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IJPDLM 40,10

Environmental assessment of shipment release policies

Ryan J. Merrick
Department of Management Sciences, University of Waterloo, Waterloo, Canada and Frito Lay Canada, Mississauga, Canada, and

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Received November 2009 Accepted December 2009

James H. Bookbinder
Department of Management Sciences, University of Waterloo, Waterloo, Canada
Abstract
Purpose A program of shipment consolidation (SCL) is the purposeful intervention by management to regularly combine several small shipments so that a larger load may be dispatched on the same vehicle. SCL decisions traditionally have been based upon minimization of total logistics costs (inventory plus transportation). The paper aims to answer the following research question: given the environmental implications of vehicle emissions as a function of load weight, are the familiar SCL policies still optimal? Design/methodology/approach Nonlinear expressions relating carbon dioxide (CO2) emissions to vehicle weight, and parameterized by trip length and average travel speed, were derived from published experimental data. Those expressions were included in a simulation model that assessed the environmental impact, in addition to the logistics cost, of the policies concerning when to release a consolidated load. Findings For short holding times, the quantity policy performs best in terms of both logistics cost and pollution reduction. In the case of low-order arrival rates and long holding times, the time policy is best at reducing emissions and logistics costs. However, the best dispatch policy conicts in terms of pollution reduction and logistics cost minimization for the following cases: moderate holding times and long holding times combined with high-order arrival rates. In these cases, it is necessary to consider the speed of travel, trip length and unit cost of emissions when evaluating the policies. Research limitations/implications A carbon trading market appears to be on the horizon in several industries, which will establish a price per unit weight for CO2 emissions and make it benecial to minimize the total cost (including emissions) of the network. This research only considers CO2 pollution, but future investigations could also consider other pollutants such as nitrogen oxides, carbon monoxide and volatile organic carbons. Practical implications SCL policies can include a green logistics component that is based on empirical data. Originality/value One undesirable consequence of transportation by truck is CO2 emissions. However, the impact can be lessened, while still emphasizing total logistics cost per load, with our simulation-based results for shipment release policies. Keywords Supply chain management, Freight forwarding, Distribution management, Transportation, Environmental management Paper type Research paper

International Journal of Physical Distribution & Logistics Management Vol. 40 No. 10, 2010 pp. 748-762 q Emerald Group Publishing Limited 0960-0035 DOI 10.1108/09600031011093197

1. Introduction The economics of logistics and transportation frequently conict with sustainable design and environmental responsibility. As such, reductions in inventory and production costs often come at the expense of the environment. The need for corporate sustainability

was identied over a decade ago, although it has just recently gained traction throughout the business world (Hesse, 1995; Greene and Wegener, 1997). With the growing public awareness of global warming, organizations are called to become more environmentally responsible and revisit their supply chains to incorporate environmentally sustainable processes (Seuring and Mueller, 2008; Mohanty and Mohanty, 2009). Wu and Dunn (1995) cite transportation as the largest source of environmental hazards in the logistics system. Thus, reduction of vehicle kilometers travelled (VKT) would be a logical green approach to improve a rms environmental practices. That amount, VKT, is dependent on the distance between facilities and the number of trips required between nodes. If the facility locations are xed, we are left with the number of trips between nodes, which is dictated by the shipment release policy. This paper uses a simulation model to investigate the effect of various dispatch policies on the amount of global pollutants emitted along the required transportation routes. In the situation we model, the consolidation of items, orders or shipments occurs at origin X. Location X could be the warehouse of a third party logistics (3PL) provider. Orders are consolidated for a variety of items, produced by different rms, but served by the same 3PL. The destination Y would then be the 3PLs terminal, from which local deliveries of multi-product loads will be made to retailers. Figure 1 shows the relationships between origin X and destination Y. Alternatively, origin X could be the national distribution centre of a manufacturer, who fabricates orders to stock (and not to orders). The orders consolidated are for various quantities of different products made by that rm. The line haul destination would then be a distribution centre of a major retailer that sells those products. Since the manufacturer and retailer are not related, the manufacturer has no knowledge of the retailers orders until they arrive. Shipment consolidation (SCL) itself can be viewed as a green transportation method. By combining multiple orders into a larger load on a single vehicle, greenhouse gas emissions per unit weight can be reduced when compared to a method that sees each order shipped on an individual vehicle. There are three commonly used shipment release policies for order consolidation. A time policy stipulates that a consolidated load is shipped once the rst order to arrive has waited for a predened maximum waiting time, Tmax. Alternatively, a quantity policy releases a load when the summation of all orders received over the consolidation period attains a set quantity (threshold weight). Finally, a hybrid time-and-quantity policy dispatches a consolidated load when either the quantity threshold is achieved or the maximum waiting time is reached. This study investigates all three approaches, and draws conclusions about the effectiveness of each in reducing greenhouse gas emissions. We remark that by shipment release, we mean the dispatch of a consolidated load. These terms will be used interchangeably throughout the present paper. A comprehensive review of the literature on SCL is given by Cetinkaya (2005). References relevant to the present paper include the following. Bookbinder and Higginson (2002) concentrate on the time-and-quantity policy for the case of private carriage (transportation in the shippers own vehicle). They develop a series of
X Line haul Y

