Sustainability as strategy: Sustainability in the Supply Chain

Episode 4: Sustainability in the Supply Chain with Raj Kumar

Wed, May 14, 2025 5:22PM • 14:36

SUMMARY KEYWORDS

sustainability, supply chain, alternative fuels, transportation, carbon footprint, utilization, dynamic routing, tariffs, cost impact, carbon impact, tariff impact, onshoring, nearshoring, business case, contingency plans

SPEAKERS

Raj Kumar, Sean McMahon

Sean McMahon 00:03

Hello everyone, and welcome to sustainability as strategy, a podcast brought to you by the experts at Roland Berger Americas. My name is Sean McMahon, and today's topic for discussion is sustainability in supply chains. Joining me for today's conversation is Raj Kumar, a partner at Roland Berger. Raj, how you doing today?

Raj Kumar 00:25

Great! Thank you, Sean. I'm really happy to be here and talking about a very interesting topic that's very near and dear to my heart.

Sean McMahon 00:32

Yeah, I'm excited for this conversation. Let's start by just having you tell us what your role is at Roland Berger.

Raj Kumar 00:37

So I'm a partner at Roland Berger. I've been in consulting (for a) good 20+ years. I focus on end to end supply chain for companies, mostly in consumer products and retail, but across multiple industries as well.

Sean McMahon 00:51

Okay, and like I mentioned, we're gonna be talking about supply chain. So let's take it from the top with a broad view. What are companies doing these days to make their supply chains more sustainable?

Raj Kumar 01:01

That's a good question. So when we look at companies talking about sustainability, there's a lot of talk about things like alternative fuels and different types of trucks, hydrogen vehicles, drones. Can we come up with new green facilities? But in reality, the fastest and most effective way to really achieve significant sustainability is really to optimize their supply chain.

Sean McMahon 01:26

Okay, I understand. So what are some of the strategies that firms are embracing to optimize their supply chains?

Raj Kumar 01:30

Companies are looking at different things within the supply chain. Usually it's around the supply chain network, around the transportation, the number of facilities, kind of the placement of inventory across those facilities and those networks. But at the end of the day, if you want to keep it simple, it's really three things. One, stop moving things so far. How many miles are you traveling? Right? Stop moving the wrong container. That's what I they would call mode. And the third is, stop moving things less than full, right, containers that are half full and so on that you would call that utilization. So if you really focus on the network of a company and supply chain, it really boils down to satisfying three big topics, miles, mode and utilization.

Sean McMahon 02:14

So, let's start with miles. Do you have any examples of how companies are thinking differently about miles?

Raj Kumar 02:21

Yeah. So every company is going to be different, right? It'll depend if you're a wholesaler, if you're a vertical manufacturer, if you're a retailer. So there's going to be different strategies for miles for every company. But let me give you one good example. A good example would be, we did a lot of work at a global beauty company. So this company had multiple brands. They had 1000s of SKUs. They had a global footprint, manufacturing across dozens of countries, across the three major regions of the world. So they had operations in Asia, in Europe and the US. So when you look at a company like that, they produce about a billion units a year, and they're producing these units across all three of those regions. But when you look at where the product comes from over 40% of the raw materials that they procure, they source, they end up moving that across different regions. So items that were sourced in Asia are being moved to Europe. Items being sourced in Europe are being moved to the U.S. and so on. And then once that's manufactured in those locations, another 30, 40% of those products are moved again into another region to be sold. So this is where they're essentially consumed. So there's product being moved wants to be made, and then it's being moved again to be sold, and by the time they do that, they're running out of time. So much of that is being air freighted around the world. That's a significant amount of carbon being used to satisfy that supply chain.

Sean McMahon 03:45

So that's a great example when it comes to miles. But now let's talk about mode. So whether it's truck, rail or even ocean shipping, what are firms doing differently when it comes to the mode of transportation they use to ship their products?

