Operations Management and Logistics

Table of contents
1

Introduction, strategy and trends .......................................................................4

1.1

Introduction to logistics and supply chain management ......................................4

1.2

Operations strategy and competitiveness ..............................................................6

1.2.1 The importance of operations strategy ..................................................................6

1.2.2 Developing a business strategy .............................................................................6
1.2.3 Developing an operations strategy ........................................................................7
1.3

New trends .................................................................................................................9

1.3.1 Globalization ..........................................................................................................9

1.3.2 Individualisation: a changing demand..................................................................10
1.3.3 E-commerce ........................................................................................................10
1.3.4 Rationalisation of distribution and production ......................................................11
1.3.5 Technological evolutions and ICT........................................................................11
1.3.6 Collaboration along the supply chain ...................................................................11
1.3.7 Impact ..................................................................................................................12
1.4

Supply chain strategy of P&G ................................................................................13

Sourcing and facility location ...........................................................................15

2.1

Sourcing ...................................................................................................................15

2.2

Facility location........................................................................................................17

2.3

Global footprint optimisation/rationalisation ........................................................20

2.4

Introduction to capacity planning and location ....................................................22

Manufacturing.....................................................................................................25
3.1

Lean systems and just-in-time ...............................................................................25

3.1.1 The Philosophy of JIT ..........................................................................................25

3.1.2 Elements of JIT ....................................................................................................26
3.1.3 Just-in-time manufacturing ..................................................................................26
3.1.4 Total Quality Management...................................................................................27
3.1.5 Respect for people...............................................................................................28
3.1.6 Benefits of JIT ......................................................................................................28
3.1.7 Implementing JIT .................................................................................................28
3.2

Sales and operations planning...............................................................................29

3.2.1 Types of aggregate plans ....................................................................................30

3.2.2 Aggregate planning options .................................................................................30
3.2.3 Evaluating the current situation ...........................................................................31
3.2.4 Developing the Aggregate Plan ...........................................................................31
3.3

Master scheduling and rough-cut capacity planning...........................................32

2

3.3.1 Master production scheduling ..............................................................................32

3.3.2 Developing a master production schedule...........................................................33

3.4

Material requirements planning .............................................................................34

3.5

Volvo Group Truck Operations ..............................................................................36

Maritime Transport Systems .............................................................................40

4.1

Container freight ......................................................................................................40

4.2

Vessels .....................................................................................................................41

4.3

Terminals ..................................................................................................................42

4.4

Brussels Airport: strategic development ..............................................................42

Hinterland transport...........................................................................................45
5.1

The supply side........................................................................................................45

5.2

Intermodal policies ..................................................................................................46

5.3

The demand side .....................................................................................................47

5.4

Modal shift?..............................................................................................................48

5.5

The future? ...............................................................................................................49

5.6

European Gateway Service.....................................................................................50

Warehousing, DCs and Crossdocking ............................................................51

6.1

Introduction ..............................................................................................................51

6.2

Distribution networks ..............................................................................................52

6.3

Warehousing ............................................................................................................56

6.4

Sustainable logistics at Colruyt .............................................................................57

Urban distribution and e-commerce.................................................................60

7.1

Introduction: the supply chain ...............................................................................60

7.2

Stakeholders ............................................................................................................60

7.3

Resulting inefficiencies...........................................................................................62

7.4

Solutions ..................................................................................................................63

7.5

Bubble Post: eco-deliveries....................................................................................65

Sustainable logistics..........................................................................................67

1 Introduction, strategy and trends

-

Lecture (10/02): Introduction, strategy and trends (Cathy Macharis)

Guest lecture (10/02): Lieven Deketele from P&G about supply chain strategy

Additional course material:

o

Macharis: 1.1 Logistics and supply chain management

Chapter 2: Operations Strategy and Competitiveness

1.1
-

Introduction to logistics and supply chain management

Definition of logistics management: The process of planning, implementing, and
controlling the efficient, cost-effective flow and storage of raw materials, in-process
inventory, finished goods, and related information flow from point-of-origin to pointof-consumption for the purpose of conforming to customer requirements
o

Originally a military concept: efficiently getting people and materials to a certain point

60s: companies began to see the importance: professionalization of peripheral

operative functions, such as placing, pacing, picking/packing

70s: start coordination between these tasks, integrated in the logistic organization

80s: focus shift to end consumer: Flow logistics: the art and science of designing,
programming and operating flow systems: speedy, direct, smooth, loss- and
congestion free movement of objects to create value for customers

The supply chain and logistics chain

Identifying the flows

!

Between companies: ordering-receiving-paying the goods

Whole supply chain: from raw materials to final use

Goods go downstream and information goes upstream

Supplier > manufacturer > distributor > end user

Definition of supply chain management: a core enterprise process that encompasses all
the activities, that is, all the physical, informational and financial flows, required to
produce and deliver goods and services

Inbound vs. outbound

!

Inbound or inwards logistics: the purchase department of an enterprise organises

the purchase and delivery of goods from direct suppliers

Outbound or outwards logistics: End products that are moved out to the
customers through physical distribution

Ideally the information flow should be shared with all the actors, if not, we deal whit
what is known as the bullwhip effect. Passing on the point-of-sales information to the
supply chain members can avoid this effect.

1.2

Operations strategy and competitiveness

1.2.1
-

The importance of operations strategy

Why is strategy important?

o

Effectiveness: logistics in the military way

Efficiency: effectiveness at the lowest cost

Operational strategy: you may be running fast but in the wrong direction: strategy is
needed to give direction to the whole enterprise (it is of no use to very efficiently
perform the wrong task)

1.2.2
-

Developing a business strategy

Three factors critical to the development of the companys long-range plan

o

Mission: a statement of defining what business an organization is in, who its

customers are and how its core beliefs shape its business (defines the company)

Environmental scanning: monitoring the external environment for changes and trends
to determine business opportunities and threats.

Core competencies: the unique strengths of a business

Alignment is needed between business strategy, supply chain strategy, purchasing

strategy and manufacturing strategy

1.2.3
-

Developing an operations strategy

Operations strategy focuses on specific capabilities of the

operations that give the company a competitive edge

What are the common competitive priorities required to

support the business strategy?
o

Cost, Quality, Innovation, Time and Flexibility

Some choices have to be made concerning

!

Structure: operations decisions related to the design

of the production process, such as facilities,
technology and flow of goods and services

Infrastructure: operating decisions related to the

planning and control systems of the operation, such
as organization of operations, skills and pay for
workers, and quality measures

Competing based on cost (low cost but still high quality)

o

= Offering a product at a low price relative to the prices of competing products

Specific characteristics of the operations function of a company competing on cost:

Eliminate wasted labour, materials, and facilities

Emphasize efficient processes and high productivity

Often limit the product range and offer little customization

May invest in automation to increase productivity

Within strategic cost management focus on:

!

Standardisation of products and processes

Supplier and production quality

Inventory control

Example: Colruyt: Also cost-strategy

!

Avoid much handling

Limited infrastructure to reduce costs

1 DC: trade off between inventory and transportation cost: because every cm in
the truck is utilized, overall cost is lower even though transportation cost went up

Competing on quality
o

When companies focus on quality as a competitive priority, they are focusing on the
dimensions of quality that are considered important by their customers.

Quality as a competitive priority has two dimensions:

!

High performance design: superior features, high durability, and excellent

customer service, quality of raw materials

Product and service consistency: error free delivery and close tolerances: focus
on excellence and quality control along the whole supply chain

Example of Quick: you would not think of them as competing on quality but
every product they deliver at every location is made in the same way

!
o

A company needs to implement quality in every area of the organization

!

Process quality

Product design quality

Competing on time (link with innovation)

o

Making time a competitive priority means competing based on time-related issues:

!

Rapid delivery: how quickly an order is received after the order is placed

On-time delivery: how often deliveries are made on-time

!
o

If the product is fragile or perishable, also focus on transportation and storage

Ability to deliver exactly when expected: not too early or too late

Disadvantage of too early: JIT firms try to avoid clutter of excess inventory

Speed: time needed to take an idea to the marketplace

Operations function of competing on time

!

Critically analyze the system and combine or eliminate processes to save time

Technology to speed up process and flexible workforce

Competing on flexibility
o

A companys environment changes rapidly, the ability to readily accommodate to

these changes can be a winning strategy

Two dimensions of flexibility

!

