Supply Chain Collaboration – a prerequisite for low carbon logistics?
In an earlier issue of LogiSys I summarised the results of a survey that Kuehne Logistics University’s new Center for Sustainable Logistics and Supply Chains and the European Freight and Logistics Leaders Forum (F&L) conducted enquiring about European-based companies’ efforts to decarbonise their logistics. In this follow-up article I focus an important aspect of the study – collaborative initiatives to bring down logistics emissions.
There is general agreement that achieving deep reductions in logistics emissions will require much greater asset sharing and thus higher levels of supply chain collaboration. P&G’s Supply Chain VP in Europe told us that ‘If we do not step-change on collaboration and partnerships between different actors, carriers, suppliers, customers and retailers, we are not going to meet the sustainability goals.’ A similar view was expressed by the SVP for Sustainability and Logistics in Stora Enso, the global provider of renewal packaging: ‘When we go for greener solutions, our whole value chain needs to be there with us.’ Collaboration has also been at the heart of Tata Steel Europe’s plans to decarbonise its outbound distribution, ‘actively cooperating with customers and suppliers, but also with indus
try platforms and knowledge centres
In the transport arena, working together allows companies to increase opportunities for backloading and load consolidation, cutting vehicle-kms, fuel use and emissions. Some businesses have done as much as they can internally to maximize transport efficiency; for them external
collaboration is the obvious next step. Modelling by the Energy Transitions Commission has put a number on the potential emission savings from supply chain collaboration in the road freight sector – just over 300 million tonnes of CO2e by 2040.
Our survey suggested that, at least in Europe, there is already a significant amount of collaboration. Overall, managers rated their companies’ current level of supply chain collaboration with suppliers, customers, logistics service providers (LSPs) and IT providers at around 3.5 out of six (Figure 1).
Vertical collaboration with businesses upstream and downstream in the supply chain has a long heritage and is now well established in many industries. Much less common is ‘horizontal logistical collaboration’ involving companies at the same level in the chain, in some cases competitors. Collaborating with competitors on logistical activities is still comparatively rare, getting a mean score of
only 2 out of six in our survey. Despite the positive publicity given to some high-profile collaborations between competitors, such as that between Nestle and United Biscuits, this is still a ‘bridge too far’ for many companies.
Horizontal collaboration between companies whose product portfolios have minimal overlap presents fewer organizational problems and can still yield large emission reductions. This was well illustrated by the logistical collaboration between Nestle and Pepsico in the Benelux countries. Modelling suggested that by combining and collaboratively synchronizing many of their deliveries they could reduce CO2 emissions per tonne of product distributed by 54% relative to each company handling its logistics separately.
In addition to emission reductions, collaboration typically brings economic benefits. Across the full sample of respondents to our survey, the environmental and economic gains from logistical collaboration were judged to be evenly balanced. Among the 30% of companies we designated to be ‘leading’, the benefits are deemed to be predominantly environmental. As a means of logistics decarbonisation, collaboration has many advantages. Unlike many other initiatives, it does not require major technological advances, high levels of capital expenditure or awkward trade-offs between economic and environmental objectives.
Given these benefits, why is the level of logistical collaboration not higher? Our survey identified a long list of constraints which we grouped into eleven categories (Figure 2).
The most frequently mentioned constraint was competitive pressure. The concept of ‘coopetition’ – or cooperative competition – has been much discussed and researched over the past twenty years but is still seen as a radical departure from current business practice in logistics. Many managers still question the legality of collaborative arrangements, worrying that it may breach competition law. Although studies have confirmed its legitimacy in Europe, elsewhere in the world the legal position is less clear. Where it is lawful, business culture, managerial mindsets and an aversion to risk are often major inhibitors to logistical collaboration. Fear that a partner will behave opportunistically and capture an unfair share of the benefits has been a perennial worry. Some companies are uncomfortable with the level of data sharing required to make a collaboration work. Some of these fears can be allayed where the collaboration is managed by an independent third-party or neutral ‘trustee’. Experience in Europe suggests that these agencies can play a vital role in setting up and ‘orchestrating’ a supply chain partnership. According to some survey respondents, however, there is too limited a supply of these co-ordination services in Europe.
In recent years there have been five developments that should facilitate supply chain collaboration. I call them the five Ms:
Motives: for collaborating have been strongly reinforced by the need for supply-chain level efforts to cut carbon emissions
Mindsets: a new generation of logistics managers is assuming control which is more interested in sharing, partnering and collective action
Models: mathematical tools, such as game theory, and digitalisation are making it easier to optimise the distribution of costs of benefits and sharing of data between participating companies.
Markets: LSPs, traditionally suspicious of shipper-led collaborations being a form of cartelisation, are playing a more prominent role in these joint initiatives.
Ministries: governments are taking a more enlightened view of collaborations that yield economic and environmental benefit and, in some cases, actively encouraging them.
So the future for supply chain collaboration, and its related
environmental benefits, seems bright.