Introducing New Materials to an Existing Supply Chain

Abstract

To handle the paradox of rising energy demand while still reducing emissions from fossil fuel, Vattenfall will increase the use of biomass. Accordingly, the energy gained from biomass will play an important role in Vattenfall’s future energy production. In 2013 a new type of biomass, called black pellets, will be implemented at Vattenfall. Black pellets is a bulk commodity where logistics costs represent a major share of the products’ landed cost. The material will be sourced globally, which implies that innovative transportation corridors will be needed. The similarities and differences between coal and black pellets are mapped, in order to understand how the correlation between the two materials affects the supply chains. This is a task of finding constraints in the supply chain and analysing which trade-offs are necessary, focusing on sea transportation alternatives, inventory levels and the overall costs. Although coal and black pellets will be used for the same purpose, they do not share the same market mechanisms; hence they should have two separated supply chains. The supply chain of black pellets should be based on a push-pull approach were the main focus should be put on lowering the sea transportation costs and on managing the inventory levels. The findings show that it is the transportation system itself that constrains on the supply chain thus causing the major bottlenecks, rather than the characteristics of black pellets.