Hey! I am Gokul and I am a master thesis student at DHL Supply Chain and also the web content manager at SupplyTech Insights. This article here is my take on the challenges facing the e-commerce industry with respect to achieving sustainable solutions. I have tried to strike the right chord between supply chain and sustainability domain to cater to audiences of all types.
Unchecked E-Commerce Supply Chain could be a ticking time bomb as far as Carbon emissions are concerned. Increased urgency in shopping amongst the modern day consumers has increased the number of deliveries in and out of homes in cities across the world. Given the fact that there is no aggregation in customer orders, E-commerce Supply Chains are forced to ferry out delivery vehicles that are not filled entirely. From the last documented data, consumers worldwide are projected to have spent nearly 3.46 trillion dollars in 2019, up from 2.93 trillion in 2018 (Source: Digitalcommerce). The expected year to year growth is projected to decline, more so due to the slowdown in the global economy. Coupled with the fact that customers are willing to pay for high speed delivery, companies are unconstrained in accommodating such requests. As a result, the carbon footprint of the E-Commerce Supply Chain has skyrocketed over the years.
But how did we get here? Why wasn’t e-commerce emission a problem before?
E-commerce exploding globally provided consumers the opportunity to shop from the comfort of their homes for their needs. An added impetus to our lethargic self one would say. In the early days of the e-commerce bubble, environmentalists seemed to be happy with this boom as well because the old ‘brick and mortar’ model so to say eliminated the biggest source of carbon emissions from the consumers and retailers. A large part of the carbon emissions in the traditional retail setup are largely caused by the consumers’ transportation to get to the retailer. The retailers’ facilities and the energy spent in maintaining them made e-commerce an obvious favorite as far as carbon emissions were concerned.
E-commerce supply chains transformed consumer behaviour dramatically and eliminated the biggest source of emissions as outlined above. Last mile delivery started creeping in as one of the potential sources of carbon emissions of the e-commerce supply chain. Last mile delivery refers to the transportation of goods from a distribution center to the customer. Initially e-commerce supply chain companies sent trucks full of shipments to be sent for distribution in concentrated consumer localities. Shared environmental impacts of last mile delivery, an outcome that was utilized as a marketing stunt by leading e-commerce giants such as amazon. Few years ago, amazon proudly stated the following on its website:
“ Online shopping is inherently more environmentally friendly than traditional retailing”
The question has got to be asked, is this really true anymore?
Continuing on the aforementioned point, as larger populations jumped onto the bandwagon of e-commerce, companies like amazon started promising free one day shipping with a number of lucrative deals such as amazon prime membership. While this is convenient, it also contributes to increasing the size of a platform’s carbon footprint. The faster your product reaches your door, the larger the CO2 footprint will be.
Let’s take a look at one of the results from the research conducted by the MIT center for Transportation and Logistics regarding the environmental analysis of US online shopping.
Figure 1: Carbon footprint comparison without search step (Source: MIT CTL)
The traditional shopper refers to the customers who actually go to the retailers by a preferred means of transportation to buy what they need. A large chunk of the carbon emission from a traditional shopper is constituted by their transit to the retailer. Then again, this study mostly consisted of customers who mostly travelled by their own cars. This could be a potential statistical fallacy as consumer behavior tends to vary, nevertheless it is interesting to see that if the customer does indeed choose to bike or take the public transport, the carbon emissions would fall significantly.
Cybernaut is represented by a modern day shopper who shops online and seeks the original speed of delivery that may vary between from a few days to a few weeks, for a household item. Obviously, the elimination of customers’ transit shows a marked decrease in emissions for a cybernaut compared to that of a traditional shopper. But a large chunk of the emissions here are constituted by the warehouse. The study calculated a consumer’s share of the emission adjusted to the product purchased. The high emissions caused by the warehouse could be attributed to the large warehouse spaces that are usually maintained by e-commerce companies. Here’s where supply chain strategies come into play. If the cost of stocking out is greater than the cost of maintaining an inventory, a sensible business solution prevails where the business decides to stock up products in their inventory. The cost of stocking out in an e-commerce supply chain seems to be quite high, as your consumer loyalty is lost if the product goes out of stock more than once. But what about the environmental costs? This is most often ignored as seen from the results from the study above that there is a significant environmental impact from warehouse maintenance.
An impatient modern day e-commerce shopper has been represented by an impatient cybernaut in the study. He/she tends to request for 1 day or 2 day shipping for their products. As observed from the results, the environmental impacts of an impatient cybernaut is worse than that of the traditional shopper who actually visits the retailer. The major contributing sources of carbon emissions are the excess packaging in e-commerce, average number of items in a shipment, and the fact that shoppers purchase fewer items per order as opposed to the traditional shopper. This fact has been pictorially described by the aforementioned figure. Imagine this, if you were to go to the nearest IKEA or a supermarket even, then you would ensure that you come back with a bag full of essentials. Whereas when you order something online, you do not tend to buy as many as you may when you visit a retail store. These are subject to consumer habits but the emissions attributed to packaging and the number of deliveries made to a customer are worthy of note. By making last mile deliveries cheaper and faster, e-commerce runs the risk of accumulating untracked carbon emissions that is only projected to increase.
Soooo….where do we go from here?
Companies can indeed do a lot to reduce the emissions in e-commerce supply chains. While changing the inventory stocking policies and cutting warehouse maintenance costs does not make an immediate business sense. This is also because large e-commerce companies are touted to be more eco friendly than retail stores. Either way, the onus is on e-commerce giants to impose sustainable packaging and come up with innovative and eco-friendly solutions for last mile delivery.
That isn’t to say that e-commerce companies are standing by on the sidelines. In the recent past, amazon has reinvented its packaging in such a way that it is sustainable whilst incurring low costs for the company. Amazon has increased the assortment of cardboard box sizes to better match the consumer purchases. An excerpt from Bain and company’s analysis shows that by doubling the average number of items purchased per e-commerce transaction, the average per item emission could be lowered by upto 30%. In a bid to reduce last mile delivery costs, e-commerce giants are investing in ambitious research projects at esteemed institutions such as MIT global center for transport and logistics, to solve the urban last mile delivery and sustainability challenge. Besides innovative delivery technologies such as drone and autonomous delivery systems, companies are striking relationships with local retailers to make pickup points more accessible and convenient.
As many challenges as we do face collectively, the onus is on us as much as it is on businesses to reduce the carbon emissions in a complex supply chain. The aforementioned paragraphs also illustrate the impacts of conscious consumer behavior in reducing carbon emissions. With the pandemic, e-commerce has boomed more than ever, therefore we need to act fast and be conscious in our choices. Supply chains should also incorporate sustainability profit drivers as important KPIs that drive their decision making. In the end, it’s all about finding the right balance!.
Are you ready to take that next step ?
Web Content Manager at SupplyTech Insights