Josué Velázquez Martínez

Minimizing environmental impacts and improving the bottom line with sustainable supply chains

Minimizing environmental impacts and improving the bottom line with sustainable supply chains
sustainable supply chains

Dr. Velázquez Martínez is a research scientist at the MIT Center for Transportation and Logistics. He leads the MIT Sustainable Logistics Initiative, which supports organizations to improve logistics and supply chain operations by creating applied and innovative research aimed at fostering growth while considering environmental and social sustainability.

By: Daniel de Wolff

Dr. Josue Velázquez Martínez isn’t surprised by the increased focus on sustainability we’ve witnessed in recent years. He has dedicated his career to the subject, particularly as it relates to supply chain management. “Looking at the environmental impacts of the world, much is explained by business and logistics operations; companies that are manufacturing, extracting, transporting, and delivering,” says Dr. Velázquez Martínez. "And various drivers and stakeholders play a role in understanding the importance of sustainability.”

Gone are the days when sustainability was considered the niche concern of do-gooders or misunderstood as an impediment to profits. Look no further than Larry Fink’s 2021 letter to CEOs for clarity on the mainstreaming of corporate sustainability. Acknowledging the risks of climate change, CEOs at big companies like L’oreal have set ambitious sustainability goals that affect their suppliers and pressure competitors and non-competitors alike to keep up.

Meanwhile, government policies and regulations geared towards net-zero emissions have helped push the issue further into the light. Consider the net-zero greenhouse gas emission strategy in Europe that affects all economic sectors, and the net-zero future regulation in California, or more recently, Biden’s new sustainability agenda. Companies that resist change risk becoming obsolete. Those at the forefront of sustainability practices recognize that minimizing energy consumption increases efficiency while reducing costs.

And then there are the green consumer values most often associated with millennials. There is no shortage of research showing that consumers are willing to pay higher prices for more environmentally friendly products and services. In 2020, a Nielsen report revealed that 66 percent of consumers would be willing to pay more for sustainable goods. That's up from 55 percent in 2014 and 50 percent in 2013.

The millennial generation is just kicking off in the market... This generation is going to drive the economy, which will put companies that don't pay attention to sustainability at serious risk.

Of course, much has been written about the discrepancy between what people claim on a survey and what happens at the point of purchase. But Velázquez Martínez has his own ideas about what is really going on. “The millennial generation is just kicking off in the market,” he says. “Now that they've grown their careers, this generation is going to drive the economy, which will put companies that don't pay attention to sustainability at serious risk."

As the founder and director of the MIT Sustainable Logistics Initiative, Velázquez Martínez leads a variety of research projects and studies aimed at addressing sustainability challenges faced by industry. The Green Button Project, for example, is an ongoing study that examines whether consumer behavior can be influenced by providing information about the environmental footprint of the shipping option selected for home delivery.

The growth of fast-shipping e-commerce accelerated by Covid means more vehicles on the road with lower utilization, higher frequency of deliveries, and more stops per route. All of which have a direct impact on the environmental footprint of e-commerce.  The researchers at the Sustainable Logistics Initiative think that focusing on sustainability might help companies compete with the giants like Amazon.

“Faster is not always better,” says Velázquez Martínez. “When you have more time to deliver to the consumer, you have a better way to optimize deliveries.” Next-day deliveries increase the likelihood that drivers will be traveling through the same neighborhood several times per week. Whereas, delaying the delivery process so that multiple people can receive deliveries on the same day, at the end of the week, for example, results in better utilization of trucks and a decrease in cost, fuel consumption, and CO2 emissions.

Faster is not always better. When you have more time to deliver to the consumer, you have a better way to optimize deliveries.

Working with Coppel, one of Mexico’s largest retailers, Velázquez Martínez and his researchers conducted 1,000 customer surveys to determine what drives a willingness to wait for deliveries. One of the key takeaways: it’s important to couch environmental incentives in language that is tangible for the consumer. Rather than talking about emissions in terms of kilograms, trade information is conveyed most effectively by citing the number of trees saved. “Translating abstract numbers of global warming potentials into something that makes sense for the consumer is essential,” explains Velázquez Martínez.

A separate study conducted by the Sustainable Logistics Initiative assessed carbon emissions and fuel efficiency characteristics of Coppel’s fleet of 1,200 last-mile delivery trucks. Using machine learning algorithms and models of road conditions based on geospatial data and analysis of GPS traces, the team discovered several ways to reduce emissions with close to zero cost for implementation.

They estimated that reassigning vehicles based on variations in performance along specific routes could yield a 7.2 percent reduction in fuel consumption and CO2 emissions. Coppel eventually piloted the findings and achieved significant savings. Considering that the transportation sector is the main contributor to greenhouse gas emissions, and freight movement is responsible for approximately 40 percent of all transport-related CO2 emissions, the Initiative’s findings have significant implications for companies looking to reduce emissions while improving efficiency and saving money.

As far back as 2009, Harvard Business Review cited sustainability as the key driver of innovation. The fact is that if you are looking at sustainability, the supply chain must play a prominent role in the conversation, which is why many companies are pinpointing the inefficiencies in their logistics operations as opportunities to deliver better services and achieve greater market penetration. “If companies address logistics problems from a sustainability perspective, by focusing on reducing energy consumption, they can innovate while achieving cost reductions and reducing their carbon footprint,” says Velázquez Martínez.