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Figure 1. Order consolidation at origin X for dispatch to destination Y

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inter-connected graphs that relate the logistics cost per load and the cost per unit weight shipped for various arrival rates, maximum holding times, and probabilities of achieving a full truckload within those holding times. Higginson and Bookbinder (1995) developed a Markovian decision process based upon a set of assumptions, from which they derived the optimal dispatch policies. Each time there is a (random) arrival of a new order, the state of the system (the total consolidated weight) is updated. According the optimal policies obtained by those authors: the consolidated shipment is either released (i.e. the aggregate load is dispatched), or else it is decided to continue to consolidate (in hopes to attain a greater aggregate weight) before shipment release. The optimal boundary parameters for the respective decisions depend upon the intensity of the order arrival process and the distribution of order weights. The nature of the optimal policy for shipment release turns out to differ for common versus private carriage. Cetinkaya and Bookbinder (2003) also distinguish between private and common carriage, now applying the technique of renewal theory. They offered the optimal target weight before dispatch, when a quantity policy is used. When time policy is applied, they calculated the optimal length of each consolidation cycle. That maximum holding time, Tmax before dispatch, can be guaranteed for a time policy, even though the dispatch quantity may be unable to achieve economies of scale in transportation. Those scale economies will be guaranteed by a quantity policy, but now the duration of each consolidation cycle is a random variable. Nevertheless, Cetinkaya et al. (2006), again applying renewal theory, proved that the quantity policy can yield substantial cost savings relative to the time policy. The several analytical models discussed, in the previous three paragraphs, are based upon various reasonable assumptions which, when they hold, lead to important results. In the present paper, we turn to simulation modeling to incorporate a more general set of circumstances, especially the effects of carbon emissions in transportation. To what degree will the three widely used shipment release policies need to be modied in light of those emissions? An early simulation model of shipment release policies is that of Masters (1980), who noted the effect on cost and delivery time due to changes in Tmax, for a time policy. The simulation model employed in the present paper, an extension of the one used by Higginson and Bookbinder (1994), studied all three shipment release policies. Through the addition of a term to compute the greenhouse gas emissions, we can draw conclusions about the environmental contributions of each policy. As such, our simulation model utilizes the same parameters as dened by Higginson and Bookbinder, so that results can be benchmarked. The additional pollution term is dependent on the weight and travel speed of the vehicle, as discussed in the next section. Several academics have attempted to combine pollution emissions and optimization models as part of their research. City logistic models (Taniguchi and Thompson, 2002) often incorporate emissions into a transportation model, as done by Taniguchi and van der Heijden (2008). Lyons et al. (2003) also looked at the transportation pollution problem using VKT as a surrogate for emissions. However, experimental data show that greenhouse gas emissions are not linearly related to VKT, but are nonlinear and dependent on the vehicle weight and travel speed (Environmental Protection Agency, 2006). In the present paper, we derive nonlinear expressions for pollution emissions and integrate these emissions into a SCL simulation.

The remainder of the paper is organized as follows. In the next, section we look at the emissions data, followed by the simulation parameters in Section 3. We then discuss the simulation results and perform a sensitivity analysis in Sections 4 and 5, respectively. Finally, we conclude and discuss future research directions in Section 6. 2. Emissions data To derive expressions for the greenhouse gas emissions, the Mobile6 computer program was employed (Environmental Protection Agency, 2006). Mobile6 contains an extensive database of carbon dioxide (CO2) emissions for heavy heavy-duty diesel trucks obtained from full scale experiments. For the purposes of this paper, a heavy heavy-duty diesel truck is dened as a tractor towing a trailer emitting CO2 at 2006 standard emission rates as stipulated by the US Environmental Protection Agency. Speed correction factors, outlined by the California Air Resources Board (Zhou, 2006), were applied to link emissions levels with vehicle weight and speed of travel. Figure 2 shows the relationship between vehicle weight and CO2 emissions for various speeds of travel. The units for CO2 emissions are grams (g) per VKT and the vehicle weight is in pounds (note that vehicle weight represents the empty weight of the tractor-trailer in addition to the total load shipped). The concave expressions are clearly nonlinear and can be well approximated by logarithmic functions. The speed at which a vehicle travels is a function of the route taken, whereas vehicle weight depends on the consolidated load resulting from the particular shipment release policy. Figure 2 shows that, for any given speed, the quantity of emissions is a concave increasing function of vehicle weight. In addition, for a given weight, as vehicle speed increases from 40 to 60 kph to 80 kph, the CO2 emissions decrease. Note that the two curves for 80 and 100 kph are virtually indistinguishable. 3. Simulation parameters The current paper uses a simulation model to study particular cases of order arrivals, with parameters based on the research conducted by Higginson and Bookbinder (1994).
1,000 Carbon dioxide emissions (g/VKT) 900 800 700 600 500 400 40 kph 60 kph 80 kph 100 kph

