LLamasoft

1. LLamasoft GHG Modeling Solution Project Briefing: Date Updated: Dec. 27, 2007

2. Project Briefing: Topics • Problem Background and Environment • Supply Chain + Green: definitions and examples • Current Market + Players • Data sources and calculators • Supply Chain Guru GHG Modeling Solution • Marketing Opportunities and Next Steps • References and Links • Supplementary Data

3. Discussion of Background and Definitions

4. Background • Global consensus has been reached that greenhouse gas emissions due to human activities are having a negative effect on the climate • Without reducing emissions, the cost of impacts associated with a unit of emission, will increase dramatically1 • Interest in social responsibility is transforming to a customer and regulatory requirement

5. Background: Crisis and Opportunities • Consumer awareness, can make conscious choice to purchase products with smaller carbon footprint • Enable companies to compete on green credentials • Some Products already labeled with their carbon footprint (UK) • Walkers crisps • Tesco • Timberland • Many Companies considering labeling (pilot projects): • PepsiCo • Cadbury • Wal-Mart

6. Background : Bottom Line • Customers and governments have introduced a new point of differentiation for market players • There is still a great deal of confusion, uncertainty, and irrationality in this new important issue • This creates an opportunity for advice, tools, technology, and leadership

7. Supply Chain + Green, Carbon Footprint Definition • What does carbon footprinting mean?2 • Common: “Total amount of carbon dioxide (CO2) and other greenhouse gases emitted over the full life cycle of a product or service” • 1. Direct emissions that result from the activities the organization controls • 2. Emissions from the use of electricity • 3. Indirect emissions from products and services • Transport and production of raw materials (upstream) • Disposal of products (downstream) • Decisions to be made: • Include only CO2 vs. all greenhouse gases • If all, also include non-carbon based ones? • Units: grams of CO2 equivalents vs. area-based unit • Which indirect emissions to include and which to exclude? • Employee commute to plants, offices • Customer usage of product, e.g. refrigerate or cook product

8. Supply Chain + Green, Why Calculate the Footprint? • To manage the footprint and reduce emissions over time • To report the footprint to a third party • Marketing • Consumers • Government • In general, an organization should KNOW and QUANTIFY what environmental impact it is having in order to make ANY sound decision (even if that decision is “do nothing”)

9. Calculating a Carbon Footprint • Define the methodology • Specify the boundary • Collect emissions data and calculate the footprint • Verify results • Disclose the footprint

10. Calculating a Carbon Footprint: 1. Define the Methodology • GHG Protocol: www.ghgprotocol.org • ISO 14064: www.iso.org • Custom (most prevalent)

11. Calculating a Carbon Footprint: 2. Specify the boundary • CO2 only or all GHG? • Direct emissions from fuel use onsite and from transport? • Direct emissions from mfg process onsite? • Emissions from the electricity purchased? • Indirect Emissions from the supply chain? • Outsourced activities • Manufacture raw materials • Transport of raw materials? • Other?

12. Calculating a Carbon Footprint: 3. Collect data • Onsite fuel consumption • Transport utilization • Chemical reactions in mfg processes • Electricity consumption and source of power (Oil? Gas? Coal? Nuclear? Geothermal?) • Employee travel by air, rail, vehicles not owned by the organization • Suppliers’ emissions

13. Calculating a Carbon Footprint: 4, 5: Verify and Disclose Footprint • Third party verification and audits can improve credibility • Disclosure should include footprint and how it was calculated (boundary, methodology, etc.)

