Environmental Warehousing

As the environmental message that climate change is happening and it will affect us in many different ways becomes accepted, a question that is often raised in the logistics based industries is how will this affect supply chains?  To address this at a high level it is worthwhile considering the factors that determine the costs and design of supply chains.  One of the prime driving factors for this is the number and location of warehouses and / or distribution centres.

For each supply chain there will be an optimum number of these that are determined by the proportion of invetory, storage and transport costs.  This relationship is explained in the graph below where it can be seen that by combining these costs there is an optimum number of warehouses that provide the minimum total distribution costs.

Let us now consider the immediate effects of environmental issues.  Energy usage is at the top of the list and whereas there are a number of alternative sources to generate energy and use it efficiently within distribution centres, transport is currently almost entirely dependant on the availability and price of oil.  As we know this is rising significantly and forecasts are that this will continue.  The affect of this on total distribution costs is that transport or delivery costs will become a larger proportion of the total, causing the optimum number of warehouses to increase and be closer to the points of demand.  This is shown in the graph below.

The rise in transport costs is also likely to affect larger supply chains that serve the total European markets.  If we consider the trends with the major food manufacturers to produce fewer products at larger sites in Europe and Eastern Europe then ship all products to individual country markets, we can see that rising transport costs also affect the balance of these total supply chain costs.

This is not to say that these will be the only effects on the environment on supply chains.  Rising fuel costs could also generate better vehicle fills in larger vehicles.  This possibly leads to fewer deliveries, more stock and a reduction in customer service levels.

Each supply chain will have its own set of deisgn criteria that influence the minimum distribution costs but it is clear that the balance of these is changing and new criteria are being introduced as a result of environmental changes.