Out in Minneapolis, you might note on approaching Murphy Warehouse Co.'s distribution centers that the landscaping looks a little different from what you might see at other industrial sites—a mix of native prairie grasses rather than a green lawn. That's the first sign of the many steps the company has taken to conserve resources and invest in sustainability.
The Murphy Co. operates 2.3 million square feet of warehousing space across 13 buildings in the Minneapolis area. It doesn't own all of them, but in those that it does, it has invested heavily in energy conservation, recycling, improved storm water runoff, and more—all aimed at decreasing the warehouses' impact on the environment.
The Murphy Co. and a relative handful of other privately held warehousing companies around the country have made the leap into sustainability in a major way. (See sidebar on The Barrett Companies for another example.)
Richard T. Murphy, president and CEO of the company, has become an evangelist for investing in sustainability. He speaks regularly on the topic and urges business owners to look hard at the long-term benefits for both their businesses and the environment, an argument made more credible by his hard-nosed understanding of business reality and the need for returns on those investments.
Murphy is the fourth generation of his family to run the company, which was founded in 1904. He did not initially set out to become a warehousing executive. He earned degrees in landscape architecture from the University of Minnesota and Harvard University, and taught the subject at Syracuse University and back at his Minnesota alma mater for 25 years.
That training and what he considers his family's legacy inform his commitment to sustainability initiatives. "The Murphy family has always felt that as part of the community, it was important to be a leader. Today, sustainability is one of the areas where it's important to do that," he says. "We want to show the business community what you can do."
Murphy acknowledges that privately held companies have one major advantage over their publicly traded counterparts when it comes to investing capital in sustainability initiatives. And that is that they have greater tolerance for waiting out returns on investment (ROI). But he emphasizes that he takes ROI seriously. "Our perspective is a lot longer than the publicly traded sector's, but we still have to have an ROI in a reasonable amount of time," Murphy says. "We still have to pay the bills and pay our employees."
SEEING THE LIGHT
As for the kind of long-term investments Murphy is talking about, one example is his decision to light his warehouses with LEDs. LEDs (light-emitting diodes) cost twice as much as state-of-the-art T-5 fluorescent lighting, but use far less energy. Last year, the company conducted a lighting analysis on one of its buildings, a 350,000-square-foot warehouse built in the 1980s and purchased by the Murphy Co. in 2012. At the time of the purchase, the building had an antiquated high-pressure sodium lighting system.
The study showed that LEDs with motion sensors offered a 4.4-year ROI, compared with 2.6 years with T-5s. Despite that, the company chose to invest in LEDs—something public companies would have difficulty justifying.
"They are double the cost, but use one-third of the energy," Murphy says. "And we will never touch those lights in our working lifetimes." The LEDs, he says, have an expected life span of 17 years in a two-shift operation, compared with three years for modern fluorescents. The lights it chose, from Lithonia, included diffuse lenses to reduce glare and motion sensors that allow for the lights to remain off in unoccupied areas.
Murphy is also proud of changes made to the building's exterior lighting. The lights operate most of the time at 20 percent of the normal lumen level, but motion sensors bring them up to full when a truck—or an intruder—enters the property. "It works and it's cool," he says. "It makes us a good neighbor and gives us better security."
Murphy hopes the lighting and other investments made in the building will earn it a Platinum LEED certification from the U.S. Green Building Council. (LEED, which is an acronym for Leadership in Energy and Environmental Design, is a Green Building Council program that provides third-party verification of green buildings based on a strict set of standards.) Three other Murphy DCs have already earned LEED certification, two gold and one silver.
He considers the not-insignificant cost of earning LEED certification to be a strategic benefit for his company—largely because a growing number of customers now factor in sustainability when they go to choose a vendor. "We saw a client base that needs our help in reaching their own sustainability goals," Murphy says. He adds that although he hasn't seen any requests for proposals that specifically asked about his company's green credentials, he also knows he has won business because of it.
ALL THE PRETTY FLOWERS
In addition to major operational improvements in lighting and energy use, the Murphy Co. has paid close attention to issues like landscaping and ground water. Richard Murphy's background in landscape architecture has much to do with that.
The deliberate use of native prairie grasses at the facilities is a prime example. "You drive around a lot of industrial parks, you find manicured grass," he says. "It makes no sense environmentally, aesthetically, or economically."
The Murphy Co. began installing prairie flora on its properties in 1994. The company estimates it has saved close to $1 million at two of the facilities since that time as a result of installation and maintenance costs that are far lower than for seeded lawns of sod. Murphy says the ROI for installation is 1.3 years and that annual maintenance costs are one-fifth those of maintaining a cut lawn.
