It is well known nowadays that cities represent circa three quarters of energy consumption and 80% of CO2 emissions worldwide, and represent the largest of any environmental policy challenge. To cope with this continued urban growth we need new ways to manage cities and make them more effective. When we discuss city initiatives we need to include how motorized traffic can move most efficiently and effectively through crowded streets; for such aim, the availability of big data, analytics, and artificial intelligence is strongly requested.
The convergence between digital technology and the world of energy, or Energy 3.0, will pave the way for a new ecosystem of services which will enable both a better quality of life and reduced energy consumption. The smart cities approach will also ease the use of open data, -giving way to new urban services such as better transport connections-, provided that local councils take greater responsibility for ensuring the collection and the public availability of this data. For instance, a smart city working with data to predict traffic patterns could enable automated and real-time traffic congestion management instead of reactive activities.
Smart cities face, among others, one ambitious challenge concerning traffic management: they have to minimize energy consumption while, at the same time, they need to provide citizens with world class smart urban freight distribution and waste management systems. In this essay I first introduce a short review of the state of the art concerning Low Carbon Procurement, suggesting a definition of (Low Carbon) Supply Chain Management ((LCSCM)). Then, I will elaborate on An overview of strategies for managing complexity in the Smart Cities´ Supply Chain.
Low Carbon Procurement and Supply Chain Management
Procurement can be referred to as one of the three fundamental stages of supply chain: procurement, production and distribution. Procurement has much to say on reducing the GreenHouse Gas (GHG) levels and also in supporting industry´s adjustment to low carbon production processes and products. It is one of the highlighted issues in the ‘EUROPE2020’ strategy for sustainable growth, as one key instrument to support Europe’s shift towards a low carbon economy (EC, 2010a). Considering the large sums governments perennially spend on public procurement, -each year European public authorities spend the equivalent of 16% of the EU’s GDP on the purchase of goods and services (CEC, 2008)- surprisingly little attention has been paid to its role and influence on sustainable procurement practices. Eight years ago, Borg et al. (2006) estimated that the integration of energy efficiency issues in procurement, public administrations across EU Member States could save up to 20% of their energy use by 2020, with corresponding carbon reductions.
The power of procurement to address global environmental goals has been equally picked up by the private procurement sector which started to see a wave of initiatives in corporate responsibility with direct impacts of procurement on the supply chain (Walker et al., 2008; Andersen and Skjoett-Larsen, 2009; Spence and Bourlakis, 2009).
Procurement may have an important role on the managing of emissions of the types Scope 1 and Scope 2 -see Table I (Correa et al., 2013)-, through the purchasing of more energy efficient alternatives for in-house use or sourcing directly from renewable energy sources. However, from a procurement point of view, Scope 3 emissions are highly relevant as they are caused directly somewhere in the supply chain and can constitute the majority of the customer organization’s Carbon Footprint (CF). In fact, it is estimated that, on average, more than 75% of an industry’s CF can come from Scope 3 emissions (Matthews et al., 2008; Huang, Weber et al., 2009).
Table I: categorization of GHG emissions by organizations
Thus, Low Carbon Procurement (LCP) can be described as: The process whereby organizations seek to procure goods, services, works and utilities with a reduced carbon foot print throughout their life cycle and/or leading to the reduction of the overall organizational carbon foot print when considering its direct and indirect emissions (Correia et al, 2013, 60)
The different elements of this definition could be prioritized by procurers or policy-makers in different ways, with varying emphasis on the reduction of emissions of Scope 1, 2 or 3. For instance, under the current economic crisis, Governments or procurers can decide to approach LCP either through strategic longer-term savings’ decisions or through a tactical, short-term cost-cutting rationale.
With the Smart Cities Revolution, companies, citizens, and local administrators understanding much better the strategic meaning of procurement and the new dynamics of competitive advantage. We are the witness of a transformation in which suppliers and customers are inextricably linked throughout the entire sequence of events that bring raw material from its source of supply, through different value adding activities to the ultimate customer. Competition is, in many instances, evaluated as a network of co-operating companies competing with other firms along the entire supply chain (Spekman et al., 1994). A supply chain (SC) is a complex network of business entities involved in the upstream and downstream flows of products and/or services, along with the related finances and information (Beamon 1998; Lambert et al. 1998; Mentzer et al. 2001). Simply, Zara is as successful as its ability to coordinate the efforts of its key suppliers (and its suppliers’ suppliers), and to transform the materials and information flows into garments that are intended to compete in world markets against Uniqlo, H&M, C&A, Mango, and other international manufacturers.
World class companies are now accelerating their efforts to align processes and information flows throughout their entire value added network to meet the rising expectations of a demanding marketplace (Quinn, 1993). Thus, the increasing globalization of market is forcing hard competition, consequently resulting increased complexity in supply chains. Information, material and financial flows may lead to high complexity due to the lack of information (distorted information) within supply chain participants. Uncertainty variety, diversity, numerousness etc. are some of the factors which lead to the variation between expected (planed, scheduled) and actual flows and this variation called as complexity in this article. Complexity has many negative effects (consequences) on supply chains such as high operational costs, customer dissatisfaction, time delay in delivery, excess inventory or inventory shortage, lack of cooperation, collaboration and integration among supply chain participants etc...
