Project: Integrating Transport and E-Commerce in Logistics Supply Chains

Reference: STP 14/6/17

Last update: 10/04/2013 15:05:59

Objectives

- Analyse and document logistics, transport, management and e-commerce practices involved in the partners' current supply chains; inter and intra-sector in the UK, Eurpean and global contexts.
- Assess the utilisation of vehicles and other carriers (as proxy for performance) and their empty running in fast moving consumer goods (grocery and non-food), steel, and other sectors, taking into account variance in public policy, infrastructure (inclusing e-commerce technology) and sectors.
- Model, simulate and evaluatesamples of supply chains using alternative node locations, mods of transport (including multi-modal transport), information technologies (such as e-commerce) and compare their performance with status-quo in terms of supply chain effectiveness and cost.
- Construct and model scenarios of supply chains based on significantly growth in the e-commerce channel to market and testing the application of the lean thinking philosophy.

Description

The proposed research is particularly novel as for the first time freight transport and e-commerce are explicitly examined as integral elements of the total supply chain. Also, the research brings together a unique combination of skills in terms of the investigators. It will build on previous UK research such as the work at Heriot-Watt, "A new deal for transport: Better for everyone", Dundee which applied Japanese manufacturing techniques to road haulage operations; and on the EU 4th Framework research relating to freight transport such as the REDEFINE, STEMM, SOFTICE, TERMINET projects, and the OECD funded TRILOG project.

Contractor(s)

Cardiff University (research and consultancy division)
55 Park Place, Cardiff, Wales, CF10 3AT

Contract details

Cost to the Department: £262,712.00

Actual start date: 18 April 2001

Actual completion date: 02 February 2005

Publication(s)

Transport in Supply Chains
Author: Chandra Lalwani
Publication date: 01/09/2004
ISBN: 0-9537982-3-2
Source: Logistics & Operation Management, Cardiff Business School, Cardiff University
More information: http://www.itels.org.uk/

Summary of results

  1. The research is based on the principles of systems thinking; i.e. to take a total end to end supply chain perspective in which transport is an integral part. In particular, we study the role of:
    (a) Lean thinking in aiding the banishment of waste information. This is most evident by the bullwhip effect, a system induced disturbance that creates uncertainty for decision makers;
    (b) e-Commerce in enabling the development of novel supply chain pathways that ensure information transparency such as market demand and inventory levels. A good case in point is Vendor Managed Inventory (VMI) with flexibility in inventory management, the use of demand and inventory information in production planning and shipments in full vehicle loads.
    (c) Integrated transport management techniques such as Factory Gate Pricing (FGP). These are based on holistic management of the transport network looking to coordinate transport flows through consolidation, matching flows and backhauling.
    All of the above have been assessed in terms of their impact on supply chain management vis--vis transport operations.

    Outputs
    . A version of value stream mapping that considers environmental impacts such as emissions
    . The most appropriate supply chain performance measures for sustainable distribution such as emissions per item
    . Development of Overall Vehicle Effectiveness performance measure (OVE)
    . Simulation models to evaluate the impact of demand amplification on transport including the application of ICT developments
    . Tools to improve the interface between manufacturing and distribution to increase the efficiency of both domestic and international transport
    . Different methods for integration of transport in supply chains including VMI and FGP
    . A cost model was produced and developed into the LEFT2 GB strategic freight mode choice and generation model, which was used to estimate 2010 effects of five scenarios identified by ITeLS.

    Alternative strategic tools include the establishment of transport networks, the creation of seamless operations and transport flows, vendor managed inventory and the collaborative planning and management of transport. The research suggests that these strategies often involve collaboration between customers and suppliers - transport should not be seen as a consumable, but instead as part of the overall service package to the end customer.

    Contribution to FIT Programme
    ITeLS research outputs include methods to holistically plan and integrate transport into supply chains. The main objective of ITeLS research was to remove waste in supply chains and develop 'efficient' (hence lean) transport processes that yet enable "effective" (including responsive) supply chains. The "efficiency" aspect included elimination of waste truck movements (i.e. running empty) thereby reducing private and external costs, e.g. congestion and pollution. The research has developed simple but robust models allowing companies to judge the impact of supply chain changes on transport planning and operations.

    Outcome of the Project
    ITeLS research process can be summarised as being applied via task forces, involving collection of empirical data, model building and their validation within the industry. ITeLS research objectives were achieved through five work modules namely big picture mapping; simulation; electronic commerce; transport models; and economics (see Figure 1). The outcome of the project is described using the research output from each of the five work modules of the project as follows. It should be noted that full module reports are contained in Annex E.

