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IJLM
17,3 The environmental impact of
changing logistics structures
Håkan Aronsson and Maria Huge Brodin
394 Department of Management and Economics, Institute of Technology,
Linköping, Sweden

Abstract
Purpose – This paper seeks to address how firms may contribute to environmental improvement
through structural changes of their logistics systems.
Design/methodology/approach – A comprehensive literature review discloses the low interest
that has been directed to environmental issues in logistics, and findings relevant for structural issues
at a firm level are described. Three cases where firms have implemented different types of structural
changes to their logistics systems support the analysis.
Findings – A range of different measures to succeed in environmental as well as logistics
performance are presented, comprising types of consolidation, logistics standardisation, and IS/IT
solutions allowing a vast restructuring of logistics systems.
Originality/value – The discussion about logistics and the environment has mostly revolved
around more environmental friendly technological solutions, concerning single firms as well as
governmental support for technology development. The structural, more organisational issues, have
been addressed on a societal level, where solutions concern infrastructure. There is a need to reduce the
amount of transport in general. The paper discusses how logistics systems’ environmental
performance can be improved simultaneously with a non-reduction of logistics performance in terms
of costs and delivery service.
Keywords Supply chain management, Distribution management, Decision making, Corporate strategy
Paper type Research paper

Introduction
Environmental problems have received an increasing attention during the last decade.
One of the major sources of environmental problems is transportation, which is
expected to increase even faster than the general growth of GNP in the industrialised
world. EU emphasises that there is an absolute need for a decoupling between the
increase in GNP and in the total transportation volumes, since the transportation
volumes have increased more than GNP during the last 15 years (European
Commission, 2001). This development cannot continue and it is pointed out that EU
will increase its involvement in trying to decrease the total emissions from the
transportation sector (European Commission, 2001).
Companies worldwide are continuously looking for a competitive edge. In the
intensified hunt for operational effectiveness, with a focus on lower costs and shorter
lead times, environmental issues are often put aside. In effect, environmental aspects
The International Journal of Logistics are at risk of becoming a future burden if their effects cannot be identified and
Management quantified in the same manner as time and costs. According to Wu and Dunn (1995),
Vol. 17 No. 3, 2006
pp. 394-415
q Emerald Group Publishing Limited
0957-4093
The authors want to thank Ericsson AB and Vinnova, Sweden, for providing funding for the
DOI 10.1108/09574090610717545 research on which this paper is based.
the challenge of today’s logistics managers is to determine how to incorporate Changing
environmental management principles into their daily decision-making process. logistics
These observations are not new to managers or scholars. However, the role that the
logistics system can play in reducing the environmental impact of industries has not structures
been extensively researched. It is especially important to understand the relationship
between operational effectiveness and environmental aspects. Both result from a
number of decisions taken within the firm concerning both strategic and operative 395
levels.
The objective of this paper is to link logistics decision making to environmental
impact. Explicitly the analysis recognizes a decision hierarchy of strategic, tactical, and
operational choices and is based on three case studies. A second objective is to identify
and explain situations where both the environment and the operational effectiveness
are improved.

Different approaches to addressing the logistics vs environment dilemma


Environmental issues in general have received an increased attention during the last
decade. There are two main domains of different actors, which can be elaborated for
achieving environmental improvements; one is the macro domain (actions taken by
governments and legislative authorities) and one is the micro domain (actions taken by
companies).
In the macro domain, it has been recognised for many years that the transport sector
is one of the main sources of pressure on the environment, particularly regarding air
pollution and noise. Numerous measures have been taken in the past, such as
encouraging the use of environmentally friendly fuels through lower taxation; it is true
that notably road vehicles and aircraft today are substantially more energy-efficient
and 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 the
EU in 2001 (Eurostat, 2003). With regards to CO2 emissions generated from the
combustion of fossil fuels, it is responsible for a volume of 910 million tonnes for that
same 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 the
overall CO2 emissions from fossil fuels increased by 4 percent. In fact, the other
economic sectors have significantly decreased their emission over the last decade
(Eurostat, 2003).
Improving the sustainability of the transport sector clearly requires a more
comprehensive and integrated transport and environment policy approach, combining
legislation and economic instruments in a transparent way, and across all transport
modes. There is a need for better integration of environmental concerns into transport
policies and decision-making. This integration has been given a high political priority
following the Treaty of Amsterdam (Eurostat, 2003).
The European Commission (2001) states in their White paper (European transport
policy 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
IJLM .
reducing the environmental impact of transport (e.g. improved vehicle
17,3 utilisation).

