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Retaining competitiveness and minimizing environmental impact through efficient Green Logistics practices in spite of geographical and demographical challenges faced by Australian retail sector
Purpose of doing this Project:
With an ever increasing emphasis on minimizing environmental impact by governments worldwide, and especially Australia, where environmental laws are very strict, we seek to study the green logistics practices followed by the Australian Retail Sector. This project will enhance our knowledge about how the retail sector remains competitive in accordance to the stringent environmental laws.
Not long ago improvement of environmental performance would ever have been considered as a priority for companies. But according to the study by Gollclc, Boerstler and Ellram(2010, p. 49) high profile corporate initiatives and customer behavioral studies have revealed thatcompanies that integrate sustainable practices into their supply chains experience a clear benefit, whether in terms of profitability or customer loyalty and respect. Key stakeholders such as investors, customers or prospective employees all alike monitor sustainability efforts and use the same to base their decisions (Gollclc, Boerstler, & Ellram, 2010).
However, it was only due to the rise of international sourcing and an increase in cross border trade recently that freight transportation and logistics was taken into serious consideration in companies with regard to environmental responsibility. In Australia, however, international sourcing coupled with huge distances between commercial cities, sparse population and quick turnaround time add to the list of challenges in adopting sustainable practices. Standard modes of transportation consume fossil fuels, generate noise and emit toxic compounds. In 2012, transportation accounted for 76 million tons of Australia's total net greenhouse gas emission which is 13.5 per cent of Australia's total emissions (Department of Sustainabilty, Environmet, Water Pollution and Communities, 2012).
With the carbon tax in place, Australian firms will set out to lower their carbon foot prints as the price paid before the carbon tax implementation does not symbolizethe cost sustainedby the environment. With this price on carbon, the amount of carbon produced from producing a product to transporting it to its destination would be factored into the final price of the product. Therefore, if a company doesn't resort to greener practices, here namely logistics, its products will become pricier, thereby making it feasible for other products transported through cleaner methods to compete on price. This acts as an extra incentive apart from the goals of companies to reduce their carbon foot print.
The carbon tax adds to Australia's own set of logistics problems such as the "tyranny of distance", as the distance between major cities of Australia can vary from 930 km to 3950 km. Apart from this, encountering animals, demographic challenges, legal challenges, technological challenges are also present.
Australia faces its own unique logistics problems such as inventory and the carbon tax as well as vision of companies to "go green" put businesses head on with challenges which are very different and challenging, if they are to maintain economic viability.
Statement of Research Objectives:
This research aims to identify the various problems faced by transportation and logistics companies coupled with the various methods used by these companies to adapt sustainable practices and lower their environmental impact. Minimization of carbon tax so as to reduce the price implications is also studied as a part of this research. Applicability to Australian Retail Sector of actual scenarios where green logistics is being used hand in hand with economic constraints so as to maintain competitiveness is also analyzed in this research.
Research framework and flow diagram
It was observed from the Australian Retail sector report'11 that organizations do hesitate to implement green logistics practices which do not contribute to the direct profits and do not show any substantial contribution towards strategic long term gains. First we intend to identify such practices and then further research the tensions and the difficulties while implementing such practices. To study, scholars and industry experts are increasingly adopting the paradox lens. We, in this research paper, intend to review the paradox literature, classifying types and emphasizing fundamental debates of this theory. This theory would help us to accurately identify the solutions that can be and are currently being used for overcoming the conflicting demands of operational efficiency and the legally enforced mandatory green and sustainable logistics practices of the Australian Retail sector.
Research Theoretical Framework
Paradox theory adopts an approach that helps organizations attend contrasting and competing demands simultaneously. Alternate approach suggests choosing the apparent best amongst contrary demands for a short term gain but paradox theory suggests that long term sustainability requires continuous efforts to meet divergent demands (Cameron & Quinn, 1988; Smith & Berg, 1987).Hence this paper tries to use theoretical framework of Paradox Theory for the research. Before we move ahead it is important for us to know what is- and is not- a Paradox.
