As stated in Section 2.1, this thesis views logistics as a smaller part of SCM. Also transportation and warehousing are subsections of logistics and can be regarded as the most important parts in international supply chains (Tuzkaya and Önüt, 2009). According to various studies (Cap Gemini 2007; Selviaridis and Spring 2007; Marasco 2008;
Hilletofth and Hilmola 2010; Hilmola and Tan 2010), logistics and warehousing are currently heavily outsourced to third-party logistics service providers. According to Bask (2001), logistics services can be seen to be a triad between the logistics service provider, the buyer, and the seller. This is presented in Figure 6. The logistics service provider does the actual transportation and possible warehousing, but relationship management can be seen to be a part of SCM.
Figure 6: Three dyadic relationships (Bask 2001)
Sanchez-Rodriguez et al. (2008) have expanded Bask’s framework to include various uncertainties in transportation. Uncertainties can come from five different sources, which are:
Uncertainty related to suppliers Uncertainty related to customers Uncertainty related to carriers Uncertainty related to control systems External uncertainty.
Buyer Third-Party
Logistics Provider
Seller Relationship
use multimodal transportation over long distances, but over short distances unimodal road transportation has smaller total costs (Rutten 1998). The research of multimodal transportation is still relatively new and offers many challenges to companies (Bontekoning et al. 2004; Macharis and Bontekoning 2004).
2.3 Transportation and Warehousing as Part of Supply Chain Management
As stated in Section 2.1, this thesis views logistics as a smaller part of SCM. Also transportation and warehousing are subsections of logistics and can be regarded as the most important parts in international supply chains (Tuzkaya and Önüt, 2009). According to various studies (Cap Gemini 2007; Selviaridis and Spring 2007; Marasco 2008;
Hilletofth and Hilmola 2010; Hilmola and Tan 2010), logistics and warehousing are currently heavily outsourced to third-party logistics service providers. According to Bask (2001), logistics services can be seen to be a triad between the logistics service provider, the buyer, and the seller. This is presented in Figure 6. The logistics service provider does the actual transportation and possible warehousing, but relationship management can be seen to be a part of SCM.
Figure 6: Three dyadic relationships (Bask 2001)
Sanchez-Rodriguez et al. (2008) have expanded Bask’s framework to include various uncertainties in transportation. Uncertainties can come from five different sources, which are:
Uncertainty related to suppliers Uncertainty related to customers Uncertainty related to carriers Uncertainty related to control systems External uncertainty.
Buyer Third-Party
Logistics Provider
Seller Relationship
Sanchez-Rodrigues et al. (2010) conducted a focus group study to find out the major uncertainties in transportation supply chains. Four different clusters were then constructed according to the focus groups:
Delays
Demand and information issues Lack of coordination
Delivery constraints.
Sanchez-Rodrigues et al. (2010) state that these clusters come from two different root causes: an unclear framework in terms of the key performance indicators (KPIs) of transport, and not the best supply chain relationships. These two issues are of high importance, if smooth transportation processes are to be ensured. According to van der Vorst and Beulen (2002) and Germain et al. (2008), uncertainty is an inherent part of supply chains.
Transportation and warehousing are a part of a process called postponement and speculation (Bucklin 1965). Speculation means that the actor chooses to shift the risk on itself by speculating on what is going to be needed in the future. Postponement is the opposite of this. According to Pagh and Cooper (1998), there are four different generic strategies for supply chain postponement, as presented in Figure 7.
Figure 7: Postponement and speculation and generic supply chain strategies (Pagh and Cooper 1998)
The proper strategy needs to be chosen according to the product characteristics, market and demand, and the scale and capabilities of manufacturing and logistics. Manufacturing postponement is more or less an issue of internal warehousing, but the chosen distribution network will impact heavily on what kind of warehousing will be required and in which parts of the chains.
The full speculation
Sanchez-Rodrigues et al. (2010) conducted a focus group study to find out the major uncertainties in transportation supply chains. Four different clusters were then constructed according to the focus groups:
Delays
Demand and information issues Lack of coordination
Delivery constraints.
Sanchez-Rodrigues et al. (2010) state that these clusters come from two different root causes: an unclear framework in terms of the key performance indicators (KPIs) of transport, and not the best supply chain relationships. These two issues are of high importance, if smooth transportation processes are to be ensured. According to van der Vorst and Beulen (2002) and Germain et al. (2008), uncertainty is an inherent part of supply chains.
