Improving supply chain sustainability using exergy analysis
Introduction
The Globe has experienced several environmental, technological, and social changes that have had effects on individuals, societies, and world governments. Such changes have influenced the ways in which business firms are designed, organized, managed, and led (McKee, Kemp, & Spence, 2012), which in turn raised the call for implementing sustainable development (SD) in many countries. In 1987, the World Commission on Environment and Development defined SD as “development which meets the needs of the present without compromising the ability of future generations to meet their own needs” (Drexhage, & Murphy, 2010). Their report claims that it is commonly accepted that SD calls for merging the three pillars of economic development, social equity, and environmental protection.
Business firms have become conscious of the sustainability of their businesses and supply chains: being more economically, socially and environmentally responsible can provide a better firm performance and improve the competitive advantage (Massaroni, Cozzolino, & Wankowicz, 2015). Based on the triple pillars of SD, Carter and Rogers (2008) presented a framework for sustainable supply chain management (SSCM) that comprises the concepts of sustainability and supply chain management (SCM), which can provide a starting point for a common understanding of SSCM among supply chain managers. Many definitions for SSCM can be found in the literature (see Carter & Rogers, 2008 for example). In this paper, we adopt the definition of SSCM by Seuring and Müller (2008), which is “the management of material, information, and capital flows as well as cooperation among firms in a supply chain while considering goals from all three aspects of SD that are derived from the requirements of the customers and stakeholders”. Ahi and Searcy (2013) clearly explained how the voluntary nature of a business firm can assist in achieving sustainability. They, also, explained the importance of coordination in a supply chain that can efficiently and effectively manage the flow of material, information, and capital that is associated with the activities of a supply chain in order to meet stakeholder requirements and improve the profitability, competitiveness, and resilience of the organization over the short and long-term.
Numerous reasons motivate business firms to adopt the concepts of SSCM, such as (1) managing risk (including reputational, regulatory, security and quality of supply and litigation risks), (2) creating sustainable products and (3) minimizing costs by realizing inefficiencies in the supply chain (United Nations Global Compact, 2015). World leaders adopted the 2030 Agenda for SD, which includes a set of 17 Sustainable Development Goals (SDGs) to achieve a sustainable world (United Nations (UN) Sustainable Development Goals, 2015). The twelfth goal of the SDGs states that achieving economic growth and SD needs an urgent action that can reduce the ecological footprint by changing the way we produce and consume products and resources to ensure sustainable consumption and production patterns (United Nations -Sustainable Development Goals, 2015).
The earliest reported work that called for factoring environmental issues in inventory and supply chain management is that of Bonney and Jaber (2011), which was presented at the International Symposium for Inventory Research in 2008. They identified the importance of inventory and some of its problems that need non-classical analyses, discussed the hierarchy of inventory players, suggested an inventory performance metrics (including non-cost measures), presented an environmental inventory performance metrics, and identified some implications of the discussion in their paper. They argued that inventory is part of a wider problem and concluded that there is a need to develop environmentally responsible inventory models. The work of Bonney and Jaber (2011) triggered many researchers to develop inventory and supply chain models that account for environmental factors, mainly carbon emissions. Later, some researchers extended these models to encompass the three pillars of sustainability. For a more exhaustive survey of these works, readers may refer to the review papers of Andriolo, Battini, Grubbström, Persona, and Sgarbossa (2014) and Bushuev, Guiffrida, Jaber, and Khan (2015).
The relationship between SD and the consumption of natural resources, particularly energy, is particularly important to societies. SD requires using sustainable energy resources, rather efficiently. Hence, methods that employ exergy (a thermodynamic property representing the available useful part of energy) analysis are important since they are useful for improving efficiency. The relationships between exergy and energy and the environment make it notable that exergy is directly related to sustainable development (Dincer & Rosen, 2012). Sciubba (2011) developed the “Extended Exergy Accounting (EEA), an extension of traditional exergy analysis, to highlight the importance of other non-energetic production factors, including capital, labor, and environmental remediation costs. EEA represents the equivalent exergetic content of a commodity, which is obtained from adding the equivalent exergetic content of the “non-energetic externalities” (capital, labor and environment remediation) used in the process of production of a commodity to the “energetic items” (e.g., energy and materials) (Sciubba, Bastianoni, & Tiezzi, 2008).
