The environmental impact ofchanging logistics structures

Hakan Aronsson and Maria Huge BrodinDepartment of Management and Economics, Institute of Technology,

Linkoping, Sweden

Abstract

Purpose – This paper seeks to address how firms may contribute to environmental improvementthrough structural changes of their logistics systems.

Design/methodology/approach – A comprehensive literature review discloses the low interestthat has been directed to environmental issues in logistics, and findings relevant for structural issuesat a firm level are described. Three cases where firms have implemented different types of structuralchanges to their logistics systems support the analysis.

Findings – A range of different measures to succeed in environmental as well as logisticsperformance are presented, comprising types of consolidation, logistics standardisation, and IS/ITsolutions allowing a vast restructuring of logistics systems.

Originality/value – The discussion about logistics and the environment has mostly revolvedaround more environmental friendly technological solutions, concerning single firms as well asgovernmental support for technology development. The structural, more organisational issues, havebeen addressed on a societal level, where solutions concern infrastructure. There is a need to reduce theamount of transport in general. The paper discusses how logistics systems’ environmentalperformance can be improved simultaneously with a non-reduction of logistics performance in termsof costs and delivery service.

Keywords Supply chain management, Distribution management, Decision making, Corporate strategy

Paper type Research paper

IntroductionEnvironmental problems have received an increasing attention during the last decade.One of the major sources of environmental problems is transportation, which isexpected to increase even faster than the general growth of GNP in the industrialisedworld. EU emphasises that there is an absolute need for a decoupling between theincrease in GNP and in the total transportation volumes, since the transportationvolumes have increased more than GNP during the last 15 years (EuropeanCommission, 2001). This development cannot continue and it is pointed out that EUwill increase its involvement in trying to decrease the total emissions from thetransportation sector (European Commission, 2001).

Companies worldwide are continuously looking for a competitive edge. In theintensified hunt for operational effectiveness, with a focus on lower costs and shorterlead times, environmental issues are often put aside. In effect, environmental aspectsare at risk of becoming a future burden if their effects cannot be identified andquantified in the same manner as time and costs. According to Wu and Dunn (1995),

The current issue and full text archive of this journal is available at

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The authors want to thank Ericsson AB and Vinnova, Sweden, for providing funding for theresearch on which this paper is based.

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The International Journal of LogisticsManagementVol. 17 No. 3, 2006pp. 394-415q Emerald Group Publishing Limited0957-4093DOI 10.1108/09574090610717545

the challenge of today’s logistics managers is to determine how to incorporateenvironmental management principles into their daily decision-making process.

These observations are not new to managers or scholars. However, the role that thelogistics system can play in reducing the environmental impact of industries has notbeen extensively researched. It is especially important to understand the relationshipbetween operational effectiveness and environmental aspects. Both result from anumber of decisions taken within the firm concerning both strategic and operativelevels.

The objective of this paper is to link logistics decision making to environmentalimpact. Explicitly the analysis recognizes a decision hierarchy of strategic, tactical, andoperational choices and is based on three case studies. A second objective is to identifyand explain situations where both the environment and the operational effectivenessare improved.

Different approaches to addressing the logistics vs environment dilemmaEnvironmental issues in general have received an increased attention during the lastdecade. There are two main domains of different actors, which can be elaborated forachieving environmental improvements; one is the macro domain (actions taken bygovernments and legislative authorities) and one is the micro domain (actions taken bycompanies).

In the macro domain, it has been recognised for many years that the transport sectoris one of the main sources of pressure on the environment, particularly regarding airpollution and noise. Numerous measures have been taken in the past, such asencouraging the use of environmentally friendly fuels through lower taxation; it is truethat notably road vehicles and aircraft today are substantially more energy-efficientand pollute less than they did 10 or 20 years ago. In most contexts, however,environmental measures failed to keep pace with growing transport volumes.

The transport sector accounted for 32 percent of the total energy consumption in theEU in 2001 (Eurostat, 2003). With regards to CO2 emissions generated from thecombustion of fossil fuels, it is responsible for a volume of 910 million tonnes for thatsame year. This represents 44 percent of the total CO2 emissions from fossil fuels.Compared to 1991, this represents an increase of over 22 percent, even though theoverall CO2 emissions from fossil fuels increased by 4 percent. In fact, the othereconomic sectors have significantly decreased their emission over the last decade(Eurostat, 2003).

Improving the sustainability of the transport sector clearly requires a morecomprehensive and integrated transport and environment policy approach, combininglegislation and economic instruments in a transparent way, and across all transportmodes. There is a need for better integration of environmental concerns into transportpolicies and decision-making. This integration has been given a high political priorityfollowing the Treaty of Amsterdam (Eurostat, 2003).

The European Commission (2001) states in their White paper (European transportpolicy for 2010), that logistics can contribute to the objectives through:

. contributing to mode shift (from road to other modes);

. reducing the demand for transport (de-coupling); and

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. reducing the environmental impact of transport (e.g. improved vehicleutilisation).

EU emphasises that there is an absolute need for a decoupling between the increase inGNP and in the total transportation volumes, since the transportation volumes haveincreased more than GNP during the last 15 years (European Commission, 2001). Themethods often suggested in influencing the decision makers in industry are taxationand legislation, which most of the time means increased costs for companies. The thirdbullet above points, however, in a different direction, towards options for increasingthe efficiency in transport and logistics systems leading to both positive environmentaleffects as well as decreased costs for industry. The need for changes in the industrialprocesses is also pointed out in the guidelines as important:

However, the common transport policy alone will not provide all the answers. It must be partof an overall strategy integrating sustainable development, to include: economic policy andchanges in the production process that influence demand for transport (EuropeanCommission, 2001, p. 96).

Two general approaches for reducing the environmental impact can be identified. Thefirst is to rely on new, more energy efficient technology, which for goods transport andlogistics has proven to be insufficient. The second is to rely on companies torestructure their processes.

