To gain favor among ethically conscious customers, retailers and manufacturers continue to put a marketing spin on sustainability. Greenwashing has many shades. Often it surfaces in buzzwords such as eco-friendly and recycled. Sometimes it reveals itself as trust in a brand, or the type of ingredients found in a product. Rarely does it pinpoint where a product is sourced from, the country of origin’s green politics, or the carbon emissions trail to market. If global companies are touting their greenness, sourcing strategy should be an important sustainability metric.
Many companies position themselves as green, but fail to deliver when you lift up the hood on their supply chains. Others get it.
One company that gets it is Japan-based TOTO, the world’s largest plumbing products manufacturer. Its U.S. headquarters is located in Morrow, Ga., site of a manufacturing facility that pumps out 22,000 toilets every month. Over the past decade, the company has made a concerted effort to push sustainability throughout its entire organization. Bill Strang, vice president of operations at TOTO, gave attendees of the March 2014 MODEX Expo in Atlanta an inside look at its global supply chain.
"Water energy and the environment hugely impact the way we bring product to the marketplace, what we do during manufacturing, and how we position product for the markets that we serve," explains Strang.
The company’s commitment to green led it to rethink its overall sourcing and manufacturing strategy. The change has been notable. One decade ago, 70 percent of all products that TOTO brought into the Americas came from Asia, primarily China. Today it manufactures and supplies 73 percent of products that move into the Americas from the Americas.
Re-shoring is a logical alternative, Strang says, thanks to a litany of obstacles in Asia: increasing labor and ocean freight costs, currency exchange rates, duty impacts, fewer tax rebates, longer lead times, higher inventory, and political instability.
"I can manufacture a toilet in Morrow, Ga., cheaper than buying it from the best factory in Beijing and shipping it to the United States," Strang says. "The Asian headwinds that are building up incentivized us to rethink our strategies, and build small, nimble manufacturing facilities in regions where we do business.
"We also see a lower cash impact," he adds. "When product comes in from China, it takes six to eight weeks to get it on shore. That’s six to eight weeks of cash tied up in inventory when we can use that cash supply for capital investment."
One decade ago, the outsourcing trend was predicated on reducing green expense, not exposure. But times are changing. Strang believes consumers are more cognizant of what they are buying, and that it is easier to stop the green spin, and instead explore its credibility.
"Today’s consumers are anxious and concerned about transparency," he says. "They don’t believe marketing collateral anymore; they believe what they can verify on the Internet."
While that may be debatable, TOTO’s success is genuine. The manufacturer incorporates sustainability into all its processes. Sometimes it gets "wonky" with the lengths to which it will go, adds Strang.
For example, TOTO is the first company in the world to participate in UPS’s carbon neutral shipping program. The expediter measures the ZIP code to ZIP code distance freight travels, then buys carbon offsets accordingly. TOTO pays a little more in freight costs, but reaps an enormous publicity dividend. And green savings elsewhere offset the additional expense.
TOTO removed hydrocarbon-based oils from forklifts in its factories, and replaced them with soybean oils. The company also ships every other toilet upside down, reducing transportation costs. How? Because toilets are L-shaped, double the number of pieces can fit into trailers by simply changing the load optimization paradigm.
TOTO’s sustainability value proposition contains no pretense. Green seeps into every aspect of its global operation—from manufacturing to sourcing strategy to load optimization, keeping the company flush with success.
As the Obama administration floats a new transportation bill to Congress, sobering figures from the American Transportation Research Institute (ATRI) provide another indication of the dire state of U.S. infrastructure, and the greater impact on freight transportation.
Congestion on the nation’s interstate highways added $9.2 billion in operational costs to the trucking industry in 2013, according to research from the Arlington, Va.-based not-for-profit research institute. ATRI sifted through motor carrier financial data, along with billions of anonymous truck GPS data points to calculate congestion delays and costs on each mile of interstate roadway.
Delays totaled more than 141 million hours of lost productivity—the equivalent of 51,000 truck drivers sitting idle for one working year.
ATRI’s analysis also documents states, metropolitan areas, and counties with the highest congestion costs. California led the nation with $1.7 billion in costs, followed by Texas with more than $1 billion. The Los Angeles metropolitan area experienced the highest cost at nearly $1.1 billion, and New York City was close behind at $984 million (see chart, right). Congestion tends to be most severe in urban areas, with 89 percent of costs concentrated on only 12 percent of interstate mileage.
