Applied Mathematical Modelling 36 (2012) 4271–4285

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Applied Mathematical Modelling

journal homepage: www.elsevier.com/locate/apm

Green supply chains with carbon trading and environmental sourcing:

Formulation and life cycle assessment
Tarek Abdallah ⇑, Ali Farhat, Ali Diabat, Scott Kennedy
Masdar Institute of Science and Technology, P.O. Box 54224, Abu Dhabi, United Arab Emirates

a r t i c l e i n f o a b s t r a c t

Article history: Industry practitioners and policy makers are under increasing pressure to continuously
Received 6 February 2011 reduce the negative environmental impact of their supply chains. An original equipment
Received in revised form 11 November 2011 manufacturer that is concerned with minimizing the environmental impact of its activities
Accepted 15 November 2011
should choose its suppliers based on the trade-off between costs and respective emissions.
Available online 28 November 2011
This decision requires the manufacturer to coordinate closely with its suppliers in order to
achieve the required level of emissions. In this paper, we develop a mixed integer program
Keywords:
for the carbon-sensitive supply chain that minimizes emissions throughout the supply chain
Green procurement
Life cycle assessment
by taking into consideration green procurement also known as environmental sourcing. A
Carbon market sample case study is presented with a life cycle assessment of three scenarios based on dif-
Kyoto protocol ferent carbon emissions costs.
Emissions trading Ó 2011 Elsevier Inc. All rights reserved.
Green supply chain

1. Introduction

Climate change and its impacts on the earth and humanity are gaining momentum, threatening the integrity and security
of economies and the quality of life of vulnerable populations; both of which are intricately dependent on the current pro-
duction and consumption trends. Anthropogenic green house gases (GHGs) are the main contributors to climate change, as
their atmospheric concentrations have grown markedly since pre-industrial times, with an increase of 70% between 1970
and 2004. In parallel, eleven of the last 12 years (1995–2006) rank among the twelve warmest years in terms of mean global
surface temperature (since 1850) [1].
In response to climate change, the Kyoto Protocol was signed in 1997 and came into force in 2005. The protocols’ targets
require an emissions reduction of greenhouse gases by an average of 5% from 1990 levels by 2012 in 37 industrialized coun-
tries [2]. It sets more aggressive targets for developed nations for their responsibility for 150 years of industrialized activity.
The Kyoto protocol not only calls for collaborative governmental action, but also sets legally binding conditions for the com-
mitting countries. This represents an important first step towards limiting greenhouse gas emissions, but a much more
ambitious international agreement involving all major emitters will be needed beyond 2012.
The Kyoto protocol introduced various flexible mechanisms through which different countries can cooperate to meet
their reduction targets and decrease costs. The Kyoto mechanisms are:

(i) Emissions trading, also known as the ‘‘carbon market’’, defined in article 17, allows countries that are below their targets
to sell this excess capacity to countries that are exceeding their targets. Since carbon dioxide is the principal GHG, it is
now tracked and traded as a commodity through markets such as the Emissions Trading System for the European
Union.

⇑ Corresponding author.
E-mail address: tabdallah@masdar-alumni.ac.ae (T. Abdallah).

0307-904X/$ - see front matter Ó 2011 Elsevier Inc. All rights reserved.
doi:10.1016/j.apm.2011.11.056
4272 T. Abdallah et al. / Applied Mathematical Modelling 36 (2012) 4271–4285

(ii) Clean development mechanism (CDM), defined in Article 12, allows countries with greenhouse gas reduction commit-
ments to invest in emissions reduction projects in developing countries. Such projects can earn salable certified emis-
sion reduction (CER) credits which can be counted towards meeting the Kyoto targets.
(iii) Joint implementation (JI), defined in Article 6, allows a country with an emissions reduction commitment to invest in
emissions reduction projects in another developed country committed to its emissions reductions. In addition, such
projects can earn emissions reduction units (ERUs) from the host country, which can be counted towards meeting
the Kyoto targets of the investing country.

