When it comes to sustainability strategies, collaborative distribution is the total package: improved business value proposition, sizable cost reduction and promise of significant emissions reductions. The potential of this strategy is why EDF listed it #2 on our Five Rules for a More Carbon-Efficient Freight Supply Chain.
Under a collaborative distribution arrangement, companies in the same or similar industries share warehouse and distribution assets. Because the products from participating companies are going to the same destinations, this arrangement enables more efficient loading of trucks, more frequent deliveries and fewer truck miles, which equals lower emissions. A third party logistics firm is typically involved in these arrangements and ensures the security of proprietary data and fair treatment of the products for all participating companies.
For a great, short introduction to the topic, see a video from Kane is Able.
Others agree with our high opinion of collaborative distribution too. Capgemini and the Global Commerce Initiative highlighted the strategy in their 2016: Future Supply Chain report. The report found that collaborative supply chain logistics have the potential to slash costs by more than 30 percent and increase carbon efficiency by 25 percent. A leading freight industry publication, Inbound Logistics, has noted that collaborative distribution “warrants serious consideration” from shippers.
It’s not all smooth sailing, though, for collaboration in the logistics space. As supply chain guru Art van Bodegraven recently noted, while supply chain managers understand that collaboration is vital for survival over the coming years, “we're not very good at it.”
Why not? Well, many shippers have concerns about possible information disclosure to competitors, but several direct competitors have been able to overcome this potential obstacle. A leading provider of collaborative distribution services has suggested that “the barrier to broad adoption is really the inertia created by years and years of implementing the current distribution model.” I’m inclined to agree with this sentiment.
In a recent EDF report, Smart Moves, we highlighted the efforts of many companies, including Best Buy, Sun-Maid Growers, Just Born and The Topps Company, Inc, that are leveraging collaborative distribution. We also pointed to the Hershey’s and Ferrero announcement about plans to collaborate on warehousing, transportation and distribution in North America. When announcing the collaboration, the companies highlighted the cost and emissions-reduction benefits of the deal.
Collaboration, of course, is not limited to warehousing and distribution. Other examples highlighted in Smart Moves include:
- Macy’s and trucking company Schneider National demonstrated the value of reducing empty backhauls through Empty Miles Service, an online service provided by the Voluntary Interindustry Commerce Solutions Association (VICS). This program helps participating companies expand their network of others wanting to identify matches for their empty backhauls. In the pilot project, Macy’s and Schneider found an average annual savings of $25,000 per lane (regular trucking routes) and were able to reduce per-lane carbon emissions by 150 tons. Given that Macy’s operates over eight hundred stores and likely even more lanes, the potential savings of this program are enormous.
- Dal-Tile Corporation, the largest U.S. manufacturer of ceramic tile, recently increased container utilization rates by finding freight from other companies that could be loaded atop their floor tiles. Because floor tiles are heavy, Dal-Tile previously was unable to use the full cubic space of the trailers they were shipping from Mexico to distribution centers in the U.S. Lighter freight from other companies enabled Dal-Tile and its partners to cut transportation costs up to 15 percent per load.
Companies have significant opportunities to reduce freight costs and associated emissions by working with other shippers. Those leaders showing the way have demonstrated solutions to the greatest concerns shippers have about data security and allocation of cost savings. It time for more companies to embrace collaborative distribution.