Green supply chains remain priority for retailers, freight companies, reports show.
By Eric Kulisch
Preserving the environment, and the wellbeing of communities and employees, has become a key business consideration for the retail and freight transportation sectors, affecting all aspects of strategy, operations and marketing, two new reports confirmed.
Whereas companies several years ago may have had fuzzy ideas about how to implement eco-friendly practices, today they have a much more systematic approach for analyzing their waste production, developing policies and then measuring progress to tackle remaining hotspots.
The more rigorous processes applied to environmental responsibility coincide with greater expectations that green investments will deliver a positive return on investment for the company, in addition to preserving air, water and land, according to American Shipper’s latest benchmark study on sustainability. That means, eco-friendly activities that are more expensive sometimes get bypassed for cheaper options.
Of almost 170 corporate logistics professionals surveyed by American Shipper, 39 percent said sustainability measures must produce some or a large benefit to the bottom line to be continued by their firms, up from 34 percent in last year’s poll.
In February, the Retail Industry Leaders Association released its first ever report highlighting sustainability trends in the retail industry and ongoing challenges associated with neutralizing impacts on the environment.
Retailers are evaluating their direct store, distribution center and supply chain operations to uncover cost savings, reduce waste and pollution, and improve work conditions, according to The Retail Sustainability Report.
There is a lot of work to do because the retail industry accounts for the largest energy bills and the second largest amount of greenhouse gas emissions in the entire commercial sector of the U.S. economy, according to the Environmental Protection Agency.
Companies at the forefront of environmental and social responsibility have created a culture of innovation that encourages employees to take the initiative on reducing energy consumption, greenhouse gas emissions, waste disposal, and toxic chemical use, making products with safer components or that consume less energy, and sourcing food and goods in ways that don’t deplete natural resources, according to the report and industry officials.
The corporate activity is in part a response to rising consumer expectations for healthier products and preserving the environment, as well as tighter enforcement of environmental protection laws.
Data for the report was compiled from the most recent sustainability reports of 30 RILA member companies, case studies submitted by members and interviews with 20 companies.
Key findings in the RILA report include:
Companies are working across sectors to tap expertise from non-governmental organizations, academia, government, suppliers, vendors, and investors out of realization that they don’t have all the necessary internal expertise to hit their sustainability goals.
Retailers increasingly view sustainability as an opportunity for business growth than simply a cost and risk-reduction strategy. Sustainability programs are becoming a source of innovation that appeals to employees and consumers, and a platform for new product and market development.
As retailers build their sustainability programs, they have developed systems for continuous improvement. Such mechanisms include environmental management systems, supplier scorecards, employee training and engagement, setting waste and energy reduction goals and sustainability reporting.
Companies are disclosing their activities, strategies, goals, challenges and data in an effort to become more accountable to consumers and regulators.
In the future, sustainability will be integrated into every aspect of operations rather than being the concern of a centralized sustainability team.
Retail relationships with suppliers will become closer in to manage supply chain impacts on the environment, with every stage of a product’s lifecycle being reengineered to reduce waste and create shared value.
Industry collaboration will become the norm for addressing social and environmental issues such as human rights in foreign manufacturing facilities, product safety and pollution.
Reduce, Reuse, Recycle. Retailers have increasingly embraced the idea of reducing dependence on nonrenewable materials because it offers the opportunity to streamline operations and save costs. The most immediate savings come from facilities and assets controlled by the retailer.
Companies are installing energy-efficient equipment and educating workers about turning off lights and other green habits to conserve energy. They are reducing greenhouse gas emissions through greater use of renewable energy, or purchasing renewable energy credits and carbon offsets.
RILA is encouraging shopping malls to install meters at the individual store level so that energy consumption can be billed to tenants based on their actual use rather than splitting the bill based on the mall’s average energy use, according to the Sustainability Report.
Several major retailers such as Walmart, Kohl’s, Safeway, and Macy’s in California and Hawaii, generate on-site energy through solar panels and micro-wind turbines.
But until the price of renewable energy generation has achieved parity with electricity from traditional sources retailers will continue to invest more in renewable energy areas with strong financing and government incentive programs, RILA said.
Retailers that put programs in place to reduce landfill waste are realizing savings and even new sources of revenue. They are implementing new procurement policies to minimize the amount of disposable material coming into their facilities, engaging employees to reduce material consumption, offering reusable bags to customers and recycling.
Companies can make money from the sale of some recyclable materials and save money on landfill and trash-hauling services. The report said that current prices for recycled cardboard alone cover any costs incurred for recycling other commodities, and regional variations in recycling costs can be balanced out by accounting for recycling on a nationwide basis.