In addition to the carbon trading mechanisms that have been developed for countries to satisfy their obligations towards
the Kyoto protocol, voluntary exchanges have also been established for buyers that seek to offset their emissions voluntarily.
These Voluntary Emissions Reductions (VER) normally sell for lower prices than CERs.
The emissions trading mechanism is one of the great innovations in environmental policy. The advantage of allowing
trade is that some firms can reduce their emissions more economically than others [3]. It relieves the pressure on companies
to reduce carbon emissions throughout their operations, by allowing them to either invest in other economical emissions
reduction projects or purchase carbon credits. In any case, companies are now realizing that they will have to pay for their
emissions under business as usual strategies. In addition, the growing number of environmentally-conscious consumers in-
creases the competition amongst firms to provide greener products and thus increase their market share. This trend changes
the way companies manage their supply chains; they will have to find new and innovative means of optimizing the supply
chain across all its stages to reduce carbon emissions and implement green procurement to minimize its carbon footprint.
The result is an economy in which all suppliers and manufacturers of end-use products are competing to reduce GHG emis-
sions, in order to increase their market share and meet reductions requirements.
In parallel with public sector policies and agreements to promote sustainable development, the private sector is expected
to take prudent steps toward greening their activities and reducing their energy use and GHG emissions. Supply chains, in
particular, rely heavily on energy supply and freight transport. This sector faces a challenging future due to its crucial and
growing role in world energy use and GHG emissions. In 2004, transport energy use amounted to 26% of total world energy
use and the transport sector was responsible for about 23% of world energy-related GHG emissions [4]. The growth rate of
energy consumption in the transport sector in the past decade was highest among all the end-use sectors. Freight transport,
among all sectors in the IEA-11 countries, showed the highest relative growth in CO2 emissions percentage since 1973. Emis-
sions increased as freight activity grew in line with GDP and with energy-intensive trucking taking a larger share of total
ton–kilometers hauled [5]. Freight transport now consumes 35% of all transport energy, or 27 EJ (out of 77 EJ total) [6].
The World Energy Outlook 2009 [7] proposes that end-use energy efficiency offers the biggest opportunity for GHG emis-
sions abatement. The growth in the size of supply chains is likely to continue to provide major opportunities to improve effi-
ciency still further. This will increase the pressure on companies to adopt environmentally responsible business practices
and green their supply chains. Companies now realize that they have to expand their internal greening activities such as
waste-reduction strategies and installation of pollution control technologies into their downstream and upstream stakehold-
ers [8].
Srivastava defines green supply chain management as ‘‘integrating environmental thinking into supply chain manage-
ment, including product design, material sourcing and selection, manufacturing processes, delivery of the final product to
the consumers, as well as end-of-life management of the product after its useful life’’ [9]. Companies interested in greening
their supply chains should focus on improving the efficiency of the manufacturing, handling, and routing of goods through
technical, operational, and logistical measures.
The operational life cycle of the product influences decisions on how to green the supply chain. The major elements of the
operational life cycle will typically include procurement, production, distribution and, if available, reverse logistics. Green
procurement, also known as environmental sourcing, is one way of extending green initiatives to upstream suppliers. It is
defined as the integration of environmental considerations into purchasing policies and supplier selection [10]. The green
procurement or sourcing decision affects the green supply chain through the purchase of materials that are either recyclable
or reusable, or have already been recycled [11]. Thus, green procurement can provide a key competitive advantage for com-
panies because it leads to eco-efficiency, cost-savings, and improved public perception for the products [12].
On the other end of green supply chain management, eco-labeling of products is another important competitive advan-
tage for companies. Customers’ purchasing decisions are increasingly influenced by the environmental characteristics of the
operations life cycle of the products [13]. Eco-labeling helps customers identify products with environmentally-preferable
attributes over conventional products [14]. A fundamental part of eco-labeling is life cycle assessment (LCA), which is a
methodology that enables the quantification of environmental impacts incurred throughout the product life cycle. Compa-
nies interested in greening their supply chains should focus on performing LCA in order to assess the environmental advan-
tages of their products as represented by the ISO 14000 series [15].
LCA has been described as the most scientifically reliable method currently available for studying and evaluating the envi-
ronmental impacts of a certain product or process. It has proven to be an important quantitative decision-support tool for inte-
grated product policy and for strategic investment planning because it assesses the environmental burdens associated with the
life cycle of a product, including design and operation of a supply chain [16]. Companies usually perform comparison LCA ap-
proaches in which two or more alternatives are compared for their environmental impact and emissions. This helps companies
make environmentally appropriate decisions for the selection of raw materials, suppliers, and processes used in the product
 T. Abdallah et al. / Applied Mathematical Modelling 36 (2012) 4271–4285 4273

manufacturing and distribution strategy [17]. Another LCA approach is the improvement approach, which identifies the supply
chain stages (raw materials, processes, etc.) having the largest negative impact on the environment. This highlights the poten-
tial improvements that can be achieved and improves the allocation of time and money within the supply chain [18]. Further-
more, LCA helps in product eco-labeling by tracing the eco-profile of the product, obtained by measuring all the environmental
emissions and potential environmental impacts of the product throughout its life cycle [19].
This paper presents a novel optimization model for green supply chain management that minimizes traditional supply
chain location and transportation costs, as well as carbon emissions costs through carbon market trading. We introduce
the green procurement concept in the model, where the company can decide on its suppliers based on the trade-off between
suppliers’ emissions and the cost of their components. The mixed integer programming (MIP) model captures the impact of
different emission caps on supply chain costs and helps to define an optimal strategy, including the purchase or sale of car-
bon credits, for companies to meet their carbon cap, while minimizing opportunity cost. The model assumes that the com-
pany’s emissions are directly affected by the carbon embedded in the raw materials procured from the suppliers. A life cycle
assessment study is presented to compare the environmental impacts of the proposed green supply chain with the tradi-
tional supply chain.
The paper is organized as follows: Section 2 reviews the literature on green supply chains and life cycle assessment; Sec-
tion 3 introduces the mathematical formulation of the model; Section 4 describes a small case study; Section 5 presents the
life cycle assessment results of a personal computer under different supply chain configurations; and Section 6 concludes
with future research directions.