Product flexibility

Easily switch the production process from one item to another (substitution)

Easily customize output to meet the specific requirements of a customer

Volume flexibility: rapidly increase or decrease the amount of product being

produces to match demand

Competing on innovation
o

Cutting-edge, must have

Time to market and time to volume

Example Zara: interesting case from a logistics point of view: they closely follow
current designers, production sites are close by and they are able to make 20
collections a year (" 4)

You have to choose between the priorities: its a trade off, when you dedicate more
resources to one priority, fewer are left for others

Order qualifiers and order winners

o

Order qualifiers: competitive priorities that a product must meet to even be

considered for purchase, generally represented by features shared by all competitors
in a given market niche

Order winners: competitive priorities that distinguish the firms offerings from
competitors and ultimately win the customers order

o
1.3

New trends

1.3.1
-

Order winners and qualifiers change over time: often order winners become qualifiers

Globalization

Drivers of globalization
o

Integration: regulatory chains, harmonization of regulatory regimes, trade

agreements

Production: supply chains, off shoring, global production networks,

Transportation; transport chains, containerization, transborder transportation

Transaction: information chains (ICT), capital for investments, credit for

transactions

26th of April 1956: first containership Ideal X sets sail

o

58 boxes on one ship

Standardized: 20-40 feet

After that, ships became larger and larger

(from 3400 TEU in 1982 to 18 000 TEU in 2012)

o
-

At the same time, cost per unit dropped dramatically (virtuous circle)

New trend: reshoring (" off shoring)

o

Bringing factories back from Asia to closer by home: shorten the supply chain

1.3.2
-

Individualisation: a changing demand

Before: no customization, 1 standard model

" Now: a lot of choice due to flexibility at the end of the supply chain

Operating strategies:

Make-to-stock: traditional operating strategy: very efficient when demand is stable

Assemble-to-order: wait for an order before completing the product

Make-to-order: wait for the order before assembling the product (e.g. car industry)

Purchase-to-order: only buy materials when orders comes in (e.g. building industry)

Virtual factory: when a project comes in start to look for partners (e.g. Cisco)
!

1.3.3

If time is important, dont choose purchase-to-order or virtual factory

E-commerce

Consumers were relatively late to adopt e-commerce in Be + retailers waited too long

Problems with e-commerce

Last miles of delivery account for 20-60% of the distribution costs

Often people are not at home during delivery

Expensive free shipping

New developments
o

Drones (not very probable)

Lockers where products are delivered (e.g. B-post)

More and more people live alone: leads to more product deliveries and packaging

Direct delivery from the manufacturer to the customer?

10

1.3.4
-

Rationalisation of distribution and production

Early 90s: from 32 countries and regional DCs

" To 1 central DC for the whole of EMEA (=Europe, Middle East and Africa)

Centralised versus decentralised: trade-off between cost of warehousing and cost of

distribution (Nike opted for centralisation)

1.3.5
-

Technological evolutions and ICT

The possibilities of the transponder technology (e.g. Smart Tag, RFID)

o

Automatic tracking and tracing

Container and pallet control

Automatic checkout

=> Extra information about the supply chain

-

Dematerialization (everything becomes smaller and smaller)

o

= Reduction of material use per unit quality of life

Miniaturization, lightweighting

Shifts towards services

Digitisation of physical products: entertainment, news and educational content

Major improvement in material efficiency

o

Increase modularisation and remanufacturing: more closed loop supply chains?

Closed loop: what can we recycle? How will we reuse parts of the product?

3D printing?

1.3.6
-

Collaboration along the supply chain

Use your capacity by bundling forces

o

25% of a truck is empty when transporting products (considering space and weight)

Example: by collaborating and using one city distribution centre the amount of
transportation costs and flows can be decreased

(See slides for additional figures and graphs)

11

1.3.7
-

Impact

Results of those trends:

o

All have an impact on the determinants

All this determine the indicators

A lot of transportation is outsourced (71,7%)

Impact of climate change: risk of disruption (a disconnection on the supply chain)

Conclusions:
o

Supply chain strategy should be aligned with the business strategy

Competitive priorities: cost/quality/innovation (time and flexibility)

Strong growth of freight transport because of trends in supply chain management

Globalization

Interdependency of the economy

Rationalization and centralization of distribution networks

Changes in consumption patterns

Impact on climate and other external costs

12

1.4
-

Supply chain strategy of P&G

Organizational structure
o

P&G global business units are grouped into four industry based sectors
!

Baby, feminine and family care

Health and grooming

Fabric and home care

Beauty, hair and personal care

The businesses in each sector are focused on common consumer benefits, share
common technologies, and face common competitors

Although the four sectors each account for approximately 25%, in tons of products
shipped, Fabric and Home care account for 71%

Focus P&G on three strategies to be a company of leading brands: translated into

specific key performance indicators (KPI)
o

Service: order to delivery lead-time, on time vs. planned, order completeness (case
fill rate, (on shelf) availability)

Cost: transport, inventory and handling cost

Sustainability: environmental, social and economic

Important to be clear about the business you are in

o

o
-

Be clear about type of products

!

Not in business of very long-lasting products

Not in business of very short-lasting products

Make to stock and make to order

!

Estimate how much would be sold (higher inventory costs/lower lost opportunities)

Big customers can ask distributors some exception (e.g., personalized displays)

Inventory matters! Try to avoid waste in the supply chain

Dont assume the world is constant when setting up the supply chain
o

How far on $500 worth of Diesel: from 3009 miles in 1999 to 739 miles in 2006

Factory is usually designed to last 15 years!

Location choices
o

Case 1: From regional DC to retail DC

!

Try to reduce outbound system

Be as close as possible to the distributor

Choose place with easy transportation choices

Where would you put P&G regional DC in France? Where most people live and
most business is done (Paris and Lyon)
13

Case 2: production choices

!

Eliminate consumer invisible cost and eliminate non-value added cost

3 important factors when setting up a supply chain: trade-off between inventory,

capacity and time

Before EU internal market (1992)

Trade barriers: national technical regulations are very different, requiring

companies to know how individual national legislation and physically adapt
products for each member states market

Borders and customs process: crossing borders can lead to almost twice as
much travel time than same distance without borders

After 1992: from multiple plants to one per product

Centralized AND specialized

Downside: longer distances

Transport and inventory cost

Inventory and handling costs went down after 1992 and inventory pooling
effects handling economy of scale

Longer distance but lower cost/km, more internally filled loads and economies
of scale for raw material/inbound and purchasing

Case 3: finished product transport choices

!

Eliminate consumer invisible cost

Eliminate non-value added cost

Eliminate internal and external cost

Inbound vs. outbound shipments

o

Outbound cost is higher than inbound costs: more retailers than DCs and DCs
deliver what is needed, which is not always what is most efficient

o
-

1/3 of the shipments are inbound but these are responsible for more 2/3 of the ton/km

What can you do to reduce the internal and external costs?

o

Make products more concentrated

Move to more local manufacturing (more plants)

Load trucks as fully as legally possible (weight " space)

Use more sustainable transport modes than road

=> P&G: project Tina: rail transport from 10% to 30%

!

Less CO2 emitted

Less trucks on the road

More tonne/km (because trucks need to drive to the train)

14

2 Sourcing and facility location

-

Lecture 17/02: Sourcing and facility location (Tom Vermeiren)

Lecture 24/02: Introduction to capacity planning and location ( Cathy Macharis)

Additional course material:

o

2.1
-

Chapter 9: Capacity planning and facility location

Sourcing

Supply chain management (SCM) basics

o

Remote production > increased need for integration > supply chain management

SCM is born out of logistics management but has grown beyond logistics.

Competition between supply chain models: The activities along the supply chain form
together a system that is hard to duplicate.

Source/Make/Deliver/(Return) = execution activities, next to planning (demand

against supply) and enabling activities (compliance, KPIs, ...)

15

Sourcing: acquiring externally produced goods/services in order to serve customer orders

or future demand (Sourcing excellence is a cost/quality trade-off): 5 steps in sourcing:
1. Demand and supply analysis (needs): segmentation of sourcing needs

2. Sourcing strategy

Sole supplier only delivers goods to you "single supplier is your only supplier

Timing: with stock you can outsource more globally, JIT is very local

3. Supply selection

Test suppliers: how green? How is their balance sheet? Analyse sample

Sourcing partnership can be ordered in degree of synchronization:

transactional => cooperative => coordinated => synchronised

Depending on
-

Strategic importance (high " low)

Anticipated length of the relationship (long " short)

Number of potential partners (few" many)

Risk potential (high " low)

Contribution to branding (high " low)

4. Contract implementation
5. Supplier management and evaluation

16

There are different decision levels

o

Business strategy: decisions made in the boardroom for the organization to the right
direction (long term: 1-2 years) (e.g.: capacity planning, supply chain (re-)design,
facility location, facility scaling)

Business tactics: decisions made by the management to do the right things

concerning the functions (e.g.: buyer/supplier relationship management, contract
management, bidding and selection, supplier selection and evaluation, collaborative
planning/forecasting)

Business processes/operations: decisions made on the force for the roles to do the
things right (e.g.: procurement, allocation capacity, production plan, inventory
management/replenishment, information sharing, delivery

Integrated supply chain strategy: a supply chain strategy is part of the business strategy
and is composed of different sub-strategies concerning:
o

Customer service: service level: delivery speed, accuracy, flexibility

Sales channels: how will customers order and receive your goods and services

Value system: which activities are executed by your own organization?, which by your
partner?

