Monday, November 2, 2009

Links November 2009

Links to ideas that can be implemented today to improve supply chain sustainability….

Tompkin’s Associates
Article on ideas from Tompkin’s supply chain consortium. I would agree on all their suggestions and have discussed some in more detail in other posts. This list is the "low hanging fruit" that almost all companies can and should implement as soon as possible.

HK Systems Supply Chain Conference
HK Systems is a large material handling company that had a sustainability track at their conference in Park City in September. And they were nice enough to post the presentations on their website.

I highly recommend the presentation from Marc Wulfraat from TranSystems titled, “Supply Chain Strategy – What Are the Leaders Doing?”. Good information on what Walmart, Home Depot, and Kimberly Clark are doing for sustainability in the Supply Chain. But you may also want to look at the presentation from Paul Todd Merrill of Clayco on, “Challenges to Going Green” which covers the LEED process and point scoring in some detail (nothing new, but a good summary). There were two presentations on green packaging which included good overview and examples (Paul Singh Lean, Green Packaging Machines part 1, Ed Junquet Lean, Green Packaging Machines, part 2).

Tuesday, October 27, 2009

Hydrogen Fuel Cells – Stimulus pork or green technology

I am trying to determine if Hydrogen Fuel Cells is the next great green technology or just on life support with stimulus money. There is a lot of conflicting information, especially for motive applications (i.e. Lift trucks). As a backdrop, US Department of Energy Secretary Chu announced he was withdrawing fuel cell funding in July. He cited the lack of infrastructure and that the technology was at least 10-20 years from commercialization. Congress reinstated the funding. There have been some recent announcements of additional implementations. Whole Foods is planning on purchasing 61 lift trucks with hydrogen fuel cells for a distribution center in Landover, MD. But in the same week Jungheinrich (one of the largest manufacturers of lift trucks globally and the largest in Europe) said the technology was many years away and would not be deployed in Europe anytime soon.

So what is real and what is hype? At this point, 95% of all hydrogen is being produced from natural gas. To implement hydrogen fuel cells, you have to expend a tremendous amount of energy to pull hydrogen gas from natural gas (or even more energy to strip hydrogen from water using electrolysis). Further, you need to store it – either very cold as a liquid or pressured tank as a gas. Either way, not cheap. Only after these two issues are resolved, do you get into the “infrastructure issue” of having a distribution network available. At this point, you have a lot of trucks running from Houston and about three other locations in the USA (Linde and Praxair) to provide hydrogen for installed fuel cells. The issue is that most hydrogen is used for petroleum distillation and that is about the extent of the existing network. You can also install on-site generation using natural gas, but that is even less efficient in producing hydrogen than the large operations.

So, for hydrogen fuel cells to be the green technology of the future, the industry needs to solve the hydrogen generation issue (low cost and carbon neutral), hydrogen storage issue (especially for motive applications), and the hydrogen supply infrastructure issue. The grand plan is to use solar or wind energy to pull hydrogen from water – completely carbon neutral. While that can be done today, it just doesn’t make financial sense (the investment for the solar panels, electrolysis equipment, and hydrogen storage is way more expensive than just solar and buying batteries to store the energy from solar, let alone the just burning petroleum products).

So, is there any areas were hydrogen fuel cells make sense? Emergency power. This looks like the only viable area currently. Products are available commercially and companies are installing including hospitals, telecommunications, and military applications. But most of these projects have at least some government subsidy (but it is closer to financially viable compared to other applications).

