers and competitive pressures
(Lieb and Lieb, 2010). If this is not reasonenough to implement sustainability, we discuss
some additional reasons next.
Figure 1.
Evolution of logistics
toward supply chain
Activity fragmentation to 1960 Activity integration 1960 to 2000 2000+
Demand forecasting
Purchasing/
Materials
Management
Physical
Distribution
Logistics
Supply Chain
Management
Purchasing
Requirements planning
Production planning
Manufacturing inventory
Warehousing
Materials handling
Packaging
Finished goods inventory
Distribution planning
Order processing
Transportation
Customer service
Strategic planning
Information services
Marketing/sales
Finance
Source: Ballou (2004)
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Brand value
On April 3, 2010, a Chinese bulk carrier owned by Shenzhen Energy Group, a subsidiary
of Chinas state-owned China Ocean Shipping Company, was transporting coal when it
struck the Great Barrier Reef, spilling nearly two tons of heavy fuel oil into the water.
Even worse, the out of control ship cut a two-mile gash into the coral causing damages
that will not be corrected for decades. Investigators believed that the captains were
tryingto utilize anillegal short cut whichwouldsignicantly cut downontransportation
time. For their actions, two of the captains have been arrested and face multiple
nes while Shenzhen Energy Group faces nes and costs of up to $23 million dollars
(Glionna, 2010).
Logistics horror stories such as this have the potential to not only damage a company
through nes, but also their brand value. A companys brand value consists of
intangible assets such as reputation and customer loyalty. Recently, all rms are
constantly under the eye of the public, with access to 24-hour news programs and social
networks developed over the internet. Unsustainable practices hidden in the supply
chain has the potential to become public information very easily and quickly. This is no
more evident than in 1999 as Nike faced media exposure and consumer boycotts over the
unethical treatment of workers in sweatshops. In a matter of days, Nikes brand
value dropped from $8 billion to $7.6 billion and continued the slide for months (Preuss,
2001). Thus, rms who fail to formally implement sustainability and the steps to
properly enforce it, ultimately put shareholder value at risk.
Conversely, a green company image can increase product sales. Astudy of Fortune
100 rms across several industries nds that almost 60 percent of rms adopt
sustainable practices to strengthen brand names or differentiate their products to their
consumers (Mahler, 2007). For consumers, although price and quality are still
paramount, convenience has been edged out by more socially relevant attributes such as
energy efciency and health benets. This effect has given way to the term conscious
consumer who expects rms to do more than make eco-friendly claims and demand
transparency and accountability across every level of business practice (Pepper et al.,
2009; Jones et al., 2005). An example in hand is Chipotle Mexican Grill whose history of
sustainable procurement ensures its credibility among its loyal customers. Chipotles
logistics managers work hard to achieve the goals of companys Food with Integrity
campaign, which pledges the brands practices of sourcing sustainable ingredients
for its supply chain (Brandau, 2010).
Misuse of resources
Without implementing sustainability into the global supply chain, rms risk misusing
precious resources, most notably for logistics managers, gas and oil. In July of 2008, the
price of a barrel of oil peaked at $147.30 (Read, 2008). The soaring price caused
transportation costs to increase dramatically around the globe since fuel costs went from
making up 20 percent of total transportation to making up roughly 50 percent of total
trans ocean shipping by2008 (Pescatori andMowry, 2008). The surge in oil prices as well
as other commodities in 2008 forced many rms into corporate sustainability initiatives
to reduce waste. Xerox, who lists fuel efciency as one of its biggest challenges (nearly
60 percent of operating cost of Xeroxs Canadian logistics operations was attributed to
fuel consumption in 2006) implemented lean Six Sigma initiatives and replaced larger
vehicles with smaller, fuel efcient vehicles without sacricing cargo space or any other
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business requirements (Dutton, 2009). In 2008, Kraft Foods Inc. worked closely with
EPAs SmartWay Transport Partnership program and optimized their routing and
internal network, consolidated distribution and reduced multiple stops. Such initiatives,
coupled with other energy conservation measures, resulted in a 7 percent improvement
in miles per gallon for the company when compared to 2003 Figures (Dutton, 2009).
These initiatives should be pursued aggressively because within the context of
sustainability and for a non-renewable resource such as fuel, the total cost of oil
consumed in producing a product or service should always be under control
(Abdel Sabour, 2005). Hence, the reduction in energy inputs (or increase in fuel prices) is
offset by faster improvement in energy-related technology or continuous process
reengineering projects (Smulders and De Nooij, 2003). Firms need to support these
focused energy projects even when fuel prices declines, since they will not only realize a
savings in resources but also achieve a smaller carbon footprint for the organizations
ecosystem (Bellona, 2009).