Operating model: operating model to match working capital and cost objectives: make
to stock, make to order, configure to order

o
2.2
-

Footprint: where will you locate your activities and what is their scope of action?
Facility location

Facility location is the process of identifying the best geographic location for a service or
production facility

Comparative advantage
o

Before the industrial age, regions with much labour and land at their disposals had a
competitive advantage over other regions (agricultural economy)

During the industrial age labour and capital were important competitive advantages

Now, in the smart economy, know how is the most valued advantage

Future: robot economy?

17

Where should you locate the plant?

o

Close to the raw materials if it is raw material driven

!

Access to resources and low mobility, more expensive to move RM than FG

E.g.: cement, petrochemicals, minerals, oil and gas, timber and word

Close to the customer of it is customer driven

!

Strong interaction with the market and low mobility

E.g.: perishables

In between (flexible) the customer and the raw materials: seldom a good idea
!

Cost & quality and high mobility

E.g. iron and steel scrap processing, pharma, R&D, chemicals

Maybe it is better not to think in sectors but in project

!

Is it logistic intensive?,

Is it labour intensive? (E.g. automotive) => locate close to sources of labour,

Is it know-how intensive? (E.g. pharma),

Is it site intensive?,

Mobility trade off

o

On the one hand: competitive ability of the country/region

!

Comparative advantage

Scale economies/clustering

On the other hand: communication/mobility

!

Transport (in/out logistics)

Co-ordination costs

Government barriers (quotas, repatriation of capital, import/export duties)

18

Five steps when deciding where to build (in order of importance)

o

Market prospects

Capacity analysis

What to build?

When to build?

Where to build?

Six steps of facility location:

1. Project definition: define the basic requirements of the project and detect its critical
location factors
!

Capital investment: size of the site, height of the building, investment cost,
planning process

Operations: labour (how much manpower needed), logistics, utilities

Checking location requirements using a facility location questionnaire (importance

of political climate, proximity to university, absence of competitors)

Presence of corporate tax, non-tax incentives, labour environment, industrial sites

Note: non-tax incentives usually exist to undo another disadvantage

2. Search area: delineate the geographic area matching the critical requirements
!

De-selection: where definitely not? Where not?

Sequential force ranking of the short list

Balanced location assessment

High level: long list: many options + country/region level

Detailed analysis: reduced number of options + region/sites

Due diligence: final + back up sites

19

3. Cost of doing business: select locations which generate adequate ROI

!

Match demand with supply

Project investment needs " local investment conditions

Project operating needs " local unit cost structures

Project financing needs " local financing support/risk

Cost economics: will the revenues be higher than the costs? (Cash flow table)

How long will there be a cost advantage?

ROI comparison (NPV analysis, IRR)

4. Ease of doing business: Intangibles of the location: assess the non-monetary

factors affecting the environment in which the company will operate
!

E.g. HR availability, HR mobility, roads, ports, power, schools, housing

Statistics comparative analysis and qualitative team judgement to give weight to

the different intangibles

5. Evaluate the options: select the preferred (and back-up) location

!

Decision process: compromise between economics (step 3) and quality (step4)

Make a cost/quality map (=aggregate analysis)

Make a list of the strengths and weaknesses of the location

6. Implementation: select site, negotiations, permits

2.3
-

Global footprint optimisation/rationalisation

Locations models
o

Global model: production for the entire global market takes place in one location:
maximal economy of scale, very specialized skills, very capital intensive

Regional model: production is primarily located in the region where the product is
sold: local product requirement, delivery times, high logistic costs, duties,

Country model: production takes place locally: high transportation costs, perishable,
import restrictions,

Composite strategies

20

Near sourcing in the apparel (textile) industry

o

Re-shoring to the U.S. is attractive due to lower freight costs, faster speed to market,
improved customer service and fewer supply-chain disruptions.

Predominant factors affecting sourcing decisions in textiles remain wage rates, the
availability of raw materials, and low manufacturing overhead, + taxes. For these
reasons China is likely to maintain its position as the largest source of production in
many industries.

Where to close facilities?

o

Market prospects and capacity analysis

Rationalise

First make a long list, use expert

judgement to come to a short list

Relocation costs
o

FAI (fixed asset investment) disposal

costs

Return to marketable conditions for owned assets,

Provisions for contingencies (site contamination, ...),

Continued maintenance, heating, ...

Repayment of grants & incentives (employment, training, tax, ...)

Demolition costs,

Disruption costs
!

Labor redundancy costs

Termination of rent/lease contracts

Potential loss of local customer base,

Damage to brand and market position (goodwill)

Loss of knowledge and inability to transfer experience curve

Physical move cost of moveable assets

Communication costs

External communication (customers, suppliers, society,...)

Internal communication

Associated risks of consolidated operations

!

Contingency MFG capacity loss

Impact on labor relations and regulations,

Increased dependency on single local labor drawing area,

Increased supply chain costs and lead times

21

2.4
-

Introduction to capacity planning and location

Decision support tools for facility location (see slides and chapter 9 for examples)
o

Factor rating model: evaluate alternative locations with selected factors

Load-distance model: evaluate alternative locations based on distance

Centre of gravity approach: larger penalty on long distances

Break-even analysis: compute the break-even point for different locations

Transportation method: evaluate the cost impact of adding potential location sites to
the network of existing facilities

Capacity planning
o

Capacity is the maximum output rate of a production or service facility

Capacity planning is the process of establishing the available capacity:

o
-

Strategic issues: capital expenditures in facility & equipment

Tactical issues: workforce & inventory levels, & day-to-day use of equipment

Measuring capacity: e.g.: Car manufacturers: labour hours => cars per shift

Available capacity
o

Design capacity: maximum output rate under ideal/theoretic conditions

Effective capacity: maximum output rate under normal/realistic conditions

Capacity utilization: measures how much of the available capacity is actually being
used = (actual output rate/capacity) x 100%
!

Measures effectiveness uUse either effective or design capacity in denominator)

Capacity considerations
o

Economies of Scale:
!

Where the cost per unit of output drops as volume of output increases

Spread the fixed costs of buildings & equipment over multiple units, allow bulk
purchasing & handling of material

Diseconomies of Scale:
!

Where the cost per unit rises as volume increases

Often caused by congestion (overwhelming the process with too much WIP)

Focused factories: Small, specialized facilities with limited objectives (can respond
quickly to change in demand)

Plant within a plant (PWP): Segmenting larger operations into smaller operating units
with focused objectives to benefit from the same advantages as focused factories

Subcontractor networks: outsource non-core items to free up capacity for core items

Capacity cushions: plan to underutilize capacity to provide flexibility

22

Capacity planning decisions

o

Step 1: Identify capacity requirements

!

Forecasting capacity using qualitative forecasting methods

Capacity cushions: additional capacity added to regular capacity requirements to

provide greater flexibility

Strategic implications: the position of a company in the market relative to its

competitors is very much determined by its capacity

o
-

Step 2: Develop capacity alternatives

!

Do nothing;

Expand large now;

Expand small now, with option to add later;

Step 3: Evaluate capacity alternatives (for example with decision trees)

Decision trees:
o

A modelling tool for evaluating sequential decisions

Identify the alternatives at each point in time (decision points), estimate probable
consequences of each decision (chance events) & the ultimate outcomes (profit/loss)

Build from the present to the future: Distinguish between decisions (under your
control) & chance events (out of your control, but can be estimated)

Solve from the future to the present: Generate an expected value for each decision
point based on probable outcomes of subsequent events

23

At decision point 2, choose to expand to maximize profits

Calculate expected value (EV) of small expansion:

EVsmall = 0.30($80,000) + 0.70($200,000) = $164,000

Calculate expected value of large expansion:

EVlarge = 0.30($50,000) + 0.70($300,000) = $225,000

At decision point 1, compare alternatives & choose the large expansion to

maximize the expected profit: $225,000 > $164,000

Choose large expansion despite the fact that there is a 30% chance its the worst
decision

!
-

Take the calculated risk!

Conclusions
o

Capacity planning and location analysis go often hand in hand

Methods:
!

Decision tree

Factor rating method

Load distance model

Centre of Gravity model

24

3 Manufacturing
-

Lecture 24/02: Lean systems: JIT (Cathy Macharis)

Lecture 03/03: Sales and operations planning (Cathy Macharis)

Guest lecture 24/02: Volvo group: truck operations

Support material
o

Chapter 7: Just-In-Time and Lean Systems

Chapter 13: Aggregate planning

Supplement D: Master scheduling and rough-cut capacity planning

Chapter 14: Resource planning

3.1

Lean systems and just-in-time

3.1.1
-

The Philosophy of JIT

Just-in-time philosophy
o

Getting the right quantity of goods at the right place at the right time

At the right time = not too late & not too early!