EU emphasises that there is an absolute need for a decoupling between the increase in
GNP and in the total transportation volumes, since the transportation volumes have
increased more than GNP during the last 15 years (European Commission, 2001). The
396 methods often suggested in influencing the decision makers in industry are taxation
and legislation, which most of the time means increased costs for companies. The third
bullet above points, however, in a different direction, towards options for increasing
the efficiency in transport and logistics systems leading to both positive environmental
effects as well as decreased costs for industry. The need for changes in the industrial
processes is also pointed out in the guidelines as important:
However, the common transport policy alone will not provide all the answers. It must be part
of an overall strategy integrating sustainable development, to include: economic policy and
changes in the production process that influence demand for transport (European
Commission, 2001, p. 96).
Two general approaches for reducing the environmental impact can be identified. The
first is to rely on new, more energy efficient technology, which for goods transport and
logistics has proven to be insufficient. The second is to rely on companies to
restructure their processes.
In the logistics literature (the micro perspective) two methods to reduce the
environmental impact of industry are to either introduce more energy efficient
technology, or to organise logistics in a different way. However, it is not enough to
introduce 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 require
nothing short of a change in management culture and strategic priorities. There are
significant possibilities for reduction of emissions in the lowest level of the logistics hierarchy
but the main potential for reducing transportation-volumes in production and distribution are
linked to higher organisational levels.
Wu and Dunn (1995) reason in a similar fashion when they say that companies must
re-evaluate where facilities are located, whom they cooperate with, what technology is
used, and the whole logistics structure. They mean that environmental friendly
logistics structures are characterised by fewer movements, less handling, shorter
transportation distances, more direct shipping routes and better utilisation. Cooper
et al. (1991) suggest specifically that the only way to structurally reduce the emissions
caused by one company is to decentralise warehousing and use fewer and larger
vehicles.
Purchasing and distribution have a central role in influencing the environmental
impact of the company, since the mere trading of goods is one of the main reasons why
there is transport at all. To be able to make more environmental friendly decisions
there is a need for knowledge on how strategic and tactical decisions influence the
operational outcome.
There is an agreement in literature that decisions on different organisational levels
have different impact on operative efficiency, from strategic decisions of how to source
material to operational decisions of what truck to use for a specific transport Changing
(Abrahamsson and Aronsson, 1999). There is also an agreement that strategic logistics
decisions should have a larger impact on emissions than operative decisions. There is,
however, a disagreement on what specific decisions have the largest impact, and what structures
those decisions really will lead to regarding environmental impact.
It is argued (McKinnon, 1995; Wu and Dunn, 1995; Cooper et al., 1991) that local
sourcing, larger and fewer shipments of goods, and local warehousing, are strategic 397
decisions that will decrease the environmental impact. Modern logistics solutions are
often moving in the opposite direction. Warehousing and production are more
centralised today, products are sourced over a greater distance, goods are ordered in
smaller quantities but more often and so forth.

The missing piece in the puzzle


In Figure 1, the scope of the changes discussed (technological vs structural) and the
problem domains (macro vs micro) are structured as a matrix. Technological solutions
to the emission problems exist both on the macro and on the micro level. On a macro
level, governments and authorities can encourage the use of alternative fuels, and
through taxation punish the use of less environmentally friendly technology. The
direction of research funding also influences the development of technologies. On the
micro level firms see a need to develop new technologies, based on governmental
actions. But there is also an opportunity in beating the competition towards better
technologies, thus escaping punitive taxation and reach demanding customer groups
(e.g. the automotive industry). Finally, the development of new technologies constitutes
business opportunities for new actors.
Regarding structures, the macro perspective includes, e.g. infrastructure
development, and support for modal shift towards increased use of modes with
less environmental impact. The infrastructure, e.g. networks of roads and railways,
affects the travel distances (Wandel et al., 1992), which has a direct influence on
their environmental impact. However, the micro perspective for structural issues is
still poorly researched in terms of empirical investigations and calculations, which
is even more so regarding environmental issues. The listed examples in Figure 1
are different types of cost-saving measures that are believed to also reduce the
environmental impact. The clear and direct association of such measures and their
effects is still missing. What is also missing, is a discussion of whether it is

Important areas
Technology Structure
relating to emissions
-More energy - infrastructure, e.g road
technology efficient network, railways, airports
Macro -Reduce usage of fuels - Education
perspectrive with high emmsions - modal shift
e.g fossil fuels - reducing the demand for
transport
Figure 1.
Important areas relating
- fuel efficient technology - Econ of scale & scope directly or indirectly to
Micro if it saves money - Fleet/structure utilisation
perspective
emissions, including both
- saving energy for heating - reduce transport costs
or cooling if it saves money - reduce overall logistics macro and micro
costs perspectives
IJLM possible, and in which case how, to reach the total goal of sustainable
17,3 development through both reducing environmental impact and improved (or at
least not reduced) business profitability, specifically regarding emerging demands
on short delivery times. If the logistics community wants to influence the direction
taken by the European community and other government agencies it is essential to
be able to present such knowledge.
398 The paper will begin with a framework model, then present a review of existing
literature in the area of logistics and its environmental impact, and on decision making
for logistics systems. The cases are presented, and further analysed regarding the
decisions taken regarding characteristics of specific interest. The concluding
paragraph includes the main results, managerial/practical implications and
suggestions for further research.

Method
Literature
The literature review was conducted in two phases. In the first phase, a general search
was conducted, where the items logistics and environment were search keys. In the
next phase, all articles from 1995 to 2004 were reviewed (observe that some journals
did not exist then hence the different starting dates in column two in the table. The two
last journals are the same journal changing names). Journals were included in the
search 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 as
major logistics journals. The selection was based on previously identified major
journals (Fawcett and Fawcett, 1995; Stock, 1997).
The articles noted as environmental logistics articles either have a clear
contribution 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 addressed
environmental or/and recycling related issues.

