Co-operative forest fuel procurement strategy and its saving effects on overall transportation costs

Abstract

Minimum procurement cost is an essential element for the competitiveness of the forest fuel supply chain. This paper compares one co-operative procurement strategy with several non-co-operative strategies by measuring the cost gap. For a study region consisting of five Austrian provinces, forest fuel supply potential and transportation costs were investigated concerning 28 newly built combined heat and power (CHP) plants. In the case of co-operation, the minimum total transportation cost was derived by solving the corresponding transportation problem. In non-co-operative supply chains, CHP plants compete for forest fuel. This case was illustrated by analysing three different clearly non-co-operative procurement strategies, because CHP plants guard their real supply sources as business secrets. The minimum procurement cost for all CHP plants is provided by the co-operative strategy. It comprises a total transportation cost of €17 million and an average procurement distance of 122 km. Co-operation between CHP plants lowers forest fuel transportation costs by 23% on average and reduces average transportation distances by 26%. The resultant cost-cutting potential stresses the importance of co-operation between CHP plants in order to allocate forest fuel supplies efficiently. Establishing partnerships and working alliances for forest fuel procurement therefore has important management implications for achieving efficiency in forest fuel supplies and strengthening the competitiveness of wood-fuel-based energy production.