I suggest that companies watch and learn. At this point, hydrogen is being kept afloat by stimulus money, but how many companies would invest if that money was not on the table? A few years ago, Walmart tried two pilots on fuel cells in lift trucks. I understand that they spent months working through the issues and evaluating. However, I have not seen any more announcement of expanding. To me, that is a sign that the technology is not ready for further application. I am not sure who I trust less – Congress or Walmart. But in this case, I side with Walmart.
For more information…(biased sources)
http://www.hydrogenassociation.org/
http://www.fuelcelltoday.com/

Friday, October 23, 2009

How to be a leading green company

I am starting to get overwhelmed with various definitions of “green”. I am rapidly coming to the conclusion that the green movement is lacking leadership (I know this is not a new thought). But it is now causing problems for corporations. What is a corporate leader to do? They have to show that they are aware and working on climate change issues. But what is green and how to be a perceived leader? Ever different group has its issue – saving the forests, bio-fuels, carbon reduction, clean water, wild animals, or alternate energy. In some cases, these goals are in conflict with each other or have other risks…for example for the recent news…

Also, you have multiple groups scoring corporations on their green credentials. There is Carbon Discloser Index, several stock market indexes of social responsibility, Green seal, tree hugger, and a dozen single issue groups. How do you please all of them? You can’t. So, what are leading companies doing? Look at how some of the largest companies with the lowest reputations have gone about it? BP, Exxon, and Walmart.
They have picked a couple of key initiatives. The big oil companies have looked at renewable energy. These tie in with their strengths and corporate interests (if we really have reached Peak Oil, then these companies still want to make money in the post oil world and do have the expertise in very large energy projects – whether huge solar installations or deep sea oil platforms). Walmart has focused on efficiency and supplier relationships. They are building high efficiency stores and warehouses. They are also pushing their supplier base for efficiency. As many have noted, Walmart’s efforts in its supplier base may have a bigger effect than any government initiative or law. The key is if an initiative does not save money or grow new markets, then it is not a good initiative and will probably come out as green washing or worse as a waste of money. The other thing is that it takes years to gain a perceived leadership positions. So, pick a strategic focus (good for the environment and good for the company), focus your efforts, and work for the long haul. It also doesn't hurt to educate/lobby key environmental organizations on your efforts. That is also why you are seeing most large corporations expand their external relations organiztion in this area. The sustainability report for most companies is now as thick (and as slick) as their annual report.

Wednesday, October 7, 2009

$20 per Gallon

I am reading an interesting book, Chris Steiner’s $20 per Gallon: how the Inevitable Rise in the Price of Gasoline will Change our lives for the Better. It describes how business and society will change as gas changes from $6 to $8 to $10 to $12 to $20 per gallon. It is a very thought provoking. However, I think it misses on some the ramifications on supply chain.
Steiner’s premise is UPS will do great as more people use e-commerce rather than drive to a store. Further, Walmart (and all big-box retailers) will be hurt as people also walk to a local stores for staple items. Steiner paints a future utopia that looks like 1950s small town America – like the idea, but believe the Author’s social belielfs have hurt his objectivity. Walmart will actually do better and the smaller retailer will be hurt further. Walmart is a one-stop shop and I believe consumers will be more likely to go to “just” Walmart rather than a series of smaller retailers (even by walking). Further, Walmart’s efficiency at logistics will be an even greater advantage over other retailers as petroleum costs increase.
As petroleum cost increase, the “last mile” problem becomes the more fundamental issue. Half the cost of shipping an item from China is in the delivery to a customer’s home address or for the consumer to pick it up at a store. To say another way, more gas is used to drive the last mile than the other 6000 miles combined. I do not see major companies changing the majority of their supply chain – most manufacturing will not come back from low cost countries because petroleum cost increases. The only exception would be for items that are shipping air freight. Anything that ships via container ship will not change. You will see more inland water transportation (Europe already there), more West Coast port diversion to East Coast (glad Panama is widening the Canal), and more multimodal shipping. However, that all helps large organizations with scale and strong logistics. As petroleum costs increase, more focus (and resources) will be spent to improve efficiencies. Railroads and inland ports will do very well. However, parcel carriers, especially those focused on air shipments will do very poorly. You will see less parcel shipments as that is the most energy intensive shipping. The one opportunity I see is for parcel carriers to use their store operations (UPS Store and Fedex-Kinkos) as drop points for customer pick up. This is similar to the JC Penney Catalog pick-up centers of 25 years ago.
What to do as a supply chain professional? With any major investment, do a sensitivity analysis of what would the payback be if petroleum costs tripled in price? What if it was 5 times as expensive (as “peak energy” doomsayers believe)? How easily would it be for you to handle multi-modal shipments? How close is a rail head to your major shipping points (better be less than 40 miles if you expect to shuttle). The sweet spot for inter-model will decrease in distance to 300-500 miles from 750 miles.
In addition to looking long term, what about short term emergency planning? What if there is a sudden increase in petroleum costs due to terrorism, war, or natural disaster? How would your company handle a sudden tripling of cost of petroleum? How quickly could you change your prices and contracts? Transportation companies and many commodity based businesses have mechanisms to quickly institute price changes based on market changes. If you are in a very different business, how would you handle a massive change, especially if you have contract prices in place? Do you have contracts based on a delivered price?