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300 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 Vehicle weight (lbs)

Figure 2. Vehicle weight vs CO2 emissions at various travel speeds

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Foremost, the simulation uses a transportation price structure incorporating an all-unit discount, typical of common carriage, i.e. a public, for-hire trucking company. Thus, it is often advantageous to over-declare the weight of the load, when that enables the shipper to qualify for a lower transportation rate (also referred to as instituting the bumping clause). The minimum shipment weight (WBT) at which it becomes benecial to utilize the bumping clause is equal to the minimum volume weight (MWT) times the ratio of the volume freight rate (fv) to the non-volume freight rate (fn). The MWT was set at 20,000 lbs, and the volume and non-volume freight rates were taken to be $2.25/cwt and $3.00/cwt, respectively, (one cwt 100 lbs). The above values result in a WBT of 15,000 lbs. Application of a quantity policy and a time-and-quantity policy requires the specication of a target weight at which the consolidated shipment is released. Weight thresholds of 12,500, 15,000, 17,500, 20,000 and 22,500 lbs were strategically selected based on their relationships to WBT and MWT. With the target weights specied, we can use the economic shipment weight (ESW) to compute the order arrival rate corresponding to each weight threshold. The ESW, the load size that minimizes sum of the transportation plus inventory carrying costs, is calculated as: s 2 l F L EW ESW 1 rw where l is the order arrival rate, FL the xed cost to dispatch a load, E[W ] the expected weight of each customer order, and rw the inventory carrying cost per unit weight per unit time. For the simulation, the inventory carrying cost was set at $0.25/cwt/day, and the xed cost to dispatch a single consolidated load was set to $30. The average order size was arbitrarily set at 2,000 lbs. Order arrival rates, l, were strategically selected as 3.26, 4.69, 6.38, 8.33 and 10.55 orders per day, which corresponded to ESWs of 12,500, 15,000, 17,500, 20,000 and 22,500 lbs, respectively. These weight thresholds were set to model the following cases: target weight less than WBT, equal to WBT, between WBT and MWT, equal to MWT and greater than MWT, respectively. These order arrival rates mimic those considered by Higginson and Bookbinder (1994). The time and time-and-quantity policies also require that a maximum holding time be dened. Under these two policies, a consolidated load is released when the rst order to have arrived in the load has waited for that maximum holding time. We tested maximum holding times of 0.75 days, 1.0 days, 1.5 days, and 2.0 days before dispatch. The simulation logic commences by randomly generating a set of customer orders. Orders arrive according to a Poisson distribution with rate l. The inter-arrival times (i.e. the times between successive orders) thus have an exponential distribution whose mean is 1/(l (Ross, 2007). Independently of its time of arrival, each order is assumed to have a weight that is governed by an un-shifted Gamma distribution (parameters a, b). The Poisson distribution is effective since it generates an integer number of order arrivals per day, with the mean number of arrivals matching the order arrival rate, l. The Gamma distribution used a 2, which indicates skewness towards order weights below the mean, and a value of b 1,000, corresponding to an average order size of ab 2,000 lbs. This leads to a mode of 1,000 pounds and a standard deviation of 1,414 pounds for the order weights based on that Gamma distribution. The preceding