14. Definition: Carbon Offsets • When companies or individuals cannot decrease their own carbon footprint, they can undertake action to mitigate these emissions through: • Tree-planting • Renewable energy • Energy conservation • Methane capture • Purchase of emission trading credits. Companies need to adhere to the rules of the Clean Development Mechanism11 arrangement under the Kyoto Protocol

15. Notable Organizations: NGOs • Carbon Trust, UK • Private company set up by Government. Provides free advice, survey and online calculators; commercial consulting services. • The Climate Trust • A non-profit organization, which invests funding from power plants, businesses, organizations and individuals into projects that offset GHG emissions. Also provides free carbon footprint calculator. • GHG Protocols • Multi-stakeholder partnership of businesses, non-governmental organizations (NGOs), governments, and others convened by the World Resources Institute (WRI), and the World Business Council for Sustainable Development (WBCSD). • Mission to develop internationally accepted greenhouse gas (GHG) accounting and reporting standards for business and to promote their broad adoption. The GHG Protocol Initiative comprises two separate but linked standards: • GHG Protocol Corporate Accounting and Reporting Standard: step-by-step guide for companies to use in quantifying and reporting their GHG emissions • GHG Protocol Project Quantification Standard: a guide for quantifying reductions from GHG mitigation projects

16. Current Players: Companies • Infor SCM12 • Consulting and commercial software (previously CAPS Logistics) • Barloworld Optimus13 • Software and consulting services. One of the products is CAST, which was acquired when Barloworld acquired Radical Limited in 2005. • Supply Chain Consulting14 • Global provider of enterprise software solutions and services, maker of CarbonView for visibility. Claims to have “optimization” but not sellable or demonstratable • Surya Technologies15 • Small software and consulting firm • Provider of modeling, analysis, optimization and simulation software and technologies in semiconductor and electronic design automation industries • Shifting focus to apply similar combination of custom software products and services to solve problems in environmental sustainability, business processes, and public policy. • Maker of SEAT: desktop tool for carbon modeling and optimization • LLamasoft • The new leader…

17. Summary of Commercial Software Tools • Network Design (Infor SCM): • uses CO2 Social Costs in optimizer • additionally, can minimize emissions • databases used for calculations not defined • CAST-FE (Barloworld): • add-on to CAST to calculate footprint of previously determined/optimized network • GHGs not taken into account while optimizing • Carbon View (Supply Chain Consulting): • minimizes carbon emissions vs. cost • methodology not described • SEAT (Surya Technologies): • simulation, including carbon emission calculations • need to manually determine where options are to cut emissions and generate scenarios for comparison

18. Market • Every company in the world that sources, manufactures, and/or distributes physical materials has a need • Companies facing regulatory pressure (UK, EU) have greater urgency • Companies with global brands or sales direct to consumer will face increasing pressure

19. Data and Technologies

20. Technology, databases • Databases listing carbon emissions • carbon emission factors for fuels (kg C/kWh & kg CO2/kWh)4 • sector-specific CO2 emissions (GHG Protocols)5 • benchmarks for typical usage for warehouses, offices and retailers (Hawaiian Electric Company, Inc. (HECO))6 • CO2 emissions from fuel combustion (International Energy Agency)7

21. Sample CO2 Data: Transportation • Guru calculation example: emissions associated with transportation. Rates from GHG protocol spreadsheet, 2003

22. Sample CO2 Data: Additional Transportation

23. Sample CO2 Data: Est. Facility Benchmarks • More precise numbers available based on building date, building materials used Rates from CBCES, 2003

24. Sample CO2 Data: Power emission factors • Calculation of emissions associated with sites, based on kWh usage • Rate From IEA datasources, 1998 Source: http://www.eia.doe.gov/cneaf/electricity/page/co2_report/co2report.html

25. Supplementary Data, World energy source distribution • World power usage by energy source • Source: International Energy Agency (2007)

26. Supplementary Data, Regional energy source distribution Source: BP Statistical Review 2007, http://www.bp.com/multipleimagesection.do?categoryId=9017892&contentId=7033503

27. Supplementary Data,Energy source distribution France • This data is for Électricité de France (EDF), one of Europe's largest producers of electricity. In 2003, it produced 22% of the European Union’s electricity Source: http://en.wikipedia.org/wiki/%C3%89lectricit%C3%A9_de_France

28. Supplementary Data,Energy source distribution Czech Republic • Czech Republic (2005), data from the Austrian Energy Agency Source: http://www.energyagency.at/enercee/cz/supplybycarrier.htm

29. Supplementary Data,Energy source distribution Ireland • Data for the Electricity Supply Board (as of Oct. 2006), Ireland, virtually the only electricity provider ESB Source: http://www.esb.ie/main/about_esb/power_stations_intro.jsp

