What is the Question?
Presented at the
NSF Low Carbon Footprint Supply Chain Workshop
October 14, 2010
Lawrence D. Burns, Ph.D.
Professor of Engineering Practice
Department of Industrial and Operations Engineering
University of Michigan
Profound Events
• Global Recession
• GM Bankruptcy
Necessary Conditions for Sustainability
• Economic Growth
• Jobs Growth
• Happy Customers
Low Carbon Supply Chains?
Suppliers
Customer
Sell
Must be Customer Driven!
Total Customer Experience
Must be Deeply Understood!
Examples
• Netflix
• SunChips
Necessary Condition
Low Carbon Supply Chains Must Ensure
Customer Value > Market Price > Supplier Cost
Total System Approaches
• “Cradle-to-Cradle” Supply Chains (Braungart and McDonough)
– Regulation = Failure of Design
– Innovative System Design = Sustainability
– “Design every product in such a way that at the end of its
lifecycle the component materials become a new
resource.”
• Remanufacturing
(Nasr)
– Capture “end-of-life” material, labor and energy value
• Life Cycle Analysis
– Comprehensive framework to guide decisions
Necessary Condition
Low Carbon Supply Chains Must Comprehend
Total Product/Service Life Cycle
» Design
» Manufacturing
• Raw Materials- to-Finished Products
• Logistics and Production
» Distribution
» Consumption
» Recycling/Remanufacturing
Energy Systems & Policy Framework
Price
•Efficiency
•Conservation
•Technology
Consumers
Energy
Demand
Energy
Supply
Economy
Energy &
Environmental
Policy
•Regulations
•Taxes
•Sustainability
•Security
•Technology
Suppliers
•Subsidies
•R & D
Market “Tipping Point”: Consumer Value > Market Price > Supplier Cost
U.S. Energy Demand by Sector
Moving
ourselves
and goods
around
Transportation
29%
Industrial
32%
Making what we
consume
Commercial/
Residential
39%
Making our
lives easier,
safer and
more
comfortable
Energy is Woven into the Fabric of Everything We Do
What We
Eat
How We
Get Food
How We
Get Water
How & Where
We Shop
Where
We Live
How We
Light
Where
We Go
How We
Heat &
Cool
How We
Do
Chores
How We
Move
How We
Communicate
How We
Dispose
Waste
How & Where
We Work
How We
Make Goods
How We Do
Services
How We
Learn & Play
Energy Consumer Expectations
Buy
To
Expect
Gasoline
Move Around
-Convenient Supply
-Fast/Infrequent Refueling
-Affordable/Stable Prices
-Safety
Electricity
Natural Gas
Light Spaces
Cool Spaces
Communicate
Run Appliances
Heat Homes
-Reliable Supply
-Easy to Use
-Affordable/Stable Prices
-Safety
-Safety
-Convenient
-Reliable
-Affordable/Stable Prices
A CMO is a unit of energy equal to the thermal energy
released by combusting a cubic mile of oil.
Global Energy Demand by Source in CMOs
Hydro 0.17
Wind + Solar +
Geo 0.03
Bio 0.19
Nuclear 0.15
Oil 1.1
Natural Gas 0.6
Coal 0.8
Source: A Cubic Mile of Oil Oxford
University Press (2010)
Energy Demand & GDP ($)
Bangladesh
Brazil
W. Eur
Japan
India
U.S.
China
Russia
GDP ($)/GO
Per Capita
GDP ($)
35
31
30
28
26
21
15
13
1,200
9,600
35,000
33,500
2,800
45,800
5,300
14,700
U.S. Energy Expenditures as Share of GDP
14%
Percent of GDP
12%
10%
8%
6%
4%
2%
0%
1970
19
1980
1990
2000
2010
Energy Demand Drivers
•
•
•
•
•
Population Growth
Higher Standard of Living
Economic Mix
Energy Efficiency
Energy Conservation
Energy Demand Scenarios for 2050
BAU
(“Business as Usual”)
EIA
(U.S. Energy Information
Agency)
WEC
(World Energy Council)
Assumed Growth
(%/yr.)
