Sunday, 25 October 2009

Go GREEN!



Last week I had a presentation at the ORTEC user conference, together with one of my friends form the Antwerp University, Patrick Schittekat. Also Walther Ploos van Amstel was there with a nice speech on the diminishing elasticity in logistics. Our subject was on how to be green from an environmental perspective but still be competitive. We state that instead of waiting for the governments to come up with measures to reduce emissions, companies should re-think their supply chain now. That way companies can turn going green from a liability into an asset and are well prepared for the future. This doesn’t have to be a jump into the dark when it is fact based and with analytical support.

The speech we held was a result from the corporation between the Antwerp University and ORTEC as part of the Optimising the World initiative of ORTEC. We started this initiative this year and it contains 4 main themes; Humanity, Environment, Education and Sports. I already explained the Humanity programme in one of my earlier blog entries; see for example the entry on the Uganda flood response. In Education we try to stimulate students to choose mathematics, applied mathematics, econometrics and so on. For example by sponsoring the International Math Olympiad, this is held in Amsterdam in 2011.

Back to our speech, you can find the slides on LinkedIn by the way. Our story starts in Portugal, where Patrick had his holidays. During one of his trips he ended up in an orchard full of orange trees. He is quite surprised to hear that this is probably the only way to eat real Portuguese oranges in Portugal. The oranges in the stores in Portugal are from Turkey! Can you imagine that? It’s cheaper to grow oranges in Turkey and transport them all the way to Portugal than to grow them in Portugal in the first place. This is not very optimal from a green perspective. This will probably change when emission taxes are introduced, as will be the case at the Copenhagen conference later this year. This tax will influence all the logistics in any supply chain. The decision that any company must make is to either endure this tax or start acting now. Many times going green means increasing costs; one has to invest in new technology to have lower emissions. But that is not always the case. During our speech Patrick and I gave several examples in which environmental friendly changes and cost savings go hand in hand.

A straightforward example is the optimisation of the logistics operation, minimizing number of deployed vehicles and kilometres driven. Since a truck on average emits 0.9 kg C02 per kilometre, every saved kilometre leads to a greener operation. But more is possible, for example by changing the modalities used. In one of the projects I was involved in, the supply chain for an electronics company required restructuring. Many of the products they sold were produced in China. Transportation of the products was therefore something to think about. The products can be shipped to Europe by sea or air. Air is expensive and fast and not very green per kg transported. Sea is cheap, has low emission per kg transported but is a bit slow. Transporting products by sea takes a couple of weeks, while using air the products could be at the shops in 2-3 days. The price of the products sold can fluctuate a lot; a long lead time can therefore mean a substantial loss of revenue. How than make the trade-off between sea and air?



What we did is build a supply chain model (using the AIMMS solution) in which we were able to optimise and evaluate different kind of set ups for the complete supply chain, focussing on service (is the product on time at the point of sale), cost (air is expensive!) and CO2 emission (what is the environmental burden of the scenario). The model enabled us to create insight into the dynamics of the supply chain, supporting the management in making their trade-off between air and sea and the environment. In the end the best set up was a combination of the two modalities. In acting this way, the company is well prepared when the CO2 emission taxes are introduced, and ahead of competition. They made going green there asset, not a liability.
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