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Carbon Footprint Analysis
- 1. CARBON CERTIFICATION PROJECT GROUP 5 LIGHT AND CO- SOLUTIONS FINAL SUBMISSION This submission, dated October 14, includes the final solutions and recommendations SEVERAL SOURCES HAVE BEEN USED IN THE MAKING OF THIS REPORT, AND REFERENCES HAVE BEEN PROVIDED WHEREVER DUE. SUBMITTED BY- AAYUSH JAIN | AISHWARY GUPTA | AKSHAY PANT | ARU VASU | KARTIK YADAV
- 2. TABLE OF CONTENTS INTRODUCTION (BILAN CARBONE) 3 CURRENT SITUATION 5 ECO ENTERPRISE 8 IDEA 1- INCREASING INPUT LIFE 10 IDEA 2- INPUT OPTIMIZATION 17 IDEA 3- SUPPLY CHAIN OVERHAUL 27 IDEA 4- MANUFATURING RELOCATION 30 NEW BILAN- CARBONE 39 NEW ECO-ENTERPRISE 41 REFERENCES 43
- 3. ABOUT THE CASE The case is about a French hand-held lightings company Light & Co. headquartered in Paris with manufacturing site in Tangier and a conditioning and logistic site in Valence. Our consultancy firm is chosen to establish the Bilan-Carbone of its product Maxi Light which sells 2.5 million units in the reference year 2015. BILAN-CARBONE Bilan-Carbone is a tool for accounting for emissions of greenhouse gases, to take into account the primary energy and the final energy of products and services. It provides a comprehensive analysis of the various emission sources, and helps in identifying potential areas to tackle. It is becoming increasingly relevant due to ongoing environmental and social problems, primary of which are- • Global Warming • Biodiversity Collapse • Fossil fuel depletion • Overpopulation and Fair Resource Allocation The human species depends on Earth’s ecosystem for providing food, water, climate regulation, fresh air etc. They exist together in a symbiotic relationship to maintain each other’s existence. However over the past few decades, humans have increased their demand exponentially, at a rate which is significantly higher than the supply. This transformation has resulted in huge ecological imbalance. The demand for ecosystem services grew significantly as the world population doubled to 6 billion people. In 20th Century- • The extraction of construction materials grew by a factor of 34 • Ores and minerals by a factor of 27 • Fossil Fuels by a factor of 12 • Biomass by a factor of 3.6 The impact of this can be better understood by these facts and numbers: The total “footprint” for a population’s activities is measured in terms of ‘global hectares.’ As per WWF’s Living Planet Report, while the Earth’s total biocapacity is only 12 billion gha, or 1.8 gha per capita, the global ecological footprint was 18.1 billion global hectares (gha) or 2.6 gha per capita in 2010 and 2.2 gha in 2004. 4 Not only does it indicate the steady increase in global footprint but also highlights how the consumption was 50% more than what the planet could regenerate in year 2010. 5 In short, the humanity used the equivalent of 1.5 planets to provide for their consumption. Such an overshoot is ecologically unsustainable. Time series of the global Ecological Footprint indicate that human activities have been in an overshoot position for approximately three decades, and the overshoot is increasing over time. These figures make for unpleasant reading, and it becomes all the more important for everyone, large or small, to help in whatever capacity they can. Thus, organisations must undertake initiatives in order to do their bit in protecting the environment.
