Going green: Managing cost, service and carbon trade-offs in transportation networks

Editor’s Note: The SCM thesis Carbon Efficient Network Design was authored by Namuun Purevdorj and Ars-Vita Alamsyah and supervised by Dr. Alexis Bateman and Suzanne Greene. For more information on the research, please contact MIT SCM Master’s Program Executive Director Maria Jesus Sáenz ([email protected]).

The transportation sector is the third-largest contributor to carbon emissions, accounting for over 28% of total U.S. emissions and over 14% of global emissions in 2018. That’s why companies want to reduce their transport network’s carbon emissions to meet global Science-Based Target (SBT) goals.

However, they don’t want to compromise cost or service in the process. Is it possible to reduce carbon emissions while still meeting these KPIs of minimizing transportation costs and meeting delivery time requirements? Our research found that it is possible—but not if business continues as usual.

To green, or not to green

Our research focused on solving for the optimal distribution network that minimizes transportation carbon emissions while meeting transportation cost and delivery time objectives.
We worked with a Middle-Mile Transportation Network (MMTN) to address the following questions with our methodology:

Are there feasible optimal network configurations that meet global and corporate emissions reduction goals?
Could the utilization of intermodal, alternative fuel vehicles such as electric trucks or biofuel planes, or the procurement of electricity from renewable energy sources that they own, sufficiently reduce carbon emissions?
Finally, what are the trade-offs for these optimal network scenarios?

To tackle these questions, we formulated a tri-objective model using the Green Facility Location Problem (FLP) and generated the optimal scenarios and corresponding trade-offs using the ɛ-constraint method. To account for and determine the reduction targets of the MMTN’s transportation carbon footprint, we utilized the Global Logistics Emissions Council (GLEC) Framework and SBT Initiative tools.

A case for green transport

Although our research focuses on a middle-mile distribution network, our findings could help companies reimagine how entire supply chains can design greener distribution networks.

A key learning from the results was that the MMTN will not reach any of the SBTs if business continues as usual. The optimized existing network, while meeting KPIs, fell short of reaching any of the SBTs. Furthermore, the results indicated that traditional intermodal transportation and the procurement of electricity from company-owned renewable energy sources alone will not sufficiently decrease carbon dioxide equivalent (CO2e).

Ultimately, we found that the optimal network design scenarios that meet SBTs require a drastic transition to 100% alternative fuel transportation of the vehicle mix. Although these scenarios presented almost no material change in facility configuration, all the transportation selected were alternative-fuel transportation.

Nonetheless, there were manageable cost and time trade-offs for these optimal network scenarios. For MMTN, the increase in variable cost per ton of CO2e reduced is estimated to be 30–33%, while the increase in delivery time is 9% compared to current practices.

Choose your green

To realize these carbon-efficient optimal network scenarios and manage the trade-offs, companies that have transportation-heavy operations will need to shift all transportation to vehicles powered by lower-carbon fuels. This transition will require significant investment and innovation in infrastructure and technology for electric, biofuel, and other alternative energy-powered transportation.

Therefore, the question for transportation-heavy companies is not whether to invest in green vehicles, but rather which modes of green vehicles to invest in depending on the trade-offs to minimize. If minimizing costs is paramount, then investment in infrastructure to support long-distance electric trucks and rail is imperative for the actual adoption of these modes to scale. Conversely, if delivery service times are non-negotiable, collaborative partnerships with suppliers to invest, invent and ensure sufficient supply of alternative-fuel technologies such as biofuel planes are necessary.

These investments are far from trivial, and we hope this research will inform companies how to strategically choose the green considerations that best align with their supply chain priorities.
Every year, approximately 80 students in the MIT Center for Transportation & Logistics’s (MIT CTL) Master of Supply Chain Management (SCM) program complete approximately 45 one-year research projects.

These students are early-career business professionals from multiple countries, with two to 10 years of experience in the industry. Most of the research projects are chosen, sponsored by, and carried out in collaboration with multinational corporations. Joint teams that include MIT SCM students and MIT CTL faculty work on real-world problems. In this series, they summarize a selection of the latest SCM research.

SC
MR