Modeling low carbon procurement and logistics in supply chain: A key towards sustainable production

doi:10.1016/j.spc.2017.03.001

Sustainable Production and Consumption

Volume 11, July 2017, Pages 5-17

https://doi.org/10.1016/j.spc.2017.03.001 Get rights and content

Highlights

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Paper proposes a MILP model for low carbon procurement problem.
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Carbon emissions are considered during the process of ordering, holding and transportation of items from various suppliers and carriers.
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Relaxed MILP is also solved and compared with proposed MILP.
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Significant cost saving is reported when the procurement decisions are done considering carbon emissions.
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Real case of manufacturing industry is also provided.

Abstract

Globally increased awareness on carbon emissions forced business firms to optimize their carbon emissions. In a supply chain, carbon emissions are seen right away from the procurement of raw material till the delivery of finished goods. To address and optimize carbon emissions in the procurement and logistics problem, a multi-period, multi-part, multi-supplier and multi-carrier low carbon procurement and logistics model is proposed. The problem is modeled for a carbon trading environment using MILP (Mixed Integer Linear Program). The proposed MILP integrates the procurement and logistics decision in a carbon trading environment of a supply chain. The model considers the carbon emissions caused during ordering, holding and transportation and provides an optimal decision for low carbon procurement and logistics. Proposed MILP is validated through randomly generated deterministic data of four different sets of time varying parameters representing characteristics of procurement and logistics, and is solved with and without the carbon emission constraint. The computational results are encouraging, and significant cost saving is found if the procurement and logistics decisions are taken in carbon trading. To demonstrate the applicability of proposed model, a real case study from a manufacturing industry is also carried out. However, the proposed model is equally applicable to any procurement decisions.

Introduction

Uncontrollable industrial growth in past has contributed majorly towards degradation of resources and environment (Fahimnia and Jabbarzadeh, 2016). It has been estimated that carbon emission caused due to industry contributes about more than 30% of the total carbon being emitted to the atmosphere. This has alarmed environmental agencies and government bodies all across the globe. Thus, the government organizations, civil bodies have started providing awareness about the drawbacks of large carbon emissions in the atmosphere. Undoubtedly, industry emits carbon to the atmosphere and to a large extends various check points have been placed by the government to minimize the carbon emissions from industry itself. The legislations imposed by government bodies (State of California, 2003, State of Minnesota, 2003, Maine, 2005) have drawn the attention of industry practitioners and academic fraternity towards the need to incorporate sustainability in business operations (Hill, 2001). Kleindorfer et al. (2005) elaborated the role of operations management as a bridge between company’s strategy for sustainability and actual achievement of sustainability. The foremost and most complex business operation in a supply chain is procurement which involves up to 60% of the total cost of final product (Boer et al., 2001). Procurement policies are handled at strategic and tactical level, involving selection of the most suitable suppliers and the order quantity to be procured from each supplier. Therefore, they must be addressed jointly for better allocation (Aissaoui et al., 2007). In addition to this, there is a lot of logistics involved in procurement which is the major contributor of carbon emissions in entire supply chain. Therefore, there is a need to address sustainability aspect in joint procurement problem including lot sizing, supplier selection and logistics in order to contribute towards the sustainable supply chain. This paper proposes a Mixed Integer Linear Program (MILP) to model low carbon procurement problem. The proposed model integrates lot sizing, supplier selection and logistics activities for joint procurement in a carbon trading scenario. The proposed MILP for low carbon procurement problem optimizes the total cost of procurement and the carbon emissions generated due to the procurement to meet the desired demand. The paper also presents four illustrations of different size and magnitude to show the applicability of the proposed model. In addition to that the proposed MILP is also demonstrated using a real case of manufacturing industry.

The remainder of the paper is structured as follows. Section 2 provides the review of recent past literature addressing sustainability aspect in procurement problem. The proposed MILP model for low carbon procurement problem is formulated in Section 3. Section 4 presents the numerical computations carried out on four different data sets. Section 5 discusses the real case study showing applicability of model in manufacturing industry. Section 6 discusses the application of proposed MILP to other industries. Managerial insights and theoretical contributions are presented in Section 7 followed by conclusion and future scope of work.

