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Why is Sustainability Important in Logistics?

Focusing on sustainability improves efficiencies and creates economic value. It’s especially the case in the huge logistics and transport industry where it adds more than $130 billion to Australia’s economy (and employing at least 1.2 million people). In this huge industry, there’s a corresponding huge potential impact and a lot of sustainability opportunities.

That’s because logistics is about storage and flow where there’s a lot of movement (receiving and delivering the goods, managing the flow between the point of origin and point of consumption, global and multi-channel flow). In each of those movements and points there’s an opportunity to practice sustainability.

Cost savings in sustainability

For example, P&G achieved a 30% reduction on road kilometres travelled by trucks across Western Europe (this was way back 2013). One way they accomplished this is by bringing the distribution centres closer to the customer and working on ensuring that the trucks are always full. As a result, the capacity is utilised and 80,000 fewer journeys were made each year (which means lower fuel usage and lower carbon footprint).

The key there is minimising the number and extent of movements which then result to higher cost savings plus lower carbon footprint. This similarly applies to the “micro” level which is inside the warehouses where forklifts and other material handling equipment do the work. If forklifts were made to travel less (while still handling the same load) this spells huge daily cost savings. Furthermore, less travel time also results to lower chances of vehicle collisions and mishandled goods. If there are a lot of things moving, the occurrence of something unpleasant gets higher too. But if we reduce the motion, accidents and damages will be less likely.

Practicing this approach (reducing motion) in both the macro (thousands of kilometres by trucks and freight) and the micro level (forklift operations) is one of the keys to long-term company and environmental sustainability. The company benefits because of lower fuel usage by trucks and forklifts. In addition, the company is able to utilise the available capacity (e.g. ensuring the trucks are full, ensuring every dollar is put to good use). On the other hand, the environment also benefits because there’s lower carbon footprint while still enabling commercial activity.

It’s a win-win scenario for both the company and the environment. This is especially important now because of environmental concerns and the pressure to implement green practices in essentially all the industries. In addition, the customers also benefit because the cost savings can be passed on to them and supply is better matched with demand (i.e. efficiency and less travel time also result to prompt deliveries when the customers need them).

Staying competitive and profitable

Let’s focus now on staying competitive and profitable in a company- and international-level (which is essentially about meeting customer demands at the best price so that customers will continue to support us).

Earlier we mentioned that the logistics and transport industry is a huge one and thereby spells a huge opportunity for sustainability and improvement. It’s estimated that even just a 1 per cent improvement in the industry translates to $2 billion additional gains to the economy in a year. That is only a rough estimate because the performance of the logistics industry actually affects all other industries including manufacturing, retail, science, healthcare and agriculture.

For instance, our agricultural industry is highly productive which is why more than 90% of the country’s food supply is sourced domestically. Because of this high productivity, we’re able to save on import costs and thereby the prices of wheat, vegetables, mutton, fish and other agricultural produce stay competitive and reasonable. It even gets better if domestic transport becomes more efficient because the product prices can get cheaper and we have more incentive to source domestically instead of importing from overseas. From the farm to the consumer, money is saved because of lower transport costs and efficient logistics.

It’s just the start because that saved money should always go somewhere. Because of the lower prices of food and ingredients, consumers are able to allocate more of their money on other food choices and their other needs and wants (including travel and leisure, hobbies, healthcare, education). As a result, a wide variety of sectors gets boosted because of efficient logistics.

What about the logistics industry itself and the companies directly involved in the storage and transport of raw materials and finished goods? Cheap imports threaten our manufacturing sector and other industries (and exports also get lower). For Australia to stay competitive in the face of overseas competition, one key is lowering the cost of transport through better efficiency. This way, Australian manufacturers can profitably reach key markets and individual firms can compete over a larger area (and improve their export stats).

In a company level, low transport costs through rail, road, air and sea can have a huge contribution to the bottom-line. Yes, the final purchasing price of a product is affected by other factors such as the market, supply and demand, foreign exchange, fuel costs and global economy performance. But transport costs (plus the timeliness and efficiency) can mean the survival of a logistics and transport company. The receiving companies need to receive the goods at the lowest possible prices for them to be profitable too. If the logistics firm is able to deliver that (e.g. through efficient freight and forklift operations), the firm itself could also go on to be profitable and sustainable. This also presents an opportunity to expand to other products and reach other markets and areas.

About efficiency and sustainability

Notice that we’ve barely talked about the environment (which is what first comes to mind when we hear about sustainability). But sustainability is also about facilitating economic and business activity and this is possible while minimising environmental impact.

One way for economic activity and environmental sustainability to go hand in hand is by making commercial operations highly efficient. After all, efficiency is about maximising output while minimising input. In the transport and logistics industry, this can mean getting from the point of origin to the point of consumption while incurring the lowest possible costs. To accomplish this, the result is often lower carbon footprint due to lower fuel costs, better routes and delivery planning and as discussed earlier, less motion. Sustainability and efficiency can mean the same thing because it’s about getting things done while minimising our movement and waste.

Whether it’s about efficient forklift operations (including proper fleet monitoring, accident prevention) or lower freight costs through roads, rail and other means, sustainability and efficiency should go hand in hand. Remember, even just 1 per cent improvement means a huge difference whether it’s a Fortune 500 corporation or a small business. In addition, the environment also wins because we still get things done while minimising waste of fuel, time and other precious resources.