Abstra ct. Sustainable warehouse is about integrating, balancing and managing the economic, environmental and social inputs and outputs of the warehouse operations. Sustainability is a core value to many businesses but they find it hard to implement in their current business setting especially when they use third party logistics management system like warehousing and distribution in their supply chain business network. This paper explores the application of sustainability principles in the context of warehouse storage and distribution management and introduces a sustainability model for setting up of a warehouse or transformation of an existing warehouse that provides the storage services. The model incorporates the usage of third party transportation systems for supply and distribution services.
Sustainable manage ment is a concept for integrating and balancing economic,
environmental and social d imensions [1], co mmon ly termed as TBL or triple bottom
line [2], into decision ma king [3]. Sustainable manage ment of businesses is the
roadmap to achieving the present needs of society without compro mising the
opportunities of future generations [4]. The Min istry for the Environ ment [5] observes
that New Zealand may not be able to look after its people and offer them a place they
want to live in if businesses and society do not stop and reve rse the damage to the
environment. Ne w Zealand’s clean and green image is now becoming frag ile [
Ministry for the Environment e mphasises on the performance of the three
sustainability dimensions [5] and the New Zea land Business Council fo r Sustainable
Develop ment stresses that sustainability is not just an option but a require ment for
many businesses in New Zealand [
Economic, environ mental and social dimensions of businesses are inter-re lated
(Fig. 1.) and any change in the objectives of a dimension greatly influences the other
two dimensions. Therefore, if the company had considered each of the sustainability
dimensions independently and made decisions without considering all possible
consequences of their decisions, any attempt to become a sustainable business would
be unsuccessful. The first step in transforming a company into a sustainable business
is to develop a sustainability vision and sustainability strategies that include
sustainability objectives. In orde r fo r business strategies to be successful, they need
to be derived from the organisational resources and experiences [
Socio-Economic Indicators EnvironmentalEconomic Indicators
Sustainability Dimensions Economic
Social Environmental
Economic-SocialEnvironmental
Indicators Social-Environmental Indicators This paper e xplores sustainable warehouse modelling in the context of an o rganisation that provides storage and transportation services. We model the sustainability issues of wa rehouses in general and then apply it in particula r to the firm under study. We close the paper with a brief description of the imp le mentation of the models and the development of a system that enables us to monitor the triple bottom line scorecard.
Sustainable supply chain management is the “Management of raw materials and
services from suppliers to manufacturer / service provider to customer and back with
improve ment of the social and environmental impacts exp licit ly considered.” [
One of the key co mponents within the supply chain is warehousing. Most
warehousing and transportation companies have little regard for the environmental
impacts of their actions and do not understand the social consequences of their
business activities. These companies consider factors such as cost effectiveness and
customer satisfaction as the main performance indicators [
This research undertakes a real-life sustainable warehouse manage ment project in Auckland for an ISO cert ified warehousing company. The company provides storage facilit ies for chemical and food items in Auckland and Christchurch for various customers and delivers the goods to various manufacturing and retail businesses all over New Zea land. Various small to large transportation companies are also working in collaboration with the company in the transportation and delivery process. The warehousing company is growing rapidly and thus wishes to increase capacity by establishing more warehouses. The co mpany’s operations management processes are well-defined but due to shortage of skilled workforce, recent developments in health and safety, and environmental regulations as well as pressures from the sustainability aware me mbers of its supply-chain, clients and the end users, the company decided to redesign the business processes for the new warehouses that follow sustainability manage ment approach and achieve competitive advantage within a short period. Major issues like e mployee retention, compliance and environmental footprints, and financia l return are associated with the location of the warehouse. Therefore, the selection of warehouse location is an important strategic issue that would have a ma jor impact on economic , environ ment and social dimensions of the entire manage ment of the business. We highlight some of these issues in the remaining part of this section.
Due to the nature of the goods handled, the company has to meet a large variety and number of compliance regulations such as health and safety, hazardous goods storage and handling, food ite ms storage and handling, environ mental co mpliance to name a few. It is obligatory for a ll e mployees to be highly trained in the compliance processes. Thus it is hard to recruit skilled e mployees ranging from managers to warehouse operators who are needed to handle the chemical and food ite ms. Ideally, the company would want zero employee turn over in order to minimise new staff training costs and achieve beyond the statutory compliance obligations to become a leader in the niche market.