In the logistics literature (the micro perspective) two methods to reduce theenvironmental impact of industry are to either introduce more energy efficienttechnology, or to organise logistics in a different way. However, it is not enough tointroduce new technology to stop the development, e.g. more energy efficient engines.There is a need for larger structural changes in sourcing and distribution. McKinnon(1995) points out:

. . . that “greening” of firms’ logistical operations at a more fundamental level will requirenothing short of a change in management culture and strategic priorities. There aresignificant possibilities for reduction of emissions in the lowest level of the logistics hierarchybut the main potential for reducing transportation-volumes in production and distribution arelinked to higher organisational levels.

Wu and Dunn (1995) reason in a similar fashion when they say that companies mustre-evaluate where facilities are located, whom they cooperate with, what technology isused, and the whole logistics structure. They mean that environmental friendlylogistics structures are characterised by fewer movements, less handling, shortertransportation distances, more direct shipping routes and better utilisation. Cooperet al. (1991) suggest specifically that the only way to structurally reduce the emissionscaused by one company is to decentralise warehousing and use fewer and largervehicles.

Purchasing and distribution have a central role in influencing the environmentalimpact of the company, since the mere trading of goods is one of the main reasons whythere is transport at all. To be able to make more environmental friendly decisionsthere is a need for knowledge on how strategic and tactical decisions influence theoperational outcome.

There is an agreement in literature that decisions on different organisational levelshave different impact on operative efficiency, from strategic decisions of how to source

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material to operational decisions of what truck to use for a specific transport(Abrahamsson and Aronsson, 1999). There is also an agreement that strategicdecisions should have a larger impact on emissions than operative decisions. There is,however, a disagreement on what specific decisions have the largest impact, and whatthose decisions really will lead to regarding environmental impact.

It is argued (McKinnon, 1995; Wu and Dunn, 1995; Cooper et al., 1991) that localsourcing, larger and fewer shipments of goods, and local warehousing, are strategicdecisions that will decrease the environmental impact. Modern logistics solutions areoften moving in the opposite direction. Warehousing and production are morecentralised today, products are sourced over a greater distance, goods are ordered insmaller quantities but more often and so forth.

The missing piece in the puzzleIn Figure 1, the scope of the changes discussed (technological vs structural) and theproblem domains (macro vs micro) are structured as a matrix. Technological solutionsto the emission problems exist both on the macro and on the micro level. On a macrolevel, governments and authorities can encourage the use of alternative fuels, andthrough taxation punish the use of less environmentally friendly technology. Thedirection of research funding also influences the development of technologies. On themicro level firms see a need to develop new technologies, based on governmentalactions. But there is also an opportunity in beating the competition towards bettertechnologies, thus escaping punitive taxation and reach demanding customer groups(e.g. the automotive industry). Finally, the development of new technologies constitutesbusiness opportunities for new actors.

Regarding structures, the macro perspective includes, e.g. infrastructuredevelopment, and support for modal shift towards increased use of modes withless environmental impact. The infrastructure, e.g. networks of roads and railways,affects the travel distances (Wandel et al., 1992), which has a direct influence ontheir environmental impact. However, the micro perspective for structural issues isstill poorly researched in terms of empirical investigations and calculations, whichis even more so regarding environmental issues. The listed examples in Figure 1are different types of cost-saving measures that are believed to also reduce theenvironmental impact. The clear and direct association of such measures and theireffects is still missing. What is also missing, is a discussion of whether it is

Figure 1.Important areas relatingdirectly or indirectly to

emissions, including bothmacro and micro

perspectives

Macro perspectrive

Microperspective

Technology Structure

-More energytechnology efficient

-Reduce usage of fuelswith high emmsionse.g fossil fuels

- fuel efficient technology

- saving energy for heating or cooling if it saves money

- infrastructure, e.g roadnetwork, railways, airports- Education- modal shift- reducing the demand fortransport

Important areasrelating to emissions

- Econ of scale & scope- Fleet/structure utilisation- reduce transport costs- reduce overall logisticscosts

if it saves money

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possible, and in which case how, to reach the total goal of sustainabledevelopment through both reducing environmental impact and improved (or atleast not reduced) business profitability, specifically regarding emerging demandson short delivery times. If the logistics community wants to influence the directiontaken by the European community and other government agencies it is essential tobe able to present such knowledge.

The paper will begin with a framework model, then present a review of existingliterature in the area of logistics and its environmental impact, and on decision makingfor logistics systems. The cases are presented, and further analysed regarding thedecisions taken regarding characteristics of specific interest. The concludingparagraph includes the main results, managerial/practical implications andsuggestions for further research.

MethodLiteratureThe literature review was conducted in two phases. In the first phase, a general searchwas conducted, where the items logistics and environment were search keys. In thenext phase, all articles from 1995 to 2004 were reviewed (observe that some journalsdid not exist then hence the different starting dates in column two in the table. The twolast journals are the same journal changing names). Journals were included in thesearch if we had found them to publish articles in the area in the general search phase,if they were frequently referred to in those articles, or because they are considered asmajor logistics journals. The selection was based on previously identified majorjournals (Fawcett and Fawcett, 1995; Stock, 1997).

The articles noted as environmental logistics articles either have a clearcontribution to that area, or addresses reverse logistics for end-of-life products.

Very little was written on environmental issues during this period, 1995-2004.Only 45 research articles out of 2026 published in the journals in Table I addressedenvironmental or/and recycling related issues.

CasesThis research builds on studies of six major change cases in large Swedishmultinational companies. In this paper, we will illustrate our discussions through threespecific cases, and these are presented in Table II. The study has primarily focused onthe companies’ distribution systems in Europe; and specifically on their high volumedistribution from Sweden to the European continent. Although most of the companiesstudied have vast activities outside Europe, we have focused on the Europeandistribution. An exception is FoodComp (Table II) where the study is focused on theSwedish market. The case study companies have a large market share in theirrespective markets. The companies were chosen based on two main criteria:

(1) They had been through, or were going through, a considerable restructuring oftheir distribution system.

