Incorporating Green Considerations in the Supply Chain Design ...

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Incorporating Green Considerations in the Supply Chain Design ...

  1. 1. Incorporating Green Considerations in the Supply Chain Design Process October 6, 2009 Tim Brown Chainalytics Principal, Supply Chain Strategy
  2. 2. Session Outcomes 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
  3. 3. Emissions Impact on Climate Source: Reach Out Michigan
  4. 4. Impetus to Change AMR Research, Green Supply Chain: Real-World Lessons From Demand-Driven Leaders;Thursday, April 12, 2007;Stephen Hochman
  5. 5. Network Tradeoffs Service Levels Inbound & Outbound Purchasing Costs Transportation GHG Emissions Fixed & Variable Manufacturing Warehousing Costs Costs Inventory
  6. 6. Some Design Options SCM Network Configuration Potential to Reduce Emissions Sourcing Tactics Inventory Strategy Mode Service Shift Policies Service Territories Number of Processes Impacted
  7. 7. Network Carbon Content World Economic Forum: Supply Chain Decarbonization
  8. 8. Network Design Approach 1 Scoping & Operations Assessment • Define Boundaries 2 Data Collection & Validation • Cost, Service, Capacity, GHG 3 Baseline Development • Model Configuration 4 Visioning • Convergent/Divergent Thinking 5 Scenario Analysis • What-if Analysis/Review 6 Strategy Formulation • Go-forward Plan
  9. 9. 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
  10. 10. Data Requirements Distribution Operations Manufacturing • Fixed Costs Processes • Variable Costs • Costs • Power Consumption • Capabilities • Capacities • Capacities • Capabilities • Power Consumptions • Alternatives • Conversion GHG • GHG Reference Data Customer Demand • Historical Replenishment • Forecast Freight • Product Specific • ShipmentID Products • Location Specific • Shipment History • Characteristics • Service • Modes (RAW/WIP/FG) Expectations • Tariffs • Value • Pricing (if profit • Discounts • Stocking optimization) • Freight Class Policies • Frequency • Carrying Cost • Utilization • Alternatives • Associated GHG
  11. 11. Supply and Demand Data Inputs
  12. 12. Top Down Data Information Sources: • International Energy Agency State Specific Emissions from • US Energy Info Admin Electrical Production • US Dept of Energy • World Resource Institute • US EPA
  13. 13. Visioning:Techniques to Revisit In 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
  14. 14. GHG In Network Decision Making Warehousing $150 $29.2 Fixed Offset @ $1000 Inbound $26.0 Transportation $24.9 $140 Holding Total Cost ($ Million) Warehousing $130 Offset @ $500 Cost ($M) Variable $16.5 Outbound Transportation $120 Offset @ $200 $110 Offset @ $50 $3.4 Carbon Offsets $100 $0.9 1 2 3 4 5 6 7 8 9 10 $90 Number of Distribution Centers 1 2 3 4 5 6 7 8 9 10 Number of Distribution Centers 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
  15. 15. 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
  16. 16. GHG Analysis in Modeling Tools Leading network modeling tools incorporate GHG content and analytical methods: Llamasoft Supply Chain Guru Infor Supply Chain Designer LogicTools LNP
  17. 17. GHG Inputs - Transport
  18. 18. GHG Inputs - Sites
  19. 19. GHG Inputs - Production
  20. 20. GHG Analysis Options
  21. 21. GHG Social Costing Carbon offsets may be used to approximate “social costs” of GHG emissions • 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
  22. 22. Design Output Metrics
  23. 23. Optimized Flows
  24. 24. Tradeoff Analysis
  25. 25. Scenarios Comparisons Baseline = 100% • 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
  26. 26. Case: Consumer Electronics Strategy balancing customer service, risk, cost, lease commitments, GHG and flexibility • 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
  27. 27. Industry Comparisons Company A Company B Foodservice Industry 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

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