Cases
This research builds on studies of six major change cases in large Swedish
multinational companies. In this paper, we will illustrate our discussions through three
specific cases, and these are presented in Table II. The study has primarily focused on
the companies’ distribution systems in Europe; and specifically on their high volume
distribution from Sweden to the European continent. Although most of the companies
studied have vast activities outside Europe, we have focused on the European
distribution. An exception is FoodComp (Table II) where the study is focused on the
Swedish market. The case study companies have a large market share in their
respective markets. The companies were chosen based on two main criteria:
(1) They had been through, or were going through, a considerable restructuring of
their distribution system.
(2) We knew about, and considered recommendations from other companies that
judged them as being in the forefront in their respective markets regarding
environmental impact reduction in general.
Changing
Number of articles addressing
logistics with clear logistics
Number of environmental contribution structures
Years included research articles including logistics for
Journal in the search in all end-of-life products

International Journal of 399


Physical Distribution &
Logistics Management 1995-2004 386 10
Journal of Business Logistics 1995-2004 204 5
International Journal of
Logistics – Research and
Application 1999-2004 114 3
Logistics Information
Management 1995-2003 285 3
International Journal of
Logistics Management 1995-2004 158 3
Supply Chain Management,
An International Journal 1996-2004 245 11
Transportation Research
Part D, Transport and the
Environment 1996-2004 232 1
Transportation Research
Part E, Logistics and
Transport Review 1997-2004 188 6
European Journal of
Purchasing & Supply
Management 1994, 1996-2002 168 3
Journal of Purchasing & Table I.
Supply Management 2003-2004 46 0 Journals included in the
In sum 2,026 45 literature study

FoodComp FurniComp PaperComp

Products Grocery distribution Furniture Paper products


Market/case Supply and distribution in Supply and distribution in Distribution to Western Table II.
Sweden Europe Europe Case companies

The need to relate environmental impact to company decision – our


conceptual framework
At one end of the spectrum of the literature concerning environmental impact the
discussion is in terms of measurements of emissions of, e.g. CO2 caused by the use
transport vehicles (Wu and Dunn, 1995). At the other end, the impact of strategic
logistics decisions and their impact on emissions are discussed (McKinnon, 2003;
Abukhader and Jönsson, 2003). In the broader corporate framework within which
logistics operates the decisions are often discussed in terms of strategic, tactical, and
operational decisions:
IJLM 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 their
17,3 activities on freight transport and related externalities (McKinnon, 2003).
McKinnon here stresses the need not only to identify the different strategic, tactical and
operational decisions influencing the environment but also to relate them to each other
to be able to foresee the consequences on the environment. Abukhader and Jönsson
400 (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 consider
when 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 the
character of being tactical or operational. Similarly, McKinnon (1995) suggests that
logistical factors can be classified at different levels; physical structure of the logistical
system, pattern of sourcing and distribution, scheduling of freight flows, and
management of transport resources, all of these ranging from what we define as
strategic to operational. There is an interaction between the different levels but the
levels follow a hierarchy, meaning that decisions regarding the physical structure of a
logistical system in part determine what can be done regarding the pattern of sourcing
and distribution.
Our proposed framework model, shown in Figure 2, illustrates how decisions at
different levels both create opportunities and sets limitations for decisions made on
another level.
We have chosen to use four levels of hierarchy that correspond to the earlier
discussion of strategic, tactical and operational choices. One level has been added
Creates opportunities and
Choices concerning sets limitations for
Concerns all products product design

Concerns whole supply Choices concerning logistics


chain structures / organisational forms

Concerns one market Choices concerning planning/


or one large client management

Choices concerning
Concerns a single shipment
the operative work
Figure 2.
Framework model
describing different
logistics decision levels
and their funnel-like
relationships
Environmental consequenses
compared with the earlier discussion and that is product design. The logic is that from Changing
the beginning, when no decisions have been made there are a vast amount of logistics
possibilities. Step by step as decisions are made the possibilities are reduced. Once the
product is designed, e.g. the weight and volume of the product is known. Those structures
characteristics then provide opportunities and set limitations as to how the overall
logistics system can be designed. An example of a structural decision is whether there
should be both central and regional storage of a product. Typical for such strategic 401
decisions are that they concern the whole supply chain. One step down in the decision
hierarchy are decisions primarily concerning planning and management. Typically,
they concern one market or one large customer. There is not always a clear distinction
between strategic/structural and tactic/management decisions, e.g. one market might
be distant enough so that it is not possible to service the market with only one central
warehouse, an exception is made and another, local, warehouse is established in that
market. 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 delivery
of incoming orders and single shipments. Once the operational decisions are
implemented, there will be an impact on the environment.
The model points out two aspects of decision making as important. Firstly, it
illustrates that since decisions made at higher levels provide opportunities and set
limitations for subsequent levels, the degree of freedom of choice is decreased the
further down the funnel one gets. Secondly, it suggests that environmental issues
should be considered in the same manner as time and cost, i.e. at all levels, in order to
reach the full potential in reducing for instance air pollution. Further, a structural
change is not limited to just being of a physical character; rather it may also constitute
a change in a company’s governance and control systems and the associated
information systems. This will be illustrated in the next section, based on three case
studies on companies that can be said to have gone through/are going through a
structural change.

