Doing nothing is not an option

How sustainable and resilient is your logistics network? Answers to this question often remain vague. The indicators that have to be evaluated simultaneously and converted into reliable statements seem too complex. However, this is precisely what growing global uncertainties require. After all, logistics also has to contribute to overcoming economic upheavals and counteracting the effects of global climate change.

What do I care if a sack of rice falls over in China? Globalization should have shown the absurdity of such questions long ago. This is because even seemingly meaningless micro-events can develop an unforeseen dynamic that subsequently causes a global domino effect. The documented pandemic, supply bottlenecks, the war in Ukraine and protectionist tendencies all unequivocally document that it does matter what happens or originates on a local level in other places. If microchips are lacking, for example, entire industries come under pressure. However, weather extremes due to climate change also take their toll and endanger supply security. In addition, the problem of greenhouse gas emissions (GHG) caused by transport and logistics is still far from being solved.

In light of this VUCA world characterized by many crises, it is high time or even overdue to make supply chains significantly more resilient and environmentally friendly. Transportation logistics experts at Fraunhofer IML have therefore been devoting themselves for some time to the question of how to make supply chains more robust and significantly reduce GHG emissions at the same time. Newly developed optimization processes also show how to achieve a largely balanced relationship between cost expenditure and impact success, even if this sounds ambitious – with the help of “sustainable network design” (SND). The project relies on classic logistics network planning and expands it to include sustainability and resilience. Transport emissions, general site emissions, emissions for article handling, and emissions that arise during the purchase of goods are recorded and evaluated. “This makes it possible to state for every warehouse site how many pollutants enter the environment during the procurement, handling and transport of goods,” explains project manager Bernard van Bonn.

These results, which trading companies can also use for their scope calculations according to the “Greenhouse Gas Protocol,” can also be used to derive the extent to which it is worthwhile to switch to electric fleets, whether the selected electricity mix is advantageous and/or whether there is a basic need to modernize the site. The resilience factor “failure costs of locations” was additionally integrated in the basic mathematical model. For example, it is simulated for each relevant node of the network what the effects are when only one of them does not fulfill its productive task to the usual extent. Neuralgic points are identified, and approaches are developed to prevent a complete supply chain from being dependent on a single production site; these include, for example, selective capacity limitations and the involvement of alternative suppliers – keyword: diversification.

Following the test phase, real data from project partners was implemented in the model for the first time. The observation was centered on an exemplary logistics network in Eastern Europe that consists of five potential warehouses and serves around 6,000 customers. It was assumed that all sites had identical characteristics in regard to capacity, emissions and costs for inbound and outbound activities that concern transport as well as operative internal goods handling. On the basis of this scenario, one thing soon became clear: If a package of measures exclusively aims to reduce GHG emissions as a mixture of transportrelated and locally occurring greenhouse gases, savings of around 50 percent are possible. At the same time, such a one-sided concentration would incur a cost increase in the same amount.

Consequently, alternative logistics networks should be identified with the help of a simultaneous optimization of emissions and costs using various weightings. The scientists therefore concluded, among other things, that 15 percent of the emissions could be reduced with a cost increase of only 6.5 percent. This indicates a relative cost efficiency of the initial emission reduction. The model furthermore shows that a network with a reduced pollutant emission of 48.5 percent would cause additional expenses to the amount of 36 percent. This means that the reduction of the last 1.5 percent of emissions – measured relative to the original scenario with 50 percent – would require additional expenses of 14 percent. The researchers are currently working to further improve these ratios of costs to savings for GHG emissions. Potential can still be leveraged here especially on the cost side.

