Imppyqlications of Sustainability Requirements on...

Implications of Sustainability Requirements p y qon Logistics Operations, Assessment Approaches and Strategic Points of Actionpp g

PROF PETER KLEINE MOELLHOFFITLS LEADERSHIP AND POLICY SEMINAR SERIES I 16 Oct. 2012

PROF. PETER KLEINE-MOELLHOFF

Technical University of Kaiserslautern, Germany

Director Steinbeis Transfer-CenterEnergy- and Environmental Technology,

MSc. in Chem. EngineeringEco-Management, Munich

Reutlingen UniversityESB Business SchoolDirector MSc Production Management

Prof. Peter Kleine-Moellhoff

Degussa, FrankfurtR&D Physical Chemistry Environmental Catalysts

& MSc Logistics Management Programmes

Preussag Noell, WuerzburgP E i & P j t M

W.L. Gore & AssociatesManager Applications & SalesM t l & E I d t E Process Engineer & Project-Manager

Fluegas Treatment Power StationsMetals & Energy Industry EuropeGORE-TEX® Membrane Filter

2

OverviewOverview

› Sustainability: Environmental, social and economic factors

› Future mega trends relevant for logistics

› Main logistics trends

› Sustainability assessment approaches

› Strategic points of actiong

› Summary

3

Sustainability: Environmental, Social andEconomic Factors

4

Triple Bottom Line ApproachTriple Bottom Line Approach

BEnvironment

(Ecological Quality)

Becomeshigher attention

IndependentIndependent approaches

EconomicalQuality

SocialResponsibility

5

Environmental FactorsEnvironmental Factors

Example: Greenhouse Gas Emissions (GHG)

› According to IPCC appr. 5.5 % GHG through Logistics activities on a global scale (2005).

› Small countries, like e.g. Austria have a higher logistics influence(20 % in 2008).

› Transportation has shown the highest GHG emission increase since 1995› Transportation has shown the highest GHG-emission increase since 1995

› Actual Challenge: discouple transportation growth from emissionsand fuel consumptionp(also for economic reasons, especially transportation suffers from increasing oil prices)

6


Share of Sectors in global GHG-emissionsResidential and

commercial buildings

7,9

Waste and wastewater

2,8 7,9

Energy supply

,Logistics Industry

appr. 5.5 %

Traffic13,1

gy pp y25,9

Agriculture13,5

Forestry17,4

Industry19,4

Source: adapted from BERN07 p 36

7

Source: adapted from BERN07 p. 36


Global GHG-emissions Freight sector & Logistics Buildings

3000

sC

O2e

≈ 13%

2000

2500

meg

a-to

nnes

1000

15002800 mega-tonnes CO2 e ≈ 5 5 % f l b l

ssio

ns in

m

500

5.5 % of global GHG emissions

GH

G E

mi

Source: adapted from DOHE09 p. 9

≈ 60%

0Road

FreightOcean Freight

Air Freight Rail Freight

Logistics Bulidings

8


Other critical environmental burdens of logistics operation

› Particulate matter and HC-emissions- Diesel trucks,

- Diesel driven railroad

- Jet engine exhaust

- Ship engines

› Sulfur-dioxide (SO2)- All diesel driven engines (emission depends on the type of fuel)

HFO-driven ship engines are worst ECA‘s going to be expanded

› Noise› Noise

› Landuse, Space requirements of logistics operations

9

Emission Controlled Areas for Ocean VesselsEmission Controlled Areas for Ocean Vessels

Source: Juerg12, p. 7g

10

Social FactorsSocial Factors

› Working conditionsg- for truck drivers

- concerning material handling in Warehouses, bulk freight loading(e.g. coffee sacks).

- concerning noise

H lth ff t f i & l t t f t k t i l hi› Health effects from noise & polutants from trucks, trains, planes, ships, visual intrusion from buildings, infrastructure

› Habitation effects from land water and air requirements for transportation› Habitation effects from land, water and air requirements for transportation.

› Safety, health-, discrimination-politics, child labour, corruption, product responsibility

› Education, off-the-job training

11

Economical FactorsEconomical Factors

Economical role of Logistics

› Logistics growth is directly related to population growth- Most likely, we will see 15% population growth

between 2012 and 2025

- ingenious logistics and supply chains required

I th EU 27 l i ti k 10 % f th ll GDP› In the EU-27, logistics makes up 10 % of the overall GDP; this represents 1 trillion EUR [DEPO10, p. 33]

› Appr. 110 000 enterprises in the EU-27,› Appr. 110 000 enterprises in the EU 27, employing 2.2 Mio people in 2006 [EUCO09]

› Tangible investments by the warehousing and transport support activities sector in the EU-27 was valued at EUR 48.5 billion in 2006 [EUCO09]

12

Economical FactorsEconomical Factors

Effects of Environmental, social requirements and trends on logistics

› Environmental improvements within logistics systems reduces in mostcases costs (more effective use of logistics, shorter distances etc.)

