INQUISITIVE - Societeit Vastgoed · Cristini, M. (2016) argues that ^logistics Management is the...

Publication, No. 3

Next generation

logistics

Jan van den Hogen

Read the book and find:

strategic collaboration in the supply chain

urgent matter of chance management in logistics

technology as an opportunity factor

contribution of Industry 4.0 to the supply chain

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Publication, No. 3

concepts

Next generation

logistics

Table of contents 1. Introduction 1 2. The DNA of the supply chain 3 2.1 The scope of logistics management 5 2.2 Strategic collaboration in the supply chain 7 3. Unavoidable change management 10 3.1 Lean strategy 11 3.2 Agile strategy 11 3.3 Leagile strategy 12 3.4 Kanban 13 3.5 In conclusion 14 4. The technology leap 16 4.1 Visibility in the supply chain 16 4.2 What comes next 20 5. Industry 4.0 21 5.1 Accumulated multidisciplinary approach 22 5.2 Innovative solutions for logistics 23 5.3 Less spectacular but important spin off 28 6. Concluding remarks 31 Reference list 33 Appendix A: Ways to optimise 3PL relationships 37

1. Introduction

From the prefacing publications in this INQUISITIVE Series you learned that we try to anticipate on themes and important developments in the field of logistics. The first publication focused on the influence of the ongoing penetration of e-commerce activities into our society, and its influence on future logistics housing concepts. The second publication gave you a sound argument on general future warehousing accommodation of LSPs. In this third publication we take a closer look at trends that shape the supply chain, and it’s inevitable influencing factors on logistics. Supply chains are becoming increasingly complex and dynamic with sourcing locations being changed increasingly quickly and purchase orders becoming smaller and more frequent. On the one hand manufacturers continuously search for supply chain innovations and gains through partnerships with logistic service providers. On the other hand to be able to secure speed to market and to reduce risk of delays, alternative transport modes and routes are required to support the continuing trend of outsourcing of logistics services. The omni-channel effect is another huge driving force in the industry. It is common practice that end-consumers are increasingly sourcing via multiple channels, ranging from brick & mortar shops to e-commerce. This forces the logistics industry to support the multi-channel strategies of their customers. Customers and consumers within the supply chain prefer products and handling that's done in the “right way”, minimising business, economic, social and environmental impact. The industry is even expected to enhance positive effects on sustainability. Other trends as aforementioned we find, are the necessity to integrate a much higher level on corporate governance and compliance than was necessary a few years ago, the shift in global growth patterns where in former days exports between Asia, Europe and North America where the driving force, but now it will come from elsewhere, and will be more fragmented, more unpredictable and more volatile. A lot of these developments are just unpredictable because due to the emerging complexity in the supply chain, multiple other industries as

Chapter 1. Introduction page 1

information technology, industrial engineering, operations management, etc., are involved in keeping nowadays and future supply chains on the right track. In this publication we will focus on below trends:

Adversarial to collaborative relationships (ch.2)

Incremental change to a transformational agile/leagile strategy (ch.3)

Technology as an opportunity factor to the supply chain (ch.4)

Advantages and opportunities out of Industry 4.0 for the logistics industry (ch.5)

But let us first start with an explanation of what the purpose of a supply chain (SC) exactly is, and the wish list the stakeholders have to tasks, services and support activities of 3PL.

Chapter 1. Introduction page 2

2. The DNA of the supply chain

First of all let’s try to find a clear-cut definition of a supply chain. According to Taras, M. & Taras, J. (2013) a comprehensive description of a supply chain would be: the movement of materials as they flow from their source to the end customer. Supply Chain includes purchasing, manufacturing, warehousing, transportation, customer service, demand planning , supply planning and Supply Chain management. It is made up of the people, activities, information and resources involved in moving a product from its supplier to customer. We can conclude that a supply chain, given this sound definition, is not a chain of businesses, but a network of businesses and relationships.

Fig.1: Overview of an interrelated supply chain (source: Thakkar, M., 2013)

Fig.1 explains that a supply chain not only exists of moving a bit of raw material to a manufacturing plant, and in the end deliver some goods to consumers, but that it also has a lot to do with costs, funding, risks, controlling, quality assurance, planning and sourcing. Somewhere in this complex scheme there is, at various places, a transportation movement. So we can safely conclude that, in a total supply chain, logistics is one of many elements in the whole picture. To show you how complicated a supply chain can be, take a look at fig.2, where you find a survey of the main components needed to manufacture a Boeing 787 aircraft. For the “big” parts only Boeing needs 17 large companies, spread

Chapter 2. The DNA of the supply chain page 3

around the globe. Then we don’t even mention the hundreds of other subcontractors needed to make the aeroplane complete, reliable and safe.

Fig.2: Overview of an interrelated supply chain (source: Rossi, T. 2014)

To control these immense complicated operations and accompanying processes, there’s a lot of high level management necessary, so called supply chain management (SCM), being best defined as: the active streamlining of a business' supply-side activities to maximise customer value and strive for a competitive advantage in the marketplace. This quite commercial definition represents an effort to optimise the linkages among firms engaged in offering a good or service to end users, and to the articulation or coordination tasks required to manage these flows of goods and services as efficiently as possible. In addition to logistics, a number of functions must be carried out to bring goods from the sources to end consumers (Wood, F., Barone, A., Murphy, P. & Wardlow, D., 2002). This research team conceptualises four distinct flows in any supply chain between the resource base and the end customer.

Product-service flow represents the value-added nature of manufacturing in the supply chain


Market-accommodation flow recognises the time and place utility created by logistics and distribution functions in the supply chain.

Information flow is multi-directional, and is a coordinating mechanism in a supply chain where forecasts, inventory data, and transactional data are shared among supply chain participants.

Cash flow tends to move in a reverse direction from the product-service flow, though there may be exceptions to this backward flow in the case of marketing strategies involving discounts, coupons, or rebates.