Network configurations in such formats are naturally very attractive from an economic and ecological perspective and are quickly added to the favorites list. For this reason, the inclusion of resilience in the optimization ensures that decisions are not made at the expense of stability. Using the example of a network that has 6.5 percent higher costs and 15 percent lower emissions, it becomes clear that it could be disproportionately dependent on one location if the resilience factor is not taken into account. This in turn harbors the risk of a failure probability and high cancellation costs. “The simultaneous optimization of costs, emissions and resilience is decisively important for designing a balanced, sustainable and resilient logistics network,” emphasizes Tim Kerkenhoff from the SND team. A one-sided consideration that only concentrates on one of these aspects can lead to suboptimum results and overlook important synergies. The integrated consideration of all three factors, on the other hand, enables companies to make more efficient and robust decisions that benefit not only their own organization but also society and the environment

With GILA, a further project was launched in July 2020 to support the worldwide efforts to reduce GHG emissions caused by logistics. At the same time, the key figures developed here are also used in the “Sustainable Network Design” (SND) project. GILA stands for “German, Italian & Latin American consortium for resource efficient logistics hubs & transport.” In this project, funded by the German Federal Ministry of Education and Research (BMBF), a consortium of ten partners led by Fraunhofer IML is working on new sustainability concepts.

“The definition of a uniform method for evaluating the environmental performance of logistics centers not only increases transparency but also creates a reliable basis for operative and strategic decisions,” reports Kerstin Dobers, the project manager. This concerns both the reduction of GHG emissions as well as a more resource-efficient design of warehouses, fulfillment centers, hubs or terminals that have an interface function within transport chains. The goal of a “circular economy” is also relevant in this connection. “Determined average emission intensity values or other environmental indicators can be included in existing calculation tools and initiatives for environmentally friendly transport as default values in the ‘EcoTransIt World’ tool or as a benchmark, for example,” Kerstin Dobers continues. 

The basis and driving force at the same time is an annual international market study that also gives insights into regional climate conditions and industrial preferences for specific technologies. A central instrument for evaluating resource consumption and emission efficiency is the socalled REff Tool® (Resource Efficiency at Logistics Sites). It enables participating companies to include the relevant resource consumption of a site in their carbon footprint. As a result, reliable KPIs are calculated for storage and handling, for example, GHG emissions per stored pallet. The systematic monitoring also has the advantage of enabling a quick identification of significant fields of action and the implementation of reduction measures in a targeted manner.

The results of the 2023 market study are expected to be officially presented together with the project partners in a webinar in October. After an initial analysis, the data from 2022 remains valid. According to this, 75 percent of the GHG emissions result from electricity consumption. Across the three activity clusters of handling, storage and warehousing, an average of 35 percent is accounted for by the cooling of goods, 28 percent by lighting and 28 percent by material transport. As expected, the operation of solely freezer or refrigerator warehouses accounts for the lion’s share of electricity, with up to 78 percent. When asked how renewable the used electrical energy is, the surveyed companies stated that more than 70 percent of their total consumption is attributable to the respectively offered national electricity mix. According to their own information, 32 percent of the sites use electricity that is “greener” than that available through the regular electricity mix. Seven percent produce their own electricity using solar panels, for example.

The REff Tool® supports establishment of new standards such as, e.g., ISO 14083 for accounting and reporting the GHG emissions of transport processes. This orientation is also driven by the European Commission. Brussels, for example, is currently planning a directive that will define the ISO as an internationally uniform evaluation standard within the meaning of the “Green Deal.” Among other things, users of the REff Tool® receive information on the carbon footprint of one or more sites and their average emission intensity values. They can compare their own results with the key figures depicted in the market study and use them as a benchmark. The current database of more than 900 sites worldwide can be considered a success of GILA. However, the continuation of the research work will help to achieve an even more solid key figure matrix for the emission intensity values of logistics sites. The REff Tool® will also be continued.

»The definition of a uniform method for evaluating the environmental performance of logistics centers not only increases transparency but also creates a reliable basis for operative and strategic decisions«

Dr.-Ing. Kerstin Dobers 

Act or wait and see what happens? Considering that supply chains also have to function during turbulen this is more of a rhetorical question. The same holds true of the challenges that come with climate change. Dismissing sustainability as a mere buzzword does not do justice to the seriousness of the situation at all. Instead, massive efforts are required to ideally serve both aspects at the same time. Maintaining one’s own competitiveness is one side of the coin, and companies’ responsibility towards society and the environment is the other. Investing in the future naturally means having to spend money initially – and the willingness to forge new strategic paths using suitable technologies as well. Tools such as “Sustainable Network Design” (SND) and the REff Tool® show the way.