Amazon CEO Jeff Bezos on e-commerce, environment intersection

Amazon earlier this week held its annual shareholder meeting and CEO Jeff Bezos fielded a question about the environmental and social performance impact of the company. What followed was a treatise on the intersection of the environment and e-commerce.

Among the key points:

E-commerce is "environmentally beneficial. Bezos said:

There have been a number of academic studies that compare physical retailing to electronic commerce. And electronic commerce comes out way ahead for a bunch of reasons -- higher inventory turns, which is much more efficient than the low inventory turns that you get when you have to fragment inventory in a physical store environment and so on. But the biggest one -- the big driver is that when you -- when consumers use physical stores to do their product acquisition, they take a 2,000 pound car to pick up five pounds of stuff.

And that trip is extremely inefficient compared to the UPS truck or US Postal Service truck driving an optimized route. So -- and further, when you get -- there's a big difference between electronic commerce when you look at ground transportation versus air transportation. And so, because of our operating skill, and the fact that we can have multiple fulfillment centers closer to the customer population, we can get products to people very quickly in one or two days in most cases, which is why Amazon Prime can work as well, without using air. So, we get to do ground transportation on a highly optimized route which is the most efficient way of delivering products to consumers. So, that core feature of our business model is extremely environmentally beneficial.

Bezos also talked about green efforts inside of the company and saving money. He detailed Earth Kaizens.

Inside Amazon, we also do a number of things. Our new campus in South Lake Union here in Seattle is a LEED certified campus. We have three years ago or so, we started doing these things called Earth Kaizens in our fulfillment center network. So our fulfillment center network is kind our -- kind of our biggest footprint and we'd always done -- or for many years, anyway, we had done Kaizens. It's a Japanese process.

It's a very formal Japanese process invented by Toyota many years ago to look for opportunities for improvement, and our Kaizen process had been focused on cost savings. So we decided a few years ago that we would tinker with that process, keep it basically the same but add -- it's kind of a new -- it's a second process -- we didn't get rid of the Kaizen process we were using to look for cost savings but we supplemented it with Earth Kaizens. And their motivation is to look for things that would be better for the environment, things we could change in our processes that would create an improvement for the environment, and we found lots of things.

The -- a simple one serves as a good example is that one of these Kaizen -- Earth Kaizen teams came up with the idea of taking all the light bulbs out of all the ending machines in our multitude of fulfillment centers. So these vending machines are backlit -- they kind of have advertisements and they have light bulbs in the vending machines to make the advertisements stand out, but inside the fulfillment centers we certainly didn't need those.

And if I remember the figure right, kind of globally, that saves us $20,000 worth of electricity and of course -- no, the cost savings on that is small enough that it might not have been found if it were motivated by a cost savings Kaizen, one of our traditional ones, but as an Earth Kaizen, those incremental things can add up. Now, of course, it's also a good example because one of the things that you find with the Earth Kaizens is that it's very hard to do something environmentally effective that doesn't actually also save you money. Most of these things, they aren't either/or choices, they -- they're better. Most of them end up saving fuel in some way or making something more efficient, reducing packaging waste.

And on packaging, Bezos said e-commerce is now large enough to dictate how manufacturers package their products. Bezos said the following:

If you take some of the categories like toys, many electronics products, they get packaged -- they have historically been packaged for the retail environment. So, that means typically the packages have a lot of air in them. They have to have four color packaging, which is not the -- not an optimal process from the environmental point of view.

They also turn out to be frustrating for consumers. So you buy -- oftentimes in the physical store you get this clam shell packaging or this very hard, impenetrable nuclear-proof packaging that you try to get scissors and knives and --. At one point, I knew the statistic for how many emergency room visits there are per year of people trying to get stuff out of clam shell packaging. It's like 6,000 emergency room visits a year; it's not a trivial number. And -- but it's frustrating, even if you do it without injuring yourself.

And of course, the reason that packaging exists is to make it harder for people who would shoplift in physical stores which is not a problem that Amazon has. So, all that packaging is bad for the environment, it's bad for consumers because it's frustrating to open. And it's bad for Amazon because we end up shipping a lot of air around which is very expensive. When you're using -- actually both for ground and air transportation, most vehicles are constrained by their cube -- by their volume capacity rather than their weight capacity.

So when you send one of those UPS trucks on a optimized route, the more packages that -- really, unfortunately, you're shipping around a lot of air, and that's not as efficient as it could be. And so we're working -- our frustration free packaging initiative is working directly with the manufacturers to get them to build a separately packaged product for us and other e-commerce companies that is environmentally beneficial and better for consumers because it's easy to open.

This post was originally published on Smartplanet.com