- 6. VALENCE Valence is the distribution hub for the company. Packed final goods are received at Valence and distributed to customers across the world. 71 0 0 0 4,537 0 226 202 23 35 7 209 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 BILAN CARBONE® GHG emissions by category, in tCO2e 39 0 0 0 11 198 1,252 149 1 54 0 0 0 200 400 600 800 1,000 1,200 1,400 BILAN CARBONE® GHG emissions by category, in tCO2e
- 7. COMBINED 115 0 0 0 4,576 198 1,409 524 25 110 7 209 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 BILAN CARBONE® GHG emissions by category, in tCO2e
- 10. SOLUTION 1–REPLACE AABATTERIES WITH USB RECHARGABLE BATTERIES CURRENT SITUATION Currently, the company uses 4 units of AA batteries which need be replaced twice a year. With the life of a maxi light being 5 years, this results in 7030 kg of CO2 emissions during the life cycle which can definitely be avoided. SOLUTION Since maxi light is used in emergencies and not in everyday use, usage of rechargeable batteries will not affect the functional utility of the product. This is a short-term measure and will reduce the kg CO2 emissions of the firm immediately. Usage of rechargeable batteries will eliminate the usage of 4*2*5 = 40 units of AA batteries during the life of the maxi light. There are broadly 2 options that may be explored – 1) Usage of USB rechargeable AA batteries 2) Usage of rechargeable AA batteries ASSUMPTIONS • Weight of a AA battery is 23 grams • Time taken for delivery of batteries from new suppliers is similar to that of previous supplier • Inventory costs will remain constant for the new battery • Manufacturing costs and handling time remain the same for new batteries
- 11. • Electricity consumption at user end for charging of batteries taken to be negligible USAGE OF USBRECHARGEABLE AABATTERIES With the high penetration of smartphone and other mobile computing devices, USB chargers are ubiquitous and are available with every user of maxi light. These rechargeable AA batteries have many functional advantages over regular AA batteries as discussed below – Factor Advantage Flat Discharge Curve Power control chip ensures the equipment functions the same from the beginning till the battery is fully discharged No partial charging issues Rechargeable batteries are subject to partial charging issues and may not work at full voltage in such cases No memory effect issues Rechargeable AA batteries suffer from memory effect which reduces their capacity significantly over time Recharge time as compared to other rechargeable batteries Significantly lower recharge time and higher number of times they can be recharged Source: http://www.pcworld.com/article/3020072/hardware/the-eco-usbcell-is-the-slickest-rechargeable-aa-battery- youve-ever-seen.html Currently, the AA Batteries used are manufactured in Czech Republic from where they travel 2915 km from Prague to Tarifa by Semi-Trailers and by Semi-Trailers and 35 km from Tarifa to Tangier by RoRo Boats. COST ANALYSIS From our research, we were able to find the price of 4 AA batteries as charged by industrial suppliers. The price quoted by the supplier is EUR 0.93/set of 4 batteries. (Source: https://www.alibaba.com/product-detail/VARTA-High-Energy-4906-AA-Mignon_169074080.html). The supplier we have identified for the supply of these “AA USB 1450mAh 1.2V NI-MH Rechargeable Battery” is “Naccon Power Technology Co., Ltd.” located in Shenzhen, China. The price quoted per pair of these batteries is EUR 0.91/pair or EUR 1.82/set of 4 batteries. Therefore, usage of these batteries will increase the cost of production by (1.82-0.93)*2500000 = EUR 2.225 million or EUR 0.89/piece. The batteries will be transported from Shenzhen port in China to Tangier Port and the manufacturing facility. The sea distance for the same is 15605 km and the freight charge is $1978/MT or EUR 1794/MT. An average battery weighs 23 grams. Therefore, the total weight of batteries to be transported is 4*23*2500000/(1000*1000) = 230 tons. Therefore at EUR 1796/MT, the total freight cost is EUR 13770/annum.
