Sink or swim: Decarbonizing the supply chain transportation network

Editor’s Note: The SCM thesis The Impact of Logistics Provider Data Maturity in Defining Scope 3 Transportation Emissions was authored by Jessica Yao Xiong and Nora Lestari and supervised by Dr. Josué C. Velázquez Martínez ([email protected]). For more information on the research, please contact the thesis supervisor.

Global warming is a reality. Characterized by extreme weather, economic disruptions, and diminishing natural resources, climate change prevails as a growing concern worldwide. By 2025, an estimated 1.8 billion people may suffer absolute water scarcity due to greenhouse gas emissions from industrial activities. Among these activities, operations along the supply chain produce the majority (up to 90%) of a company’s overall emissions. Moreover, transportation and logistics remain the leading contributors (15% to 20%) of these emissions. To offset this trajectory and to address mounting regulatory and societal pressures, many companies aim to proactively reduce their supply chain carbon footprints.

Carbon emissions from the corporate supply chain are known collectively as Scope 3 emissions. Although many companies demonstrate efforts to govern their direct emissions, their Scope 3 emissions remain largely unchecked. Managing Scope 3 emissions is difficult due to limited visibility into supplier operations, supplier data limitations, and uncertainties around performance and emissions trade-offs. These challenges hold particularly true in a company’s inbound transportation network due to innate complexities and a heavy reliance on logistics providers’ data. To decarbonize their inbound transportation operations, companies must answer three key questions:

• How can they estimate current Scope 3 inbound transportation emissions?

• What are the emissions trade-offs and impacts of their supply chain decisions?

• How can they monitor supplier data and identify emissions improvements?

Breaking the ice: Steps to baseline and reduce Scope 3 emissions

Estimating Scope 3 emissions begins with a thorough understanding of the current state of operations. Activities include supplier data collection and stakeholder interviews to map the inbound transportation network and to identify emissions “hotspots,” or steps in the shipment process driving the most carbon emissions. Hotspots exist from booking to delivery and highlight relationships between shipment characteristics and emissions. Based on these findings, companies may establish their Scope 3 emissions baselines via an emissions calculation tool. The calculation tool should integrate company-relevant assumptions and adapt to various estimation methodologies depending on the data given. A robust tool fills data gaps, provides reliable emissions estimates, and offers emissions intensity insights to support supplier selection.

Following emissions calculations, companies should examine trade-offs between supply chain decisions and Scope 3 emissions. Shipment levers, such as transport mode and logistics spend, may serve as proxies for planning, sourcing, and inventory decisions. Multivariate regression, correlation, and scenario analyses reveal meaningful levers, quantify impacts, and find a balance between sustainability and commercial targets. Finally, companies should assess logistics providers’ data to illuminate improvement opportunities and inform data disclosure requirements for future tenders. An accurate baseline depends on the availability and quality of shipment-level data. A maturity assessment across these two dimensions compares limitations across providers, facilitates negotiations, and incentivizes data transparency.

Making a splash: Research findings and the path forward

Applying these techniques in a real-world setting, our study discovered that booking through delivery activities collectively drive a “fixed emissions cost” for every shipment, regardless of its characteristics. On average, large suppliers produce lower emissions for high-volume, long-haul shipments, while smaller suppliers are more environmentally friendly for frequently used routes and standardized cargo. Furthermore, mode selection, cargo weight, fuel consumption, shipment type, load type, and transit time exhibit sizeable emissions impacts, such that a 1% improvement in these levers may drive a combined 1.67% reduction in emissions. Interestingly, we uncovered a nonlinear relationship between logistics spend and emissions, offering insights for future logistics investment decisions. The importance of supplier data also cannot be overstated: We found that data limitations cause discrepancies of up to 40% in Scope 3 emissions baselines.

Overall, our research has enabled us to develop recommendations and strategies to help companies reduce their Scope 3 carbon footprints. While useful for their inbound transportation networks, companies may adopt our frameworks and analyses for outbound transportation and other areas to make meaningful progress towards supply chain decarbonization.

Every year, approximately 80 students in the MIT Center for Transportation & Logistics’s (MIT CTL) Master of Supply Chain Management (SCM) program complete approximately 45 one-year research projects.

These students are early-career business professionals from multiple countries, with two to 10 years of experience in the industry. Most of the research projects are chosen, sponsored by, and carried out in collaboration with multinational corporations. Joint teams that include MIT SCM students and MIT CTL faculty work on real-world problems. In this series, they summarize a selection of the latest SCM research.

SC
MR