Integrating carbon footprint reductions is in many supply chains a realistic objective, without a huge cost increase or lowering the customer service level. An end-to-end approach to ‘green’ inbound transportation, the warehouse itself and outbound transportation is mandatory to get the best results.
These are the conclusions from an in-depth study of leading supply chain and logistics real estate consulting firm BCI Global/Buck Consultants International. The study was sponsored by Logicor, one of the largest investors in Europe in logistics real estate. In the study BCI analyzed in detail two business cases: the set-up of a European distribution strategy for a medical technology company and an e-commerce last mile design.
If a company has a central warehouse in Germany what is the best set-up to service final customers from a cost, customer, and carbon perspective: one distribution center or opening national warehouses in Germany, France, and United Kingdom?
BCI concludes that cost do not differ much between the different set-ups but that a decentralized set-up reduces CO2 emissions by 40% and that 90% of the customers can be delivered in 1 day (in a central set-up this delivery-in-one-day is only 50%).
E-commerce Network Design Optimization
Source: BCI Global, 2023
If a medical technology company must choose between one central European Distribution Center (EDC) or 1 central warehouse with 3 satellites or 4 regional distribution centers spread over Europe, what is the best solution?
Whatever set-up the company chooses, the inbound airfreight is for more than 50% responsible for the total end-to-end supply chain carbon footprint. Options to reduce the CO2-emission levels of the warehouse and the shipments are limited to their small sizes and numbers.
Medtech European Network Design Options
Source: BCI Global, 2023
Which industries have the highest potential to make their supply chains more green?
Especially for industries where there is a need for more regionalized supply chains making supply chains more resilient (reshoring production from China/Asia leads to less supply chain disruptions) there are real opportunities to reduce CO2-emissions as intercontinental transport can be substituted by production in Europe itself. Example industry verticals BCI mentions are Pharma, Fashion and Industrial Products & Machinery.
But decentralized network design for industries with high service requirements (e.g. e-commerce, food) also often has great carbon footprint reduction potential.
How can logistics real estate become more green?
Larger warehouses give more opportunities to make impact. Also warehouses with high energy consumption (for example temperature controlled warehouse space) are good candidates for making the warehouse more sustainable. From a supply chain perspective real estate companies with investments in city distribution hubs can benefit from more collaboration between e-commerce companies and logistics service providers leading to less deliveries and from the use of electric vehicles.