Understanding supply chain uncertainties that might hinder an expansion of coffee husk-biochar production in Vietnam

Abstract

Purpose - The purpose of this thesis is to increase the understanding of supply chain uncertainties that
might hinder an expansion of coffee husk-biochar production in Vietnam, and understand how the coffee
husk-biochar supply chain can be configured to address these uncertainties.

Methodology - A case study regarding the potential use of coffee husk-biochar as raw material for
activated carbon was used to conduct this research. Through this approach, uncertainties that potentially
could hinder an expansion of coffee husk-biochar production were found. Also contextual findings that
could affect appropriate supply chain configurations and the responsiveness measures, needed to address
these uncertainties, were identified. The found demand uncertainty from the activated carbon producer
represented one level of demand uncertainty, and from those findings, further analysis was made of how
other levels of demand uncertainty could affect the supply chain. To support this case study research,
qualitative data was gathered from current coffee husk-biochar producers, an activated carbon producer, as
well as other experts on the biochar subject.

Findings - This study shows that uncertainties in terms of both demand and supply are low in a supply
chain where coffee husk-biochar is commercialized in Vietnam. The low demand uncertainty originates
from investigating activated carbon producers as customers, but it was also found that it is unreasonable to
prepare for other levels of demand uncertainty no matter to what market the biochar is sold. This is due to
the characteristics of the biochar, which makes it a functional product that always should expect stable
demand. Due to the found uncertainties, the responsiveness measures that are needed are a centralized
production, low-cost transports and low levels of inventory. Only the low levels of inventory were found to
be difficult to achieve among these measures. This is because of the need of annual production in
combination with the short period of time where the coffee husk, which is the raw material, is generated.
Small-scale farmers were found to be inappropriate producers of the coffee husk-biochar as they were found
to have difficulties in both financing the production as well as having it utilized. Instead, large-scale farmers,
external intermediaries or coffee processors which could use already existent flows and relationships, should
be the producers.

Originality - Previous research has mostly focused on how both smoke issues and soil degradation can be
solved by the production of coffee husk-biochar, as well as the technology needed for this production. Our
idea was that biochar is a functional product, and that finding more application areas for the biochar could
potentially scale up production, and thereby reduce the costs of producing biochar through economies of
scale. Through this original supply chain management perspective, we were able to find uncertainties in the
supply chain that might hinder the desired expansion of biochar production. We did also point out
appropriate supply chain configurations that address the found uncertainties in the current context, and
our study is original as this supply chain management perspective had not yet been used in this context.

Keywords - Supply chain uncertainties, supply chain responsiveness, biochar, Vietnamese coffee industry,
activated carbon.

Paper Type - Master’s Thesis.

Popular Abstract

Enabling a sustainable Vietnamese coffee industry

The Vietnamese coffee industry has great challenges ahead! Future coffee yields are threatened as soils are
degrading from the high use of chemical fertilizers, and emissions from the coffee processing result in health
issues and low sustainability of the industry. Using the outer layers (coffee husk) of the coffee cherries,
which surround the coffee beans, to produce biochar could however resolve these issues.

Biochar is a type of carbon made from carbonizing biomass. Coffee husk is a type of biomass and can
therefore be carbonized into biochar. Biochar can for example be put in soils to better retain nutrients and
water, which decreases the need for chemical fertilizers. The process of producing biochar is also smoke-free
and generates heat that can be used to replace current activities in the coffee processing that create
emissions. Producing biochar from coffee husk does therefore solve the mentioned issues. Even so,
uncertainties that occur due to establishment of a new supply chain, and the underdeveloped processes in
this supply chain might prevent these issues from being resolved. Uncertainties from customers of the coffee
husk-biochar should however always be expected to be low. This is because the biochar is a product with
low contribution margin, long product life cycle and few varieties. Products with such characteristics
should always expect a stable demand with low uncertainties. Uncertainties from the supply of the biochar
are more prominent, as we found that unplanned disruptions in production are likely to occur. This is
because the machine for biochar production, which we investigated for this research, still is somewhat
immature with many historical and future design changes. Safety procedures could also be improved as
operational guidelines are not yet created.

Overall supply chain uncertainties are however low, despite the more prominent uncertainties from supply,
which implies that the supply chain should be cost-efficient and therefore always prioritize cost-reductions.
If not being cost-efficient, producing biochar is less attractive as profits get too low, and the issues in the
coffee industry will remain. Implications of the desired cost-efficiency is that facilities for production and
inventory should be centralized to reach economies of scale, transportation must be cheap and inventory
levels should be kept low. Centralization can reach economies of scale as it can increase the potential of
utilizing both the machine capacity and human labour capacity. Transportation costs can be kept low
through using full truck loads, which lowers the shipping rates. Inventory levels can be kept low for finished
goods, but not for the raw material which is coffee husk. This is because the machine must be utilized all
year long to reduce costs although the coffee husk only is generated during the coffee season, which lasts a
couple of months. The implications of this is that coffee husk must be collected during the coffee season,
and then stored during the remaining parts of the year to sustain production all year. Cost-efficiency is
therefore not fully applicable for the inventory management.

Actors that could follow the suggested measures and produce the biochar are for example an intermediary
actor with no current presence in the coffee industry. This actor could locate closeby coffee processors, as
these generate coffee husk through their coffee processing. The intermediary could thereby decrease the
needed transports of raw material and also focus on the biochar production as core business. An
intermediary would however not have a natural application area for the excess heat generated from the
machine. If a coffee processor instead would produce the biochar, it could replace current activities that
generate emissions in the coffee processing, and one of the initially mentioned issues would thereby be
resolved. It could also use its already existent relationships with coffee farmers to sell the biochar to them.
This would also enable the issue with the degrading soils to be resolved as the farmers could use the biochar
for their soils and thereby decrease their need for chemical fertilizers. Following our recommended actions
regarding cost-efficiency, along with promoting our suggested biochar producers, should enable an
expansion of production of coffee husk-biochar and thereby a sustainable Vietnamese coffee industry.

• author: Grill, Rikard and Brundin, Erik
• supervisor: Lina Nord
• organization: Engineering Logistics; Department of Industrial Management and Logistics
• course: MTTM05 20201
• year: 2020
• type: H2 - Master's Degree (Two Years)
• subject: Technology and Engineering
• keywords: Supply chain uncertainties, supply chain responsiveness, biochar, Vietnamese coffee industry, activated carbon.
• report number: 5918
• language: English
• id: 9018084
• date added to LUP: 2020-06-17 13:31:40
• date last changed: 2021-06-01 03:40:56