HENK ZIJM: In the first part, we discussed early developments in the way we produce and distribute goods and products, as well as the gradual change from an economy of scale to an economy of scope. We observed that current supply chains and logistic processes place an unacceptable footprint on scarcely available resources and cause serious environmental and social problems. Fortunately, new technological developments may help to reduce these negative consequences while still maintaining economic competitiveness. At the same time, technology itself is never enough to improve the impact on the three P’s, that is on people, planet, profit, in a balanced way. What is merely needed is a fundamental change in the way we view logistics.
And above all, the development of sound, multi-stakeholder business models based on an intensified coordination and cooperation not only along, but also across supply chains.
The inefficiencies of current transport were also underlined by a recent audit in Europe showing that the average load of freight trucks is around 56%, and that is of trucks that carry load anyway. Around 20% of all trucks drive empty due to bad coordination of forward and reverse flows. And if you combine these two figures, we come to an average utilisation a road freight carriers of some 45%. Meaning an unacceptable, inefficient use of expensive infrastructure. How to increase these loads, or even better, how to combine freight efficiently? Or would be possible to condense our freight volumes by not only looking at how we transport off-road loads, but also to critically review what we transport? Take food is an example.
Research has shown that Europe annually produces some 200 million tonnes of food waste. 50% of raw products are not reaching the consumer due to bad and insufficient package and transport systems. For that reason, retailers such as Tesco, Carrefour, and others decided to develop a retail-ready packaging methodology to prevent waste, thereby reducing also supply chain costs, while at the same time increasing availability. Many fresh products and consumer goods that are perishable suffer from the same. Flowers, for example, lose some 10% of their value every day when not properly consolidated. Another example concerns the tealights delivered by German shipper GLIMMA to, amongst others, Ikea.
By installing a smart packaging system, pallet loads could be increased with some 30% leading to equivalent percentages of number of pallets and transport miles reductions.
But also straightforward collaboration helps, as demonstrated in the European research project CO3, which stands for consolidation, coordination, and collaboration. In this project, four fast-moving consumer goods manufacturers combined efforts through the installation and operation of a joined distribution centre in Orleans in France leading to a 30% reduction of transport cost and an equivalent reduction of carbon emission. More general, many efforts are currently made to improve, in particular, urban logistics. Badly needed not only since urbanisation continues, but also given the still rapidly growing product flows due to the advance of e-commerce and web shops. City distribution centres designed to consolidate and synchronise these flows are just one attempt to relieve the load on urban infrastructure.
At the national and international level, measures are taken to shift freight production from the road to rail and water. Containers arriving in the Port of Rotterdam, for instance, are increasingly transported to the Hinterland by means of barges, inland vessels. While in addition, special cargo rail transport to the German Ruhr area has been established. In the North German Harbour regions we see large investments in rail infrastructure.
But typically, last-mile distribution will continue to be a truck or a van business.
On the other hand, for medium-range transport distances, modal shift definitely offers unexploited potential. Throughout Europe, special corridors are established, again, with the intention to combine efficiency and green transport.
Interestingly, we also observe a trend to relocate production from the Far East back to Europe due to various causes. One of them is certainly the rise of wages in a number of Far Eastern countries combined with the fact that labour constitutes a still declining part of the product price, and the fact that logistic costs are rising. Some manufacturers decide to relocate part of their activities.
Another thing is the plea for a circular economy, which is worth to highlight. Note that the value of commercial product returns, which we here define as products returned for any reason within 90 days of sale, has been increasing rapidly, and in 2000, already exceeded $100 billion annually. In most reverse supply chains, only a fraction of the potential value is extracted by manufacturers. A loss proportional to the product value, erodes away in the return process and never reaches the bottom line. At the same time, the price of some rare resources, in particular minerals, is exploding.
Finally, a growing number of people realise that what they basically need is a product’s functionality without necessarily owning the product itself. Examples are, for example, car sharing, music streaming, but also cloud computing. It goes without saying that such a sharing economy will have a profound impact on future supply chains as well.
And what then about the contribution of technological developments to more sustainable logistics? Clearly, the development of electric engines or hydro-oxygen fuel cells helps to reduce hazardous particle emission. To speed up processes, to make them more efficient, robotics is already contributing significantly, for example, in automotive assembly lines, but also in highly automated storage and retrieval systems in warehouses and distribution centres, often relying on RFID technology.