Founded on the concept of eliminating waste (=anything that doesnt add value)

Lean systems: broad view of JIT: philosophy that encompasses entire organization

Beliefs that help define JIT philosophy

o

Eliminate waste (including material, energy, time and space)

A broad view of operations: tasks and procedures are important only if they meet the
companys overall goals (no this is not my job anymore)

Simplicity: the simpler the solution, the better

Continuous improvement: a philosophy of never-ending improvement (" 1 time

radical change) => plan-do-study-act chart

Flexibility: a company can quickly adapt to the changing needs of its customers

Visibility: problems must be visible to be identified and solved

25

3.1.2
-

Elements of JIT

Three elements of JIT

o

JIT manufacturing: element of JIT that focuses on the production system to achieve
value-added manufacturing

Total quality management: an integrated effort designed to improve quality

performance at every level of the organization
!

Quality at the source: uncovering the root causes of a quality problem

Respect for people: an element of JIT that consider human resources as an essential
part of the JIT philosophy

3.1.3
-

Just-in-time manufacturing

The Pull system (" traditional push)

o

Communication starts either with the last workstation in the production line or the
customer and works backward through the system

o
-

Kanban production
o

If products are not requested, they are not produced => no excess inventory

Kanban card: specifies the exact quantify of product that needs to be produced
!

Production card: a kanban card that authorizes production of material

Withdrawal card: a kanban card that authorizes withdrawal of material

Very visual: kanban cards and containers are placed in clearly visible areas

Variations of kanban production: does not have to be a card

!

Kanban square: empty square indicates that more goods need to be produced

Signal kanban like a flag to indicate it is time for production

Small lot sizes and quick setups

o

Small-lot production: the ability to produce small quantities of products

Single setups: setup times in single digits of minutes

!

Separate setup into two components:

Internal vs. external setups: stop production or setup while still running

Internal setups = lost production time = inefficient = waste

Uniform plant loading

o

A constant production plan for a facility with a given planning horizon

Same mix of products is made every day in small quantities

26

Flexible resources
o

General purpose equipment capable of performing a number of different functions

Multifunction workers capable of performing more than one job: cross-trained to

perform several different duties

Efficient facility layouts

o

Workstations in close physical proximity to reduce transport and movement

Streamlined flow of material

Often use:
!

Cell manufacturing: placement of dissimilar machines and equipment together to

produce a family of products with similar processing requirements

U-shaped lines: allows material handler to quickly drop off materials and pick up
finished works

3.1.4
-

Total Quality Management

Strategy for quality improvement

o

Define quality as seen by the customer

Translate customer needs into measurable terms

Measure quality on an ongoing basis

Set improvement targets and deadlines

Develop a systematic method for improvement

Quality in JIT is centred on building quality into the process

o

Quality at the source: root cause of quality problems needs to be identified

!

Quality problems can come from many sources

Product design (misunderstanding customer needs)

Process design (fault in the design of the production process)

Suppliers

Jidoka: authority given to workers to stop the production line if a quality problem is
detected (every-one can stop the line)

Poka-yoke: foolproof devices or mechanisms that prevent defects from occuring

Preventive maintenance: avoid unexpected machine stoppages

Work environment
!

Order and simplicity

Everyone is responsible for the material so no one can blame anyone else

27

3.1.5
-

Respect for people

Genuine and meaningful respect for employees must exist for a company to get the best
of its workers
o

Use of bottom-round management: consensus management by teams

Quality circles: small teams of employees that volunteer to solve quality problems

Lifetime employment

Role of management: create the cultural change necessary for JIT to succeed

Supplier relationship: focus on building long-term supplier relationships

3.1.6
-

Participation by all employees is vital to the success of JIT:

Benefits of JIT

Benefits of JIT
o

Smaller inventories

Improved quality

Reduced space requirements Shorter lead times

Lower production costs

Increased productivity

Increased machine utilization

Greater flexibility

3.1.7

Implementing JIT

Steps in implementing JIT Manufacturing

o

Make quality improvements: identify and fix problems

Reorganize workplace
!

Reduce setup times

Reduce lot sizes and lead times

Implement layout changes

!

Remove clutter and designate storage

Cellular manufacturing and close proximity

Switch to pull production

Extend methods to suppliers and develop relationships

Almost the same for service companies

28

3.2

Sales and operations planning

Aggregate planning is an integral part of the business planning process

o

Strategic business plan: a statement of long-range strategy and revenue, cost, and
profit objectives (updated annually)

Strategic business plan is the starting point for sales and operations planning:
process that brings together all the functional business plans into one integrated plan
!

Marketing plan: identifies the markets to be served, desired levels of customer

service, product competitive advantage and the market share needed to achieve
to objectives of the strategic business plan

Production/aggregate plan: includes the budgeted levels of finished products,

inventory, backlogs, workforce size, and aggregate production rate needed to
support the marketing plan (not specific but global: how much will we produce?)

Financial plan: identifies the sources and uses of funds, projects cash glows,
profits, ROI, and provides budgets in support of the strategic business plan

Engineering plan: identifies new products or modifications to existing products

that are needed to support the marketing plan

Master production schedule: the anticipated production schedule for the company
expressed in specific configurations, quantities and dates (reviewed weekly/daily)

29

3.2.1
-

Level Aggregate Plans:

o

Maintains a constant workforce

Sets capacity to accommodate average demand

Often used for make-to-stock products like appliances

Disadvantage: builds inventory and/or uses back orders to absorb fluctuations

Chase Aggregate Plans

o

Produces exactly what is needed each period

Sets labour/equipment capacity to satisfy period demands

Disadvantage: constantly changing short term capacity

Hybrid Aggregate Plans

o

Uses a combination of options

Options should be limited to facilitate execution

May use a level workforce with overtime & temps

May allow inventory build-up and some backordering

May use short term sourcing

3.2.2
-

Types of aggregate plans

Aggregate planning options

Companies can choose from two groups of options when formulating an aggregate plan:
o

Demand-based options: a group of options that respond to demand fluctuations

through the use of inventory or back order, or by shifting the demand pattern
!

Reactive: uses finished goods inventories and backorders for fluctuations

Proactive: shifting the demand patterns to minimize fluctuations e.g. early bird
dinner prices at a restaurant

Capacity based options: a group of options that allow the firm to change its current
operating capacity
!

Changes output capacity to meet demand

Uses overtime, undertime, subcontracting, hiring, firing, and part-timers cost

and operational implications

30

3.2.3
-

Evaluating the current situation

When you are considering the different options, it is important to evaluate your
companys current situation:
o

Point of Departure: the percentage of normal capacity the company is currently using
!

Current % of normal capacity

Options are different depending on present situation

Magnitude of change: the relative size in the change needed

!

Duration of change: the expected length of time the different capacity level is needed
!

Is the length of time a brief seasonal change?

Is a permanent change in capacity needed?

Aggregate plans for service companies with intangible products

o

Intangible products cant be inventoried

Possible approaches:

3.2.4
-

Larger changes need more dramatic measures

Try to proactively shift demand away from peaks

Use overtime or subcontracting to handle peaks

Allow lost sales

Developing the Aggregate Plan

Steps in developing the aggregate plan

o

Step 1: Identify the aggregate plan that matches your companys objectives: level,
chase, or hybrid

Step 2: Based on the aggregate plan, determine the aggregate production rate
!

Level: aggregate production rate = average demand

Chase: calculate output capacity for each period

Step 3: Calculate the size of the workforce

!

Level: how many workers needed to achieve the average production rate

Chase: calculate and make necessary changes in the workforce (hires/fires)

Step 4: Test the aggregate plan as follows:

!

Calculate Inventory, expected hiring/firing, overtime needs

Calculate total cost of plan

Step 5: Evaluate the plans performance in terms of cost, service, HR, and operations
!

Cost is measured by total cost, unit cost and inventory levels

Customer service level is measured by number of back orders

Operations is measured by stability of schedule, equipment utilization, labour use

Human resources is measured by effect on workforce and employment stability

31

3.3

Master scheduling and rough-cut capacity planning

3.3.1

Master production scheduling

Master production schedule (MPS): the anticipated build schedule, often stated in
product or service specifications rather than dollars
o

Master scheduler: person responsible for managing, developing, reviewing, and

maintaining the master schedule: balance customer service and capacity usage

Aggregate plan " master production schedule

!

Aggregate plan shows how many products/services are planned for each period

MPS: identifies the specific products/services planned for a given time period

MPS as a basis of communication between operations and other functional areas

o

Demand management: the function of recognizing all demands for goods and
services to support the marketplace

Rough-cut capacity planning: The process of converting the master production

schedule into requirements for key resources such as direct labour and machine time
!

Demonstrated capacity: proven capacity calculated from actual performance data

Capacity planning using overall planning factors (CPOPF): a rough-cut capacity

planning technique. MPS items are multiplied by historically determined planning
factors for key factors

Material requirements planning (MRP): technique using the MPS, bill of material data,
and inventory records to calculate requirements for materials

32

Objectives of master scheduling

o

Achieve the desired customer service level either by maintaining finished goods
inventory or by scheduling completion of the item or service to meet the customers
delivery needs.

Make the best use of the companys resources: material, labour, and equipment.

Ensure that the inventory investment is at the appropriate level.

3.3.2

Developing a master production schedule

See supplement D for example

-

Using the MPS: Order promising: the process of making order-delivery commitments
o

Two additional rows on the table:

!

