Sucking It Up

With prices gushing past $100 per barrel, companies are trying to consume less oil.

More than 600 carriers and shippers have signed up for the Environmental Protection Agency’s SmartWay program, a voluntary freight-industry partnership aimed at fuel-efficiency improvements and reduced CO2 emissions. SmartWay offers a small-business loan to help trucking companies purchase upgrade kits (average price: $16,500) that include idle-reduction devices, low-rolling-resistance tires, aluminum wheels, and aerodynamic equipment. But the payback from these upgrades is not always immediate, Gonzalez says.

Count the Miles

An easier way to cut oil consumption may be simply to ship products fewer miles. “Once you get to $100-per-barrel oil, the incremental cost of adding smaller warehousing facilities closer to the customer to drive down transport cost makes sense,” says Curtis Greve, executive vice president at Pittsburgh-based Genco, one of the largest third-party logistics providers in the United States.

The high cost of oil was a principal driver of Kimberly-Clark’s “network of the future.” Begun three years ago, the project involves moving the company’s distribution centers closer to end-users in major markets, says Mark Jamison, vice president of Dallas-based Kimberly-Clark’s customer supply chain. Kimberly-Clark also decided to lease distribution centers and have them run by third parties, so the network can flex as market conditions change, Jamison says.

So far, relocating distribution centers has reduced customer miles (the miles driven from a center to a customer) by 2.8 million and cut fuel use by 500,000 gallons. The new network has also enabled Kimberly-Clark to use more intermodal transport — in particular, “trailer on a flat car,” in which the long-haul portion of a product’s journey is by rail. Rail use saved the company almost 2 million gallons of fuel in 2007 alone, Jamison says.

The network has yielded customer benefits, too. By locating its distribution centers closer to major markets, Kimberly-Clark has cut the time needed to replenish customers’ shelves. “Now, within 85 percent of North America we’re within one day’s transit time,” says Jamison. “With the previous network, it was 65 percent.”

For fast-growing businesses such as United Natural Foods, rising fuel costs make a more compelling business case for distribution facilities that reduce the miles that products travel. The new distribution centers that the company opened last year have helped its fuel consumption grow more slowly (10 percent) than its business volume (mid-teens), says CFO Shamber.

Higher oil prices are also exacting a toll on offshore outsourcing, where manufacturers may be located 10,000 miles from consumers. Rhode Island–based toymaker Hasbro, for example, expects a 15 percent increase in the costs of made-in-China products in 2008. CFO David Hargreaves says some of Hasbro’s Chinese vendors are relocating portions of their supply chains from coastal to inland areas to cut labor costs, thus adding even more shipping miles between factories and consumers.

Still, “the price of oil would have to increase fairly dramatically to wipe out completely the benefit of manufacturing in China,” says Lorcan Sheehan, senior vice president at ModusLink, a Massachusetts-based supply-systems vendor.

Pack Smarter

In the drive to cut fossil-fuel consumption, truck loading has become a science. Fitting more product on a pallet can mean less-frequent trips and fewer trucks. By eliminating an outer carton from its Knorr vegetable-soup mix and creating a new shipping and display box, for example, Unilever halved the packaging. That resulted in 280 fewer pallets and six fewer trucks a year to transport the same quantities.

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