30. Supplementary Data,Energy source distribution the Netherlands • 2006 numbers from Foundation Peakoil Source: http://www.peakoil.nl/2006/03/31/energie-overzicht-nl/

31. Avg Energy Conversion of Various Countries

32. Technology, calculators • GHG Protocols5 • Sector-specific Excel spreadsheet calculators • Different worksheets explain methodology and capture input data • Data used: average default emission factors based on the extensive data sets available, largely identical to those used by the Intergovernmental Panel on Climate Chage (IPCC)

33. Technology, calculators • Carbon Trust8 • Online calculator, registration required • Enter information on fuel usage: fossil fuels, owner of road vehicles, owner of planes (direct emissions) • Enter information on production and manufacturing: minerals, chemicals, metals, halocarbon, SF6, waste management (direct emissions) • Enter information on buying and importing electricity, heat, steam (indirect emissions) • Information on employee commute to work (indirect emissions) • Direct, indirect, and total emission are calculated • Data used: all calculations are based on the 2007 emission factors published by Defra16

34. Technology, calculators • The Climate Trust9 • For use in US, state-specific • Calculator in a pdf-document • Either enter electricity and gas (kWhs/yr and therms/yr) or facility square footage for facility emission calculations • Enter miles driven by company vehicles plus their efficiencies • Enter hours spent flying or total miles flown by employees • Enter amounts shipped by air freight, maritime freight and heavy truck freight, plus the miles of these trajectories • Infrastructure, transportation, shipping, and total CO2 emissions are calculated. Cost to offset the emissions will be given also • Sources: US Energy Information Administration, US Environmental Protection Agency, and other internationally recognized sources

35. Supply Chain Guru GHG Modeling Solution

36. Guru GHG Modeling Solution • Based on research, benchmarking off of existing (though limited) offerings • GHG Specification was created in Oct/Nov • Testing continues

37. Guru GHG Modeling: An Opportunity to Lead • Guru 4.1 has GHG Modeling completely integrated into tables • Benchmark data will be distributed • GHG Modeling will be distributed to ALL Guru customers with current M&S at no additional charge • Planned marketing and promotional campaign for December/January

38. Guru GHG Modeling Solution • Carbon emissions directly incorporated into all major activities • Sourcing • Transportation • Site Facility • Fully integrated into both Simulation AND Optimization • Complete Carbon Offset Modeling INCLUDING Offset optimization! • Table, text, and graphical reporting

39. Guru GHG Modeling Solution • All CO2 fields are integrated with other modeling features, and leverages all existing modeling constructs and approaches • Transportation mode specific parameters • Alternative Site configurations • Flow requirements • A rich set of situations can be modeled

40. GHG Modeling: 3 types of Analysis • Carbon Footprinting • Incorporated into simulation AND optimization • Calculation of GHG emissions • Can use network as is, and monitor carbon footprint over time • GHG Reduction Efforts • Set constraint (limit) on maximum carbon emissions by network • Use optimization to determine the most cost effective network that will meet the Carbon Footprint constraint • Carbon Offset Optimization • Incorporate Carbon Offset purchases into cost and footprint numbers • Carbon Offsets can be a decision variable

41. Inputs • Model Properties: • Max Carbon Footprint (number) • Enforce Max Carbon Footprint (yes/no) • Carbon Offset Price (currency) • Carbon Offset Initial Value (currency) • Carbon Offset Minimum (currency) • Carbon Offset Maximum (currency) • Optimize Carbon Offset (yes/no) • Site Property • Fixed CO2 <Cap, CO2> (text) • Sourcing Policy (Site-Product-Source) Property • CO2 (number) • CO2 Basis (initially fixed to Cost Basis) • Transportation Policy (Mode) Property • CO2 (number)

42. Output statistics • Simulation: • SimulationOutputNetworkSummary: TotalCO2 • SimulationOutputNetworkSummary: TotalCO2Offsets • SimulationOutputSiteSummary: TotalCO2 • SimulationOutputNetworkFlows: CO2 • Optimization: • OptimizationOutputNetworkSummary: TotalCO2 • OptimizationOutputNetworkSummary: InitialCarbonOffsets • OptimizationOutputNetworkSummary: OptimizedCarbonOffsets • OptimizationOutputSiteSummary: TotalCO2

