Supply Chain Management Risk Management Case Study

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Introduction

Combined heat and power (CHP) power is considered to be an innovative approach of generation heat and electricity simultaneously. It is considered to be an efficient method of reducing heat waste, which occurs during the production of energy(Almeida, Fávaro & Quirino, 2012). This research paper presents the analysis of the use of CHP system with glycerol as the source fuel at the University as part their sustainability program. The University intends to reduce its carbon emissions and therefore, have developed their carbon management plan.  The use of CHP and glycerol has been suggested because CHP systems are efficient and produce low emissions as compared to traditional energy producing systems (Almeida, Fávaro & Quirino, 2012, Ambulkar, S., Blackhurst, J. and Grawe, S., 2015). The goal of this research paper is to analyse the sustainable biofuel supply chains with the use CHP systems for the given organization, in the lights of broad and diverse academic resources. It will analyse the risks associated with the implementation of glycerol based CHP plant and will propose strategies to overcome it. It will analyse the availability of the fuel, its cost, security and the reliability of the supply in the lights of broad and diverse academic resources.

Case Overview

            The existing case is related to the University, which intends to incorporate and implement sustainability principles and reduce the impact on the environment caused by its activities. Consequently, the Higher Education Carbon Management (HECM) Programme has been adopted by the university to determine the carbon emission baselines and to develop the Carbon Management Plan. To produce the Carbon Management Plan, the University has collaborated with the Carbon Trust with the aim to reduce 30% of the carbon emissions produced by its activities by 2015.  To achieve these objectives, it has focused on adopting CHP engine as a part of the Carbon Management Plant at Kent campus.  The adoption of CHP engine has been utilized by the university to create its own energy as a way of controlling carbon emissions. With the changes and modifications in its design and facilities, the institute intends to reduce carbon and minimize the amount of energy according to the needs and requirements of its students, faculty members and stakeholders. To achieve this purpose, it focuses on using glycerol as the main fuel for CHP engines.

Glycerol Based CHP Systems Supply Chain Network

Glycerol based CHP systems are the systems that use glycerol as the fuel for producing electricity and using heat in order to reduce carbon emissions significantly (Almeida, Fávaro & Quirino, 2012). Glycerol is considered to be colourless, non-toxic and odourless liquid, which is readily soluble in water (Ambulkar, S., Blackhurst, J. and Grawe, S., 2015).  It is considered to the by-product that is produced during the production of biodiesel. The possibility of using glycerol as the energy efficient fuel has been studied in literature extensively.  The need for alternate fuels is needed since the reserves and sources of fossil fuels are inadequate. Research suggests that crude glycerol is mainly produced when fat and vegetable oil are reacted together during the production of biodiesel (Ambulkar, S., Blackhurst, J. and Grawe, S., 2015, Azadeh & Arani, 2016, Barbieri, Melino & Morini, 2012). The main contaminants found in crude glycerol are methanol, water, soaps and salts.  The level of contaminants found in crude glycerol is highly fluctuating because of the nature of the industry.  The supply chain network of this structure starting from the material supply to the end user is discussed as follows:

  1. Material Supply: The product that is used to produce glycerol are based on oil seeds, which are grown on farms. After the initial harvest, these oil seeds are moved to the facilities, where they are dried (Monczka et.al., 2015). After drying, they are stored and sent to the oil mill to extract oil. After the extraction of the oil, they are either used cooking oils or moved to the biodiesel plants.
  2. Biodiesel Production: Once the virgin vegetable oils are transferred to the biodiesel plants, they are subjected to the pre-processing in order to refine them and to remove impurities from them (Mago & Smith, 2012). To achieve this, they are placed in the transesterfication plant. It should be noted that waste cooking oils and animal fats are also used in the production of biodiesel.  The oils and fats are then reacted with alcohol in order to produce biodiesel and by-products such as crude glycerol, water, soap and alcohol.  Since glycerol has a higher density than biodiesel, it can be separated from the bio-diesel efficiently (Li et.al, 2015). The remaining alcohol is then refined and reused through the process of distillation.  The crude glycerol produce contains water, methanol/alcohol and salts.
  3. Glycerol Production and Refinery: This supply chain management network is still in development phase. The crude glycerol produced during the production of the biodiesel is subjected to refining, which is considered to be an expensive and difficult process. From the refineries, glycerol is transported to storage facilities. From storage facilities, they are sent to retail outlets, which are responsible for selling glycerol to the buyers for CHP plants. In United Kingdom, United States and other developing countries, glycerol quality standards have not been defined and are therefore, supplied to the buyers, as fuels for CHP plants.  The analysis of literature suggests that the construction of bio-refineries is expensive and therefore, requires significant amount of investment (Knizley & Mago, 2013, Kelloway et.al, 2013). Currently, refineries that operate that to refine glycerol and other biomass fuels in the United States, United Kingdom and other developing countries are owned by regional companies.  Consequently, the finally electricity produced from glycerol based CHP plant is supplied to the end users. In this case, the end users would be the students, faculty members, administrative employees and other workers.