Government intervention
Although there is a clear trend for governments to create policy guidelines to control
pollutants, much of todays legislation is market specic and focuses on waste disposal
and private cars (EPA, 2010). For example, the European Union has developed strict
environmental regulations to prevent waste from end-of-life vehicles and promote
collection, reuse, and recycling of their components to protect the environment (EUROPA,
2010). Similarly, multiple countries have enacted policies to control the waste of high-tech
products and hazardous materials such as batteries (UNEP, 2010). While there are
increasinglystrict regulations beingappliedtoair transportationsuchas noise restrictions
and emissions standards, the degree of control over trucking, rail, and maritime modes is
signicantly less. Mounting pressures from consumers worried about health issues and
global warming, however, are demanding that their political representatives do more to
curbharmful carbonemissions. The legislationthat is beginningtobe negotiatedcertainly
has the potential to affect all modes of transportation (Kainuma and Tawara, 2006).
Most logistics managers do not think carbon emission and other logistics
regulations is a matter of if, but a matter of when. Thus, it is up to top management
to determine if they want to implement sustainability throughout their global supply
chain prior to government intervention or after. If corporate leaders oppose leaving the
future direction of their rms to be shaped by government action, then they are more
likely to learn how to use sustainability in a way that complements their cost and
efciency strategies (Prokesch, 2010).
International standards and regulations
Next, we discuss a few international topics, which suggest that international standards
and regulations will soon be something that all rms must comply with.
(i) The United Nations Framework Convention on Climate Change. The United
Nations Framework Convention on Climate Change (UNFCCC) is an international
environmental treaty produced at the Earth Summit held in Rio de Janeiro in June of
1992 and 154 nations signed the treaty. The objective of the treaty was to stabilize
GHG concentration in the atmosphere at a level that would prevent dangerous
interference with the climate system. The treaty itself set no mandatory limits on GHG
emissions for individual countries and contains no enforcement mechanism; however,
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it set the framework for annual meetings between industrialized nations to discuss the
issue of GHGs (Kameyama and Kubota, 2010).
(ii) The Kyoto Protocol. The Kyoto Protocol is an international agreement linked to
the UNFCCC (European Commission, 2010). The major feature of the Kyoto Protocol is
that it sets binding targets for 37 industrialized countries and the European Union for
reducing GHGemissions. The agreement was adopted in Kyoto, Japan on December 11,
1997 and entered into force on February 16, 2005. Under the treaty, countries must meet
their targets primarily through national measures. If unable to meet these goals by
means of reduction, the treaty also offered countries the ability to meet their targets
throughemissions trading (also known as cap andtrade), clean development mechanism
(investment in technologies which reduce carbon emissions), or joint implementation
(co-invest with other member countries in technologies which reduce carbon emissions).
To comply with the agreement countries actual emissions have to be monitored and
precisely recorded. As of July 2010, 191 states have signed and ratied the protocol
(UNFCCC, 2010).
(iii) The Copenhagen Summit. The 2009 United Nations Climate Change Conference,
also known as the Copenhagen Summit, was held in Copenhagen, Denmark in December
of 2009. With representatives from 192 countries attending the Summit, it signied
that a majority of the worlds governments believe that climate change poses a threat to
human society and to the natural world and hopes was high for a binding agreement
that would replace the aging Kyoto Protocol. Unfortunately, high jacked by the failing
economy, the Copenhagen Summit came up short of a binding agreement. The
Copenhagen Accord, the only tangible result of the 12-day event, is a plan drafted by the
USA, China, India, Brazil, and South Africa which could be signed in a voluntary way
(BBC News, 2009). Though a number of countries submitted their promises for cutting
carbon emissions, they also announced that they would only continue to provide
their full support if it was promised to never become a binding international treaty
(Giddens, 2010).
(iv) Cap and trade. Under a cap and trade approach, a central governmental body
would set a limit (or cap) on the amount of a pollutant that can be emitted. Firms or other
groups are issued emission permits and are required to hold an equivalent number of
allowances which represent the right to emit a specic amount. Firms that need to
increase their emission allowance must buy (or trade) credits from those who pollute
less. In effect, the buyer is paying a charge for polluting, while the seller is being
rewarded for having reduced emissions by more than was needed (Center for American
Progress, 2008). If a new cap and trade system is implemented internationally, the US
Chamber of Commerce estimates that diesel fuel could increase by as much as 88 cents
per gallon. For the freight industry, which the cost of fuel purchased today to make
deliveries may not be recouped for 30, 60, or 90 days; such fuel cost increases would
potentially have a devastating impact (Patton, 2009). There is no telling how much of
these additional costs will be able to be pushed further down the supply chain to the
end-user.