One may ask why exergy analysis is preferred over other approaches such as life cycle analysis. Dincer and Rosen (2012) answered to this where they wrote: “life cycle assessment (LCA) aims to improve or to optimize processes so that they consume fewer resources and produces less emissions and wastes. Common routes for achieving this often include end-of-pipe treatment such as wastewater treatment plants, filters and scrubbers. These provide only partial solutions, as they do not decrease the environmental load, but rather shift it from one phase and location to another (e.g., water or air to soil). In many cases, however, expensive end-of-pipe treatment solutions are unavoidable. Exergy analysis appears to be a significant tool for improving processes by changing their characteristics, rather than simply via end-of-pipe fixes. Thus exergy methods can help achieve more sustainable processes.” Exergy analysis is a recent tool that has been used to measure the sustainability of industrial processes (Dincer & Rosen, 2012). Studies in the literature are limited to exergy analysis and optimization of a process in a single facility (Apaiah, Linnemann, & van der Kooi, 2006). Apaiah et al. (2006) addressed this gap and used exergy analysis as a tool to reduce the environmental impact of a food supply chain. Geldermann, Treitz, and Rentz (2006) used pinch analysis, derived from exergy analysis principles, to minimize energy consumption in a production network (supply chain) and subsequently reduce its environmental and economic consequences. Gutowski et al. (2009) modeled a manufacturing system as a sequence of thermodynamic processes (a chain) where the useful output, products and by-product, flows from one stage to the next. These processes incurred exergy losses. Banasik, Kanellopoulos, Claassen, Bloemhof-Ruwaard, and van der Vorst (2017) who developed a mathematical programming model to support production planning in a bread supply chain showed that exergy analysis captures the impact of energy and waste and offers an objective assessment of environmental impact. Banasik et al. (2017) presented a mathematical programming model to study a mushroom supply chain where they used exergy losses to capture its environmental impact. They noted that the advantage of using of exergy as an environmental indicator allows the quantification of the environmental impact of production activities in a single unit, i.e., megajoules. A simple search in Scopus (22/08/2017; Keywords: “exergy” AND “supply chain” OR “production planning” OR “manufacturing management” OR “logistics”) showed 143 hits in the classifications “Business, Management and Accounting” and “Decision Sciences”, of which 68% appeared since 2014. These studies and the database search show that exergy, as a sustainability tool, has been applied to the classical field of operations research and management science. In light of this, we believe that the topic of this paper is timely and would be interesting to the readership of the European Journal of Operational Research.
One may also ask if there is a link between thermodynamic principles and operations research (OR). Operation OR uses mathematical and computational tools to solve real-world problems and help organizations in making sound managerial decisions. Any system (organizational or otherwise) left unto itself, will tend towards disorder (Drechsler, 1968). It usually does if it is poorly controlled. The second law of thermodynamics, or entropy, measures the wasted resources of a system due to process inefficiencies and has been argued to govern management thinking (Drechsler, 1968). Disorder (or entropy as per the second law of thermodynamics) manifests itself as common problems of inefficiency and related elements such as higher costs, lower outputs, greater wastes, lower profits, lowered capability to adapt to changes in the world, low morale, loss of motivation, business failure, rework, scrap, queues of material, machines, and finished products, energy losses, emissions, etc. (Drechsler, 1968). There have been attempts by some researchers to link thermodynamics and operations research; however, they remain few and far between the literature. Interested readers may refer to Chapter 9 of Jaber (2009) for a brief review.
Unlike the classical approaches to sustainability surveyed in Andriolo et al. (2014) and Bushuev et al. (2015), Jawad, Jaber, and Bonney (2015) developed a sustainable economic order quantity model by employing EEA and the laws of thermodynamics. The model places attention on all three pillars of sustainability and computes their costs by considering money as an economic factor, environmental factor by paying for the remediation of the environment, and labor as a social factor. They found that in some situations, sustainability can be profitable. In another paper, a heat-pump cycle analogy was used to study “work-assisted pumping” of a commodity from a supplier to a market (Jawad, Jaber, Bonney, & Rosen, 2016). This paper builds on this line of research by using two heat pumps, analogous to a two-level supply chain, connected in series to better include and represent incurred inputs.