Literature review
A number of characteristics of logistics systems are discussed when environmental
aspects of logistics are the focus. This review concentrates on what these
characteristics are, and they are identified also through which measures are taken to
reach more environmental logistics solutions, and how environmental performance of
logistics systems is assessed.
Desey and Dobias (1992) describe the development of environmental consideration
of transport during the 1980s and the early 1990s, when the focus in limiting emissions
from road transport was basically on technical solutions, and in part also on
behavioural aspects. Common measures were, e.g. improvement of conventional
vehicles; limiting the power of light and commercial vehicles; alternative fuels; and
compliance with speed limits. Other measures suggested are those relating to
structures, but on a macro-level (Figure 1), which include taxation of different types,
changed pricing of infrastructure, tolls, planning measures on different levels, policy
development, and development of computing tools for improved traffic flows. Many of
these measures are still highly interesting for improving the environmental effects
IJLM from traffic, and there is still a need to develop them. However, they mostly concern
17,3 technology development and political governance, while the corporate perspective and
corporate governance (whether single firms or supply chains) is missing.
At present, the trend towards more environmental – and social responsibility in
business practice suggests multiple options for corporations to improve their
“sustainable” performance, and logistics as a function plays a large role in this, due to
402 the heavy impact from transport on the environment. Although somewhat restricted,
logistics managers have the ability to influence the following important environmental
aspects (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 logistics
system (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 criteria
including environment, and also safety, etc.) was considerably less important in modal
choice decisions than more traditional logistics criteria. The most important, according
to the respondents, were cost, reliability, flexibility, time, and delivery safety. Some of
these characteristics of logistics systems have direct, while others have indirect impact
on the environment.
A commonly suggested performance measure of logistics systems’ environmental
performance is emissions. Van Hoek (1999) suggests that on a supply chain level,
performance measures such as emission rates and energy efficiency per material would
be appropriate. Beamon (1999) lists some environmental benefits from integrating the
supply chain, and for reduced environmental hazards she recommends that a fully
integrated extended supply chain should be environmentally assessed according to
emissions. Wu and Dunn (1995) also state emissions as important, but also land use
and noise.
If direct environmental impact can be assessed and characterized in terms of
emissions, the indirect characteristics are those, which finally lead to emissions, and
also indirectly, i.e. a causal chain ending with the direct impact characteristic
emissions. Wu and Dunn (1995) offer the most comprehensive collection of
characteristics, however, other authors, based on empirical research support the
same. Table III gathers some frequently suggested characteristics, as mentioned by
different authors. The authors in the review describe partly different systems, part of
or including the logistics system. Wu and Dunn make a conceptual contribution
through 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 extent
address the environmental consequences.
Based on the list of characteristics detailed by Wu and Dunn (1995), some elements
appear to be more frequent than others. All authors mention freight consolidation as an
important decision for the environmental performance of a logistics system. This
aspect is central to logistics systems on many levels, as consolidation of freight
concerns fleet size, vehicles, container and package sizes. Modal choice and distribution
network design are both central to logistics decision-making. Transport distances are,
Changing
Wu and McIntyre Van Vannieuwenhuyse
Dunn et al. Hoek Beamon et al. logistics
Author (1995) (1998) (1999) (1999) (2003) structures
Facility location X
Raw materials acquisition
(suppliers) X X X 403
Modal choice X X
Product strategies and design X X X X
Distribution network design X X
After sales activities X
Freight consolidation X X X X X
Carrier selection X
Materials handling operations X
Network design X
Planning and management X
Fuel X
Traffic context X
Fleet, maintenance and
disposal X
Package consolidation and
reduction X X X X Table III.
Transport distances X X Characteristics of
Product recovery X X X X logistics systems driving
Information management X X environmental impact

although not frequently mentioned, perhaps the most direct driver of emissions from
logistics systems. Information management (e.g. ECR support systems) is also stressed
as 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 environmental
performance of a logistics system, however, they are left out of further discussions in
this paper. As we focus on distribution to different markets, those issues are outside
the current research.
Product strategies and product design are depicted as the highest decision level in
the funnel model (Figure 2). Nevertheless, we choose to consider this level as a given
regarding logistics decisions. Packaging issues to some extent fall within the category
of freight consolidation, however, the issue of package choice is considered a design
issue.
What, then, are the relationships between the different decision areas described in
literature? Naturally, they are dependent on each other. For a certain decision,
previously taken decisions impose restrictions, while any decision places restrictions
on later decisions. However, the literature on logistics system characteristics and their
environmental impact does not provide any clues as to how the decisions are linked to
each other. We described above the “funnel model” and literature on decision making
in general in logistics systems are in line with this model.
Stank and Goldsby (2000) describe transportation decision making in an integrated
supply chain, where the performance is traditionally assessed in terms of cost and
service. Although they take the provider perspective while our research concerns the
IJLM shipper perspective, we find this model interesting. In relation to our model, their
17,3 model of transportation specifies in more detail the lower levels, as transportation is
part of the logistics function as a whole. Network design decisions (configuration of
suppliers and distribution networks) as well as plans (volume, frequency, seasonality,
physical characteristics and special handling requirements) are seen as input to the
transportation decisions, although the authors suggest that transportation decisions on
404 a strategic level should influence total network design decisions. In their model the
authors consider the more traditional performance parameters (customer service and
costs), while the environmental performance of the transport system is omitted.
The characteristics chosen from the literature review for further analysis (freight
consolidation, modal choice, distribution network design, transport distances and
information management) fit well into this model of transportation management. What
is missing is the strategic part of the structural decisions, which Stank and Goldsby
view as given. In addressing strategic level logistics decision making, Wanke and Zinn
(2004) depict three strategic level decisions for logistics managers: make to order vs
make to stock: push vs pull inventory deployment logic: inventory centralization vs
decentralization. Wanke and Zinn (2004) further state, that those strategic decisions
take into consideration product variables, operational and demand variables, which
indicates the complexity of decisions and their relatedness. Such strategic decisions
complete the funnel model, and they will be addressed as structural decisions.