Scholars define Paradox as contradictory yet interrelated element that exist simultaneously and refuse to go away (Smith & Lewis, 2011). Here we can see two major components are highlighted in this presented definition 1) Underlying Tensions - elements which look logical individually but inconsistent or even absurd when juxtaposed and 2) Responses that embrace tensions simultaneously. While understanding Paradox we would also try to clarify distinctions from similar construct - Dialectic. We would also study the dynamic equilibrium model of organizing (Smith & Lewis, 2011), which suggests that tensions are inherent and persistent and depicts how purposeful and cyclical responses to paradox over time enable sustainability. As per the researched scholar work (Lewis, 2000) and (Luscher and Lewis, 2008), Paradox can be categorized in 4 Categories. These four categories of paradox represent core activities and elements of organizations: knowledge, identity/interpersonal relationships, processes, and goals. In this particular context these have been named and categorized under Learning, Belonging, Organizing and Performing respectively.
Figure 1: Categorization of Organizational Tensions (Paradoxical Lens: Smith & Lewis, 2011)
Moreover,it has also been observed that when one moves up from individual level to the organization level Furthermore, paradoxical tensions may be nested, cascading across levels, as the experience at an individual level may create new challenges at organization level (Andriopoulos and Lewis, 2009).
If system tries to find a solution between Contradictory elements (thesis and antithesis) and tries to resolve it through integration (synthesis), then this process flow is called Diaelectic. But it has been observed that over time, it will confront new opposition (Bledow, Frese, Anderson, Erez, & Farr, 2009; Nonaka& Toyama, 2002). Although in short term the integration may provide the best possible solution but because synthesis stresses their similarities, neglecting valued differences, this integration is temporary. This synthesis gradually favors one over the other (i.e., C and D retain core characteristics of A and B), respectively. This gives rise to similar to original tensions and conflicts once again. (Refer Fig. 2)
Fig. 2 - Dialectic conflict Behavior Pattern. (Smith & Lewis, 2011)
In order to overcome these short comings, Scholars (Smith & Lewis, 2011) came up with Dynamic Equilibrium Model for understanding Paradox much better way. Dynamic equilibrium, by definition, assumes constant motion across opposing forces. The system maintains equilibrium by adapting to a continuous pull in opposing directions and enables the system to not only survive but continuously improve ( Teece& Pisano, 1994; Weick& Quinn, 1999).
As we can see in fig. 3 Paradox can be depicted with Dualities (A and B) - Opposites that exist within a unified whole. The internal boundary creates distinction and highlights opposition external boundary encourages synergies by constructing the unified whole.
Fig 3. - Dynamic Equilibrium Model of Paradox theory. (Smith & Lewis, 2011)
As been defined previously paradoxical elements (A and B in this illustration) are conflicting yet inteconnected elements that exist simultaneously and refuse to go away. Some of the social factors such as Plurality in power, changes preferences and Scarcity of resources also foster these conflicts further.
But Unlike the responses we studied in Dialectic Model, researchers of paradox theory (Smith, Besharov, Wessels, &Chertok, 2012) believe that leaders more effectively manage change when they shift between the different poles and periodically seek an integrative means of restructuring the relationship among a group of leaders. At its core a paradox theory presumes that tensions are integral to complex systems and that Sustainability depends on attending to contradictory yet interwoven demands simultaneously. This also helps organizations become more flexible and resilient. Attending contrasting demands simultaneously involves restructuring of resources, altering structures and rethinking of Goals. This unleashes human potential and fosters creativity. In turn, this helps in raising the overall team effectiveness. This ensures overall sustainability of the firm in the long term.
As we now know the importance of adopting a Paradox theory model, this last part of research explains the process that helps adopt the holistic approach of implementing the Paradoxical Tools.
