How Federated Co-operatives practices sustainable distribution

A Canadian retail co-op has embraced sustainability to reduce its costs and return the savings to its members and customers.

<p>Materials like plastic (shown) and corrugated are baled for recycling to minimize the amount of waste leaving the facility.</p>

Materials like plastic (shown) and corrugated are baled for recycling to minimize the amount of waste leaving the facility.

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What does it mean to operate a sustainable warehouse and distribution network?

That’s a question being asked by any number of organizations, especially as recycling, energy conservation, social responsibility and other aspects of sustainability percolate in board rooms around the world.

Federated Co-operatives Limited, an organization that provides wholesaling, manufacturing, marketing, administration and distribution services to 257 retail co-ops in Western Canada, has been asking and answering that question for more than 30 years.

“We began incorporating energy conservation into our building operations after the oil crisis in the 1970s,” says Philip Thiemann, Federated’s warehouse operations director in Saskatoon, Saskatchewan. “Back then, we thought $40-a-barrel oil was high, and we have been looking at ways to decrease our operational expenses ever since.”

In its more than 300,000-square-foot food warehouse in Saskatoon, for example, Federated installed five 24-foot large-diameter, low-speed fans (Big Ass Fans) to regulate the air in the 80,000-square-foot loading dock section of the warehouse. That project delivered a 10% reduction in natural gas consumption and nearly $20,000 in savings during the first year at a time when natural gas rates were increasing by 20% (see box, below).

The fans are just one example of how Federated is approaching sustainability, according to Thiemann and Trevor Carlson, Federated’s environmental and technical services manager. “If we are going to be around for another 20 or 30 years, we have to be sustainable,” says Carlson. “The savings we have already realized through our efforts has created revenue that we can invest in our business, return to our co-operative owners, and deliver as savings to our customers. Those all build loyalty for our brand.” And, Thiemann adds, “Aside from the social imperative, there is a significant economic opportunity any time we can reduce, reuse or recycle in our operations.”

A sustainable culture
Federated Co-operatives may not be a household name in the United States. However, with an estimated $6.5 billion in annual sales, it is the 49th largest corporation in Canada, the largest non-financial co-operative in the country, and the second largest company in Saskatchewan.

Founded in Saskatoon in 1928, the co-operative provides services to 257 retail co-operatives located throughout Western Canada. The members operate retail shops, fueling stations, building material supply centers and refineries. Federated employs some 2,900 people and operates five distribution centers in Calgary, Edmonton, Saskatoon and Winnipeg as well as a fleet of 143 merchandising trailers and 103 tankers.

While co-operatives typically form to increase the buying power of its members, operational savings are an important component of Federated’s business model. Any savings the co-operative can realize from operating costs is refunded to its members each year as a patronage refund. The bigger the net income after operations—a figure Federated calls its net savings—the bigger the refund. Over the last 10 years, Federated has returned more than $2.5 billion to its retail members.

Sustainability has been an important component of those savings. Part of that is driven by geography: Federated’s retailers are located in some of the coldest areas of Canada, making energy savings an imperative.

As a result, Federated was an early adopter of energy saving and recycling programs that are now gaining popularity in the United States. Carlson points out that Federated has been installing state-of-the-art heating and cooling systems in its warehouses since the 1980s. Similarly, the co-operative launched a program back in the 1980s that recycles nearly 300,000 pounds of paper annually. In the late 1990s, Federated was one of the first shippers in Western Canada to run triple trailers rather than doubles in one specific geographic area.

“We have a refinery in Regina and a food warehouse in Saskatoon,” says Carlson. “We run two full trailers of fuel along with an empty grocery trailer. After we drop off the fuel trailers, we fill the empty grocery trailer.” The program is a success because Federated limits the hours when it runs the trailers and shares the transportation savings with the government.

