LQ’s Executive Interview Series

Best Practices in Green Logistics

A Conversation With Steve Phillips

Sr. Vice President
Operations, Werner Enterprises

(Questions for this Executive Interview Series have been prepared by LQ’s Executive Editors, David Closs, PhD, Michigan State and Nick Sieirsen, LQ’s Executive Editor & Senior Manager, KPMG.)

:

LQ:  How does your firm sell the concept of "tripple bottom line" (economic,
environmental, and ethical) to shareholders? (David Closs, PhD, Michigan State)

First and foremost, shareholders need to have a high level of comfort with our ability to produce impressive bottom line results.  However, they fully understand that in order to sustain long term positive results, we must conduct our business with the utmost level of integrity.  In today’s world, integrity includes being committed to protecting the environment. 

We have invested a lot of capital and effort in our “triple bottom line” and we are confident that the positive results we are achieving make us more attractive to current and future shareholders.

LQ: Do you believe that the increased focus on sustainability reflects a long term
shift in terms of corporate objectives or is it the latest fad? (David Closs, PhD, Michigan State)

We definitely feel that sustainability focus is here to stay.  It’s no secret that rising fuel prices played a major role in catapulting fuel conservation to the forefront.  However, there is no indication that anyone is backing off from their sustainability programs now that prices have receded.  The impetus of these programs is much greater than the economics of fuel. 

There are additional Environmental Protection Agency mandates on the horizon that will keep the supply chain actively pursuing green initiatives.  Also, we have forged valuable sustainability program partnerships with many customers with specific long term goals so it is beneficial to all parties to see them through.  Lastly it is highly likely that the volatility of fuel will keep sustainability focus alive for quite some time.

LQ: Do you find that your customers have a common understanding and metrics
system for determining carbon footprint? Is the trend moving toward more
commonality? Assuming there are some differences, how do you accommodate the
differences in requirements? (David Closs, PhD, Michigan State)

We are seeing a wide range of metrics being used to determine carbon footprints.  While some customers are satisfied with knowing that their carriers are involved with SmartWay (an innovative collaboration between the freight industry and the U.S. Environmental Protection Agency) others are requesting detailed carbon footprint statistics.  For the most part, we are able to deliver on the wide range of customer carbon footprint requirements as long as the information doesn’t conflict with our proprietary policies or insider information policies we have in place as a publicly traded company.

It is likely that customers will migrate to common acceptable metrics, such as the ones provided by the SmartWay program.

LQ: What procedures does your firm have in place to identify and evaluate the
environmental issues that will be important to your customer segments? Could you
provide some examples of what you are seeing? (David Closs, PhD, Michigan State)

It has essentially become procedure at Werner Enterprises to discuss our sustainability efforts with our customers during sales calls and business reviews.  We have developed specific point of sale materials to help foster and guide those conversations.  This dialogue has been overwhelmingly well-received by our customers for two primary reasons:  First, in many cases our clients have their own corporate sustainability goals and, therefore, as their key logistics service provider, Werner is viewed as an extension of their own environmental footprint.  Second, many of our clients operate a private fleet and are constantly evaluating its viability to their core business.  With a fleet of nearly 8000 trucks, Werner is often sought out by our customers for guidance and direction on a more cost-effective and energy-efficient fleet or solution.
 
As it relates to specific customer interactions that signify the importance of environmental issues in supply chain today, here is one example worth sharing:
 
We are in the process of participating in a network bid with a customer that evaluates SmartWay participation and the corresponding score as a main component of the overall value proposition on bid submissions.  The higher a providers' SmartWay score is, the greater likelihood of that provider winning business.  The opposite is true for a provider that has not joined SmartWay or has a lower score. 
 
Generally speaking, many customers today are factoring in a provider's progress in environmental sustainability along with the traditional components of price, service and financial viability when selecting a service provider.        

(Nicholas Seiersen, Senior Manager, KPMG)LQ: Is your company developing and managing standards and policies for a greenersupply chain when integrating suppliers? (Nicholas Seiersen, Senior Manager, KPMG)

Werner Enterprises is currently in the process of examining all phases of its supply chain especially when integrating suppliers.  Werner Enterprises is taking its commitment to a green supply chain very seriously and challenging all its vendors and suppliers to become a “green” supporter.   From such things as tracking SmartWay participation with our partner carriers being utilized by our Brokerage Division, to our nightly cleaning crew, Werner Enterprises believes there is opportunity to “green” its supply chain for the better. 