Customer orders: orders promised to customers for delivery in that date

Available-to-promise (ATP): the uncommitted portion of a companys inventory

and planned production, maintained in the MPS to support order promising

A negative number in the projected available is sometimes a problem

A negative number in the available-to-promise is always a problem

Stabilizing the MPS: minimize number of changes made to an authorized MPS

o

Time fence policies: partition the MPS into areas requiring different operating
procedures
!

Demand time fence: establishes that point of time in the future inside of which
changes to the MPS must be approved by a higher authority

Planning time fence: establishes a point of time in the future inside of which
changes must be made by the master scheduler and changes outside of which
can be changed by system planning logic

33

3.4
-

Material requirements planning

An overview of MRP
o

Material requirements planning (MRP): A system that uses the MRP, inventory record
data, and BOM to calculate material requirements.

Capacity requirements planning (CRP): Determines the labour and machine

resources needed to fill the open and planned orders generated by the MRP.

Bill of material (BOM): Lists all the subassemblies, component parts, and raw
materials that go into an end item and shows the usage quantity of each required.

3 MRP inputs
o

The authorized MPS: a statement of what and when your company expects to build.

To determine whether enough inventory is available or whether a replenishment order

is needed the MRP system checks the inventory records of all items listed in the BOM
!

Planning factors include the lot size rule, replenishment lead times, and safety
stock requirements.

!
o

Lead-time: The span of time needed to perform an activity or series of activities.

A bill of material (BOM) lists the subassemblies, intermediate assemblies, component

parts, raw materials, and quantities of each needed to produce one final product
!

The BOMs used as input to the MRP system are indented bills of materials:
Shows the highest-level parents closest to the left margin and the children
indented toward the right. Subsequent levels are indented farther to the right.

Product structure tree The visual representation of the BOM, clearly defining the
parentchild

34

Types of demand
o

Independent demand: demand for an item is unrelated to the demand for other items.
!

Demand of finished products

Needs to be forecasted

Dependent demand: Demand for component parts is based on the number of end
items being produced.
!

Demand derived from finished products

Objectives of MRP
o

Determines the quantity and timing of material requirements

!

Determines what to order (checks BOM), how much to order (lot size rules), when
to place the order (need date minus lead time), and when to schedule delivery (on
date needed)

Maintain priorities
!

In a changing environment, MRP reorganizes priorities to keep plans current and

viable

MRP action notices

o

Action Notices:
!

Indicate items that need a production planners attention

Are created when a planned order needs to be released, due dates need to be
adjusted, or when there is insufficient lead time for normal replenishment

!
o

Often require planners to rush or expedite orders

Action Bucket:
!

Is the current period where we take actions such as releasing, rescheduling, or

cancelling orders

A positive quantity in current periods planned order row means that an order
must be released

Capacity Requirements Planning (CRP)

o

CRP uses MRP to calculate workloads for critical work centres based on:
!

Open shop orders: release manufacturing orders

Planned shop orders: schedule to be done

CRP uses planned orders

35

3.5
-

Volvo Group Truck Operations

About Volvo
o

The Volvo group is one of the worlds leading manufacturers of trucks, buses,
construction equipment and marine and industrial engines. The Volvo group also
provides complete solution for financing and service

The Volvo group, which employs about 110 000 people, has production facilities in 18
countries and sales of products in more than 190 markets

o
-

Volvo group vision: to become the world leader in sustainable transport solutions
!

By creating value for customers in selected segments

By pioneering products and services for the transport and infrastructure industries

By driving quality, safety and environmental care

By working with energy, passion and respect for the individual

Corporate core values: quality, safety and environmental care

Volvo Group truck operations

o

5 main brands within truck portfolio

Manufacturing of cabs and trucks for the Volvo, Renault trucks, Mack and UD Trucks
brand as well as production of the groups engines and transmissions

o
-

Manufacturing, remanufacturing and purchasing

Locations
o

45 plants and 54 distribution centres mainly Europe, coast of North and South Africa,
coast of South-East Asia (trucks mainly sold in Western Europe)

Why not in Africa?

!

Emerging market

Next logical step after conquering China

Loss of time because of regulation: would be better to produce directly there)

Truck plant in Ghent

!

Sole truck production in Belgium

Biggest plant within Volvo Group Truck Operations (170 HD Trucks/day)

Production of complete Volvo range of heavy trucks

Strategic location: close to port and highways E17-340

Market adaptation centre

Adapt standard model to specific customer demand

Important in terms of revenue

36

Not longer business as usual

o

The consolidation of the truck businesses and the changes will continue: bigger,
better, faster and more efficient

Also in Europe less but bigger manufacturer

Worlds largest cities by 2025 will be situated in Asia and Africa (megacities: extra
need for transport)

Innovation is key to become the world leader in sustainable transport solutions

Competition is tough

Cycle time for truck renewment ( cars): pace is speeding up due to customer
demand but also because of regulation

o
-

Strategic objectives Volvo Group Trucks (2013-2015)

o

Industry took a major hit in 2009 (see charts on slides for figures Volvo)

5 main focuses:
!

Secure number 1 or 2 in profitability

Strengthen customer business partnership

Capture profitable growth opportunities

Innovate energy-efficient transport and infrastructure solutions

Build high-performing global teams

To become the best in safety, delivery and cost

Strict time frame considering delivery: promise to deliver every order in 8-12 weeks

Volvo Assembly Concept: Volvo Production System (VPS)

37

The VPS is based on The Volvo Way: the Volvo Groups values, culture and
leadership. The system then comprises five principles or guidelines, which will
characterize the work.
!

Teamwork: target-oriented teams that work to bring about cross-border

improvements. Everyone is aware of his/her role and involvement

Process stability: eliminate disruptions to processes and ensure good

organization.

Built-in quality: get things right from the start

Continuous improvement: a long-term program to develop the process

Just-in-time: get the right things done at the right time

The focus for the whole of VPS: the top of the pyramid: is the customer and value
for the customer

Flexibility
o

o
-

Order to delivery process

!

Lead time: promise to deliver in 8-12 weeks

Delivery precision

Market demand
!

Levelling

Rebalancing

Line flexibility: tractors vs. rigids

High volume
o

Increase capacity up to 200 HD

trucks/day (2 shifts): technical

Optimize fishbone concept

!

Modules

Pre assembly

Assembly line

Logistics

How? Keep the line as short and as standard as possible

!

In process of changing the set-up of the assembly lines in Ghent

Assembly line for medium duty trucks was broken down, only heavy duty
trucks left, extra space was needed to become able to provide 200 trucks/day

New set-up designed to minimize movement

Use of trolleys: follow the lead: assembler takes the trolley to the right place, it is
already filled with everything needed

38

Efficiency
o

Value added vs. non value added

!

Standardized work

Right order: sequence (tasks to be done in one cycle time)

Right movements
-

Standard operating procedure: detailed description of a task when needed

One point lesson:

Yamazumi: Process tasks are individually represented in a stacked bar chart,

these can be categorized as either Value Added, Non-Value Added or Waste.
The mean duration time of each task is recorded and displayed within the bar
chart. Each process task is stacked to represent the entire process step.

Continuous improvement
!

Problem solving: plan-act-do-check model

Three types of waste:

Muri: difficult/impossible operations (ergonomics/safety)

Mura: unforeseen operations

Muda: waste

39

4 Maritime Transport Systems

-

Lecture 03/03: Maritime Transport Systems (Tom Vermeiren)

Guest Lecture 03/03: Piet Demunter from strategic division of Brussels Airport

4.1
-

Container freight
Container supply chain
o

Ports/terminals are integrated in the Maritime Transport system which is organized by

the Ocean carrier, shipping line, Liner

Factory to port: inland freight transportation system

Port to port: maritime transportation system

Port to DC/warehouse: inland freight

Maritime cargo is becoming cheaper and cheaper two types

o

Move a container from one party to the other: supply chain system on itself

General cargo
!

Break bulk: sacks, cartons, crates, drums, pallets, bags

Neo-bulk: lumber, paper, steel, autos

Containerized: lift on/lift of (Lo/Lo) (majority), Roll on/Roll off (RoRo)

Bulk cargo
!

Liquid bulk: LNG, petroleum, chemicals, vegetable oil

Dry bulk: grain, sand & gravel, scrap, metal, coal/coke, clinker, fertilizer

Trade patterns and trade lanes:

o

Usually, the longer the lane the bigger the ships but there are constraints (e.g.:
Panama and Suez canal)

Started in 60s in US: standard box mainly shipped through transatlantic trade lanes

Now: much more trade lanes (highways)

Far east trade lane is the longest and uses the biggest ships (50 days)

Regular liner services:

!

Resembles a bus line

Visits a number of ports on its route to discharge and recharge

Ocean carrier chooses the route

Usually, Antwerp is done on the way back (more export than import in Antwerp)

40

4.2
-

Vessels
Pursuit of economies of scale: vessels are becoming larger and larger
o

From 800 TEU in 1958 to 18 000 TEU in 2013

!