values and use of the Gamma distribution are further justied by Higginson and Bookbinder (1994), and by several proprietary surveys. The details of each order were then input to the simulation model and the relevant statistics computed. A total of 2,000 orders were generated and processed by the simulation. Orders that were undispatched at the end of the simulation period were discarded, so that only complete consolidation cycles were used in the analysis of results. Some of the relevant statistics that were obtained included: weight of each consolidated load, transportation cost of that load, its CO2 emissions, delay time for each order, and the corresponding inventory carrying cost. The current paper thus extends the research by Higginson and Bookbinder (1994) by also considering the CO2 emissions caused by the shipment release policies. Since the emission rate is dependent on the total vehicle weight, the empty weight of the tractor-trailer was set at 15,000 pounds. That empty weight and the weight of the consolidated load were then used to compute the CO2 emissions (no maximum vehicle weight was imposed; such an aggregate upper bound would not be attained from the superposition of small orders typical of an SCL program). 4. Discussion of simulation results The method of batch means was used to analyze the simulation data (Law and Kelton, 2000). A set of customer orders was randomly generated prior to commencing the simulation, using the methodology outlined in the previous section. The customer order quantities and the order arrival times were predetermined for the purposes of the simulation. However, neither the shipper nor the carrier has any knowledge of future orders until they arrive. Thus, shipping decisions were based solely on orders received to date in the current consolidation cycle only. The set of order arrival times and the corresponding weights were then independently processed by the simulation according to each of the three shipment release policies. This research models only the line haul portion of the logistics network. That segment typically spans a large highway distance travelled at high speeds, say 80-100 kph. Thus, the results presented in the remainder of this paper correspond to average travel speed of 80 kph (note that from Figure 2, the CO2 emission levels at speeds of 80 kph through 100 kph are indistinguishable). The simulation model evaluated the dispatch policies on the basis of logistics cost and CO2 emissions. Logistics costs include the transportation cost (determined by the freight rates), the inventory carrying cost and the xed cost to dispatch a load. Of course, the performance of the system must be evaluated on the premise of total cost, which would include the logistics cost plus the cost of CO2 emissions. However, the total cost calculation requires that the length of the trip and emission cost per unit weight of CO2 be specied. As such, we rst look at the logistics cost and emission levels in general terms. The logistics cost is presented in the form of mean logistics cost per cwt. CO2 emissions are presented as the grams of CO2/VKT/cwt. Figure 3 shows the logistics cost and CO2 emissions for a maximum holding period of 1.0 days. Note that plot (a) corresponds to the mean logistics cost, while chart (b) represents the mean CO2 emission level. The results shown in Figure 3(a) closely resemble the data presented by Higginson and Bookbinder (1994), and are discussed in detail by those authors. Figure 3(b) displays data unique to this study, showing the CO2 emissions of each shipment release policy. When considering the 1.0 day holding time, the quantity policy performs

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Logistics cost ($) per cwt

3.4 3.2 3.0 2.8 2.6 2.4 3

Quantity Time Time and quantity

g-CO2 per VKT per cwt

IJPDLM 40,10

Holding time = 1.0 days 3.6

Holding time = 1.0 days 8 7 6 5 4 3 2 3 5 7 9 11 Quantity Time Time and quantity

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Figure 3. Policy comparisons for holding time of 1.0 days

5 7 9 Order arrival rate (orders per day)

11

Order arrival rate (orders per day)

(a)

(b)

better than the other policies, both in terms of logistics cost per cwt and CO2 reduction. Similar results were also observed for a holding time of 0.75 days, with the quantity policy dominating the other policies on the basis of logistics costs and emission rates. Data show that the quantity policy outperforms the other policies due to its ability to produce large loads in the case of short holding times. The relationship between CO2 emissions and vehicle weight is concave and increasing, creating an economy-of-scale effect. Thus, it is desirable to produce large consolidated loads to capture this effect (i.e. if the vehicle weight doubles, the resulting CO2 emissions are less than double). For short holding times, the time-and-quantity and time policies typically generate smaller consolidated loads. Under these circumstances, the economy of scale is not captured, and as such these policies are dominated by the quantity policy. Since, for short holding times, the quantity policy performs best in terms of both logistics costs and CO2 emissions, it will obviously minimize the total cost of the transportation system, regardless of the length of the trip and the emission cost per unit weight of CO2. When the maximum holding time is increased to 1.5 days, selection of the optimal policy becomes less clear. Figure 4 shows the variation in logistics cost and pollution emissions over various order arrival rates, with a maximum holding time of 1.5 days. The data shown in Figure 4 show that the optimal policy is dependent on the order arrival rate, for both logistics cost and CO2 emissions. When considering the logistics cost alone and a holding period of 1.5 days, the time policy is optimal for low-order arrival rates, while the quantity policy is optimal at higher rates of order arrival.
Holding time = 1.5 days Logistics cost ($) per cwt 3.6 3.4 3.2 3.0 2.8 2.6 2.4 3 5 7 9 Order arrival rate (orders per day) 11 g-CO2 per VKT per cwt Quantity Time Time and quantity 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 3 Holding time = 1.5 days Quantity Time Time and quantity

Figure 4. Policy comparisons for holding time of 1.5 days

5 7 9 Order arrival rate (orders per day)

11

(a)

(b)