(2) We knew about, and considered recommendations from other companies thatjudged them as being in the forefront in their respective markets regardingenvironmental impact reduction in general.

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The need to relate environmental impact to company decision – ourconceptual frameworkAt one end of the spectrum of the literature concerning environmental impact thediscussion is in terms of measurements of emissions of, e.g. CO2 caused by the usetransport vehicles (Wu and Dunn, 1995). At the other end, the impact of strategiclogistics decisions and their impact on emissions are discussed (McKinnon, 2003;Abukhader and Jonsson, 2003). In the broader corporate framework within whichlogistics operates the decisions are often discussed in terms of strategic, tactical, andoperational decisions:

JournalYears includedin the search

Number ofresearch articles

in all

Number of articles addressinglogistics with clear

environmental contributionincluding logistics forend-of-life products

International Journal ofPhysical Distribution &Logistics Management 1995-2004 386 10Journal of Business Logistics 1995-2004 204 5International Journal ofLogistics – Research andApplication 1999-2004 114 3Logistics InformationManagement 1995-2003 285 3International Journal ofLogistics Management 1995-2004 158 3Supply Chain Management,An International Journal 1996-2004 245 11Transportation ResearchPart D, Transport and theEnvironment 1996-2004 232 1Transportation ResearchPart E, Logistics andTransport Review 1997-2004 188 6European Journal ofPurchasing & SupplyManagement 1994, 1996-2002 168 3Journal of Purchasing &Supply Management 2003-2004 46 0In sum 2,026 45

Table I.Journals included in the

literature study

FoodComp FurniComp PaperComp

Products Grocery distribution Furniture Paper productsMarket/case Supply and distribution in

SwedenSupply and distribution inEurope

Distribution to WesternEurope

Table II.Case companies

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A company’s demands for transports are a complex interaction between these different levels. . . There is a need therefore for companies to take a more holistic view of the effects of theiractivities on freight transport and related externalities (McKinnon, 2003).

McKinnon here stresses the need not only to identify the different strategic, tactical andoperational decisions influencing the environment but also to relate them to each otherto be able to foresee the consequences on the environment. Abukhader and Jonsson(2003) point to the need to evaluate traditional logistics concepts and strategies,e.g. JIT, postponement and centralisation. These can all be split into different parts,and decisions on each part affect “lower-level” aspects and decisions.

Abrahamsson and Aronsson (1999) state that there are three main steps to considerwhen designing a new logistics structure:

(1) calculate the total cost and delivery service of the existing structure;

(2) make calculations for alternative structures; and

(3) make calculations on dimensions and size of facilities.

The first two steps are of a structural character, whereas the final step has more thecharacter of being tactical or operational. Similarly, McKinnon (1995) suggests thatlogistical factors can be classified at different levels; physical structure of the logisticalsystem, pattern of sourcing and distribution, scheduling of freight flows, andmanagement of transport resources, all of these ranging from what we define asstrategic to operational. There is an interaction between the different levels but thelevels follow a hierarchy, meaning that decisions regarding the physical structure of alogistical system in part determine what can be done regarding the pattern of sourcingand distribution.

Our proposed framework model, shown in Figure 2, illustrates how decisions atdifferent levels both create opportunities and sets limitations for decisions made onanother level.

We have chosen to use four levels of hierarchy that correspond to the earlierdiscussion of strategic, tactical and operational choices. One level has been added

Figure 2.Framework modeldescribing differentlogistics decision levelsand their funnel-likerelationships

Environmental consequenses

Choices concerning logisticsstructures / organisational forms

Choices concerning planning/management

Choices concerningthe operative work

Choices concerningproduct design

Creates opportunities andsets limitations for

Concerns all products

Concerns whole supplychain

Concerns a single shipment

Concerns one marketor one large client

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compared with the earlier discussion and that is product design. The logic is that fromthe beginning, when no decisions have been made there are a vast amount ofpossibilities. Step by step as decisions are made the possibilities are reduced. Once theproduct is designed, e.g. the weight and volume of the product is known. Thosecharacteristics then provide opportunities and set limitations as to how the overalllogistics system can be designed. An example of a structural decision is whether thereshould be both central and regional storage of a product. Typical for such strategicdecisions are that they concern the whole supply chain. One step down in the decisionhierarchy are decisions primarily concerning planning and management. Typically,they concern one market or one large customer. There is not always a clear distinctionbetween strategic/structural and tactic/management decisions, e.g. one market mightbe distant enough so that it is not possible to service the market with only one centralwarehouse, an exception is made and another, local, warehouse is established in thatmarket. The decision has both strategic and tactic similarities, the scope of the change(one market) indicates that it is a tactical decision and the type of decision (structural)indicates that it is a strategic decision.

Operational decisions are the day-to-day decisions of how to handle the deliveryof incoming orders and single shipments. Once the operational decisions areimplemented, there will be an impact on the environment.

The model points out two aspects of decision making as important. Firstly, itillustrates that since decisions made at higher levels provide opportunities and setlimitations for subsequent levels, the degree of freedom of choice is decreased thefurther down the funnel one gets. Secondly, it suggests that environmental issuesshould be considered in the same manner as time and cost, i.e. at all levels, in order toreach the full potential in reducing for instance air pollution. Further, a structuralchange is not limited to just being of a physical character; rather it may also constitutea change in a company’s governance and control systems and the associatedinformation systems. This will be illustrated in the next section, based on three casestudies on companies that can be said to have gone through/are going through astructural change.

Literature reviewA number of characteristics of logistics systems are discussed when environmentalaspects of logistics are the focus. This review concentrates on what thesecharacteristics are, and they are identified also through which measures are taken toreach more environmental logistics solutions, and how environmental performance oflogistics systems is assessed.

