Principles of Sustainable Logistics

Abstract

Effective logistics largely contributes to the success of business through quick deliveries in minimum time and cost. Logistics is the process of getting material, product, and service where and when they are needed. When addressing the concept of sustainable logistics, it is important to consider the three dimensions of sustainability: economic, social, and environmental. Sustainable logistics is beyond going green and being environmentally friendly, it has an influence on manufacturing processes, starting from where raw materials are obtained, processes involved, use, and potential recycling of the product or service. In analyzing the problem of evaluating logistic operation performance, sustainability will be one among other criteria for evaluation. Selecting a logistics partner who cares about sustainability will help in achieving company’s strategy. The chapter discusses the concept of sustainability applied to logistics. From the main definition of the logistics system, which includes the flow of materials and information, to the goal of sustainable logistics, which includes increasing profitability and reducing the environmental impact. Sustainable development involves coordination between environment and economics to reach social, economic, and environmental sustainability. The chapter aims to help managers, practitioners, scholars, and students to understand the key attributes of sustainable logistics and supply chain in general.

1. Introduction

Every aspect of our lives includes some form of supply chain and logistics, so the impact of these activities on the environment is of significant importance. The objective of this chapter is to introduce principles and practices that facilitate sustainable logistics operations in a holistic manner and consider factors of logistics affecting the natural environment beyond the usual factors of distance traveled, fuel use, and carbon dioxide (CO₂) emissions that have been well discussed in freight transportation literature. Global business is more dominant these days, for example, many manufacturers produce their goods in lesser-developed countries, and then shipped all around the world. This requires global logistics to ensure timely and efficient global distribution of goods from producers to consumers. Logistics and supply chain management (SCM) activities have a significant economic impact on countries and their societies. Grant et al. [1] reported these activities accounted for 8.3 percent of US gross domestic product (GDP) or US $1.45 trillion in 2014 and 6.8 percent of GDP (€876 billion) across the European Union’s (EU) 27 countries in 2012.

This chapter covers sustainable logistics. It starts by presenting an overview of logistics in the second section. The third section discusses the basics of sustainable development and sustainability. The fourth section introduces the basic concept of sustainable business as minimizing costs, which covers the three aspects of business: environmental, financial, and human. The fifth section discusses sustainable supply chain and logistics. As business is becoming more challenging these days, companies need to be aware of and practice sustainable supply chain management to stay competitive. Sustainable supply chain management is about environment protection, social responsibilities, economic growth, and profitability in the long term. It wraps up with a brief section on the evaluation of logistic operations. In addition to cost and speed criteria, sustainability should be introduced in the evaluation criteria.

2. Logistics

Effective logistics largely contributes to the success of business through quick deliveries in minimum time and cost. Logistics is the process of getting material, product, and service where and when they are needed. It works to determine the temporal and spatial positioning of raw materials, work in progress, and finished inventories where they are needed and when they are required. Logistics can be categorized into subsistence logistics, operation logistics, and system logistics. Subsistence logistics is concerned with the basic human needs of food, clothing, and shelter within any given conditions, and it provides the foundation of operations logistics. Operations logistics goes beyond subsistence to systems involved in producing luxuries; it incorporates the raw material required by the enterprise in the production. System logistics includes all resources required in keeping a system in operating condition. These resources include personnel, test and support equipment, spare parts for maintenance, technical publication, and facilities. Thus, logistics systems consist of four main activities: purchasing management, inventory management, warehousing management, and transportation management.

Logistics is defined by the Council of Logistics Management (CLM) as “the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements” [2].

Effective logistics minimizes the cost of transportation, inventory, material handling, and other distribution-related activities. In light of the new trends in business, logistics have gained great importance. New trends include high production efficiency, change in inventory philosophy, high transportation cost, production lines replication, propagation of computers and technology, retails fast-growing, globalization, and reduction in economic regulations. Efficient logistics systems throughout the world business are a basis for trade and a better economy. It allows a geographical region to exploit its inherent advantage by focusing its productive efforts on those products in which it has been an advantage, which will result in competitive production cost, logistics cost, and quality compared to other regions.

Global logistics is growing and playing a vital role in international business. It ensures timely and efficient global distribution of goods from producers to consumers through a connection of critical components of the supply chain from a product’s point of origin to its point of consumption. It was reported that global container trade has increased on average 5 percent per year over the last 20 years and at its peak in the mid-2000s comprised 350 million 20-foot equivalent units (TEU) a year [1].

