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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

growth of retail e commerce
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
traditional retail logistics system
Traditional Retail Logistics System
  • Factory to warehouse to warehouse to retailer.
  • Last leg of trip by private vehicle
single facility sales
Single Facility Sales
  • LL Bean, Lands End - catalogue sales
  • Amazon (original), MusicOutpost - web based sales from a single facility
www eiolca net
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!
eio lca implementation
EIO-LCA Implementation
  • 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

book publishing case study
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
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

Comparative Analysis
why are e commerce costs lower
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
sensitivity analysis
Sensitivity Analysis
  • ‘Traditional’ becomes better if:
    • Local distance to bookstore < 3 miles
    • Air transport of books > 700 miles
    • Orders not shipped together
harry potter case
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
example 2 centralized or virtual warehouse
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).
example defense logistics agency
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)
some analysis issues
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?
analysis boundary issues cont
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?
will e commerce improve or degrade the environment
Will E-commerce Improve or Degrade the Environment?
  • 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
acknowledgments
Acknowledgments
  • AT&T Foundation’s Industrial Ecology Faculty Fellowship Program
  • Organization of Economic Cooperation and Development (OECD)
  • Japan Foundation Center for Global Partnership
references
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.