Desey and Dobias (1992) describe the development of environmental considerationof transport during the 1980s and the early 1990s, when the focus in limiting emissionsfrom road transport was basically on technical solutions, and in part also onbehavioural aspects. Common measures were, e.g. improvement of conventionalvehicles; limiting the power of light and commercial vehicles; alternative fuels; andcompliance with speed limits. Other measures suggested are those relating tostructures, but on a macro-level (Figure 1), which include taxation of different types,changed pricing of infrastructure, tolls, planning measures on different levels, policydevelopment, and development of computing tools for improved traffic flows. Many ofthese measures are still highly interesting for improving the environmental effects

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from traffic, and there is still a need to develop them. However, they mostly concerntechnology development and political governance, while the corporate perspective andcorporate governance (whether single firms or supply chains) is missing.

At present, the trend towards more environmental – and social responsibility inbusiness practice suggests multiple options for corporations to improve their“sustainable” performance, and logistics as a function plays a large role in this, due tothe heavy impact from transport on the environment. Although somewhat restricted,logistics managers have the ability to influence the following important environmentalaspects (Murphy and Poist, 1995): pollution (water, air, odour, noise, visual);congestion; waste disposal (hazardous, solid); and conservation of natural resources(energy conservation, efficient land usage)

Transport is the most important source of environmental hazards in the logisticssystem (Wu and Dunn, 1995), and modal choice is a concrete example of a decision,which influences the environmental impact. However, in a case survey,Vannieuwenhuyse et al. (2003) have found that the image criteria (the only criteriaincluding environment, and also safety, etc.) was considerably less important in modalchoice decisions than more traditional logistics criteria. The most important, accordingto the respondents, were cost, reliability, flexibility, time, and delivery safety. Some ofthese characteristics of logistics systems have direct, while others have indirect impacton the environment.

A commonly suggested performance measure of logistics systems’ environmentalperformance is emissions. Van Hoek (1999) suggests that on a supply chain level,performance measures such as emission rates and energy efficiency per material wouldbe appropriate. Beamon (1999) lists some environmental benefits from integrating thesupply chain, and for reduced environmental hazards she recommends that a fullyintegrated extended supply chain should be environmentally assessed according toemissions. Wu and Dunn (1995) also state emissions as important, but also land useand noise.

If direct environmental impact can be assessed and characterized in terms ofemissions, the indirect characteristics are those, which finally lead to emissions, andalso indirectly, i.e. a causal chain ending with the direct impact characteristicemissions. Wu and Dunn (1995) offer the most comprehensive collection ofcharacteristics, however, other authors, based on empirical research support thesame. Table III gathers some frequently suggested characteristics, as mentioned bydifferent authors. The authors in the review describe partly different systems, part ofor including the logistics system. Wu and Dunn make a conceptual contributionthrough listing areas and activities with potential environmental impact. McIntyre et al.(1998) describe a business case (Xerox), while Van Hoek (1999) and Beamon (1999)discuss different extensions of the supply chain and its performance.Vannieuwenhuyse et al. (2003) discuss modal choice decisions, and to some extentaddress the environmental consequences.

Based on the list of characteristics detailed by Wu and Dunn (1995), some elementsappear to be more frequent than others. All authors mention freight consolidation as animportant decision for the environmental performance of a logistics system. Thisaspect is central to logistics systems on many levels, as consolidation of freightconcerns fleet size, vehicles, container and package sizes. Modal choice and distributionnetwork design are both central to logistics decision-making. Transport distances are,

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although not frequently mentioned, perhaps the most direct driver of emissions fromlogistics systems. Information management (e.g. ECR support systems) is also stressedas an important enabler of environmental logistics management (Wu and Dunn, 1995;McIntyre et al., 1998).

Raw materials acquisition and product recovery are important to the environmentalperformance of a logistics system, however, they are left out of further discussions inthis paper. As we focus on distribution to different markets, those issues are outsidethe current research.

Product strategies and product design are depicted as the highest decision level inthe funnel model (Figure 2). Nevertheless, we choose to consider this level as a givenregarding logistics decisions. Packaging issues to some extent fall within the categoryof freight consolidation, however, the issue of package choice is considered a designissue.

What, then, are the relationships between the different decision areas described inliterature? Naturally, they are dependent on each other. For a certain decision,previously taken decisions impose restrictions, while any decision places restrictionson later decisions. However, the literature on logistics system characteristics and theirenvironmental impact does not provide any clues as to how the decisions are linked toeach other. We described above the “funnel model” and literature on decision makingin general in logistics systems are in line with this model.

Stank and Goldsby (2000) describe transportation decision making in an integratedsupply chain, where the performance is traditionally assessed in terms of cost andservice. Although they take the provider perspective while our research concerns the

Author

Wu andDunn(1995)

McIntyreet al.(1998)

VanHoek(1999)

Beamon(1999)

Vannieuwenhuyseet al.(2003)

Facility location XRaw materials acquisition(suppliers) X X XModal choice X XProduct strategies and design X X X XDistribution network design X XAfter sales activities XFreight consolidation X X X X XCarrier selection XMaterials handling operations XNetwork design XPlanning and management XFuel XTraffic context XFleet, maintenance anddisposal XPackage consolidation andreduction X X X XTransport distances X XProduct recovery X X X XInformation management X X

Table III.Characteristics of

logistics systems drivingenvironmental impact

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shipper perspective, we find this model interesting. In relation to our model, theirmodel of transportation specifies in more detail the lower levels, as transportation ispart of the logistics function as a whole. Network design decisions (configuration ofsuppliers and distribution networks) as well as plans (volume, frequency, seasonality,physical characteristics and special handling requirements) are seen as input to thetransportation decisions, although the authors suggest that transportation decisions ona strategic level should influence total network design decisions. In their model theauthors consider the more traditional performance parameters (customer service andcosts), while the environmental performance of the transport system is omitted.