2.1 The scope of logistics management

In the total SC logistics play an imperative, if not vital part. Cristini, M. (2016) argues that “logistics Management is the component of SCM that focuses on how and when to get raw materials, intermediate products, and finished goods from their respective origins to their destinations. Today, international trade is commonplace and increasing market share in emerging markets is highly desirable. It is therefore safe to say goods are rarely consumed where they are produced, and transportation services are the essential trait d’union between all of the elements of the Supply Chain.” Gudehus & Kotzab (2012) divide the logistics functions in the SC in three different basic categories:

basic operative logistic functions

transfer of goods

storekeeping

commissioning

additional services or added values

quality control

bottling and packaging

wrapping and unwrapping

building up and braking down load units

cutting and weighting

assembling

repair and maintenance

handling of returns and reclamation

handling of empties


executing administrative services

scheduling of external transports and freight

inventory management and stock controlling

customs clearance

invoicing

order scheduling

data processing

But the scope of services is expanding well beyond these basic operations. In the modern SC 3PLs are evolving rapidly from tactical providers of transportation and warehousing services to SC collaborative partners providing a wide range of additional products (Dittmann, J. & Vitasek, K., 2016):

Global services Information technology Special services Customs and freight

forwarding

Multi-shipper container consolidation

Global airfreight

Logistics operations globally.

E-commerce: EDI, web portals, and cloud-based systems

Control towers and visibility tools

Customer relationship management (CRM): real time visibility to customer data, shipments, and invoices

Transportation management system (TMS) to ensure loads and routes are optimised

Warehouse management system (WMS) including all of the latest WMS functionality to ensure optimal DC productivity

Connectivity with a wide range of applications inside the firm.

Talent acquisition and management from the manager to the hourly associate level

Omni-channel fulfilment: direct-to-store, direct-to-home, and final mile services

Support for new business development: technology and infrastructure to test new markets

Supply chain consulting, modelling, and analysis: o Predictive analytics o Network optimisation: supply

chain modelling and simulation

o Blokchain technologies

Basic inventory management, vendor-managed inventory, and physical inventory/cycle counting

Service parts logistics, including inventory management and replenishment for service parts along with the basic logistics services, and management of expedites, airfreight, and global services for service parts

Risk free innovation: advanced robotics, big data analytics, drone technology for yard management and warehouse inspections, Uberization to employ excess capacity, 3D printing for robotic parts and other accessories.


2.2 Strategic collaboration in the supply chain

Use of 3PLs is prevalent but not everyone uses them. Some companies are of the opinion that distribution centre management needs to be an internal core competency. Take e.g. a pharmaceutical company that wants to have a total control over the security of their shipments, and therefore keep transportation and warehousing in-house. However most companies selling or producing goods use a 3PL for at least some domestic functions and nearly all global operations. That’s because third party logistic providers are expected to generate a range of benefits for companies who engage them. By entering into a strategic collaboration with 3PLs, companies, the principals expect following benefits (Dittmann, J. & Vitasek, K., 2016): Reduce current cost Cost management is still the number one priority for shippers, and 3PLs often have scale advantage across their total operations. Reduce future cost Future cost reduction is possible by leveraging the 3PL’s expertise and technology.

The best 3PLs are using tools such as Lean and the latest technology to create continuous improvement

The best 3PLs have a state-of-the-art warehouse management system, transportation management system, and other system capabilities, all of which contribute to greater efficiency

The best 3PLs have state-of-the-art network optimization capabilities to select optimal warehouse locations and better manage omnichannel flows.

Improve customer satisfaction Accurate order fulfilment and on-time delivery. The best 3PLs have real-time tracking and event management systems to provide real-time alerts when delays occur and are able to respond to change more rapidly and efficiently. Provide global expertise This includes documentation, customs, freight forwarding services, duty optimization, global airfreight, etc.


Reduce risk This includes a range of risks like people risk (e.g. EEOC -Equal Employment Opportunity Commission-, workman’s compensations, union issues, high headcount), environmental risk, and supply chain performance risk. Enable start-up Logistics and the associated systems, along with labour acquisition, can involve significant capital requirements for a start-up operation. Even in an existing company, sufficient internal management resources may not be available to deploy this task. The 3PL can provide this support for a start-up operation. Companies expect their 3PL to take direction, respond rapidly, and generate ideas for improvement. They further expect the 3PL to become a strategic partner in efficiently growing the business. Aggressive continuous improvement is assumed.

Fig.3: Types of principal vs. 3PL relationships (source: Capgemini et al., 2016)

To grow from a tactical partner to a strategic SC partner 3PLs have quite a new ball game and it isn’t that easy for them to clinch the business deals. Sometimes they feel themselves being between a rock and a hard place. It is a complex and convoluted multi-stakeholders environment and there’s not


always much room to manoeuvre to make use of in negotiations. In fact, everything is moving much more quickly and much more competitively on the logistics market, forcing LSPs on the one hand to reduce cost to be competitive, but on the other hand LDPS have to extend their services and steadily need to come up with more innovative ideas. It has less to do with distribution and transportation, as in former days, but much more with business models turnaround and advanced management systems.

Fig.4: Typical stakeholders in the supply chain (source: Capgemini et al., 2016)

Chapter 2. The DNA of the supply chain page 9 Chapter 2. The DNA of the supply chain page 9

3. Unavoidable change management

There are perhaps three words that describe the nearby future supply chain and all 3PLs interactions, being agile, networked and digital. In the future 3OPL business will definitely be about digital presence in the supply chain. On a global level organisations are forced to rethink everything from product/service offerings and business models, to functional and process-level digitisation and agility. Wang, L. & Lenny Koh, S. Ed. (2010) argue that One of the biggest challenges facing supply chain stakeholders today is dealing with volatility in demand. Due to high demand volatility, there is no one strategy that can be adopted and this has led to the need for organisations to adopt a multiple chain strategy. To find out what typical kind of logistics strategies best suit a certain supply chain there's made a difference between supply characteristics and demand characteristics.