Some companies, like Walmart, are shipping certain waste to manufacturers to be made into new products.
The long-term vision of many retailers is to produce zero waste, meaning that anything that comes into a store is sold, reused or recycled.
Land use and development decisions are increasingly being influenced by environmental considerations, RILA said.
Retailers now look for existing property to redevelop rather than breaking ground on natural soil, urban sites with smaller footprints, recycling infrastructure in the area, alternative transportation accessible to employees and customers, and opportunities for renewable energy use for new store and distribution center locations.
Big and midsized box retailers are transitioning to smaller, specialized stores, aided by direct-to-store logistics, e-commerce, and smaller volume packaging, the study said.
Once a site is selected, sustainability criteria help guide design and construction, and more companies are getting facilities certified in Leadership in Energy and Environmental Design from the U.S. Green Building Council.
Retailers are spurring employee participation in environmental and community activities, often through voluntary programs, but formal sustainability criteria will increasingly be included in employee performance evaluations and executive bonuses, providing incentives for employees to achieve sustainability objectives, RILA said.
Sustainable Supply Chains. Trying to reduce a company’s broader environmental and social footprint is more challenging because it involves working with multiple suppliers to agree on common standards for green operations, RILA said.
Retailers, however, have more say in the development of private label products.
Nonetheless, information technology and the need to reduce costs and risk through closer retailer-supplier relationships has made manufacturers more conscious of the environment and working conditions.
Electronic systems and in-house or third-party auditors enable merchandisers to assess and verify if suppliers are meeting their standards. Retailers use several methods to communicate their eco-priorities including codes of conduct, restricted product lists, vendor surveys, building management capability at supplier plants, providing technical assistance and financing to retrofit plants, supplier forums, and documenting compliance progress.
Retailers outnumbered manufacturers 53 percent to 38 percent in asking their logistics service providers for a sustainability plan during the bidding process, but only 32 percent of retailers made sustainability a deciding factor selecting a 3PL, according to the American Shipper study.
And selection of ocean carriers did not necessarily coincide with the carriers that were rated the “most green.”
Companies may have specifically stated goals for sustainability, “but this does not mean that it is the most important factor in their choice of vendors,” the study said.
Many large retailers share best practices and work to develop industry-wide standards through groups such as the Sustainability Consortium, Sustainable Apparel Coalition and Global Social Compliance Program that also draw on the expertise of government, non-profit and academic sectors, RILA said.
Large retailers also have the scale and purchasing power to influence package reductions by suppliers, especially those making private label brands, the report said. Apple, for example, changed its packaging for the iPhone 4 and was able to increase the number of boxes per pallet by 80 percent compared to the original version.
During the past year, Best Buy eliminated 886 tons of polyvinyl chloride and removed 745 tons of other plastic from its exclusive brand packaging. It is also using recycled materials, nonsolvent coatings and organic inks when possible.
Puma thought outside the box — literally — by shifting from a box to a bag for its shoes that double as a carry tote for customers.
Sellers prefer package designs that use lighter, safer, environmentally benign and recyclable materials. In order to reduce the amount of shrink-wrap used, Staples is testing a program to use reusable shipping sleeves and totes for Staples Advantage delivery customers.
Staples’ Race to the Top program, now 18-months old, promotes competition among suppliers to develop innovative packaging techniques that use fewer or alternative materials. By opening their supply chain operations to each other, Staples also learned how some its requirements hindered development of more sustainable packaging. Once Staples and a supplier achieve an innovation for a particular product, Staples tries to apply it across all stock keeping units in the same product category.
A number of retailers participate in the Sustainable Packaging Coalition to design better packaging.
Transportation represents a huge opportunity for retailers and their carriers to reduce air pollution. The primary techniques today are locally sourcing goods, smart packaging methods, route and mode optimization, and setting efficiency goals. Efficient routing, warehousing and container/trailer utilization are among the top tactics used by companies taking serious steps on the ecological front, the American Shipper survey concurred.
Target, for example, set a goal to improve the efficiency of inbound transportation to distribution centers by 15 percent and outbound transportation by 20 percent by 2015, RILA said.
Companies are implementing various types of technology, such as auxiliary power units that eliminate idling, to make their truck fleets go further on a gallon of diesel. Retailers that hire carriers to move their goods have less ability to change trucking operations, but can exert influence through their contract conditions and purchasing decisions.
Many retailers benchmark their progress on freight emissions by participating in the EPA’s SmartWay program.
The average respondent in the American Shipper study plans to spend between $50,000 and $100,000 this year to make their supply chain operations cleaner and more efficient.
Lack of national, international or industry standards for carbon emissions and other environmental factors is a major obstacle for companies trying to adopt sustainable practices, the survey found.