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Logistics and SCM Trends Affecting Sustainability
The following is an extract from Sustainable Logistics and Supply Chain Management.
Environmental issues have been an area of growing concern and attention for businesses on a global scale. Transportation, production, storage and the disposal of hazardous materials are frequently regulated and controlled. In Europe, firms are increasingly required to remove and dispose of packaging materials used for their products. These issues complicate the job of logistics and supply chain management, increasing costs and limiting options.
This article outlines the key logistics and supply chain trends affecting sustainability.
Globalization has increased tremendously since the 1970s, primarily due to the development and widespread adoption of the standard shipping container, international trade liberalization, the expansion of international transport infrastructures such as ports, roadways and railroads, and production and logistics cost differentials between developed and developing countries. However, the geographical length of supply chains has increased along with their attendant environmental issues of fuel use and emissions.
The impact on logistics and SCM from globalization has been significant over the past several decades. For example, global container trade has increased from about 50 million twenty-foot equivalent units (TEU) a year in the mid-1990s to an average of 150 million TEU for the five-year period 2018–21. However, the impact of globalization doesn’t only affect sea-borne containers.
Worldwide demand and subsequent fulfilment of smartphones and tablets have led to an increase in air freight volumes and prices. For example, when new Apple smartphones are released for sale the prices for air freight spike upwards (Petersen, 2015). In 2014, air freight rates increased about US $2.50 per kilogramme in summer to about $11.00 per kilogramme in November. During the fourth quarter of that year, Apple sold 74.4 million smartphones, of which 40 per cent were sold in the US.
Relationships and outsourcing
In concert with the logistics and SCM definitions above, there has been a need for increased collaboration and mutually beneficial relationships among customers, suppliers, competitors and other stakeholders in an increasingly interconnected and global environment, which can have positive benefits for sustainability when, for example, two competitors share transportation and warehousing facilities to avoid the empty running of trucks and also provide return, i.e. backhaul, or reverse logistics opportunities.
In addition, many firms have outsourced their logistics and SCM activities to third-party logistics (3PL) specialists, such as DHL or XPO Logistics, to perform activities that are not considered part of a firm’s ‘core competencies’.
Outsourcing can be very cost-effective for firms, as they can efficiently concentrate on their core competencies, reduce capital expenditures and fixed assets related to transportation and storage infrastructure, reduce labour and internal operating costs, and enjoy the expertise and economies of scale provided by the 3PL service provider. However, firms relinquish the management of those operations that they outsource, despite service level agreements and contracts, and thus may not have control over sustainability efforts of 3PLs or their sub-contractors.
Technology is an important factor in modern global supply chains as it can enable better, faster and more reliable communication. Logistics and SCM have interfaces with a wide array of functions and firms, and communication must occur between the focal firm, its suppliers and customers and various members of the supply chain who may not be directly linked to the firm, and the major functions within the firm such as logistics, engineering, accounting, marketing and production. Communications are thus key to the efficient functioning of any integrated logistical or supply chain system.
The use of communications technology has increased remarkably during the last few decades due to an increase in computing power and storage that has fostered the invention of personal and laptop computers, global positioning systems, ‘smart’ mobile phones, tablets and iPads. Such technology has become increasingly automated, complex and rapid, and has enabled firms to develop faster and longer supply chains due to their ability to trace and track goods in production, storage or transit.
Order processing entails the systems that an organization has for getting orders from customers, checking on the status of orders and communicating to customers about them, and filling the order and making it available to the customer. Increasingly, organizations today are turning to advanced order-processing methods such as electronic data interchange (EDI) and electronic funds transfer (EFT) to speed the process and improve accuracy and efficiency, and advanced scanning technology such as radio frequency identification (RFID) to track and trace products across the entire supply chain.
Time compression: The lean versus agile debate
Time compression refers to ways of taking time out of operations. Longer lead times and process times: create inefficiencies; require higher inventory levels, greater handling, storage and transportation, more monitoring; incur a greater chance for error; and thus decrease the efficiency of the whole supply chain. Thus, many firms have initiated time compression strategies to significantly reduce manufacturing time and inventory.
As a result of a need to be more efficient in production and manufacturing at an operational level and reduce times at a logistical and supply chain level, two different logistics and supply chain paradigms, ‘lean’ and ‘agile’, emerged during the 1990s.
The lean approach seeks to minimize the inventory of components and work-in-progress and to move towards a ‘just-in-time’ (JIT) environment wherever possible. Conversely, firms using an agile approach are meant to respond in shorter timeframes to changes in both volume and variety demanded by customers. Thus, lean works best in high volume, low variety and predictable environments, while agility is needed in less predictable environments where the demand for variety is high.
The rise of e-commerce
E-commerce and online retailing have grown significantly since the mid-1990s and the primary reason for this growth is increased access and connectivity to the internet. This offers both opportunities and problems for the retail sector, with some forecasting that 25 per cent of retail could eventually be conducted online.
This increase in e-commerce has significant relevance for the logistics and SCM sector as it imposes enormous pressure in areas of reliability, punctuality and expedition. Further, e-commerce impacting parcel deliveries and returns, the tracking of freight and vehicles, and its management and cloud services which allow the sharing of data to make synchronous supply chains function, are likely to be of increasing importance in future. All these issues have an impact on the sustainability of transport.
Another development in the e-commerce phenomenon is omnichannel retailing where a consumer’s entire online shopping experience, i.e. both sales and fulfilment, is seamlessly and consistently integrated across all channels of interaction, including in-store, digital media including computers, mobiles and tablets, social media, catalogues and call centres. From a supply chain perspective, omnichannel also means there should be complete visibility across channels, along with a holistic, unified view of the path to purchase. Thus, omnichannel increases complexity in e-commerce activities.
The ‘one-way flow’ of logistics and SCM
The logistical or supply chain flow of products is predominantly one way, from raw materials/resources and producers to consumers. Reverse or return networks and systems are woefully underdeveloped, and for those networks that do have some development the vagaries of the economy significantly affect those networks.
For example, the UK was sending a lot of mixed paper and cardboard waste to China in the 2000s for reprocessing and re-use as new product packaging. However, the price of this waste fell from over £90 per tonne to £8 per tonne in late 2008 due to the 2008–09 economic recession. Consumer demand and thus Chinese production of new products slowed with a knock-on effect so that demand for mixed paper and cardboard waste as well as container shipping, particularly from west to east, also fell precipitously. At that point, none of Britain’s 80 paper mills were accepting new stock and it was estimated there was about 100,000 tonnes of local authority waste sitting in warehouses, which was set to double by March 2009. Another concern was that if paper is stored for longer than three months it will rot and attract vermin, rendering it worthless, and will then have to be incinerated or sent to landfill.
Thus, globalization, technology, lean and agile techniques and a ‘one-way flow’ have all contributed to increased standards of living around the world, including developing nations that benefit from better economic activity. However, parallel increases in logistical and supply chain activities related to this prosperity have been detrimental to the natural environment in terms of increased resource use, waste and pollution as well as inefficient movement and storage of goods.