Implementing sustainability in the logistics function
There are numerous areas throughout the supply chain where sustainability can be
implemented. As mentioned prior, implementing sustainability requires a great deal of
creativity, however, the benets that can result are well worth the effort. Figure 2 shows
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a simplied supply chain broken down into the supply chain, value adding chain,
distribution chain, and the reverse logistics chain. Because logistics managers are vital
to each functional area, they must understand how each section effects the overall
supply chain (Murphy et al., 1996). For this study, the supply chain refers to the
operations involved in securing the materials that will make up the goods or services
being produced from multiple suppliers as well as the transportation of those goods to
the manufacturing facility. The value adding chain refers to the corporation, the
management, and the operations involved in manufacturing the goods or services.
The distribution chain refers to the operations involved in getting the nished goods to
the consumers. Finally, Figure 2 shows the emerging idea of reverse logistics, shown as
sustainable end of product life. Over the last decade reverse logistics has become
increasingly important as rms take responsibility for their products once the consumer
has no more need for them (Meade et al., 2007; Prahinski and Kocabasoglu, 2006). Next,
we discuss how sustainability can be implemented for each constituent section.
The supply chain and distribution chain
Sustainability can be implemented throughout a number of key and support
activities within the supply and distribution portions of the supply chain (Pagell and Wu,
2009; Seuring, 2004). Keyactivities are critical toall rms andcontribute the most tothe total
Figure 2.
The sustainable
supply chain
Transportation
Inventory
Maintenance
Warehousing
Information Flow
Purchasing
Sustainable End of Product Life
Inputs Outputs
Recycle
Reuse
Waste Disposal
Land Sustainability
Supply Chain
Distribution Chain
Value Adding
Material Safety
Land sustainability
Energy reduction
Product design
Innovations
Packaging
Conserve natural
resources
Transportation
Inventory
Maintenance
Warehousing
Information Flow
Outsourcing
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cost of logistics. Theyinclude transportation, inventorymanagement, andinformationow.
Supporting activities are still fundamentally important, but may not be as signicant to
each rm. These activities include warehousing, materials handling, purchasing, protective
packaging design, and information maintenance (Ballou, 2004, p. 10).
(a) Transportation. With billions of products in transit every day, transportation
requires a large amount of fossil fuels. The burning of these fossil fuels causes GHG
emissions, such as carbon dioxide (CO
2
) that can have a major negative impact on our
environment and individual health. To ensure that they are not adding to the growing
GHG problem, logistics managers must make good decisions about the mode of
transportation they use to transport their products. The World Economic Forum (2009)
estimated that the logistics and transport sector has a carbon footprint of around
2,800 mega-tonnes CO
2
. In absolute terms, road has the largest share, at around
57 percent of the total, with ocean freight some way behind at 17 percent. Figure 3 shows
a look at the amount that each logistics activity and transportation mode contributes to
total logistics emissions.
Of course, the above gure does not imply that road freight is the least efcient mode
of transportation. Assessed in terms of emissions intensity per tonne-meter, airfreight is
more carbon intensive than road, clearly shown in Figure 4. An International Maritime
Organization (2006) report showed that amount of fuel consumed, and hence amount of
CO
2
emitted, is very sensitive to vehicle load factors. The authors note that trucks
consume more than twice as much fuel per ktonne as rail.
Firms who often promote particular transportation modes as being more green
often base their calculations on high levels of utilization while only using average-based
factor data for competing modes. Overall, when assessing the amount of tonnage each
can carry, the most carbon efcient modes of international trade are rail and ocean
freight since the carbonconcentrationfor each of these modes is approximately one sixth
of that of road freight, or one hundredth of that of airfreight (World Economic Forum,
2009). The amount of carbon emissions produced per transportation mode provides
additional support that intermodal transportation is the most efcient way to ship goods
(Winebrake et al., 2008). Firms with the ability to ship goods using water freight and rail
freight for long distances while reducing the amount of road time, will not only make
Figure 3.
Emission share
per logistics activity
Adapted from:
Values are in megatonnes of carbon
500
250
150
300
1,600
Road Frieght (1,600)
Ocean Frieght (500)
Air Frieght (250)
Rail Frieght (150)
Logistics Buildings (300)
Source: Adapted From World Economic Forum (2009)
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an impact nancially, but also environmentally (World Economic Forum, 2009).
Furthermore, increased attention has been focused on clean vehicle technology through
two important methods; improving the efciency of vehicles in their day-to-day
operations and switching to alternative or hybrid fuel technology sources. While
adoption rates have been low for both bio-fuelled and battery powered vehicles, these
technologies are becoming increasingly viable and adoption rates are expected to rise in
the near future (Brooks, 2009; Food Logistics, 2007).