Transportation and warehousing are a part of a process called postponement and speculation (Bucklin 1965). Speculation means that the actor chooses to shift the risk on itself by speculating on what is going to be needed in the future. Postponement is the opposite of this. According to Pagh and Cooper (1998), there are four different generic strategies for supply chain postponement, as presented in Figure 7.
Figure 7: Postponement and speculation and generic supply chain strategies (Pagh and Cooper 1998)
The proper strategy needs to be chosen according to the product characteristics, market and demand, and the scale and capabilities of manufacturing and logistics. Manufacturing postponement is more or less an issue of internal warehousing, but the chosen distribution network will impact heavily on what kind of warehousing will be required and in which parts of the chains.
The full speculation
Fisher (1997) has approached the issue of choosing the right supply chain according to the characteristics of the product. Functional products have predictable demand, while innovative products have unpredictable demand. According to Fisher (1997), innovative products should have a responsive supply chain, while functional products should have an efficient supply chain. Christopher et al. (2006) have a similar approach and also take into account the supply characteristics. Their framework is presented in Figure 8.
Figure 8: Pipeline selection strategy (Christopher et al. 2006)
A good overview of the characteristics of different types of supply chains can be found in Hilletofth (2009). Hilletofth has developed a way to create differentiated supply chain strategies, consisting of four steps, which are:
(1) Developing a segmentation model (2) Understanding the market we serve
(3) Understanding the capabilities to serve the market (4) Developing necessary supply chain solutions.
Different supply chains have different requirements for transportation and warehousing.
Also, as Sanchez-Rodrigues (2010) point out, one of the key sources of uncertainty in transportation comes from an unclear framework in terms of transport KPIs. The transportation and warehousing of an organization need to take the chosen supply chain strategy into account and try to minimize the costs for the company to stay competitive in the marketplace.
Postponement in itself does not indicate where the actual warehouses should be located.
Network design is the part of supply chain management dealing with this issue. The effect of centralizing warehouses was first discussed by Maister (1976). Combining warehouses
PLAN AND EXECUTE LEAN LEAGILE POSTPONEMENT
CONTINUOUS LEAN REPLENISHMENT
AGILE QUICK RESPONSE
Predictable Unpredictable Demand
Characteristics Long Le ad Time Sh or t L ead Time
Supp ly Char act erist ic s
Fisher (1997) has approached the issue of choosing the right supply chain according to the characteristics of the product. Functional products have predictable demand, while innovative products have unpredictable demand. According to Fisher (1997), innovative products should have a responsive supply chain, while functional products should have an efficient supply chain. Christopher et al. (2006) have a similar approach and also take into account the supply characteristics. Their framework is presented in Figure 8.
Figure 8: Pipeline selection strategy (Christopher et al. 2006)
A good overview of the characteristics of different types of supply chains can be found in Hilletofth (2009). Hilletofth has developed a way to create differentiated supply chain strategies, consisting of four steps, which are:
(1) Developing a segmentation model (2) Understanding the market we serve
(3) Understanding the capabilities to serve the market (4) Developing necessary supply chain solutions.
Different supply chains have different requirements for transportation and warehousing.
Also, as Sanchez-Rodrigues (2010) point out, one of the key sources of uncertainty in transportation comes from an unclear framework in terms of transport KPIs. The transportation and warehousing of an organization need to take the chosen supply chain strategy into account and try to minimize the costs for the company to stay competitive in the marketplace.
Postponement in itself does not indicate where the actual warehouses should be located.
Network design is the part of supply chain management dealing with this issue. The effect of centralizing warehouses was first discussed by Maister (1976). Combining warehouses
PLAN AND EXECUTE LEAN LEAGILE POSTPONEMENT
CONTINUOUS LEAN REPLENISHMENT
AGILE QUICK RESPONSE
Predictable Unpredictable Demand
Characteristics Long Le ad Time Sh or t L ead Time
Supp ly Char act erist ic s
makes it possible to have a smaller safety stock for the same availability to customers.
This follows the “square root law”, e.g. total inventory in the system is proportional to the square root of the number of warehouses desired. Zinn et al. (1989) have later expanded the model to include the cross-correlation between different warehouses and the uncertainty of demand. Later the discussion has expanded to cover many different aspects in the actual location design. Figure 9 shows a generic supply chain network (modified from Melo et al. 2009).
