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Incorporating Green
Considerations in the Supply
Chain Design Process
October 6, 2009
Tim Brown
Chainalytics
Principal, Supply Chain Strategy
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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
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Emissions Impact on Climate
Source: Reach Out Michigan
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Impetus to Change
AMR Research, Green Supply Chain: Real-World Lessons From
Demand-Driven Leaders;Thursday, April 12, 2007;Stephen Hochman
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Network Tradeoffs
Service
Levels
Inventory
Purchasing Costs
Manufacturing
Costs
Inbound &
Outbound
Transportation
Fixed & Variable
Warehousing
Costs
GHG Emissions
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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
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Network Carbon Content
World Economic Forum: Supply Chain Decarbonization
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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
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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
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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
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Supply and Demand Data Inputs
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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
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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
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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
)
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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
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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
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GHG Inputs - Transport
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GHG Inputs - Sites
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GHG Inputs - Production
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GHG Analysis Options
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• 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
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Design Output Metrics
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Optimized Flows
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Tradeoff Analysis
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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%
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• 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
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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
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