Advancements in information technology and communication, transportation and material handling, and high volume data processing and transmission are revolutionizing logistics control systems. The use of big data tools in logistics and supply chain management gives great advantages as it provides better decision making, improved efficiency, cost reduction, better risk management, and better visibility and competition [3]. Communication technology enables better, faster, and reliable supply chains, communications take place between any firm, suppliers, customers, and other members involved in the chain.

3. What is sustainability?

Different people or organizations might have different understandings or definitions for sustainability, depending on their area of specialty or function. Many people think the word sustainability is synonymous with “going green,” or limit their understanding of sustainability to the environment. However, the word sustain means causing or allowing something to continue over a period of time. In the same logic, an unsustainable process or act assumes that it will come to an end sooner rather than later. The World Commission on Environment and Development (WCED), known by the name of its Chair, Gro Harlem Brundtland, published its report “Our Common Future,” in 1987 [1] and proposed the concept of sustainable development as an ideal for the global economy and corporations. Sustainability was defined as development that meets the needs of the present generation without compromising the ability of future generations to meet their needs. Based on the WCED definition of sustainability, focusing only on the environmental aspects of sustainability is short-sighted and partial. In addition to the environment, sustainability embraces several arenas including economics, materials, industry, human behavioral science, laws and legislation, social sciences, and finance, as depicted in Figure 1.

Figure 1.

Arenas of sustainability.

To achieve sustainable development, there are three goals that need to be fulfilled: waste elimination or minimization, optimization of resources, and cost minimization. Achieving the three goals will lead to environmental sustainability, economic sustainability, and social sustainability, which are the three pillars of sustainability. From a business viewpoint, sustainability is about reducing costs in every conceivable form, which will lead to profitability, competitiveness, and continuity. These costs consist of the costs of raw materials, waste, deficits in resources, poor product design, inefficient production process, climate change, and unemployment. These costs can be grouped into three categories that represent the three aspects of business: Environmental, Economic, and Social.

4. Sustainable business

Sustainable business is about minimizing costs, which covers the three aspects of business: environmental, financial, and human. There are several challenges business need to consider to better compete in the market. The volatile energy prices is a major challenge for business, all options need to be considered to reduce the energy bill and consequently the business’s dependence on oil. The prices of raw material increases due to increase in the world’s population. Increases in waste and disposal costs are becoming critical to business. Most countries of the world have passed laws and regulations for waste regulation and recycling. Plastic, cans, papers, and other recyclable materials are kept away from landfill sites to avoid waste. The legislation to control CO₂ pollution is active in many countries, manufacturers and industrial companies not only face a real challenge to keep their level of CO₂ within limits, but investors are avoiding investing in companies that are not willing to comply and watch the high cost of change in environment. Customer and business demands and expectations are becoming different, buyers are so much aware of prices and sustainability initiatives. Retailers are concerned with their supply chains, where the majority of their environmental footprint is centered. They are interested to optimize prices of energy, material, and supply chains. Companies that are committed to low-cost sustainable operations gain the best market share; this will put such companies on a competitive advantage compared to others. Nowadays, customers expect companies to be transparent, which is done through two channels: voluntary where information passing from company to customers, or involuntary where information is shared by consumer watchdog groups. There are companies that are making it possible for customers to have online access to follow up on products from concept to material sourcing, to manufacturing and delivery. Companies share ingredients of their products by providing online lists.

Commitment to sustainability helps companies to recruit, and retain smart employees who think about things other than money. Those employees work with pride and purpose, want to feel the ability to make difference and accomplishment. The longer a company takes an action, the higher the cost is, and the further behind it will be in terms of market share, profitability, and innovation. Hidden costs exist, such costs could be building-related low productivity, and sickness resulting from poor ventilation and lighting. In addition, there are costs related to laying off employees, which include the loss of investment in human capital, economic and social ex-communication, and reduction in national economic growth.

