Supply, operational, and market risk reduction opportunities: Managing risk at a cellulosic biorefinery

This paper evaluates supply, operational- and market-risk reduction opportunities for the case where management at a cellulosic biorefinery adopts a supply chain design based on a distributed depot concept. In contrast to the conventional feedstock-supply system, a supply chain based on a network of depots providing feedstock to a biorefinery employs geographically distributed depots where feedstock undergoes preprocessing into densified pellets, thus allowing feedstock to be transported a greater distance. This study used simulation methods to show that distributed depots may work as a risk absorber for a cellulosic biorefinery. Compared to a base case, a distributed depot supply system reduced the operational and market risk by 17.5% and 5%, respectively. Moreover, when contract management and alternatives markets were considered, a reduction of supply, operational, and market risk, by approximately 48%, 69%, and 35%, respectively, were observed. The expected return on investment (ROI) increased from -4% to 33%. However, this positive ROI largely depends on assuming commoditization and the creation of intermediate markets for alternative, merchandisable products.