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CHAIN OF COMMAND: INTERNET SUPPLY LINKS DRIVE BUSINESS E-COMMERCE SAVINGS
Reduced Inventory, Better Planning, Improved Logistics Save Energy By Cutting Transport & Warehousing
Up to 10 cents of every dollar in the U.S. economy goes toward moving and warehousing products. Storage, transportation and distribution account for vast amounts of energy use. The Internet is allowing companies in every sector to improve forecasting, and eliminate mistakes and do away with wasted production. It also allows sophisticated bartering, which increases capacity utilization material reuse.
As Federal Reserve Chairman Alan Greenspan told Congress last summer, these processes yield "a saving of resources that, in the aggregate, is reflected in higher levels of productivity . . . enabling firms to substitute capital for labor and other inputs far more productively than they could have a decade or two ago."
For many manufacturers, the energy used to create and transport the raw materials they buy - the so-called "embodied energy" - vastly exceeds the energy they actually purchase. For instance, Interface Flooring Systems calculates the embodied energy in the raw materials used to make its carpet tile outstrips the energy needed to manufacture it by a factor of twelve. That means a 4 percent cut in wasted product could save the equivalent of half the energy used in manufacturing.
Simply moving and storing things more efficiently via Internet supply chain management can also yield major energy savings. Ernst & Young estimates collaborative planning systems between manufacturers and suppliers could reduce inventories by $250 to $350 billion across the economy, roughly 25 to 35 percent of finished goods inventory. IBM says its e-commerce solutions are delivering inventory savings as high as 50 percent for some of their customers.
According to the Center for Energy & Climate Solutions, the net result of such techniques might be to eliminate up to one billion square feet of commercial warehouses and on-site storage at manufacturing facilities.
Toyota recently announced a new just-in-time delivery system that uses the Internet to make suppliers into a "virtual production line" two weeks in advance of actual production. The system determines which parts are required where, and at what time, then converts this information almost instantly into orders for 300 suppliers. The system cut plant inventories 28 percent and reduced on-site storage 37 percent.
Home Depot became a "category killer" by using information technology and the Internet to link its supply chain, allowing the company to move 85 percent of its merchandise directly from the manufacturer to the store.
Cisco Systems, a multi-billion dollar computer networking company, achieved many benefits by going online. Before switching to a Web-based system, orders for Cisco products were complicated, and a quarter wound up with errors. Today, 80 percent of Cisco customer service inquiries - more than a million Web transactions a month - are satisfied online, and the error rate has dropped to 2 percent. The system saves $360 million a year, half of which comes from energy-intensive activities like distribution, packaging and duplicating.
Now Cisco is working with FedEx to do away with costly inventory storage. Cisco uses factories on three continents to make dozens of components, typically holding them in nearby warehouses until completed orders are ready for shipping. Booming business has made this increasingly costly and inflexible. The solution? Ship each product immediately, merging orders of up to 100 components in transit so that they arrive on a customer's doorstep on the same day, regardless of where in the world they were made. Cisco will then assemble them on-site.
Planes, Trains and Automobiles
A number of companies are pursuing Internet-based systems to auction off empty space on aircraft, trucks and trains. Two of those are UPS and The National Transportation Exchange (NTE), which has started connecting shippers with fleet managers who have space to fill. NTE sets daily spot prices based on information from hundreds of trucking companies about which vehicles are going where, and the amount of empty space on board. Then NTE brokers the deals between carriers and shippers, issuing the contracts and handling payment. The whole process takes only a few minutes.
If online auctions were to increase the overall load of cargo trucks on the road by even 10 percentage points over the next 10 years, the impact on transportation energy intensity would be enormous. This would be one of the best examples of eee-commerce: e-commerce that maximizes energy savings and environmental benefits.
Most airlines have turned to the Internet for a similar type of auction. Typical is American Airlines, one of the industry leaders in yield management, which still ends up with many unsold seats. Now, every week, more than one million "NetSAAver" subscribers get email from the airline listing very low fares for certain undersubscribed markets for travel that weekend. Launched in March 1996, the program was generating tens of millions of dollars by 1998, and filling aircraft seats that would have been wasted.
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