- 12. Source: https://www.searates.com/reference/portdistance/?K=ChIJLRNM8FyHCw0ReuG0v3HFv3Y&A=ChIJkVLh0Aj0AzQRyYCSt w1V7v0&D=737&G=22712&shipment=1&container=40st&weight=30&product=52805&request=0& The Average Road Freight Charges for Prague to Tarifa is EUR 0.0325/ton/km and the distance is 2915 km. This results in total cost of EUR 21790/annum. (Source: http://www.della.eu/price/local/) The Average Ro-Ro Sea Freight Charges for Tarifa to Tangier is EUR 0.78/ton/km and the distance is 35 km. This results in total cost of EUR EUR 6302/annum. (Source: https://www.searates.com/reference/portdistance/?A=ChIJYxw_wveODA0RY4mkKoPy4Cw&K=ChIJ LRNM8FyHCw0ReuG0v3HFv3Y&D=3123&G=22712&shipment=1&container=40st&weight=1&produ ct=52801&request=0&) Therefore, the total costs incurred is 21790+6302 = EUR 28092/annum. Hence, the total costs savings realized in freight charges are 28092-13770 = EUR 14322/annum. Before After AA Battery (Set of 4) EUR 2325000 AA USB Battery EUR 4550000 Road Haulage (Prague – Tarifa) EUR 21790 Sea Haulage (Shenzhen – Tangier) EUR 14322 Sea Haulage (Tarifa – Tangier) EUR 6302 Total EUR 2353092 Total EUR 4564322 Extra Cost EUR 2211230 Extra Cost/piece EUR 0.88/piece From the above table, we can see the extra cost/piece incurred is EUR 0.88/piece. However, we see from the following that the cost savings incurred by the customer far outweigh the increase the costs. Batteries used during the life of the maxi-light – 4 batteries * 2 (changed twice per annum) * 5 years (life of maxi light) = 40 batteries Cost incurred by the customer for purchase of battery = 0.93*10 = EUR 9.3 Net Cost savings = 9.30 – 0.88 = EUR 8.42
- 15. Total Impact – From the above graph, we can clearly see the impact of this solution is on Freight, Use Stages and End of Life. Category Before After % Reduction Freight 226 203 10.18 % Use Stages 7 1 85.71 % End-of-Life 209 143 31.58% Total 5310 5215 1.79% In total, this solution leads to reduction of 95 tons of CO2 equivalent emission. Before After
- 16. CHALLENGES • Increase in cost of production by EUR 0.88/piece may lead to loss of competitiveness of the firm in the highly competitive and price-conscious market of hand-held lightings. • Customer adoption of the new batteries may be slow to pick up initially. (As is substantiated by the Technology Adoption Life Cycle Curve) • Increase in time of supply of batteries from suppliers located in China. SCOREBOARD Economic Environmental Social • Significant reduction in freight costs of EUR 14322/annum • Simpler supply chain • Costs savings for the customer in the life cycle of the product • Reduction of 95 tons or 1.79% CO2 emissions of total emissions of Tangier. • Reduction in handling of disposal of hazardous material resulting in safer handling of the equipment.
- 17. SOLUTION 2–REPLACE CONVENTIONAL INPUTS WITH ECO- FRIENDLY SUBSITUTES CURRENT SITUATION The objective is to inculcate the concept of Eco-Design into product manufacturing. We see that at the manufacturing site of Tangier, the maximum carbon emission comes from the input raw materials which contribute 4,537 tonnes CO2 emission to the total of 5,311 tCO2e of the site. Of these raw materials, metals and plastics are found to be the major sources of emissions. We can clearly see that these emissions are being included not as the result of processing these inputs at Tangers itself but are the carry-over from the manufacturing of these indirect materials from their raw materials. So Light and Co is adding to its total emissions merely by procuring these material without doing any processing on them. Hence, focus is on adopting better material/ technology and sustainable procurement and product design. SOLUTION After identifying the major sources, we have identified the following the replacements/adaptations which are technologically feasible, ecologically sensible and cost-effective: 1) Use of HDPE instead of Polycarbonate plastic for the main body of the handheld device 2) Adopting Integrated Circuit chips instead of Silicon Electronic Board for electronic control 3) Shift in lighting technology from LED to Laser diode The rationale behind substituting materials is that either the emission factor of the new product is lower, the quantity consumed is lower and/or the cumulative effect of both results in decreased overall emissions. Replacements can also lead to improved cost effectiveness and better performance. However, substitution may also jack up the costs of the product, reduce the product life or lead to other undesirable side-effects. Hence, it becomes a question of tradeoff and deciding between various alternatives. USAGE OF HDPEINSTEAD OF POLYCARBONATE