In contrast, concerning CO2 emissions, the quantity policy is optimal for low-order arrival rates and the time policy is optimal for high-order arrival rates. As a result, when the logistics and emissions are combined to calculate the total cost of the system, the optimal policy will be dependent on the length of the trip (VKT) and the dollar value associated with the CO2 emissions. A study on the sensitivity of optimal dispatch policy to trip length and cost of CO2 emissions is conducted in the subsequent section. The longest holding time investigated in this research was for a time period of 2.0 days. Figure 5 shows the logistics cost and CO2 emissions for this maximum holding time. Results show that the time policy minimizes CO2 emissions over the entire range of order arrival rates examined. The time policy outperforms the other policies since the extended holding period creates large consolidated loads and takes advantage of the economy of scale with respect to CO2 emissions. When considering logistics costs, the time policy is optimal only for lower rates of order arrival, while the quantity policy is optimal for higher order arrival rates. Therefore, when considering the combined total cost of system with a holding period of 2.0 days, the time policy will be optimal for low-order arrival rates. Yet, for high-order arrival rates, the optimal policy will again be dependent on the length of the trip (VKT) and the dollar value associated with CO2 emissions. The results shown in Figures 3-5 are shown in tabular form in Tables I and II. Table I contains the optimal policy in terms of minimizing only the mean logistics cost per cwt, whereas Table II presents the optimal shipment release policy for minimizing CO2 emissions alone. Cells in Tables I and II that are enclosed in the polygonal region indicate a conict in policy selection between reducing the logistics cost and minimizing CO2 emissions. As mention earlier, the optimal policy in these situations is dependent on the VKT and
Holding time = 2.0 days Logistics cost ($) per cwt 3.6 3.4 3.2 3.0 2.8 2.6 2.4 3 5 7 9 11 Order arrival rate (orders per day) g-CO2 per VKT per cwt Quantity Time Time and quantity 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 3 Holding time = 2.0 days Quantity Time Time and quantity

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5 7 9 Order arrival rate (orders per day)

11

(a)

(b)

Figure 5. Policy comparisons for holding time of 2.0 days

Holding time (days) 2.0 1.5 1.0 0.75

3.26 Time Time Quantity Quantity

Order arrival rate (orders per day) 4.69 6.38 8.33 Time Time Quantity Quantity Time Quantity Quantity Quantity Quantity Quantity Quantity Quantity

10.55 Quantity Quantity Quantity Quantity

Table I. Summary of recommended shipment release policy for reducing mean logistics cost

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associated cost of CO2 emissions. The next section will consider the effect of those parameters on policy selection. It is also interesting to note that the time-and-quantity policy is never the clear choice as the best shipment release policy. This can be attributed to the fact that the time-and-quantity policy produced smaller loads than the quantity policy for low-order arrival rates, and smaller loads than the time policy for high-order arrival rates. Higginson and Bookbinder (1994) demonstrated that while the time-and-quantity policy never outperforms the other policies in terms of mean logistics cost, it consistently yielded the smallest mean order delay, especially when the order arrival rate is low. Thus, the time-and-quantity policy may still be the best t for a rm if the mean order delay is the primary parameter for dispatch policy selection. This study looked at particular cases of order arrivals and tracked the results as orders were processed according to the respective shipment release policy. Thus, results were obtained for discrete combinations of holding times and order arrival rates, and the optimal policies for minimizing logistics costs and for minimizing CO2 emissions were summarized in Tables I and II, respectively. However, from a business standpoint, it is important to choose a shipment release policy that minimizes the total cost of a consolidation program, which includes both the xed, inventory and transportation costs along with the cost of CO2 emissions. Hence, a method to evaluate the costs simultaneously is necessary. If we linearly interpolate between the discrete points computed for each particular case during the simulation (from Tables I and II), we can generate a line of equilibrium that represents combinations of maximum holding times and order arrival rates, where the policies produce equal costs. A unique equilibrium line exists for logistics cost and emissions cost, where the time policy and quantity policy are equivalent. The time-and-quantity policy is irrelevant since it never minimizes the logistics cost nor the CO2 emissions. When the lines of equilibrium are overlaid on a common plot, a shipment release policy selection map is produced. Figure 6 shows that map for the current investigation. From the policy selection map, the optimal shipment release policy can be determined for a given holding time and order arrival rate. For combinations of holding times and order arrival rates in the Time Policy region, that policy is optimal since it minimizes the logistics cost and CO2 emissions (and thus the cost of CO2 emissions, as well). Similarly, in the Quantity Policy region, that policy is best at minimizing the total overall costs (both logistics cost and CO2 emissions, and hence the cost of CO2 emissions). The regions of no clear choice arise since, in these areas, there is a conict between the optimal policies in terms of reducing logistics costs and CO2 emissions. In those regions, the optimal policy to minimize the total cost of the system is dependent on the length of the freight route (VKT) and the dollar value associated with CO2 emissions. The sensitivity of policy selection to these two parameters is examined in the next section.
Order arrival rate (orders per day) 4.69 6.38 8.33 Time Quantity Quantity Quantity Time Time Quantity Quantity Time Time Quantity Quantity