Structural decisions and their environmental impact


Three company cases will illustrate our discussion. All three companies have
undergone different, although to some extent similar, changes in their distribution
structures. We highlight these distribution changes in Table IV.
In FoodComp, the structural change was physical to some extent, but focused more
on the governance structure. A new information system was introduced, which
resulted in highly improved visibility of the physical flows. As a consequence, the
system enabled a centralization of the planning of physical flows. This centralisation
of governance structure had positive effects on both costs and environmental impact,
as it became possible to better utilize the resources. The higher resource utilisation
involved transport resources (consolidation of truck loads) and scale effects from
centralised warehouses. As different types of food must be stored in different
temperature zones, fewer and larger warehouses meant considerable energy savings.
Specifically, the system enabled dynamic planning in many dimensions. The definition
of which products should be stored centrally as opposed to locally changes over time
for the many seasonal products. The routing of the transports also became the object of
dynamic planning, and shipments for a central warehouse can now be partly unloaded
on their way, should they pass a distribution centre. The cost reductions were
measured and calculated, and based on earlier analyses of the correlations between
environmental impact and costs in the distribution system it was assessed that
emissions had decreased.
FurniComp introduced a new distribution system specifically for bulk transports to
a central warehouse in Europe. At the same time, other measures were taken. Delivery
service was differentiated for different products, which enabled more effective flow
control as well as cost savings, and the central warehouses were enlarged to be able to
play a more important role. The whole system involved a consolidation of the material
FoodComp FurniComp PaperComp

Changes New distribution structure; fewer warehouses Consolidation of flows to Europe Consolidation of flows
(nodes) Change of transport mode for bulk Changes of transport mode
All nodes have all functions (cross-docking, transport Standardised load carriers
central and local storage) Larger warehouses Fixed system always available capacity,
Introduction of new information system, Standardised load carriers bookings (administration) avoided
centralisation of planning, Standardised vehicles
Dynamic storage, product specific routing Product design for packaging
Vehicles allowing two-level loading Differentiated delivery service on product
Increased pallet utilization level
Effects/results Reduced emissions, Reduced emissions, Cost reductions
Cost reductions in transport and warehouses Cost reductions Balanced capacity
Energy savings in warehouses Fast transports Higher delivery frequency,
Better planning, High delivery accuracy Higher reliability in customer perceived
Increased visibility lead-times
Transparent booking
Reduction of emissions
logistics
structures

distribution structures
Changing

and so-far reached effects


respective changes in
The companies and their
405

Table IV.
IJLM flows, and a change of transport mode. Instead of shipping the goods by means of
17,3 numerous trucks, the goods flow was transferred in bulk train deliveries on a special
train, which departed once a day. To utilise the system resources, the load carriers as
well as the vehicles were standardised, doing this. A number of advantages were
gained, as transports were carried out by train, the emissions from the bulk transports
decreased. Costs were cut, while at the same time, the delivery times were greatly
406 reduced – the average speed of transport from Sweden to the continent increased from
below 20 km/h to about 65 km/h. Through this speed increase and the change of
transport mode, the control over the transport increased as did delivery accuracy.
PaperComp introduced a new transport and distribution system, which meant a
consolidation of bulk flows and a change of transport modes. Before, transport from
Sweden to the continent were carried out by train, with no coordination between
shipments. This transport system caused problems such as long and unpredictable
lead times to the local companies in Europe, a low degree of control over the flows in
the system, and high costs due to the company’s bargaining position vis-à-vis the rail
companies. Congestion on the railroads through northern Europe is a known problem
area, which affected the effectiveness and efficiency of the transport system. The new
system meant the introduction of collection by train in Sweden, bulk sea transport from
Gothenburg to Zeebrugge, in The Netherlands, and onward transport to local
companies by train. As the transport volumes are very high, a ferry leaves Gothenburg
once 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 goods
owner) the delivery accuracy in the system has increased considerably. The change of
system also meant a considerable decrease in the total costs. Higher resource efficiency
through better utilisation is a key to this, as the tracking and tracing of vehicles has
reduced the total number required in the system and hence the load factor in the
system has increased. The one-system solution has also implied a standardization of
load carriers, so that they fit into the trains as well as onto the ferry. These are adapted
to the product, so the load factor is further increased. Finally, the change of transport
mode has highly reduced the environmental impacts from the transport of paper from
Sweden to sales companies in Europe.
From those cases, we can extract two types of structural changes. A main structural
change feature is that of consolidation, which can occur on several levels; structural,
planning, vehicles and load carriers. In the companies studied consolidation on an
operational and tactical level meant decreased environmental stress. Structural
consolidation (in our cases centralisation of warehousing) showed a positive change for
the environmental performance, however, the changes also included a change of
transport modes and increased consolidation of goods. Changing transport modes and
consolidation were in turn enabled through the centralisation of warehousing. Another
common feature is the standardisation of logistics resources, such as vehicles and load
carriers. Standardisation resulted in higher consolidation, as discussed above, but also
in an overall decrease in tied-up resources. Hence, standardisation contributed
indirectly to decreased environmental stress. These features can be referred to as
changes concerned with the physical structure. Information visibility, enabling better
control and planning are features associated with the governance structure. Another
important governance structure feature is the understanding of whether the goods are
considered as stock or as being transported. How all these features are concerned with
decisions on different levels in the funnel model which will be further discussed in the Changing
next section. logistics
structures
The complexity of logistics decisions and environmental effects
Below, the changes described in the previous section will be related to levels of
decision-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 an 407
important driver of both efficiency and environmental performance. The other factors
from the literature review are all part of the cases studied, although we choose to stress
some other factors, which we found to be more important or more closely specified.
In our discussionn the physical characteristics consolidation and standardisation
are followed by the governance characteristics visibility and virtual warehousing.
The characteristics and their relationship with each other and to decisions in a logistics
system are summarised, and the analysis address how to assign environmental effects
to the different characteristics.