Predicted Energy
Use in 2050
(CMO)
Cumulative
Energy Use 20002050 (CMO)
2.6
≈10
270
1.8
≈6
210
0.8
≈4
160
Energy Supply System
•
•
•
•
•
•
•
•
Huge
Complex
Dynamic
Uncertain
Significant Capital
Strong Vested Interests
Enormous Inertia
Very Wasteful
Proven and Additional
Global Fossil Fuel Reserves (2006)
Reserves (CMOs)
Petroleum
Natural Gas
Coal
46
42
121
Estimated Additional
Conventional
35-94
34-66
400-1,000
Estimated Additional
Unconventional
300
5,000
__
Proven
Source: A Cubic Mile of Oil Oxford
University Press (2010)
Renewable Energy Supply
Geothermal
2006 Global
Production
(CMO/yr)
Global Potential
(CMO/yr)
.05
4
Hydroelectric 0.2
0.4
Wind
40
Solar
Biomass
<0.005
.02
23,000
unharnessed
20 CMO (in biosphere)
0.5-14 CMO (on land)
Source: A Cubic Mile of Oil Oxford
University Press (2010)
Energy Supply “Chains”
• Convert energy sources (e.g., oil) into what
people/enterprises use (e.g., gasoline/diesel fuel)
• Characteristics:
•
•
•
•
•
Complex
Dynamic
Political
Interdependent
Capital intensive
• Oil-to-Gasoline
Exploration
Production
Refining
Distribution
• Oil Sands-to-Gasoline
Excavation
Separation
Refining
Distribution
What are the Issues?
•
•
•
•
Coal:
– CO2 Emissions
– Air Pollution
– Water Risks
– Health Risks
Oil:
– CO2 Emissions
– Air Pollution, Spills
– Resource Depletion
– National/Economic Security
Natural Gas:
– CO2 Emissions
– Air Pollution
– Water Risks
Nuclear:
– Terrorism
– Waste Disposal
•
•
•
•
Wind:
– Visual
– Cost
– Land Use
– Low-Intensity Energy
Solar:
– Cost
– Low-Intensity
– Energy
Bio:
– Land use
– Food vs. Fuel
– Deforestation
– Water Use
Geo/Hydro:
– Limited Availability
Multiple Drivers of Change
Energy
Economics
Technology
Energy
Politics
Energy
Security
Urbanization
Transformation
Oil/Gas
Price
Volatility
Globalization
Regulation
28
Greenhouse
Gases
Scenarios
Technology
Commercialization
Slow
Oil
Prices
High
&
Volatile
Low
&
Stable
Fast
Necessary Condition
Low Carbon Supply Chains Must Consider
Risk Management
Example
Global Automobile Supply Chain
Auto Industry Supply Chain
Characteristics
•
•
•
•
•
•
•
•
•
•
•
•
•
Global
Complex
Highly competitive
120 year old product design “DNA”
≈ 50% of total cost is direct and indirect materials, and logistics
Parts purchased 2-3 years in advance of program launch
5-6 year product design life
Key purchasing considerations: price, quality, delivery, and technology
Multiple supply “tiers”
Long distance supply chains with “just-in-time” production systems
Franchised distribution
Significant scale economies
≈ 90% recycled
Auto Industry Supply Chain
Realities
• Highly dynamic and uncertain environment
–
–
–
–
–
–
–
Macro-economics
Exchange rates
Material prices
Labor costs
Energy prices
Know-how (geographical)
Regulations
• Continuous cost reduction & value enhancement are imperative
• Multiple challenging objectives
TO WHAT EXTENT WILL “LOW CARBON” DRIVE SUPPLY CHAINS?
WILL LIKELY DEPEND HEAVILY ON “PRICE” OF CARBON!
The New Automotive DNA
15X Opportunity
Current “DNA”
Oil
Gasoline
Personal Mobility
Materials
Car
3,000 lb car
25% efficiency
150 lb person
Only 1% energy in gasoline used to move person!