Panamax (1980-) can ship 3400 TEU: max. that can go through Panama canal

Maersk Triple E (2013): biggest ship until recently 18 000 TEU

Triple E: Economy scale, Energy efficiency, and Environment

Cannot enter every port: needs too much slots for some ports

Increasing vessel size because ocean carriers can only compete with lowest cost

Vessel sizes constraints

!

There is a maximal possible vessel size by trade line (East Africa only 5000 TEU)

Disadvantage containers

Empty box that has to come back

Would be better to work together but every country has its own business
carrier line with their own boxes and colours (biggest 3 are family owned)

Size increases but demand is not growing: carriers need to come together in
alliances to fill the big ships (Share capacity between big players)

Development of alliances on Europe/Asia trade lanes (strategic analysis)

E.g.: M2: alliance between Maersk and MSC (two biggest carriers)

Ocean carriers: service level is the same, only the price is different
o

There is no price stability: rather perceptions about demand and supply come in to
play when setting freight rates, instead of the actual demand and supply balances

When one carrier increases the price, the others follow

Prices go up around Christmas period

Use of additional surcharges (e.g.: piracy risk surcharge)

Ocean freight rates depend on some factors:

41

4.3
-

Terminals
Deep Sea container terminals (like Antwerp for instance)
o

Example: Antwerp

Because of the high costs of capital needed to operate a terminal, operators are
concentrated in a couple of companies (HPH, DFW, PSA, APMT)

o
-

Operators are fixed to a port: big competition between them to attract ocean carriers

Terminal handling charge (THC) vs. Terminal contract

o

THC: additional costs, on top of the sea freight, charged by the shipping company for
the handling of containers at the container terminal before being loaded onboard a
vessel. Examples include the unloading of the container from a truck.

Shipper pays THC to ocean carrier

Line negotiates LSP/terminal contract with terminal

o
-

Lot of bargaining power: can easily choose another port

LSP: logistic service provider

Worst thing that can happen: having to wait for a slot opening

Price competition between ports

o

Most important costs are exactly the same, what differs is how much it costs to move
boxes from and to the container

Antwerp vs. Rotterdam: Rotterdam is slightly more expensive

Land-leg makes difference, not the freight companies

4.4
-

Brussels Airport: strategic development

Bruges in 12th century
o

Storm created a link with the sea: start golden age of Bruges

Connection disappeared: start of worst period in history for Bruges

Lessons learned?
!

Infrastructure is the basis of a flourishing market

Not a given!

Transport poles: drives of wealth and welfare

o

E.g., rivers, roads, ports, railways, airports, the internet

Theory: todays modern cities are not growing around ports but around airports

Trade is not about goods any more, it is about knowledge

!

Knowledge travels with people and is shared through the internet

But: humans still want to sea each other

To enter the golden age, a city has to be digitally connected to the world

42

Example: the economic and employment impact of aviation in Dubai (see slides)
o

Strategic choice of government in Dubai to invest in airport

Good location to become a hub in the world

1/3 of the people in Dubai earn money directly and indirectly through the airport

Dubai took over the position from Heathrow as worlds busiest international airport

Airports are todays most important transport poles

o

1% of all goods transported

3% of all value traded worldwide

Everything that needs to move fast

Knowledge is carried by people: opt for a plane

Forecasted growth: 4,3% annually

!

Linked to world trade volumes but also with growth cities and population

Growth varies largely between regions

Airport drive tourism, trade, investments, employment and added value far beyond the
direct effect of their own activity

Modal shifts in the airport industry

o

Some goods are more prone to modal shifts than others

Air freight has been suffering from modal shifts mainly to the sea
!

Goods that have to move very fast will never be transported by ship

BUT: a lot of research is done to bring flowers by ship for instance

Pharma used to ship everything by plane but are looking to ships now

Three main categories of air freight

o

Full freighters: shipment from one airport to another (1/3 share in Brussels)
!

In decline: goods still have to be carried to and from the airport

Integrators (e.g., DHL): door to door

!

Integrators own the totally of the value chain

More possibilities in terms of innovation

Belly Cargo: fill extra space in passenger flights

!

Very reliable: flight leaves at the same time every day

Evolution: passenger flights can carry more and more freight

Rapidly taking over market share from full freighters

E.g., Liege cannot take advantage of belly cargo as they dont have passenger
flights, Brussels main beneficiary of the evolution in Belgium

43

Future? 4 threats to the airfreight industry:

o

Ecological awareness

Cost of transport

Increasing labour cost in developing regions (companies are re-shoring their activities
closer to their markets)

3D printed planes?
!

Already 3D printed components

Already 46% of goods now transported could be lost to 3D printing

44

5 Hinterland transport
-

Lecture 10/03: Hinterland transport (Cathy Macharis, Tom Vermeiren, Dries Meers)

Guest lecture 10/03: European Gateway Services (Martine Hiel)

5.1
-

The supply side

Transhipments: throughout the chain (sea terminal => terminal => destination) the same
containers are transported
o

Intermodal transport: transport system which includes various types of transport

means: performing transport operations as single integrated processes

Other multimodal vs. intermodal

!

Other multimodal: just combination

Intermodal: use loading units

Combines: when last (road) part of the chain is as small as possible

Possible intermodal loading units:

o

Semi-trailer, swap-body and container

Need to be able to be transported from terminal on the road, on railway and at sea

Intermodal cost is most interesting when extra distance evens out higher fixed costs
o

Intermodal: sea + barch/rail + truck: variable cost is lower but higher fixed cost
because of additional terminal

Road: sea + truck: lower fixed cost at the port (dont need heavy cranes)

Break-even distance in hinterland transport:

!

Shift from unimodal road to intermodal barge/road when further than 90km

Shift from unimodal road to intermodal rail/road when further than 600km

But: what when ports are less than 90km away?

It is possible to use smaller ships

Could still be interesting if the port has an empty container depot

Trucks come in at different types and need help to unload, you know precisely
when a barge will arrive (time saving = cost saving)
45

5.2

Intermodal policies

Financial incentives for intermodal transport

o

Examples
!

Financial incentives for fleet modernization and energy savings

Direct grants for engine improvements, staff, R&D

Direct grants for terminal investments

State support for infrastructure investment

Good for start-ups but it can for example lead to more trucks in Belgium on their way
to the heavily subsidized railway in France instead of going directly to the south of
France by sea

A geographic information system (GIS) is a system designed to capture, store,

manipulate, analyze, manage, and present all types of spatial or geographical data
o

GIS input: transport networks

!

Road and haulage network

Rail network

Terminals and municipalities

Inland railway network

GIS output: reference scenario: if you want to transport something, which way best?
!

Map: white zones better served by roads, coloured zones by terminals

External costs of container transport

o

Congestion costs, biodiversity losses, fuel emissions costs, accident costs, noise
costs, air pollution costs and climate change costs

How can we internalize the external costs of transport? Make the road more
expensive so the reference scenario makes more use of rail and barge

46

European policy and regulatory framework concerning transport

o

Liberalisation of railways
!

13 freight operatives are active on the Belgian rail network

But: when the market was opened, big players cherry picked the biggest flows
and left the less interesting ones in the hands of national rail operators

Barge transport:
!

5.3

Act of Mannheim (1868)

Principle of the freedom of navigation

Principle of the unity of the scheme

Principle of equal treatment

Principle of maintaining and improving the navigable waterway

From 1/1/2000: full liberalisation of barge sector

Result: still many small players, reduction in prices

The demand side

Actors involved in the chain

Alternative chain directors

o

3 players:
!

Shipper: owner of the cargo

Forwarder: middle man (zero assets)

(Integrated) ocean carrier: owner of the vessel

Shipper has a door-to-door perspective (= total transport system)

47

Modal choice criteria

o

Market price

Reliability

Time

Frequency

Safety/absence of losses

Flexibility

Customer satisfaction

Decision tensions
o

Trade-off between:
!

Cost of distribution system: transport cost, inventory cost, facility cost, handling
costs and information costs

Quality of the service level: response time, product variety, product availability,
customer experience, order visibility, returnability

3 different sorts of buyer groups in transport:

!

Cost only: frequent users of multi-modal

Cost/quality balance: occasional users of multi-modal

Special goods/supply chain (high quality): hardly/never users of multi-modal

Valuing modal choice criteria

!

Most important: transport reliability and price level

Increasing importance of ecological aspects: companies want to sell their

products as transported in a green way

Modal blurring: first two constraints when making decision are qualifiers and costs
but after that, human bias kicks in

5.4
-

Modal shift?
Modal shift: did we go from road to inland waterways/rail?
o

No: even though use of railway and inland waterways is increasing, the use of road
transports keeps increasing too (from 68% in 95 to 72% in 2012)

Road still represents a big part of intermodal transport

48

5.5
-

The future?
Transport demand is expected to increase
o

But there is already enough congestion

White paper: modal shift targets

!