2. Literature review

Since the early 1990, manufacturers have been facing pressure to integrate environmental management into their supply
chains [20]. The literature on green supply chains is diverse; it can include end-of life management of products and using
green manufacturing technologies and designs. However in this paper we limit our discussing to minimizing the carbon
emissions. Readers interested in end-of-life management like recycling and remanufacturing are referred to [21,22], while
those interested in green design and green manufacturing technologies are referred to [23,24].
Adding the ‘‘green’’ concept to the supply chain adds a new trade-off between the costs of production and transportation
on one side, and the social and market costs of carbon emissions on the other side. Geffen and Rothenberg [25] used three
case studies of US assembly plants to examine the role of strategic partnership between manufacturers and their suppliers to
achieve their environmental performance targets. The study concluded that the manufacturers and suppliers with the stron-
gest coordination achieved the greatest success. Simpson and Power [26] investigated the relationship between a supplier-
firm’s level of environmental management activity and the structure of the customer–supplier manufacturing relationship.
They concluded that the manufacturing process is where the greatest amount of pollution is generated and where the great-
est amounts of resources are consumed. Hence, the supply-manufacture relationship has the potential to make significant
strides towards a greener supply chain.
Preuss [27] suggested five ways to green the supply chain. First, manufacturers should focus on the material procured
from their suppliers. Second, manufacturers need to include environmental criteria in their assessments of suppliers. Third,
manufacturers should monitor the manufacturing processes of the supply chain, e.g. by seeking accreditation according to an
environmental standard such as ISO 14001. Fourth, manufacturers should be involved in internal environmental protection
initiatives such as the establishment of environmental management systems. Finally, the supply chain managers should be
more involved in downstream activities like product recovery.
Bin and Jun [28] developed a non-linear mixed integer program for a green supply chain, taking into consideration the
effect of e-commerce on the supply chain. The authors concluded that e-commerce can significantly reduce supply chain
costs while also optimizing the green supply chain management. Sheu et al. [29] formulated a linear multi-objective model
that systematically optimizes the operations of both integrated logistics and corresponding reverse logistics in a given green-
supply chain. Government subsidies for reverse logistics were considered in the formulation. A typical 5-layer manufacturing
supply chain was proposed to characterize 5 respective forward functions in corresponding layers: raw material supply,
manufacturing, wholesaling, retailing, and end-customers. Similarly, a 5-layer reverse logistics chain was specified consist-
ing of: recycling plants, a disassembly plant, secondary material markets, and final disposal locations for waste. Their results
showed an increase of around 21.3% in net profit by implementing the suggested integrated supply chain model.
Lately, there has been a burgeoning literature on integrating environmental impact into supply chain design consider-
ations. Hugo and Pistikopoulos [30] presented a multi-objective mathematical model that includes LCA in the decision pro-
cess of the traditional supply chain network design. At the strategic level, the model determines the optimal location sites,
the optimum combination of processing technologies, and capacity expansions allocating demands with distribution links to
the market demand. Moreover, at the operational level, the model determines optimal production quantities and their flows
along the different components of the supply chain. Bojarski et al. [16] also presented a mixed integer program (MIP) with
LCA embedded in the formulation. However, their work included decisions regarding the planning and design of a supply
chain considering economic and environmental impact. The goal was to determine the active links in the supply chain,
the facility capacities in each time period, the assignment of manufacturing and distribution tasks to the network nodes,
the amounts of final products sold, and the environmental impact associated to each node.
4274 T. Abdallah et al. / Applied Mathematical Modelling 36 (2012) 4271–4285

Ramudhin et al. [31] introduced the carbon-market-sensitive supply chain network problem. Their mixed integer pro-
gram focused on the impact of transportation, subcontracting, and production activities on the design of a green supply
chain. They considered a multi-supplier, multi-plant, multi-product, and multi-retailer problem, but assumed that the facil-
ity locations and sizes are known in advance. Later, Diabat and Simchi-Levi [32] presented a carbon capped supply chain
which considered the throughput and storage capacity of the manufacturing site and distribution centers as decision vari-
ables. However, they restricted the carbon emissions from the supply chain to the allocated carbon cap without taking into
consideration the flexible mechanism of emissions trading. In addition, they did not consider the effect of suppliers’
emissions on the overall emissions of the company. Abdallah et al. [33], considered a similar problem to Diabat and
Simchi-Levi [32] while including suppliers selection into the model.
In this paper, we introduce a different MIP model in which a carbon trading mechanism is realized, where the company
can decide to either sell or buy carbon credits while monitoring its emissions. In addition, we introduce the green
procurement concept, where the decision as to which supplier to choose affects the overall carbon footprint of the supply
chain.

3. Model formulation

3.1. Model description

The carbon-sensitive supply chain with green procurement (CSSCGP) is a two-level multi-commodity facility location
problem [34] with a trading price for carbon emissions and a cost of procurement. The company might either incur costs
if the carbon cap, normally assigned by regulatory agencies, is lower than the current emissions, or gain profit from selling
excess credits. The network consists of a set of candidate suppliers for raw materials, a set of potential plants of different
production capacities, a set of distribution centers (DCs) of different throughput capacities, a set of retailers, and a set of
product types.
The problem is to decide which suppliers to deliver the raw materials along with their respective quantities, how the
plants distribute the products to the candidate DCs, and how the retailers’ demand is satisfied from the DCs, in such a
way that the total facility opening, product distribution and carbon emissions costs are minimized. This supply chain con-
siders the green procurement problem by holding the original equipment manufacturer accountable for the emissions
embedded in the raw materials procured in addition to the carbon emissions incorporated with the transportation of these
materials. Retailers’ demands are assumed to be deterministic, and the plants and DCs have limited production and through-
put capacities, which are to be determined.
In our model, we assume that carbon emissions come from four main sources:

(i) the raw materials of the suppliers, where the manufacturer is held accountable for the carbon embedded in the raw
material supplied;
(ii) the delivery of the raw materials, where the emissions level is based on the traveled distance and weight of the raw
material transported;
(iii) the facilities (plants and DCs), where the amount of emissions is proportional to the area of these facilities (based on
the US energy information agency (eia) report on the energy analysis of buildings in the US [35];
(iv) the distribution of the products, where the emissions level is based on the traveled distance and weight of the product
transported;

Seven major cost components are considered in the objective function of the model. They are as follows:

(i) DC fixed-location cost: the cost to establish and operate a distribution center;
(ii) DC-retailer unit-shipping cost: the cost to ship one unit of a commodity from a DC to a retailer;
(iii) plant fixed-location cost: the cost associated with establishing and operating a plant;
(iv) plant-DC unit-shipping cost: the cost to ship one unit of a product from a plant to a DC;
(v) unit cost of raw material: the cost of procuring one unit of raw material;
(vi) supplier-plant unit-shipping cost: the cost to ship one unit of raw material from a supplier to a plant; and
(vii) carbon trading cost: the cost of purchasing carbon credits.