Congestion Costs of Top 10 Metros
|1. Los Angeles, CA||$1,081,748,940|
|2. New York, NY||$984,287,793|
|3. Chicago, IL||$466,939,275|
|4. Dallas, TX||$406,130,727|
|5. Washington, DC||$379,356,852|
|6. Houston, TX||$373,603,620|
|7. Philadelphia, PA||$292,141,937|
|8. San Francisco, CA||$288,629,957|
|9. Boston, MA||$278,238,672|
|10. Atlanta, GA||$275,126,523|
Source: American Transportation Research Institute
Merger and acquisition activity is heating up in the transportation and logistics sector, suggesting that carriers and third-party logistics providers are either feeling more confident about their economic footing, or sense now is the right time to act. Consolidation in the trucking industry, which was rampant in 2013, is likely to continue.
2013 finished on a strong note, with a 57-percent increase in deal volume, and more than a 100-percent increase in deal value in the fourth quarter, according to professional services firm PwC.
The company predicts stronger demand ahead, supported by continued global economic expansion, and global industrial production. Acquirers should remain cautious, however, and continue to focus on small, local deals with more easily achievable synergies.
Some key takeaways from the PwC report include:
- There were 66 deals worth $50 million or more in Q4 2013, totaling $23.2 billion, compared to 42 deals worth $10.7 billion in Q3.
- Local market deals led Q4 with 71 percent of activity, and the proportion of local market volume reached a 10-year high in 2013.
- Infrastructure targets accounted for the majority of mega deals ($1 billion or more) in 2013—with particular interest in airport and port assets contributing to high media valuations for all 2013 announcements.
The omnichannel revolution is picking up speed unabated. One recent example: Amazon is ready to jump into the home delivery game, according to the Wall Street Journal (WSJ). The Christmas 2013 debacle, when millions of FedEx and UPS parcel shipments failed to arrive on time, created conjecture about how industry will be able to cope with growing last-mile requirements.
Amazon has already entered the fray with its Fresh delivery service in select West Coast markets—a play that some suggest is merely a means to get into homes more frequently, and has little to do with establishing a viable grocery delivery business.
"Amazon is growing at a faster speed than UPS and FedEx, which are responsible for shipping the majority of our packages," according to a recent job posting on the Amazon website.
"At this rate, Amazon cannot continue to rely solely on the solutions provided through traditional logistics providers," the post says. "To do so will limit our growth, increase costs, and impede innovation in delivery capabilities… Last mile is the solution. It is a program that will revolutionize how shipments are delivered to millions of customers."
Amazon has been testing a delivery service in San Francisco, and has begun openly testing a transportation network in the United Kingdom that deals with last-mile deliveries.
During Amazon’s first-quarter earnings call in April 2014, Tom Szkutak, chief financial officer, circumvented the question of whether the company was bringing more fulfillment services in-house.
"We continue to work to become closer to customers," he said. "And we’ve done that in a number of different ways. Just the footprint we have from a fulfillment capacity standpoint enables us to get great selection even closer to customers."
But the writing is on the wall. Amazon’s Kiva acquisition in 2012 gave it the fulfillment technology clout to optimize that aspect of its business. Creating a proprietary delivery network—whether investing in assets and/or partnering with local couriers—may be its only option to compete with brick-and-mortar retailers that are beginning to leverage their local presence to better meet consumer needs.
Walmart, for example, has more than 4,600 retail locations—including five different store formats—across the United States. It has been reported that two-thirds of the U.S. population lives within five miles of a Walmart store. That’s miles closer than Amazon can ever get through its 60-plus regional distribution and fulfillment centers. This penetration gives stores an advantage over e-commerce when it comes to value-added service offerings such as same-day delivery.
Now that Walmart is introducing smaller, targeted retail formats even closer to demand — and tethering inventory replenishment to larger super centers — Amazon and others have to step it up to stay ahead of the demand curve.
While a move toward creating its own delivery service could cut costs for Amazon, it would likely also give the company one more tool to lure customers away from brick-and-mortar stores and onto its website.
A company’s supply chain strategy should dovetail with its broader business roadmap. That’s according to 80 percent of respondents to Aligning Supply Chains with Business Strategy, a recent survey conducted by Tompkins Supply Chain Consortium. The more important question is whether companies have a supply chain strategy to begin with—and how much clout that direction has within the extended enterprise.
"The better the level of alignment, the more likely it is that companies are achieving their objectives for cost reduction, customer service, and other metrics," explains Bruce Tompkins, executive director of the Consortium, based in Raleigh, N.C.
From a global view, survey participants from North America believe their supply chains are of greater value to their companies than do the rest of the world. While global companies rate higher for cost reduction, inventory, customer service, and profitability, the degree of alignment is higher at North American companies.
"Supply chain is integral to overall company success, and can spark innovation in the entire organization," adds Tompkins. "The greatest takeaway from this report is that the importance of an integrated strategy cannot be ignored."