Figure 9: A generic supply chain network (modified from Melo et al. 2009)
In a recent literature review, Melo et al. (2009) have analyzed studies concentrating on facility location and supply chain management. In their review they divide the methods according to the number of layers, number of products, number of periods, and type of data (deterministic / stochastic). As such, there are many different ways to approach the problem. It is also possible to make other divisions, e.g. according to capacity, inventory, procurement, production, routing, and transportation modes. In addition to these, there are multiple methods for solving the problem. Melo et al. (2009) also point out that many other issues can be included in the problem, such as financial aspects, risk management, and others. Overall, it can be argued that the network design problem is multi-faceted and complex to solve.
In addition to the network design, it is important to decide the correct amount of goods to be transferred between different locations. This is the so-called lot-sizing and
Suppliers Plants Distribution
centres Customers
Recovery plants
Collection centres
makes it possible to have a smaller safety stock for the same availability to customers.
This follows the “square root law”, e.g. total inventory in the system is proportional to the square root of the number of warehouses desired. Zinn et al. (1989) have later expanded the model to include the cross-correlation between different warehouses and the uncertainty of demand. Later the discussion has expanded to cover many different aspects in the actual location design. Figure 9 shows a generic supply chain network (modified from Melo et al. 2009).
Figure 9: A generic supply chain network (modified from Melo et al. 2009)
In a recent literature review, Melo et al. (2009) have analyzed studies concentrating on facility location and supply chain management. In their review they divide the methods according to the number of layers, number of products, number of periods, and type of data (deterministic / stochastic). As such, there are many different ways to approach the problem. It is also possible to make other divisions, e.g. according to capacity, inventory, procurement, production, routing, and transportation modes. In addition to these, there are multiple methods for solving the problem. Melo et al. (2009) also point out that many other issues can be included in the problem, such as financial aspects, risk management, and others. Overall, it can be argued that the network design problem is multi-faceted and complex to solve.
In addition to the network design, it is important to decide the correct amount of goods to be transferred between different locations. This is the so-called lot-sizing and
Suppliers Plants Distribution
centres Customers
Recovery plants
Collection centres
consolidation problem. According to Aissaoui et al. (2007), this problem can be approached with various kinds of assumptions. The problem can contain either a single item or multiple items. In single item problems only one product is analyzed, while multiple item problems contain more than one product. In addition to the number of items, it is possible to analyze only one period or multiple periods. Finally, the problems might include discounts. Aissaoui et al. (2007) have analyzed the problem from the supplier selection perspective, but the same method can be used to analyze different parts of the supply chain. The problem becomes more difficult, if the issue is analyzed from both the buyer’s and the vendor’s perspective (Ben-Daya et al. 2008). It can be stated that this problem is multi-faceted and complex as well.
The ecological impact of industrial activity has started to receive increasing attention recently. Srivastana (2007) points out that most of the green supply chain issues have been analyzed from the perspective of compartmentalized operation strategy areas.
Srivastana continues by stating that the Operations Research tools are a good way to analyze green supply chains, as the problem area is a complex one. According to Rao and Holt (2005), a green supply chain can create competitive advantage which will lead to higher economic performance as well. As such, not only preserving the environment, taking environmental issues into consideration can improve the performance of the organization as well.
consolidation problem. According to Aissaoui et al. (2007), this problem can be approached with various kinds of assumptions. The problem can contain either a single item or multiple items. In single item problems only one product is analyzed, while multiple item problems contain more than one product. In addition to the number of items, it is possible to analyze only one period or multiple periods. Finally, the problems might include discounts. Aissaoui et al. (2007) have analyzed the problem from the supplier selection perspective, but the same method can be used to analyze different parts of the supply chain. The problem becomes more difficult, if the issue is analyzed from both the buyer’s and the vendor’s perspective (Ben-Daya et al. 2008). It can be stated that this problem is multi-faceted and complex as well.
The ecological impact of industrial activity has started to receive increasing attention recently. Srivastana (2007) points out that most of the green supply chain issues have been analyzed from the perspective of compartmentalized operation strategy areas.
Srivastana continues by stating that the Operations Research tools are a good way to analyze green supply chains, as the problem area is a complex one. According to Rao and Holt (2005), a green supply chain can create competitive advantage which will lead to higher economic performance as well. As such, not only preserving the environment, taking environmental issues into consideration can improve the performance of the organization as well.