› End of pipe solutions, like catalysts, filters etc. raise implementation costsfor logistics equipment. Such equipment however, uses resources moreefficient lower total cost of ownership (TCO)p ( )

› Influence of social requirements on TCO hard to predict.The past has shown, that companies who take care on environmental and

i l tt f b tt th th th lsocial matters, perform better than others on the long run.However, such companies are affected as strong as others from economiccrises liek the one from 2008.

› Influence of trends will be discussed in the following chapter

13

Future Mega Trends relevant for Logistics

14

Background Paper for the TrendsBackground Paper for the Trends

„Greenbook“ of Sustainable Logistics

› In the European Commission the word„Grünbuch“ stands as a synonym for a compilation of statements which shouldcompilation of statements, which shouldtrigger public and scientific discussionsand which should lead to importantd i i kidecision makings.

G ld G i Th Wi (Edit )› Gerald Gregori, Thomas Wimmer (Editors) 1st edition 2011, 230 pagesConfederation of Logistics in Austria andGermany

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http://www.dvz.de/nc/shop/shop-start/einzel-uebersicht/back/246/produkt/das-gruenbuch-der-na.html

Stakeholder Demands and Future Mega TrendsStakeholder Demands and Future Mega Trends

Seven future mega trends relevant for logistics

IXIIXI

Internalising externalities

C l l ti t i tiIIIX

XI Calculating uncertainties, time as a potential

III

IV

IX

VIII

Re-regionalisation

Process and production know-howV

VIVII

p

Provision of services will be in foreground of the productionSustainability as foreground of the production

Certificatesinstead of tolls

Sustainability asrequirement of thecapital market

16

instead of tollsSource: adapted from GREG11, p. 20ff

Future Mega Trends (1)Future Mega Trends (1)

Internalising externalities

› Expenditures to avoid or remove negative effects will be internalised.

› Examples: innercity tunnels and noise insulation walls to avoid noise to bepaid by road charge

› Short term profits paid by the environment will be reduced and proscribedby the societyby the society

› A „price tag“ on environmental burdens should increase awarenessin logistics operations and in return reduce these burdens.in logistics operations and in return reduce these burdens.

17


Calculating uncertainties, time as a potential

› Volatile markets and sales, uncertain prognoses, impossible planning

› Example: crises 2008/2009 has shown, how changeable structures arethat were assumed to be stable

› Flexibility will be a central demand for the development of new processesand structuresand structures.

› Factor time will be new evaluated: extreme synchronised production, just in time and within 24 h deliveries, will be critical reflected.in time and within 24 h deliveries, will be critical reflected. time restrictions will be untightened better use of critical resources,

lower environmental burden & social improvements can be expected› lower environmental burden & social improvements can be expected

18


Re-Regionalisation

› Example food business: Supply and demand get closer together. Other branches follow.

› Different industrial factors trigger this development- increased transport costs, - qualitative customer demands, - keep know-how and- keep important competences in the region

› lower environmental burden & social improvement can be expected› lower environmental burden & social improvement can be expected

19


Process and Production Know-How

› Right now, production and service processes are optimized in many casesonly on a singular level.

› Optimisations along the whole Supply Chain offer further improvements.

› Consequent cooperation between the single steps of the SC is necessary.

› Crosslinking theses steps will require networking information-systems.

› Demand for (cost) transparency of the systems will increase to have a fair distrib tion of efforts and profits bet een the in ol ed partnersdistribution of efforts and profits between the involved partners.

› Significant reduction potential for environmental burdens,significant improvement of social and economical quality.significant improvement of social and economical quality.

20


Provision of services will be in foreground of the products

› Availability of products will be expected

› The service provided will be the differentiation factor (not the poduct)

› Examples: - gas stations turn to bakeries

bakeries provide bank services- bakeries provide bank services- traditional trade must offer more than just the productin order to survive against the online-competition.

- Online-trade must bring delivery to perfectionOnline trade must bring delivery to perfectionin order to be regarded as a competent source of supply.

› Most likely this development will increase environmental burdens

21


Certificates instead of tolls

› Fixed rates for roads, rail tracks or air corridors will be past.

