What is the Question?

Transcription

1 What is the Question? Presented at the NSF Low Carbon Footprint Supply Chain Workshop October 14, 2010 Lawrence D. Burns, Ph.D. Professor of Engineering Practice Department of Industrial and Operations Engineering University of Michigan

2 Profound Events Global Recession GM Bankruptcy

3 Necessary Conditions for Sustainability Economic Growth Jobs Growth Happy Customers

4 Low Carbon Supply Chains?

5 Suppliers Customer Sell Must be Customer Driven!

6 Total Customer Experience Must be Deeply Understood!

7 Examples Netflix SunChips

8 Necessary Condition Low Carbon Supply Chains Must Ensure Customer Value > Market Price > Supplier Cost

9 Total System Approaches Cradle-to-Cradle Supply Chains (Braungart and McDonough) Regulation = Failure of Design Innovative System Design = Sustainability Design every product in such a way that at the end of its lifecycle the component materials become a new resource. Remanufacturing (Nasr) Capture end-of-life material, labor and energy value Life Cycle Analysis Comprehensive framework to guide decisions

10 Necessary Condition Low Carbon Supply Chains Must Comprehend Total Product/Service Life Cycle» Design» Manufacturing Raw Materials- to-finished Products Logistics and Production» Distribution» Consumption» Recycling/Remanufacturing

11 Energy Systems & Policy Framework Price Efficiency Conservation Technology Energy Demand Economy Energy Supply Sustainability Security Technology Consumers Energy & Environmental Policy Suppliers Regulations Taxes Subsidies R & D Market Tipping Point : Consumer Value > Market Price > Supplier Cost

12 U.S. Energy Demand by Sector Moving ourselves and goods around Making what we consume Transportation 29% Commercial/ Making our Residential lives easier, 39% safer and more comfortable Industrial 32%

13 Energy is Woven into the Fabric of Everything We Do What We Eat How We Get Food How We Get Water How & Where We Shop Where We Live Where We Go How We Move How We Communicate How We Light How We Heat & Cool How We Do Chores How We Dispose Waste How & Where We Work How We Make Goods How We Do Services How We Learn & Play

14 Energy Consumer Expectations Buy Gasoline To Move Around Expect -Convenient Supply -Fast/Infrequent Refueling -Affordable/Stable Prices -Safety Electricity Light Spaces Cool Spaces Communicate Run Appliances -Reliable Supply -Easy to Use -Affordable/Stable Prices -Safety Natural Gas Heat Homes -Safety -Convenient -Reliable -Affordable/Stable Prices

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16 A CMO is a unit of energy equal to the thermal energy released by combusting a cubic mile of oil.

17 Global Energy Demand by Source in CMOs Wind + Solar + Geo 0.03 Nuclear 0.15 Hydro 0.17 Bio 0.19 Oil 1.1 Natural Gas 0.6 Coal 0.8 Source: A Cubic Mile of Oil Oxford University Press (2010)

18 Energy Demand & GDP ($) GDP ($)/GO Per Capita GDP ($) Bangladesh 35 1,200 Brazil 31 9,600 W. Eur 30 35,000 Japan 28 33,500 India 26 2,800 U.S ,800 China 15 5,300 Russia 13 14,700

19 Percent of GDP U.S. Energy Expenditures as Share of GDP 14% 12% 10% 8% 6% 4% 2% 0%

20 Energy Demand Drivers Population Growth Higher Standard of Living Economic Mix Energy Efficiency Energy Conservation

21 Energy Demand Scenarios for 2050 Assumed Growth (%/yr.) Predicted Energy Use in 2050 (CMO) Cumulative Energy Use (CMO) BAU ( Business as Usual ) EIA (U.S. Energy Information Agency) WEC (World Energy Council)

22 Energy Supply System Huge Complex Dynamic Uncertain Significant Capital Strong Vested Interests Enormous Inertia Very Wasteful

23 Proven and Additional Global Fossil Fuel Reserves (2006) Reserves (CMOs) Petroleum Natural Gas Coal Proven Estimated Additional Conventional Estimated Additional Unconventional , ,000 Source: A Cubic Mile of Oil Oxford University Press (2010)

24 Renewable Energy Supply 2006 Global Production (CMO/yr) Geothermal.05 4 Hydroelectric Wind 40 <0.005 Solar 23,000 Global Potential (CMO/yr) Biomass CMO (in biosphere) CMO (on land) unharnessed Source: A Cubic Mile of Oil Oxford University Press (2010)

25 Energy Supply Chains Convert energy sources (e.g., oil) into what people/enterprises use (e.g., gasoline/diesel fuel) Characteristics: Complex Dynamic Political Interdependent Capital intensive

26 Oil-to-Gasoline Exploration Production Refining Distribution Oil Sands-to-Gasoline Excavation Separation Refining Distribution

27 What are the Issues? Coal: CO 2 Emissions Air Pollution Water Risks Health Risks Oil: CO 2 Emissions Air Pollution, Spills Resource Depletion National/Economic Security Natural Gas: CO 2 Emissions Air Pollution Water Risks Nuclear: Terrorism Waste Disposal Wind: Visual Cost Land Use Low-Intensity Energy Solar: Cost Low-Intensity Energy Bio: Land use Food vs. Fuel Deforestation Water Use Geo/Hydro: Limited Availability

