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February 2009
Energy uncertainties: supply chain impacts in the Upper Midwest
Craig Simon
Aaron Jorgensen
Fluctuating energy costs and economic uncertainties worldwide make for volatile supply chains. While facing these current challenges, manufacturers, distributors, and logistics providers all have to consider longterm strategies for sustainable energy-consumption practices throughout their marketplaces and supply chains.
In the keynote speech at the 12th Annual Freight and Logistics Symposium in Minneapolis on December 5, Craig Simon, president of the Americas for FedEx’s Global Supply Chain Services, outlined the company’s energy strategies while providing a glimpse into the innovative supply chain practices of its customers. “Companies used to make decisions across speed and cost and the cost-service tradeoff. Now the carbon footprint is coming into play as well,” Simon told the audience of freight and logistics professionals, policymakers, and researchers.
FedEx has committed to electric hybrid vehicle technology and is experimenting with solar facilities. By 2020, its goal is to reduce CO2 emissions on its aircraft by 20 percent and improve vehicle fuel efficiency by 20 percent. “These things are good for the environment, good for the business, and save us large amounts of cash,” Simon said.
Simon said swings in energy costs and fuel surcharges are difficult to manage even for carriers like FedEx. All parties in supply chains face similar issues, requiring flexibility and innovation. He outlined examples of how companies are reducing energy consumption, whether in packaging, shipping practices, or parts warehousing. “We have to make decisions that allow us to have flexible supply chains, allow us to meet the needs of global organizations, global customers, and global markets, but also address the needs of local markets,” he said.
Michael Tripp
Ron Dvorak
Next, a panel discussion focused on energy impacts on supply chains from regional, national, and global perspectives, moderated by David Christianson, manager of freight planning and development for the Minnesota Department of Transportation (Mn/DOT). Aaron Jorgensen, senior director of supply chain logistics integration at Medtronic, outlined the global manufacturer’s complex supply chain. “Everything is tracked from cradle to grave and quite literally that adds complexity to the supply chain. The product must be available when you need it,” Jorgensen said.
Michael Tripp, vice president of supply chain and logistics for retailer Christopher and Banks, outlined changes in the company’s purchasing, distribution, transportation, and sourcing considerations as a result of energy fluctuations and initiatives to reduce its carbon footprint. Tripp encouraged attendees to speak in bottom-line terms. “We need to be more bilingual. We want to be able to talk to the CEO, CFO, and chief merchandising officer in ways that are meaningful to them.”
Ron Dvorak, account manager with Xpedx, broadly outlined the needs and challenges of small to medium-sized manufacturers in northern Minnesota. He said energy fluctuations have compounded the cost pressure these resource-based suppliers face against the backdrop of an underdeveloped infrastructure.
A second panel, moderated by Tim Henkel, director of modal planning and program management at Mn/DOT, mulled future energy scenarios and public policy alternatives. Saif Benjaafar, director of the Center for Supply Chain Research at the University of Minnesota, described the characteristics of “lean” supply chains versus green ones. Lean thinking emphasizes low-cost sourcing and frequent deliveries while green thinking encourages consolidated shipments, increased inventory in lieu of transportation, local suppliers, and regionalized supply chains.
Saif Benjaafar
C. Ford Runge
Dan Murray
“Green thinking is really putting the brakes on some of these (lean) principles by trading inventory for transportation,” Benjaafar said. “We’ve all been brainwashed with this thinking that inventory is something really bad for the supply chain. In fact, it can be used to mitigate energy use [and] carbon emissions.”
C. Ford Runge, Distinguished McKnight University Professor with the Department of Applied Economics at the University of Minnesota, pointed out that public-sector investment has enabled the private sector to profit by just-in-time delivery and other innovations. The burden of inventory carrying costs is shifted away from the private sector, essentially turning roads into warehouses. Runge suggested the private sector might have to bear the burden of paying more for infrastructure use.
Dan Murray, vice president of research with the American Transportation Research Institute, closed the panel discussion with a comprehensive overview of sustainable energy and green initiatives by the trucking industry. Given that oil constitutes about 40 percent of the world’s energy, and 96 percent of all transportation energy is petroleum based, Murray said major challenges remain. “It’s going to be very problematic to redirect, certainly in the short term, any sort of energy paradigms that exist in freight transportation.”
This event is sponsored by CTS, in cooperation with Mn/DOT, the Minnesota Freight Advisory Committee, the Council of Supply Chain Management Professionals—Twin Cities Roundtable, the Metropolitan Council, and the Transportation Club. It is facilitated by Continuing Professional Education, University of Minnesota.
Proceedings of the conference will be published shortly. To receive a copy, call CTS at 612-626-1077 or visit www.cts.umn.edu/publications.