Currently, the company’s distribution system is entirely dependent on the road transportation network. Vehic le pollution is one of the biggest causes of environmental pollution in New Zea land, thus in the effort towards becoming a sustainable business, the warehouse should be located such that the pollution generated is minimised. This can be achieved by either locating closer to the end users or in a place that enables them to utilise alternative forms of environ ment friendly transportation. In the pursuance of providing ma ximu m stakeholder satisfaction, the company also intends to invest a good proportion of their budget in in formation and decision support systems to aid effective decision making. The majo r stakeholders of the company are customers, retail/ manufactu ring centres, end consumers, transportation companies, consultants, accountants, employees and government departments.
With the aim of helping the company become a leading sustainable warehouse manage ment company, the authors undertook a research project to develop a sustainability systems model. While keeping the issues discussed earlier in mind, this model will be used to simu late and analyse sustainability key performance ind icators determined fro m the crit ical success factors of a sustainable warehouse . The model will also support them in strategic decision making towards becoming a leading sustainable warehouse management company.
A sustainable warehousing company would not only have to consider the economic factors, such as rent and operations costs, but also balance the social and environmental effects that occur within the warehouse compound as well as its surrounding vicinity. Th is research places an emphasis on developing a balanced scorecard in conjunction with a sustainability model to help sele ct a suitable location for a warehouse. The selection depends on the supply and delivery locations of the customers and the end users, transportation choices to and from the warehouse, and skilled staff availability and their job satisfaction.
The sustainable warehouse management system can easily be broken down into
simp ler and more manageable parts for modelling [
Maani and Cavana observe that the study and management of a comp le x feedback
system can only be done using system dynamics/ systems thinking modelling
methodologies [
Subsequently, an interactive game which demonstrates the interdependent relationships between the three sustainability dimensions was created. This allows users to gain a better understanding of how a decision will affect each of the three sustainability dimensions.
While the warehouse’s location was the main decision proble m, other decision parameters we re required to design a sustainable model. So me of the ma jor decision parameters include:
Capita l investment : to imp rove staff efficiency and reduce manual labour Nu mber of e mp loyees : to ensure employees are not overworked Emp loyee Tra ining: to ensure high e mployee productivity and effectiveness and continuous up skilling Carbon minimisation: carbon credits, planting trees and air filtering Transportation decisions: various modes of transport have significant differences in carbon e missions
A sustainability scorecard was created to monitor the status of various key sustainability performance indicators. Some of the main tracking parameters include Cash flow, Warehouse utilisation, Carbon emissions and minimisations , Order processing time, Emp loyee job satisfaction, Socia l and environ mental impacts on surrounding areas (e.g. nearby residents ).
orders have been processed, they are transported to the customer’s clients. The process of delivering goods to their destinations results in large a mounts of carbon emissions produced by the transportation fleet. In order to offset the carbon emissions, at least one of the Carbon minimisation activities will have to be performed, leading to an increase in costs.
This section discusses the individual dimensions of the warehouse management model that was developed using system dynamics modelling concepts. Before discussing the dynamics of a sustainable warehouse model, the purpose of each ele ment used in the model is defined. In this instance, a stock and flow model was used to represent the sustainable warehouse model. Ele ments of a stock and flow model consist of: Stocks, Flo ws, Converters and Connectors. Each of these ele ments is further described below.
Stock
Flow Converter Connector
A stock represents the accumulation of either a physical or non physical quantity e.g. number of orders, customer satisfaction.
A flow represents an activity which fills up or depletes a stock. The arrow indicates the direction of positive flow into or out a stock.
A converter can hold values for constants or serve as an externa l input to the model or convert inputs into outputs through user defined algebraic re lationships or graphical functions.
Connectors provide the links between models elements. Solid wire is an action connector and dashed wire is an informat ion connector.
Fig. 3. is a snapshot of the main economic model of a sustainable warehouse. The stock that is central to the economic model is Warehouse inventory. When a customer sends an order to the warehouse, it is added to the Order back log. The number of staff (i.e. Hours available for processing orders) and inventory on hand will determine the number of orders processed (Orders filled) and delivered. Any orders that cannot be processed, due to the shortage of either staff or inventory, will re ma in in the Order back log until the ne xt run. Warehouse utilisation which considers the effectiveness and effic iency of space usage is also an important economic factor to monitor in the warehousing business.