Until such technologies and alternative fuel sources develop, multiple rms have
implemented creative solutions using less sophisticated techniques and technologies to
reduce their dependency on fossil fuels. These techniques and technologies include
cruise control, reductions in left hand turns, GPS units, and automatic engine shut
down devices. For example, a recent study revealed that The Kroger Co. with the aid of
some eco-friendly eet management tips (called preventative eet management) has
been able to implement and maintain a long-term sustainability strategy and also
reduce their carbon footprint (Burnson, 2008).
(b) Inventory management and warehousing. Logistics managers certainly play a
crucial role in the amount of inventory a company keeps on hand and at warehouse
locations. Because of the signicance of the carrying costs associated with owning
inventory, managers implement a number of techniques to keep inventory levels to a
minimum. Some of these techniques managers use include reducing demand variability,
improving forecast accuracy, reducingsupplier leadtimes, reducingmanufacturing lead
times, improving supply reliability, and reducing the number of items (Ballou, 2004).
Using these techniques to reduce costs can also have a positive impact on a companys
carbon footprint as well. Keeping reasonable inventory quantities on hand will prompt
the need for smaller facilities. This then will translate into less energy expended
in heating and cooling the storage area for rawmaterials, nished goods, and employees
Figure 4.
Emission efciency
per transportation mode
Shipping - Gas oil
Shipping - Fuel oil
Railways - Gas oil
Rail - coal
Road vehicle engines - lubricants
Road transport - Petrol
Road transport - DERV
Air craft engines - lubricants
Air support vehicles - Gas oil
Air - Aviation turbine fuel
Air - Aviation spirit
0 200 400 600 800 1,000
X Axis: Emissions Factors in CO
2
e kg/tonne-meter
Y Axis: Transportation Mode
Source: Adapted From Defra Emissions Factors (2009)
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(Franchetti et al., 2009). Dekker et al. (2009) draws on the areas of logistics and inventory
management to showthat if rms send their shipments to intermodal terminals, storage
costs can be lowered and response times shortened. Such advance positioning provides
an opportunity for intermodal transport providers to green the supply chain as the
environmental impact per ton mile is lower than road transport.
Logistics managers all over the world are nding numerous ways to reduce the
energy that their logistics buildings are consuming. One unique way to reduce energy
consumption is by harnessing natural light. Natural light not only saves on utility
expenses, but employees working during normal business hours appreciate it as well.
Many rms are building factories and warehouses with larger windows or skylights
(Bellona, 2009). Similarly, the savings from regular maintenance and efcient
replacements can add up as well. For instance, by changing incandescent light bulbs
to compact uorescents, a company can save up to 75 percent in lighting costs and the
bulbs will last ten times longer. For a warehouse in Cleveland, OH such activities
resulted in energy bill savings of $10,668 per year (Hampshire, 2010).
(c) Information ow, purchasing, and protective package design. The ow of
information through the supply chain is certainly a key component of efcient inventory
management andthe movement of goods. Firms canput inplace a number of information
systems to increase the accuracy of communications between both their suppliers and
their distributors. As suggested prior, one of the most important activities that a
company can do to reduce their carbon footprint is to maximize the utilization of space in
each shipment. With good communications, empty trucks that recently delivered goods
can be rerouted to the nearest supplier to re-supply warehouses, reducing the amount of
empty driving time (Fugate et al., 2009; Esper and Williams, 2003).
Manufacturers have increasingly turned to their suppliers or third-party logistics
providers (3PLs) to implement sustainability through their supply chain (Kilby, 2008).
This trend is often referred to as responsible sourcing, and requires a great amount of
communication between the company and their service providers. Not only is it
important to communicate the standards of the corporation, but also to put in place the
tools in order to monitor how service providers are performing. An example of a
company that failed to monitor the quality of their suppliers materials is the toy
company Mattel Corp. Mattel recalled approximately 14 million toys over a period of a
few years and was forced to pay $2.3 million in civil penalties and suffered severe
damage to its reputation. Without consent of Mattel, Mattels Chinese suppliers were
using excessive levels of lead in toy surface paints and small detachable magnets in
some toys. This example illustrates problems faced by rms in managing their global
supply chains and getting blamed for ethical lapses committed by their contractors and
subcontractors (Roloff and Alander, 2010; Enderwick, 2008).