5. Sustainable supply chain and logistic

As business is becoming more challenging these days, companies need to be aware of and practice sustainable supply chain management to stay competitive. Sustainable supply chain management is about environment protection, social responsibilities, and economic growth and profitability in the long term. Figure 2 depicts the relationships between the three goals that need to be fulfilled: waste elimination or minimization, optimization of resources, and cost minimization, sustainable development with its three dimensions: economic sustainability, environmental sustainability, and social sustainability, and sustainable logistics with its components: logistics concepts, methods, and functions. To achieve sustainable development, integration of its three dimensions is required; any defect in the three dimensions of sustainable development will not lead to its achievement. Logistics is involved in all aspects of business as well daily life of individuals. Sustainable logistics is tied to sustainable development in general, sustainability criteria should be included in the logistic evaluation, in addition to another criterion such as cost and speed. Sustainable logistics is at the intersection of its concepts, methods, and functions. The goal is to eliminate environmental problems in the areas of logistics, which can be achieved by eliminating or minimizing negative impacts of logistics on the environment. Starting from the concepts, these activities include designing sustainable packaging, and reuse of, recycling waste, reducing energy and the pollution caused by transport.

Figure 2.

Sustainability framework.

Several concepts and terms of logistics resulted from strict environmental regulations. Reverse logistics is defined as “the process of planning, implementing and controlling the efficient and cost-effective flow of raw materials, semi-finished and finished products, together with the related information flows, from the point of consumption to the point of origin, in order to recover the value or proper management” [4]. Disposal logistics – “the application of the concept of logistics for the residue, to induce their efficient, economically and ecologically, movements, while the space-time transformation, including changes in the amount and type of” [5]. Recirculation logistics – “suggests that product or packaging, is circulated repeatedly in a closed-loop supply chain” [6]. Downcycling – “process of waste or useless products transformation into new materials or products, having lower quality and functionality” [6]. Green logistics is defined as a “management approach” aimed at minimizing the negative impact on the ecosystem of logistics flows. The problems of excessive environmental degradation concern companies, operating in each market sector. In particular, however, apply to freight forwarders and carriers. The concept of green logistics associated with the strategy consists in the use of their resources in the most efficient and environmentally friendly way. It is a trend that stems from the need to care for the global environment [7].

Logistics includes “efforts to acquire materials and finished products distribution to the right place, at the right time and in the right amount. Typical elements of the logistics system are customer service, demand forecasting, distribution communications, inventory control, warehousing, procurement processes, parts and service support, site selection magazine, shopping, packing, handling complaints, waste management, transport, and storage” [8]. To improve logistic operations, companies collaborate with suppliers, shippers, distributors, and customers. As a result, logistic cost will be reduced and business performance will be improved.

Sustainable supply chain management covers all activities, functions, processes, and relationships, where materials, products, services, information, and monetary transactions move among enterprises. The first step in the implementation of sustainable supply chain management starts with product design. In addition to optimizing quality and cost, the design will allow recycling of products. Sustainable production is the second step, which can be achieved through utilizing clean production methods, use of new technology, reducing raw materials, and resources. Sustainable marketing helps companies to enhance their relationships with stakeholders. Maintaining biological balance, paying more attention to environment, and waste management leads to cost reduction and improved competitiveness. Sustainable transportation is a major element in achieving sustainable supply chain management. Utilizing renewable energy, modes of transport, infrastructure, and operational management practices can be considered to achieve sustainable transportation. Sustainable purchase leads to minimizing waste, hazardous materials, and sources of pollution.

Hammer and Somers [9] discussed concepts that provide possibilities of using resources more productively. The lean methods involve following a product through factory or service operation with the objective to reduce waste of energy and materials. Unlike profit per ton, the concept of profits per hour takes into account the time dimension in production process. This concept enables companies to make wise decisions and choices regarding resources and productivity.

Advanced analytic techniques help companies navigate and sort within different variables such as equipment configuration, raw materials, and process changes. Comprehensive change management effort is required for resource productivity, which ensures that employees create more value from less. Think circular is a sustainable logic that creates new value for companies and societies. This logic relies on looping products, components, and materials back into the production process.

Rothenberg [10] promoted the concept of “servicizing,” where suppliers could focus on providing services instead of selling products as their business models. This will lead to reduced material use as a strategic opportunity. This is in line with the World Commission on Environment and Development definition of “sustainable development.” The author presented the case study of three companies; Gage Products, PPG Industries, and Xerox. The three companies are taking the servicizing approach; they adopted business models that help customers purchase less of their products. The three companies have attracted new customers with their new business models. In addition, they have built stronger customer relationships. This closure customer relationship has led to expanding the range of products they sell, attracting new customers who are impressed with the company’s sustainable social commitment, and usually, customers are less likely to change suppliers.