Supply characteristics: what is the necessary amount of time to replenish stock

Demand characteristics: how to predict the demand for goods and services. Achieving both objectives on a satisfactory basis means re-examining the responsiveness and agility of the 3PLs systems.

Fig.5: Strategies to come up to SC characteristics (source: Wang & Koh, 2016)

Chapter 3. Unavoidable change management page 10 Chapter 3. Unavoidable change management page 10

3.1 Lean strategy

The core idea is to maximize customer value while minimizing waste. Simply, lean means creating more value for customers with fewer resources. A lean organization understands customer value and focuses its key processes to continuously increase it. The ultimate goal is to provide perfect value to the customer through a perfect value creation process that has zero waste. To accomplish this, lean thinking changes the focus of management from optimizing separate technologies, assets, and vertical departments to optimizing the flow of products and services through entire value streams that flow horizontally across technologies, assets, and departments to customers. Eliminating waste along entire value streams, instead of at isolated points, creates processes that need less human effort, less space, less capital, and less time to make products and services at far less costs and with much fewer defects, compared with traditional business systems (Lean Enterprise Institute, 2016). The problem with lean thinking is that it originated already in the 1970s, whereas now we are in a different era of manufacturing, with lower demand, higher variety and higher uncertainty in the supply chain. Lean management works best in high volume, low variety and predictable environments. That's why the concept of agile strategy is introduced.

3.2 Agile strategy

Agile Supply Chain is built to be highly flexible for the purpose of being able to quickly adapt to changing situations. This methodology is considered important for organisations that want to be able to adapt to unanticipated external economic changes, such as economic swings, changes in technology, or changes to customer demand. Implementing an agile supply chain allows organisations to quickly adjust their sourcing, logistics, and sales (Lim, M., 2014).

Fig.6: Agile versus Lean Enterprise strategy (source: Naylor et al., 1999)

Chapter 3. Unavoidable change management page 11

To the supply chain and logistics world there are five dimensions of agility that play out. These dimensions are called key abilities, known with the acronym ADFAS.

- Alertness, quickly detect changes, opportunities, and threats

- Decisiveness, to make decisions resolutely using the available information

- Flexibility, modify organisation's range of tactics and operations to the

extent needed to implement its strategy

- Accessibility, quickly access relevant data

- Swiftness, implement decisions quickly.

3.3 Leagile strategy

The top-right quadrant in Fig.5 represents a situation where the lead times are long and demand is unpredictable. In such situation, the first priority is to decrease the lead times since the variability of demand is totally uncertain and beyond the control of the organisation. However, if lead time cannot be reduced, then the next option is to seek to create a hybrid lean/agile solution. That's where ‘Leagile Strategy’ comes from.

Fig.7: Balancing the lean, agile and leagile strategy (source: Wang, X., 2012)

Fig.7 shows the lean, agile and leagile strategies in the matrix of demand uncertainty vs. product variety. The vertical axis shows the production variety from low to high; the horizontal axis shows the demand uncertainty. Fig.7 illustrates that a leagile supply chain has the advantage of dealing with a volatile customer demand with a medium level of product variety. The leagile


strategy balances the lean and agile paradigm to meet unpredictable demands whilst reducing cost. If you compare for both lean, agile and leagile strategies the market winners and market qualifiers, next table exposes the differences.

Focus on Lean strategy Agile strategy Leagile strategy

Market winner Cost Service level Cost and service level

Market qualifiers Quality

Lead time

Service level

Quality

Lead time

Cost

Quality

Lead time

3.4 Kanban

According to ASMET (2014) Kanban can be defined as a set of logistical tools and processes allowing the just–in–time delivery of products to be optimised. Research on this method was begun in the late 1940s and implemented at Toyota plants in 1953. It consists in the selection of the assortment required by the recipient with regard to type and quantity for utilisation at a specific time. It is therefore characterised by delivery of components of the required quantity only, with no need for these to be stored at the premises of the recipient, as well as by a short completion time and a guarantee that specific customer needs will be satisfied owing to the predictable time and volume of delivery. Another advantage of the system, and perhaps the most important, is a rapid and simple response to a change in demand for the elements supplied. The general benefits of a Kanban system implementation are:

stock level reduction: products are supplied in modular quantities, adjusted to the current production volume

storage area reduction: elements are supplied directly to assembly lines, the delivery system requiring neither storage nor operations related to acceptance and release of goods from a warehouse

elimination of time for picking details from the warehouse: upon delivery, elements are transferred to assembly lines

reduction in costs related to purchasing: the drawing up of demands and orders, and monitoring of orders, with orders direct from a barcode scanner (on an assembly line) to the supplier

transfer of responsibility for promptness to the supplier: the supplier is responsible for delivering fasteners on time


reduction in the risk of error: there are fewer points at which such errors can be made

delivery process transparency: the ability to monitor deliveries using a computer system and to review a delivery history.

Kanban is most of the time associated with JIT systems, the Just-in-Time delivery methods, where Kanban/JIT can be implemented in whichever logistics strategy, being it lean, agile or leagile.

3.5 In conclusion

Which system is best? The answer to that question, of course, is that “it depends.” Lean is really a make-to-stock system, reacting to “demand signals” that typically come from forecasts or next tier distributors, rather than actual orders (e.g. Toyota). The demand horizons are typically shorter than non-Lean systems, but the overall supply chain still relies on finished goods inventory. Agile systems focus is on flexible, efficient response to unique customer demand. It uses a make-to-order process for manufacturing and order fulfilment. Instead of relying on speculative notions of what might be demanded, the quantity of demand, and the location of that demand, agility employs a “wait-and-see” approach to demand, not committing to products until demand becomes known. Agile systems are built around flexibility, emphasising flexible lot sizes, quick changeovers, and/or manufacturing products to specific customer orders. “Leagile” is the hybrid of lean and agile systems. However, this can take one of several approaches:

Using make-to-stock/lean strategies for high volume, stable demand products, and make-to-order/agile for everything else

Have flexible production and distribution capacity to meet surges in demand or unexpected requirements

Use of postponement strategies, where “platform” products are made to forecast, and then final assembly and configuration done upon final customer order. This is in fact what large automotive manufacturers as Toyota and BMW do.