Finally, packaging provides an opportunity for suppliers, manufactures, and 3PLs to
implement sustainable practices (Routroy, 2009). Updating packaging by brand owners
to a sustainable eco-friendly manner can build customer loyalty as well as result in
higher ratings on retailer sustainability scorecards (Boch, 2010). Twede et al. (2007)
interviewed experts and managers in the warehousing and material handing industry to
assess the current and future trends for pallet usage in the grocery distribution industry.
The authors found that increasing fuel price and new regulations places the humble
wooden pallet as a key component for sustainable packaging in modern grocery
distribution. The study concludes that the industry should not only look for substitutes
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like plastic pallets but also must make a conscious effort to redene the business as
material handling, movement, and ow (Twede et al., 2007).
As mentioned prior, implementing many of these techniques cannot only make the
supply chain more sustainable, but efcient as well. For logistics managers, many of
these techniques that can make packaging, communication, and inventory more
procient ultimately have a positive effect on the cargo weight-to-bulk ratio (volume).
Thus, managers can better utilize the space made available in each transportation mode
and facility.
(d) Reverse logistics. While traditional logistics seeks to organize forwarddistribution,
that is the transport, warehousing, packaging, and inventory management,
environmental considerations have opened up markets for recycling and disposal.
Reverse logistics involves a process whereby rms can become more environmentally
efcient through recycling, reusing and reducing the amount of materials used (Carter
and Ellram, 1998). While reverse logistics is widely used, other names have been applied,
such as reverse distribution, sustainable end-of-life cycle, and green logistics. Supply
chains feel compelled to adopt reverse logistics activities because of competitive,
marketing, economic, and environmental reasons (Shankar et al., 2008). Barker and
Zabinsky (2010) identify government legislation, signicant economic value of a used
product and compliance to customer expectation of green company image, as three
compelling motivators to incorporate reverse logistics into their operations.
Though there are multiple benets and drivers for a company to implement reverse
logistics (Meade et al., 2007), implementation is extremely difcult and rms often
perceive that barriers to be greater than the advantages (Rogers and Tibben-Lembke,
2001). For example, a manufacturers distribution system is typically designed for
efcient forward owresulting frommultiple years of experience; however, introducing
reverse logistics is a new concept and thus can be costly and inefcient. One way to
implement reverse logistics is howrms can redesign their forward distribution system
to include reverse logistics functions. Functions that the logistics managers need to
consider to implement reverse logistics are: collection, sorting and testing, and
reprocessing (Barker and Zabinsky, 2010). Table I shows a decision guide for the three
reverse logistics functions.
Review of extant literature reveals increased attention in the eld of reverse logistics
both from a practitioner and research perspective (Gonzalez-Torre et al., 2010). Initially,
reverse logistics was used to refer to the reverse direction (forward direction being that
goes fromsuppliers to nal customers). Then the literature on reverse logistics started to
include environmental aspects (Chakraborty, 2010; Ciliberti et al., 2008). Studies have
focused both on the economic and environmental aspects of sustainability to understand
the benets and impact on supply chain performance as well as to investigate the
barriers to implementation of reverse logistics practices in various industries
(Dowlatshahi, 2010; Rubio et al., 2008; Skinner et al., 2008; Kumar and Putnam, 2008).
In a recent paper, Sarkis et al. (2010) note that relationship of social responsibility and
reverse logistics practices is not studied in depth. The authors based on practical
examples fromindustry link reverse logistics practices with sustainability indicators to
build a theory of reverse logistics for social responsibility.
Next, we discuss how certain rms have set the benchmark for sustainable
practices, and provide some short- and long-term recommendations for the successful
implementation of sustainability.
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Recommendations for implementation
Procter & Gamble (P&G) dene sustainability as ensuring a better quality of life for
everyone, now and for generations to come (P&G Sustainability Report, 2010). P&G
managers ensure sustainability is always a focal point throughout their innovation
processes to improve the lives of the consumers with high-quality products that
represent good value (Moss Kanter, 2008, p. 45). P&G developed Sustainability
Reports to measure and track each of their sustainability initiatives on an annual
basis. Finally, P&G executives believe that they have greatly beneted from the return
on investments made through the program in terms of improving reputation, employee
morale and productivity, recruiting and retention of the best employees, and reduced
regulatory costs (P&G Sustainability Report, 2010).