The characteristics chosen from the literature review for further analysis (freightconsolidation, modal choice, distribution network design, transport distances andinformation management) fit well into this model of transportation management. Whatis missing is the strategic part of the structural decisions, which Stank and Goldsbyview as given. In addressing strategic level logistics decision making, Wanke and Zinn(2004) depict three strategic level decisions for logistics managers: make to order vsmake to stock: push vs pull inventory deployment logic: inventory centralization vsdecentralization. Wanke and Zinn (2004) further state, that those strategic decisionstake into consideration product variables, operational and demand variables, whichindicates the complexity of decisions and their relatedness. Such strategic decisionscomplete the funnel model, and they will be addressed as structural decisions.

Structural decisions and their environmental impactThree company cases will illustrate our discussion. All three companies haveundergone different, although to some extent similar, changes in their distributionstructures. We highlight these distribution changes in Table IV.

In FoodComp, the structural change was physical to some extent, but focused moreon the governance structure. A new information system was introduced, whichresulted in highly improved visibility of the physical flows. As a consequence, thesystem enabled a centralization of the planning of physical flows. This centralisationof governance structure had positive effects on both costs and environmental impact,as it became possible to better utilize the resources. The higher resource utilisationinvolved transport resources (consolidation of truck loads) and scale effects fromcentralised warehouses. As different types of food must be stored in differenttemperature zones, fewer and larger warehouses meant considerable energy savings.Specifically, the system enabled dynamic planning in many dimensions. The definitionof which products should be stored centrally as opposed to locally changes over timefor the many seasonal products. The routing of the transports also became the object ofdynamic planning, and shipments for a central warehouse can now be partly unloadedon their way, should they pass a distribution centre. The cost reductions weremeasured and calculated, and based on earlier analyses of the correlations betweenenvironmental impact and costs in the distribution system it was assessed thatemissions had decreased.

FurniComp introduced a new distribution system specifically for bulk transports toa central warehouse in Europe. At the same time, other measures were taken. Deliveryservice was differentiated for different products, which enabled more effective flowcontrol as well as cost savings, and the central warehouses were enlarged to be able toplay a more important role. The whole system involved a consolidation of the material

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FoodCom

pFurniCom

pPaperCom

p

Changes

New

distribution

structure;few

erwarehouses

(nodes)

Allnodes

haveallfunctions(cross-docking,

central

andlocalstorage)

Introductionof

new

inform

ationsystem

,centralisationof

planning,

Dynam

icstorage,product

specificrouting

Vehiclesallowingtw

o-levelloading

Increasedpalletutilization

Consolidationof

flow

sto

Europe

Changeof

transportmodeforbulk

transport

Larger

warehouses

Standardised

load

carriers

Standardised

vehicles

Product

designforpackaging

Differentiated

deliveryserviceon

product

level

Consolidationof

flow

sChanges

oftransportmode

Standardised

load

carriers

Fixed

system

alwaysavailablecapacity,

bookings(administration)avoided

Effects/results

Reducedem

issions,

Costreductionsin

transportandwarehouses

Energysavingsin

warehouses

Betterplanning,

Increasedvisibility

Reducedem

issions,

Costreductions

Fasttransports

Highdeliveryaccuracy

Costreductions

Balancedcapacity

Higher

deliveryfrequency,

Higher

reliabilityin

custom

erperceived

lead-tim

esTransparentbooking

Reductionof

emissions

Table IV.The companies and their

respective changes indistribution structures

and so-far reached effects

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flows, and a change of transport mode. Instead of shipping the goods by means ofnumerous trucks, the goods flow was transferred in bulk train deliveries on a specialtrain, which departed once a day. To utilise the system resources, the load carriers aswell as the vehicles were standardised, doing this. A number of advantages weregained, as transports were carried out by train, the emissions from the bulk transportsdecreased. Costs were cut, while at the same time, the delivery times were greatlyreduced – the average speed of transport from Sweden to the continent increased frombelow 20 km/h to about 65 km/h. Through this speed increase and the change oftransport mode, the control over the transport increased as did delivery accuracy.

PaperComp introduced a new transport and distribution system, which meant aconsolidation of bulk flows and a change of transport modes. Before, transport fromSweden to the continent were carried out by train, with no coordination betweenshipments. This transport system caused problems such as long and unpredictablelead times to the local companies in Europe, a low degree of control over the flows inthe system, and high costs due to the company’s bargaining position vis-a-vis the railcompanies. Congestion on the railroads through northern Europe is a known problemarea, which affected the effectiveness and efficiency of the transport system. The newsystem meant the introduction of collection by train in Sweden, bulk sea transport fromGothenburg to Zeebrugge, in The Netherlands, and onward transport to localcompanies by train. As the transport volumes are very high, a ferry leaves Gothenburgonce a day six days a week. The transport time through the system is about the same,however, through the increased control, (the system is run on behalf of the goodsowner) the delivery accuracy in the system has increased considerably. The change ofsystem also meant a considerable decrease in the total costs. Higher resource efficiencythrough better utilisation is a key to this, as the tracking and tracing of vehicles hasreduced the total number required in the system and hence the load factor in thesystem has increased. The one-system solution has also implied a standardization ofload carriers, so that they fit into the trains as well as onto the ferry. These are adaptedto the product, so the load factor is further increased. Finally, the change of transportmode has highly reduced the environmental impacts from the transport of paper fromSweden to sales companies in Europe.

From those cases, we can extract two types of structural changes. A main structuralchange feature is that of consolidation, which can occur on several levels; structural,planning, vehicles and load carriers. In the companies studied consolidation on anoperational and tactical level meant decreased environmental stress. Structuralconsolidation (in our cases centralisation of warehousing) showed a positive change forthe environmental performance, however, the changes also included a change oftransport modes and increased consolidation of goods. Changing transport modes andconsolidation were in turn enabled through the centralisation of warehousing. Anothercommon feature is the standardisation of logistics resources, such as vehicles and loadcarriers. Standardisation resulted in higher consolidation, as discussed above, but alsoin an overall decrease in tied-up resources. Hence, standardisation contributedindirectly to decreased environmental stress. These features can be referred to aschanges concerned with the physical structure. Information visibility, enabling bettercontrol and planning are features associated with the governance structure. Anotherimportant governance structure feature is the understanding of whether the goods areconsidered as stock or as being transported. How all these features are concerned with

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decisions on different levels in the funnel model which will be further discussed in thenext section.

