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