UPS, a key player in the transport and logistics industry, has been focusing its
sustainability initiatives on four broad areas community, marketplace, workplace and
environment (UPS Study, 2010). A few of the programs implemented by UPS are
launching newgreen products (carbon-neutral shipping), using alternative fuel delivery
vehicles, leveraging multiple transportation modes to ensure a fuel-efcient delivery
network and reducing the noise and carbon emitted by its airline eet. Through its
capabilities and methodologies for transport efciency, UPS has increased its fuel
economy (measured in MPG) for its ground eet by 10 percent, and achieved 3 percent
annual reduction of CO
2
emissions. UPS also improved its on-road fuel economy by
28.9 percent with the inclusion of hybrid diesel electric delivery vehicles in its ground
eet. TNT N.V., a global leader in logistics operations, have also emerged as a leader in
sustainability initiatives with activities targeted to make sustainability a part of
company culture (TNT Study, 2010). The most signicant of TNTs initiatives, the
Planet Me program is designed to reduce emissions and increase efciency of the rms
operations globally and across all sectors and has the key objective to be the worlds
rst zero-emission transport company (TNT Planet Me, 2011). A. P. Moller Maersk,
one of the worlds largest shipping rms, have undertaken sustainable programs in
areas like ship recycling, waste handling and the use of a voyage efciency system
Stage Decisions Considerations
Collection Proprietary collection High degree of producer control; protects proprietary intellectual
knowledge; enhances direct customer relationships
Industry wide
collection
Good for commodity-type high-volume product; potential to share
costs with other producers; often used for government mandate;
does not complicate existing supply chain
Sort-test Centralized sort-test Preferable for high-cost testing procedures; good for commodity-
type high-volume product; simplies network
Distributed sort-test Preferable for low-cost testing procedures; avoids shipping scrap;
transportation costs can be done by third-party providers
Processing Original facility
processing
Preferable for refurbishing, spare parts recovery; high degree of
producer control; no need to add separate facility; simplies
network
Secondary facility
processing
Good for commodity type high-volume product; potential to share
costs with other producers; can be done by third-party providers;
may complicate network
Source: Adapted from Barker and Zabinsky (2010)[1]
Table I.
Decision guide for
reverse logistics
Building
sustainability: a
research agenda
1249
(Maersk Study, 2010). Maersk have introduced the Green passport scheme that involves
safe dismantling of ships once they are no longer t for use. FedEx has teamed up with
the Environmental Defense Fund on an ambitious project to make the standard delivery
truck more environmentally friendly. As a result of that initiative, FedEx currently
operates 330 hybrid-electric delivery vehicles, including an all-hybrid station in
New York City. The hybrid trucks improved fuel economy by 42 percent, reduced GHG
emissions by 25 percent and cut particulate pollution by 96 percent. In addition to the
hybrid-electric vehicle initiative, FedEx operates 58 trucks fueledbycompressed natural
gas, liqueed natural gas and liqueed petroleum gas, in Europe, the Asia Pacic and
Latin America. FedEx also has more than 320 LPGand electric-powered ground support
equipment in use at its hub in Paris and other operational facilities across Europe, with
another 55 on order (FedEx Study, 2011). Many of these rms have won a number of
awards for their sustainability measures as well as scored very high on indices such as
the Dow Jones Sustainability Index (DLSI) and the Carbon Disclosure Leadership Index
(CDLI) (UPS Study, 2010). The DLSI is the rst global index tracking the nancial
performance of the leading sustainability driven companies worldwide, thus providing
further solid evidence of a positive relationship between sustainability practices and
rm nancial performance.
Other examples of best of breed practices include General Electrics ambitious
Ecomagination project, Coca-Colas efforts to protect water quality, Wal-Marts ability
to reduce packaging waste, and Nikes removal of toxic chemicals from its shoes
(Fromartz, 2009). However, Unruh (2008) identied Alcan as a worst performing
organization where Alcan managers described sustainability as an endless journey.
After extensively studying ten sustainable rms, Pagell and Wu (2009) point out two
unique common themes for each company:
(1) nancial goals and environmental goals are aligned; and
(2) supplymanagement has adeepsocial dimensionandis integral tothe organizational
culture that attracts and retains dedicated employees and suppliers.
On the contrary, van Hoek and Johnson (2010) note that economic performance
considerations and not environmental and social performance, still largely drive
organizational decision making based on their roundtable discussion with leading
academics and case examples of two leading global organizations (Wal-Mart and Cisco
Systems).
Throughout this paper we provided examples of why sustainability is important to
implement within the global supply chain and how small, medium and large rms are
continuing to adopt new, credible approaches to sustainability. Such strategies can
unlock a great deal of business potential even if this is not always precisely quantiable:
a lower consumption of natural resources, reduced costs, optimized operating processes,
improved business relationships, decreased risks, and higher employee motivation.
These benets result in improved product quality, innovations, and increased
competitiveness, all of which will pay off through increased prots and shareholder
value. Firms who do not operate under sustainability run huge nancial risks. This was
illustrated in the case of Nike and Shenzhen Energy Group which both suffered nancial
consequences.