Risk Analysis of Glycerol Based CHP Systems in Supply Chain Network

  1. Availability of Glycerol: Glycerol is available in the market in three forms: raw, technical and refined. These forms are available on basis of impurities that are present in each. Raw glycerol has high level of impurities such as methanol, salts and soaps (Ambulkar, S., Blackhurst, J. and Grawe, S., 2015).  In other words, it is crude glycerol that is obtained during the production of bio-diesel.  The second type of glycerol is technical glycerol, which does not have salts, soaps and methanol (Azadeh & Arani, 2016). The third type is the refined glycerol, which is of high quality and is generally used in cosmetics and personal care products.  Based on the cost, refined glycerol is the most expensive.
  2. Production of Glycerol: Glycerol is readily produced by wide ranging processes across various industries. It is produced during the reaction of vegetable oil or fat with methanol with the use of catalysts such as sodium or potassium hydroxides or acids. It can also be produced through the manufacturing of soap, where vegetable oil or fat is reacted with water in place of alcohol (Ambulkar, S., Blackhurst, J. and Grawe, S., 2015, Ho et.al, 2015, Hohenstein et.al, 2015, Knizley & Mago, 2013).  Another method of producing glycerol is through enzyme-catalyzed hydrolysis (Azadeh & Arani, 2016). In this process, triglycerides reacted with lipase enzyme through the process of microbial fermentation (Li et.al, 2015). However, this operation is considered to be expensive because of the unavailability enzymes. They are also expensive. Another source of glycerol is through algae that are found in saline waters (Monczka et.al., 2015). The production of glycerol is evident since it is produced by algae to safeguard themselves from dehydration, which is because of high salinity. However, the use of this method at industrial level is still under investigation.  The production and the quality of the crude glycerol across different methods are still under investigation. Currently, virgin vegetable oils along with animal fat and wasted oil are used to produce the bio-diesel with crude glycerol as its by-product (Beatrice et.al, 2013). The risk associated with the production of crude glycerol is the availability of the methods. Although there are other methods used to produce it, they are expensive and under development (Li et.al, 2015, Mago & Smith, 2012, Monczka et.al., 2015).  Consequently, the glycerol based supply chain network is primarily dependent on the production of bio-diesel.  This is considered to be a high level of risk since yield of the oil seeds would affect its production. Higher yield of oil seeds would indicated higher amount of bio-diesel along with crude glycerol. Low yield would indicate lower amount of bio-diesel production along with crude glycerol (Mago & Smith, 2012). The production of glycerol from would also be affected by the price of oil seeds/crops used in the production of bio-diesel. Research conducted by Kelloway et.al (2013) demonstrated that the price increases in oil seeds/crops can affect by the price and quantity of biodiesel fuel and crude glycerol.  The supply chain demand and supply chain relationships clearly explain that the rise in the prices of the crops would affect bio-diesel and glycerol production.   Another important aspect of glycerol production is the effect of the cultivation practices of the crops used (Knizley & Mago, 2013). Environmental impact of each crop is considered to be the major risk that can affect the production of the glycerol.