Main goal: reduction of greenhouse gasses with 60% in the transport sector by
2050 compared with 1990

30% of road freight over 300 km should shift to other modes such as rail or
waterborne transport by 2030, and more than 50% by 2050

30% of road freight over 300 km represents 3% of all road freight

Would have to double the capacity of rail and inland waterways to reach target

More challenges: capacity

o

Solution: longer and heavier vehicles

!

More environmental friendly and cheaper

But: enhances reverse modal shift

Trucks are becoming more and more green: but will always lead to congestion

Railway network: some bottlenecks need to be fixed of we want to expand their use

Capacity limitations with inland waterways: water level and the height of bridges
!

Challenging?

Predictability of water levels decrease because of climate change

More opportunities too:

o

Road pricing: vignettes, tolls, are making the road less attractive

New propulsion systems of barges (also becoming greener)

New transhipment techniques

!

Cargobeamer: specially designed pallets which can be carried on a road trailer

Megaswing: loading and unloading can now take place wherever there is a
suitable track and trackside area for truck/trailer handling

New terminal and techniques in the inland waterways:

!

Crane on the ships: much more opportunities to drop of containers

Bigger terminals like an inland mega hub

New opportunities for containers

!

System to transport cars in containers

Foldable containers

Containers that can be divided in two (Tworty): more flexible and cost efficient

Increased use of pallets

Port hinterland competition: ports try to extend their hinterland

49

5.6
-

European Gateway Service

Synchromodal transport a well-thought use of all transport modes in parallel.
o

For every transport order, the logistics service provider chooses the best possible
transport mode, carefully balancing time, cost and service levels.

On the same corridor this can sometimes result in the use of road transport, in other
situations rail transport or the use of inland barges.

50

6 Warehousing, DCs and Crossdocking

-

Lecture 17/03: Warehousing, DCs and crossdocking (Paul Van Ostayen, PWC)

Guest Lecture 17/03: Sustainable logistics at Colruyt (Ivan Van de Bul)

6.1
-

Introduction
SCOR: supply chain reference model
o

The model is based on 3 major "pillars":

!

Process modelling and re-engineering

Performance measurements

Best practices

SCOR is based on six distinct management processes

!

Plan: Processes that balance aggregate demand and supply to develop a course
of action which best meets sourcing, production, and delivery requirements

Source: Processes that procure goods/services to meet planned/actual demand

Make: Processes that transform product to a finished state to meet demand

Deliver: Processes that provide finished goods and services to meet demand,
typically including order, transportation, and distribution management

Return: Processes associated with returning or receiving returned products for

any reason. These processes extend into post-delivery customer support.

Enable

Five core supply chain disciplines drive business performance

o

View your supply chain as a strategic asset

Develop an end-to-end process architecture

Design organization for performance

Build the right collaborative model

Use metrics to drive business success

51

The focus on RONA (return on net assets) improvements ensures a holistic perspective
on your operations activities:
o

Taking all product- and customer-related external and internal levers of the RONA
into account during the decision-making avoids biased and unfavourable decisions.

6.2
-

Distribution networks
Routes to market
o

Different routes to market imply different requirements for warehousing

Routes to market can depend on product and shipment characteristics

52

The role of a distribution centre (DC)

o

DC always means an interruption of the goods flow, which results in additional costs

Therefore, a DC has to provide added value in order to counterbalance its costs

!

Reduction of order fulfilment time

More reliable lead-time

Buffer between customer and production (lead-time and volume flexibility)

Consolidation: Economies of scale

!
-

Concerning supply: consolidation of goods manufactured in different plants

Concerning delivery: de-consolidation of goods manufactured in same plant

Concerning transport: hub between trunking and local distribution

Value added logistics (VAL) activities

Some definitions
o

Factory warehouse: Warehouse that accommodates all production output of a certain

production site

EDC: European Distribution Centre servicing customers in Europe or RDCs and

NDCs in Europe with replenishments

RDC: Regional Distribution Centre servicing customers in a region (several countries)

with fast and slow movers

NDC: National Distribution Centre servicing customers in a country with fast and slow
movers (very popular before the custom union)

LDC: Local Distribution Centre servicing customers in a certain part of country

Satellite: RDC or NDC servicing customers in a region (several countries) with fastmovers only

X-dock: Satellite that does not carry inventory (pallets stay for 6 hours at the most)

53

First step: distribution network design

Which is the best combination, taking into account internal and external constraints, to
transform supply profiles in delivery profiles?

54

3 typologies for European distribution

o

Country-based network (250-300 km)

!

Primarily a full range country-based network structure.

Service levels: next business day delivery

Examples include Pharmaceutical industry, Food Industry

Regional distribution network

!

Transitioning from country-based network structure to a structure with a full range

EDC with partial range (fast movers and or heavy/large parts) RDCs (5-8)

EDC is typically located in heartland Europe, with Belgium and Netherlands the
prime locations, especially in case of inbound flows from overseas

Service levels: next business day delivery for normal parts

Examples include Automotive spare parts, industrial spare parts, FMCG

Centralized distribution network (1 warehouse in Europe)

!

Primarily a full range EDC network, but often with consignment inventory on
location (up to 800 locations across Europe).

EDC is usually located close to an international airport

Service levels: next business day delivery

Examples include computer spare parts, medical devices

Cost mechanisms in European distribution (theoretical approach)

If you centralize your inventory, you can reduce the amount of safety stock

Handling and replenishment: upwards sloping because of scale economies

Customer delivery transportation decreases with number of warehouses

If you want to go from 3 to 1 warehouse, safety stock will decrease by

55

6.3
-

Warehousing
Warehouse activities
o

Inbound cycle: unload from truck, receiving inspection, put away in storage

Outbound cycle: pick from storage, VAL, consolidate, load on truck

Components for warehousing

o

Infrastructure

Storage equipment

Handling equipment

Methodology

Processes

WMS

Storage options and rationale

o

Automated high-bay (most sophisticated): very condense storage for many stock
keeping units (SKU), high throughput volumes (the rate a business is able to produce
a product or service for a given unit of time)

Narrow aisles: condense storage for many SKUs, high throughput volumes

Medium aisles: many SKUs, medium throughput volumes

Wide aisles: many SKUs, large handling units (very rare, only when products are
very big, e.g., carpets)

Drive-in racks: condense storage for few SKUs

Shuttle systems: very condense storage for many SKUs,medium throughput volumes

Gravity racks (least sophisticated): condense storage for few SKUs (FIFO)

Special picking concepts

o

Kardex (carrousel)

Pick to light: Light displays direct operators to specific stock locations

Sorter

Product identification
o

Pen and paper

Barcode

Voice technology

RFID taps (less popular for a while but popular again

56

Warehouse volume
o

Different potential setups for warehouses based on the volume per week

Capacity and cost calculations based on averages are often not relevant

Use advanced simulation tools to stress tests alternatives

!

Simulation model for sensitivity testing allows multiple sensitivity checks using
different parameters

The simulation tool allows to simulate the utilization of resources and as such
identify potential bottlenecks

The tool allows to simulate the impact of possible scenarios by changing key
operational parameters manually

Who does what in distribution and why?

Who
Automotive
spare parts
A FMCG
company
Medical device
company
A food
company
A retailer
6.4
-

What
EDC + RDC/satellite
Manual operations
EDC + satellite
From highly automated to more
manual operations
EDC
Manual operations
EDC + RDC/satellite structure
Automated operations
Central warehouse
Manual operations

Why
Service lead-time
Service reliability and product diversity
Working capital
Changing demand profiles/agility
implementation speed
Working capital
Scale of operations
Service lead-time
Replenishment of profiles, scale of
operations, condense storage
Working capital, economies of scale
Diversity in product range

Sustainable logistics at Colruyt

About Colruyt Group
o

Short history
!

Bakery 1900-1930

Started to import colonial products: wholesale trade 1930-1955

Wanted to be the cheapest: discounter 1955-1995

!
o

Reduce cost and efficiency at the core of every decision

Previous CEO died in 1994, Colruyt taken over by son: Retail group 1995-today

Company grew quickly after 1995 (also took over some companies in France)
!

Small slowdown in growth because of the crisis but crisis also made people chose
for the cheapest store (people can only cut so much spending in food)

Staff grew tenth fold between 1982 and 2015

Also a growth in diversity: from mainly local employees to 75 nationalities now

Mission statement: together, we create sustainable added value through valuedriven craftsmanship in retail

57

Sustainability at Colruyt
o

People
!

Working conditions: cost reduction does not mean reduction of means

Our values, our DNA

Competencies and talent

Welfare

Diversity (video)

Mobility: encourage their employees to take public transport and (electric) bikes

Environment
!

Energy

We-power: separate entity within the holding

Currently 6 turbines in house

Participation in off-shore and on-land projects

Freight transport

Sustainable construction (movie)

From waste to resource (e.g., bring food to food banks)

Product
!

Animal welfare

Biodiversity

Ensure themselves that products were not made by children

Sourcing: help producers to be sustainable and ensure proper working conditions

Sustainable logistics at Colruyt

Centralized Warehouse model

!