The Joint Economic Lot Sizing (JELS) is a coordination mechanism where the members (e.g., a vendor and a buyer) in a supply chain jointly determine the size of orders and the frequency of shipments that minimize the total cost of the supply chain and share savings among its members (Jaber & Zolfaghari, 2008; Glock, 2012). JELS models can be considered useful planning tools in cases where firms have established long-term relationships with their suppliers and customers (Glock, 2012). Two forms of JELS exist. The first form, classic, where the vendor produces, accumulates inventory, and ships batches of equal sizes to the buyer at equal intervals. The bulk of inventory is held by the vendor. The second, consignment stock, where the vendor produces and ships each batch upon completion to the buyer who holds the bulk of the inventory as it is cheaper for the vendor. JELS may be viewed by some to represent a small part of the whole supply chain and applying exergy analysis in this context may bring little benefit. Inventory management remains to be an important part of a supply chain. Inventory is needed for manufacturing and logistics activities. They are also needed for constructs such as health systems, military systems and organizations for humanitarian relief. Organizations cannot operate without some inventory in their supply chains. Bonney and Jaber (2011) argued that production and inventory activities have environmental implications on the supply chain and, therefore, inventory has to be treated as part of a wider system. They also suggested that because there are many types of inventory problems, there may be a need for some non-classical forms of inventory analyses. In this regard, exergy analysis is used in this paper.
This paper derives exergetic versions of the two forms of JELS to determine the consumed amount of exergy during the “local” producing and storing of an item with accounting to the cost of energy, emissions, transportation and its environmental and social effects. It also accounts for the presence of entropy in the supply chain and presents it as a cost of wasted exergy. The objective of this paper is to assist supply chain managers in selecting the best policy to produce and order domestically, one based on the amount of the consumed resources. Additionally, it provides managers with a tool to help them decide whether to import or locally produce and distribute the desired products when considering sustainability as a key factor in their businesses. Moreover, it provides some suggestions for governments to support local businesses and to control import and export processes.
This paper contributes to the literature by introducing a non-classical supply chain management analysis that assumes a multi-echelon supply chain behaves analogous to a combined thermal system, where the integration of its sub-systems can minimize the entropy generated in the entire system. Connecting two heat pumps in series can reduce the temperature stretch of each unit, resulting in an improvement in the coefficient of performance (COP) of the system when compared to the COP of one individual heat pump supplying the same thermal power (Piatti, Piemonte, & Szegö, 1992). It is well established that the maximum COP can be obtained when minimum entropy is generated in the system (Cheng, & Liang, 2013).
The remainder of the paper is organized as follows. The next section, Section 2, is for nomenclature. Section 3 provides a brief background to some thermodynamic principles. Section 4 is for the modeling of the exergetic supply chain system. The numerical results and discussion are presented in Section 5. A summary of the paper and some conclusions are provided in Section 6.
Section snippets
Nomenclature
- H
hot
- c
cold
- Tr
in-transit period
- tr
transportation
- r, m
retailer, manufacturer
Subscripts
- cm
unit manufacturing cost ($ per unit)
- cw
unit manufacturing cost excluding raw material ($ per unit)
- cmtr
unit raw material cost ($ per unit)
- cmtr0
unit market (equilibrium) purchase cost of raw material ($ per unit)
- cL
manufacturer unit labor cost ($ per unit)
- ce
emissions cost ($ per ton CO2)
- ceng
energy cost ($ per kilowatt hour)
- d
demand (unit per year)
- P
unit selling price by the retailer ($ per unit)
- P0
market price of a product ($ per
Input parameters
Entropy generation and exergy destruction of a heat pump system
According to the second law of thermodynamics, all processes are bound to suffer from inevitable inefficiencies. No matter how hard one tries, entropy is generated in any process that exists whether natural or man-made. Put another way, destroyed exergy accounts for the irreversibility of a process within a system due to the progressively generated entropy (Leutz, 2001). This explains the extensive need for an understanding of entropy and the fundamental importance of investigating the
Model assumptions and decision variables
This paper considers a coordinated two-level (manufacturer–retailer) supply, where the manufacturer delivers the finished products to the buyer. Our objective is to minimize the total cost, TC, of the developed supply chain model while focusing on the pillars of sustainable developments.
To bound the research, the following assumptions have been considered in building the model:
- -
The retailer sells items to customers at price P, which is less than the market price P0 where P < P0.
- -
The manufacturer
Results and discussion
This section presents and discusses the results for the developed models in Section 4. Section 5.1 is for Hill's model, Section 5.2 is for the consignment stock model, and Section 5.3 is for the overseas supply chain model.
Summary and concluding remarks
This paper investigated the important factors that can influence the cost of a supply chain, such as; labor, energy, emissions from production, emissions from transportation, social impacts of transportation and entropy. The paper postulated that a two-level supply chain (manufacturer-retailer) is analogous to a thermal system of two heat pumps connected in series. This helped in evaluating the amount of exergy wasted when consuming resources. The paper used the extended exergy approach to
Acknowledgments
The first and second authors thank the Natural Sciences and Engineering Research Council of Canada (NSERC), Canada, for supporting this research. The authors wish to thank the anonymous reviewers for their positive and valuable comments that helped improve this paper.
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