Innovative warehouse management systems help to coordinate and synchronise activities in close communication with information systems, linking suppliers as well as customers. Similar developments can be found at container terminal sites in both sea ports and inland harbours. Such systems rely heavily on smart sensor and actuated techniques, recently evolving towards what we now call this internet of things where devices equipped with sensors automatically signal when actions such as ordering or replenishment have to be initiated. Machines and equipment themselves communicate with each other and find solutions based on decentralised and autonomous decision making using the state of the art algorithms.
The focus of this course will be on adequate information and decision support systems. Any attempt to synchronise supply chains and to coordinate different networks starts with a sound and well-thought information infrastructure. But that’s more easily said than done. Complex, modern supply chains are first and foremost characterised by the fact that they involve many stakeholders. Manufacturing and trading companies, logistics service providers, transport companies, customs, and other inspection authorities, local and regional governments, and eventually the customer. Such multi-stakeholder and multi-decision-maker environments require adequate information systems based, as I said, on distributed architectures, cloud-based solutions, cognitive computing, agent-based decision support systems. The recent attention for data-driven models, so-called big data analytics, marks an important further step towards full blown automated decision architectures.
But to arrive at really sustainable supply chains, major obstacles still have to be overcome. And although many companies recognise the potential win-win arising from collaboration, they find it, in general, very hard to give up their autonomy. You know, there are solutions. Mathematically, game theoretical approaches have proven to provide adequate tools to handle such multi-stakeholder games, for example, by means of the Shapley value calculation to define a fair allocation of corporation gains among individual actors. But the key idea that participants in a consortium may have to give up their individual optimal solution to arrive at a stable equilibrium solution is still hard to accept for companies that were always used to focus first and foremost on their individual profits.
And that is perhaps the biggest hurdle to be taken. It involves not only smart business solutions, but an overall change of mindset, and indeed, trust in the value of collaboration.
Some time ago, Professor Benoit Montreuil, now at Georgia Tech, proposed a radical solution which he called the Physical Internet. Let me invite you to watch a short movie in which the essential features of the Physical Internet are outlined. [VIDEO PLAYBACK]
-The Physical Internet is about shipping freight just like information flows over the internet. But do you truly know how that works? Did you ever wonder what route your email takes, who owns the service that relay your message, or which internet provider is used by your receiver? Probably not. And you don’t have to. You rely on the internet to securely deliver your message to the receiver. Imagine a world where your message is a physical object and you are the sender or the receiver. To ship physical objects, you use the Physical Internet. Just like the network of servers from the internet, a network of hubs forms the foundation of the Physical Internet. A Physical Internet hub sends and receives products.
Products may pass several hubs in this manner. Final delivery leaves from the hub closest to the receiver.
Products moving over this open and interconnected network belong to many different parties who have in common that they are users of the Physical Internet. In this way, the Physical Internet is enabling full horizontal and vertical collaboration. Shipments are optimised for the whole network. This requires a constant quest for the perfect capacity use of the network. Let’s look at the following example. A Spanish wine producer exports her wines to Canada, Scandinavia, and Asia. When a Norwegian business connection orders 1,000 bottles of wine, the wine producer knows she can use the Physical Internet. No need to look for optimising the load or finding out the routing for the best service and lowest cost. The Physical Internet will take care of all that.
But the Physical Internet does not only look at collaboration and transport. It also unlocks collaboration opportunities for warehouses and decentralising stocks. Therefore, in this example, through the physical internet, the wine producer will be able to store wines closer to the point of consumption. Just like the internet servers host data from different owners, Physical Internet warehouses connected to the hubs will store goods from different owners to enable faster shipment. To realise the Physical Internet, we’ll also look at modular packaging, how to efficiently share information between partners, and at improved business models. Physical Internet will not be realised today, but it is the way forward to create a more efficient and sustainable supply network for our global logistics in 2050. [END PLAYBACK]
HENK ZIJM: Of course as was also the conclusion of the movie, we realise that a Physical Internet represents a long-term vision. Apart from the fact that not all sectors lend themselves to such a logistics system design, the adoption of a Physical Internet will require radical changes with respect to the roles and responsibilities of all stakeholders involved, as well as radical new business models. That is a formidable challenge. At the same time, we have to realise that’s achieving truly sustainable supply chains indeed requires radical solutions.