Supply chain complexity is closely correlated with total supply chain management cost. Any increase in complexity level in a supply chain has a relevant contribution to its total cost. Complexity can be reduced by an effective complexity management that provides costs reduction within supply chains. As emissions of any Scope, either 1, 2, and/or 3, can be considered costs that have to be minimized, I propose to redefine SCM in the following terms:
Supply chain management (SCM) is the systemic and strategic coordination of these flows within and across companies in the supply chain seeking to procure goods, services, works and utilities with a reduced carbon footprint throughout their life cycle and/or leading to the reduction of the overall organizational carbon footprint when considering its direct and indirect emissions, with the aim of reducing costs, improving customer satisfaction and gaining competitive advantage for both independent companies and the Supply Chain as a whole.
Companies have to pay particular attention to the operational aspects of supply chain management because we are currently in the midst of a major technological revolution associated with the Smart Cities movement. This information processing revolution is offering opportunities to fundamentally transform existing supply chains through the erosion of des-intermediation and the speeding up of the information linkage between ultimate customers and all stages of the supply chain. This will provide companies that embrace the new technology with opportunities to eliminate many aspects of waste, include the environmental one and a better use of energy, by delivering more value to customers through speeding up the process of supply chain communication.
Some strategies for managing complexity in the Smart Cities´ Supply Chain
The growth of Supply Chain complexity seems to accelerate with trends such as globalization, sustainability, customization, outsourcing, innovation, and flexibility (Deloitte Touche Tohmatsu 2003; BCG 2006; KPMG 2011). For instance, according to Eric Siegel’s (2013) estimates, we are adding 2.5 quintillion bytes of data every single day. Words have become data; the physical states of our machinery have become data; our physical locations have become data; and even our interactions with each other have become data.
The complexity inherent in the supply chain can be either static, i.e., related to the connectivity and structure of the subsystems involved in the supply chain (e.g. companies, business functions, and processes), or dynamic, i.e., the one resulting from the operational behavior of the system and its environment. (Calinescu et al. 2001a, 2001b ; Efstathiou et al. 2002; Manuj & Sahin, 2011). The fact that the Supply Chain (SC) system is dynamic, non-predictable, and nonlinear adds another layer of complexity to decision making in it. As a result, complexity of decision making in the SC is associated with the volume and nature of the information that should be considered when making a SC related decision (Serdar-Asan, 2009).
Complexity drivers generated within supply and/or demand interface (in cooperation with suppliers /customers), -also known as power and trust mechanisms that affect the nature of supplier/customer relations- are related to the material and information flows between suppliers, customers and/or service providers. These drivers are somewhat manageable since they remain within the span of influence and the level of coordination between SC partners plays a significant role when dealing with these drivers.
Christopher (2000) assume that companies tend to use strategies to reduce complexity when dealing with static complexity, while they try to manage the complexity and adjust their operations to cope with it when they are facing dynamic and decision making complexity. Thereby, numerous companies operating in Smart Cities environments are increasingly using e-business applications such as electronic auctions, electronic catalogues, and customer relationship management applications to streamline their business processes along the entire supply chain (da Silveira and Cagliano, 2006;
New research by technology giant Cisco (2014) suggests the cumulative economic impact promised by smart buildings, intelligent gas monitoring and water management solutions, advanced transportation networks and related solutions could be $1.9 trillion over the next decade. If you consider the entire public sector, including defense and military applications, the number doubles.
The development of sophisticated web-based EB applications has enabled organizations to consider putting collaboration into practice throughout their supply chain (Devaraj et al., 2007; Sanders, 2007; Ordanini and Rubera, 2008). They have enabled companies to share large amounts of information between supply chain partners (Boone and Ganeshan, 2007), enabling real-time collaboration and integration between supply chain partners, improving production planning, inventory management, and distribution.
Some important institutions are beginning to explore how they can contribute towards the social and environmental wellbeing of cities and communities, like Banks and investors; they have the funds to support large-scale initiatives, and/or the skills to access them. The same applies to supermarkets and other retailers who operate across cities, nations and continents; their operational and economic footprint in cities is significant, and their supply chains support and contribute to billions of lives. It’s important to engage with these institutions in defining Smart City initiatives across the traditional asset classes and revenue streams that investors understand. These institutions are not exploiting the full potential of the technology already available to them, maybe because in many cases they cannot find a quantified evidence base for the financial, social, economic and environmental benefits of applying technology in city systems. Without that evidence, it’s hard to create a business case to justify investment.
This essay brings into the light some of the benefits of applying technology in city systems and communities as it concerns traffic and SC for the urban freight distribution of merchandises; further articles will be devoted to ii) identify the factors that determine the degree to which those benefits can be realized in specific cities and communities; ii) align the benefits to the financial and operating models of the public and private institutions that operate city services and assets; and iii) provide the detailed data from which clear businesses cases with quantified risks and returns can be constructed.