Sidney Hill, Jr.: The next planning variable may be carbon control

Constraint-based planning is a basic tenet of supply chain management. It calls for identifying factors that can slow the movement of goods through a supply network and developing solutions to overcome those limitations, or constraints, as they are called in supply chain vernacular. Typically, the goal is ensuring that all customer orders are filled correctly, on time, and at a cost that allows...
By Sidney Hill, Jr., executive editor June 1, 2008

Constraint-based planning is a basic tenet of supply chain management. It calls for identifying factors that can slow the movement of goods through a supply network and developing solutions to overcome those limitations, or constraints, as they are called in supply chain vernacular.

Typically, the goal is ensuring that all customer orders are filled correctly, on time, and at a cost that allows the company to turn a profit.

Supply chain professionals—with much help from software vendors—have become adept at managing constraints such as shortages of production equipment, raw materials, or personnel.

Given the growing concern about how the mass production and movement of goods is affecting the environment, we may be approaching a time when the amount of carbon emitted during the course of filling orders may become a standard planning variable.

LogicTools, a division of ILOG, says it is making this possible with the recent addition of a Carbon Footprint Extension to its ILOG LogicNet Plus XE supply chain software suite.

LogicNet Plus is used for designing supply chain networks as well as planning the best methods of moving goods through those networks. Both tasks involve weighing the trade-offs required to maintain certain customer service levels within a reasonable cost structure. With the Carbon Footprint Extension, the amount of carbon emitted can now become part of that analysis.

David Simchi-Levi, cofounder of LogicTools and now an ILOG consultant, says companies in the European Union, which has agreed to abide by the Kyoto Protocol for reducing greenhouse gases, already have a financial incentive for deploying tools like the Carbon Footprint Extension.

“Companies that can show their carbon emissions are below the limits [set by the Kyoto Protocol] can sell emission credits on the open market to companies above the limits,” Simchi-Levi says. “The market for those credits was 40 billion euros in 2007.”

The LogicNet extension has a database stocked with information such as the average amount of carbon emitted by buildings of various sizes, performing different types of production, in different geographic regions.

Data on the amount of electricity consumed in these buildings also is available, along with information on how much carbon would be emitted transporting the goods produced in the buildings to various points around the world.

Simchi-Levi says LogicTools gathered this data from U.S. government sources and the World Resources Institute. “It will be updated with each new release of the software,” he says, adding that the sources of all data are available to users, allowing them to seek more current information at any time.

The pertinent carbon-related data can be added to a LogicNet Plus planning model, where tradeoffs can be made.

“You can create an optimal supply chain strategy that keeps you below government-mandated emissions limits,” Simchi-Levi says. “Or, you can decide to go over those limits and buy emissions credits from other companies.”

Either way, you are exercising environmental awareness.