3.2. Notation

To formulate the problem, the following notation is used:Sets

I set of retailers, indexed by i
J set of potential DC sites, indexed by j
K set of potential plant sites, indexed by j
N set of potential suppliers, indexed by n
X set of raw materials, indexed by q
 T. Abdallah et al. / Applied Mathematical Modelling 36 (2012) 4271–4285 4275

bJ set of DC sizes, in ft2, indexed by ĵ

b
K set of plant production sizes ft2, indexed by j
^
L set of products, indexed by i

Parameters
^
g jj fixed cost to open and operate a DC of size ĵ at location j
ci distribution cost of product type i per unit distance
w
dij distance, in miles, between retailer i and a DC at location j
fjj^ fixed-cost to run a plant of size j
^ at location j
p
djj distance, in miles, between a plant at location j and a DC at location j
cnq unit cost of procuring raw material type q from supplier n
cq distribution cost of raw material type q per unit distance
s
dkn distance, in miles, between a supplier at location n and a plant at location k
COCAP2 maximum amount (in tons) of carbon dioxide (CO2) that can be emitted (allocated by the government)
H average expected cost of carbon credits, in $/ton CO2
l very large number
aii demand of retailer i for product type i
bqi amount of raw material type q needed to manufacture one unit of product i
hnq threshold amount of raw material q required by supplier n to establish a contract

1 if supplier nsupplies raw material q
Mnq
0 otherwise
si area, in ft2, required to store a unit of product type i at any DC
^
wj size, in ft2, of DC ^j
qi area, in ft2, required to produce one unit of product type i at any plant
pj^ size, in ft2, of plant j
^
ap CO2 emissions factor of a facility, in ton per kWh of operation
j^ energy requirement for a plant of sizej ^ , in kWh per ft2
^j ^
energy requirement for a plant j, in kWh per ft2
as CO2emissions factor for transportation, in tons per mile
anq CO2 embedded in raw material q from supplier n, in tons per product

Decision variables
8
^j
< 1 if a DC of size ^j is opened
Uj at location j
:
0 otherwise
Xiji total
8 number of units of product type i distributed to retailer i from DC j
< 1 if a plant with production capacity
V jj
^
j^ is opened at location j
:
0 otherwise
Yjji total number of units of product type i shipped from plant j to DC j
Zknq total number of units of raw material q shipped from supplier n to plant k
COCUR
2 amount
8 of carbon dioxide (CO2),in tons, that is currently emitted
< 1 if supplier n supplies raw material q
Z knq to plant at location k
:
0 otherwise

3.3. The model

The MIP formulation of the CSSCGP problem can be stated as follows:

8P P ^ ^ P P P
w
>
>
> j2J g jj U jj þ ci dij X iji
>
> b i2I j2J i2L
>
> ^
j2 J
>
> P P j^ j^ P P P p
>
>
<þ fj V j þ ci djj Y jji
min j2K ^ b j2J j2K i2L ð1Þ
j2 K
>
> P P P 
>
> þ cnq Z jnq þ cq dsjn Z jnq
>
>
>
> j2K n2N q2X
>
>  
>
: þH COCUR  COCAP
2 2
4276 T. Abdallah et al. / Applied Mathematical Modelling 36 (2012) 4271–4285

X
s:t: X iji ¼ aii ; 8i; i ð2Þ
j2J
X XX
Z knq ¼ bqi Y jji ; 8j; q ð3Þ
n2N j2J i2L
X X
Z jnq P hnq Z jnq ; 8n; q ð4Þ
j2K j2K
Z j nq 6 M nq ; 8j; n; q ð5Þ
Z jnq 6 lZ jnq ; 8j; n; q ð6Þ
XX ^ ^
si X iji 6 wjj U jj ; 8j; ^j ð7Þ
i2I i2L
X X
X iji 6 Y jji ; 8j; i ð8Þ
i2I j2K
XX
qi Y jji 6 pjj^ V jj ;
^
8j; j
^ ð9Þ
j2J i2L

XX XX ^ ^ ^ XXXX  
ap j^ pj^ V jj^ þ ap j wj U jj þ as dpjj Y jji þ dwij X iji
j2K ^ b j2J ^j2b i2I j2J j2K i2L
j2 K J
X X X s 
þ as djn Z jnq þ aq Z jnq ¼ COCUR
2 ; ð10Þ
j2K n2N i2L

X iji P 0; 8i; j; i; ð11Þ

Y jji P 0; 8j; j; i; ð12Þ
Z jnq P 0; 8j; j; q; ð13Þ
^
U jj ¼ f0; 1g; 8j; ð14Þ
V jj
^
¼ f0; 1g; 8j; ð15Þ
Z jnq ¼ f0; 1g; 8j; n; q; ð16Þ
The objective function to be minimized (1) includes the sum of the fixed costs, distribution costs, procurement costs, and
carbon emissions cost associated with carbon trading. Constraint set Eq. (2) ensures that the demand of each retailer is sat-
isfied by the open DCs. Constraint set Eq. (3) ensures that all the raw material requirements are met from the assigned sup-
pliers. Constraint set Eq. (4) states that every supplier has a minimum raw material order requirement to establish a contract.
Constraint set Eq. (5) ensures that no contract is established unless a supplier provides the raw material. Constraint set Eq.
(6) ensures that no raw material is shipped unless a contract is established. Constraint set Eq. (7) ensures that the demands
of retailers that are supplied by open DCs do not exceed the throughput capacity of any of these DCs. Constraint set Eq. (8)
ensures that the total flow of product i that enters DC j from all plants does not exceed the flow that leaves the DC to all
retailers. Constraint set Eq. (9) represents the capacity restriction of plant j of size j
^ in terms of the amount of product it
can handle. Constraint set Eq. (10) calculates the carbon dioxide emissions across the supply chain. Constraint set Eqs.
(11)–(16) enforce the non-negativity and the binary restrictions on the decision variables, respectively.
The greenest supply chain is that which minimizes the overall carbon emissions across the supply chain regardless of the
cost of emissions. This problem can now be reformulated as follows:
8P P PP ^
>
>
> ap j^ pj^ V jj^ þ ap ^j w^j U jj þ
>
> j2K ^ b j2J ^ b
>
> j2 K j2 J
<
PP P P  p w

min a s djj Y jji þ dij X iji þ ð17Þ
> i2I j2J j2K i2L
>
>
>
> P P P a ds Z
>
>

: s jn jnq þ aq Z jnq
j2K n2N i2L

s.t. [(2)–(9)] and [(11)–(16)]