- 18. Technologlical Feasibility -Though Polycarbonate is considered to be a better plastic than HDPE, the superior properties of thermal capacity and tensile strength come into play only at extreme working conditions such as high temperature and impact loads. Since the equipment in question (handheld light device) will not be subjected to such operating conditions, HDPE can be safely used instead of PC[1] . Also, the machinability of both of them is same and hence, are good substitutes of each other. [2] Factor Advantage[3] Cost HDPE costs almost half the price of Polycarbonate for the same density variant. Carbon Emission The emission factor for PC is 7,651 kg CO2 per tonne whereas the EF for HDPE is 1.960 kg CO2 per tonne. Weight HDPE has a density of 0.9g/cm3 whereas PC has a density of 1.2g/cm3 Disadvantage Thermal properties PC retains its properties and shape even at high temperatures. Tensile Strength PC has high fracture strength and can withstand heavy impact loads without rupture Machinability PC can be easily machined into tubes and sheets but the difference in machinability is only marginal Our decision criteria to use HDEP as a substitute will be decided by the reduction in carbon emissions due to a) change in material and b) change in freight due to change in weight and cost reduction. CO2EMISSION IMPACT ANALYSIS Mass Change – Since the volume of the material used will be same, there will be change in mass of the material used. V = M*D 1 - Polycarbonate M1*D1 = M2*D2 2 – HDPE D1 = 1.2 g/cm3 D2 = 0.9 g/cm3 Change in Carbon Emission due to material change – This change in CO2 emission is due to the reduction in Emission Factor from 7,651 kg CO2 per tonne to 1,907 and due to the change in mass. Before – Plastics Reminde r Reminde r Emission s Emission s Tonne s % from recycled kg CO2e Supplement kg CO2e kg CO2e kg Ce used material per tonne 2nd processing PVC 9,440 2,575 5 0% 1,888 9,440
- 19. Polycarbonate 1,128,523 307,779 148 0% 7,651 1,128,52 3 PET plastic films - not recyclable 0 0 2,432 0 PVC 0 0 1,888 0 Total 1,137,963 310,353 1,137,96 3 After – Plastics Reminde r Reminde r Emission s Emission s Tonne s % from recycled kg CO2e Supplement kg CO2e kg CO2e kg Ce used material per tonne 2nd processing PVC 9,440 2,575 5 0% 1,888 9,440 High density polyethylene 211,677 57,730 111 0% 1,907 211,677 PET plastic films - not recyclable 0 0 2,432 0 PVC 0 0 1,888 0 Total 221,117 60,305 221,117 There is a reduction of 916,846 kg CO2e per tonne due to changing input from PC to HDPE. Change in Emission due to Freight – To maintain consistency in volume, the 59 grams of Polycarbonate will be replaced by 44.25 grams of HDPE for 1 unit which leads to reduction in total freight. Before – After – Change in Emission due to change in direct waste- Before –
- 20. After – End of Life Effect – As the basic raw material has changed to HDPE, the End of Life Emission of Maxilight changes. Before- - - After - Total Impact- Before – After - 71 0 0 0 4,537 0 226202 23 35 7209 0 2,000 4,000 6,000 Energy 1 Energy 2 Non-energy 1 Non-energy 2 Inputs Future … Freight Transporting … Direct waste Capital goods Use stages End-of-Life BILAN CARBONE® GHG emissions by category, in tCO2e
- 21. ADOPTING ICCIRCUITS INSTEAD OF SILICON ELECTRONIC BOARD Technological Feasibility – With the advancement of circuit technology, it is possible to replace the conventional silicon electronic board and circuitry with advanced Integrated Circuit chips. These IC chips are much smaller and can combine the power of many electronic boards into one. These IC chips can accommodate over 9 million transistors in 1 mm2 and can be designed to have a size of 100nm. However, for the application for MaxiLight, even simple IC Circuits will suffice. Factor Advantage[4][5] Size Usage of IC circuits reduces the size of the entire module by a factor range of from 100-1000. For MaxiLight, we assume a factor of 250 reduction and hence, the mass reduces by the same amount Encoding More advanced information and signals can be embedded into a single piece of chip, making it possible for the device to perform multiple functions Weight As size reduced by a factor of 250, the weight also reduced by the same factor Disadvantage Cost IC circuits, due to their complex design are slightly on the expensive side. Carbon Emission The Emission Factor for IC (0.038 kgCO2e/mg) is much higher than that for normal silicon dyes. Our decision criteria to use IC Circuits as a substitute will be decided by the reduction in carbon emissions due to a) change in mass and no. of circuits used due to high scale integration and b) change in freight due to change in weight and cost reduction. CO2EMISSION IMPACT ANALYSIS Change in Carbon Emission due to mass and EF change – There is drastic increase in Emission Factor from 153,970 kgCO2e per tonne for Electronic Board to 31,260,000 kgCO2 e for IC chips [6]. However, the increase is offset by the reduction in mass as the IC chips reduced the size factor by almost 250. Hence, the net effect is a reduction in carbon emissions. Before –
