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 $)
• Travel, financial, ticket brokering
E-Commerce Retail Quarterly E-Commerce Retail Quarterly Volume ($B)Volume ($B)
Traditional Retail Logistics Traditional Retail Logistics SystemSystem
• Factory to warehouse to warehouse to retailer.
• Last leg of trip by private vehicle
Single Facility SalesSingle Facility Sales
• LL Bean, Lands End - catalogue sales
• Amazon (original), MusicOutpost - web based sales from a single facility
www.eiolca.netwww.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 ImplementationEIO-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
Comparison of Freight Modes
0
10
20
Total Energy (TJ/$1M) Direct Energy(TJ/$1M)
Total Energy (MJ/ton-mile)
Direct Energy (MJ/ton-mile)
Air
Truck
Rail
Book Publishing Case StudyBook Publishing Case Study
• Traditional System:– logistics: printer > warehouse > warehouse >
retailer > home, all by truck/car– unsold returns - roughly 35% for bestsellers
• E-commerce System:– logistics: printer > warehouse > distribution
center >home, by air and truck.– No unsold returns
Comparative AnalysisComparative Analysis
• Traditional:– truck transport (1000 mi)
– warehousing
– production of returns
– reverse travel of returns
– private automobile transport
• E-Commerce– air transport (500 mi)
– truck transport (500 mi)
– warehousing
Comparative Costs ($ 1000s for Comparative Costs ($ 1000s for $ 1 M or 290,000 books)$ 1 M or 290,000 books)
Traditional E-Commerce
W/o Returns or Auto
700 992
W Returns but w/o Auto
1,300 992
W/o Returns but w/ Auto
1,170 992
W returns and auto
1,780 992
Why are E-Commerce Costs Why are E-Commerce Costs Lower?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
Energy(TJ)
*ConventionalAir Pollutants
(mT)
RCRAHazardousWaste (mT)
GreenhouseGas Emissions(CO2 Equiv.,
mT)
Trucking (with returns) 5.3 8.9 9.1 354
Production 9.45 8.1 23 612Packaging 1.2 1.1 3.5 84Passenger Trips 9.7 42 0 611Pass. Fuel Prod. 7 1.7 30 337Total 33 62 66 2000
Trucking 1.2 2 2 80Air 7 3 9 440Production 7 6 17 453Packaging 4 3 11 254Delivery Trips 11 18.5 19 736Pass. Fuel Prod. 0 0 0 0Total 30 33 58 1963% Difference 9 47 12 2
Summary Environmental ImpactsSummary Environmental Impacts(per-book basis)(per-book basis)
Trad. E-Com.
Energy (MJ) 115 105
Conventional Air (kg) 0.2 0.1
Hazardous Waste (kg) 0.2 0.2
Greenhouse Gas (kg) 7 7
Sensitivity AnalysisSensitivity Analysis
• ‘Traditional’ becomes better if:– Local distance to bookstore < 3 miles– Air transport of books > 700 miles– Orders not shipped together
Harry Potter CaseHarry 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 Example 2: Centralized or Virtual WarehouseWarehouse
• 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).
Warehousing vs. Trucking ($ 100M)Warehousing vs. Trucking ($ 100M)
Effects Warehouse Truck Difference
Transactions ($ M) 180 200 -20
Elec. (M kw-hr) 44 20 23
Energy (TJ) 770 2,500 -1,700
Air Emissions (mt) 830 5,700 -4,900
Haz Waste (mt) 4,200 2,800 1,400
Fatalities 0.2 0.3 -0.1
Example: Defense Logistics AgencyExample: 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)
Category Cost (Saving)
EIO-LCA sector used
Non-major location Inventory Reductions
($693 million)
Warehousing and Storage
Shipping Back to Major Warehouses
$40 million Trucking and courier services, non-air
Major Locations Increased Inventory
$78 million Warehousing and Storage
Centralized WarehousingCentralized Warehousing
Local to Central WarehousesLocal to Central Warehouses
Effects Local Whs Truck Central Whs.
∆
Elec. (M kw-hr) -300 10 30 -260
Energy (TJ) -5,400 1,000 600 -3,800
Air Emissions (mt) -5,700 2,300 640 -2,800
GGR (mt CO2) -440,000 74,000 49,000 -317,000
Haz. Waste (mt) -29,000 1,100 3,200 -25,000
Some Analysis IssuesSome 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 Will E-commerce Improve or Degrade the Environment?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
AcknowledgmentsAcknowledgments
• AT&T Foundation’s Industrial Ecology Faculty Fellowship Program
• Organization of Economic Cooperation and Development (OECD)
• Japan Foundation Center for Global Partnership
ReferencesReferences
• "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.