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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. Growth of Retail E-commerce ($).

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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


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Growth of Retail E-commerce ($) and Centralized Stock Keeping in the United States

  • 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


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E-Commerce Retail Quarterly Volume ($B) and Centralized Stock Keeping in the United States


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Traditional Retail Logistics System and Centralized Stock Keeping in the United States

  • Factory to warehouse to warehouse to retailer.

  • Last leg of trip by private vehicle


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Single Facility Sales and Centralized Stock Keeping in the United States

  • LL Bean, Lands End - catalogue sales

  • Amazon (original), MusicOutpost - web based sales from a single facility


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www.eiolca.net and Centralized Stock Keeping in the United States

  • 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!


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EIO-LCA Implementation and Centralized Stock Keeping in the United States

  • Use the 480*480 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 = R[I - D]-1F


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Book Publishing Case Study and Centralized Stock Keeping in the United States

  • 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


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Traditional: and Centralized Stock Keeping in the United States

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

Comparative Analysis


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Comparative Costs ($ 1000s for and Centralized Stock Keeping in the United States $ 1 M or 290,000 books)


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Why are E-Commerce Costs Lower? and Centralized Stock Keeping in the United States

  • 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


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Summary Environmental Impacts and Centralized Stock Keeping in the United States (per-book basis)


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Sensitivity Analysis and Centralized Stock Keeping in the United States

  • ‘Traditional’ becomes better if:

    • Local distance to bookstore < 3 miles

    • Air transport of books > 700 miles

    • Orders not shipped together


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Harry Potter Case and Centralized Stock Keeping in the United States

  • 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


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Example 2: Centralized or Virtual Warehouse and Centralized Stock Keeping in the United States

  • 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).


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Warehousing vs. Trucking ($ 100M) and Centralized Stock Keeping in the United States


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Example: Defense Logistics Agency and Centralized Stock Keeping in the United States

  • 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)


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Centralized Warehousing and Centralized Stock Keeping in the United States


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Local to Central Warehouses and Centralized Stock Keeping in the United States


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Some Analysis Issues and Centralized Stock Keeping in the United States

  • 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?


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Analysis Boundary Issues (cont.) and Centralized Stock Keeping in the United States

  • 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?


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Will E-commerce Improve or Degrade the Environment? and Centralized Stock Keeping in the United States

  • Net Effect - hypothesis: depends upon product and processes and upon the analysis boundary.

  • Appropriate Public Policy -

    • Don’t ignore service industries in environmental policy.

    • Consider life cycle costs including social costs.

    • Take advantage of cost savings to create environmental benefits


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Acknowledgments and Centralized Stock Keeping in the United States

  • AT&T Foundation’s Industrial Ecology Faculty Fellowship Program

  • Organization of Economic Cooperation and Development (OECD)

  • Japan Foundation Center for Global Partnership


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References and Centralized Stock Keeping in the United States

  • "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.


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