Wednesday, March 25, 2009

Packaging Design to save the environment

Saw a good article from Chicago Consulting in CSCMP's newsletter on optimizing re-pack carton design in pick/pack operations. The main goal is to save money. But cardboard cartons are made from trees and there is a big benefit in material reduction.

http://www.chicago-consulting.com/articles/optimalCartonsByTerryHarris.pdf

Wednesday, March 18, 2009

Sustainable Packaging

There has been a huge shift in focus on packaging products. Soda companies have been focused for decades on “light weighting” where they have significantly reduced the material in cans and bottles. They continue to work to reduce the amount of packaging material but have to balance low weight against field breakage. But every milligram of aluminum that can be reduced from a can is being worked by Pepsi and Coke (and by extension other products in cans). However, the real change is other companies are feeling the consumer preference for sustainability and are looking at how they package their goods.

One trend I like seeing is the reduction of secondary packaging. Primary packaging is the box or bag that a product comes in that the end user buys. For example, the cereal box that you buy. Secondary packaging is the carton that is filled with a dozen boxes of cereal that typically is thrown-away (or maybe recycled) by the retailer. Where a company can reduce secondary packaging while minimize product damage is going to save a lot of money. A typically RSC carton can cost $1.00 to $3.00 and hold a dozen items. This is big cost for some products and may never been seen by the end consumer. For example, many companies are using a combination of a corrugated tray and heat shrink plastic top. Typically, you need a bottom tray of corrugated cardboard to allow conveyance (i.e. allow the product to go through the miles of conveyors in the supply chain), but the top can be based on the individual product top. This may require stronger primary package. You have probably seen this design if you buy bottled water by the case. Even better is companies eliminated the secondary packaging entirely. You get individual items on a pallet without secondary packaging. This may require significant changes in the retail supply chain (i.e. you can’t order a case quantity, but only a full pallet and have to send a full pallet to the store). Another example is using shrinkwrap instead of cartons. This works for items with a uniforming sized top and bottom (boxes or cylinders). They key is to ensure the product is conveyable in this packaging.

The other item I like is the removal of cardboard in primary packaging. You are seeing more product (even premium brands) in just a plastic bag. You can get more product in a carton and significantly reduce cost. The big impediment is consumer perception (or many companies perception of consumer tastes). However, I think the USA will be many years away from bulk dispensers in retail for branded items. Imagine Kellogg’s having a Kiosk at your local supermarket where you would buy their branded cereal out of bulk barrels with a scope or dispenser similar to buying granola at Whole Foods? Or buying cleaning products out of a bulk dispenser directly into your own spray bottle. Many cleaning product companies have refill size containers, but typically the cost per unit is similar to the smaller size with a spray nozzle and still has colored labels and premium shaped/color plastic packaging.

