Economic and Environmental Implications of Online Retailing and Centralized Stock Keeping in the Uni

1
Economic and Environmental Implications of Online
Retailing and Centralized Stock Keeping in the
United States

• H. Scott Matthews and Chris Hendrickson
• Green Design
• Carnegie Mellon University

2
Growth of Retail E-commerce ()

• US DOC began measuring and reporting retail
  e-commerce in March 2000
• 4Q 02 14.3 Billion
• 1.6 of all retail purchases 46B for 2002
• Uses same sampling as traditional surveys
• 12,000 out of 2 million firms (dangerous now?)
• Note the following are not considered retail (and
  thus also not counted in e-commerce )
• Travel, financial, ticket brokering

3
E-Commerce Retail Quarterly Volume (B)
4
Traditional Retail Logistics System

• Factory to warehouse to warehouse to retailer.
• Last leg of trip by private vehicle

5
Single Facility Sales

• LL Bean, Lands End - catalogue sales
• Amazon (original), MusicOutpost - web based sales
  from a single facility

6
www.eiolca.net

• Free life cycle assessment software on the web
  from Carnegie Mellon - public data
• 20,000 uses this year
• economic, environment and resource requirements
  for purchases from any sector
• just added injury and fatality data
• based on linear model of economy and 500 sectors!

7
EIO-LCA Implementation

• Use the 480480 commodity input-output matrix of
  the U.S. economy (1997)
• Augment with sector-level environmental impact
  coefficient matrices (R) (average impact per
  dollar of output)
• Linear environmental impact calculation
• E RI - D-1F

8
(No Transcript)
9
Book Publishing Case Study

• Traditional System
• logistics printer warehouse warehouse
  retailer home, all by truck/car
• unsold returns - roughly 35 for bestsellers
• E-commerce System
• logistics printer warehouse distribution
  center home, by air and truck.
• No unsold returns

10
Comparative Analysis

• Traditional
• truck transport (1000 mi)
• warehousing
• production of returns
• reverse travel of returns
• private automobile transport

• E-Commerce
• air transport (500 mi)
• truck transport (500 mi)
• warehousing

11
Comparative Costs ( 1000s for 1 M or 290,000
books)
12
Why are E-Commerce Costs Lower?

• Higher transportation costs for e-commerce, but
• Returns of unsold copies
• Lower retail transactions costs
• Lower (private) automobile cost
• Result is cost advantage for e-Commerce

13
(No Transcript)
14
Summary Environmental Impacts(per-book basis)
15
Sensitivity Analysis

• Traditional becomes better if
• Local distance to bookstore
• Air transport of books 700 miles
• Orders not shipped together

16
Harry Potter Case

• 250,000 books shipped on release date by
  Amazon.com
• 9,000 trucks and 100 airplanes
• 2.5 lb. book, 0.7 lb. packaging (3.2 lbs.)
• Bookstores got 10 per box
• Shopping trips for books avg. 11 miles
• Marginal effects

17
(No Transcript)
18
Example 2 Centralized or Virtual Warehouse

• Traditional Stock at Local Warehouse with Rapid
  Delivery but High Stock Costs
• Centralized or Virtual Stock at Remote Warehouse
  with Rapid Delivery by Higher Cost Mode. (Note
  E-commerce Model Delivery Mode Choices).

19
Warehousing vs. Trucking ( 100M)
20
Example Defense Logistics Agency

• Military spare parts management 632,000 part
  types, inventory of 108 million parts, value of
  83 B, 286 storage locations.
• GAO Consolidate spare parts inventory in major
  sites.
• GAO also, reduce excess inventory (not analyzed
  here)

21
Centralized Warehousing
22
Local to Central Warehouses
23
Some Analysis Issues

• What are E-commerce future scenarios?
• What will happen with local manufacturing
  technology?
• What will be impact of new business models for
  controlling inventory (warehousing),
  manufacturing and shipping.
• What is appropriate time scale of analysis?

24
Analysis Boundary Issues (cont.)

• Buildings - decrease in retail or warehouse
  space?
• Shopping - will individuals substitute other
  travel for reduced shopping travel?
• Computers - what fraction of personal computer
  burdens should be allocated to E-commerce?

25
Will E-commerce Improve or Degrade the
Environment?

• Net Effect - hypothesis depends upon product and
  processes and upon the analysis boundary.
• Appropriate Public Policy -
• Dont ignore service industries in environmental
  policy.
• Consider life cycle costs including social costs.
• Take advantage of cost savings to create
  environmental benefits

26
Acknowledgments

• ATT Foundations Industrial Ecology Faculty
  Fellowship Program
• Organization of Economic Cooperation and
  Development (OECD)
• Japan Foundation Center for Global Partnership

27
References

• "Environmental and Economic Effects of
  E-Commerce A Case Study of Book  Publishing and
  Retail Logistics," Hendrickson, Chris T., H.
  Scott Matthews, and Denise L. Soh, 
  Transportation Research Record 1763, pp. 6-12,
  2001.
• "Harry Potter and the Health of the Environment,"
  Matthews, H. Scott, Chris Hendrickson and Lester
  Lave, Spectrum, 20-22, November 2000.
• The Economic and Environmental Implications of
  Warehousing Strategies in the New Economy,
  Matthews, H. Scott and Chris Hendrickson,  J. of
  Industrial Ecology, 2002.