  3. Risks in Supplying the FeedStock: A significant risk in the glycerol based CHP value chain is the cost and role of supplying the feedstock to the bio-diesel oil refinery (Barbieri, Melino & Morini, 2012). At this stage, the main risk is to maintain consistent and reliable supply of the crops, which would be supplied for bio-diesel production. As mentioned before, the production and price of the crops affects the production and quantity of the bio-diesel and crude-glycerol (Monczka et.al., 2015). At the same time, the mode of transportation used to ship the feedstock to the oil refineries and to the bio-diesel production outlets is expensive (Beatrice et.al, 2013, Babazadeh et.al, 2015). The majority of the feedstock transported to the oil refineries and then to the bio-diesel production outlets are done by trucks (Ho et.al, 2015, Hohenstein et.al, 2015).
  1. Glycerol Production Cost Efficiency: The analysis of literature suggests that the production of glycerol from biodiesel, which is obtained by reacting virgin vegetable oil with alcohol is not cost-efficient (Giannakis & Papadopoulos, 2016, Habermann, Blackhurst & Metcalf, 2015). This is because the existing production technologies associated with the production of glycerol are not cost effective and therefore, cannot compete with the petrol and petroleum based products. Although current developments are being made to develop glycerol from other methods, the main barriers is the cost. Financial resources are required to discover better glycerol production methods in order to ensure that the supply chains do not depend only on one mode of production. Another risk in this domain is to improve and develop catalysts to increase the conversion rate of glycerol (Beatrice et.al, 2013). The existing microbes and enzymes available to extract glycerol are highly expensive and require further research.  Methods for producing the glycerol should be economically cost effective and therefore, is considered to be another risk.
  2. Refining of Glycerol: The process of refining crude glycerol is considered to be an expensive and difficult process. The existing refineries that refine crude glycerol are owned by regional companies (Habermann, Blackhurst & Metcalf, 2015). Conventionally, purification of glycerol is achieved through vacuum fractional distillation process. This method is efficient in producing high quality glycerol but requires high energy supply. Another method of purifying glycerol is through ion exchange method. This method is also expensive and cannot be applied because of it is expensive (Habermann, Blackhurst & Metcalf, 2015).  For developing the advance level of refineries, a large number of investment and financial resources are required. Government level interventions in this domain are inadequate and are under review since the majority of the glycerol is directly supplied to the consumers through the retailers.  This is seen as a high level risk since glycerol supply chain market needs governmental legislations and investments to grow (Giannakis & Papadopoulos, 2016). Consequently, if this is not the case, glycerol and biomass renewable energy industry would not be transparent and therefore, suppliers would have upper hand.
  3. Distribution of Glycerol to the Outlets and End Users: A significant challenge and risk in the glycerol based CHP value chain is the delivery of the product to the end users (Beatrice et.al, 2013). Delivering of glycerol is considered to be a daunting task since it requires a network of transportation modes such as trucks, barges and trains. Distribution of the bio-fuel is considered to be a challenge since the capacity of the transportation network (Babazadeh et.al, 2015). This is because the production of the glycerol is expected to increase significantly. Consequently, investment in storage facilities would be required. In the same manner, it is essential to have a transportation network that can focus on supplying glycerol to the end users in a cost effective manner (Gallear, Ghobadian & He, 2015). If the transportation infrastructure has not been developed, it can severely affect the supply and demand of the glycerol.