- 22. After – Change in Emission due to Freight – As explained earlier, there is a reduction in the mass by a factor of 250. Before – After – Total Impact- Before – After - We see that there is a reduction of 361 kgCO2e on adaptation of the technology of IC circuits. We now combine both the solutions of replacing Polycarbonate and Electronic board with HDPE and IC chips and see the net effect. 71 0 0 0 4,537 0 22620223 35 7209 0 1,000 2,000 3,000 4,000 5,000 Energy 1 Energy 2 Non-energy 1 Non-energy 2 Inputs Future Packaging Freight Transporting … Direct waste Capital goods Use stages End-of-Life BILAN CARBONE® GHG emissions by category, in tCO2e
- 23. COMBINED EFFECT Change in Carbon Emission due to direct raw material change – Before – Plastics Reminde r Reminde r Emission s Emission s Tonne s % from recycled kg CO2e Supplement kg CO2e kg CO2e kg Ce used material per tonne 2nd processing PVC 9,440 2,575 5 0% 1,888 9,440 Polycarbonate 1,128,523 307,779 148 0% 7,651 1,128,52 3 PET plastic films - not recyclable 0 0 2,432 0 PVC 0 0 1,888 0 Total 1,137,963 310,353 1,137,96 3 After – Plastics Reminde r Reminde r Emission s Emission s Tonne s % from recycled kg CO2e Supplement kg CO2e kg CO2e kg Ce used material per tonne 2nd processing PVC 9,440 2,575 5 0% 1,888 9,440 High density polyethylene 211,677 57,730 111 0% 1,907 211,677 PET plastic films - not recyclable 0 0 2,432 0 PVC 0 0 1,888 0 Total 221,117 60,305 221,117
- 24. Change in Emission due to Freight – As explained earlier, there is a reduction in the mass by a factor of 250. Before – After – Total Impact- Before – After - SOLUTION BEFORE AFTER REDUCTION % PCTO HDEP 4537 3621 20.18 ELECTRONIC TO IC 4537 4176 7.95 TOTAL 4537 3259 32.92 Assumptions – 1) Energy Assumption – The amount of electricty consumed remains same for the manufacturing irrrespecive of the change in input material 71 0 0 0 4,537 0 22620223 35 7209 0 1,000 2,000 3,000 4,000 5,000 Energy 1 Energy 2 Non-energy 1 Non-energy 2 Inputs Future Packaging Freight Transporting … Direct waste Capital goods Use stages End-of-Life BILAN CARBONE® GHG emissions by category, in tCO2e
- 25. 2) Volume – Volume of final product remains the same and hence there is no change in packaging costs. 3) The Emission Factor for IC chips for end-of-life and waste disposal is same as the other metal averages given in the case. USING LASER DIODES INSTEAD OF LEDTECHNOLOGY With the fast evolving lighting technology, we have other alternatives which can replace LED such as photovoltaic cells and OLED but the most promising of them is LASER diodes. LASER diodes can be 1000 times more intense at 2/3 rd the energy consumed by their LED counterparts [7][8] . However, LASER diodes are relatively bigger in size as compared to 1 LED but the whole bulb remains the same size. LASER diodes are also very expensive as compared to LED. We are not applying the Bilan Carbone method to this as information regarding carbon emissions, mass, etc. is not available. COST ANALYSIS Use of substitutes can move the cost of the product in either ways. It is upon the producer to decide the solutions to be incorporated and achieve a tradeoff between cost, performance, etc. depending on the market and environment. For calculating the cost changes for the recommended solutions, we firstly assume that all the material is being procured from Hong Kong only as given in the case. - Optimal grade PC is traded at $2,750 per tonne (Cost, Insurance and Freight) [in Hong Kong][9]. HDPE is traded at $ 1800 per tonne [10]. For 1 unit of Maxilight, we need 59 grammes of PC or 44.25 grams of HDPE. Cost Saving per unit= 59*0.00275 – 44.25*0.0018 = 0.16225 – 0.07965 = 0.0826$ - Shift from Electronic board to IC: We can see that 1 Electronic board ($0.5) is used (approx. 5 gms is used) and replced with 1 IC ($1) [12,13] Increase in Cost per unit = $ 0.5 - Freight savings[14] : Tonne kms decreases from 2,945,000 to 2,180,463 after incorporating both the soltuions. Freight cost = Euro 1796/MT Total distance from Shenzen port to Tangiers = 15606 kms Total savings = (1796/15606)*(2945000-2180463)= Euro 87,921 Total savings per piece = 87,921/2.5mn *1.1 = Euro 0.033 Additional cost incurred per piece = 0.5 – 0.082- 0.033 = 0.385 $ By incurring an additional cost of $ 0.385 per piece, firm makes an reduction in carbon emission in the manufacturing site itself of 1,278 tonne CO2 Emission per annum. - Shift from LED to IC: 100 pcs of LED are being traded at 0.04$/piece[11] . For one unit, 5 grams are needed and weight of 1 LED can be assumed to be 0.5 grams. So cost of LED for one unit is (5/0.5)*0.04 = 0.4$ per unit.