Fig 4: Process Model for Implementing Paradox Model
Three meta-skills that enable organizations to more effectively embrace competing demands: Acceptance, Differentiation, and Integration (Poole and Van de Ven, 1989). Acceptance acknowledges competing demands as an inborn part of organizations and learning to exist with them. Differentiation concentrates on recognizing the distinct contributions of each alternative, whereas integration involves simultaneously addressing both alternatives and looking for synergies amongst them. All the three skills are necessary for managing the challenges posed by conflicting or contradictory demands (Smith & Lewis, 2011).
Acceptance helps the decision makers to reduce apprehensions, minimize conflict, and carefully seek alternatives (Fiol, 2002). In this way, acceptance broadly deals with both challenges posed by competing demands. Accepting paradoxical tensions enables managers to interpret the organizational challenges in new ways. This involves both sides of competing demands as simultaneously as possible. This helps them to see conflicts as opportunities rather than an obstacle. Differentiation involves recognizing unique contributions of each side and mindfully attending to differences between them. (Suedfeld,Tetlock, &Streufert, 1992) This technique also evaluates each alternative, and helps leaders avoid deciding only for one alternative to continually over rule the other. In this way, differentiation particularly addresses the challenge of keeping focus on both sides of competing demands. Finally, integration is about identifying creative synergies between contradictory elements. (Smith, Lewis, &Tushman, 2011) Integration skill also presents the opportunity for new, creative solutions to materialize and thereby explicitly addresses the challenge of prevailing obdurate conflict. This tool helps convert the conflict become productive rather than intractable.
In further sections, we would try and implement all the tools and theory learnt of paradox in this section to our specific model in hand. As we narrow down our focus of research to Australian Retail sector logistics we use this model to analyze a) Maintaining economic competency and b) Conflicting legally enforced practice as two Paradoxical elements.
Methodology of Research
As per the stipulated guidelines of this research, we have not used primary data for our research. The secondary data which this research relies on is being collected from variety of governmental statistics institutions, academic journals research papers and Industry reports by Govt. or reputed agencies. In closing research stages we even intend to physically gather some insights and expert opinion through personal interaction rather than just relying on electronic data. To begin with we intend to form a data base with quantitative research that will give us a clearer perspective of the current scenario of the Australian Retail sector w.r.t to the world standards. But the challenges of this sector, study of sustainable Green Logistics Practices and the conflict with the economic competency are intended to be done by qualitative research techniques in the subsequent stages. As we have no control on any of the modulating variables in this scenario, descriptive research techniques would be used to analyze dependent variables with already available information and evaluation. To conclude this is an applied research which aims at finding solution of existing problems related to dual focus and conflict of priorities. No fundamental discovery in the area of logistics and Supply chain Management is intended in the research.
Literature Review of the Resources Used
Outlook of retail sector in Australia
According to Productivity Commission Inquiry Report by Australian Government Productivity Commission, there are almost 140 000 retail businesses in Australia and, with about 1.2 million people or 10.7 per cent of the total working population employed in the industry; it is one of Australia's largest employers. In the past was relatively isolated due its geographic position but with an advent of internet and digital technology, this industry is becoming a part of an integral global marketplace. Further, a number of global retailers are entering the untapped market. As per 2009-10 statistics, retail industry made a significant contribution to economic output, generating $53 billion or 4.1 per cent of GD (Productivity Commission Australian Government, 2011).
Challenges in Australian Retail Industry
The retail industry in Australia is growing and logistics plays a very prominent role. There are various problems in the Australian retail industry. Due to the large geography and population scarcity this industry faces various challenges and one such are the logistic and supply chain related problems, the distance between the major cities and towns in Australia is large due to which the freight charges are high.
Adding to the above issues the increase in fuel prices and global warming has made the countries go green and reduce the green house gas (GHG) emissions. To reduce the GHG emissions countries are charging the industries with carbon tax for those who contribute to carbon emission. According to National Transport freight transport represents approximately 14% of Australia's greenhouse gas emissions (Logistics Information & Navigation Centre, 2011).