Number of Customers
Dissatisfied customers leaving
Inward goods Warehouse capacity avg pallets \customer Warehouse Utilisation
Warehouse inventory
Orders
Lost customers
pallets Outward goods
Order backlog
Orders filled
Hours available for processing orders
The warehouse company wants to maintain a high capacity utilisation rate to ensure ma ximu m pro fits. Thus if utilisation is consistently low, it is an indication that the company should seek to obtain new customers by means of promot ions or advertising. On the other hand, if the warehouse is over utilised, the company will have to consider increasing their warehouse capacity or rent short -term storage facilit ies for e xcess inventory at a greater than average cost. The company should also try to maintain a high level of customer satisfaction by ensuring that goods are delivered on time or the company might run the risk of losing some of their customers.
A high level model showing a fe w factors that influences the environmental dimension is illustrated in Fig. 4. This model shows the main inflo ws (Emissions) and outflows (Minimisations) of the Carbon emissions stock. Carbon emissions (Total transportation emissions) are generated by the company’s transportation fleet comprising of vans, small and large trucks. As the vehicles are highly utilised, their efficiency deteriorates over time thus producing higher levels of carbon e missions. The warehouse company can minimise this by regularly ma intaining and upgrading their vehicles (Transportation fleet upgraded). The company may offset their carbon emissions by planting trees (Carbon absorption by trees) or purchasing Carbon credits.
Total transportion emissions
Transportation fleet upgraded
Carbon emissions
Buy carbon
credits Emissions
Minimisation
Carbon absorption by trees The social dimension of the sustainable warehouse is very complex and contains many elements. For the sake of simp licity, a simp lified social dimension model is presented in Fig. 5.. This model represents the social effects of a warehousing company with respect to its employees . The main stock in this model is Job Satisfaction. It is an index which has a maximu m value of 100. The job satisfaction of the warehouse employees is very impo rtant. This will be discussed further in Section 6.
Factors such as hours per employee per week (Work hours/person), the amount of Staff training and support provided and Capital investments, like new equip ment and software to aid emp loyees in their work, all have an effect on their level of job satisfaction. If emp loyee Job satisfaction drops below a certain level, staff members start to leave the company, resulting in having to hire mo re staff, thus incurring recruit ing and new staff train ing costs.
Capital investment
Staff training
Job satisfaction change
Job satisfaction
Having briefly discussed the inter-relationships of the sustainability dimensions in Section 4 and Fig. 2, th is section is dedicated to demonstrating some of the relationships between the three sustainability dimensions in the sustainable warehouse model.
In order for the company to move towards sustainability, they have to consider and balance the tradeoffs between minimizing costs as well as being both environmentally and socially responsible. As previously shown in Fig. 4, so as to offset their Carbon emissions, the company will have to purchase Carbon credits, plant trees or minimise the emissions from their transportation fleet. All three Carbon minimisation options will increase their e xpens es, which might lead to lesser funds being made available for Staff training and Capital investments. Inadequate staff training and capital investments will lead to poor job satisfaction and low productivity. This is further discussed in the Section 6.2.
Another factor the company needs to consider is that the trees will require a couple of decades before they are able to provide the full benefits of carbon absorption. Thus, they may wish to consider purchasing Carbon credits as a short term solution wh ile planting trees as the long term but more cost effective solution . In either case, the company should minimise inevitable carbon emissions by maintain ing vehicle efficiency as it is important to consider the effects of carbon emissions on society, especially in a reas along delivery routes.
Following on fro m Sect ion 6.1, choosing not to hire more staff when required might result in short-term savings but will be detrimental to the company in the long run. This is because, the number of staff determines, on average, the number of Hours available for processing orders. Thus, a shortage of staff will result in employees having to work e xcessive hours over a long period of time to try reduce the Order back log. This results in decreased Job satisfaction due to increased stress and tiredness. Poor job satisfaction will also lead to low morale and higher risks of ma king mistakes, therefore causing a drop in overall productivity. A drop in productivity means the average order processing time also rises, further increasing the Order back log.