- 26. SCORECARD ENVIRONMENTAL ECONOMICAL SOCIAL Shift from PC to HDEP leads to drastic reduction in Carbon Emissions levels (almost 33%) at the manufacturing site. Apart from direct emissions, IC and LASER technology also improves waste disposal. Though it seems that this solution is cost-intensive, we can see that for a marginal increase of $0.385/piece translates to long term environmental and consequently, economic savings. If only HDPE is adopted, it even reduces the cost of the device. Shift to improved technology of IC and Laser makes the public aware of the alternatives which they can inculcate in other applications. Company’s green initiatives a source of encouragement for the public too.
- 27. SOLUTION 3–SEND GOODS DIRECTLY FROM TANGIER TO SPAIN CURRENT SITUATION Currently goods are manufactured and packed from Tangier and send to Valence and then distributed to different locations. SOLUTION Spain is much closer to Tangier in comparison to Valence. Hence, sending goods directly from Tangier to Spain will help save freight km and money. Before After Tangier to Tarifa 35 Km Tanger to Spain 800 Km Tarifa to Valence 1710 Km Valence to Spain 1100 Km Total 2845 Km Total 800 Km Hence we save a total of 2045 Km in freight. Before
- 29. Total Impact – Before Total solution reduces GHG emission in tCO2 freight by 87. SCOREBOARD Economic Environmental Social • Cost savings through reduction in freight costs of EUR 5742.36 (@0.0325/ton/km) • Reduction of 243 tons or 16.44% CO2 emissions of total emissions of Tangier. • Creating local jobs CHALLENGES • Distribution is now done from two centers Valence and Tanger, this would lead to higher requirement of inventory and increase the inventory holding costs. After
- 30. SOLUTION 4–SHIFT MANUFACTURING BASE FROM TANGIER TO VALENCE CURRENT SITUATION Currently the company has its manufacturing base in Tangier, Morocco and its packaging and distribution centre at Valence, France. The company procures packaging material from local suppliers, which is then sent to Tangier from Valence. The company uses these packaging materials to pack its finished good which is then again sent back to Valence from Tangier. The company finally ships the final product to its customers from Valence. The current policy results in huge logistic cost and transportation load especially as materials go and come back from Valence to Tangier. It can also be safely assumed that the current logistic policy results in slight delay in distribution of products after its manufacture as the products are first shipped to Valence. SOLUTION The company can consider the possibility of shifting its manufacturing base from Tangier to Valence and have it consolidated with its packaging and distribution unit. By doing so, the company can not only save considerable amount of time which is consumed in inter department transfers but also save money. More importantly, there is a considerable reduction in the tonne-kms travelled which helps the company to reduce its carbon emissions by a significant margin. Briefly the company can achieve the following advantages by incorporating the above solution: CO2EMISSION IMPACT ANALYSIS 1. Inter-department movement of packaging material Before: Movement from Valence to Tangier via Tarifa After: No movement required as the packaging and manufacturing unit are located at the same place
- 33. By aggregating the facilities, the company achieves 10.69% reduction in its GHG emissions in freight category of Bilan Carbone. CUSTOMER SERVICE TIME Currently after manufacture, the company ships its products from Tangier to Valence which acts as its distribution base. Once the products reach Valence, the company then distributes it to its customers. As we can see from the image below, this inter-department transfer takes close to 9-12 days of transit time Transit time of 9-12 days is really high for a company which on an average distributes 2.57 units per day. This can lead to situations of stock-out at the distribution centre thereby increasing the customer service time level.