Holding time (days) Table II. Summary of recommended shipment release policy for reducing CO2 emissions 2.0 1.5 1.0 0.75

3.26 Time Quantity Quantity Quantity

10.55 Time Time Quantity Quantity

2.00 Time policy 1.75 No clear choice Holding time (days) No clear choice 1.50

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1.25 Quantity policy 1.00

0.75 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 Order arrival rate (orders/day) 9.0 9.5 10.0 10.5 11.0

Figure 6. Shipment release policy selection map

5. Sensitivity analysis In this section, we consider the effect of VKT and dollar value of CO2 emissions (denoted as e) on policy selection. Quantifying e is a difcult task as many factors contribute to its value. The contribution of a gram of CO2 emissions to global warming is seemingly impossible to quantify. The intrinsic value that a particular person gains from an environmentally responsible practice can vary drastically from one individual to another. Businesses also have potential to attract new customers via environmentally responsible practices; yet, quantifying the value added would depend on numerous parameters and rely heavily on the nature of the organization and its target consumers. Future government regulation of greenhouse gas emissions, including the prospect of a carbon tax or carbon credits, may create a market value for pollutants; But, for the time being the true value of CO2 emissions remains unknown. Thus, it is worthwhile to look at a range of values for e, to evaluate the effect of the pollutant on policy selection. Presenting data in this section is particularly difcult since we have ve relevant variables: travel speed, holding time, order arrival rate, VKT and e. If we x two of the parameters, we can exhibit the results in tabular form. Since this paper models line haul shipments, let us assume a xed speed of 80 kph, typical of highway travel. We can then look at xed trip lengths of 200, 500 and 1,000 km. Given these xed variables, we can compute threshold value of e for each combination of holding time and arrival rate. The threshold value of e is dened as the cost of CO2 emissions that will equate the total cost of the time policy to that of the quantity policy. This threshold value, ethreshold, is calculated using the following expression: ethreshold LC T 2 LC Q EQ 2 ET 2

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where LC is the logistics costs, E the total weight of CO2 emissions and the subscripts T and Q denote the time policy and quantity policy, respectively. The calculated values for ethreshold are shown in Tables III-V, corresponding to trip lengths of 200, 500 and 1,000 km, respectively, (the symbol ;e means for all values of e). Tables III-V present threshold values for e, where if the threshold is crossed, the best shipment release policy will change. Note that for the cases where a policy both minimizes logistics cost and pollution, the policy remains optimal for all values of e. For the cases denoted with a dagger, the quantity policy is best for e less than the threshold value, whereas the time policy is optimal for e greater than the threshold. In contrast, for cases identied with an asterisk, the time policy is best for e less than the threshold

Holding time (days) 2.0 1.5 1.0 0.75

3.26 Time ;e 469b Quantity ;e Quantity ;e

4.69

Order arrival rate (orders per day) 6.38 8.33 Time ;e 1757a Quantity ;e Quantity ;e 368 1355a Quantity ;e Quantity ;e
a

10.55 184a 406a Quantity ;e Quantity ;e

Table III. Threshold values of e ($/tonne-CO2) for 200 km trip length

Time ;e 1464b Quantity ;e Quantity ;e

Notes: aIndicates the time policy is best for e less than the threshold value, whereas; bindicates the quantity policy is best for e less than the threshold value, whereas the time policy is optimal for e greater than the threshold

Holding time (days) 2.0 1.5 1.0 0.75

3.26 Time ;e 187b Quantity ;e Quantity ;e

4.69

Order arrival rate (orders per day) 6.38 8.33 Time ;e 702a Quantity ;e Quantity ;e 147a 542a Quantity ;e Quantity ;e

10.55 73a 162a Quantity ;e Quantity ;e

Table IV. Threshold values of e ($/tonne-CO2) for 500 km trip length

Time ;e 585b Quantity ;e Quantity ;e

Notes: aIndicates the time policy is best for e less than the threshold value, whereas the quantity policy is optimal for e greater than the threshold; bindicates the quantity policy is best for e less than the threshold value, whereas the time policy is optimal for e greater than the threshold

Holding time (days) 2.0 1.5 1.0 0.75

3.26 Time ;e 93b Quantity ;e Quantity ;e

4.69

Order arrival rate (orders per day) 6.38 8.33 Time ;e 351a Quantity ;e Quantity ;e 73 271a Quantity ;e Quantity ;e
a