Which strategy is the starting point (or perhaps several supply chains are operated with different strategies), accurately calculating and predicting the demand side of the supply chain, the distribution and transportation is crucial for the success of a strategy. There are a number of trends as mentioned in chapter 1 that come into the frame, to solve in an organisational way the interpretation and estimation of the demand side. We conclude this chapter with the message that only a tight relationship of all participants in the supply chain is making or breaking a chosen strategy. Most of the time the 3PLs will follow the lead of their suppliers, see for this chapter 2. In appendix A to this book you find a graph showing ways to optimise relationships between 3PLs and the rest of the stakeholders in the supply chain.


4. The technology leap

In the search for supply chain efficiency, of the year 2017 occupiers, retailers and 3PLs are still implementing rigorous cost-management programmes. However, in order to offer a service that is sufficiently broad and efficient they need to balance cost-management with investment objectives across various categories of spending, and also devote as much flexibility to these decisions as possible. One of these necessary investment objectives is the growing need for investments in new technology, investing in “big data” analysis tools within the next couple of years. Those tools seek to develop capabilities around the comprehensive handling and intelligent connection of data to increase planning and control outcomes. The new wave of decentralized automated network technologies are still in their infancy. Once matured these technologies will become the foundation for an end-to-end supply chain integration. Every stakeholder in the SC thus can make the best-in-class planning processes and lay a foundation for analytics, getting real-time updates, implementing measurements by key performance indicators, and ensure alignment between every participant's strategic principles in the SC.

4.1 Visibility in the supply chain

As stated in the introduction to this chapter, and explained by Gath (2016), logistics is essential to connect independent autonomous smart factories and to synchronise the production processes, the material flow, and the information flow even beyond company boundaries for the whole supply chain. This includes the transport of raw materials, components and data between companies as well as the delivery of final products and up-to-date information to end customers. Thus, logistics is one of the most important parts of Industry 4.0 solutions in order to achieve an inherent optimisation and coordination in flexible supply chains. The SC is seen as an end-to-end value-creating process where logistics is at the heart of it. Key drivers for focussing on improving visibility in the context of the complex global transport and logistics network is shown in fig.8, after a survey of Heaney (2013). The figure shows that operational pressures of growing global operations and complexity (45%), and the need to improve speed and accuracy (43%) are top of mind.

Chapter 4. The technology leap page 16

Fig.8: Top pressures to improve supply chain visibility (source: Heaney, 2013)

It is a clear fact that for the biggest part all top pressures in fig.8 can be resolved by technology. Technological innovations that help the LSP to enhance his visibility, and strengthen their position as an added-value SC participant in the total supply chain, are: 3D printing The aim of LSPs should be to develop digital business models where 3D printing is an integrated part of supply chain and warehousing services. One could imagine that spare parts manufacturing by the LSP will be seen as a advantage service with a clearly defined lead time. By reducing complexity and interfaces the LSPs will definitely add value to the end-to-end supply chain. Cloud computing Cloud computing is a type of computing that relies on sharing computing

resources rather than having local servers or personal devices to handle

applications. In cloud computing, the word cloud (also phrased as “the cloud”)

is used as a metaphor for “the Internet,” so the phrase cloud computing means

“a type of Internet-based computing,” where different services — such as

servers, storage and applications — are delivered to an organisation's

computers and devices through the Internet (Webopedia, 2016).

The logistics sector is perfectly suited using cloud solutions, as flows of goods run across companies and require continuous management and monitoring of supply chain processes. Nowadays the movements of products in the supply


chain are already accompanied by information flows, but there's no consistency in data and data handling. So one could argue that there's still no uninterrupted information flow in the SC.

Fig.9: Advantages of the use of cloud computing for the SC (AXIT, 2016)

At the moment companies are recognising the advantages of integrating cloud computing in supply chain processes. The availability of data access regardless of location, and easier cross-company cooperation (collaboration) have clearly gained importance in the SC. Also companies in the SC have recognised the pricing advantages related to cloud solutions. Variable and usage-based pricing clearly scores as opposed to traditional license-based price models. So integrating cloud based computing also is a frontrunner in reducing supply chain execution costs. Big data and predictive analysis A key driver that could also be seen as a part of cloud computing solutions is combining extended data sets, out of various sources, into one predictive tool. Logistics companies can significantly increase efficiency and productivity with the technologies that allow them to collect, process and measure big data. To be most accurate big data should be accessed and analysed in real time. Technology that can be helpful with this complex question can consist of all kinds of electronic devices that via cloud computing connect the different participants in the SC. Information out of the cloud serves as a kind of


dashboard system for controlling all SC processes. Predictive technology can certainly cut downtime in the SC, enhance the lead-time, and reduce costs. A short summary on opportunities big data has for the logistics sector:

Strategic sourcing: building supplier relationship by analysing organisational spend costs and acquiring commodities; supplier selection using supply market trends, benchmarks, prediction supply disruptions, etc.

Supply chain network design: amount of data is massive, often uncertain demand (demand patterns analysis)

Demand planning (predictive): via statistical time-series approach

Procurement: External operational and macro-economic data to manage supply risks and suppliers performance

Routing: sequence of operations, routing of goods, vehicles and crew (Bloemhof, 2016).

IoT, the Internet of Things We find a direct relationship between cloud computing, predictive and big data analyses and the Internet of Things (IoT). Although IoT is a very complex digital revolution, it is easily explained: it’s about connecting devices over the internet, letting them talk to us, applications, and each other. One of the biggest trends out of the IoT within supply chain management is asset tracking, which gives companies a way to totally overhaul their supply chain and logistics operations to make better decisions and save time and money. One of the frontrunners in this technology is the German logistics company DHL. Meola, A. (2016) gives some perfect examples of several new pieces of technology that are already changing how logistics companies work.

