Supply Chain Design and the Cost of Greenhouse Gas Emissions

The density, size and location of stores in a retailer’s network in‡uences both the retailer’s cost to operate its stores as well as its customer’s costs - with stores few and far between, consumers must travel a long distance to shop, whereas shopping trips are shorter with a dense network of stores. Although the layout of the retail supply chain has received little attention in the academic literature, it is of interest to retailers who have emission reduction targets and urban planners concerned with sprawl - are small local shops preferred over large, “big-box”, retailers? In a model of the downstream supply chain, this paper considers the retailer’s transportation costs (a Traveling Salesmen problem), the consumers’transportation costs (a k-median problem), and the retailer’s space costs (an inventory problem). Explicit operating costs are included (such as rent for retail space, vehicle depreciation and fuel) as well as a cost for environmental externalities associated with carbon emissions. Several supply chain designs are compared: designs that minimize operating costs, emissions costs or total cost (that includes both operating costs and emissions). If only transportation costs are considered (e.g., retail space costs are ignored or are small), then these � For helpful feedback and comments, the author thanks seminar participants from