Raj Kumar 03:56

Yeah, that's good question. So when companies move product from one region to another, or from one country to another, or a state to state that they typically try to keep it simple. So I'll give you a good example. When a large spirits company was trying to move tequila from Mexico to the US. They moved everything from Guadalajara in 48 foot trucks into the US and in the US. They had to move it to all 50 states, because each state had to have its own distribution. So when we looked at that model, we said, what if we looked at it differently? What if we looked at Ocean, which has not been considered before, from Mexico, and said, What if we moved a lot of the tequila that was being moved into California to Florida to New York by ocean, take the product, move it on trucks to the courts, and then from there, put it on container ships, and then ship it to the US. We then looked at what product we could put on rail and what product we can put in box cars, and where we could bring that. You know, we could bring a lot of that to ship. Chicago, we could bring it to St Louis, and then from there, we could put it on to trucks. We also looked at moving trucks that maybe double trucks, from Guadalajara to the border, and then from there, moving it from different types of trucks, from there into the 50 states. We were able to put all that together in a bundled kind of product roadmap, and at the end, we were able to reduce the total carbon footprint of transportation of tequila for this company into the US by over 30%.

Sean McMahon 05:28

Wow, 30% reduction?

Raj Kumar 05:30

Significant. If you think about where most of the carbon is being consumed, there's carbon being consumed in the manufacturing of the tequila, but the movement of all that liquid, all that glass, all those containers is significant. And when you can put a lot of that product on the ocean, when you can use rail cars, when you can use double trucks, when you can do it smart, you can really make a big reduction in carbon.

Sean McMahon 05:53

Now we've talked about miles, and we've talked about mode, and so the third element you discussed is utilization. Tell me more about that.

Raj Kumar 06:01

Yeah, utilization is really about how full are those containers, right? And so when people are importing containers of product into their country, quite often they use full containers. Now sometimes you can use half containers, if you could predict how much product is going to be put into those containers. But a good example would be in the US, a retailer that will be shipping product from a distribution center to maybe 2, 3, 4, 500 stores across the US. We did a project for a company that was moving product from distribution centers to stores. And what we did was we looked at how full were those containers. When we added up all the utilization of all those containers, we found that they were about 60% full total. Then when you start to look at the root cause of what causes that, it's really about the fact that they had fixed routes from DC to store this DC served four stores on a Tuesday regardless of volume. So they had high volume...weeks, they had low volume weeks. And so instead of doing that, we looked at a number of things. We converted the big trucks into box trucks, if the utilization of that truck was very low, so we could basically use a half a truck, and the cost of that was half the carbon expenditure of that was almost half as well. We also looked at refreshing the routes. How often could we look at these routes and refresh them, maybe for low volume and high volume. And then last we looked at what's called dynamic routing, which is saying on the fly, determine which trucks should go to which stores at what time, and do it so that you could have trucks that are more full. So maybe tomorrow, instead of four stores, this truck should hit five stores. Maybe next time, it should skip these two stores and pick up a different store on the way, and so on. So when you dynamically route, you can increase the utilization of these trucks. We were able to increase the utilization of the trucks from 60% to almost 85%

Sean McMahon 07:53

Okay. Now one quick sidebar question about the dynamic routing. Are there any examples out there of companies collaborating, you know, in a sense, kind of coming together and saying in real time, saying, OK, our truck is only 60% full. There's a company at or near the same DC, effectively subleasing the remaining 40% is that? Is that a thing out there or no?

Raj Kumar 08:13

It's probably complicated to collaborate with multiple companies on the fly like that. You have third party companies that do the routing or the trucking, where we have seen people collaborate is really across different brands, banners, divisions within companies, so companies that typically operate independently of each other because they're two separate companies within the same parent company, we've looked at synergies of where those two trucks were going to the same location or the same region, and be able to co load those trucks together. When they did that, they were able to get a lot more synergy and a lot more increase in utilization across those two organizations.

Sean McMahon 08:56

Okay, that sounds that sounds fascinating. It seems like one of those things where, yeah, except it's on the same umbrella, then it makes sense to kind of use that unused truck space or rail space, or whatever it might be. Getting back to kind of the overall picture for supply chains. It's difficult to talk about international commerce right now without talking about tariffs. It's dominating the headlines. I guess I should you know, note that we're recording this on May 12, and just this morning or late last night, the US and China announced a little bit of a rollback in terms of the percentage of the tariffs, but either way, the landscape is uncertain. So what impact are tariffs having on the decisions that business leaders have to make about their supply chains?