The complexity of logistics decisions and environmental effectsBelow, the changes described in the previous section will be related to levels ofdecision-making and scope of impact, according to the funnel model presented earlier.As expected from the literature review, consolidation was in all cases identified as animportant driver of both efficiency and environmental performance. The other factorsfrom the literature review are all part of the cases studied, although we choose to stresssome other factors, which we found to be more important or more closely specified.In our discussionn the physical characteristics consolidation and standardisationare followed by the governance characteristics visibility and virtual warehousing.The characteristics and their relationship with each other and to decisions in a logisticssystem are summarised, and the analysis address how to assign environmental effectsto the different characteristics.

Increase fill rate (consolidation)One of the key factors pointed out across the cases and also in the literature, was theimportance of increasing the fill rate in transportation. In all our cases increased fillrates meant less environmental stress. At a strategic level, changes made to increasefill rates were to increase the size of warehouses, centralise distribution, reduce thenumber of warehouses, and change the location of warehouses, which can all bedescribed as changes to the logistics infrastructure. The restructuring of flows intoone main, centralized flow from the area of production to a central spot in thedistribution area, i.e. main flow consolidation, is another concrete example ofstructural consolidation. Such consolidations often involve changes of transportationmodes – as in the cases of FurniComp, from trucks to rail transport; and ofPaperComp, from rail to sea transport. These shifts in transport modes are towardsenvironmentally better transport modes.

Another method to increase fill rate was to work more actively with vehicle routing(all cases), to change storage strategies on a regular basis (FurniComp), and tominimise the number of deliveries, which in some instances meant increasingleadtimes. These changes all contribute to increased fill rates of vehicles and thus adecrease in vehicle kilometres and fuel consumption. These types of changes aretactical in their nature because they target parts of one market. Another tacticaldecision which affected vehicle fill rates was to coordinate transports with othersuppliers who supply the same or similar customers in areas with few customers.

On the operational level the changes at both the strategic and tactical levels makes itpossible to achieve a higher fill rate in the transport. Structural consolidation enableshigher frequencies of transport, which in turn enables smaller changes to deliveryplans due to attempts to fill the transport. Some deliveries can be postponed until thenext transport occasion, without the final customer experiencing any decrease indelivery service. There were also other types of changes that can be madeindependently of other decisions, such as the final repacking of goods by FoodCompdone in such a way as to reduce the size of the goods. The effects of the changes werean increased fill rate and decreased transport work, and enabled a stable service levelwhile environmental performance was enhanced.

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In the case of FurniComp increased and centralised volumes made it possible tochange mode of transportation. The first connection to be established was between twoof their main facilities in Europe. There were several reasons for moving to rail; costconsiderations and the environmental impact are important, but also the increasedvolumes of goods due to the increasing establishment of new stores. Another importantreason is that congestion on the roads in central Europe is expected to grow, and thiswas also a main incentive for PaperComp to change their transportation mode.However, in this case, the move was geographically larger as they consolidated theflow of their goods and moved the flow from the continent to the North Sea, andchanged from rail transport to ferry. This change provided environmentalimprovement basically from modal change and also centralization, as well asincreased performance in terms of costs and delivery service.

A prerequisite for rail to be an alternative is that it is possible to buy a fixedtimetable so that the train can run non-stop between the destinations. This has beenand still is difficult to do, especially when the destinations are in different countries.In this respect both PaperComp and FurniComp shared the same experience. In thenew setting for FurniComp, the distance between the two nodes of transportation is1,000 km and is expected to take 14 h, an average speed of 65 km per hour to becompared with an average speed for freight trains of 17 km per hour. The speed isessential because the fixed costs of buying a train set are high. With a higher speed thetrain can be better utilized.

Standardisation (physical)Standardizations in the physical system concern mainly two levels in our cases;transportation vehicles and load carriers. These two system levels are naturallyintertwined, as the load carriers have to fit the vehicles. However, they can bediscussed on different levels.

In PaperComp, the load carriers had to be standardized in order to fit both thetrain system and the ferry. The load carriers can be loaded onto the vehicles inways, which make full use of the vehicle capacity. A standardized load carrier alsomeans that the loading and handling equipment can be standardized, which wasnot the case before the structural change. Yet another important feature ofstandardized load carriers is that it decreases the total volume of carriers in thesystem, as any carrier coming back can be used for the next load. It also improvesthe manageability of the system.

For both PaperComp and FurniComp their new systems meant high involvement ofthe goods owners in the setting up of the new systems, although the systems were runby other parties. This involvement included decisions on a strategic level. Once taken,the decision to standardize the systems highly influences the effects on a tactical level,as the planning procedures are facilitated. Further, on an operational levelstandardization implies easier handling procedures, which reduces costs as well asdelivery times. The changes, resulting in a streamlining of the activities on anoperational level, also reduced uncertainties, which in turn affected the deliveryaccuracy vis-a-vis the customers.

Higher standardization in itself contributes to opportunities to increase the fill rates(as discussed above). A higher fill rate lessens the need for transport, in terms ofvehicle-km, and thus reduces the environmental impact.

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The importance of information for managing the supply chain (visibility)Several of the changes made by the companies are aimed at increasing the collectionand use of information. The overall goal of the changes was to increase manageabilityand the possibility of planning ahead. If successful, this means that the distributionstructure can be used more efficiently and, as a result, increased fill rates.

In 1998, the distribution structure of FoodComp was changed and the number ofwarehouses was reduced, and new management principles were introduced. Takentogether, this had a positive environmental impact, as a lot of energy could be savedthrough the scale effect of consolidation specifically of freezing equipment. At the sametime, the total amount of transport work decreased. In the new structure, the logisticscenters can have four different functions; merge centers for incoming goods, centralwarehouse, regional warehouses, and distribution centers for outgoing goods. Centralwarehouses for a specific product can be moved from one location to anotherdepending on geographical demand patterns. About 80 percent of the products arestored centrally, which is about 20 percent of the volume of the goods. Some productshave a highly seasonal demand, e.g. barbecue products. Such products are keptcentrally off-season and are moved to the regional warehouses during the high season.