First is active and passive RFID (Radio-Frequency Identification) tags, which provide data on items to which they're attached. The main difference between active and passive RFID tags is that passive tags have an RFID antenna and a microchip for storing information, while active tags have their own battery power and can sometimes include additional sensors.

Internet-connected trackers use long-range networks or Low Power Wide Area Networks (LPWANs) to let companies track specific items throughout their delivery journeys. In the same vein, satellite trackers provide location data on an item almost anywhere on the planet, even in areas that do not have cellular coverage.


Bluetooth tags and beacons offer tracking data in smaller, more confined areas. Nowadays one finds utilisation of these tags in retail stores to monitor customer traffic and offer marketing messages to said customers.

Finally, near-field communication (NFC) tags, based on RFID standards, allow workers to use their mobile devices as readers for the NFC tags, which provides an advantage over RFID tags and specially designed RFID readers.

The one big future issue with the IoT is that it requires a new approach to analytics. Already now new analytic tools and algorithms are needed, but as data volumes almost double each year, the needs of the IoT may diverge further from traditional analytics. Big data out of the IoT only has value if these massive data sets can be translated into insights and information which can be converted into concrete actions that will transform businesses and enhance people’s lives.

4.2 What comes next

Next to all said technology innovations, developments and inventions of new, radical and disruptive technological novelties runs a swift pace. We will mention a few of these opportunities we see as emerging breakthrough technology. Nanotechnology Nanotechnology is the technology of the future, but the first generation of the technology is already here. It involves the manipulation of matter on atomic, molecular and supramolecular scales; thus bringing with it super-precision manufacturing. Currently applied mostly in space technology and biotechnology, it is going to play an indispensable role in every manufacturing industry in the future (Cerasis, 2016). Virtualisation Virtualisation of storage, desktops, applications, and networking will see continued acceptance and growth by both large and small businesses as virtualisation security improves. We will continue to see the virtualisation of processing power, allowing mobile devices to access supercomputer capabilities and apply it to processes such as purchasing and logistics.


5. Industry 4.0

One of the hottest buzzwords right now (especially in Germany) is Industry 4.0. Although the term is much used in marketing talks, where the picture about Industry 4.0 gets fuzzier every time, there is quite a true current benefit to Industry 4.0.

How did Industry 4.0 came into existence? It was around 2011 that the German chancellor Merkel was approached by the Forschungsunion Wirtschaft-Wissenschaft (freely translated as German research union for economy and science). They proposed to start a nationwide research program for industrial computing, to maintain the technological edge for the German industry. The name they gave the project was Industrial Revolution 4.0, or Industry 4.0, and so it was born.

Fig.10: The origin of Industry 4.0 (sources: NRW.Invest, 2016 & Solid State Technology, 2015, adapted by author)

Chapter 5. Industry 4.0 page 21

We also should bear in mind that although a lot out of Industry 4.0 is promised, until now there are no real breakthrough innovations to mention. And there were quite a few other “revolutions” that have all promised a lot about computers in industry.

Digital Manufacturing during the 1970s: Something with computers in manufacturing, but not much came out of it

Computer Integrated Manufacturing (CIM) during the 1990s: Also quite a disappointment compared to the promises

Digital Factory from 2000: Results of the year 2015 unclear

Factory 2.0 from 2005 onward: Initiative of the European Union, pretty much forgotten

Smart Factory from around 2007: Program of the University of Stuttgart, we think it sort of merged with Industry 4.0.

We should also keep in mind that it isn’t a new technology or a new business discipline, one could even consider it as a merger between industry and the current IoT (Internet of Things). In fact Industry 4.0 is a new approach to achieve results that weren’t possible a decade ago, but now can be brought into practice thanks to advancements in technology.

5.1 Accumulated multidisciplinary approach

General Electric (GE), one of the largest companies worldwide, uses another terminology to Industry 4.0 and calls it Industrial Internet. It is pretty much the same by combining big data analytics with the IoT and so produce extended opportunities for industries. According to GE they expect the concept to assist firms in oil and gas, mining, aviation and distribution and transporting services. Taleris (2014), a strategic alliance between GE and Accenture, even invented a formula for Industry 4.0/Industrial Internet. It starts at the bottom with big data, to which is added the IoT (equipment, products, factories, supply chains etc.), then throw in the technological expertise surrounding analytics, and finish it off with the context of the industries where the equipment is at the heart of the business. With this in the back of your mind it is clear that there’s an enormous coherence and interdependency between industry, manufacturing, internet and analytics. The one can’t exist without the other.


So in itself Industry 4.0 is not a key driver or giving impetus to the supply chain and it’s logistics part, but merely is a supportive factor. Let us now examine what innovative developments out of Industry 4.0 has in store for the logistics industry.

5.2 Innovative solutions for logistics

Autonomous robots Robots in manufacturing and logistics are evolving for even greater utility, becoming more autonomous, flexible, and cooperative. Autonomous robots have the ability to gain information about their environments, and work for an extended period of time without human intervention. Examples of these robots range from autonomous helicopters to robot vacuum cleaners. For logistics companies the objective in automating warehouses is controlling the three big costs of conventional human-staffed distribution centres, labour, time and real estate, to meet the demand of the high-cost, low-margin industry.

Fig.11: Example of autonomous robots in a groceries distribution centre (source: Whelan, R., 2016)


Augmented Reality Augmented reality, commonly abbreviated “AR,” is computer-generated content overlaid on a real world environment. AR hardware comes in many forms, including devices that you can carry, such as handheld displays, and devices you wear, such as headsets, and glasses. Common applications of AR technology include video games, television, personal navigation and the head up display in cars.

