LOG 408: Global Logistics Management

Lecture 12: Supply Chain Sustainability

• Some supply chain security initiatives after 911 event• Overview of supply chain risk management with related concepts

such as robustness and resilience.• Three types of risk sources, known-known, known unknown, and

unknown-unknown.• Three approaches to unknown-unknown risks: redundancy,

sensing & responding, adaptive SC community• Three strategies to manage controllable risks: speculative, hedge,

and flexible strategy• A structured framework for the identification and management of

supply chain risk and resilience

Key Points of Lessons in Last Week

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Sustainability

• Sustainable logistics is concerned with reducing the environmental and other disbenefits associated with the movement of freight

• Sustainability seeks to ensure that decisions made today do not have an adverse impact upon future generations

• Sustainable supply chains seek to reduce these disbenefits by inter alia redesigning sourcing and distribution systems so as to eliminate any inefficiencies and unnecessary freight movements

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The Green Revolution

• The international Kyoto Protocol has called for a 60% reduction in carbon emissions by 2050

• Carbon footprint: the environmental disbenefits associated with economic activities such as the movement of freight

• Food miles: the distance by which the various components of a particular food item have to travel before final consumption

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Measuring the Carbon Footprint

• Greenhouse Gas (GHG) emissions are those that contribute to climate change, with most (approximately 95%) being in the form of carbon dioxide (CO2) which results from, among other activities, the burning of fossil fuels. Various entities have developed guides on how to measure and report GHG emissions.

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Measuring the Carbon Footprint

In the UK defra (the UK Government department responsible for the environment, food and rural affairs) has given detailed guidelines and look-up tables online but in essence the calculation comprises:(Fuel used) x (The appropriate emission factor for the type of fuel used) = kgCO2eq*

* eq refers to equivalent as this also captures other gases such as methane and nitrous oxide.

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Improving sustainability of logistics and Supply chain systems

• Redesigning supply chains• Using scale to reduce the negative environmental

effects of logistics activities (i.e. by moving freight in larger single loads, thus cutting down on both unit costs and disbenefits)

• Similarly promoting various efficiency solutions (by transporting and handling freight more effectively

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Supply Chain Redesign

• Largely about forward planning– Over 80% of carbon savings are only achievable at the

supply chain design stage, e.g.:• deciding where to locate warehouses and distribution

centres• deciding which transport modes to use• reconfiguring distribution networks so as replace small

deliveries direct to all end customers with centralised deliveries to a hub from where end customers retrieve their goods

– Localization may not be the best strategy

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The link between economic growth and transport growth

• There is an inexorable link between economic growth and transport – i.e. as economies grow, more transport is required to move

the freight that economic growth inevitably generates

• A core issue for policy makers is to endeavour to decouple economic growth and transport growth – i.e. to find ways of allowing economic growth without

comparable growth in transport (e.g., moving to more environmental friendly transport modes)

– A recent UK study partially supported the decoupling in the UK economy

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The role of ‘scale’ in logistics and SCM

• If all the containers in the world were lined up, it would create a container wall with a length of 108,000 kilometers – i.e.2.7 times around the earth at the equator

• The volume of freight that can be held in one standard forty foot container is quite significant: 200 dishwashers, 350 bicycles or 5,000 pairs of jeans

• The shipping cost per unit is thus quite low: Maersk estimate for freight coming from Asia to Europe it costs £9 per dishwasher, £5 per bicycle and just £0.35 per pair of jeans

• Large ships are more environmental friendly in energy efficiency and environmental costs– Maersk’s Emma can carry 11000 TEUs.

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The role of ‘scale’ in logistics and SCM

• Only certain ports can handle ultra large vessels • There is growing traffic concentration at certain other

ports– Increasingly, many mid-sized ports are playing a feeder

role to the very large ports as hub and spoke networks– In these networks the larger vessels ply between the major

transhipment hubs– The prosperity of the smaller ports is increasingly

dependent on the route strategies of the major shipping lines

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Efficiency Solutions

• In addition to looking to increased scale, many logistics operators are also seeking efficiencies with how they move and store freight so as to reduce the environmental impact of their activities. – Port centric logistics is one example– Promote a “green” culture in the company• IKEA gave employees a bicycle as a Christmas present

– Use electronic logistics markets for better usage of freight capacity (reducing the empty running)

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Port Centric Logistics

• Some ports are actively encouraging companies to locate distribution centres at ports rather than in their traditional locations which tend to be in geographically central, inland locations

• Current patterns of (inland) distribution centre location ignore the fact that most of the freight that passes through these distribution centres first transits through a port

• Therefore it is logical (and often easier in terms of land cost, lack of congestion, etc) to site such distribution centres at ports

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Port Centric Logistics

• One advantage of port centric logistics is that it cuts down on the number of empty (return) containers on roads by ‘stripping’ (i.e. emptying) imported containers at the port. – It allows faster repositioning of containers to another port

where they are required– Containers can be filled to full capacity

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Efficiency Solutions

• In transportation, it is not just the road haulage sector that is seeking to reduce its environmental footprint. With the growth of air travel, spurred on in particular by rapid growth in the so called low fares category of air travel, many commentators are looking towards the air transport sector to reduce its impact on the environment. – e.g., new generation aircrafts

• Efficiency solutions are not just restricted to transportation. Green warehouse design is also growing in popularity. – Many warehouses’ environmental footprints can be reduced

by for example more efficient lighting and heating /refrigeration systems.

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Questions to think• What are the pertinent sustainability issues in the context of

logistics and SCM?

• What is meant by the term ‘port-centric logistics’?

• How might we ‘decouple’ economic growth and transport growth?

• What is meant by the term ‘carbon footprint’?

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