Environmental, Operational and Financial Sustainability of Packaging Methods in Delivery Businesses. Background: The Order Fulfillment Process

Transcription

1 Environmental, Operational and Financial Sustainability of Packaging Methods in Delivery Businesses May 24, 2010 Cambridge, MA Joshua Ng Kendall Chow Candidates for Master of Engineering Logistics & Supply Chain Mgmt, 2010 Background: The Order Fulfillment Process 1

2 Overview: Financial and Environmental Numbers for Calendar Year 2009 Total Number of Orders: 43 million Total Number of Boxes Delivered: 83 million Total Estimated Financial Spend: $33.6 million Environmental Costs Energy (billion btu) 1.2 Equivalent 1 Home Energy Use Per Annum 13,162 GHG Emissions (lb) 247,400,000 Equivalent 1 Car Emission Per Annum 22,279 3 Introduction Situation Retail delivery companies are spending money on corrugated packaging to deliver products. Packaging is contributing a great deal to paper waste. Challenge Find non-traditional solutions to save the company money and improve the environmental implications. Options Materials Innovation Returnable Tote System Reducing Unit Level Packaging Waste 2

3 Overview of Returnable Tote System Reusable and collapsible plastic box will replace disposable paper box. Target high volume and high frequency contract customers. Current Forward Delivery System Customer A. Arrive at customer location B. Drop off package to customer C. Proceed to next customer Truck Capacity Decreases 6 3

4 Returnable Totes: Truck Delivery for Returnable Totes Customer Truck Capacity Increases Marginally A. Arrive at customer location B. Drop off package to customer C. Pick Up Collapsible Totes Truck Capacity Decreases D. Proceed to next customer 7 Weighing the Benefits of a Returnable Tote System Handling Shipping Material Cost Drivers Return 4

5 Weighing the Benefits of a Returnable Tote System Material + Eliminates paper packaging costs. - Initial large capital expenditure associated with totes. ± Will they return the tote? Handling - Cost of tracking and accounting empty containers. Shipping + Reduced product damage. + Reduces waste disposal costs for customer. - Decreased truck and /or driver utilization rates. Return - Cost of returning totes to point of origins. Returnable Totes System Unit Analysis Financial Costs Attrition Rate 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Costs in $ Net cost of Plastics $(0.22) $(0.16) $(0.10) $(0.04) $ 0.02 $ 0.08 $ 0.14 $ 0.20 $ 0.26 $ 0.32 Percentage Change -54% -39% -25% -10% 5% 19% 34% 49% 64% 78% Environmental Costs Costs in lb CO2 Net cost of Plastics Percentage Change -97% -95% -93% -90% -88% -86% -84% -82% -79% -77% 5

6 Returnable Totes System: Data Explained Assumptions: 5 year projection with an S-Curve customer adoption rate reaching steady state year 3. 10% attrition rate is current rate from trial run in a Philadelphiabased university. This rate will improve over time. Attrition Rate is percent of totes lost per month from loss, or damage. Month 36: Steady State 11 Returnable Totes System: Financial Metrics Worst Case: +$16 Million Spending Best Case: -$16 Million Spending +/- 1% Change in overall capital expenditure 12 6

7 Returnable Totes System: Environmental The greater the commitment to tote returns, the greater the environmental impact. Concept: Focusing on Corporate Contract Customers High Volume Corrugated Box Replacement Predictable Ordering and Delivery Patterns Potential 5-year Carbon Footprint Forecast: Tote Attrition Lbs CO2 Saved Lbs Paper No. Trees Gallons of Gasoline Tanks of Gasoline 10% 96,489,754 37,988,092 1,899,405 4,973, ,580 6% 108,426,631 42,687,650 2,134,382 5,589, ,600 4% 114,395,069 45,037,429 2,251,871 5,896, ,110 2% 120,363,507 47,387,208 2,369,360 6,204, ,620 0% 126,331,946 49,736,987 2,486,849 6,511, ,130 Metrics used in model to provide reference for carbon footprint savings Item Lbs CO2 Description Paper 2.54 Lbs CO2 per lb paper produced Tree lbs paper per tree, 1 lb paper = 2.54 lb CO2 Gasoline 19.4 Lbs CO2 per gallon gas Tanks of Gas 291 Average 15 gallon tank of gas 13 Returnable Totes: Balancing Considerations Deliveries Mon/Tues have fewer deliveries Time Little extra time for more work 14 7

8 Conclusion and Key Takeaways Save the Environment Save Money Focus on implementation and incentivizing stakeholders Dollars & Environment Savings Incentivize Stakeholders THANK YOU QUESTIONS? 8

9 Returnable Totes System Unit Analysis Financial Costs Dependent on attrition rate. Breakeven rate is approximately 4%-5% Attrition Rate 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Costs in $ Materials Costs (0.35) (0.29) (0.23) (0.17) (0.11) (0.05) Handling and Labor Costs Shipping and Freight Costs Disposal and Return Costs Net cost of Plastics (0.22) (0.16) (0.10) (0.04) Percentage Change -54% -39% -25% -10% 5% 19% 34% 49% 64% 78% Returnable Totes System Unit Analysis Environmental Costs Breakeven when attrition is about 20%. Attrition Rate 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Costs in lb CO2 Materials Costs (2.35) (2.30) (2.25) (2.19) (2.14) (2.08) (2.03) (1.98) (1.92) (1.87) Handling and Labor Costs Shipping and Freight Costs Disposal and Return Costs Net cost of Plastics (2.34) (2.28) (2.23) (2.18) (2.12) (2.07) (2.02) (1.96) (1.91) (1.86) Percentage Change -97% -95% -93% -90% -88% -86% -84% -82% -79% -77% 9

10 What is Sustainable Packaging? broad sustainability objectives with business considerations and strategies that address the environmental concerns related to the life cycle of packaging from cradle to grave flow of packaging materials in a system. (Sustainable Packaging Coalition, 2005) Sustainable Packaging Component Material System Society Safe and non toxic to humans and the ecosystem Cyclic, easy flowing between natural ecosystem and industrial systems Energy efficient interacting with surrounding support systems Add economic, social value, responsible consumption 19 Overview: Current Order Fulfillment System 20 10