Fig.11: Head up display, projected on windshield (DeMattia, 2016)

Order picking is one of the most important tasks in the field of logistics. In order to avoid errors a worker should be provided with additional information for faster object location. This technology is now used to implement ‘vision picking’ in warehousing operations. In a test in a DHL warehouse in the Netherlands, staff was guided through the warehouse by graphics displayed on the smart glass to speed up the picking process and reduce errors. The displays showed the respective task information during the picking process, including aisle, product location and quantity. The pilot proved that augmented reality offers added value to logistics and resulted in a 25 percent efficiency increase during the picking process. Fitting AR into logistics has almost endless possibilities (Straight, B., 2014). One example of AR in commercial use may be in routing. Delivery vehicles with augmented windshields could display real-time traffic data, as well as other valuable information, such as cargo temperature and alerts, thereby minimising driver distraction. You could also think of drivers and staff at a parcel hub that are equipped with wearable devices to gain critical information on each parcel,


such as contents, weight and destination. This would improve loading processes and reduce handling damages. Augmented reality could improve maintenance and repair services offered by logistics providers if workers are equipped with smart glasses that blend in step-by-step instructions. These systems are currently in their infancy, but in the future, companies will make much broader use of augmented reality to improve decision making and work procedures. In the virtual world, operators will learn to interact with machines by clicking on a cyber-representation. They will also be able to change parameters and retrieve operational data and maintenance instructions.

Fig.12: Warehouse route, projected through smart glass vision picking (DHL, 2016a)

Driverless vehicles We already addressed autonomous robots. Something that does look a bit the same is the current driverless vehicles innovation out of Industry 4.0. A big part of transportation costs is the driver's salary. Throughout Europe, drivers are responsible for an estimated 45 percent of the total cost for motor freight carriers. 3rd party logistics providers may substantially reduce their overhead by using driverless vehicles for delivery. Furthermore, such hot topics in the trucking industry as the trucker shortage and the long withstanding capacity crunch may cease to exist with the availability of driverless, autonomous trucks (Cerasis, 2016).


Public perception will demand absolute reliability with this new technology. The technology will need to be proven safe before any driverless vehicle is allowed on the roads. Any operation involving driverless vehicles on public roads will need to be part of a much larger regulation system. Some people may consider an advantage of using driverless vehicles is that they are better drivers than people are, and thus the risk of accidents will be almost zero. All experiments until now with driverless (or autonomous driving) vehicles are conducted on short distances, and not by a long shot without accidents or near-accidents. So there's literally still a long way to go. Unmanned aerial vehicles (UAV) The logistics industry has been beholden to the traditional standards for transporting goods for an era, but, as they say, times are changing. The use of the stereotypical drone is most clearly going to impact air shipments. Amazon has already established Prime Air, it’s up and running, and first experimental attempts are made to deliver parcels in cities (“Last Mile” issue) that weigh less than 6.615 lbs (3 kg). This dramatically changes how the concept of small packages are delivered, moving small package delivery from trucks to air, while hastening the entire process.

Fig.13: Possible scenario of Last Mile delivery with UAVs (source: Microdrones, 2016)


According to Microdrones (2016) An airborne first and last-mile network could look as follows: Shipments that arrive from outside the city limits are sorted at existing facilities (hubs, warehouses, cross- docking sites), and shipments meeting certain criteria are separated automatically. In addition to size, weight, and time criticalness, these criteria could also include dynamic metrics (e.g., current road conditions, air pollution, and network load). Each UAV automatically picks up assigned shipment(s) from a conveyer belt and takes off. On its way back to the hub, the UAV could carry out point-to-point deliveries that lie on its route. Its routing decisions would always be dynamic, meaning an intelligent network would redistribute all resources in real-time, depending on the load and urgency of certain shipments. When an assignment for emergency transport comes in (e.g., time-critical delivery of blood from a blood bank), this is prioritised. End customers are equipped with an app that allows them to see nearby UAVs and order a dynamic pick-up – this system would use GPS data from the customer’s smartphone to meet him or her wherever they are, even if they move to a different location after placing the order. There would be the same flexibility for deliveries – as soon as the customer sends a notification, a UAV leaves the hub and makes delivery direct to the customer location or in case of returns, picks it up right from the first mile of the customer. DHL (2014) states that unmanned aerial vehicles will play a vital role in intralogistics. DHL states: Consider the automotive industry with its massive production sites, just-in-time processes, and mind-boggling cost of idle production lines: UAVs could support intra-plant transport as well as the supplier-to-plant emergency deliveries which are typically performed by helicopter today. Large-scale mining areas could also profit from the on-site express delivery of items that are crucial to maintaining operations (e.g., delivery of tools, machine parts, and lubricants). UAVs are easy to deploy and can follow pre-defined flight paths, so there is no requirement for specially trained personnel to launch and fly them. Another imaginable intralogistics application is the use of UAVs inside the warehouse environment for more flexible and accessible high-bay storage. As long as system operations are limited to private premises only, the organization has to deal with minimal regulatory boundaries and privacy


concerns (issues that can be so detrimental that they render other use cases unfeasible). The most significant limitation for intralogistics is probably the payload issue. Smaller, affordable UAVs are still disappointingly expensive, and large unmanned helicopters almost rival their manned counterparts in terms of cost, maintenance, and infrastructure requirements, eliminating their major advantages.

5.3 Less spectacular but important spin off

Not only spectacular Industry 4.0 areas as driverless vehicles and drones are important for the logistics industry, but also less outstanding and noticeable developments shape the supply chains’ future. Supercapacitor batteries One may not think battery technology has anything to do with supply chain or logistics (beyond the supply of the batteries themselves, of course) but one could be wrong. A few firms have led developments in battery tech that could greatly aid warehouse operations globally. Tesla have recently unveiled two batteries that can draw energy from either nearby power grids or from renewable energy sources, i.e. solar power. The benefits of these are twofold. Firstly, they allow for greater automation as the energy source will be local and affordable enough to offset the upfront costs of installing automated systems. Secondly, the fact that they can be linked up to renewable energy sources means these batteries allow for a great flexibility in the location of warehouses. They are, after all, not entirely dependent on local utility grids, so a further spread of warehouse facilities could be seen in the future. Scientists from the University of Central Florida (UCF) have created a supercapacitor battery prototype that works like new even after being recharged 30,000 times. The research could yield high-capacity, ultra-fast-charging batteries that last over 20 times longer than a conventional lithium-ion cell. Supercapacitors can be charged quickly because they store electricity statically on the surface of a material, rather than using chemical reactions like batteries (Dent, 2016).