A new IT-system makes it possible to let a warehouse fulfil several differentfunctions. It also makes it possible to change how each product is managed over time,and to move a product from being stored in one location to another location.

The goal is to reduce the distance each product is transported by using directtransport when it is possible. A typical example is a product that is produced insouthern Sweden. Each year around 700 pallets are bought. The product is stored inthe central warehouse 100 km outside Stockholm. The products are transported fromsouthern Sweden, to the central warehouse in a town in central Sweden, distributed tothe regional warehouses, and finally distributed to the stores. When examined moreclosely it was discovered that 30 percent of the goods were distributed to the regionalwarehouse in south of Sweden (located between the producer and the centralwarehouse). The products were rerouted so that all transport from the supplier firststop at the mid-way warehouse, where 30 percent of the products stay, the rest are sentonto the central warehouse. The reduction in distance each product is transporteddirectly reduces the emissions from the logistics system.

In PaperComp the new distribution system was accompanied by a centralization ofthe IT-system and the introduction of a control tower, with total insight into thedistribution system. This new overview strongly contributes to the reduction innumber of load carriers in the system, together with the standardization. Another effectis that the control of the flows becomes stronger and supply from paper mills can beorganised at much earlier stages than before, which in turn leads to more even goodsflows. This is necessary for economical and technological reasons from the perspectiveof the production units, but it also increases the utilization rate of the distributionsystem.

These are examples of how IT systems can enable changes that can be considered tobe both structural and tactical, but which are mainly achieved through differentplanning measures. These can in turn be characterized as strategic planning andtactical planning, respectively. Altogether the different measures taken had clearpositive effects in reducing the emissions from transports.

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Virtual warehousingThe final group of changes concerns how different parts of the system are understood,and thereby considered in the distribution system. A specific function is coupled with arange of characteristics and mechanisms. However, classifying logistics strictly intospecific functions (warehousing, transport, handling, etc.) causes suboptimisation.To overcome this problem, a more holistic view of the logistics functions can beapplied, in which the clear division between the activities and how they are groupedinto functions is erased. The first example below is from supply rather thandistribution, and concerns supply from overseas. However, the same logic can verywell be applied to distribution overseas, which was extensively discussed as an optionin one of our case companies.

The aim for FurniComp was to be able to control the goods after they have left thesupplier and are already headed for a main destination area. The goods could be tracedat an article level and in what container it is loaded. The system makes it possible tomanage and reroute the goods being transported, in this case goods from Asia. Today,40 percent of the goods come from Asia and are transported by ship to Europe.It means that about 0.5 million cubic meters is in storage on boats.

PaperComp changed their distribution structure from direct transport to localcompanies into centralized transport to the continent, and this is from where thelocal companies are supplied. This also means that the point where each shipment’sfinal destination is decided is postponed in time. Although today PaperComp do notmake use of this opportunity, this might be an option for improved flexibility of thetransport system. Orders that are a couple of days late could very well be made throughredirected shipments, which in turn would reduce the need for express transports. Thisshould in general have a high environmental impact, as express deliveries are oftencarried out by transport modes with higher environmental stress than those for regulartransport.

Since, the lead-time of sea transport is comparably long, it is then possible to loadgoods, which are not yet destined to a specific area, but which can be forecasted for alarger region. This is not at all a new idea per se; many companies apply thispostponement strategy already. In the project described, and also in general, theenvironmental effects are difficult to calculate in accurate figures. But based onprevious experience and knowledge it can be expected to reduce the environmentalimpact, reduce costs and increase delivery service.

Summarizing the four characteristicsAll the changes identified in the cases can in different ways contribute to reduce theenvironmental impact of a logistics system. What is also clear is that they areinterconnected in many ways, i.e. they influence each other. It is also possible torelate different decision levels for each of the characteristics. In Figure 3, thecharacteristics and their interrelatedness are illustrated.

It is evident that each change individually can drive a change in the environmentalperformace of the system. However, it is also important to stress that they relate toeach other, probably in more ways than those indicated above. Thus, differentdecisions taken in a restructuring situation can strengthen each other, and each others’effect. It is also important to note that other decisions and factors might counteract the

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positive effect the factors described above might have. This brief discussion stressesthe need for further research into this wide, complex and important field.

ConclusionsSo far we have discussed different types of changes and related them to decisionmaking and the environment. All changes led to positive environmental effects as wellas to lower costs. There were a number of other effects as well that differed from case tocase, e.g. higher delivery service and increased flexibility.

While lead times were somewhat increased as the physical systems were changed,the companies experienced that they provided an improved delivery service for theircustomers. An important aspect of delivery service is delivery accuracy, i.e. the goodsarrive on time. This dimension also improved, as the distribution arrangements werephysically consolidated. For the customers, delivery accuracy improved since theaccuracy of the systems themselves improved. This dimension is also connected to thegovernance structures, as improved IT-support for visibility and flexible definitions oftransports as warehouses enables better control and better flexibility vis-a-visuncertainties in demand.

If these effects are compared with what can be found in the literature it seems thatthe effects found in the cases were more positive than expected since all changes werepositive concerning both cost and the environment. When the companies were asked ifthey could think of examples where increased environmental responsibility costmoney, only one was able to.

When it comes to transportation, the opinion of everybody interviewed was thatcost and the environment impact often pointed in the same direction, a solution for

Figure 3.Changes identified from

the cases, how they relateto each other, to different

decision levels and toenvironmental impact

Consoli-dation

Standardisation

Less transport work (fewer shipments shorter total vehicle-km)

Reduced environmentalimpact

Flexiblewarehousedefinition

Visibility(new & better IS)

Betterplanning & control

Strategicstructuraldecisions

Tacticalplanningdecisions

Operationalday-to-day decisions

Modalshift

Consoli-dation

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lower cost for transportation almost always reduces pollution as well. FurniComp, forexample, base their work on the following hypothesis:

Long-term cost effective transport must be resource efficient, and thus they will in the longrun become positive for the environment as well.

