Environmental Engineering Reference
In-Depth Information
and eventually finished goods (such as heat, electricity, and transportation fuels). The logistics
function involves transportation and storage of these items from one point in the supply chain to
the next. Thus, logistics function spans key activities such as transportation, industrial packaging,
materials handling, warehousing and storage, and inventory control (Fisher 1997).
Frequently, the movement and storage of raw materials in an organization is different from that
of finished goods. Accordingly, the logistics function can be further distinguished into inbound
logistics (materials management) and outbound logistics (physical distribution). Put in the context
of biomass logistics systems from a biorefinery organization perspective, inbound logistics involve
movement and storage of biomass feedstock to a biorefinery plant, whereas outbound logistics man-
age movement and storage of refined bioproducts such as biofuels and electricity. Biomass logistics
systems can be characterized as heavy inbound in that a biorefinery has a very heavy inbound flow of
biomass feedstock from various sources and a relatively simple outbound flow of finished bio-based
products (e.g., biofuels distributed to a few major petroleum storage and distributors or electricity
grid operators). Accordingly, much research and managerial focus has been on the inbound side of
the logistics system. However, it is important to note that although inbound and outbond logistics
activities differ in system designs and requirements, close coordination between the two is critical to
achieve the seven R's of logistics performance. The seven R's underscore getting the right product,
to the right customer, in the right quantity, in the right condition, at the right place, at the right time,
and at the right cost (Coyle et al. 2008).
The biomass supply markets and inbound biomass logistics are evolving systems
,
ones in which
the processes and the underlying technologies are still under early development and are rapidly
changing. As a result, the supplier base may be limited in size and/or experience, and uncertainties
are not uncommon with respect to yield, process reliability, and lead time. In general, to hedge
against such uncertainties, inventory may be increased, lead times cut, process flexibility increased,
and/or multiple supply bases or alternative supply resources developed. By using these strategies,
the costs of holding more inventory and managing the multiple supply bases may be higher, but the
risk of supply outages can be reduced (Fisher 1997; Lee 2002). Logistics activities play a major role
in implementing these risk hedging strategies and hence warrant further discussion, particularly in
terms of factors that affect the cost of biomass logistics and interrelationships among them.
7.8 Factors aFFectInG BIomass loGIstIcs costs
Factors that influence the cost of biomass logistics can be classified broadly into three categories:
competitive factors, product factors, and spatial factors (Coyle et al. 2008).
7.8.1 c
ompEtitivE
f
actorS
Competitive factors span price and customer service. Although price is frequently a basis of
competition, in many markets customer service can be a significant form of competition. A well-
accepted principle of logistics management associated with customer service is that of order cycle
time. Order cycle time (OCT) can be defined as the time that elapses from when a customer places
an order until the order is received. OCT influences product availability and customer inventories.
A longer OCT usually requires higher customer inventories, suggesting that if biomass suppliers
can improve customer service by shortening its OCT, its customers should be able to operate with
less inventory. Variability of OCT also affects customer safety stock inventory levels and stockout
costs. A customer can minimize its inventory levels if OCT is constant. That is, a buyer who knows
with 100% assurance that the OCT is 10 days could adjust its inventory levels to correspond to the
average demand during the 10 days with no need to hold safety stock to guard against stockouts
that may result from inconsistent OCT. It then follows that such a cost reduction made possible
by shorter and more consistent OCT could be as important as a reduction in prices of biomass
itself. The significance of OTC as a competitive basis is particularly the case for biomass markets,