Below we suggest some short- and long-term recommendations that a company can
use to implement sustainability within their global supply chain.
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1250
Short-term recommendations
Start today. There is no better time to start moving the company towards becoming more
sustainable than today. There is a Chinese proverb that states, The best time to plant a
tree is 100 years ago, the second best time is today. In light of the existing and more
upcoming regulations, the need to be sustainable has never been more urgent. Also,
a failure to do so could have a negative impact on operating costs the rise in fuel and
energyprices is a case inpoint. Aquest towards sustainabilityalso has other benets like
increased brand value (or least little risk towards a negative impact on brand value) and
making the rms product and services attractive to a distinctive segment of customers.
Start simple. There are a lot of simple things rms can do that do not require a
signicant investment. For starters, rms can study their facilities and learn where they
are most inefcient. For example, within the logistics operations eld, looking at asset
(transportation and warehouse capacity) utilization, revisiting the issue of packaging,
recycling of pallets and crates, etc. are some of the areas that can be immediately tackled
within the rm. Many of these small tasks that can be immediately implemented can
engage employees and facilitate creativity. Other areas external to the rm, like
extending sustainability efforts to suppliers can follow later on and can be part of
the rms long-term strategy towards sustainability, since such initiatives take greater
time and resources to be pursued and implemented. But it should be remembered that a
lot of opportunity lies inextending the sustainabilityeffort through the supplychain and
this should not be postponed for too long.
Top management must become committed. Sustainability begins with top
management due to the need for resources and for the fact that sustainability requires
a commitment that is rm wide and is not simply restricted to one department or
function. In that angle, sustainability initiatives are similar to those of total quality
management and lean, i.e. sustainability is everybodys responsibility with an
organization. However, responsibility cannot be delegated without authority and giving
employees the freedom to make decisions within reasonable limits will not only reduce
bureaucracy but will also motivate employees to come up with creative and simple ideas,
which otherwise may have been overlooked (Prokesch, 2010). Top management must
provide support in creating detailed standards that are enforceable.
Create a visual representation of your global supply chain. Creating a simple visual
representation of your global supply chain on paper will allow management to focus
on each area, identify opportunities and develop better ideas where sustainability can
be implemented. It can also identify risks within the supply chain that can have a
negative impact on account of non-sustainable practices like in the case of Mattel.
Benchmark each area of the global supply chain against other rms. Table II shows
an example of a balance scorecard that can be used to benchmark your company against
other rms. This will help provide a sense of measurability, which can be analyzed. Such
a balanced scorecard analyzes the sustainability efforts in each of the areas of supply
chain logistics operations referred to in Figure 2 earlier (i.e. the supply chain, value
adding chain, distribution chain, and the reverse logistics chain). Within each area,
different sub-areas are examined with the intent to examine the rms sustainability
efforts with those of other rms within their industry and the best-in-class rm.
A series of questions need to be answered in each sub-area with the response to each
question recorded on a 1-5 scale with a score of 1 indicating that the rmcompares least
favorably with other rms in the industry and a score of 5 indicating that the rm
Building
sustainability: a
research agenda
1251
compares most favorably. Use of such a balanced scorecard can and also help the rm
keep abreast of initiatives taken by their potential competitors towards sustainability
and create an opportunity to learn from them.
Long-term recommendations
Stay ahead of government regulations. Firms are far better off creating their own future
as opposed to reacting to government regulations. Management should anticipate
where governments would enforce new measures that might become detrimental to
operations. As mentioned before, carbon emission and other logistics regulations is not
a matter of if, but a matter of when. The meeting of world leaders specically
devoted to climate talks is also another indication of how serious and important
sustainability has become on the world agenda. Top management must be proactive in
implementing sustainability throughout their global supply chain prior to government
intervention as such a move will provide them with competitive advantage in terms of
the time, resources and costs required to comply with the regulations.
Set measurable carbon goals. Measure the amount of carbon emissions that the
company emits and create goals to encourage reductions. In line with being proactive
with respect to governmental regulations, rms need to also get on the cap and trade
(emission trading) bandwagon and learn the rules of the game as it is being practiced in
certain parts of the world especially Europe. Although recent political developments
makes such an emission trading system unlikely in the US in the very near future, such
a system or one similar to it could see the light of the day few years later. Another step
in this direction that rms need to take is in measuring the carbon footprint for the
products and services being provided by the rmand developing a visual representation
of the rms supply chain can help towards such an effort.
Sustainability scorecard
Function/characteristic Q4 Q3 Q2 Q1 Ave.
