Inbound Logistics Cost and CO₂ Calculations

Abstract:

Business has globalized rapidly during the last decades. Distances between point of origin and point of consumption have increased as a result of globalization. Today’s increased distances mean that companies require faster logistic responses. Air transportation is preferred because it’s worldwide lead-time, of just 1-2 day, fulfill business expectations. However, transportation operation costs have risen dramatically and there are growing concerns about the high CO₂ emission levels associated with air transportation. These issues have recently become a point of focus for most globalized companies.

Currently, Atlas Copco Rock Drills AB, in Örebro is mostly using air transportation for their inbound logistics flow from North America Shared Distribution Center (SDC). In this thesis, sea transportation is surveyed to asses it’s suitability as a replacement in both economic and environmental terms. The formulated questions are:

(1) For which items can SDC use sea transportation instead of air transportation at the lowest cost and with the lowest risk?

(2) How much can SDC reduce their CO2 emission with the new setup? Does it comply with the ”environmental targets” of Atlas Copco Rock Drills AB?

(3) How would SDC make decisions about suitable transportation setups for additional items in the future?

When the transportation method is changed from air to sea more than one of the total logistics costs are affected. In reflection of the longer lead-times connected with sea transportation warehousing costs will increase. Therefore, when researching the ”lowest cost” we must consider the lowest total logistics cost. Extended lead-times also decrease the companies’ capability for flexibility; additionally, there will be heightened risk in connection with product life cycles. The possible environmental effects of sea transportation are considered carefully before an item’s transportation method change is suggested to the company. All calculations of CO₂ emissions have been done in accordance with Nätverk för Transporter och Miljö ’s (Network for Transporter and Environment) (NTM) formula in order to reach a credible result. The findings are compared with the company’s environmental policy. An excel model has been developed to calculate results for extra items which may be added to the product range in the future.

As a result of the research analysis it has been shown possible to reduce total logistic cost up to, 33%, 3.247.000 SEK. By changing transportation mode, the CO₂ emission levels for transportation per item for these can even be reduced by up to 97%. Additionally, the excel model can be used internally to implement future changes.