According to the research paper Environment concerns are increasingly coming into play in logistics operations, more and more companies are committing to low carbon strategies for their future business by adapting to sustainable practices in logistic operations. The logistic sector in Australia has two major imperatives, first is the rise in fuel prices and other the global environment issues due to carbon emissions, this is associated with Australia's commitment to the reduction of carbon footprints. The carbon prices have a financial impact on the business and industry. According supply chain report (2011-12) from Logistics Association of Australia Ltd, Australian state and federal government have started working to develop policy and legislation to reduce greenhouse gas emission from 2002. The Greenhouse emission was 542 million tonnes in 2010, 1.2% decrease from 549 million tonnes in 2009 but when compared to the year 2000, the emission level has increased approximately 9%. Australian government targets to reduce the emission by further 25% (Logistics Association of Australia, 2011-12). About 28 percent of Australia's carbon output comes from retail activities. Around half of that output was due to capital infrastructure while the remainder was a function of equipment used in retail i.e.: logistics operations (Climate Works Australia , 2010). Many organisations are adapting to green logistics but this always comes with a cost. In 2008, the "green" industry was expected to be worth AU$500 billion globally per annum and Australian consumers spent AU$12 billion on environmentally friendly goods and services (Logistics Association of Australia, 2011-12). Currently the Australian government has exempted transport sector from the carbon tax till 2014 but they are impacted by the exemption of fuel credits and changes in excise (Logistics & Materials Handeling, 2011).These changes will impact on companies to varying degrees; they will be an increase in cost of moving freight around Australia. This cost cannot be absorbed by operators and will be passed on to customers. It is very important for companies to choose sustainable logistic practices to reduce the operation cost due to implementation of green logistics.
Few of the companies which have been successful in their sustainable practices are Fuji Xerox, they were awarded with "Leading in sustainability - setting large standard for Large Organisation" Banksia award for reducing the carbon footprints through sustainable practices. DHL has launched the "Go Green" initiative in order to reduce the amount of carbon dioxide being produced (Logistics Association of Australia, 2011-12).
Logistics and Sustainable Practices
Sustainable practices aim to improve human conditions at all levels. These involve a dual focus on environmental and economic aspects of a business(Sheffi, 2009). Companies, managers, customers and key stakeholders all want to increase their profits margins but also be socially and economically responsible. However, due to the current economic slowdown environmental sustainability is bound to take a back seat in comparison to economic sustainability (Sheffi, 2009). Also according to a survey conducted, 1500 supply chain executives indicated that their organizations were resorting to undertake cost saving solutions rather than carbon-centric ones during this economically difficult time (Jackson, 2010). Sheffi also says companies cannot be socially responsible if they lose money as without making money companies cannot sustain and cannot be an "ongoing concern".
Logistics and distribution networks are the main contributors in the supply chain to greenhouse gas emissions (Hoffman, 2008). As suggested by studies, distribution services and logistics can contribute to up to 75 percent of a company's carbon footprint (Henderson, 2008). With the amount of cargo expected to triple in the next 20 years, companies seek to invest in faster kind of transportation and the kind that lead to the most unfavorable environmental conditions (Lovass, 2007). Thus, with an increase in interest in environmental impact, in logistics too all around the world, sustainable or green logistics is a term that is frequently heard. As companies seek to go green, they cannot imagine attaining such goals without a clear sight on reducing the carbon emissions in logistics operations. Sustainable logistics practices aim to improve environmental viability of the company along with productivity, customer service and operating efficiency hand in hand with profitability (Wilson, 2010).
With high greenhouse gases impact of the logistics division, top officials of various companies around the world have resorted to adopt various strategies and practices that are green. One of the first steps to follows is to develop goals to limit transportation's impact, use metrics measure components with high impact, build partnerships with other organizations to aid themselves, and acknowledge that additional benefits are always possible (Golicic, Boerstler, & Ellram, 2010).These themes establish a basis for companies to begin addressing their transportation emissions as these are the first steps towards the companies acknowledging the impact of their emissions. Building trainings that include environmental friendly practices as a part of the company's internal working goes a step beyond acknowledgement and helps build a culture, for now and for the future, that encourages reduction of greenhouse gases emissions from transportation (Golicic, Boerstler, & Ellram, 2010). Golicic, Boerstler & Ellram (2010, p. 49) also say that the last and the final step in this process is to implement supply chain practices and tactics, such as adoption of the latest environmental technology, that are aimed to cut down these harmful emissions and thus establish green logistics firmly. Members of the global supply chain community are increasingly making more noise about their green initiatives, most which can be fitted into five areas, namely, fleet optimization, energy efficiency, innovative technology, changing behavior and sharing responsibility (Trunick, 2008).