4. Case study

Our analysis was based on the 49-node dataset presented in Daskin (1995) for the capitals of the lower 48 US plus Wash-
ington, DC [34]. The 49 nodes represent candidate plant, DC, and current retailer locations. Nodes 10–25 represent candidate
supplier locations. Each supplier has different emissions, costs, and minimum demand requirements. As shown in Fig. 1, sup-
pliers with a darker color have higher emissions. We assume all suppliers have the same quality, but the price of the raw
material increases as the product becomes greener (for a list of prices and emissions per unit, see Appendix A).We consider
 T. Abdallah et al. / Applied Mathematical Modelling 36 (2012) 4271–4285 4277

Fig. 1. Product hierarchy and potential suppliers.

the case of distributing a hypothetical personal computer (PC) which consists of 4 components (a desktop case, a mouse, an
LCD screen, and a keyboard) procured from different suppliers.
The company we are considering is only responsible for assembly and distribution of the PC. There are 8 possible plant
sizes and DC sizes (in ft2); these sizes and their respective emissions were taken from the EIA report on the energy analysis of
buildings in the US (see Table 1)[35]. Note that the relationship between the size and energy requirement per ft2 is almost a
convex function.
The model considers the size of the facility to be a decision variable which is limited to seven possible sizes. Intuitively, as
the size of a facility increases the fixed cost increases as well. In order to get the prices as an input for the model, we multiply
the rent cost provided by Daskin by 10 and assign them to the smallest possible sizes of facilities as shown. We then extrap-
olate the data by incrementally multiply these costs by 1.5 as the possible size increase. To obtain the demands for PCs at
each node the population given in Daskin data set was divided by 100. The distances between nodes were set to the great
circle distance between the nodes. The values of the other parameters used in the analysis are provided in Tables 2, 3.
We considered three different configurations of the supply chain based on three scenarios:

(1) No carbon cost, where we set the carbon price to $0/ton CO2 in objective function (1).
(2) $100 carbon cost, where we set the carbon price to $100/ton CO2 in objective function (1).
(3) Minimum carbon emissions scenario, where we consider the greenest model objective function (17).

We performed sensitivity analysis using the ILOG CPLEX 11.0 MIP solver in the GAMS modeling language.
Since this supply chain is not production intensive, we notice from Fig. 2, that the number of facilities opened increases
slightly due to the introduction of an emissions trading cost. Since the number of facilities increases, then the assigned de-
mands decrease, so that the average size of the facilities decreases, as seen in Fig. 3. This will be evident in the life cycle
assessment, as the procurement decisions are the main contributor to the carbon footprint. For the case of minimizing
the carbon emissions regardless of the cost, we notice that the supply chain network becomes highly decentralized, where
the number of facilities opened increases significantly while their sizes decrease significantly.

Table 1
Available capacities and respective emissions.

1 2 3 4 5 6 7 8
Capacity (ft2) 5000 10,000 25,000 50,000 100,000 200,000 500,000 700,000
Energy Requirement (kWh/ft 2) 17.8 12.4 10.5 12.2 13.1 15.7 15 19
4278 T. Abdallah et al. / Applied Mathematical Modelling 36 (2012) 4271–4285

Table 2
Transportation parameters.

Case Mouse LCD Keyboard Computer

Weight (lbs) 22 0.75 10 2 35
Unit Shipping Cost per average distancea ($) 150.00 46.65 92.00 52.00 195.00
Unit Shipping Costb ($/mi) 0.0609261 0.0189480 0.0373680 0.0211210 0.0792039
Shipping Emissionc (kg CO2/mi) 0.00915 0.000315517 0.004159091 0.000831818 0.01464
a
UPS rates <https://wwwapps.ups.com/ctc/request>.
b
Average shipping distance is assumed between Los Angeles and New York is 2462 mi.
c
Calculated from the Eco-invent database for a 3.5–7 ton transport lorry.

Table 3
Values of parameters.

Parameter Value
CO2Cap 80,000,000
bq 1
qi 0.9
si 0.1
ap a 0.2
aw 5
as 1
a
Eco-invent database CO2 emissions of 1 kWh produced using natural gas.

Fig. 2. Total number of facilities opened under the three scenarios.

Fig. 3. Average facility size under the three scenarios.

 T. Abdallah et al. / Applied Mathematical Modelling 36 (2012) 4271–4285 4279

We now study the robustness of the three supply chain configurations to the actual implementation of a $100/ton CO2
carbon emissions cost. We consider two cases: (1) business as usual, i.e., there is no carbon emissions cost implemented
and (2) there is a carbon trading mechanism implemented at $100/ton CO2. We notice from Fig. 4, that the implementation
of a carbon emissions cost leads to an increase in the total costs for the first two configurations while a decrease in the costs
for the greenest supply chain due to the benefit of selling extra carbon credits in the latter. However, both the traditional
supply chain (0/ton CO2) and the supply chain that was optimized based on an expected $100/ton CO2 carbon emissions have
almost equal total costs. As a result, the supply chain manager should consider optimizing the green performance of the sup-
ply chain regardless of the actual implementation of the carbon emissions cost since there are additional benefits related to
the customers perception of the product and the corporate social responsibility.

