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Transcript of Incorporating Green Considerations in the Supply Chain Design ...
Incorporating Green
Considerations in the Supply
Chain Design Process
October 6, 2009
Tim Brown
Chainalytics
Principal, Supply Chain Strategy
Objective: Convey an understanding of the value of incorporating Green House Gas Emissions (GHG) into Supply Chain Design and discuss “How” to do this.
Key Elements:
– Impact on business and the environment
– Design activities in SCM that impact GHG
– Tools and techniques associated with Green Supply Chain Network Design
Session Outcomes
Emissions Impact on Climate
Source: Reach Out Michigan
Impetus to Change
AMR Research, Green Supply Chain: Real-World Lessons From
Demand-Driven Leaders;Thursday, April 12, 2007;Stephen Hochman
Network Tradeoffs
Service
Levels
Inventory
Purchasing Costs
Manufacturing
Costs
Inbound &
Outbound
Transportation
Fixed & Variable
Warehousing
Costs
GHG Emissions
Number of Processes Impacted
Pote
ntial to
Reduce E
mis
sio
ns
Service
Territories
Service
Policies
Sourcing
TacticsInventory
Strategy
SCM Network
Configuration
Mode
Shift
Some Design Options
Network Carbon Content
World Economic Forum: Supply Chain Decarbonization
6
Scoping & Operations Assessment
Data Collection & Validation
Baseline Development
Visioning
Scenario Analysis
2
3
4
5
Strategy Formulation
Network Design Approach
• Define Boundaries
• Cost, Service, Capacity, GHG
• Model Configuration
• Convergent/Divergent Thinking
• What-if Analysis/Review
• Go-forward Plan
1
Scoping Considerations
• Understand Corporate Goals for
Emissions Reduction
• Define Span of Supply Chain Control
and Influence
• Estimate Network Emissions
– Top Down vs Bottom Up
– Use of Government Information and
Other Sources
Data Requirements
Replenishment
Freight
• ShipmentID
• Shipment History
• Modes
• Tariffs
• Discounts
• Freight Class
• Frequency
• Utilization
• Alternatives
• Associated GHG
Customer
Demand
• Historical
• Forecast
• Product Specific
• Location Specific
• Service
Expectations
• Pricing (if profit
optimization)
Distribution Operations
• Fixed Costs
• Variable Costs
• Power Consumption
• Capacities
• Capabilities
• Alternatives
• GHG Reference Data
Products
• Characteristics
(RAW/WIP/FG)
• Value
• Stocking
Policies
• Carrying Cost
Manufacturing
Processes
• Costs
• Capabilities
• Capacities
• Power Consumptions
• Conversion GHG
Supply and Demand Data Inputs
Top Down Data
State Specific Emissions from
Electrical Production
Information Sources:• International Energy Agency
• US Energy Info Admin
• US Dept of Energy
• World Resource Institute
• US EPA
Visioning:Techniques to RevisitIn identifying alternative scenarios to test, keep in
mind techniques that can impact GHG emissions.
• JIT Manufacturing
• Offshore Sourcing
• Packaging/Postponement
• Consumer Direct Shipments
• Inventory Policies
• Transportation Mode Shifts
• Cooperative Arrangements - Trans, Whs
• Power Sourcing
GHG In Network Decision Making
Inbound
Transportation$26.0
Outbound
Transportation
$29.2
Warehousing
Fixed
$3.4
Warehousing
Variable$16.5
Holding$24.9
Carbon Offsets$0.9
1 2 3 4 5 6 7 8 9 10
Number of Distribution Centers
Cost
($M
)
Sum of MTCO2e Scenario
Type Optimized Current Current
Air Transportation 58,779 59,849
Ground Transportation 7,982 7,895
Ocean Transportation 5,059 4,946
Warehouses 271 267
Grand Total 72,091 72,957
Offset @ $50
Offset @ $200
Offset @ $500
Offset @ $1000
$90
$100
$110
$120
$130
$140
$150
1 2 3 4 5 6 7 8 9 10
Number of Distribution Centers
To
tal C
ost
($ M
illion
)
GHG Analysis in Network Design
Carbon Footprint Reporting:
Measure End-to-End Emissions of Network:
Each Scenario
Constraining Emissions:
Incorporate Upper Limit on Carbon
Emissions in Optimization
Emissions as a Cost:
Apply a Cost to Carbon Emissions and
Incorporate in Model
Leading network modeling tools incorporate
GHG content and analytical methods:
Llamasoft Supply Chain Guru
Infor Supply Chain Designer
LogicTools LNP
GHG Analysis in Modeling Tools
GHG Inputs - Transport
GHG Inputs - Sites
GHG Inputs - Production
GHG Analysis Options
• Climate exchanges exist to facilitate cap
and trade and social responsibility
• Exchanges trade contracts for 100 metric
tons of C02e offsets
• Offsets pay for the cost of projects which
offset carbon emissions
• Offset contract pricing can be utilized in
network modeling as a logistics cost
Carbon offsets may be used to approximate
“social costs” of GHG emissions
GHG Social Costing
Design Output Metrics
Optimized Flows
Tradeoff Analysis
Scenarios Comparisons
• Minimal cost solution reduces GHG by 25%
• Further 4% reduction in GHG: marginal costs $24 per tonne of GHG
• Next 20% reduction costs $36 per tonne of GHG; (1/2 of original GHG)
• Additional GHG reductions require significant cost increases
Baseline = 100%
• Changed product deployment approach –
increased stock points on some categories
• DCs reduced from 6 to 3
• Reduced avg miles per delivery by ~310
• Reduced fuel/delivery by avg of ~ 60 gal
• Reduced C02e emissions per delivery by
an avg of ~ 1,100 pounds
Strategy balancing customer service, risk,
cost, lease commitments, GHG and flexibility
Case: Consumer Electronics
Industry Comparisons
Company A Company B
Industry
Foodservice
Distribution Consumer Electronics
Revenue Million $ 4,000 4,000
Logistics Spend
(Post Mfg.) Million $ 410 186
SKU's 900 5,500
Turns 40 14
Product Value Low High
Distribution Tiers Multiple Single
Sourcing Regional/Local Global
# of DCs 87 3