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Today we are going to look at the world of logistics through the eyes of the logistics provider. This is not an easy task because logistics today are characterized by high transportation speed, high capacity and various kinds of mass data caused by a growing global network and information technology. When combined, these provide a lot of scope for action. Yet, how can the logistics provider decide which solution is best?

Mathematical optimization processes enable logistics providers to weigh up their options and find the best solution. However, there is so much more involved than simply recommending which course of action to take. All of this will be looked at more closely in our next blog entry about our Blueprint OPTANO logistics. This is because when we first consulted our experts on writing this entry, it quickly became apparent just how extensive the logistics sector actually is. So for now we are going to look at the world of logistics in detail:

Once upon a time…

The building of the pyramids – a logistical masterpiece

If the pyramids were to be built today, then the blocks of stone  would have to be transported from all of Europe’s quarries. A pyramid consists of approx. 2.6 million blocks of stone,  which have a minimum weight of 2.5 tons each. A construction firm would be working on this project for more than five years. These numbers give us an idea of just how great a challenge it was to build the pyramids in Egypt around 2550 b.c. The organization, transport and storage of these massive stone blocks were planned right down to the very last detail – it was, quite simply, a logistical masterpiece.*

Logistics today

In the last few decades, logistics has become very important for the industrialized nations in particular and today it is one of the most important terms used in the business world. In Germany, logistics is one of the largest economic sectors after the automobile and trade industries. It has become especially important since companies can hardly make any savings on wage and production costs. However, logistics enables the use of economies of scale: For example, car manufacturers operate a global network: axles, engines, gearboxes and vehicles are manufactured at different locations. This increases efficiency – provided that a well-coordinated logistics system is in place. Higher transport and storage capacities, increased speed as well as growing networking mean that the logistics provider has a far greater range of options at his disposal and is thus more flexible.

Logistics means the transport and storage of goods. The question the logistic provider has to ask is: how does the freight  – e.g. production parts – reach one location to the next as fast as possible?

The six Rs of logistics can help to answer this question more clearly:

  • the right product
  • the right place
  • the right time
  • the right quantity
  • the right quality
  • the right price (costs)

The fact that the main objectives and significance of logistics are constantly being enhanced is demonstrated by an addition to the 6 Rs – which are meanwhile also known as the 7Rs. This shows us that future additions or extensions – based on Industry 4.0 and the Internet of Things – are unlimited. The addition of

  • the right information

came about due to the need to integrate all logistical procedures in so-called ERP systems by using information technology.

  • The right packaging

such as pallets, containers or charge carriers – has greatly increased in significance. Packaging previously came under the  “right product” category. However packaging is the latest category to be added to the 7 Rs. This is because packaging is becoming  more intelligent (smarter) and in the future it will be able to communicate data such as locations and quantities independently.

Logistics concepts

The logistic provider’s job is to coordinate the challenges of every logistic task with regard to time, space, capacity and costs so that he can find the best possible solution. In procurement policy, which we are focusing on here, there are different kinds of supply concepts. By taking into consideration the pros and cons, the right concept has to be chosen which can also be a combination of individual supply concepts. This, in turn, increases the complexity of the task at hand.

The consolidation concept

The consolidation concept means that deliveries from all suppliers in a regional delivery area are first collected and forwarded to a distribution point, such as a logistics center (the pre-leg). Here, the various delivieries are consolidated and then forwarded as combined shipments to the buyer’s production plant (the main leg). Sorting and making separate deliveries in the target regions are also possible (the subsequent leg).

Diagram – The Consolidation concept

The objectives and advantages which result from commissioning a regional forwarder are:

  • better vehicle capacity by combining part-shipments and, if possible, compensating load peaks by storing at the distribution point
  • minimizing the number of incoming vehicles by combining individual shipments, in particular if these can be sorted at the distribution point
  •  reducing the transportation costs by combining shipments
  •  using central distribution points facilitates scheduling

Several aspects need to be considered before deploying the consolidation concept:

  • The various types of goods must be suitable for combined shipments
  • The goods are not urgent and are called forward on a regular basis
  • To ensure that the concept works as efficiently as possible, the supplier needs to have a high geographical concentration; the main leg should take up a large part of the whole route.

The milkrun concept

The milkrun is a supply concept where one or more forwarders drive to different suppliers one after the other, finally arriving at the buyer’s production plant. The result is a so-called transport cycle. In this cycle goods and empties can be delivered or collected simultaneously. This concept is based on the the American milkman principle. The milkman used to collect the empty bottles when he did his milkrun,  going from door-to-door. However, it is clear that in today’s information age, you only stop by  the supplier who is actually going to hand over the goods. The milkman, on the other hand,  had to go to everyone’s door.

Milkrun

Diagram – the milkrun concept

The objective of the milkrun concept is to achieve maximum vehicle capacity while at the same time keeping the number of empty runs at a minimum. Setting fixed routes and delivery times results in less storage space for companies who are included in the cycle.