High levels of backlog will lead to poor customer satisfaction and retention. If a customer is lost, not only will the company have to spend more money finding new customers, the loss of reputation and increased negative word of mouth will have harmful long term e ffects.
To imp le ment the models, the modelling software tool iThin k 9.0.2, fro m iSee Systems, was used. iThink uses stock and flow d iagra ms to model and simu late processes and scenarios. It shows you the outcomes of certain user-defined inputs and communicates the interdependencies between processes and problems. Outputs can be displayed in the form of graphs, tables and warning gauges. In this instance, dynamic systems modelling techniques were used in the creation of this model. The process of creating the model in iThink was an iterative process. It started with a very simple warehouse inventory model (Fig. 3.) consisting of one stock (Warehouse Inventory), one inflow (Inward goods) and one outflow (Outward goods). This model was then tested to ensure that the relationships defined were correct. Once, this was verified, more e le ments such as Order Back log and Number of customers were added. Again this was tested before new ele ments were added. The whole process of building the entire model was carried out in this manner to allow ease in identify ing errors in the model.
Fig. 6. shows the main user interface of the simu lation model. There are six ma in sections on this user interface; the Sustainability Scorecard, the Economic inputs, the Social inputs, the Environmental inputs, the Comparative Charts and the Run section. The Sustainability Scorecard consists of three indicators; Revenue, Job Satisfaction and Carbon Emissions. Revenue is the average revenue from all three locations. If the decision ma ker c licks on Details, the decision ma ker sees another page with the individual co mponents that affect revenue. Thus if Revenue enters the “High Alert” (red) stage, the decision maker is then able to drill further down into the details to determine wh ich type of e xpenses was causing a drain in finances. For e xa mple , the warehouse may have been paying too many employees while there is little work to be carried out. This indicates that the decision ma ker might have to fire an e mp loyee to reduce costs. The decision make r can carry out the same operations for the social indicator, Job Satisfaction, and the environmental indicator, Carbon Emissions. The decision maker a lso has the option, at any time, of revie wing previous simu lation results for the three main indicators by choosing one of the choices in Comparative Charts. The Custom Detail button leads the decision make r to a page where they would be able to customise their o wn graphs or data tables.
The Economic input section allows the decision maker to determine the amount of Marketing Expenses (to obtain new customers) and Capital investment for each month. These values are reset to zero after each month. The Social input section allo ws the decision maker to define the level of Staff Training available to improve job satisfaction and Hire or Fire Staff according to the amount of work availab le. In the Environmental section, the decision maker Buys Carbon Credits or Plants Trees to offset their carbon emissions. They are able to optimise the efficiency of their transportation fleet by choosing a transport mode to upgrade or enforce a new selection rule for the transportation company.
To begin the simu lation, the user chooses all the values of the inputs that are desired, and then clicks the Run button. The simu lation runs for one quarter and pauses to allow the user to review the effects of the decisions made. The next few subsections will discuss the prototype in more detail.
The Economic Indicators page, as seen in Fig. 7, provides the decision maker with more economic indicators to help monitor and assess the situation. This page will display a line chart of Revenue, Income and Expenses. This visualisation will allow decision makers to gain a better understanding and view of how the financial situation has changed over time. In addit ion, indicators of Customer Satisfaction and Warehouse Utilisation are provided as well. Both these indicators considered economic factors as they have an impact on the company’s financial status. For example, poor customer satisfaction will lead to customers leav ing the company and taking their business to competitors. This will result in a decrease of inco me as well as an increase in expenses required to obtain new customers. Poor warehouse utilisation, which could result fro m poor customer satisfaction, would mean that the warehouse company is mot maximising their profit potential and would be incurring increased overhead costs per unit of storage used and reducing their cost efficiency. By clicking on Customer Satisfaction or Warehouse Utilisation “Details”, the decision make r would be led to a page with more details regarding customers and the warehouse. This page provides the decision maker with informat ion such as Order Backlog, Warehouse Inventory, Inward Goods and Outward Goods. Although not shown, the decision make r can also view a more detailed breakdown of Income and Expenses on another page. The next subsection discusses the Social Indicator pages.
