Home appliance giant plans 40% reduction in CO2 emissions by 2025
A global home appliance company has always striven to be at the forefront of corporate sustainability. The company asked NTT DATA’s supply chain consulting experts to examine their European transportation operations to assess the feasibility and potential environmental impact of increasing the use of rail and intermodal.
The manufacturer set itself an ambitious climate agenda. It includes the long-term goal of achieving a net-zero-emission value chain by 2050 and a short-term goal of net zero in their own operations by 2030.
Business Needs
Increased use of sustainable modes was a critical lever to achieve these climate goals. Rail and intermodal transportation emit, on average, 70–80% less CO2 compared to truck transportation.
The manufacturer had to examine the feasibility and impact associated with different levels of rail and intermodal achievement. This led to the creation of an action roadmap to reach their sustainability goals while minimizing operating costs and capital expenditures.
Outcomes
- Maintains logistics costs at ±2% despite the transition
- Makes significant strides towards sustainability goals
- Improves forecast accuracy and production reliability
The approved scenario anticipates a significant increase in the share of rail and intermodal in primary transportation to >50% by 2025, which results in a 40% reduction of CO2 emissions versus the 2021/2022 baseline.
Solution
Setting an example: an ambitious climate agenda
Realizing the increased use of sustainable transportation modes presents several challenges for the company’s supply chain team:
- At the strategic level, it may be necessary to invest in storage, loading and unloading capacity, or even to establish new rail connections at factories and distribution centres.
- At the tactical level, the right amount of rail and intermodal capacity had to be negotiated and secured with 3PL partners. It may also be necessary to adjust stock targets along the supply chain to accommodate the longer lead times and higher lead-time variability of these modes.
- At the operational planning level, lead times must be adjusted—and improved alignment between production and distribution achieved—to enable the assembly of rail and intermodal loads.
Using a digital twin to evaluate configurations
With the need to evaluate different scenarios, it was necessary to first build an accurate digital representation—a digital twin—of the European transportation network. NTT DATA’s supply chain design methods helped the manufacturer use the digital twin to compare various what-if scenarios. The process helped identify areas for improvement.
The digital twin included all relevant input and output parameters: demand, rail and intermodal availability; and capacity, transportation lead time and lead time variability. Also included in the model were forecast accuracy, production reliability, production and transportation frequency, CO2 emissions, transportation cost, storage capacity, loading and unloading capacity and other factors.
Engaging a cross-functional team
The pursuit of sustainability requires crossing functional and organizational boundaries. Establishing a cross-functional project team that included executive leadership, commercial, procurement, production, logistics, planning and even 3PL partners was critical for the success of the project.
Model inputs were calibrated by a combination of NTT DATA’s historical data analysis and the company’s plans and business insights. The project team used frequent touchpoints to make sure everyone was on the same page about assumptions, scenarios and results.
Key results and takeaways
The base scenario anticipates a significant increase in the share of rail and intermodal in primary transportation to more than 50% by 2025. This will result in a 40% reduction in CO2 emissions versus the 2021/2022 baseline. The change in logistics costs associated with this transition is approximately 2%. This depends on the relative pricing of rail versus truck transportation. (Rail prices in Europe are correlated with electricity, while truck prices are correlated with oil.)
The project team also identified new potential rail and intermodal destinations, and cases where allocating production to different factories would further reduce CO2 emissions.
Looking ahead
Using a digital twin to identify and quantify opportunities and strategies is a must-have. However, this can’t be a one-time exercise. The model needs to be continuously refreshed and improved to add continuous value to the organization. Maintaining the capability to react to unexpected events affecting the supply chain is crucial.
NTT DATA continues to partner with the manufacturer to support ongoing efforts in the evolution of their supply chain network.
About This Case Study
A global home appliance manufacturers uses a digital supply chain twin to plan for a massive reduction in carbon emissions.