› Time dependent certificates for the use of the more and more scarceinfrastructures will be part of the cash management of logistics services.

› Logistic providers will have to build up banking-know-how and will providefinancial services (delivered till now by banks) themselves or in associatedfinancial services (delivered till now by banks) themselves or in associatedenterprises.

› Again, a „price tag“ on environmental burdens should increase awarenessAgain, a „price tag on environmental burdens should increase awarenessin logistics operations and reduce these burdens. Unclear what this will mean for the social and economical qualities.

22


Sustainability as requirement of the capital market

› Sustainability reports within the logistics branche are not comparable bynow.

› As soon as comparable benchmarks are available for a row of years, these will find entrance in the assessment of logistics services by thefinancial markets.a c a a ets

› Enterprises which act more sustainable often show more transparency in communication and represent a lower risk for investors.

› Therefore sustainable operations will have a positive effect on the capitalmarket.

23

Main Logistics Trends

24

Main Logistics TrendsMain Logistics Trends

Five main logistics trends

Sustainable aspectsinfluence strongly LogisticsInformation-Technology is in the

XII

gyforeground of Production-Technology

Global production of digital goods III

XII

X

XIGlobal production of digital goods, local production of physical goods

III

IV

IX

VIII

Logistics costs will strongly increase

VVI

VIIIncreased road transportation

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Source: adapted from GREG11, p. 21

Logistics Trends (8)Logistics Trends (8)

Increased road transportation

› Shortage of space for transportation(within the last 50 years transportation increased by the factor 10, road infrastructures grew only by the factor 4)road infrastructures grew only by the factor 4)

› Train and ship won‘t make up the difference in demand

› Stock of trucks will increase› Stock of trucks will increase

› Freight volume will increase more than freight weight

› Road transportation will be increasingly perceived as a negativ factor in› Road transportation will be increasingly perceived as a negativ factor in terms of sustainability (environmental & social quality).

26


Logistics costs will strongly increase

› More stringent standards and demands for noiseand emission pollution will come up.

› Road tolls will increase significantly

› Total cost of ownership will find more attraction than pure use-costs

› Especially road transport will get more expensive

› Judgement of possible effects on sustainability matters is difficult(balance bet een economic ecological and social req irements)(balance between economic, ecological and social requirements).

› Logistic systems need to be assessed concerning these three pattens andcontinously further developed to find the „right“ balance.continously further developed to find the „right balance. Who will bear costs? End customers, logistics sector, producers?

27


Global production of digital goods, local production of physical goods

› R&D can take place anywhere in the world

› Digital goods will still be produced worldwide

› Physical goods however, will be producedand distributed more locally

› Materials and manpower for the production of physical goodsare derived from a very limited local supply.

Se eral companies share prod ction space› Several companies share production space

› Significant improvement in sustainability matters can be expected(economical, ecological, social) „balanced communities“(economical, ecological, social) „balanced communities

28


Information-Technology is in the foreground of Production-Technology

› IT will permeate production.

› Production facilities will be digital and therefore can be operated virtually. This in turn will lead to the direction „remote factory“.

› Knowledge is crucial to operate facilities best.

› Value creation won‘t take place at the production location.It will take place from where production is controlled.

This in t rn allo s to prod ce closer on the demand› This in turn allows to produce closer on the demand.

› The environmental burden of IT will further increase. IT-use however will in turn reduce significantly theIT use however will in turn reduce significantly theenvironmental burden of logistic operations.

29


Sustainable aspects influence strongly Logistics

› Future production has to be lean, clean and green

› Mega-Cities with more than 10 Mio. inhabitants will have higherimportance.

› Therefore „City-Logistics“ is extremely relevant under ecological , economical and social aspectseconomical and social aspects.

› The transportation sector will have a higher emission share

Ecological compatibel sol tions for transportation ill be in the foregro nd› Ecological compatibel solutions for transportation will be in the foregroundof discussions.