The three main social indicators consist of Average Processing Time/Pallet, Hours/Person/Month and Job Satisfaction. Fig. 8. shows the main Social Indicators page displaying the three values in the form of status dials and a line chart. The status dials change between Red, Ye llo w and Green according to pre-defined limits. For e xa mple , the Hours/Person/Month indicator turns Red when employees are working more than 55 hours per week. This provides a visual aid to alert the decision maker about the seriousness of the situation. In addition, a pop-up message will appear to notify the user regardless of which page they are currently vie wing. A line chart, which plots these indicators, not only provides the decision make r with a visual aid but allo ws the decision make r to gain a better understanding of the relationships each of these indicators have with each other. For e xa mp le, the line chart will c learly show, as the number of hours worked increases over the limit, e mployee job satisfaction starts to drop over time . The Advanced Settings: Social page provides the more e xperienced decision ma ker with the ability to change lower level details and relationships. One such exa mp le is the relationship between Staff Training and Productivity or the number of hours worked per month that is considered to be overtime (Overtime Cutoff). Advanced settings are also available for Economic and Environmental factors.
This subsection gives a brief discussion of the Environmental Indicator pages in the Sustainable Warehouse Management prototype. The main Environmental Indicators page hows the number of trees that have been planted as well as the number of trees ready to be sold. In order to support the decision maker, the Number of trees required to offset current cumulated e mission levels are also provided to guide the user towards ma king more effect ive decisions. A simila r guide is provided for carbon credits (i.e. Carbon Credits required to offset current cumulated e mission levels). Similarly, visual aids are provided in the form of line charts. The Vehicle Details page provides the decision make r with details such as current vehicle e missions per distance travelled. Along w ith this information are the minimu m leve ls (i.e. most fuel efficient) of carbon emissions for each vehicle type. This allo ws the users to make more informed decisions on which vehicle type requires ma intenance. For e xa mp le, if current van emissions are very close to the minimu m possible emissions, then the decision ma ker will know that it would be a waste of money to perform ma intenance on the van fleet. The money would be better utilised ma intaining a less fuel effic ient fleet or spent on other expenses t hat provide better value to the company in terms of economic, socia l or environmental terms.
As discussed in earlier sections, the prototype provides the decision maker with various forms of support that guide them through the decision making process. These guides range from the use of status alarms and notificat ions to the use of visual aids to enhance learning and understating of various relationships in the context of warehouse management. To aid the warehouse executives in making strategic decisions, the user interface of the sustainability model ale rts the user with various notifications during the course of the simulation. For e xa mp le, if the cash flow is low, a message pops up to notify the user that their cash flow is unsustainable. It also alerts the user if the e mployees are over worked; customer satisfaction level has decreased to a non-acceptable level; investment is required in employee training; warehouse location is not suitable considering the end user location or capital investment; monthly operational costs and overheads are too high; high customer turn over or emp loyee resignation due to poor communicat ion or handling etc.
Usability and autonomy concepts were also kept in mind while designing the prototype and user interface. This prototype caters from novice users, who may only navigate through 3 or 4 main pages, to the expert users who may take advantage of the advanced functionality available in the prototype. The interface was kept simple and designed with ample “Help” or “?” buttons that provide the decision make rs with a description of various concepts or explanations to imp rove user autonomy. Co lour templates as wells as repeated and common ite ms were kept consistent so as not to confuse the user and improve usability. For e xa mp le, as seen in Fig. 7. to Fig. 9., Sitemap, Overview, Run and Save buttons were kept in the same locations of each page allo wing decision ma kers to locate them easily and intuitive ly.
Sustainable business management and operations are a pre-requisite for the transformation of e xisting businesses into sustainable ones. This involves the development of sustainable policies, identifying the problems, assessing options for addressing the problems, considering inter-connected issues, and taking into account the long-term pros and cons. But to be able to explore such issues, an environment that enables us to simulate the comple x interdependencies between the social, economic, and environmental dimensions is required. This paper has gone some distance in proving that it is possible to model the interconnectivity between disparate sustainability dimensions. The testing, validity, usefulness and entirety of the model in the context of a rea l warehouse for day-to-day decision making are still under progress and will be published as an empirical case study.