New “DNA”
Sun/Wind
Electricity
Personal Mobility
Materials
“USV”
15X improvement in efficiency to move person!
600 lb USV
75% efficiency
150 lb person
Show Shanghai World Expo Video
Shanghai World Expo ENV
Conclusions: Energy Demand
• Today’s Energy Demand is Substantial
• Energy is Woven into the Fabric of Everything We Do
• Could Grow Dramatically by 2050
– Population Growth
– Raising Standards of Living
– Time Required to Realize Significant Conservation
(Behavior) and Efficiency Improvements (Technology)
• A Broad Set of Integrated Actions Across All Sectors Will be
Required to Realize Sustainable Economic Growth
– Must Focus on “What We Do” and “How We Do It” to
Realize Transformational Change
Conclusions: Energy Supply
• The energy supply industry
– is huge, complex, dynamic and uncertain
– has enormous inertia, significant capital
requirements and strong vested interests
• There is plenty of “raw” energy from several
sources
• Unfortunately, every source has sustainability
issues
• It is unlikely that we will be able to sustainably
supply sufficient energy to meet demand if we
keep doing what we have been doing
So, What is the Question?
• ISSUE : Energy and Carbon
• CHALLENGE : System Design and Risk Management
• QUESTIONS :
– How do we ensure a significantly higher quality of
life for everyone and do so sustainably?
– How do we grow economies, create jobs, and
enthuse consumers and investors by designing
product & service supply chains that are
sustainable?
– How do we manage sustainability risks as we
strive for “win-win” sustainability solutions?
Key Enablers
• Pursue a Robust Portfolio of Technology Opportunities
• Focus on Market-Based Large Scale Transformation
• Target Market “Tipping Points” for Portfolio
Opportunities
• Use a “System of Systems” Approach
• Follow an Integrated Policy + Technology +
Commercialization Strategy
• Comprehend Near-Term (10 yrs) + Mid-Term (25yrs) +
Long-Term (50 yrs)
Good News/Bad News
• “Good News”:
– We do not appear to be facing a resource or know-how
challenge
– Sufficient energy resources exist to power future economic
growth and sufficient technologies exist to do so sustainably
• “Bad News”:
– We are facing an economic, behavioral and political challenge
– We do not have sufficient common understanding and
collective will to transform how energy is supplied and used
• Huge opportunities exist and require
– Simple, clear communication
– Great leadership
– An “and” mindset
“And” vs. “Or”
“And” (+)
•
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•
•
•
•
•
•
•
•
•
Addition
Synergies
Integration
Portfolios
Systems
Connect “Dots”
Similarities
Transform
Whole
Combine
Innovate
“Or” (/)
•
•
•
•
•
•
•
•
•
•
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Division
Trade-offs
Isolation
“Silver Bullets”
Pieces
Select “Dots”
Differences
Compromise
Parts
Oppose
Accept
Research Opportunities
• Create a “theory” of supply chain
management…..fundamental principles to guide supply
chain “design”
• Develop a total system based analytical framework to
understand “where” and “when” value should be added
based on efficiencies of moving people relative to
distributing goods
• Assess the value of “real-time” information in reducing
supply chain carbon footprints
• Develop “virtual” model to study integrated community
energy systems comprehending transportation and
stationary activities and real-time information on supply
and demand
Back-ups
Fundamental Concerns
Economy + Energy + Environment
•
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•
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U.S. Economic Growth
U.S. Jobs Growth
U.S. Position as a Global Leader
U.S. Oil 67% Imported
U.S. Trade Deficit 50% from Imported Oil
U.S. Transportation 96% from Oil
U.S. Electricity 50% from Coal
Coal and Oil Carbon Intensive
Historical Growth in Energy Supply
Source: A Cubic Mile of Oil Oxford
University Press (2010)
Learning Cycles are Key to Innovation
Gen 2
Gen 1
Demo
Gen 3
Idea
POC
“Tip”
Scale
Transform
• Learn about technology, customers and manufacturing processes
• Operations Engineers understand learning curves