Unfortunately, some changes are good for the environment and others maybe more cosmetic. There is a push for more fully transparent containers. However, to get plastic that shows its contents as clear as glass, may actual require more weight (and cost more) than a semi-translucent plastic. The biggest issue I see is that many packages combine material (like a plastic and a metal) that actually inhibit recycling and bio degrability. Most of us are aware of the issue with kids drinkboxes that mix plastic, metal, and paperboard into a unrecyclable mess.

Some trends are a negative. I am seeing more “individual” or “conveyance” packed items. This is like the packaging of tissues in 2 packs or aspirin in single packs. So, the consumer buys a box that has 50 individual packs inside? There is more cost (and weight) in the packaging than in the actual product.

Ironically, emerging markets typically have less packaging then developed markets. I suspect that large supermarket chains and big box retailers require the secondary packaging for their automation while in the emerging markets most of the product handling is still by human hands which can deal with various packaging types. The ironic part is product damage is expontially higher in emerging markets, but even a 0.5% damage rate in America could be a charge back issue to a consumer products company.

For sustainable packaging, the number one advice is to cut as much packaging as possible while still delivery product with minimum damage and maintaining brand awareness. Then try to think about using product that can be recycled or at least allow the packaging to be separated to be recycled. Then for the most forward thinking companies, how can you distribute your product while maintaining its brand and logo without any packaging at all? That could be a big difference in the market.

Friday, February 27, 2009

Recent News of Interest:

Article on Green building and the difference between real Sustainability and Green washing. Know the difference.

http://www.coloradoconstructionmag.com/features/archive/0310_feature4.asp


Modern Material Handling on re-using existing buildings for new purposes.

http://www.mmh.com/article/CA6635516.html?q=Modern+Thinking

Sustainability in the recession

A lot of hype about companies decreasing focus on sustainability given the current economy. I disagree. As companies are being challenged by the economy, they are very actively looking at any cost reduction they can get. This includes: employee travel restrictions (and more use of video conferences), reduced packaging, reduced product transportation, more focus on cost reduction projects. While these initiatives have the primary goal of reducing costs and maintaining cash flow, they also reduce the overall carbon footprint. Frustrated sustainability advocates, should see this as an opportunity.

Just 12 months ago, many environmentalists were pushing technologies that did not have a rate of return that met most companies hurdle rates for capital. The investments you will see over the next few years, will have payback. That is good. Unfortunately, we will not have the R&D $$ to get the next technologies down to a price point that justifies investment. But expect to continue to see a strong focus on energy conservation, wind, and solar hot water. The wildcard is the USA government investments as part of the stimulus package that may have a way of distorting market forces in the selection of technologies.

The other thing that is happening is that many companies are now working beyond the "low hanging fruit" based on pure cost reductions. We are seeing the much longer/more significant changes. This includes:
1) Product reformulation - Manying companies are working on new formulations that use less toxic chemicals. You are already seeing "green" alternatives of major brands. You will start seeing the "green" alternative become the brand itself. I believe "clorox" green cleaner will replace the older clorox window cleaner.
2) Supply Chain reconfiguration - Companies are looking at their carbon footprint as part of their distribution network design. IBM announced they have sofware and services to help in this area. It takes years to change distribution networks, but I keep seeing, smaller DCs, closer to the customer. Part (no all) is based on reducing transportation miles.
3) Packaging Changes - With all the push back on plastic bags, etc, you will see companies get more green in their packaging. No company will compromise on the "look" of their product on the shelf, but packaging companies (see packaging digest) are all pushing green packaging. Green package will become the "attractive" shelf display. This includes recycled content, non-plastic based packaging, and reducing layers. I believe this will start in areas that are more environmental aware areas and over the next 3-5 years become the standard. Get used to bagged cereal and boxed milk.

This economic downturn is exactly what companies need to enable the very large supply chain changes. Many older companies will fail, allowing new companies with more efficient ways of doing business to thrive. This is a great thing for sustainability. Agree?