Similar to other large-scale initiatives for change, moving to servicing is faced with challenges. Changing the culture from selling more products to helping customers to use fewer products is not an easy task. There will be internal resistance at different levels to this change. Managing this change falls into six categories: (1) utilizing existing strengths (2) restructuring profit in contractual agreements (3) introducing the new business model (4) new incentive schemes (5) introducing new skills and (6) expressing major significance and special interest of environmental advantage.

Paine [11] discussed the importance of corporate responsibility to their long-term success. Nike’s corporate committee’s role in supporting innovation was described. The committee was created in 2001 as a result of board member Jill Ker Conway’s lobbying. The committee advises on issues such as labor practices, resource sustainability, innovation, and acquisitions. The author concluded that corporate responsibility committee could help companies in several ways such as a source of knowledge and expertise, accountability, driver of innovation, a source for the full board and constructive critic.

Nidumolu et al. [12] discussed the idea of collaboration, as is a necessity for business sustainability. They introduce four models for systematic sustainability using case studies. The models have two common features; stakeholder inclusion and innovation in either operating processes or business outcomes. Companies can work together on issues such as climate change, depletion of resources, and ecosystem. Two types of collaborations focus on business processes and outcomes. First, is corporate collaboration, which includes all players in business such as manufacturers, suppliers, distributors, and retailers. Second, extended collaborations, which covers business and non-corporate partners such as government, NGOs, and academics.

Companies can identify and share operational processes that will minimize consumption of resources and waste, which will lead to natural resources protection. In addition, companies can share defined outcomes that minimize environmental impact. To explain the proposed models, the authors discussed several case studies. Processes were the center of corporate collaborations in the case of Dairy Management Inc. and case of an action to accelerate recycling. The corporate collaboration’s focus was on outcomes in the case of sustainable coalition, and Latin American water funds partnership.

Authors stated seven next practices for successful collaborations in sustainability. (1) Starting with small committed group (2) link self-interest to shared interest (3) monetize system value (4) create a clear path with quick wins (5) acquire independent project management expertise (6) build in structured competition, and (7) nurture a culture of trust.

Doorey [13] describes the case study of Nike and Levis. The contribution of factory disclosure was evaluated, and tracking the change from resistance to transparency in supply chain was tracked. Information disclosure is a tool that is used in business and it affects its behavior. Business leaders can change harmful behavior with transparency and empowering private watchdogs. This is clear from the private movement that took place in the late 1990s to pressure corporations to disclose and declare their global suppliers. It was believed that such disclosure would improve working conditions and labor practices. For example, Nike and Levis published their suppliers list in 1995, which was a surprise to the business community. Information systems were introduced to track information about labor practices including global suppliers’ databases.

Unlike Nike and Levis, many other companies are not welcoming the idea of supplier transparency. Some of these companies cannot track their suppliers, which will lead to ignorance of labor practices. In such case, the role of private actors becomes essential to apply the needed pressure to create transparent supply chains.

New [14] discussed the importance of transparent supply chain. When supply chain is not transparent, trouble will arise. Many companies consider provenance very important, H&M for example declares that labor practices and environmental effects of its suppliers’ suppliers are very important. Origin is considered an important and essential feature of what a customer may buy. Companies such as Wal-Mart are using new technologies to provide origin data. For example, bar codes that can be read with mobile phones, genetic markers for agricultural products and labeling have been transformed by microscopic electronic devices.

Customers have an interest in origins and authenticity. Providing them with information about provenance will become part of the marketing strategy. Provenance is important on downstream and upstream sides of the supply chain. Both customers and suppliers can access this internet of things that gather provenance information.

6. Evaluation of logistics

Until recently, logistic operations were evaluated based on cost and speed criteria. The situation is different now, where sustainability was introduced in the evaluation criteria [15]. Logistics is a human activity and impacts the environment through its components purchasing, inventory, warehousing, and transportation. Decision-making becomes more important in logistic and supply chain management, which may vary from single quantitative criterion to multi-criteria problems. Many problems in logistic management such as supplier selection, purchasing, manufacturing, distribution, collaboration, performance management, and design are covered by suitable multiple criteria decision-making approaches. Mohsen and Murat [16] developed an analytical hierarchy process (AHP) methodology to perform a multi-criteria evaluation of freight forwarders. It analyzes different criteria that would be employed in the evaluation and selection of forwarders.