Supply chain (total )
Supplier collaboration
Product/package ratio
Cube utilization
GHG produced by transportation
Value adding chain (total )
GHG per ton of production
Material waste
Innovations leading to reduced GHG
Distribution chain (total )
Distributor collaboration
Product/package ratio
Cube utilization
GHG produced by transportation
Reverse logistics (total )
Recycled content
Recovery value
Innovation
Note: Each characteristic ranked on a scale of 1-5 (1 least favorable; 5 most favorable)
Table II.
Sustainability balanced
scorecard
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Conclusion
Growing concerns over issues such as the limitation of resources, global warming, GHGs,
and consumer health have increased the urgency for rms to incorporate sustainability
into their strategies. With the rise of todays conscious consumer, adding sustainability
into the corporate strategy has become about meeting the expectations of investors while
taking into account the long-term impact that operations have on the community and
environment. A focus on supply chains is a step towards the broader adoption and
development of sustainability, since the supply chain considers the product from initial
processing of raw materials to delivery to the customer. A logistics operation represents
the integrated management of all the activities required to move products through the
supply chain and holds tremendous potential for a rms quest towards sustainability.
However, there is very little work done to understand the role and importance of supply
chain logistics operations towards this end. The combination of monetary cost and
environmental impact that logistics contributes tooperations makes it a keyarea andthere
exists a need to explore opportunities to strengthen logistics and make it more efcient.
We discussed areas throughout the rms logistics operations where sustainability can be
implemented such as the supply chain, value adding chain, distribution chain and the
reverse logistics chain. We have identied and discussed opportunities for introducing
andcontinuingsustainable operations ineachof these logistic functions. We alsomake the
case for why all rms must begin implementing sustainability practices immediately
including because of the benet to a rms brand value, the ethical and economical need to
reduce the misuse of (especially non-renewable) resources and the inevitable
governmental regulation and intervention.
We recommend that rms start their quest towards sustainabilityas early as possible
(today) in a simple manner by implementing internal practices which are easier to roll
out in the short run and extend such initiatives externally through the rms entire
supply chain in the long run. Towards this long run goal, the rst step would be to
develop a visual representation of the rms supply chain that will aid in identifying
opportunities and develop better ideas where sustainability can be implemented and
also help the rmmeasure the carbonfootprint of its products and services, whichwill be
a necessary pre-requisite to participate in a cap and trade system. Another important
recommendation we provide is to make use of a balanced sustainability scorecard that
can be used to benchmark a rms sustainability efforts against other rms in the same
industry. The bottom line is that sustainability initiatives can be used by rms to
differentiate themselves from their competitors, reduce costs, and improve services to
their customers.
Note
1. Reprinted with the permission of the Institute of Industrial Engineers, 3577 Parkway Lane,
Suite 200, Norcross, GA 30092, www.iienet.org Copyrightq2011 by Institute of Industrial
Engineers.
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About the authors
Asoke Dey is an Assistant Professor inthe Department of Management at the University of Akron.
He received PhD in Business Administration from the University of Minnesota and a Master of
Business Administration from the University of Utah. He also has a BS degree in Mechanical
Engineering from the Calcutta University, India, and over ten years of industry experience. His
research interests include supply chain management and health care operations and his research
inquiries are motivated by contemporary, real world problems in the areas of operations strategy,
procurement, innovation, informatics, and quality management. Dr Dey has made several regional
and national conference presentations and his work has appeared in Hospital Topics.
MRR
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Paul LaGuardia is currently enrolled as an MBA student in Supply Chain Management and
Finance at The University of Akron, Ohio. Paul is a Project Manager for Diamond
Communications LLC. Diamond Communications is a fast-growing tower company experienced
in tower management, site development, build-to-suits, and tower acquisitions. Paul manages the
eld operations for Ohio, Pennsylvania, and NewJersey. He also coordinates withthe management
of FirstEnergy Corp. (Diamond has a relationship with FirstEnergy Corp. to provide collocation
opportunities on FirstEnergy utility structures).
Mahesh Srinivasan is an Assistant Professor in the Department of Management at the
Universityof Akron. He received a PhDinBusiness Administration anda Master of Science degree
in Business Logistics from the Pennsylvania State University. He also has a BS degree in
Mechanical Engineering from the University of Pune, India, and over ve years of industry
experience working for a German MNC. His research interests include supply chain and logistics
management with particular focus on the role of ITin supply chain collaboration and integration,
logistics performance metrics, stochastic inventory modeling and inter-organizational
relationships within supply chains. Dr Srinivasan has made several regional, national and
international conference presentations and his work has appeared in Journal of Business Logistics,
International Journal of Enterprise Information Systems, European Management Journal and
Supply Chain Practice Journal. Mahesh Srinivasan is the corresponding author and can be
contacted at: maheshs@uakron.edu
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