28 Multiple Drivers of Change Energy Economics Energy Politics Transformation Energy Security Oil/Gas Price Volatility Regulation Technology Urbanization Globalization Greenhouse Gases 28

29 Scenarios Technology Commercialization Slow Fast Oil Prices High & Volatile Low & Stable

30 Necessary Condition Low Carbon Supply Chains Must Consider Risk Management

31 Example Global Automobile Supply Chain

32 Auto Industry Supply Chain Characteristics Global Complex Highly competitive 120 year old product design DNA 50% of total cost is direct and indirect materials, and logistics Parts purchased 2-3 years in advance of program launch 5-6 year product design life Key purchasing considerations: price, quality, delivery, and technology Multiple supply tiers Long distance supply chains with just-in-time production systems Franchised distribution Significant scale economies 90% recycled

33 Auto Industry Supply Chain Realities Highly dynamic and uncertain environment Macro-economics Exchange rates Material prices Labor costs Energy prices Know-how (geographical) Regulations Continuous cost reduction & value enhancement are imperative Multiple challenging objectives TO WHAT EXTENT WILL LOW CARBON DRIVE SUPPLY CHAINS? WILL LIKELY DEPEND HEAVILY ON PRICE OF CARBON!

34 The New Automotive DNA

35 15X Opportunity Current DNA Oil Gasoline 3,000 lb car Personal Mobility 25% efficiency Materials Car 150 lb person Only 1% energy in gasoline used to move person! New DNA Sun/Wind Electricity 600 lb USV Personal Mobility 75% efficiency Materials USV 150 lb person 15X improvement in efficiency to move person!

36 Show Shanghai World Expo Video

37 Shanghai World Expo ENV

38 Conclusions: Energy Demand Today s Energy Demand is Substantial Energy is Woven into the Fabric of Everything We Do Could Grow Dramatically by 2050 Population Growth Raising Standards of Living Time Required to Realize Significant Conservation (Behavior) and Efficiency Improvements (Technology) A Broad Set of Integrated Actions Across All Sectors Will be Required to Realize Sustainable Economic Growth Must Focus on What We Do and How We Do It to Realize Transformational Change

39 Conclusions: Energy Supply The energy supply industry is huge, complex, dynamic and uncertain has enormous inertia, significant capital requirements and strong vested interests There is plenty of raw energy from several sources Unfortunately, every source has sustainability issues It is unlikely that we will be able to sustainably supply sufficient energy to meet demand if we keep doing what we have been doing

40 So, What is the Question? ISSUE : Energy and Carbon CHALLENGE : System Design and Risk Management QUESTIONS : How do we ensure a significantly higher quality of life for everyone and do so sustainably? How do we grow economies, create jobs, and enthuse consumers and investors by designing product & service supply chains that are sustainable? How do we manage sustainability risks as we strive for win-win sustainability solutions?

41 Key Enablers Pursue a Robust Portfolio of Technology Opportunities Focus on Market-Based Large Scale Transformation Target Market Tipping Points for Portfolio Opportunities Use a System of Systems Approach Follow an Integrated Policy + Technology + Commercialization Strategy Comprehend Near-Term (10 yrs) + Mid-Term (25yrs) + Long-Term (50 yrs)

42 Good News/Bad News Good News : We do not appear to be facing a resource or know-how challenge Sufficient energy resources exist to power future economic growth and sufficient technologies exist to do so sustainably Bad News : We are facing an economic, behavioral and political challenge We do not have sufficient common understanding and collective will to transform how energy is supplied and used Huge opportunities exist and require Simple, clear communication Great leadership An and mindset

43 And vs. Or And (+) Addition Synergies Integration Portfolios Systems Connect Dots Similarities Transform Whole Combine Innovate Or (/) Division Trade-offs Isolation Silver Bullets Pieces Select Dots Differences Compromise Parts Oppose Accept

44 Research Opportunities Create a theory of supply chain management..fundamental principles to guide supply chain design Develop a total system based analytical framework to understand where and when value should be added based on efficiencies of moving people relative to distributing goods Assess the value of real-time information in reducing supply chain carbon footprints Develop virtual model to study integrated community energy systems comprehending transportation and stationary activities and real-time information on supply and demand

45 Back-ups

46 Fundamental Concerns Economy + Energy + Environment U.S. Economic Growth U.S. Jobs Growth U.S. Position as a Global Leader U.S. Oil 67% Imported U.S. Trade Deficit 50% from Imported Oil U.S. Transportation 96% from Oil U.S. Electricity 50% from Coal Coal and Oil Carbon Intensive

47 Historical Growth in Energy Supply Source: A Cubic Mile of Oil Oxford University Press (2010)

48 Learning Cycles are Key to Innovation Gen 2 Gen 1 Demo Gen 3 Idea POC Tip Scale Transform Learn about technology, customers and manufacturing processes Operations Engineers understand learning curves