CORDIS - EU research results

Effective green supply-chain management technologies in the competitive economic environment with pollution emission trade system

Final Report Summary - GREENSUPPLYCHAIN2009 (Effective green supply-chain management technologies in the competitive economic environment with pollution emission trade system)

This project aims to address the environmental impact following the European Union (EU) policies of fighting climate change, fostering energy efficiency and sustainable economy, and industrial ecosystem in the perspective of lean and agile supply chain management. These issues have been investigated respectively rigorously in continuing process and dynamic programming models. All the models that have been analysed can be extended to general settings and fit into special practical applications. Methodologically, we represent the optimal performances of underlying managing processes to emulate the material flows from supplying capacities to demanding agents, and as a result, to characterise the performances by mathematical properties such as multimodularity, L natural convexity, and more complicated functional properties. Essentially, these properties are the principles of the optimal operations and the economic laws behind business activities involved in multiple decision objectives and long-term planning horizon.

We elaborate these main achievements in following list:

(1) Reducing environmental impact through effective lean supply-chain management

Supply-chain management with environmental concerns or green supply chain management mainly focuses on the effective reduction of carbon dioxide emissions and increasing economic competitiveness through continuous supply chain operations and strategic decisions. Under the existing cap-and-trade system, industrial supply chain carbon emitters facing emission trading system (ETS) open market are running the risk of environmental cost uncertainty. To gain economic cutting edge, these emitters integrating manufacturing and logistics facilities must also continuously increase product variety with more green components and ingredients meeting customer expectations. Balancing both environmental and economic concerns is attained through minimising operations cost or maximising financial profit. Our quantitative analysis shows that large carbon emission footprint results in firms with wider product coverage, and a high ETS price leads to increasing green products. In line with the environmental and energy roadmap set up by EU, it is crucial to set up the carbon emission cap and fairly distribute emission credits amongst emitters and also, through meticulously and progressively decreasing cap and emission allowance distribution, promote renewable and clean energy consumption and new technologies. When assessing the pros and cons, our sensitivity analysis reveals that a unit increase in the carbon footprint will almost linearly enhance the emitter's economic competitiveness and financial contribution to the bottom line. Our analysis employs a solid dynamic programming approach and innovative methodologies, overcoming many difficult problems that have existed in the area of operations management and operations research for years. The periodic and continuous process of controlling product replenishment, substitution, and trading carbon footprint in the ETS can be particularly embedded and integrated into the analytical system from large corporations to small companies. Specific applications include green product design and innovation, and alcohol and fossil fuels sale, supply and transportation.

(2) Developing applicable business models of energy efficiency and sustainable development for small- and medium-sized enterprises (SMEs)

An economy relying on fossil energy consumption is unsustainable not only by its harm to our planet but also by the looming threat of exhausted resources. Our economy must not longer depend on oil, gas, coal and turn to wind, hydrogen and other renewable energy resources for sustainable development. In our project, we propose a sustainable, effective and continuous way of consuming wind energy. In this direction, we consider a manufacturer as a virtual enterprise, which uses renewable energy (wind energy) as a main source of energy supply for its production and use hydrogen as a storing energy medium to maintain unused wind energy for future. It is well known that the supply of wind energy is random depending on the speed of the wind. The direct user of the wind energy supply, like the virtual manufacturer in our research, will often face shortages in the wind energy supplied from a wind farm and opt for buying electricity from the outside grid and / or making electricity in house from the hydrogen stored. The manufacturer in the meantime will launch an array of substitutable products in order to keep a competitive edge in the market. In this business model the manufacturer primarily considers how to allocate wind energy into product and hydrogen production subsequently, and then if the wind energy supply is inadequate, an immediate operations decision on how to purchase and / or how to use the stored hydrogen in house to produce electricity should be made precisely; otherwise, a decision on how much hydrogen is made out of extra wind energy has to be made. This sequence of operations decisions optimise a continuous process of daily operations in terms of future demand forecast. They are based on our innovative quantitative analysis for the model of a periodic control on hybrid of manufacturing scheduling, hydrogen production and storing, purchasing electricity from outside grid, and in-house electricity planning, and product substitution. Our results offer qualitative insights and mathematically support making direct contract sales of wind energy between wind farms and manufacturers. Investment in the wind energy can be valued in the profit return out of the electricity produced and sold directly to users. Incentives in wind energy investment and consumption are quantified to ensure both sides will harvest win-win consequences while the government will reach its goals in energy efficiency and fighting against climate change policy.

(3) Proposing the design of the industrial ecosystems based on the research of serial supply chains

Some real industrial ecosystem has been built in Netherlands and will in a larger size loom in the United States. These systems form independent parks in which one entity can procure its raw materials from other entities in the upstream locations. We investigate the sustainability of an industrial ecosystem in an environment of serial multi-echelon supply chains in which many locations' by-products are the raw material of the products of other locations while each location of the system produces the main product to satisfy its own demand. The system of our interest is owned and managed by a firm. Different from the traditional serial multi-echelon supply chains, our model allows a location (a firm, or factory) to produce its own main product for external demand and to produce a by-product to supply its downstream location as the latter's raw material. The top location is entirely supplied with raw materials from an outside supplier and the bottom location only produces its own main product. Any by-product is harmful to the environment and valueless if it is thrown away, whereas it will become valuable to be converted into certain product by other facilities. Our primary goal is to optimise the operations process continuously and draw managerial insights into strategic and operations decisions for the system. Aligned with this, the project also includes a piece of work on a close-loop supply chain with two substitutable products - a brand new product and a remanufactured product where the remanufactured product is made of the recycled material. This close-loop manufacturing supply chain is a particular industrial ecosystem as the key resources contained in the products will be recycled and reused. We made a difference in this piece of research permitting product substitution and allowing a price control on the recycling process. These research accomplishments in general, as well as the specific modeling and methodological contributions are original and gained from solid and rigorous quantitative analysis. They address various economic, environmental and political concerns, and are of high quality in both methodological development and problem solution so as to be publishable in high-tier operations research, operations management journals. They are comprehensive and extensive. While they are attained in some specific models, they can be extended to cover more general settings with the same managerial, economic and political insights to be drawn. They deal with the problems arising from environmental policy makers and agents intending to reach the EU's roadmap objectives in energy efficiency and fighting against climate change. They mainly propose solution scenarios to supply chain managers on how a supply chain reduces its operations and environmental cost under an ETS system when carbon emission cost should be paid off and how in the meantime a supply chain becomes more competitive economically with a variety of substitutable products to be offered and through introducing green products and technologies. In addition, research on energy efficiency and industrial ecosystem is carried on in relation to the project objectives. In particular, our accomplishments are interesting to policy makers for setting policy instruments and various supply chains from retailer to pharmaceutical supply chains for effectively running their business.