Rigorous design approach necessary for going green

In The Rush To “go green,” many companies miss a real opportunity for helping the environment by omitting a rigorous approach to creating supply chains that are ecologically friendly. When planning their supply chains, companies don't always consider such essential factors as minimal energy usage, alternative fuels and sources, and the length of the supply chain.

A must objective is to optimize the transportation networks so that products travel the shortest distances between plants and warehouses, and between the warehouse and customer.

That is the judgment of Dr Jeffrey Karrenbauer, president of Insight Inc, a Manassas, Virginia-based company that provides optimization-based supply chain planning and design solutions and consulting services.

Missed ecologically friendly opportunities are particularly the case when considering outsourcing, he maintains. Outsourcing can encompass higher transport costs, such as from two sets of docking fees, and higher inventory levels to accommodate transit time.

“Balancing minimal cost, green objectives, and customer delivery expectations can produce contrary results,” says Karrenbauer. “Customer service requirements and expectations sometimes mandate premium modes of transportation, such as next-day or second-day delivery. Modes corresponding to this level of service, often air freight, suffer disproportionate increases in operating costs when fuel costs increase.”

The latest spike in oil prices “demonstrates the critical need for firms to regularly evaluate their supply chain strategies. In particular, strategic sourcing decisions, including outsourcing, must be carefully re-examined.”

Further, he says it is also important to recognize that energy price increases affect every level and activity of the supply chain: procurement, manufacturing, ports, distribution centers, transportation, inventory, and so on.

“These activities and levels are not necessarily affected equally. Therefore, it is imperative to reassess strategy in the context of the entire chain, not myopically with respect to only one component, such as transportation costs.”

Key considerations

To effectively respond to the energy cost and availability challenges, a wide variety of supply chain issues need to be considered, says Karrenbauer. With regard to the structure of the supply chain, considerations include the number, size, and location of suppliers, plants, distribution centers, and cross-docks, along with facility ownership issues, including owning, leasing, and outsourcing.

All, and mixed, modes of transport ought to be investigated as well.

Major policy issues must also be factored in. These include strategic outsourcing, target market expansion, supply chain vulnerability, mergers and acquisitions, capacity planning, transportation policy, seasonal demand and supply, long-range planning, and inventory strategy.

“Optimizing the design of a supply chain with respect to green criteria needs to incorporate a diversity of these factors, or a weighted combination of them,” he says.

Strategic planning decisions are the most critical decisions companies can make, he points out, noting that there are various software packages for strategic and tactical planning to help companies make the right decisions.

By way of example, Insight's flagship SAILS product has a special optimization engine that powers a family of planning and scheduling solutions, from the design of a global supply chains to crew scheduling and transportation procurement.

“We recommend that companies institute a recurring supply chain planning effort and improved staff skills within their organization,” says Karrenbauer. “Meeting corporate goals for a green supply chain means planning from the top down and implementing from the bottom up.

“Typically, businesses have continuous improvement efforts, which should include supply chain and logistics. For the greatest green result, supply chain management and staff must influence the organization's long-term approach to transport alternatives, among other issues.

“Green alternatives are best implemented with far-sighted initiatives, rather than as a reaction to market factors.”

Beyond that, he recommends that companies routinely analyze their green supply chains for effectiveness because “ecological transportation still must meet customer expectations for on-time delivery.”