5. Life cycle assessment

In order to compare the environmental impact of the three scenarios presented in Section 4 we conducted a life cycle
assessment (LCA). The analysis tool used in the LCA was SimaPro 7.1, with the indicator considered in the assessment chosen
to be Eco-Indicator 99 (H). Further details about the LCA technique and SimaPro software can be found in [37,36].

5.1. Goal and scope

The goal of this study is to compare the environmental impact of the three supply chain configurations discussed in Sec-
tion 4 with regard to chemical emissions, especially GHG emissions. We considered the emissions associated with the inputs
and outputs based on the three scenarios as well as their environmental impacts on human health, ecosystem quality, and
non-renewable resources.

5.2. System boundaries

In order to compare the trade-offs among the three supply chain scenarios, some stages can be ignored due to their min-
imal effect on the overall impact. Hence, the stages considered were the manufacturing of the four subparts, which includes
all the raw materials processing, the transportation of the raw-materials from their source to the suppliers’ locations, as well
as the energy inputs for their manufacturing (from the built-in library of the SimaPro 7.1 software). The system studied also
considered the transportation between all stages of the supply chain, i.e. from the suppliers to the assembly units, to the
distribution centers, to the retailers. The operational inputs for the assembly plants and the distribution centers were con-
sidered, along with the indirect operational activities of these facilities such as the electricity of the lighting, heating, and
cooling of the plants/centers. The operational emissions were calculated per unit area (in square feet).
The operational inputs of the suppliers and the retailers were excluded since they were equivalent in all three scenarios.
The construction of the assembly plants and the DCs were ignored since we assumed that one large facility requires the same
inputs and produces the same outputs as two or more smaller plants of the same capacity and area. In addition, the trans-
portation of the personal computers from the retailers to the end-users and the operational use of the products, as well as the
disposal scenario of the product were not included in the study. This is mainly because the three studied scenarios only differ
from each other from the supplier stage to the retailer stage, and are identical from the retailer stage until the product
disposal.

Fig. 4. Sensitivity of the overall costs with respect to actual implementation of a $100/ton CO2 carbon trading cost.
4280 T. Abdallah et al. / Applied Mathematical Modelling 36 (2012) 4271–4285

5.3. Functional unit

The functional unit of the scenarios studied was defined as per average unit of personal computers (PCs) distributed in the
USA according to the case study.

5.4. Life cycle assessment methodology

Primarily, two LCA methodologies were used: input–output analysis-based LCA, also known as IO-LCA, and process-based
LCA. This study is a hybrid LCA study utilizing both methodologies. Usually, process-based LCA requires information about all
the processes incorporated in the life cycle of the commodity (products and services), inputs (energy, etc.) and outputs (air
emissions and discharges to water and soil, etc.). Despite being specific and more accurate, its system boundaries are nar-
rowly defined and expanding them is highly time-, money-, and labor-consuming [38]. On the other hand, IO-LCA surmounts
the obstacles faced in process-based LCA, mainly the narrowly-defined system boundaries and intensive information
requirements. However, due to aggregation, it is considered to be less precise and less detailed, although it produces a com-
prehensive economy-wide environmental analysis.
Our LCA study accounts for the manufacturing of the four sub-parts: desktop case, optical mouse, LCD screen, and key-
board, each of which has four different types. The production of the respective 16 suppliers is considered by the IO-LCA
method. Each of the 16 items has different inputs and emissions but uses the same type of materials.
On the other hand, process-based LCA accounts for the processes of transportation between the suppliers and the assem-
bly plants, and between the latter and the DCs, as well as from the DCs to the retailers. The transportation is assumed to be
via a 3.5–7 ton lorry between all stages and is calculated based on the weight of the carriage and the distance traveled in
units of ton–miles (t.mi). In order to reproduce the raw materials and the emissions of each supplier, we assumed that
the raw materials and the emissions to air, water, and soil are linearly dependent on the carbon dioxide emissions, so they
vary at the same rate as carbon emissions vary per unit. In other words, among the four desktop cases involved in this study,
the most clean accounts for 40% of the raw materials as well as 40% of the emissions of the least clean desktop case, the sec-
ond most clean accounts for 60% of the raw materials and emissions of the least clean desktop case and the third most clean
accounts for 80% of the raw materials and emissions of the least clean desktop case.
The process-based LCA also considered the electricity used in the operation of each assembly plant and DC for lighting,
heating, ventilation and refrigeration, while ignoring that of the suppliers and retailers. The electricity, produced by natural
gas, is calculated per unit area (ft2) of each facility, where each range of areas of the facilities is multiplied by a certain factor
having units of kWh per square feet.
The description of the $0 carbon cost, $100 carbon cost, and the minimum carbon emissions scenarios is summarized in
Table 4.

5.5. Inputs/outputs results

The LCA results based on the chemical inputs/emissions and the impact assessments of the three scenarios are presented
in this section using the Eco-indicator 99 (H). First, we examined the largest material inflows in the three scenarios. Table 4
shows the raw material required for the production of the PCs and transportation to the retailers, taking into account the

Table 4
Total amount of resources Used in the three scenarios.