30

Sustainability Assessment Approaches

31

Sustainabilty Assessment ApproachesSustainabilty Assessment Approaches

Ecologicalassessement

IndependentIndependent approaches

Economicalassessment

Socialassessment

32

Ecological Assessment ApproachesEcological Assessment Approaches

Standards, methods

› ISO 14001- Requirements for an Environmental Management System

- Focussed on the Continous Improvement Process (CIP)

- Can be used for production and services

- Based on the Plan-Do-Check-Act (PDCA)-cycle

› ISO 14040 ff- Life-Cycle-Assessment (LCA)

- Inventory, impact and interpretation

› EMAS (Eco Management and Auditing Scheme)- European system for Environmental Management and approval,

CIP-based, PDCACIP based, PDCA

33


ISO 14044 Life-Cycle Inventory Analysis (Input-Output Table)

Raw Material AcquisitionInputs Outputs

Manufacturing, Processingand Formulation

Energy

Usable Products

Water EffluentsDistribution

and Transportation

gy Water Effluents

AirborneEmissions

Use/Reuse/Maintenance

Recycle

RawMaterials

Emissions

Solid WastesRecycle

Waste Management

Other EnvironmentalReleases

34

System Boundary Source: adapted from FAVA94


Product Carbon Footprint (GHG-emissions)

35

Source: adapted from CLAU11, p.16

Economical Assessment ApproachesEconomical Assessment Approaches

› Classic economical instruments- Return on investment (ROI)

- Payback period

- Total cost of ownership

› New instruments (supported strongly by LCA-inventory analysis)- Determination of material and energy costs in detail

- environmental cost calculation

- environmental bench-marking

- Environmental budget

diti ti t ( i i t di )- crediting + accounting-systems (e.g. emission trading)

- Activity-Based-Costing (ABC)

36

Social Assessment ApproachesSocial Assessment Approaches

› Too many standards, directives, directions and recommendationsmake it difficult for companies to find a way for internal guidelines andmake it difficult for companies to find a way for internal guidelines andexternal reporting and communication.

SO f› ISO 26000 should give orientation for corporate social responsable behaviour.

› The 10 principles of the UN-Global Compact (GP) and the instruments ofthe Global Reporting Initiative (GRI) seem to become international acceptance. p

UN-GP: http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.htmlp g p g p

GRI Sustainability Reporting Framework: www.globalreporting.org

37

Sustainaility Assessment Approaches for LogisticsSustainaility Assessment Approaches for Logistics

› Assessment for Transport and Storage- Transportation (carrier) assessment results related to transported amount of goods

S ( h b ildi )- Storage (warehouse, building) assessment results related to stored amount of goods

› Integrated assessment of logistic chains (transport, storage and handling)Integrated assessment of logistic chains (transport, storage and handling)- No uniform standards yet to allocate proper resource consumption and

emissions to the logistic process which cause these consumption and emissions.

- Activity-based-costing could be an appropriate procedure.

- An EU-methodology for calculation, declaration and reporting on energy andGHG emissions in transport services is under developmentGHG emissions in transport services is under development.

38

Strategic Points of Action

39

Requirements for Green LogisticsRequirements for Green LogisticsThe German Logistics Association (DSLV) asked in 2010 for the essential requirements for Green Logistics.› Three main areas of action have been identified:[see LOHR10, p. 13]

- Reduction of energy demand/resource protection

q g

- GHG-emission reduction

- Handling of waste

› The following charts gives an overview about the requirements in thedifferent areas of logistics operation. g p

40

Areas of Operation for Green LogisticsAreas of Operation for Green Logistics

Top ManagementAdministration

HR-Mngmt.g

Vehicle Fleet Infrastructure

P h i P d ti M k tiSource: adapted from LOHR10, p. 14

Purchasing Production Marketing

41

Main requirements in all Areas ofOperation for Green LogisticsOperation for Green Logistics

Top ManagementAdministartion

HR-Mngmt.g


Reduction of energy demand/resource protectionGHG-emission reduction

Waste handling (reduction, separation, re-use, disposal)

P h i P d ti M k tiSource: adapted from LOHR10, p. 14


42

Specific Requirements in the Areas ofOperation for Green LogisticsOperation for Green Logistics

T bl d i Top ManagementAdministartion

HR-Mngmt.

Traceable documentation: measurements, balances, emission benchmarksGreen strategy with cost/benefit-analysisPaperless shipping

Compliance with legal requirements

Drivers training

Raise of environmental awareness;qualification of employeesg


Paperless shippingBusinesstrip-organisation & -avoidance

q p y

Certification according to ISO 14001

Fl t d i ti l i i hi l U f l i i i b ildiFleet modernisation; low-emission vehiclesAlternative drive systems and fuelsFleet structure (technology, size) Improvement

Use of alternative energies in buildingsOperating equipment with higher energy efficiency

Reduction of energy demand/resource protection

Identify and purchase environmental friendly products

Traffic bundlingEmission reduction in production

Sensitise customers for greenlogistics; consult

GHG-emission reductionWaste handling (reduction, separation, re-use, disposal)

