Cost savings trump “green” concerns for logistics managers

When AlixPartners asked 150 C-level & senior executives at U.S. and European companies about the importance of incorporating “green” practices in their company’s supply chain, they received some surprising – and revealing answers.

Overall, the global business-advisory firm’s survey found that while most executives recognize the importance of sustainability, cost is still a major factor and trumps environmental impact as a driver of behavior.

“Major shippers still focus on speed-to-market and eliminating waste in the supply chain,” said Foster Finley, managing director at AlixPartners and head of its Logistics & Distribution Practice. “If they can achieve this – and at the same time – become more sustainable, that’s great. But being green is not the overriding principle or goal.”

Operational efficiency, added Finley, might be achieved by simply focusing on fuel savings and expenditure of energy.

“Reefer shippers may examine how much thermal waste is being spent in warehouses,” he said. “Truckers may be scrutinized for how much idle time they post.”

Ethical sourcing was a major part of the firm’s recent 2013 Executive Survey on Supply Chain Sustainability.

Sustainable supply chain opportunities are seen as having greater potential for financial return than others are, with freight consolidation and network optimization—both of them cited by 53% of executives surveyed—topping the list. Similarly, third-party logistics and trucking (49% each) are seen by executives as the segments in which the most-cost-competitive sustainable innovations can be found.

“Companies that can implement cost-effective supply chain sustainability improvement strategies and market them to customers will have a competitive advantage,” said Finley.

“For companies willing to spend on sustainable technologies, nearly 60% require a cost payback within 18 months or less,” he said. “Just 17% are willing to wait longer to see a return on their investment. That lack of return on investment is the largest obstacle to achieving greater supply chain sustainability, cited by 65% of executives we asked.”

Lack of return on investment is followed by implementation costs, which was cited by 59% of respondents. For all of those reasons, active investment in sustainable supply chain projects remains a question mark for many company executives.

While retailers are looking to sourcing to drive more differentiation on the shelf and to defend market share, margin and brand reputation, the jury seems to be out on how much sacrifice can be made.

“Twenty-nine percent do plan to actively invest in these types of projects, and 13% said they have a plan, although it will not be implemented in the next year. Nearly half—43%—are undecided,” said Finley.