Item Sup. # Number of Items in Each Scenario

$0 cost $100 cost Min. CO2
Desktop case 1 10 – – 2470539
Desktop case 2 11 1010427 1333334 –
Desktop case 3 12 1111112 777778 –
Desktop case 4 13 349000 359427 –
Optical mouse 1 14 349000 359427 2470539
Optical mouse 2 15 – 555556 –
Optical mouse 3 16 555556 222222 –
Optical mouse 4 17 1565983 1333334 –
LCD screen 1 18 – – 2470539
LCD screen 2 19 904556 1470539 –
LCD screen 3 20 555556 777778 –
LCD screen 4 21 1010427 222222 –
Keyboard 1 22 454871 777778 2470539
Keyboard 4 23 555556 1137205 –
Keyboard 3 24 – – –
Keyboard 4 25 1460112 555556 –
Transportation 26285632.49 t.mi 25739280.37 t.mi 51606558.98 t.mi
Electricity 41374000 KWh 40193000 KWh 33375500 KWh
 T. Abdallah et al. / Applied Mathematical Modelling 36 (2012) 4271–4285 4281

energy required for production, transportation and storage. It is observed from Table 5 that the largest inputs are realized in
the $0 carbon cost scenario as compared to the other scenarios. The reduction percentage in going from the $0 carbon cost
scenario to the $100 scenario ranges from 8% to 13% reduction in material inflows. The largest material inflows are the coal
(388.2 million tons), calcite (197 million tons), natural gas (100.51 million tons), and crude oil (92.77 million tons) as well as
water (6,722,919,727 m3). In addition, there is also a large energy inflow of around 1.3  109 MJ.
Next, the emissions of these three alternatives are analyzed and compared. Table 6 includes the largest emissions to air
and water for all the scenarios studied. It is observed that the $0 carbon cost scenario had the highest emissions to air, water,
and soil, where the largest emissions to air are from fossil carbon dioxide. The carbon dioxide is emitted at 987.7 kilo ton for
the $0 carbon cost scenario as compared to 887.9 kilo ton in the case of the $100 carbon cost scenario. So, the reduction of
CO2 emissions, when a carbon cost of $100 is implemented, causes a reduction of 10.1% in carbon dioxide emissions. Other
major emissions are methane, nitrogen oxides, sulfur dioxide, and the particulates (<10 lm). These major greenhouse gases
are all reduced in going from the $0 carbon cost to the 100 carbon cost at reduction percentages that range between 7.5% and
9.7%. Moreover, the reduction for the radioactive chemicals of Carbon-14 and Radon-222 is 12.1% in each. On the other hand,
the largest emissions to water are the Arsenic ion and the Cadmium ion and to soil are the Arsenic and Cadmium.

5.6. Impact assessment

In this section, we use the two indicators: damage assessment indicator (DA) and the Normalization indicator to compare
the three scenarios. For each indicator outcome, measurements were made in each impact category and subcategory. The
impact categories are Human Health, Ecosystem Quality, and Resources. Whereas the subcategories for Human Health in-
clude: Carcinogens, Respiratory organics, Respiratory inorganics, Radiation, Climate change, and Ozone depletion; the sub-
categories for Ecosystem Quality include: Eco-toxicity and Acidification/Eutrophication; and the subcategories for Resources
include: Minerals and Fossil fuels. The damage assessment indicator measures the damages to Human Health, expressed as
the number of life years lost and the number of years lived disabled, expressed by the World Bank and the WHO as the Dis-
ability Adjusted Life Years (DALYs). It also measures the Ecosystem Quality damages, in terms of loss of species over an cer-
tain area during a certain time, denoted as the Potentially Affected Fraction (PAF) of species. The damages to Resources are
measured by the damage assessment indicator as the surplus energy needed for future extractions of minerals and fossil
fuels denoted as million joules (MJ) surplus.
In the comparative LCA studies, the results of damage assessment show the highest value expressed as 100%, and the
smaller values are expressed in terms of percentages with respect to the highest value. However, this 100% result does
not express if the result is, in fact, a very small or a very large score. Therefore, the normalization indicator is needed to illus-
trate the contribution of the emissions, or the damage of these emissions, on a certain impact category or sub-category, as
compared to another one. The normalization indicator benchmarks each effect measured in the product’s life cycle against
certain known data (reference value) such as the annual effects of an average European, in order to reveal which effects are
large and which are small in relative terms and to gain a better understanding of the relative size of each effect. In short,
normalization enables identifying the relative contribution from the material production to each already existing effect.
For the damage assessment indicator case, Fig. 5 shows that the $0 carbon cost scenario has the largest impact with re-
spect to all categories, followed by the $100 carbon cost and the minimum carbon emissions scenario which has the least
impact. Comparing the $100 carbon cost with the $0 carbon cost scenario, it is seen from Fig. 5 that the $100 carbon cost
scenario has 10% less environmental impacts on both the Human Health and Resource categories and 12% less environmental
impacts on the Ecosystem Quality category than the $0 carbon cost scenario.
Fig. 6 provides a detailed summary of the environmental impact on the sub-categories.

Table 5
Major inputs of the three scenarios (per one PC unit).

Substances emitted Medium Unit $0 CO2 cost $100 CO2 cost Min. CO2 $0–$100
Ammonia Air g 124.54 118.60 96.13 0.05
Arsenic Air g 0.40 0.36 0.18 0.12
Cadmium Air g 0.12 0.11 0.06 0.12
Carbon-14 Air Bq 5949.79 5231.82 2531.75 0.12
CO2, fossil Air g 399803.60 359413.55 213596.93 0.10
Dinitrogen monoxide Air g 20.55 18.79 12.66 0.09
Methane, fossil Air g 1024.75 925.54 548.02 0.10
Nitrogen oxides Air g 1236.07 1142.77 727.15 0.08
Particulates < 10um Air g 371.79 333.30 191.52 0.10
Radon-222 Air Bq 108761691.27 95647144.21 46224730.72 0.12
Sulfur dioxide Air g 1792.79 1638.72 940.17 0.09
Sulfur hexafluoride Air g 5.59 4.84 2.77 0.14
Arsenic, ion Water g 1.13 1.01 0.53 0.11
Cadmium, ion Water g 0.19 0.16 0.07 0.13
Arsenic Soil g 0.01 0.01 0.00 0.13
Cadmium Soil g 0.01 0.01 0.00 0.13
4282 T. Abdallah et al. / Applied Mathematical Modelling 36 (2012) 4271–4285

Table 6
Major emissions of the three scenarios (per one PC unit).