10.55 39a 81a Quantity ;e Quantity ;e

Table V. Threshold values of e ($/tonne-CO2) for 1,000 km trip length

Time ;e 292b Quantity ;e Quantity ;e

Notes: aIndicates the time policy is best for e less than the threshold value, whereas the quantity policy is optimal for e greater than the threshold; bindicates the quantity policy is best for e less than the threshold value, whereas the time policy is optimal for e greater than the threshold

value, whereas the quantity policy is optimal for e greater than the threshold. As seen in equation (2), the threshold value of e is dependent on the difference in logistics cost and the difference in the total weight of CO2 emissions. When the difference in logistics costs between policies increases, ethreshold will also increase. However, as the difference in total emissions output increases, ethreshold will decrease. The total weight of CO2 emissions generated is dependent on the trip length considered. Thus, VKT affects the denominator of equation (2). The trip length will inversely inuence the threshold e, where an increase in VKT will produce a decrease in e, and a shorter trip length will increase the threshold value for e. For example, if the trip length were xed at 100 km, we would expect the threshold values of e to be greater than those presented in Table III. The concept of carbon pricing is relatively novel, and as such a true market price for CO2 emissions is has not yet been established. Cap-and-trade pilot projects have been recently introduced in the UK and the USA, which can provided some guidance on the magnitude of the emissions costs. At the latest carbon allowance auctions in the UK, an allowance for 1 metric tonne of carbon was awarded at a clearing price of approximately US $14.80 (UK Debt Management Ofce, 2009). While the values of ethreshold displayed in Tables III-V are all greater than $14.80, many of the values are on the same order of magnitude. Hence, considering CO2 emission costs may be an important component to selecting the best dispatch policy. This would hold especially true if the cost of carbon was increased, or as the length of trip was increased (as ethreshold would then decrease). We can also look at a particular combination of holding time and order arrival rate, and then map out the optimal shipment release policy for given CO2 emission costs and trip lengths. Figure 7 shows the case of the 2.0 day holding time and an order arrival rate of 10.55 orders per day (shown in the no clear choice region in Figure 6). The policy selection map denes two distinct regions consisting of trip lengths and emissions cost combinations that would result in a clear optimal dispatch policy. For instance, the quantity policy would be optimal for a trip length of 200 km if the cost
Holdong time = 2.0 days, order arrival rate = 10.55/day

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400 350 300 $/tonne-CO2 250 200 150 100

Time policy

Quantity policy 50 0
10 0 15 0 20 0 25 0 30 0 35 0 40 0 45 0 50 0 55 0 60 0 65 0 70 0 75 0 80 0 85 0 90 0 95 0 1, 00 0

Trip length (VKT)

Figure 7. Policy selection map (Alt.)

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of CO2 emissions were $100/tonne-CO2. A policy selection map could be generated for any combination of holding time and rate of order arrivals. Of course, it is not possible to provide a map for all parametric combinations studied in this investigation, but Figure 7 is shown merely to suggest another method that could be used to determine the best shipment release policy. 6. Conclusions Traditional freight consolidation policies have been motivated by reducing the logistics cost of the system. However, the concept of green logistics has been gaining interest and created a need to evaluate the environmental impact of shipment release policies. This investigation employed a simulation model to assess the environmental impact of those policies, in addition to the logistics costs. The following three shipment release policies were analyzed in the study: quantity policy, time policy, and time-and-quantity policy. The simulation model computed the logistics cost and emissions output generated by each policy over a range of order arrival rates and maximum order holding times. Results showed that the optimal shipment release policy is dependent on the following ve parameters: order arrival rate, order holding time, speed of travel, VKT and e. However, data from the simulation model identied certain conditions where some of these variables were irrelevant. It was learned that following two conclusions could be drawn, where the best dispatch policy depends only on the holding time and order arrival rate: (1) for short holding times, the quantity policy performs best in terms of both logistics cost and pollution reduction; and (2) for low-order arrival rates and long holding times, the time policy is best at reducing emissions and logistics costs. The results also highlighted situations where the optimal policies, in terms of reducing pollution and minimizing logistics cost, were conicting. Thus, it was necessary to include all parameters when evaluating the policies in the following two cases: (1) moderate holding times; and (2) long holding times combined with high-order arrival rates. While the true value of e is arguable, we provided a method to compute the threshold value of e, for a xed trip length and speed of travel. By comparing that threshold value with an assumed or market value for e, the total cost of the policies can be assessed, and an optimal policy determined for the particular application. While this paper studies specic choices of parameters, the methodology presented could be applied to other real-world examples considering the product or rm-specic parameters. Simulation methods and measures to evaluate each of the dispatch policy options have been proposed and discussed in detail. In the future, this model could be expanded to investigate the inuence of shipment release policies on the generation of other pollutants, such as nitrogen oxides, carbon monoxide and volatile organic carbons. Another interesting extension to consider would be the possible use of a smaller vehicle when the consolidated load in the given cycle would allow. It is hoped that the methods presented in this paper spark further interest in green logistics, and that the ndings will be given consideration in practice.