Increase fill rate (consolidation)


One of the key factors pointed out across the cases and also in the literature, was the
importance of increasing the fill rate in transportation. In all our cases increased fill
rates meant less environmental stress. At a strategic level, changes made to increase
fill rates were to increase the size of warehouses, centralise distribution, reduce the
number of warehouses, and change the location of warehouses, which can all be
described as changes to the logistics infrastructure. The restructuring of flows into
one main, centralized flow from the area of production to a central spot in the
distribution area, i.e. main flow consolidation, is another concrete example of
structural consolidation. Such consolidations often involve changes of transportation
modes – as in the cases of FurniComp, from trucks to rail transport; and of
PaperComp, from rail to sea transport. These shifts in transport modes are towards
environmentally 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 to
minimise the number of deliveries, which in some instances meant increasing
leadtimes. These changes all contribute to increased fill rates of vehicles and thus a
decrease in vehicle kilometres and fuel consumption. These types of changes are
tactical in their nature because they target parts of one market. Another tactical
decision which affected vehicle fill rates was to coordinate transports with other
suppliers 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 it
possible to achieve a higher fill rate in the transport. Structural consolidation enables
higher frequencies of transport, which in turn enables smaller changes to delivery
plans due to attempts to fill the transport. Some deliveries can be postponed until the
next transport occasion, without the final customer experiencing any decrease in
delivery service. There were also other types of changes that can be made
independently of other decisions, such as the final repacking of goods by FoodComp
done in such a way as to reduce the size of the goods. The effects of the changes were
an increased fill rate and decreased transport work, and enabled a stable service level
while environmental performance was enhanced.
IJLM In the case of FurniComp increased and centralised volumes made it possible to
17,3 change mode of transportation. The first connection to be established was between two
of their main facilities in Europe. There were several reasons for moving to rail; cost
considerations and the environmental impact are important, but also the increased
volumes of goods due to the increasing establishment of new stores. Another important
reason is that congestion on the roads in central Europe is expected to grow, and this
408 was also a main incentive for PaperComp to change their transportation mode.
However, in this case, the move was geographically larger as they consolidated the
flow of their goods and moved the flow from the continent to the North Sea, and
changed from rail transport to ferry. This change provided environmental
improvement basically from modal change and also centralization, as well as
increased performance in terms of costs and delivery service.
A prerequisite for rail to be an alternative is that it is possible to buy a fixed
timetable so that the train can run non-stop between the destinations. This has been
and 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 the
new setting for FurniComp, the distance between the two nodes of transportation is
1,000 km and is expected to take 14 h, an average speed of 65 km per hour to be
compared with an average speed for freight trains of 17 km per hour. The speed is
essential because the fixed costs of buying a train set are high. With a higher speed the
train 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 naturally
intertwined, as the load carriers have to fit the vehicles. However, they can be
discussed on different levels.
In PaperComp, the load carriers had to be standardized in order to fit both the
train system and the ferry. The load carriers can be loaded onto the vehicles in
ways, which make full use of the vehicle capacity. A standardized load carrier also
means that the loading and handling equipment can be standardized, which was
not the case before the structural change. Yet another important feature of
standardized load carriers is that it decreases the total volume of carriers in the
system, as any carrier coming back can be used for the next load. It also improves
the manageability of the system.
For both PaperComp and FurniComp their new systems meant high involvement of
the goods owners in the setting up of the new systems, although the systems were run
by 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 level
standardization implies easier handling procedures, which reduces costs as well as
delivery times. The changes, resulting in a streamlining of the activities on an
operational level, also reduced uncertainties, which in turn affected the delivery
accuracy vis-à-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 of
vehicle-km, and thus reduces the environmental impact.
The importance of information for managing the supply chain (visibility) Changing
Several of the changes made by the companies are aimed at increasing the collection logistics
and use of information. The overall goal of the changes was to increase manageability