Raj Kumar 09:34

Yeah, that's a really good question, and everybody's asking that same question, right? What's the impact on tariffs? And for some companies, it's a wait and see. Some companies are coming up with contingency plans. Some companies are coming up what's the short, medium, long term solutions. But when you think about the broad supply chain, I think the first impact really is always going to be around a business case of where product is made, where it's moved, where it's manufactured, where it's consumed, right? And. And when you look at a business case for any of those types of decisions, whether it's short term, medium or long term, people will focus on what they call the three C's, cash cost and carbon, right? Those are the three things that typically will drive the business case on where things are made, where things are moved and so on. What you're really thinking about now is adding the fourth. You're adding tariffs to that. So the business case is really built by stunt four of those items, and based on that, you'll make different trade off decisions on when you can onshore, when you can near shore, when you should move suppliers from one country to another? When should I move a supplier from China to India, for example? And what's the impact on cost, cash, carbon and tariffs. So now that's all that's really happening. Is the tariffs are really being a significant factor is that fourth dimension of these business cases to make that short term decision about where I flow things and that long term decision on where I make things differently, have capital investment and maybe where I move my suppliers.

Sean McMahon 10:58

Now, I really want to pull on this thread a little bit, because I think it's fascinating to hear that tariffs might actually present a greater opportunity for sustainability and increasing the sustainability of supply chain. So, I guess what I'm hearing you say is that if you've got two countries, and you mentioned China and India, and say, a year ago, you know, you were maybe thinking about making a more sustainable choice by having a product, you know, built or manufactured in India. But, but but the numbers just didn't quite pencil out, because it was cheaper to do it in China. Now, if India is enjoying a lower percentage of a tariff than China, suddenly that delta, that cost Delta, is marginal, or even might be in the favor of shifting it to that more sustainable supplier in India. So I just think that's crazy when you think about why these tariffs are...around, and no one's really kind of thought about that.

Raj Kumar 11:42

Yeah, I think that's really good. Your point. You know, most of the time you look at a tariff and you think of it as a negative thing, and it can definitely be, but there's some positives that come out of it. If you were able to near shore something, or onshore something, the impact on sustainability is significant. Think about moving all this product from China into the US every year, anything that was on shore that that's all goes away, right? That's eliminated. So essentially, what you're doing is you're changing the tipping point of every business case, right? And so once the tipping point moves, you can make different decisions based on the economics. But most people don't think about the tariffs as a positive thing in terms of supply chain. But when you think about it, anytime you have you can nearshore onshore your supply chain, or make it more resilient by having multiple places where you're sourcing from. Overall, that's a positive thing.

Sean McMahon 12:42

Yeah. I guess anytime you're changing the numbers that you plug into the calculus there, it might come out in the favor of sustainability. So, any other advice for business leaders out there? It's a complicated time, and as I mentioned, uncertain. That's kind of the word everywhere...is uncertainty. Uncertainty. Any advice from your years of expertise for you know, executives are trying to just navigate this whole landscape.

Raj Kumar 13:04

Yeah, I think now...it's a good question. I think first of all, be patient, right? I think when it comes to tariffs, things will shake out. Companies will obviously focus on short term decision making in the beginning, right around pricing, when they should raise prices, when they shouldn't, when they should pass that along. What should they expect from their suppliers? Should they line item tariffs within their contracts, all those short types of things they should also be thinking of a medium term. What are all the levers they have today to change the flow? When can I move things from one plant to another, because I have production capacity? When can I move suppliers from one location to another, because I have them in both countries, and I'm moving the flows around. So it's really about medium term is really around changing the flows, and long term is really about capital. When do I move my plan from Brazil to Mexico or from Mexico to the US and so on? So you're really thinking about in those terms. But I think the whole idea is, stay patient, have contingency plans, but think about the four C's and T's now, right? What's the cost impact, what's the cash impact, what's the carbon impact, and what's my tariff impact? And then at the end of the day, you also look at, I guess it's around risk. What's the sensitivity analysis around all these when will these things change in the opposite direction? So what's the sensitivity around every one of these decisions that we're making today. So it's about not moving too fast, but being smart about when you move.

Sean McMahon 14:27

Well, that sounds like sound advice. Raj, listen, I appreciate you taking the time to join me today.

Raj Kumar 14:31

You're welcome. Thank you very much. Really appreciate it.