- 34. The company can tackle this problem by shifting the manufacturing unit at Valence itself. This will not only hep the company in logistic cost which it previously incurred to transfer units from Tangier to Valence, but will also help the company to ensure it service time levels. With better service time level, the company can improve its strategic positioning in the industry which in turn can lead to long term competitive advantage. LOGISTIC COSTS 1. Inter-department movement of packaging material Before: Movement from Valence to Tangier via Tarifa After: No movement required as the packaging and manufacturing unit are located at the same place Decrease in tonne kms = 165775 tonne km 2. Inter-department movement of finished products Before: Movement from Tangier to Valence via Tarifa After: No movement required as the distribution and manufacturing centre are located at the same place
- 36. Shipment from Prague to Tangier via Tarifa After: Shipment from Prague to Valence Decrease in tonne kms = 407330 tonne km Total decrease in tonne km = 1581425 tonne km A reduction of nearly 1.6 lac tonne km will result in significant reduction total logistic costs due to the direct correlation between them TAXES Currently the company has its manufacturing unit outside the EU (Tangier) whereas its distribution department is in EU (Valence). This results in shipment of packaging material and finished goods between EU and non EU country. Such mechanism results in levy of Import and Export taxes and thereby the cost of the product. However, if the company has its manufacturing location at Valence itself, it won’t be liable to pay the taxes. This will help the company to reduce the cost of its product and also have a higher amount of retained earnings at its disposal for expansion or future use Source: http://ec.europa.eu/taxation_customs/business/vat/eu-vat-rules-topic/where-tax_en FOCUS ON CORE ACTIVITES Currently with dispersed manufacturing, packaging and distribution facilities, a lot of time of the company should be getting consumed in non-core activities like inter-department transfer management, tax obligation management, documentation management for port clearances. By having an aggregated facility, time spent in most of these non-core activities will get highly reduced which will in turn help the company to focus on its core activities of manufacture and distribution.
- 37. INVENTORY MANAGEMENT The company on an average distributes 2.57 finished units per day. Moreover as showed above, it takes 9-12 days as transit time for transfer of finished goods from Tangier to Valence. This in turn forces company to keep larger amount of buffer inventory in order to maintain its service levels during the transit time. Due to the high transit time, the company needs to keep higher amount of safety stock as well in order to offset the possibilities of any transit delays. This increased buffer stock, safety stock, and transit stock results in high amount of cash being blocked in inventory which can have a huge pressure on the working capital of the company. However with an aggregated manufacturing and distribution facility, the company can reduce its inventory and relax its working capital requirements by a significant margin. This can have a huge impact on the company’s finances but also in its long term strategic competitiveness. OVERHEADS By adopting the strategy of shifting manufacturing base from Tangier to Valence, the company can make significant savings in its overheads due to economy of scale and reduction of redundant administrative tasks. This will also lead to increase in efficiency of employees as work will no longer be affected due to communication lags between the departments. ASSUMPTIONS • Real Estate prices are similar in Tangier and Valence • Land is freely available near the distribution unit of Valence for set up of manufacturing unit • Labour cost are similar in Tangier and Valence • Required number of skilled labour force available in Valence to take up additional load of manufacturing • Land requirement and input consumption will remain same across both facitilies • There is no long term obligation for the company to have its manfacturig unit in Tangier • Company is not eligible for any tax rebates for import export of packaging/finished product between Tangier and Valence • There will be no economic consequences due to migration of jobs • Transportation cost per tonne km is constant for all legs. CHALLENGES • Management of legal issues arising due to migration of jobs • Setting up of new facility without impacting the current operations • Managing finances for huge capital investment required for setting up of new manufacturing unit • Time management due to the importance and complexity of the long term investment • Creation of new job roles and responsibilities due to consolidation of facilities
- 38. SCOREBOARD Economic Environmental Social • Significant reduction in logistics cost • Improved inventory management resulting in reduction in inventory requirements • Reduction in tax obligations • Improved Customer Service time • Reduction of 10.69% or 157551 kgs of CO2 emissions • Shift of manufacturing base leading to migration of jobs and job losses
- 39. NEW BILAN CARBONE (CONSOLIDATED) Paris Valence
- 40. Category Before After Reduction % Energy 1 115 115 0% Energy 2 0 0 0% Non-Energy 1 0 0 0% Non-Energy 2 0 0 0% Inputs 4576 3297 -28% Future Packaging 198 198 0% Freight 1478 1351 -9% Transporting People 524 479 -9% Direct Waste 25 19 -24% Capital Goods 110 162 47% Use Stages 7 1 -86% End-of-Life 209 110 -47% Total 7242 5732 -21% Combined
- 41. NEW ECO-ENTERPRISE 3 Months 6 Months 9 Months 12 Months GHG Tax