43. GHG Modeling Demo

44. Demo Purpose • Demonstrate Functionality of integrated Carbon Footprint analysis within Supply Chain Guru • Specifically … • Carbon Output Statistics from Simulation • Carbon reduction within optimization from site and transportation alternatives • Carbon Offset analysis • Discussion of four sample models

45. Baseline Model Depiction Customer 1 Customer 2 Customer 3 Warehouse 1 Warehouse 2 Manufacturer

46. Sample Model 1 • Baseline Simulation Model showing CO2 output based on transportation, warehousing and manufacturing (Carbon_Sim.sgm) • Features • One Product, One Plant, Multiple Warehouses (2) and Customers (3) • Multiple Transportation modes for each lane • Manufacturer – Warehouse = Diesel Rail, Freight, Air • Warehouse – Customer = Air or Freight • Both warehouses source from the manufacturer • All customers can source from either warehouse • Output Statistics • Total CO2 Output (Over three months): 20,090.12 kg • CO2 From Transportation - 10,590.12 kg • CO2 From Production - 6,300.00 kg • CO2 form Warehousing - 3,200.00 kg

47. Sample Model 2 • Optimization model building from Baseline Simulation Model showing implementation of carbon constraints via alternative site selection (Carbon_Opt_Sites.sgm) • Added alternative manufacturer – Green Manufacturer • Lower CO2, higher cost than Manufacturer • Both warehouses can source from here • Step 1. Optimize network without carbon constraints (min cost) • Total Cost = $174,113 • Total Carbon = 16,555.02 kg • Manufacturer open at level 2, Green Manufacturer not used • Step 2. Reduce Carbon by 10% -- Set constraint at 15000 kg • Total Cost = $177,080 • Total Carbon = 15,000 kg • Manufacturer open at level 1, Green Manufacturer open at level 1 • Reduction in carbon increased costs slightly because of increase in manufacturing cost from Green Facility

48. Sample Model 3 • Optimization model building from Baseline Simulation Model showing implementation of carbon constraints via alternative transportation mode selection (Carbon_Opt_Sites.sgm) • Added alternative transportation mode – Green Freight • Lower CO2, higher cost than other available modes • Available between warehouses and customers • Step 1. Optimize network without carbon constraints (min cost) • Total Cost = $174,113 • Total Carbon = 16,555.02 kg • Freight used for all flows between warehouses and customers • Step 2. Reduce Carbon by 10% -- Set constraint at 15000 kg • Total Cost = $333,679 • Total Carbon = 15,000 kg • Green Freight used for most flows, Freight used between warehouse 1 and customer 3 • Reduction in carbon increased costs almost 2X because of increase in transportation costs from Green Freight

49. Sample Model 4 • Optimization model building from Models 2 and 3 showing implementation of carbon offsets – includes alternative green freight and manufacturing (Carbon_Opt_Offsets.sgm) • Added Carbon Offset Information • Carbon offset price = $2/kg CO2 (used large to show effect, really about $5.5/ton) • Initial Carbon Offset Quantity = 0 • Offset Minimum Quantity = 0, maximum quantity = 5000 • Step 1. Optimize network without carbon constraints (min cost) • Total Cost = $174,113 • Total Carbon = 16,555.02 kg • Freight used for all flows between warehouses and customers, only Manufacturer used at level 2 • Step 2. Reduce Carbon by 20% -- Set constraint at 13500 kg • Total Cost = $178,256 • Total Carbon = 14,088.35 kg • Maximized Total Carbon Offset Quantity = 588.35 kg, cost = $1176.7 • Both Green Manufacturer and Manufacturer used at level 1, Green Freight not used

50. Sample Model 4 – Carbon Reduction Vs. Total Cost Total Cost % Carbon Reduction As the constraint on carbon increases, total costs increase Large Jump occurs when green transportation is used