After 30 years of projects, a sustainable mindset has been instilled across the company, one that is driven by looking for a business case for every project. “If a project doesn’t further our business, it’s not sustainable,” Carlson says. “But as we do more of these projects, the business case only gets better.” After all, he adds, the long-term costs of electricity and fuel aren’t going down. “If we find a business case for today, chances are that case will be a whole lot better five years from now.”

Sustainable materials handling
While sustainability has been part of the culture at Federated for years, the co-operative formalized the program about five years ago. In September 2008, Federated developed environmental performance metrics and determined the carbon footprint of some key larger buildings, including the Saskatoon food warehouse. In 2009, the project was expanded to include all of its warehouses and its fleet of vehicles. According to Carlson, the information is being used to objectively compare its environmental performance to other similar companies, set internal performance goals and manage its environmental impact.

Some of the improvements that have come out of that effort include a project to retrofit its warehouses with T5 high output lighting systems equipped with sensors that turn the lighting on only when people are working in the area. Designed for a new grocery freezer in Calgary, the lighting system is expected to cut lighting-related electrical usage from 2.9 million kilowatt hours per year to 1.7 million kilowatt hours.

Similarly, Federated is converting refrigerator and freezer operations to ammonia-based refrigeration to enhance electrical systems. And its new trucks are equipped with electronically controlled engines that reduce the release of harmful emissions into the environment.

Yes, energy and transportation savings are important, but the question of what constitutes sustainable materials handling is harder to quantify. “We hired a consultant to audit our warehouses,” Carlson says. “They identified potential projects for us, but generally felt that it would be difficult to find ways to improve our warehouse operations in a sustainable way beyond energy savings and emissions.”

Still, both Carlson and Thiemann believe there is a role for sustainability in materials handling, especially if you adopt the broader definition of sustainability that includes the worker. Ceiling fans, for instance, not only lower utility costs, but they have also created a more productive work environment—or an environment that reduces the stresses on productive employees.

Thiemann also contends that the voice-directed picking solution that was installed in freezer areas fits the broader definition of sustainability. “Voice picking allows order selectors to wear bulky gloves while they’re working in the freezer and still be productive,” he says. “That’s not the first reason you go to voice picking, but it’s a benefit that is related to sustainability.”

Thiemann has implemented sustainable solutions in other areas as well:

  • Federated pays attention to the dock area, with vertical dock doors and seals in existing facilities along with specially designed dock doors in new construction.

  • Federated was an early adopter of CHEP pallets in Canada for full pallet deliveries. Instead of using one-way pallets that may go to a landfill, CHEP retrieves, sorts and repairs the pallets used by Federated. The co-op builds mixed pallets for store replenishment on a captive pool of plastic pallets. “Since 97% of our deliveries are on our own fleet, we can bring back the plastic pallets, along with boxes, packing blankets, and some consumables to our warehouses,” Thiemann says.

  • Plastic shopping bags, stretch wrap, corrugated and one-way wooden pallets are recycled. “We are not a zero-landfill facility,” Thiemann says, “but we minimize the amount of material going into the landfill as much as possible.”

  • Federated eliminated end-of-shift battery charges. “If your battery still has a few hours left at the end of the shift, we’ll run it the next morning before its swapped out,” says Thiemann. “That reduces the power surge in the facility at the end of shift when everyone plugged in to a battery charger, and it increases the life of the battery by maximizing the draw down on each charge.” Thiemann says that Federated typically gets about seven years of life out of its batteries.

“Going forward, we’ll continue to look at every aspect of our operations for potential savings,” says Thiemann. “The root of our program is one of economics, but we also know there’s a real focus on environmental issues now. It’s important that we keep doing what we are doing and get the message out as well.”

About the Author

Bob Trebilcock
Bob Trebilcock, editorial director, has covered materials handling, technology, logistics and supply chain topics for nearly 30 years. In addition to Supply Chain Management Review, he is also Executive Editor of Modern Materials Handling. A graduate of Bowling Green State University, Trebilcock lives in Keene, NH. He can be reached at 603-357-0484.

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