Carbon composites Munich-based Cevotec GmbH develops and sells production systems and software for the automated production of complex carbon composites (carbon fibre reinforced plastics, short: CFRP). Components made from carbon fibre reinforced plastic (CFRP) are high in demand when products need to be light as well as strong. However, production is difficult and requires specialist expertise, and many CFRP components are still made by hand to this very day. Cevotec is now capable of building complex components in a fully automated process, so costs will dramatically decrease (High-Tech Gründerfonds, 2016). Logistics could benefit from the CFRP technology because it enables very light and strong crates, packing material, pallets that can hold much more weight, and high tensile and shear strength equipment. Artificial intelligence Although not strictly only a family member of Industry 4.0, in its context

Artificial Intelligence (AI) could be the next big thing in supply chain

management. Supply chains are increasingly digitised as we already concluded

with the Internet of Things and Big Data issue. The key implication of these

developments is that supply chains generate massive amounts of data. With

the deployment of AI technologies organisations are capable of organising and

analysing data. They will gain a far better understanding of all supply chains’

variables allowing them to anticipate future scenarios. You can think of the

predictive analyses tools we already discussed in this book.

Business will be better able to rapidly innovate by reducing time to market and

can evolve much faster into agile or leagile organisations, capable of foreseeing

and dealing with all kinds of uncertainties. It’s all about what in the market is a

buzzword: cognitive computing.

Examples of AI deployment are to be found in fully self-organised

manufacturing plants, thus automating the complete supply chain. In supplier

management and customer services AI makes it possible to automate work

knowledge and speak to customers in e.g. more than 30 languages. So it’s

possible to provide prompt and more efficient help to customers’ queries.

In warehouses and logistics AI will make it possible to handle domestic and

international movements of goods by enabling the simulation of logistic


scenarios on real-world infrastructures. It will provide a discrete time

simulation that ensures a correct conservative synchronisation with time model

adequacy, causality and reproducibility.

Of course there are numerous other developments and innovations that sprout

forth out of the Industry 4.0 domain, much more than we are ever capable of

to put in a small book like this. AI development will raise many social and

ethical questions. Think of the intention to conduct several different

experiments linking biology and technology together in a cybernetic way,

essentially ultimately combining humans and machines in a relatively

permanent merger. Perhaps from a scientific point of view the next major

breakthrough, but being ethically responsible is another question.


6. Concluding remarks

We mentioned it before, it is impossible given the size of this book to touch

upon all innovations and developments that are already influencing logistics in

the here and now, and will definitely alter the shape of the logistics landscape

tomorrow. To get a more comprehensive overview of current and future

trends, and their impact on logistics, see below DHL’s Trend Radar 2016.

Fig.14: The Logistics Trend Radar (source: DHL, 2016b)

All trends that we appraoched in this book lead to only one conclusion: we will have smart supply chains, with a fuelling of smart logistics. The smart supply chain will have a particular focus on new business models, enabling new collaboration possibilities waith tailormade solutions for individual customers. The digital transformation in the supply chain will lead to huge databases with now inconceivable, but then state-of-the-art analytical tools, making supply chains more efficient and transparent. The best-in-class companies will integrate both supplier and customers’ needs into all value-added, even value-creation activities.

Chapter 6. Concluding remarks page 31

Logistics processes will become smarter due to a new generation of global value chain networks, which applies to inbound logistics, intra-logistics and outbound logistics. Digitalisation, flexible logistics systems, autonomous technologies, interlinking of internal production, manufacturing and outsourcing, all these areas will be addressed to remain competitive in an ever-turbulent business environment. Investing in new trends at an early stage needs to be done by corporate venturing. That will be the only way to benefit in the earlier stages from exponential technologies and disruptive innovation. It would even make sense for the supply chain stakeholders to invest in start-ups, so that one has a front seat to early and convenient insight in the newest innovations and technologies. Thus, companies becoming learning organisations, being the key to sustainable organisational development and securing long-term competitiveness.

Chapter 6. Concluding remarks page 32

Reference list ASMET spółka z ograniczoną odpowiedzialnością sp.k. (2014). Kanban – usprawniaj z nami logistykę dostaw. Reguły, ASMET sp.k. AXIT GmbH. (n.d.). Cloud Computing: the importance of cloud computing for the digitalisation in logistics. Frankenthal, AXIT GmbH. Bloemhof, J. (2016). Big Data Analytics in Logistics. [PowerPoint Slides]. Wageningen University, Operations Research and Logistics. Capgemini Consulting, PennState, Penske & Korn Ferry. (2016). The state of logistics outsourcing. Special section: aligning 3PL relationships. 20th annual third-party logistics study 2016. Cerasis. (2016). The future of supply chain, logistics and manufacturing: how technology is transforming industries. Eagan, MN, Cerasis. Cristini, M. (2016). The Role of Transportation in Supply Chain Management. Retrieved on December 28, 2016 from: https://eyefreight.com/the-role-of-transportation-in-supply-chain-management/ DeMattia, N. (2016). How can BMW’s Head-Up Display support driving? [Online picture]. Retrieved on December 30, 2016 from: http://www.bmwblog.com/2016/02/20/video-can-bmws-head-display-support-driving/ Dent, S. (2016). New battery tech lasts for days, charges in seconds. Retrieved on December 31, 2016 from: https://www.engadget.com/2016/11/22/super-capacitor-battery-30000-cycles/ DHL. (2014). Unmanned aerial vehicles in logistics: A DHL perspective on implications and use cases for the logistics industry. Troisdorf, DHL Customer Solutions & Innovation. DHL. (2016a). DHL successfully tests Augmented Reality application in warehouse. [Online picture]. Retrieved on December 31, 2016 from:

