While costs have always been an essential driver of supply chain management strategies, the negative energy and environmental footprint of many supply chains has been a strong incentive to improve what is known as green supply chain management. Since logistics are related to all the activities involved in making goods available to the final consumers, including all the stages associated with procurement and distribution, the green applications of logistics are numerous and cover two main dimensions; materials management and physical distribution.
Materials management focuses on developing products with a lower environmental footprint, including manufacturing, sourcing, re-use, and recycling. The main possible strategies include:
- Product design. Since the product and its distribution is the whole purpose of a supply chain, its design perspective plays a crucial role in its greenness. This includes the types of materials used for its manufacturing with a greater focus on the environmental footprint of the components as well as the durability of the product.
- Near sourcing. Reassessing sourcing both at the global and domestic levels. This is best done if a comprehensive array of logistics costs is considered, particularly in light of energy and environmental constraints. While a supplier may appear to offer the lowest cost, if factors such as higher transport costs, more inventory in transit, longer response times, and a higher level of unreliability are considered, alternative, but closer, suppliers could be more advantageous.
- Sustainable sourcing. A change in focus for sourcing based upon environmental standards and certification, which become the main factors in the selection and retention of a supplier This has notably been the case in the food industry where quality and certification (e.g. organic) have important marketing value. However, this strategy is running into the risk of offering goods and services that are less competitive since consumers remain highly sensitive to costs in spite of stated environmental awareness.
- Efficient packaging and packing. Reduce the shipment volume of the same load by using less packaging or by changing how a good is packaged. How the goods are packed for shipments is also of relevance since it can reduce packing wastes and use transportation carrying capacity more efficiently. Higher transport densities are an important consideration for shipping since many goods tend to cube out their load units before they weight them out.
- Circular material use. Moving towards more efficient forms of materials use and sourcing, including packaging and recycling, so that what used to be an output can become an input. Optimally, a much higher level of reuse and recycling should be part of the inputs of the manufacturing sector.
Physical distribution ensures that the mobility of freight related to logistics operations is performed in a sustainable and environmentally friendly manner. The main possible strategies include:
- Demand responsive systems. The setting of demand-responsive systems where supply chains are tightly integrated so that the goods being delivered are the outcome of an expressed demand. A better level of order fulfillment tends to reduce returns. This is in line with the setting off pull-logistics systems that have replaced many conventional push logistics.
- Load consolidation. This can involve a wide array of strategies, such as a better consolidation of loads to avoid sub-optimal use of transportation (from LTL to FTL). Strategies to pool the LTL cargo of small shippers are also an option so that loads and vehicles are better used. The risk is that load consolidation can lead to additional delivery delays.
- Alternative modes and fuels. Use a mode that is more energy and environmentally efficient. Rail is the logical alternative to trucking over longer distances, but short sea shipping can be suitable for coastal regions. For urban freight distribution, electric and natural gas-powered vehicles have been introduced as well as adapted vehicles such as small vans and even cargo bicycles.
- Certification of carriers and distribution facilities. Certification provides standards for vehicles and facilities in terms of their expected environmental performance, such as emission and energy use, at the risk of being less competitive with carriers that do not. However, a growing number of procurement strategies are now contingent on the provider of logistics services having a certification covering its vehicles and facilities. This gives carriers abiding by certification a competitive advantage.
- Shipping scheduling and routing. Adapt the scheduling of flows to ensure a greater level of utilization of existing transportation and warehousing assets. By allowing greater shipping time and outside congested periods, the same assets can be used more rationally, which conveys energy and environmental benefits. Longer, but less congested routes can be selected, as well as a sequence of delivery stops supporting FTL.
All these strategies can be individually or jointly applied. Since they involve different actors, concerted efforts are uncommon as each element of the supply chain pursues strategies that are judged to be the most effective along their respective channels, which leads to a duality between forward and reverse logistics. The conventional forward channel in freight distribution is well understood, with raw materials, parts, and finished goods flowing from suppliers to manufacturers, distributors, and, finally, to consumers.
A reverse channel is also emerging, where wastes, packages, and defective/obsolete products are “climbing back” the supply chain. In some instances, such as for a defective product, distributors will take back the merchandise. Still, in other instances, a specialized segment of the distribution industry aims at collecting and then recycling goods and parts. Thus, reverse logistics (or reverse distribution) is concerned about the movements of previously shipped goods from customers back to manufacturers or distribution centers due to repairs, recycling, or returns. There are several variants:
- An important segment is customer-driven, where domestic waste is set aside by home-dwellers for recycling. This has achieved wide popularity in many communities, notably because the public became involved in the process, and local regulations are enforcing it.
- A second type is where non-recyclable waste, including hazardous materials, is transported for disposal to designated sites. As landfills close to urban areas become scarce, waste must be transported over greater distances to disposal centers, a process that has become transnational in developing economies.
- A different approach is where reverse distribution is a continuous embedded process in which the organization (manufacturer or distributor) takes responsibility for the delivery of new products as well as their take-back. An emerging challenge concerns the return rates of e-commerce purchases, which as 3 to 4 times those made in regular physical stores. This means environmental considerations for the whole life-cycle of a product (production, distribution, consumption, and recycling/disposal). This approach is at the core of the concept of the circular economy applied to supply chains.