    WM1: Big Picture Mapping
    Implicit in the background thinking of the ITeLS research programme is the understanding that freight transport is one of a series of processes in the Value Stream (Hines and Rich, 1997). To develop increases in the efficiency and effectiveness of transport, and to work towards more sustainable distribution systems, a full understanding of the structure and behaviour of the whole supply chain including transport is needed. The objective of this module was to gain this understanding. Typical processes, indicative of the supply chains of the representative grocery and steel industries, have been analysed and the structures of supply and the behaviour of the chains documented.
    Outcomes: Interestingly, functionally organised management of the operation of supply is dominant in both industries, steel and groceries, and fights against the assumption in ITeLS thinking that effective and efficient supply should be conducted through the management of processes, rather than purely functions. It is therefore not surprising that considerable levels of process waste have been exposed during the research, as this is not easily focused on by the organisations concerned.

    This presents a concern for transport. Cost efficiencies and a high quality of service will struggle to be realised while there is a lack of appreciation of the total supply chain and the integrated role that transport plays in joining together the value-adding echelons. This research has shown that transport is often managed as the last link in the chain and that a new cultural mind-set may need to be adopted among supply chain partners for improved supply chain performance to be achieved.
    WM2: Simulation Modelling
    The primary aim of the ITeLS simulation projects was to model and evaluate logistics, transport and management practices involving the industrial partners' current supply chains and generic e-enabled supply chain models. The simulation module utilised a hierarchical approach to supply chain modelling and simulation to evaluate and optimise the process re-engineering strategies. Table 2 lists the work packages in the simulation module, representing different levels in Supply Chain Optimisation and Modelling Architecture
    Outcomes: With various disaggregate views, the simulation module effectively addressed the issues around information flow and decision making (e.g. the impact of decision making on demand amplification and the benefits to transport logistics of e-commerce driven information transparency), supply chain infrastructure (e.g. warehouse location, inventory costs, transport times and transport costs) and operation flow (e.g. vehicle utilisation, empty running and throughput time). In addition, the simulation module investigated the inter/multimodal logistics chains where such strategies as route selection and standardisation could be exploited to reduce packaging, stock holding and transport costs per unit.

    As well as generic findings, applications from the industrial partners were also used as case studies in this module. Work with Tesco identified ways of reducing demand amplification as well as quantifying the benefits from FGP. Simulation models with Caparo and Campbell Freight aimed at speeding the flow of products both onto and through the transport chain, thereby reducing uncertainty. Through a Quick Scan, the impact of VMI on the grocery supply chain involving PSD and Tesco was conducted, quantifying the benefits for transport, inventory and production while identifying areas for further improvement. This work showed that it is not always possible to achieve the theoretical benefits of VMI found through simulation models.

    WM3: Electronic Commerce
    The developments in information communication technology (ICT) and the advent of e-commerce are creating a new operational landscape for supply chain systems. This module aimed to analyse the impact of ICT and e-commerce upon logistics and the supply chain, with specific focus on the transport operation. The research started with a study of the principal developments in ICT along the value chain and the evolution of e-commerce within the supply chain over the last decade. From this basis, a range of hypotheses were developed to assess how e-commerce is impacting on transport operations. These theories were then tested through questionnaires and interviews with leading personnel from the grocery, steel and distribution sectors in the UK. In addition, the main findings of the research were fed through a quasi-Delphi discussion group made up of senior sector managers, leading academics and sponsoring organisations from the ITeLS project.

    Outcomes: The research concludes that e-Commerce and the adoption of many new ICT developments are facilitating an explosion in supply chain capabilities. This includes improved transport performance through better visibility, integration, control and planning possibilities. It also presents challenges. Companies and logistics partners are forced to confront supply chain trade offs, for example, between quick response and inventory stock levels. New logistics business models, such as networked 3PL and 4PL providers are being developed, which potentially can better compete through improved asset utilisation including vehicles and warehouses. However, most of these gains are being realised by the larger companies within the logistics and transport sector. The smaller operations that comprise the majority of the 108,000 haulage providers in the UK are not adopting ICT so rapidly.

    In modern supply chains the criticality of good service as well as tight costs management is becoming increasingly important. New ICT developments are accelerating the process of more professionally and precisely managed supply chain systems working in a time compressed state. Transport provides a vital role and providers cannot afford to be perceived as the potential weak link of the supply chain. ICT changes also provide the scope for companies to collaborate to reduce logistics costs, eliminate inefficiencies and deliver excellence. However, this requires a new mind-set to be embraced, one that is arguably alien to many players in today's logistics industry. Collaboration is not easy, but if mutually beneficial relationships can be developed, the competitive advantages realised could be significant.