Substance Unit $0 CO2 cost $100 CO2 cost Min. CO2 $0–$100 (%)
Aluminum kg 2.13 1.90 1.01 11
Calcite kg 79.77 70.68 36.19 11
CO2, in air kg 14.05 12.61 7.16 10
Clay kg 42.35 38.64 24.56 9
Coal kg 157.12 144.44 88.50 8
Copper kg 1.40 1.23 0.58 12
Energy (biomass) MJ 148.17 133.43 77.49 10
Energy (wind) MJ 29.40 25.46 10.48 13
Energy (hydro) MJ 346.78 308.60 165.19 11
Energy (solar) MJ 0.48 0.42 0.21 12
Gas (natural) m3 44.33 40.40 23.76 9
Gravel kg 171.04 156.53 107.39 8
Zinc kg 0.57 0.49 0.21 13
Iron kg 19.67 17.83 10.47 9
Nickel kg 1.25 1.14 0.71 9
Oil (crude) kg 37.55 33.93 23.22 10
Sodium chloride kg 8.04 7.03 3.24 13
Water m3 2718.47 2404.78 1219.29 12

Fig. 5. Impact Assessment for the main categories using DA.

5.7. Emissions contributions

The emissions contribution diagram in Fig. 7 shows the contribution of each product and process to the overall CO2 emis-
sions in the traditional supply chain ($0 carbon cost); it reveals that the carbon emissions embedded in the procured parts
have the highest contribution to the overall supply chain carbon footprint. We notice that transportation emissions account
for only 7.39% compared to around 80% embedded in the materials procured. This shows that the manufacturing is the major
contributor to the emissions of this supply chain. Thus, the PC company should extend its green activities to its suppliers in
order to minimize its own carbon footprint. Hence, the optimization model which decides on the trade-off between the car-
bon emissions and traditional costs tends to choose the greenest suppliers as the supply chain becomes greener, even though
the supply chain is becoming more decentralized and the distance between the suppliers and the plants is increasing.

6. Conclusion and future work

In this paper, we presented a novel approach to greening the supply chain by taking into consideration carbon trading and
green procurement. We formulated a mixed integer program that minimizes the sum of the traditional supply chain costs
and carbon trading costs. The problem was solved using the ILOG CPLEX 11.0 MIP solver in GAMS, and a life cycle assessment
for three different scenarios was performed. The case study showed that greener supply chains, where the embedded
 T. Abdallah et al. / Applied Mathematical Modelling 36 (2012) 4271–4285 4283

Fig. 6. Impact Assessment for the subcategories using DA.

Fig. 7. Major sources of CO2 emissions in the traditional supply chain.

emissions in the procured materials dominate the total emissions, tend to be decentralized with smaller facilities. The life
cycle assessment showed that manufacturing, in case of the PC studied, is the place where most of the carbon emissions
and resource consumption occurs. As a result, heavy manufacturing industries should focus on greening their supply chain
by greening their internal activities through adoption of green manufacturing technologies and lower the environmental im-
pacts of their transportation. On the other hand, under high carbon trading costs end-use product supply chains should shift
to focus more on procuring from suppliers with lower carbon impact as the cumulative embedded emissions of the products
procured are very high. Hence, adopting green procurement methods where suppliers are not only chosen based on price and
quality but also their environmental footprint can be realized as a competitive strategic advantage for such companies.
An interesting research question that arises from our results is what happens when we include the decision of mounting
small scale solar photovoltaics (PVs) to facilities rooftops. We now know that as the carbon price increases the supply chain
4284 T. Abdallah et al. / Applied Mathematical Modelling 36 (2012) 4271–4285

becomes decentralized and the facilities’ sizes become smaller. However, as the carbon price increases there is more incen-
tive for supply chain manager to consider mounting rooftop PVs to their facilities. Nevertheless, we know that PVs exhibit
evident economies of scale where the module price of the PV decreases as the size increase. Hence, if mounting rooftop PVs is
added to the model we will have two conflicting goals:

1. Decentralizing the supply chain while decreasing the size of facilities to reduce transportation emissions,
2. Centralizing the supply chain while increasing the size of facilities to benefit from economies of scale to install larger roof-
top PVs.

We are in the process of studying the impacts of such model on the supply chain design in addition to the impact of dif-
ferent policies like feed-in-tariff.

Acknowledgment

The authors would also like to acknowledge the contribution of Dr. Craig Codrington and Dr. Sgouris Sgouridis whose
comments improved the paper significantly.

Appendix A.

Unit cost for each retailer

Component 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Case ($) 636.72 624.24 612.00 600.00 – – – – – – – – – – – –
Mouse ($) – – – – 18.04 17.69 17.34 17.00 – – – – – – – –
LCD ($) – – – – – – – – 67.92 66.59 65.28 64.00 – – – –
Keyboard ($) – – – – – – – – – – – – 23.35 22.89 22.44 22.00

Emissions per unit for each retailer.

Component 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Case (kg CO2) 105.28 157.92 210.56 263.20 – – – – – – – – – – – –
Mouse (kg – – – – 2.04 3.06 4.08 5.10 – – – – – – – –
CO2)
LCD (kg CO2) – – – – – – – – 90.64 135.96 181.28 226.60 – – – –
Keyboard (kg – – – – – – – – – – – – 10.44 15.66 20.88 26.10
CO2)

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