Risks Associated with CHP System

  1. Risk Mitigation Strategies

The development of sustainable practices and reducing carbon emissions to avert the problem of climate change and global warming, is needed and therefore, renewable energy assets must be expanded and developed(Almeida, Fávaro & Quirino, 2012).  Risks involved in projects such as development of glycerol based CHP system are high. A wide ranging risks are involved in such projects these include financial risks, regulatory risks and political risks. Irrespective of the fact that such risks prevail, it is essential to lower carbon emissions and to adopt sustainable practices (Ambulkar, S., Blackhurst, J. and Grawe, S., 2015). This section of the report seeks to design the risk management strategy for the glycerol based CHP system for University of London’s South East Campus. The project had been set up to promote energy efficiency and to produce lower carbon emissions through sustainability. The risk management mitigation for managing the glycerol based CHP system value chain is discussed as follows:

  1. Price Volatility Aversion: Price volatility is considered to be a major risk associated with glycerol. This is because its cost depends on the supply and cost of feedstock, cultivated to produce bio-diesel. This risk in the supply chain can increase costs and can hinder its efficiency. To mitigate it, it is recommended that the University engaged in long-term power purchase agreement (Gallear, Ghobadian & He, 2015, Ghadimi, Kara & Kornfeld, 2014, Giannakis & Papadopoulos, 2016). On basis of this agreement, the glycerol produced will be available at fixed price even if the costs are high.  This agreement can benefit the end user as well as the supplier in an effective manner.
  2. Collaboration among All Stakeholders: The inherent risk involved in glycerol based CHP is system is its dependency on the feedstock for its production. Organizations cannot solely depend on the production of glycerol through the feedstock production (Ambulkar, S., Blackhurst, J. and Grawe, S., 2015, Beatrice et.al, 2013,Babazadeh et.al, 2015). Alternate modes of productions must be investigated and researched. For this purpose, it is suggested that the university collaborated with the government and stakeholders to determine the efficiency of the glycerol based CHP system and inform them about its benefits and drawbacks. Collaboration between the University and various stakeholders is needed to ensure that the efficiency of glycerol as biomass fuel for CHP system is understood by them. Furthermore, it can help them to understand its function and how it protects the environment by producing low carbon emissions. Furthermore, it is considered to be energy efficient system that focuses on producing electricity, while at the same time, produces heat.  Collaboration with the governmental agencies can also help to attract investment needed to conduct further research on producing glycerol methods (Li et.al, 2015, Mago & Smith, 2012, Monczka et.al., 2015). It can also help in developing a regulatory framework and legislation, in order to develop biomass fuel as a separate and distinctive renewable energy industry.  Collaboration can further attract investments for developing infrastructure to transport the glycerol or biomass fuel from the refineries to the end user in the efficient manner. This is because glycerol production is in excessive and cannot solely depend on network of barges, trucks and trains.
  3. Research and Development: The existing risks associated with glycerol as renewable energy fuel is because of lack of development in its production, refining and transporting. Glycerol has recently emerged as the new biomass fuel, used to power CHP system( Kelloway et.al, 2013). The production of glycerol is mainly done by reacting virgin oil with ethanol to produce biodiesel. Glycerol produced is then subjected to processing to further refine it. Existing methods of refining it are ion exchange and vacuum distillation, which are both expensive and cannot be used at commercial level(Ambulkar, S., Blackhurst, J. and Grawe, S., 2015, Azadeh & Arani, 2016, Li et.al, 2015, Mago & Smith, 2012, Monczka et.al., 2015). Therefore, research and development is needed in the area to develop methods that would minimize the costs associated with its production and refining. Methods such as producing glycerol from algae found in saline water or through microbial fermentation by using enzymes are under progress but are expensive and unavailable readily. Research in this area can be beneficial in developing sustainable method to produce and refine glycerol.

Conclusion

The goal of this research paper was to investigate the effectiveness of glycerol as the CHP system fuel for generating electricity and heat and to determine its viability as sustainable business practice. The existing case study was related to University of London’s South East Campus. The goal of the research paper was to analyse the supply value chain of glycerol based CHP system. The analysis of the literature suggests that glycerol is an effective and efficient biomass fuel, which can be used to reduce carbon emissions. Glycerol is primarily extracted from feedstock, where virgin vegetable oil is reacted with alcohol, to produce bio-diesel. The end product produced is crude glycerol that has certain level of impurities such as methanol/alcohol, salts and water. The processes of producing glycerol are still under investigation and therefore, dependency on single production source can affect the supply chain in negative manner. The raw materials of glycerol are dependent solely on oil seeds and feedstock and therefore, its demand and supply can affect the cost of glycerol.  Refining of glycerol is another issue and risk, which can affect the supply chain. Crude glycerol is purified through vacuum distillation or ion exchange. Both processes are expensive and are not applied at industrial level. Other risks associated with glycerol based supply chain include lack of infrastructure development, lack of industry standards and lack of governmental support. To mitigate the risks, it is essential that the University employs price setting long term contracts to control costs associated with material. Collaboration with the government and stakeholders can allow the organization to conduct research on glycerol based CHP systems. Consequently, research and development can further introduce sustainable methods to extract glycerol as a potential energy fuel for CHP systems.

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