and the possibility of planning ahead. If successful, this means that the distribution structures
structure can be used more efficiently and, as a result, increased fill rates.
In 1998, the distribution structure of FoodComp was changed and the number of
warehouses was reduced, and new management principles were introduced. Taken 409
together, this had a positive environmental impact, as a lot of energy could be saved
through the scale effect of consolidation specifically of freezing equipment. At the same
time, the total amount of transport work decreased. In the new structure, the logistics
centers can have four different functions; merge centers for incoming goods, central
warehouse, regional warehouses, and distribution centers for outgoing goods. Central
warehouses for a specific product can be moved from one location to another
depending on geographical demand patterns. About 80 percent of the products are
stored centrally, which is about 20 percent of the volume of the goods. Some products
have a highly seasonal demand, e.g. barbecue products. Such products are kept
centrally 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 different
functions. 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 direct
transport when it is possible. A typical example is a product that is produced in
southern Sweden. Each year around 700 pallets are bought. The product is stored in
the central warehouse 100 km outside Stockholm. The products are transported from
southern Sweden, to the central warehouse in a town in central Sweden, distributed to
the regional warehouses, and finally distributed to the stores. When examined more
closely it was discovered that 30 percent of the goods were distributed to the regional
warehouse in south of Sweden (located between the producer and the central
warehouse). The products were rerouted so that all transport from the supplier first
stop at the mid-way warehouse, where 30 percent of the products stay, the rest are sent
onto the central warehouse. The reduction in distance each product is transported
directly reduces the emissions from the logistics system.
In PaperComp the new distribution system was accompanied by a centralization of
the IT-system and the introduction of a control tower, with total insight into the
distribution system. This new overview strongly contributes to the reduction in
number of load carriers in the system, together with the standardization. Another effect
is that the control of the flows becomes stronger and supply from paper mills can be
organised at much earlier stages than before, which in turn leads to more even goods
flows. This is necessary for economical and technological reasons from the perspective
of the production units, but it also increases the utilization rate of the distribution
system.
These are examples of how IT systems can enable changes that can be considered to
be both structural and tactical, but which are mainly achieved through different
planning measures. These can in turn be characterized as strategic planning and
tactical planning, respectively. Altogether the different measures taken had clear
positive effects in reducing the emissions from transports.
IJLM Virtual warehousing
17,3 The 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 a
range of characteristics and mechanisms. However, classifying logistics strictly into
specific functions (warehousing, transport, handling, etc.) causes suboptimisation.
To overcome this problem, a more holistic view of the logistics functions can be
410 applied, in which the clear division between the activities and how they are grouped
into functions is erased. The first example below is from supply rather than
distribution, and concerns supply from overseas. However, the same logic can very
well be applied to distribution overseas, which was extensively discussed as an option
in one of our case companies.
The aim for FurniComp was to be able to control the goods after they have left the
supplier and are already headed for a main destination area. The goods could be traced
at an article level and in what container it is loaded. The system makes it possible to
manage 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 local
companies into centralized transport to the continent, and this is from where the
local companies are supplied. This also means that the point where each shipment’s
final destination is decided is postponed in time. Although today PaperComp do not
make use of this opportunity, this might be an option for improved flexibility of the
transport system. Orders that are a couple of days late could very well be made through
redirected shipments, which in turn would reduce the need for express transports. This
should in general have a high environmental impact, as express deliveries are often
carried out by transport modes with higher environmental stress than those for regular
transport.
Since, the lead-time of sea transport is comparably long, it is then possible to load
goods, which are not yet destined to a specific area, but which can be forecasted for a
larger region. This is not at all a new idea per se; many companies apply this
postponement strategy already. In the project described, and also in general, the
environmental effects are difficult to calculate in accurate figures. But based on
previous experience and knowledge it can be expected to reduce the environmental
impact, reduce costs and increase delivery service.