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http://www.dpdhl.com/en/media_relations/press_releases/2015/dhl_successfully_tests_augmented_reality_application.html DHL. (2016b). Logistics Trend Radar: delivering insight today, creating value tomorrow! Troisdorf: DHL Customer Solutions & Innovation. Dittmann, J. & Vitasek, K., (2016). Selecting and managing a third party logistics provider: best practices. Innovations in supply chain series, University of Tennessee Haslam College of Business Supply Chain Management, Knoxville TN. Gath, M. (2016). Tagungsband 33. Deutscher Logistik-Kongress: den Wandel gestalten. Hamburg, DVV Media Group GmbH. Gudehus, T. & Kotzab, H. (2012). Comprehensive logistics (2nd and enlarged Ed). Berlin-Heidelberg: Springer Verlag. Heaney, B. (2013). Supply chain visibility: a critical strategy to optimise cost and service. Boston, Aberdeen Group, Inc. High-Tech Gründerfonds. (2016). Industry 4.0 for carbon composites — Cevotec raises €1.75m seed financing. Retrieved on December 31, 2016 from: http://high-tech-gruenderfonds.de/en/industry-4-0-for-carbon-composites-cevotec-raises-e1-75m-seed-financing/ Lean Enterprise Institute. (2016). What is Lean?. Retrieved on December 29, 2016 from: http://www.lean.org/WhatsLean/ Lim, M. (2014). Agile vs Lean Supply Chain Management. Retrieved on December, 25, 2016 from: http://blog.procurify.com/2014/04/22/agile-lean-supply-chain-management/ Meola, A. (2016). How IoT logistics will revolutionise supply chain management. Business Insider. Retrieved on December 29, 2016 from: http://www.businessinsider.com/internet-of-things-logistics-supply-chain-management-2016-10?international=true&r=US&IR=T


Microdrones. (2016). Microdrones in logistics [Online picture]. Retrieved on December 31, 2016 from: https://www.microdrones.com/en/applications/growth-markets/quadcopter-for-logistics/ Naylor, J., Naim, M. & Berry, D. (1999). Leagility: integrating the lean and agile manufacturing paradigms in the total supply chain. International Journal of Production Economics, 62(1/2), 107-118. NRW.Invest. (2016). Industry 4.0 in NRW. [Online picture]. Retrieved on December 30, 2016 from: https://www.nrwinvest.com/en/industries-nrw/industry-4-0/ Rossi, T. (2014). Gestione della produzione e logistica – modulo SC. [PowerPoint Slides]. Castellanza VA: Centro di ricercar sulla logistica C-LOG, Università Carlo Cattaneo – LIUC. Solid State Technology. (2015). Is the Semiconductor Industry Ready for Industry 4.0 and the IIoT? Retrieved on December 30, 2016 from: http://electroiq.com/petes-posts/2015/11/03/is-the-semiconductor-industry-ready-for-industry-4-0-and-the-iiot/ Straight, B. (2016). Why trucking needs to care about augmented reality. Retrieved on December 30, 2016 from: http://fleetowner.com/blog/why-trucking-needs-care-about-augmented-reality Taleris. (2014). Industrial internet insights report for 2015. Boston: General Electric Company, Dublin: Accenture. Taras, M. & Taras, J. (2013). Supply chain definition. Retrieved on December 28, 2016 from: http://www.supplychaindefinitions.com/ Thakkar, M. (2013). Supply chain risk management essentials. [PowerPoint Slides]. Mumbai, Cipla Ltd. Wang, L. & Lenny Koh, S. (Ed.) (2010). Enterprise networks and logistics for agile manufacturing. Heidelberg-New York: Springer Verlag.


Wang, X. (2012). The effect of visibility in the integration of lean and agile for supply chains. University of Warwick: Warwick Manufacturing Group, Coventry. Webopdia. (2016). Cloud Computing. Retrieved on December 29, 2016 from: http://www.webopedia.com/TERM/C/cloud_computing.html Whelan, R. (2016, September 20). Fully Autonomous Robots: The Warehouse Workers of the Near Future. Wall Street Journal. Wood, F., Barone, A., Murphy, P. & Wardlow, D. (2002). International logistics (2nd Ed). New York, Amacom Ltd. Additional illustrations not mentioned in reference list © Dreamstime.com


Appendix A Ways to optimise 3PL relationships (emphasis on operations)

(source: Capgemini Consulting et al, 2016)

Appendix A page 37

About the author

Jan van den Hogen MSc MRICS RVGME, is head of tenant relationship management logistics with one of the largest savings and investment bank worldwide, based in Germany. He is responsible for keeping in close contact with the logistics clients that lease buildings out of the bank’s logistics portfolio, fulfil their needs, wishes, and establish contacts between the clients and internal departments. Next to that he supports various departments within the bank inter alia property purchase, fund and asset management.

Van den Hogen has held a variety of leadership positions with real estate management and construction companies. Apart from that he is part-time professor and course leader Strategic Building Management at the Saxion University of Applied Sciences in Deventer (the Netherlands), and tutor with graduating students. Van den Hogen holds a post-academic degree in property and asset management, a Master Degree in International Real Estate Management, and is a management board member of a variety of professional institutions and networking platforms. His website with blogs, more books and interesting articles on the logistics field of work can be found at: http://www.logisticsexpert.org APA citing of this book:

Hogen, J. van den. (2017). Inquisitive Publication, No. 3: next generation logistics. Arnhem: AP Consult Press. Hogen, J. van den. (2017). Inquisitive Publication, No. 2: next generation logistics. [E-reader version]. Retrieved on month date, year from: http://xxx.xxx

INQUISITIVE … simple studies on key logistics concepts

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strategic collaboration in the supply chain

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