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
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
Environmental FactorsEnvironmental Factors
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
Environmental FactorsEnvironmental Factors
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
Environmental FactorsEnvironmental Factors
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
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
15
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
Future Mega Trends (2)Future Mega Trends (2)
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
Future Mega Trends (3)Future Mega Trends (3)
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
Future Mega Trends (4)Future Mega Trends (4)
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
Future Mega Trends (5)Future Mega Trends (5)
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
Future Mega Trends (6)Future Mega Trends (6)
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
Future Mega Trends (7)Future Mega Trends (7)
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 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
25
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 Trends (9)Logistics Trends (9)
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
Logistics Trends (10)Logistics Trends (10)
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
Logistics Trends (11)Logistics Trends (11)
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
Logistics Trends (12)Logistics Trends (12)
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
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
Ecological Assessment ApproachesEcological Assessment Approaches
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
Ecological Assessment ApproachesEcological Assessment Approaches
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
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
Vehicle Fleet Infrastructure
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
Purchasing Production Marketing
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
Vehicle Fleet Infrastructure
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
Purchasing Production Marketing
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
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
References and Bibliography
Experiences
References and Bibliography
[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