A TOTAL COST TOOL FOR INTERNALISING LOGISTICS AND ENVIRONMENTAL EXTERNALITIES

Paper in proceeding, 2013

Purpose: It is becoming increasingly important to analyze the environmental impact and overall effectiveness of goods transport systems. When making decisions that will have short or long term effects on these systems there is a need to understand their consequences thereby it is necessary to measure and evaluate different options. The impact of transport on the environment, climate, health and other factors can be calculated as external costs and be internalized. Also in logistics there are a number of costs that are intangible and very hard to calculate, for instance service deficiency costs which also needs to be internalized and become a part of the total cost. The purpose of this paper is to develop and evaluate a tool that can be used to analyse the potential effect of different ways to improve transport of goods on the overall logistics system performance. The tool should combine both economical and environmental performance objectives by providing estimates and corresponding uncertainties of: 1) transport efficiency and effectiveness, expressed as total logistics cost, and 2) environmental and other external interference, expressed as external costs. Research approach: The calculation tool is used in a case study to in in order understand the need for and availability of data needed for the using the analysis tool. In order to capture the intrinsic uncertainties in these types of models, uncertainty calculations are made. Findings and Originality: The result is a total cost analysis model, which takes uncertainty into account when analyzing the environmental impact and overall effectiveness of goods transport systems. By internalizing external effects it is possible to give a certain indication of the effect of different proposed logistics changes. Practical Impact: The new tool can be helpful for decision makers at different hierarchical levels in an organization. From tactical decisions regarding goods transports but also strategic decision making regarding for instance localization of production units and warehouses. There is a need for better understanding of the long-term effects of transport decision and how these will be influenced if the full cost of environmental effects is considered. By improving this understanding the environmental impact caused by goods transport may be reduced at the same time as the competitiveness of the companies may be increased.