Section snippets

Literature review

Sustainable procurement is the first and foremost step towards incorporating sustainability aspect in any business organization. In this section, the past work on addressing sustainability in various procurement functions such as lot sizing, supplier selection and logistics is discussed. Supplier selection and order allocation is an important aspect of procurement and strategic partnership with suppliers is essential to achieve desired sustainability targets (Geffen and Rothenberg, 2000).

Problem statement

The procurement problem is considered for a business organization where the lot sizing, supplier and carrier selection need to be optimized for a multi-period, multi-product, multi-supplier and multi-carrier scenario. The business organization is considered to operate in carbon sensitive market, where the firm is liable for the carbon emissions caused in the procurement process involving ordering, holding and transportation activities. Therefore, the procurement plan must be optimized such that

Numerical computations and discussions

The MILP for low-carbon procurement problem developed is illustrated using four different data sets generated randomly. The considered data sets are of varying time periods, products, suppliers and carriers to validate the proposed MILP keeping the characteristics similar to the procurement process of manufacturing industry. Random function is used to generate all data in order to create multiple illustrations to show the performance of the proposed MILP under various scenarios. Appendix A to

Case study

This section demonstrates the application of proposed MILP in manufacturing industry using a real case study. The case of a manufacturing firm named Kapsons Industries Private Limited located in Jalandhar, Punjab is considered here. The firm has multiple divisions and the case of motor division is considered in this study. The firm manufactures various models of motors and for that purpose various grades of coil sheets are used as raw material. The firm procures the raw material from

Applications in other industry

The proposed MILP model for the procurement plan can be extended and applied to other industries such as chemical plants including oil refinery, pharmaceuticals or polymer, cement industry, and textile industry besides manufacturing industry. For an instance, oil refinery industry in general is involved in producing various products such as petroleum naphtha, gasoline, diesel fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas from various grades of crude oil and other

Managerial implications and theoretical contributions

Following are the managerial implications and theoretical contributions proposed in this paper:

a.
Managerial Implications
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  A low carbon procurement model is proposed to optimize lot sizing, supplier and carrier selection in a carbon trading scenario and is referred as proposed MILP.
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  The cost comparison of proposed MILP is provided with relaxed MILP (without carbon constraint) and significant cost savings (8.39%–45.22%) are shown for the proposed low carbon model using illustrations.
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  The applicability

Conclusion and future scope of work

The paper proposes a multi-period, multi-product, multi-supplier and multi carrier procurement model integrating lot sizing, supplier and carrier selection problem. The problem is considered for a carbon sensitive market using carbon cap-and-trade policy. The amount of carbon emitted in the process of ordering, holding and transportation activities is calculated and balanced to total allowable carbon quota. The carbon emissions exceeding/saved is linked to objective function in terms of cost.

Acknowledgment

Authors would like to express their thanks to the anonymous referee for the insightful comments which has significantly enhanced the manuscript quality and readability.

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Modeling low carbon procurement and logistics in supply chain: A key towards sustainable production

Highlights

Abstract

Introduction

Section snippets

Literature review

Problem statement

Numerical computations and discussions

Case study

Applications in other industry

Managerial implications and theoretical contributions

Conclusion and future scope of work

Acknowledgment

Comput. Oper. Res.

Int. J. Prod. Econ.

Int. J. Prod. Econ.

European J. Oper. Res.

Expert Syst. Appl.

J. Cleaner Prod.

Int. J. Prod. Econ.

Energy Policy

Transp. Res. Part E Logist. Transp. Rev.

Transp. Res. Part E Logist. Transp. Rev.

Expert Syst. Appl.

J. Cleaner Prod.

J. Cleaner Prod.

Int. J. Prod. Econ.

J. Cleaner Prod.

Transp. Res. Part E

J. Appl. Log.

J. Environ. Manag.

Int. J. Prod. Econ.

Expert Syst. Appl.

European J. Oper. Res.

A carbon sensitive supply chain network problem with green procurement

A sustainable EOQ model: theoretical formulation and applications. Research report