LQ: Does your firm foster a culture of sustainability from the top down? If not why do
think that is, if yes, can you give examples that make this commitment palpable and
visible. (Nicholas Seiersen, Senior Manager, KPMG)

Werner Enterprises understands the importance of a committed approach to making such an endeavor work.  Organizationally speaking, Werner Enterprises has reached out to its employee base to get the people involved.  By making this an organizational commitment rather than a mandate from our executive team we believe this will allow for greater sustainability as we continue forward with this integration throughout our company.

LQ: Does your company plan to develop the supply chain for sustainability – or has it
undertaken such a design? Was this the dominant driver? (Nicholas Seiersen, Senior Manager, KPMG)

Werner Enterprises believes in developing its supply chain for sustainability.  As an organization we have been officially committed to the program since 2004 when Werner Enterprises joined the E.P.A.’s SmartWay program.  With the rapid rise in fuel costs, Werner understood the importance of reducing its carbon footprint and the impact that would have on the bottom line.  After seeing the results, Werner has committed itself to long-term sustainability where it makes sense. 

LQ: Does your company plan to cooperate with suppliers as well as competitors to
develop a green supply chain? What challenges do you see? (Nicholas Seiersen, Senior Manager, KPMG)

Werner Enterprises has been developing its green supply chain since 2004.  Werner Enterprises has worked with various suppliers and customers to develop an efficient and environmentally friendly supply chain that benefits Werner, its customers/suppliers and the environment.  Part of the challenge experienced so far has been the buy off regarding the benefits of a green supply chain.  Communicating to vendors, suppliers and customers that efficiencies can be gained as well as a reduction in overall costs will be a benefit of such a strategy.  Many vendors/suppliers feel that joining such a program will only result in increased resource allocation and higher costs when in fact the opposite is true.  

LQ: Is there a view that competitiveness in the marketplace is associated with
developing a green supply chain? (Nicholas Seiersen, Senior Manager, KPMG)

Most definitely.  In today’s market any competitive advantage will help separate a company from its competition.  However this is not the only reason for undertaking the development of a green supply chain.  The benefits and efficiencies of such a program can be realized throughout an organization.  There are real costs that can be driven out of the supply chain and passed along to our customers.

LQ: Is there a view that developing green supply chain practices will increase
corporate efficiency and add to profits?

Not only is there a view that developing green supply chain practices will increase efficiencies and profits, there is proof that it has.

In our Third Quarter 2008 Revenues and Earnings release Werner reported that through the efforts of many Werner employees, the Company is making positive progress by lowering diesel fuel consumption through its proactive initiatives to improve fuel mpg.  Due strictly to these mpg improvements, Werner purchased 2.6 million fewer gallons of diesel fuel in third quarter 2008 than third quarter 2007.  This equates to a reduction of approximately 29,000 tons of carbon dioxide emissions. 

Werner intends to continue these and other environmental conscious initiatives including its active participation as a U.S. Environmental Protection Agency SmartWay Transport Partner.

LQ: Some schools of thought contend that ignoring green supply chain practices will
likely result in trouble for the top and bottom lines of a company. Does your firm’s
management share this perspective? (Nicholas Seiersen, Senior Manager, KPMG)

There are too many fuel saving opportunities out there to be ignored.  As previously mentioned, we have already achieved positive results with our green initiatives and will continue to explore new fuel saving technologies and practices.

LQ: Can you name some of the concrete things your company is doing to enhance
supply chain sustainability, and some of your plans for the near future? (Nicholas Seiersen, Senior Manager, KPMG)

Within our fleets we continue to improve on mpg through numerous initiatives to improve fuel efficiency.  These initiatives include, but are not limited to, reducing truck idle time, lowering non-billable miles, increasing the percent of aerodynamic, more fuel-efficient trucks, and installing auxiliary power units (“APUs”).

Along with the continued focus stated above, we are currently testing a variety of fuel saving equipment enhancements that include, but are not limited to single wide-based tires, automated tire inflation systems, trailer skirting, wheel covers, and single drive axle tractors.

LQ: Do you think the economic downturn will put a damper on your efforts to
enhance supply chain sustainability? (Nicholas Seiersen, Senior Manager, KPMG)

Although we absolutely feel the effects of the economic turndown, we are confident that our sustainability program will continue to have a positive impact on Werner Enterprises.  There is still tremendous opportunity to improve fuel efficiencies through improved processes and investments in fuel efficient technology.

It is likely that the state of the economy has actually helped educate the entire supply chain on the importance of having a robust sustainability program for the good of the environment as well as the bottom line.

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