Transport Mode and Network Architecture: Carbon Footprint as a New Decision Metric Nelly Andrieu & Lee A. Weiss (22 May 2008) Advisor: Dr. Edgar Blanco Andrieu & Weiss 22 May 2008 1
Research Questions - How do companies make decisions in terms of transport mode and supply chain network architecture in view of minimizing their CO 2 emissions? - What are the advantages and the drawbacks associated with the changes? - What to recommend to company engaging in the process? Andrieu & Weiss 22 May 2008 2
Research Approach 1. Survey 2. Emissions Calculation: - Methods proposed by (1) The GHG Protocol, (2) EPA SmartWay - Limitations 3. Case Studies: 1. Railex and Wal-Mart 2. Stonyfield Farm and Ryder 3. Fiji Water Andrieu & Weiss 22 May 2008 3
Survey: Achieving the Carbon-Efficient Supply Chain by Ken Cottril, MIT CTL Survey issued to 100+ supply chain professionals Key Findings: - A wide range of planned initiatives, but no single, overwhelming priority - 69% believe the main reason is, To enhance the company's reputation - Next in importance: Cutting costs, and Anticipation of tighter regulations - Majority of professionals not yet involved in initiatives to reduce carbon emissions - But this is rapidly shifting - Main focus is on Establishing Collaborative Projects with Suppliers to Reduce Carbon Emissions Andrieu & Weiss 22 May 2008 4
CO 2 Emission Estimates: Methods, Standards, and Limitation Two methods Input based (fuel receipt) vs. Output based (miles traveled) Input based: CO 2 Emissions = fuel consumed x fuel emission factor Output based: CO 2 Emissions = ton shipped x miles run x emission factor per ton/miles Two references commonly used: The GHG Protocol EPA SmartWay Limitations: Emission factors per ton/miles differ by up to 25%. Do not consider capacity utilization Andrieu & Weiss 22 May 2008 5
CO 2 Emission per tonne-km Effect of Capacity Utilization Andrieu & Weiss 22 May 2008 6
3 Case Studies Focus on the distribution of perishables and CPG in the US Identify partner companies working together to reduce emissions Focus on Time, Cost, Risk, CO 2 Evaluate possible trade-offs Case 1. Retailer: Wal-Mart - Carrier: Railex Case 2. Producer: Stonyfield Farm - Carrier: Ryder Case 3. Producer: Fiji Water - Carrier: multiple partners Andrieu & Weiss 22 May 2008 7
Case Study No.1 - Railex & Wal-Mart Improvement: Switching from truck to rail. Before Growers Yakima Valley, WA Wal-Mart DCs North-East After Wal-Mart DCs North-East Wallula, WA Rotterdam, NY Railex Warehouse Wallula, WA Growers Yakima Valley, WA Railex Warehouse Rotterdam, NY Andrieu & Weiss 22 May 2008 8
Case Study No.2 - Stonyfield Farm & Ryder Improvement : From 1DC to 4 DCs Before Londonderry, NH After Salt Lake, UT Londonderry, NH Indianapolis, IN Charlotte, NC Andrieu & Weiss 22 May 2008 9
Case Study No.3 - Fiji Water Improvement: Maximizing the length of the shipping route vs. trucking. Before Los Angeles, CA Philadelphia, PA Fiji After Before Suva, Fiji After Los Angeles, CA Andrieu Suva, Fiji& Weiss Philadelphia, 22 May PA 2008 10
Synthesis Wal-Mart Railex Stonyfield Farm Ryder Fiji Water - Reference Standard Used None EPA SmartWay The GHG Protocol CO 2 Emission Reduction (in metric tonnes) 2,600 (-61%) 6,500 (-47%) 3,000 (-33%) Saving (in $) $0.7 Million (-11%) $5.8 Million (-47%) $2.9 Million (-42%) Saving per Emission Reduction (in $/metric tonnes) $270 $900 $950 Time-to-market 5 days vs. 3 days Push inventory closer to customer Up to 5 weeks increased Risks Consistent service Centralize vs. decentralized distribution Difficulty to match demand and supply Andrieu & Weiss 22 May 2008 11
Analysis (1/2) - Difficult to draw conclusions from only 3 case studies, however: - Companies engaged in carbon footprint reduction used either the GHG Protocol or EPA SmartWay. - Some companies go through thorough estimates and implement big changes - Others by gut-feeling and increasing volume progressively. - Cost saving and emissions reduction go in the same direction but may have mixed effect on risk and a high likelihood to increase time-to-market. Andrieu & Weiss 22 May 2008 12
Analysis (2/2) - It is impossible to redesign an entire supply chain in one go. - There are as many solutions as problems (rail, ocean freight, network redesign). - It is important to consider change in transport mode and network redesign at the same time - one always affects the other. - Projects we observed have similar scope - large enough to be marketable and affect operational change, but within system constraints. Andrieu & Weiss 22 May 2008 13
Recommendations - Look at the benefit of using widely known standard. - Look at the benefit of using a partner. - Don t be afraid to be naïve, transparent. Final Thought Transportation cost saving associated to CO 2 emission reduction can be as high as $950 per tonne of CO 2 ( to be compared to up to 30 Euros per tonne for carbon offset in UK). Andrieu & Weiss 22 May 2008 14
Q & A Andrieu & Weiss 22 May 2008 15
CO 2 Emission Estimates: Our Approach (1/2) Andrieu & Weiss 22 May 2008 16
CO 2 Emission Estimates: Our Approach (2/2) Andrieu & Weiss 22 May 2008 17
Case Study No.3 - Fiji Water 16,000,000 Transportation Costs and Carbon Emissions 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Annual Carbon Emissions (in metric tonnes) SpeedyRailCo & BigRetailCo YogurtCo & TruckCarrierCo WaterCo Andrieu & Weiss 22 May 2008 18