    WM4: Transport Cost Modelling
    In the Case for Support, it was stated that in Work Module 4.1 "a cost model of transport by road, rail and other relevant modes will be constructed". As part of the ITeLS research carried out by Institute of Transport Studies (ITS) Leeds, the team has investigated the cost structures of various modes of transport and decided to concentrate on road and rail (since water and pipeline are only relevant in specialised cases, mainly related to oils). Cost models for these modes have been constructed and have been implemented in the LEeds Freight Transport Model (LEFT2) strategic freight transport planning model built as part of the ITeLS project. Besides incorporating modal split, LEFT2 allows scenarios to alter the total size of the (road plus rail) market. The Case for Support for ITeLS also promised that Work Module 4.2 "will collect evidence on potential scenarios from a range of sources including UK and European modelling, National Road Traffic Forecast policy exercises and industry opinion". These have been used in the LEFT2 model to test different scenarios. The aim of this research is to evaluate the impact of different policy scenarios both on current volumes and in 2010.

    Outcomes: In total, six different scenarios were tested within the model - no change, Working Time Directive, revenue neutral Road User Charge (RUC), revenue generating RUC, SRA Company Neutral Support and improved hgv efficiency. In terms of impact on today's market, the model indicates no significant changes in terms of modal split for all scenarios with the exception of the revenue generating RUC. This reduces the split of volume moved on road by 2%. In terms of the situation in 2010, the baseline scenario indicates a growth of 18.5% increase in road freight tonne-km and a 34% increase in railfreight tonne-km. Again, the revenue generating RUC is the most effective at creating a modal shift from road to rail. The model is spreadsheet based, and so should be highly portable. It runs in seconds, and should therefore be suitable for inclusion in future supply chain models, which may well need to interrogate a transport model frequently.

    WM5: Economics
    The ITeLS research has shown how transport and e-Commerce can be effectively integrated into the supply chain to reduce the internal costs of the operations. This module looked to extend this work to consider the external implications, particularly on the environment but also society. Consideration was given as to the different policy drivers and levers that can be used to enable improvements in transport.

    Outcomes: Overall, the work in this module has shown that as well as delivering internal cost benefits, much of the work also impacts positively on external costs. This is an important consideration, as companies will tend not to adopt processes that benefit the wider environment unless they also gain from a reduction in internal costs (Potter et al., 2002). For instance, while FGP reduces logistics costs by approximately 15%, the external cost benefits equate to 35%, due to different distribution patterns in the primary network.
    Project Plan Review
    There were no changes made to the activities in the original plan. However, changes in the industrial partnerships during the project caused delays in the collection of empirical data for research on a number of work modules. This delayed the delivery of milestones as compared to the original plan. Our request for the extension of the project duration for four months was approved by the Department for Transport and this helped us to achieve the objectives set in the original research proposal.

    Obstacles and the actions
    During the project, three changes in industrial partners occurred. Quay Cargo, a small transport operator based in Belfast, withdrew from the project in the first year due to internal problems. It took some months before a replacement company was found in Campbell Freight, also from Belfast. The steel sector partner Allied Steel and Wire went into receivership during the second year, affecting both the project management and research. A replacement from the same sector was found, Caparo Tubes. Rhys Davies Freight Logistics withdrew from the project due to internal supply chain problems. While they had assisted in the development of OVE, it was also the intention to involve them in the transport cost modelling. Eventually a replacement in MultiServ Logistics was found, who then provided a valuable contribution to the transport cost model and other elements of the research.

    Research Impact and Benefits to Society
    The research has already led to benefits to a number of companies in the grocery and steel sectors. This includes the logistics service providers, packaging companies, and the suppliers. These benefits are derived both through the publication of findings on the ITeLS website and the two dissemination conferences (see dissemination activities below) supported by the Chartered Institute of Logistics and Transport, the Road Haulage Association, the Freight Transport Association and sponsored by the Department for Transport. Over sixty delegates from industry have expressed further interest in exploiting the ITeLS research within their companies. Academic research has benefited extensively through a large number of articles on ITeLS research output in academic and industrial journals. Further, the two research staff originally employed have been promoted to lecturers within Cardiff University, reflecting the quality of the research in the ITeLS project.