P h i P d ti M k ti

friendly products Emission reduction in productionImprove scheduling & planningUse alternative freight carriersProcess optimisation in production

logistics; consultDefine and offer green logisticsproductsPricing green logistics products

Source: adapted from LOHR10, p. 14


43

Sustainable Logistics MeasuresSustainable Logistics Measures

1 0 1. Clean vehicle technologies

2. Despeeding the supply chain

3. Enabling low carbon sourcing: agriculture

1.0

4

5

11 agriculture

4. Optimized networks

5. Energy efficient buildings

6 P k i d i ti iti

12

3

46

7

8910

11

12lity

6. Packaging design activities

7. Enabling low carbon sourcing: manufacturing

8. Training and communication

0.512

13Feas

ibi

8. Training and communication

9. Modal switches

10.Reverse logistics/recycling

11 Nearshoring

13

11.Nearshoring

12.Increased home delivery

13.Reducing congestion0.0 0.5 1.00.0

Emission abatement potential S d t d f MCKI10Emission abatement potential Source: adapted from MCKI10

44

Summary

45

SummarySummary

› Sustainability – Triple Bottom line approach

› Thesis: 7 mega trends and 5 logistic trends will challenge logisticsoperations, the majority of these trends affect sustainabilty aspects.

› LCA-methods support strongly economical assessment of operations

› There is no common accepted standard for social assessment methods

› Although other industrial operations as e.g. production contribute muchmore intense to environmental issues, logistics operations are gettingmore and more into the focus of sustainabiliy considerations and cannotyelude themselves from these discussions.

› My thesis: these developments are a chance for the positive developmentf l i i iof logistics operations.

46

Thank you for your attention!

47

References and Bibliography

48


Experiences


[BERN07]: Bernstein et al., Intergovernmental Panel On Climate Change, 2007,http://www ipcc ch/pdf/assessment-report/ar4/syr/ar4 syr pdf accessed 2012-http://www.ipcc.ch/pdf/assessment report/ar4/syr/ar4_syr.pdf, accessed 201203-27

[CLAU11]: Clausen, U., Schneider, M. & Dobers, K., 2011. Fraunhofer Publica. http://publica fraunhofer de/eprints/urn:nbn:de:0011-n-1931561 pdfhttp://publica.fraunhofer.de/eprints/urn:nbn:de:0011 n 1931561.pdfaccessed 2012-05-14

[DEPO10]: Deutsche Post AG, Delivering Tomorrow - Towards Sustainable Logistics. Bonn: Deutsche Post AG 2010Bonn: Deutsche Post AG, 2010

[DOHE09]: Doherty, S. & Hoyle, S., World Economic Forum, 2009, http://www3.weforum.org/docs/WEF_LT_SupplyChainDecarbonization_Report2009 pdf accessed 2012-04-09_2009.pdf, accessed 2012-04-09

[EUCO09]: European Commission eurostat, Warehousing and transport logistics statistics - NACE Rev. 1.1, 2009, http://epp eurostat ec europa eu/statistics explained/index php/Warehousing ahttp://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Warehousing_and_transport_logistics_statisticsaccessed 2012-06-02

[FAVA94]: Fava J et al A technical framework for life cycle assessment SETAC[FAVA94]: Fava J., et.al., A technical framework for life cycle assessment, SETAC, Pensacola, 1994

[GREG11]: Gregori G. et al., Grünbuch der nachhaltigen Logistik, Handbuch für die Ressourcenschonende Gestaltung logistischer Prozesse BVL Wien BremenRessourcenschonende Gestaltung logistischer Prozesse, BVL, Wien, Bremen, 2011

[JUERG12]: Jürgens, R., Emission Abatement technologies for HFO fuelled marine diesel engines 2nd International Conference: Next Generation Off-Highway Enginesengines, 2nd International Conference: Next Generation Off Highway Engines, Wiesbaden, 27 – 29 June 2012, http://couple-systems.de/index.php/downloads.html, assessed 2012-07-05

[LOHR10]: Lohre D et al : Grüne Logistik Studie zu Begriffsverständnis Bedeutung und[LOHR10]: Lohre D., et al.: Grüne Logistik, Studie zu Begriffsverständnis, Bedeutung und Verbreitung „Grüner Logistik“ in der Speditions- und Logistikbranche, Institut für Nachhaltigkeit in Verkehr und Logistik (INVL), Heilbronn 2010

[MCKI10]: McKinnon a et al Green Logistics Kogan Page London 2010[MCKI10]: McKinnon a. et al., Green Logistics, Kogan Page, London 2010

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