Murphy finds the company's experience at its Northtown Logistics campus to be telling. "We run 33,000 trucks in and out of there annually," he says. "And the number one thing we hear from the city is about all the pretty flowers on Main Street. We're saving money, have better carbon sequestration, and visually, it's what people like to look at."
MAKING SOLAR POSSIBLE
Solar power is another area where the Murphy Co. has had success that is contrary to conventional wisdom. Between 2010 and 2012, the Murphy Co. installed eight solar systems on five buildings that combined produce 320 kilowatt-hours of electricity, making it one of the largest producers of solar power in the state. Murphy points out that low utility rates in the Midwest militate against making a straightforward investment in solar power. The company took advantage of several grants to build a business case for the installations. Those included grants from the state and federal governments and the local electric utility.
The final piece of the solar puzzle came in the form of Small Business Administration (SBA) loans—a type of financing not generally available to warehousing companies because they usually don't meet a key lending standard that rates companies on the number of employees per square foot of building space. "When they saw we were investing in solar power, we were instantly in the program," Murphy says. That financing was crucial. The SBA loan provided 95 percent of the financing. He says the long ROI—11 years for the solar power investment—would have prohibited the investment without it.
When you drive down the hill toward the Barrett Distribution Centers facility in Franklin, Mass., the building's roof is visible through the trees. You might not notice at first that the roof is unusual in some way—until a bright glint of sunshine catches your eye.
The sun is reflecting off the solar array on the facility's roof, an array that provides 100 percent of the power required by the 260,000-square-foot building.
From the inside of the facility, another investment becomes obvious. Skylights dot the ceiling, shedding light on the work areas below—and reducing the need for electrical lighting.
Barrett has made an aggressive investment in renewable energy. Working with Canadian Solar, one of the world's largest solar companies, the firm has installed over 2,000 295-watt photovoltaic solar panels on the roof of its headquarters building in Franklin. The Barrett roof array will produce 720,000 kilowatt-hours (kwh) annually. This will make the facility entirely self-sufficient and generate a surplus of 300,000 kwh annually to help offset the load at the company's other locations.
In addition, the use of solar power sharply reduces the facility's carbon footprint. Arthur Barrett, president of the company, says that its investments in solar panels, "daylighting," energy-efficient lighting, and energy-efficient chargers for its material handling equipment will result in a zero carbon footprint for the company. According to a report from the environmental consulting firm GXT Green, hired by Barrett to conduct an analysis of the building, the warehouse produced the equivalent of 952,534 pounds of CO2 annually prior to the project. The 720,000 kwh of electricity expected to be generated by the solar panels equates to 1.3 million pounds of CO2, based on a conversion factor of 1.85 pounds of carbon per kwh, the consultant wrote.
The power produced by the Barrett building's solar array will also help National Grid, an electricity supplier for 22 states in the Northeast, meet mandates to provide a portion of its power from renewable energy. Specifically, Barrett will aid National Grid in meeting its obligations by generating Solar Renewable Energy Credits, or SRECs. These credits, which represent the value added by environmental benefits and renewable energy costs versus the conventional coal and natural gas methods, can be sold back to the utility company at market value.
A couple of factors made the Barrett solar project financially feasible. The company was able to take advantage of a 30-percent federal tax grant for investing in renewable energy. Second, Bank of America accepted the tax grant as the firm's equity infusion. In other words, the bank allowed Barrett to use the tax credit as its stake in the project, a stake required for the loan.
While the annual debt service for the project will be $215,000, the company expects a positive cash flow thanks to the reduced energy costs and the value of the SRECs it receives as a result of producing electricity from solar energy. Those will provide a total cash flow of 153 percent of the annual loan payments, the company anticipates. The project is expected to generate a return on investment of 30 percent for the first 11 years.
A second phase of the Barrett initiative involves daylight harvesting—via those windows in the ceiling. Fifty-one Sunoptics Prismatic Skylights installed in the building have reduced Barrett's electric load from lighting by 70 to 80 percent, depending on the season, while reducing the amount of heat generated in the summer months.
The lights offer another advantage, perhaps less measurable than power savings but significant nonetheless. And that is the value of daylight for the workforce. A study sponsored by Pacific Gas and Electric Co. found that students with the most classroom daylight progressed 26 percent faster in reading and 20 percent faster in math than did those students with the least amount. In a warehouse environment, the results can be even more pronounced. Productivity can be improved, as can picking accuracy rates, warehouse damage rates, safety, and security. Morale can be enhanced and absenteeism reduced, simply because a workplace that is well lit is much more pleasant than one that is not.
Editor's note: Clifford Lynch contributed to this article.