Shipment Consolidation for a Greener Supply Chain

Climate change and the impact of CO₂ emissions are in the news daily. At the United Nations Climate Summit COP27, UN Secretary-General Antonio Guterres said, “We are on a highway to climate hell with our foot still on the accelerator.”  

The global supply chain exerts a huge impact on the climate worldwide. But the growing focus on finding global solutions presents a timely opportunity for companies to reduce their own carbon footprint. And a smarter, greener supply chain is also a more cost-effective supply chain.  

So, what steps can retailers take right now to reduce their carbon footprint?  

In the retail supply chain, one simple solution is consolidating shipments to the mass retailer’s distribution facilities or retail stores. Following are ways that retailers can easily decrease their supply chain’s carbon footprint through shipment consolidation and, at the same time, cut costs and gain greater control of their operations.  

The Three Scopes of Sustainability 

The U.S. Environmental Protection Agency has identified three “scopes” that retailers can use to evaluate and calculate their emissions impact.

• Scope 1 emissions are direct greenhouse gas (GHG) emissions that occur from sources that are controlled or owned by an organization (e.g., emissions associated with fuel combustion in boilers, furnaces or vehicles).
• Scope 2 emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat or cooling.
• Scope 3 emissions are an indirect result of a company’s supply chain and result from assets not owned by the reporting company. These emissions often account for most of a company’s total GHG emissions. 

Until recently, most companies have focused on measuring emissions from their own operations and their electricity consumption (Scope 1). But what about all the emissions a company is responsible for outside of its own walls — from the goods it purchases to the disposal of the products it sells? In fact, most total corporate emissions come from Scope 3 sources, which means many companies have been missing out on significant opportunities for improvement. 

According to a recent study, more than 90% of an organization's greenhouse gas emissions, and 50% to 70% of operating costs, are attributable to other players in its supply chain. 

“Acknowledging this, large retailers and their suppliers are making sustainability a top priority,” says Chris McGuire, transportation operations manager at GEODIS in Americas. “And it will remain so as retailers continue to step up their sustainability initiatives. In fact, retailers now have specific sustainability goals based on the three EPA scopes. Many directly relate to their supply chains.” 

For example:

• Target has set a goal to reduce its absolute Scope 1, 2, and 3 GHG emissions by 30% below 2017 levels by 2030. Target also has promised that 80% of its suppliers will set science-based reduction targets on their Scope 1 and 2 emissions by 2023.
• Walmart’s target is zero emissions in its own operations by 2040. The retail giant looks to reach 100% renewable energy by 2035. It also is working with suppliers to avoid one gigaton of GHG from the global supply chain by 2030. Since 2017, the company’s suppliers have already reported a total of more than 416 million metric tons of avoided emissions.
• CVS plans to reduce Scope 1 and 2 emissions by 67% by 2030, after already meeting its goals of reducing emissions by 36% from a 2014 base year. Additionally, the company aims to reduce its absolute Scope 3 emissions from purchased goods and services by 14% by 2030 from a 2019 base year. In 2020, CVS eliminated 500,000 in empty miles through its backhaul program.
• Walgreens has pledged to achieve total net-zero emissions by 2040, including net-zero Scope 2 emissions by 2030 and Scope 1 by 2035. In 2021, the company cut its global carbon emissions from the baseline of 2019 by 14.9%. 

A Smarter Approach to Operations 

Retail consolidation is a simple and logical solution to cutting GHG emissions in a meaningful way. Consolidation means transitioning retail supplier deliveries to full truckloads (TLs) from less-than-truckload (LTL). Retail consolidation has its basis in extensive data analysis, with route, procurement, ordering and other kinds of planning optimizations — all based on this analysis. 

“There are more touchpoints and stops with standard LTL shipments, resulting in greater fuel consumption,” McGuire points out. “A retail consolidation program merges shipments with other brands going to the same location to streamline the transportation footprint. It’s a service provided via pooling or cross-docking performed by a third-party logistics service provider.” 

Then there’s the issue of retail compliance expectations and constantly changing requirements, requiring suppliers to continually scan for changes or face penalties for non-compliance. 

Every mass retailer is different. Walmart’s requirements aren’t the same as Target’s. Non-stop unique compliance changes make it tough for growing brands to stay updated and compliant, forcing them to absorb the costs of non-compliance. 

Additionally, the challenges evident in supply chains today make the job tougher, including external factors such as labor shortages, port congestion, tight transportation capacity and the overall rising cost of raw materials and packaging. The global supply chain remains stressed in this current health and political environment. 

Shippers can save on transportation costs and reduce compliance fines by taking advantage of a shared supply chain network which enables brands to combine their LTL shipments with other brands going to the same big-box retailer. This service not only minimizes the shipper’s exposure to fines but also reduces the amount of damage and losses and carbon emissions, with fewer trucks out on the road.  

Retail consolidation can reduce a retailer’s carbon footprint year over year through better network and operational optimization. “It’s not unusual to see retailers realize a 10.3% average reduction in carbon emissions when using a shared network,” McGuire reports. 

The first step in developing a retail consolidation program is to measure the retailer’s total carbon footprint. Some emission producers are out of the retailer’s control, but must still be measured. Once measurement is complete, the retailer has a full picture of its carbon footprint and can look for opportunities to affect it positively wherever possible. This involves partnering with suppliers to agree on strategies and align on requirements and capabilities.

Take retailer ordering habits. “Can a retailer plan its ordering habits to be more efficient, to use fewer trucks, to take advantage of shipment pooling and other techniques?” McGuire asks. “The answer is yes — especially as the retailer’s data gets better and more real-time. So instead of having three or four deliveries in a week, a consolidation program can reduce that frequency to once a week, with no effect on service levels, inventory availability or other metrics retailers require to operate.” All of this optimizes transportation and reduces costs. 

“In a nutshell,” says McGuire, “If we have 10 suppliers all shipping to a big box retailer via LTL, we combine those 10 orders into a single TL shipment and make one delivery, versus 10 to the retail distribution center or store.” The consolidation system is based on a pull model tied to retailer demand. 

Benefits of Shipment Consolidation 

Moving to a TL-based consolidation network delivers a host of benefits in addition to reducing the retailer’s carbon footprint. It takes multiple trucks off the road, obviously. But it also solves several other problems and issues. 

An LTL-delivery model carries risk. It involves multiple stops, transfers of freight and “touches,” along with increased risk of damage, labor-intensive deliveries, and failures in supplier on-time delivery (OTD) and on-time in full (OTIF) performance. Retailers levy significant fines for such performance failures. Penalties amounting to 3% of an order aren’t uncommon, and fines that eat into suppliers’ profit margins can, in worst cases, result in a supplier being dropped by the retailer. 

A third-party logistics (3PL) consolidation service can work with the retailer to optimize ordering practices, including lead times and number of order drops from the retailer. All of this provides the opportunity for better scheduling and more consistent transportation budgeting for the supplier. It can make a huge difference in the complexity and costs of operations.  

In short, a retail consolidation program benefits both the supplier and the retailer, while making a significant difference in carbon footprint. 

Resource Link: www.GEODIS.com