Companies have resorted to introduce fleet vehicles with leading technology for fuel efficiency and fossil fuel alternatives. FedEx Corp. has the largest fleet of commercial hybrid vehicles and has set a goal to improve their fuel efficiency by 20% by 2020 (Golicic, Boerstler, & Ellram, 2010).
Companies have also created training programs to teach its employees how to make positive changes. Employees are taught and encouraged to establish employee commute programs that target employee commutation to and from the workplace (Golicic, Boerstler, & Ellram, 2010). While practices focused on the domain of freight remain the main focus of the companies, such training programs instill a sense of responsibility and awareness in employees.
Use of soybean diesel or biofuels is being increasingly adopted in companies around the world as these tend to decrease bio-impact by reduction of use of fossil fuels that are mined using carbon dependent methods (Golicic, Boerstler, & Ellram, 2010).
Henderson (2008, p. 20) iterates that in Australia itself, DHL has introduced the GoGreen Express, which is a carbon neutral shipping service.
Wal-Mart has projected a saving of US$3.4 billion by initiating a practice to reduce packaging by 5 percent. This can be seen as methodology to the size of the product in transit by reducing the packaging. Though this might not seems as much, it is equivalent to reducing 213,000 trucks from the road as transportation can now carry a few more products in the same batch (Hoffman, 2008).Reconfiguring pallets and packaging to increase trailer's volume efficiency is a practice adopted by eight companies in the Fortune 500 (Golicic, Boerstler, & Ellram, 2010).
Management of tires and wheels can also go a long way in reducing the emissions from transport vehicles. Changing the tread patterns to suit the road conditions and weight of goods transferred on a single tire can increase the fuel efficiency by 0.2 miles per liter (Wilson, 2010). Though this might seem insignificant, considering the number tires in large freight vehicles and the distances travelled by the vehicles over the period of a year multiplied by the fleet size can actually make this number stand at a dauntingly huge amount. This small but efficient change can make logistics divisions jump places in reducing their carbon footprint along with reducing the cost of operations. Furthermore, the use of aluminium wheels in light transport vehicles is known to reduce road friction, thereby increasing fuel efficiency and reducing emissions (Golicic, Boerstler, & Ellram, 2010).
Golicic, Boerstler and Ellram (2010, p. 54) summarize how to make environment a sustainable priority. Structuring supply chain with supplier and customers who have similar mindsets on sustainable practices can help companies manage and minimize the impact of their greenhouse gas emissions. Introduction of new transportation technology will target reduce fuel consumption and therefore emissions such as new trucking equipment, equipment that increase aerodynamics and low resistance tires. Optimization of the logistical network will try to minimize transportation distances such local sourcing, and moving closer to distribution centers. Maintenance and development of detailed metrics that give actual and relative results to determine which strategies have the biggest emissions and cost impact on the company. Hiring and utilizing knowledgeable personnel with skills in logistics and environmental sustainability coupled with training of new personnel in these areas can help companies develop and implement supply chain strategies.
As further cited by Golicic, Boerstler and Ellram(2010, p. 55) investment in environmentally friendly practices will not only reduce the carbon footprint of companies but will also lead to improvements and reduction of prices of such technologies. As the second largest producer of greenhouse gases transportation will clearly receive significant attention from regulators as emission programs move from voluntary efforts of industries to legal requirements (Trunick, 2008). With the carbon tax in place in Australia, significant cost will be incurred by the retail sector of companies if due attention is not paid to this aspect of logistics and transportation.