Companies’ competitiveness rely on their ability to ship their products around the globe at the right time in a perfect physical situation. It is suggested that logistic evaluation is based on a multi-criteria in terms of transit time, quality of service, expertise and specialized service, network, competitive prices, technology and information, and sustainability criteria.

6.1 Quality of service

In logistics, quality of service is not about responding to emails or calls anymore. The quality of service pertains to such areas as expertise in providing relevant services, ability to work with one point of contact, meeting unique customer requirements, dependability and assurance of the international shipping service, flexibility and ability to provide a wide range of services, and meeting deadlines. Quality of service is about supporting customers to gain a competitive edge against their competitors by using innovative systems, utilizing big data, and advising on the market conditions and logistics trends. Huang et al. (2019) explore some practical business solutions to enhance customer service level of the international freight forwarders. Providing high-quality service is a key objective in this business sector to enhance customer satisfaction since competition is extremely critical.

6.2 Specialized service

Ability to provide specialized service is very critical for customers needing special and expert handling of their sensitive cargo. For example, the shipment of a pharma product requires a forwarder who knows the regulations and has proven record experience in handling pharma when it comes to temperature monitoring during the shipping and warehousing requirements.

6.3 Network

Network for the logistics partner is defined as the existence of the company around the globe. It is important to deal with a company that has a strong network around factories to the distribution centers to make sure they guarantee space for cargo, and on the other hand to be committed to the agreed transit time. Network dimension concerns such factors as international deployment, number of branches worldwide, and number of countries in which the international shippers are represented.

6.4 Competitive price

Price might be critical to some industries, especially for low-value products. Hence, customers seek the most competitive rates in the market to increase their profitability. On the other hand, other industries’ shipping pricing might not be as critical as for pharma and high technology because of the need for special handling and expertise which might not be available in all logistic companies. So, you need to check your industry and value of your product before negotiations. In all cases, the ability to offer service with attractive prices will continue to be an important criterion.

6.5 Information and technology

No doubt that technology is so important nowadays, finding a partner with advanced technology would help to have efficient and effective operations. The ability to access and interface with the international shippers’ information technology is a very important factor in evaluating the freight forwarder. Finding a partner with advanced technology will give the company a competitive edge against your competitors by utilizing their big data.

Some shippers have really advanced technology to level that they have platforms, which allow you to predict the economy for every quarter of the year per region by utilizing the big data of logistics (import & export), this will be very helpful, especially for newly launched products.

6.6 Sustainability

Saving the environment is everyone’s concern nowadays, all companies giving more attention to sustainability and they made a lot of initiatives to save environment. Finding a logistics partner who cares about sustainability will help the company in its strategy. Some of the logistic and transport companies generate reports for CO₂ emission, which will help you in your strategy.

7. Conclusions

Logistics is a required function for all types of businesses. It covers many actions and activities performed by the companies involved in managing the flow of raw material, unfinished products, and final products. This wide range allows to introduce and use many tools, solutions, or actions that led to the creation of Sustainable Logistics Management term.

Sustainability is the future for logistics and supply chain businesses. It is important to understand the level of social, environmental, and economic impact and viability that suppliers and customers have. It is beyond going green and being environmentally friendly, it has an influence on manufacturing processes, starting from where raw materials are obtained, processes involved, use, and potential recycling of the product or service. In analyzing the problem of selecting a freight forwarder, sustainability will be one amongst other criteria for evaluation. Selecting a logistics partner who cares about sustainability will help in achieving company’s strategy. Some of the logistic and transport companies generate reports for CO₂ emission, which will help in achieving specific targets and strategies.

As business is becoming more challenging these days, companies need to be aware of and practice sustainable supply chain management to stay competitive. Sustainable logistic and supply chain management is about environment protection, social responsibilities, and economic growth and profitability in the long term.

In addition to cost and speed criteria, sustainability should be introduced in the evaluation criteria. It is suggested that logistic evaluation is based on a multi-criteria in terms of transit time, quality of service, expertise and specialized service, network, competitive prices, technology and information, and sustainability criteria.