Summarizing the four characteristics


All the changes identified in the cases can in different ways contribute to reduce the
environmental impact of a logistics system. What is also clear is that they are
interconnected in many ways, i.e. they influence each other. It is also possible to
relate different decision levels for each of the characteristics. In Figure 3, the
characteristics and their interrelatedness are illustrated.
It is evident that each change individually can drive a change in the environmental
performace of the system. However, it is also important to stress that they relate to
each other, probably in more ways than those indicated above. Thus, different
decisions 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
Consoli- Flexible Visibility Strategic
Changing
Standardisation
dation warehouse (new & structural logistics
definition better IS) decisions structures

Better
Consoli- planning & Tactical
411
dation control planning
decisions

Operational
Modal Less transport work (fewer shipments
shift shorter total vehicle-km)
day-to-day Figure 3.
decisions Changes identified from
the cases, how they relate
to each other, to different
Reduced environmental decision levels and to
impact environmental impact

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

Conclusions
So far we have discussed different types of changes and related them to decision
making and the environment. All changes led to positive environmental effects as well
as to lower costs. There were a number of other effects as well that differed from case to
case, 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 their
customers. An important aspect of delivery service is delivery accuracy, i.e. the goods
arrive on time. This dimension also improved, as the distribution arrangements were
physically consolidated. For the customers, delivery accuracy improved since the
accuracy of the systems themselves improved. This dimension is also connected to the
governance structures, as improved IT-support for visibility and flexible definitions of
transports as warehouses enables better control and better flexibility vis-à-vis
uncertainties in demand.
If these effects are compared with what can be found in the literature it seems that
the effects found in the cases were more positive than expected since all changes were
positive concerning both cost and the environment. When the companies were asked if
they could think of examples where increased environmental responsibility cost
money, only one was able to.
When it comes to transportation, the opinion of everybody interviewed was that
cost and the environment impact often pointed in the same direction, a solution for
IJLM lower cost for transportation almost always reduces pollution as well. FurniComp, for
17,3 example, base their work on the following hypothesis:
Long-term cost effective transport must be resource efficient, and thus they will in the long
run become positive for the environment as well.
Their experiences from working with resource efficient transport show that
412 environmental effects in transport systems are difficult to measure, but that it is
always right to reduce, i.e. to strive to increase their resource efficiency and thus in the
long run, reduce environmental stress.
When it comes to warehousing FoodComp said that it is always less energy
consuming to build one large warehouse than two smaller ones because there are scale
advantages. FoodComp’s products are stored in different temperature zones, which
means 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 are
exceptions.
In all three cases, it has been possible to lower the environmental impact as well as
to reach a lower cost for their supply and distribution. The common key for reaching a
high performance regarding both environmental impact and costs is efficient use of
resources.
One reason for these results might be that the study takes a holistic perspective on
structural changes in Logistics & Supply Chain Management, by including both
strategic and operational decision making. Min and Galle (1997) find that one of the
greatest obstacles to effective green purchasing is the perception of purchasing
managers that environmental programs are costly. This point might be relevant since
most 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 and
Jennings (2002) into purchasing managers is one of only a few studies that support our
results.
We have also seen several structural changes towards an increased centralization. It
has not led to increased emissions; but in one instance it has been positive. An
increased centralization has also led to modal shifts, from truck, to train and from train
to boat. One explanation is that the fill rate has increased due to more consolidated
goods flows. Transport have increased when measured in ton-km. Emissions are,
however, primarily related to the number of kilometers trucks driven (vehicle-km) and
to a lesser extent to the weight of the goods. Therefore, increased fill rate reduces the
number of vehicle-km but not necessarily the number of ton-km.
It has been possible in the analysis to separate different measures taken in
restructuring 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 to
specific environmental effects, as the measures are not taken one by one, but together
with each other. The effects of the changes have been measured on an overall
structural level. For instance, centralisation of warehousing showed a positive change
for environmental performance, however, centralisation included changes in transport
modes as well as increased consolidation of goods, standardisation and centralised
governance of the logistics system, in different proportions. These specific changes
were in turn enabled through the centralisation of warehousing – the structural
change.
To focus on decision making and linking this to environmental outcomes, has Changing
shown to be fruitful. It has made it possible to more clearly describe how different logistics
types of decisions are interlinked and how strategic decisions create possibilities as
well as limitations to decision making further down in the hierarchy, see Figure 4. structures
Standardization of the technology used, (e.g. load carriers) is important as a means
to increase the possibility for planning, with the aim to increase the fill rates of the load
carriers in the end. Both government and industry can help to increase the degree of 413
standardization for transportation. The government can also make it more feasible for
industry to reach the goals set by the European Union of mode shift, de-coupling and
improved fill rate by structural means. One such example discussed earlier is to
increase the average speed of rail transport, both within and between countries.
Another is to help increasing knowledge about the relations between decision making
in logistics and environmental consequences and help to spread this knowledge, for
example, by education.
Technology and government can create possibilities but it is companies that have to
realize the possibilities. In this study, we have identified four strategies that seem to
lead 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. virtual
warehousing).

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

Implications
Technology Structure

Railway connectivity
Standardisation
- load carriers
Macro perspective
- vehicles
Creates possibilites
for industry

Standardisation - Increased visibility


- load carriers - Standardisation
- vehicles - Consolidation Figure 4.
Micro perspective To gain increased - Virtual warehousing The study has
possibilites for planning As means to lower costs implications for
and environmental impact companies as well as
government
IJLM To summarize, this paper addresses the lack of theories and models for connecting
17,3 different logistics decisions on different hierarchical decision levels to each other, and
to their environmental impact.
The complexity of companies’ logistics systems is great. If a supply chain study
were conducted it would probably be even greater. The understanding of how
strategic/tactical decisions influence operative measurements such as fill rate is low.
414 Walley and Whitehead (1994) suggest that the existence of a win-win mindset is the
result of cherry picking success stories, and cannot be sustained. Therefore, further
research into case studies is necessary to find out if our cases were just that. All
examples of how companies can lower costs and increase their competitiveness and at
the same time reduce the environmental impact are important as these will influence
the mind-set of managers and be beneficial to the environment. There is a need for a
closer study of modern logistics practices, for instance postponement, not only to
evaluate their effects on cost and delivery performance but also on the environment.

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About the authors


Håkan Aronsson (MSC, PhD, Linköping University, Sweden) is an Assistant Professor in
Logistics Management at Linköping University. His research includes logistics performance
measurements, design of logistics systems and development of logistics indexes. Before
re-entering the academic stage for PhD, Aronsson spent six years as financial controller focusing
on change management issues in public healthcare. E-mail: hakar@eki.liu.se
Maria Huge Brodin (MSC, PhD, Linköping University, Sweden) is an Assistant Professor in
Logistics Management at Linköping University. Her research includes logistics performance in
recycling systems, environmental assessment of logistics systems and strategic considerations
in supply chain management. Maria Huge Brodin is the corresponding author and can be
contacted at: marhu@eki.liu.se

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