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References Bookbinder, J.H. and Higginson, J.K. (2002), Probabalistic modeling of freight consolidation by private carriage, Transportation Research Part E, Vol. 38, pp. 305-18. Cetinkaya, S. (2005), Coordination of inventory and shipment consolidation decisions: a review of premises, models and justication, in Guenes, J., Akcali, E., Pardalos, P.M., Romeijn, H.E. and Shen, Z.M. (Eds), Applications of Supply Chain Managment and E-Commerce Research in Industry, Springer, New York, NY. Cetinkaya, S. and Bookbinder, J.H. (2003), Stochastic models for the dispatch of consolidated shipments, Transportation Research B, Vol. 37 No. 8, pp. 747-68. Cetinkaya, S., Mutly, F. and Lee, C.-Y. (2006), A comparison of outbound dispatch policies for integrated inventory and transportation decisions, European Journal of Operational Research, Vol. 171, pp. 1094-112. Environmental Protection Agency (2006), Mobile6 (Computer Software), National Vehicle and Fuel Emissions Laboratory, Ann Arbor, MI. Greene, D.L. and Wegener, M. (1997), Sustainable transport, Journal of Transport Geography, Vol. 5 No. 3, pp. 177-90. Hesse, M. (1995), Urban space and logistics: on the road to sustainability?, World Transport Policy & Practice, Vol. 1 No. 4, pp. 38-45. Higginson, J.K. and Bookbinder, J.H. (1994), Policy recommendations for a shipment-consolidation program, Journal of Business Logistics, Vol. 15 No. 1, pp. 87-1112. Higginson, J.K. and Bookbinder, J.H. (1995), Markovian decision processes in shipment consolidation, Transportation Science, Vol. 29 No. 3, pp. 242-55. Law, A. and Kelton, W.D. (2000), Simulation Modeling and Analysis, 3rd ed., McGraw-Hill Science, New York, NY. Lyons, T.J., Kenworthy, J.R., Moy, C. and dos Santos, F. (2003), An international urban air pollution model for the transport sector, Transportation Research Part D, Vol. 8, pp. 159-67. Masters, J.M. (1980), The effects of freight consolidation on customer service, Journal of Business Logistics, Vol. 2 No. 1, pp. 55-74. Mohanty, S. and Mohanty, B. (2009), Global climate change: a cause of concern, National Academy Science Letters, Vol. 32 Nos 5/6, pp. 149-56. Ross, S.M. (2007), Introduction to Probability Models, 9th ed., Academic Press, Boston, MA. Seuring, S. and Mueller, M. (2008), From a literature review to a conceptual framework for sustainable supply chain management, Journal of Cleaner Production, Vol. 16 No. 15, pp. 1699-710. Taniguchi, E. and Thompson, R.G. (2002), Modeling city logistics, Transportation Research Record, Vol. 1790, pp. 45-51. Taniguchi, E. and van der Heijden, R.E.C.M. (2008), An evaluation methodology for city logistics, Transport Reviews, Vol. 20 No. 1, pp. 65-90. UK Debt Management Ofce (2009), EU Emissions Trading Scheme, UK Debt Management Ofce, London, 24 March, available at: www.dmo.gov.uk/index.aspx?pageETS/ AuctionInfo (accessed 15 May 2009). Wu, H.J. and Dunn, S.C. (1995), Environmentally responsible logistics systems, International Journal of Physical Distribution and Logistics Management, Vol. 25 No. 2, pp. 20-38. Zhou, L. (2006), Revision of heavy heavy-duty diesel truck emission factors and speed correction factors (Amendment), available at: www.arb.ca.gov (accessed 17 March 2009).

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Further reading Regional Greenhouse Gas Initiative (2009), CO2 Budget Trading Program, 18 March, available at: www.rggi.org/states/auction_proceeds (accessed 15 May 2009). About the authors Ryan J. Merrick is the sustainability resource at Frito Lay Canada, and a graduate student at the University of Waterloo. The focal point of his research is the application of operations research techniques to real-world engineering problems. He has ongoing research applying optimization techniques in the eld of renewable energy, industrial engineering and green logistics. He is member of the Canadian Operational Research Society (CORS) and a registered Professional Engineer in Ontario. Ryan J. Merrick is the corresponding author and can be contacted at: Ryan.Merrick@ymail.com James H. Bookbinder is a Professor of Management Sciences at the University of Waterloo. He is a Past-President of CORS and Past-President of the Transportation Science Section of the Operations Research Society of America (now INFORMS). He received an MBA from the University of Toronto and PhD in applied mathematics from the University of California, San Diego. His current research concerns shipment consolidation, NAFTA Logistics and global logistics in general. He has published in several transportation and logistics journals, such as Transportation Research E, Journal of Business Logistics and Transportation Science. He is currently the director of the Waterloo Management of Integrated Manufacturing Systems research group.

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