Further advantages of the milkrun concept are:

  • lower transportation times and a reduction in transport costs due to fewer trans-shipments
  • fixed routes and replacement cycles
  • the possibility of just-in-time deliveries
  • low capital commitment and storage costs due to small quantities of stock
  • consideration of disposal logistics
  • high capacity utilization and sound planning capability for the forwarder – it isn’t necessary to generate any business to ensure there is a return load; thus low prices can be offered

Challenges of the milkrun concept:

  • the goods must be in regular demand, a dynamic distribution of capacity among the suppliers involved calls for  high process quality
  • The delivery time frames and transport volumes must be given consideration and planning takes up a great deal of time.

Direct transport

With direct transport the goods are transported from the supplier to the buyer’s production plant without any change in the mode of transport. The advantages – but also the disadvantages – are obvious: the goods can be supplied without any delays, flexibly and according to individual requirements as there is no reloading involved. Of course, transport like this is more expensive since you cannot guarantee optimal use of the vehicle’s loading capacity. With regard to the increasing demands on time management in production, direct transport is still not unusual. A particular advantage is the loading sequence: relatively easy sequences can be adhered to (this is necessary for just-in-sequence process chains).

 Disposable or reusable packaging?

If we consider that packaging accompanies the entire logistic process – from production to safe storage and transport as well as easy handling – it is clear just how great an influence it has on the efficiency of the supply chain and logistics. This doesn’t make the logistic provider’s decision on which packaging to choose any easier. Often a strategic decision on packaging cannot be made; instead these decisions are made on a case-by-case basis. The choice of packaging first involves the question of whether to use disposable or reusable packaging.

Disposable packaging

As the name implies, disposable packaging is different to reusable packaging in that it is used once and then disposed of. The most common packaging in the import and export business is that of disposable wooden pallets as well as cardboard packaging and stretch film.  Extremely large or bulky machines or parts require customized disposable packaging for a one-time transport.

Further reasons for choosing disposable packaging can be:

  • disposable packaging is often lighter and cheaper (the longer the trip, the more reusable charge carriers are needed)
  • its treatment and cleaning is not economically viable
  • it saves space and reduces the number of return transports carrying empty loads.

These reasons are  all aimed at cost-cutting when it comes to choosing packaging. However, in an age in which natural resources are depleting, more attention is being paid to the environmental aspects – among others due to the pressure of environmental regulations. Thus it can be said that disposable packaging is indeed  practical – and still the right option for a lot of transports – but not always justifiable from an environmental viewpoint.

Reusable packaging

Reusable packaging is becoming more and more important. Recyclable transport packaging is of course more environmentally-friendly but more frequently it also has economic benefits. A positive side-effect is that there are no work or costs involved in its disposal  and that production areas are cleaner since they tend to generate less dust, fewer splinters and crumbs. It is suitable for all sectors which are characterized by the constant flow of goods consisting of the same products from different suppliers  who manufacture products which are appropriate for this sort of packaging. Containers, europallets, pallet cages and plastic boxes, big bags and carriers are just some examples of the reusable container concept.

Reusable packaging in the automobile sector

Reusable packaging is often designed especially to meet specific requirements. Special nest containers for shock absorbers or  containers made to secure electronic components are just a few examples from the automobile sector. The integration of container management and just-in-time concepts accelerate a lot of processes in the construction of vehicles. The flow of goods involved between the suppliers and the production of vehicles is becoming increasingly efficient.

With regard to the transport cycle it is important to bear in mind that the flow of goods is not symmetrical: empties do not correspond to the supply load. In order to make return transports more economically viable, this also has to be considered in the construction of packaging. Boxes and containers are foldable, collapsible or stacked, thus reducing their volume.

A further reason for using reusable packaging is its robustness and its long life cycle. With regular treatment and cleaning it can be used for many years. In this way, by using reusable packaging, the necessary investments  can be kept as low as possible. Whether the ideal solution is to invest in reusable packaging  or to pay for the procurement, inventory or disposal  of disposable packaging  – that is something the logistic provider has to decide.

However, this discussion would not be complete without mentioning the disadvantages of reusable packaging: caution is advised when it comes to special carriers: a large variety and shorter product life cycles often mean these are uneconomical. Reusables can also be detrimental if there are container bottlenecks when handling empties.

A lot of options mean you are spoilt for choice

The complex range of options we have discussed poses a great challenge for the logistics provider when it comes to the primary question: “how do I transport something from A to B as fast and cost-effectively as possible?”

OPTANO offers logistics providers the answer to this question. Aside from sound recommendations on  which course of action to take, the logistics provider gets further planning advice on issues such as KPI values, cost invoices and pick-up sheets. You’ll learn more about these in our next blog entry on our blueprint OPTANO logistics.