Their experiences from working with resource efficient transport show thatenvironmental effects in transport systems are difficult to measure, but that it isalways right to reduce, i.e. to strive to increase their resource efficiency and thus in thelong run, reduce environmental stress.

When it comes to warehousing FoodComp said that it is always less energyconsuming to build one large warehouse than two smaller ones because there are scaleadvantages. FoodComp’s products are stored in different temperature zones, whichmeans that energy leakage between different zones is a problem. Most of the time,changes that are made to decrease the energy leakage are cost saving, but there areexceptions.

In all three cases, it has been possible to lower the environmental impact as well asto reach a lower cost for their supply and distribution. The common key for reaching ahigh performance regarding both environmental impact and costs is efficient use ofresources.

One reason for these results might be that the study takes a holistic perspective onstructural changes in Logistics & Supply Chain Management, by including bothstrategic and operational decision making. Min and Galle (1997) find that one of thegreatest obstacles to effective green purchasing is the perception of purchasingmanagers that environmental programs are costly. This point might be relevant sincemost other studies are conceptual and therefore might build on the same perceptions.Our findings suggest that in fact the opposite is true. The research of Carter andJennings (2002) into purchasing managers is one of only a few studies that support ourresults.

We have also seen several structural changes towards an increased centralization. Ithas not led to increased emissions; but in one instance it has been positive. Anincreased centralization has also led to modal shifts, from truck, to train and from trainto boat. One explanation is that the fill rate has increased due to more consolidatedgoods flows. Transport have increased when measured in ton-km. Emissions are,however, primarily related to the number of kilometers trucks driven (vehicle-km) andto a lesser extent to the weight of the goods. Therefore, increased fill rate reduces thenumber of vehicle-km but not necessarily the number of ton-km.

It has been possible in the analysis to separate different measures taken inrestructuring distribution and supply chain system, and to relate them to each other.What is not possible, from our research, is to specifically relate any measure taken tospecific environmental effects, as the measures are not taken one by one, but togetherwith each other. The effects of the changes have been measured on an overallstructural level. For instance, centralisation of warehousing showed a positive changefor environmental performance, however, centralisation included changes in transportmodes as well as increased consolidation of goods, standardisation and centralisedgovernance of the logistics system, in different proportions. These specific changeswere in turn enabled through the centralisation of warehousing – the structuralchange.

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To focus on decision making and linking this to environmental outcomes, hasshown to be fruitful. It has made it possible to more clearly describe how differenttypes of decisions are interlinked and how strategic decisions create possibilities aswell as limitations to decision making further down in the hierarchy, see Figure 4.

Standardization of the technology used, (e.g. load carriers) is important as a meansto increase the possibility for planning, with the aim to increase the fill rates of the loadcarriers in the end. Both government and industry can help to increase the degree ofstandardization for transportation. The government can also make it more feasible forindustry to reach the goals set by the European Union of mode shift, de-coupling andimproved fill rate by structural means. One such example discussed earlier is toincrease the average speed of rail transport, both within and between countries.Another is to help increasing knowledge about the relations between decision makingin logistics and environmental consequences and help to spread this knowledge, forexample, by education.

Technology and government can create possibilities but it is companies that have torealize the possibilities. In this study, we have identified four strategies that seem tolead to both lower emissions and lower costs:

(1) standardization;

(2) consolidation;

(3) visibility support systems for better planning; and

(4) flexible understanding of transportation and warehouses (e.g. virtualwarehousing).

The first two focus on the physical world and the second two are different means ofgovernance. All four strategies can be worked with on a strategic, a tactical andan operational level. The effects we have seen are greatest when the work is done on allthree levels.

Figure 4.The study hasimplications for

companies as well asgovernment

Macro perspective

Micro perspective

Technology Structure

Standardisation- load carriers- vehiclesCreates possibilitesfor industry

Standardisation- load carriers- vehiclesTo gain increased possibilites for planning

- Increased visibility- Standardisation- Consolidation- Virtual warehousingAs means to lower costsand environmental impact

Implications

Railway connectivity

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To summarize, this paper addresses the lack of theories and models for connectingdifferent logistics decisions on different hierarchical decision levels to each other, andto their environmental impact.

The complexity of companies’ logistics systems is great. If a supply chain studywere conducted it would probably be even greater. The understanding of howstrategic/tactical decisions influence operative measurements such as fill rate is low.

Walley and Whitehead (1994) suggest that the existence of a win-win mindset is theresult of cherry picking success stories, and cannot be sustained. Therefore, furtherresearch into case studies is necessary to find out if our cases were just that. Allexamples of how companies can lower costs and increase their competitiveness and atthe same time reduce the environmental impact are important as these will influencethe mind-set of managers and be beneficial to the environment. There is a need for acloser study of modern logistics practices, for instance postponement, not only toevaluate their effects on cost and delivery performance but also on the environment.

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About the authorsHakan Aronsson (MSC, PhD, Linkoping University, Sweden) is an Assistant Professor inLogistics Management at Linkoping University. His research includes logistics performancemeasurements, design of logistics systems and development of logistics indexes. Beforere-entering the academic stage for PhD, Aronsson spent six years as financial controller focusingon change management issues in public healthcare. E-mail: hakar@eki.liu.se

Maria Huge Brodin (MSC, PhD, Linkoping University, Sweden) is an Assistant Professor inLogistics Management at Linkoping University. Her research includes logistics performance inrecycling systems, environmental assessment of logistics systems and strategic considerationsin supply chain management. Maria Huge Brodin is the corresponding author and can becontacted at: marhu@eki.liu.se

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