Supplier bring goods to warehouse, not allowed to bring goods directly to a store

Scale economies: otherwise every store would need to control the goods, now it
only has to be done once

E-logistics: second warehouse is used for e-commerce

Means additional transport costs (risk)

58

3 As of sustainable logistics (" 4/5 As Macharis)

!

Avoidance: avoid having to send to much trucks on the road

Modal shift: from roads to waterways and railways

Optimize loading rate (96% for full cart and 95% trailers) by combining
products from different warehouses before going to the shops (x-docs)

Cold chain: refrigerated cart " cooled transport

Anticipation of new technologies: ecology and cost

Fuel consumption eco-drive

Alternative fuels CNG and electricity

Kilometre levy

Act & Shift: act to new problems concerning mobility and shift practices

Spreading deliveries: in early morning and late evening (avoid congestions)

Silent deliveries: isolation, rubber parts, silent infrastructure and equipment

59

7 Urban distribution and e-commerce

-

Lecture 24/03: Urban distribution (Sara Verlinde & Philippe Lebeau)

Guest lecture 24/03: Bubble Post: eco deliveries

7.1
-

7.2

Introduction: the supply chain

End of the supply chain
o

Bring goods the last mile to supply stores, horeca, e-commerce, construction...

Last mile can also mean bring goods from the store to the house

Why urban distribution?

o

That is where the consumers are: population is concentrated in cities

Growing challenges of urban distribution: congestion and emissions

Stakeholders

60

Who are the different actors that are active?

o

Transport operator: use infrastructure that are provided by the authorities

!

Transport goods from shipper to receiver

Very fragmented market: a lot of very small actors in cities (<5drivers)

Pressure for good service: reliable, frequency, secure

Objective of operators

Satisfaction of shipper/receiver

Profit and positive return on investment

Green concerns

Authorities/citizens: manage the territory and organize infrastructure

!

Also represent the citizens who live on that territory

Interest is growing: want to create a nice environment for the citizens

E.g., DHL etc. outsource their vehicles!

Brussels: strategic plan concerning freight transport

But: barriers concerning freight

-

Limited resources to develop urban distribution

Limited awareness

Limited data: difficult to observe and understand phenomenon

Objectives of authorities and citizens

Reduce emissions and congestion

Less space occupancy by freight vehicles (parking space)

Attractive environment for companies (create jobs)

Shipper/receiver: share the same objectives

!

Want to be as close as possible to each other

Different channels: e-commerce, express deliveries

Objectives of receivers and shippers:

Reduction of transportation costs

Convenient deliveries and pick-ups

Green concerns

Customer satisfaction (in this case the receiver and the final customer)

61

7.3
-

Resulting inefficiencies
Interaction between the stakeholders
o

Traffic market (authorities-transport operators): example of Brussels

!

Available infrastructure: road, rail, waterways

Modal split: dominance of road, waterways sometimes used (usually construction)

Congestion: made worse because peak hour freight is same as peak hour cars

Access restriction to lessen congestion during peak hours:

!
o

Time windows: only deliveries between those hours

Vehicle access: only cares lower than 3.5m are allowed in Brussels

Success of vans consequence of regulation

Adapted to size restrictions

Leads to more freight vehicles on the road (and more fragmented)

Also more emissions as a result

Solution: city depot? Grouping freight and deliver everything at once

Transport market (shippers/receivers-transport operators)

!

Competitive market

Pressure on costs as a result of competitiveness: average age of average

vehicles for freight is older than passenger cars (more emissions!)

!
o

Difficult cooperation: would be rational to work together but difficult to implement

Land use market (authorities-shippers/receivers)

!

Organize the city in different zones: housing/economic activities/

Difficulties

No space available for unloading: solution would be dedicated spaces

Lack of control by the police when there are dedicated spaces

Would significantly reduce congestion (by 30%): no more double parking!

Missing space for logistics platforms: takes in a lot of space without adding
value so they are being delocalised to the periphery

Result: more freight which also lead to more congestion and emissions

More costs because of additional transport

Difficult equilibrium between different actors that share different objectives

62

7.4

Solutions

Alternative solutions for urban freight transport

o

Now: vans and trucks who transport freight from a regional DC from outside the city

Solution 1: Policy measures by local governments

o

Regulations: are making last-mile delivers more difficult

!

Restrictions based on type of vehicle: noise standards, vehicle weight, vehicle

length, obliged vehicle load, low emission zones

Restrictions based on time of delivery: time windows, delivery curfews (no

deliveries at night because of noise), time access restrictions

!
o

Road pricing

Providing a dedicated infrastructure

!

Special routes for heavy goods vehicles

Loading and unloading spaces to avoid double parking

But: problems with passenger cars who park there

Possible solution: dynamic signals who call the police when cars are parked
somewhere for too long during delivery hours (see slides)

o
-

But: not a priority for police

Support for innovative concepts: subsidies and tax incentives

Solution 2: Logistics solutions: change in logistics operations (and supply chain)

o

Urban consolidation centre: Citydepot in Bxl/Hasselt, Bubble Post, Bpost in Antwerp

!

Before: a lot of traffic going in and out of the city

With urban consolidation centre goods are delivered to one logistics platform and
from there the goods are delivered to the urban receivers

Often done with smaller (electric) vehicles

Problem: who is going to pay for an additional unload/load? Difficult to find an

economically viable solution for them, they need governmental support

Success depends on the perspective of the different stakeholders

Lack of data makes measurement of success more difficult

63

Different ways of consolidating freight

!

Physical solutions

Traditional urban consolidation centre

Alternative additional transhipment (e.g., mobile depot (TNT))

Behavioural solutions = Collaboration

Horizontal: between retailers, between carriers

Vertical: cooperation between a retailer and a carrier

Intermodal transport initiatives

!

E.g., Paris: DC just outside the city, goods are delivered into the city by train to
another DC where trucks pick the goods up to deliver to stores

E.g. 2, CargoTram in Dresden: freight brought into the city by tram

E.g. 3, Paris: freight is brought into the city by barge and then loaded on bikes

Off-hour deliveries: evening, night, early mornings: huge time gains when considering
km/h but average unloading time increases

Overall gain if there is scale advantage

Investments needed in silent equipment

Small shops: not possible because owner would not be there at night

Driver training
!

To reduce fuel consumption (up to -34%)

To reduce noise nuisance

To improve traffic safety

Solution 3: Technological solutions

o

Vehicle technology
!

Electric vehicles: more competitive than diesel for smaller vehicles but less
competitive for heavier vehicles

Intermodal networks, on site handling, urban commercial vehicles, night

distributions

Infrastructure (more futuristic)

!

Tubes underground: too expensive to implement

Pack station where consumers pick up goods: DHL, Bubble Post, B-post

Information and communication technology (ICT)

!

Traffic information providing details on the actual traffic situation, dynamic routing,
tracking and tracing, fleet management system

Other: Google car, drones very futuristic

64

7.5
-

Bubble Post: eco-deliveries

First and last-mile delivery in cities (5 now in Belgium) with ecologic vehicles
o

First mile: reverse logistics flows and e-commerce

Last-mile: transport sector dropping goods of in warehouse, Bubble post delivers the
goods for the last part of the transport

Only-mile: goods that never come into the warehouse: one trip for receiving &
delivering

Other point of view than traditional transportation centre

o

Vision where citizens are central

Adapt service level and vehicles to the new city

Delivery with bikes is very efficient and fast (no queuing on bike lane)

Facts: challenges for traditional sector

o

CO2 reduction of 50% in cities in 2030

Expansion of pedestrian zones

In 2050 in cities one million more citizens

Figures of survey concerning e-commerce: important for last-mile

o

Choice of delivery day and time is important (more than quick delivery)

38% find at home delivery most important reason for e-commerce shopping
(important figure for Bubble Post)

42% of online consumers sends out retour (reverse logistics)

47% of online shoppers want at home pick up for reverse packages

56% is prepared to pay up to 4 for delivery cost: sometimes enough to cover the
cost, sometimes not

A solution according to Bubble Post

o

Specialized in first- and last-mile delivery of goods with smaller, faster and more
ecologic vehicles and with respect for the planet and the inhabitants

Bubble Post model: warehouse in every city

Consolidation and deliveries (city split into zones): ecologic, efficient, cost-effective
!

Paid by the companies who are sending out the goods

Bubble Post time slots: at night (until 10pm), on Saturday, on a chosen time slot,
same day deliveries (as the day they were brought in)
!

Overnight deliveries between cities with trucks on CNG

Types of clients: transport sector, merchant, local merchant, e-commerce

65

Bubble Posts mission as a game changer

o

HR: Bubble self-driven company (very young crew with horizontal structure)

IT: innovation and in-house development software (tracking software)

Marketing: Bubble Community as a helpful way to grow and to acquire bargaining

power as a choice next to Kiala + use the community to decrease the not home
failed deliveries

Mission: giving back ancestral green to cities for future generations through
delivering local into the interconnected society of the future

66

8 Sustainable logistics

67