The Figure 13.1 example introduces a very significant point for the design of the logistics system. The business plan can have equal, or greater, impact on delivered cost of feedstock than the technical issues. The technical issues are defined as the functionality (tons per hour handled) and cost ($/h) of individual pieces of equipment in the logistics chain. The business plan specifies “who will do what”; it assigns the various unit operations to the several business entities.

Ma and Echoff [2] compare a commodity model (current grain industry) with a contract model (plant contracts with farmers to grow feedstock). They state, “Based on commodity pricing, the producers/suppliers who are farther away from the refinery will realize less profit since they have to pay more for transportation; therefore, it is less attractive for them to participate in the project. Even with contract pricing, it is less attractive to sign contracts with more distant producers.” In the presence of this reality, the remaining discussion in this chapter envisions that the load-haul activities will be done by the bioenergy plant (or its contractor). Then, all highway hauling cost to move biomass from SSLs to the bioenergy plant is borne by the plant, and all farmgate contractors get the same opportunity for profit, no matter their distance from the plant. Ma and Eckhoff [2] state that biorefineries can achieve a lower unit production cost for liquid fuel using the contract pricing method rather than the commodity pricing method.

One main reason that the assignment of the business entities in the logistics system is so important is that it establishes the capitalization requirements. Generally, the plant is in a better position to obtain capital than the small business owner (producer). The next key economic factor is how many hours-per-year (and thus tons-per-year) can be handled by the purchased equipment and facilities. This factor has always been a major issue for agriculture. Most field equipment is used a relatively few hours (200-400) per year, thus the ownership cost per operating hour is high.

Suppose a logistics system is designed using the traditional model — the producer must deliver the raw biomass to the plant. The plant needs year-round deliveries, so it schedules the producers to deliver certain days of each week for 47 weeks of annual operation. During the planting and harvesting seasons, the farmers are working dawn to dusk on their field operations, thus they do not have time to make deliveries. The plant will receive no deliveries during those periods, thus it will need a large inventory in at-plant storage.

If each farmer is assigned only a few delivery days each month, the total tons delivered is too low for them to afford to invest in equipment required to make the delivery cost efficient. Consider the delivery of round bales as an example. They will choose to use the equipment they have — gooseneck trailer pulled by a pickup truck or perhaps a flat-bed truck — and the plant must now deal with a situation shown in Figure 13.3. Note the different type of trucks lined up to deliver grain to a buying point. A bioenergy plant would end up with a similar situation. There would be no uniformity in the loads received, and the plant would have to unload what comes through the plant gate. It is a challenge for a receiving facility at a bioenergy plant to operate cost effectively in this manner.

Now consider an option that emulates the cotton model. In this model, the deliveries are done with specialized transport equipment (module haulers). Each load is the same when it arrives at the plant. Now the receiving facility can be organized to receive the maximum loads per unit time. The time a truck waits in the queue to unload is minimized, thus the truck cycle time is minimized, and the truck cost ($/ton) is minimized.

An additional benefit of uniform deliveries is realized by the bioenergy plant. Each unit of equipment in the receiving facility handles more tons per unit of operating time, thus the

unload cost ($/ton) is less. For example, suppose the cost to operate a forklift is $50/h and, on average, it handles 50 ton/h throughout the workday. The cost is then

$50/h 50 ton/h

If this same forklift has to wait for trucks to arrive and thus averages 25 ton/h over the workday, the cost is

$50/h 25 ton/h

This simple example illustrates a very important principle in calculating the cost for a unit operation. Cost, ownership plus operating, for a commercial machine is defined by standard methods [3] used to calculate that cost. (An example calculation for a forklift is given in Appendix 13.A.) When this machine is used in a logistics system in such a manner that tons handled per operating hour is maximized, then cost ($/ton) is minimized.

There are studies in the literature that seek to define an optimum cost for a single unit operation in the logistics chain, or, more typically, a series of unit operations that define one segment of the total logistics chain. There is nothing wrong with this approach; however, this author has observed that if an attempt is made to optimize one unit operation in isolation, then the cost of the unit operation immediately upstream, or downstream, is increased such that the overall solution, in this case, the average delivered cost of feedstock for 24/7 operation, is higher. The reader is admonished to watch for this potential problem as they “design” a logistics system for a specific application.