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Operations Management and Logistics

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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

2 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

3 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

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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

4 Maritime Transport Systems .............................................................................40 4.1 Container freight......................................................................................................40 4.2 Vessels .....................................................................................................................41 4.3 Terminals..................................................................................................................42 4.4 Brussels Airport: strategic development ..............................................................42

5 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

6 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

7 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

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

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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 o 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 point-

of-consumption for the purpose of conforming to customer requirements o Originally a military concept: efficiently getting people and materials to a certain point o 60s: companies began to see the importance: professionalization of peripheral

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

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

o 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

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- 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

o 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

o 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.

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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 o Efficiency: effectiveness at the lowest cost o 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)

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

o Core competencies: the unique strengths of a business

- Alignment is needed between business strategy, supply chain strategy, purchasing strategy and manufacturing strategy

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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 o 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 o 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

o Within strategic cost management focus on: ! Standardisation of products and processes

! Supplier and production quality

! Inventory control

o 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

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- 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.

o 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

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

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

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

o 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

o 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

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- Competing on innovation o Cutting-edge, must have o Time to market and time to volume o 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

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

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

1.3 New trends

1.3.1 Globalization

- Drivers of globalization o Integration: regulatory chains, harmonization of regulatory regimes, trade

agreements

o Production: supply chains, off shoring, global production networks, o Transportation; transport chains, containerization, transborder transportation o 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 o Standardized: 20-40 feet o 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

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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:

o Make-to-stock: traditional operating strategy: very efficient when demand is stable o Assemble-to-order: wait for an order before completing the product o Make-to-order: wait for the order before assembling the product (e.g. car industry) o Purchase-to-order: only buy materials when orders comes in (e.g. building industry) o Virtual factory: when a project comes in start to look for partners (e.g. Cisco)

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

1.3.3 E-commerce

- Consumers were relatively late to adopt e-commerce in Be + retailers waited too long - Problems with e-commerce o Last miles of delivery account for 20-60% of the distribution costs o Often people are not at home during delivery o Expensive free shipping - New developments o Drones (not very probable) o Lockers where products are delivered (e.g. B-post) o More and more people live alone: leads to more product deliveries and packaging o Direct delivery from the manufacturer to the customer?

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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 o Container and pallet control o Automatic checkout o

=> Extra information about the supply chain - Dematerialization (everything becomes smaller and smaller) o = Reduction of material use per unit quality of life o Miniaturization, lightweighting o Shifts towards services o Digitisation of physical products: entertainment, news and educational content - Major improvement in material efficiency o Increase modularisation and remanufacturing: more closed loop supply chains? o 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) o 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)

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1.3.7 Impact

- Results of those trends: o All have an impact on the determinants o All this determine the indicators o A lot of transportation is outsourced (71,7%) o 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 o Competitive priorities: cost/quality/innovation (time and flexibility) o 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

o Impact on climate and other external costs

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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

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

o 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)

o Cost: transport, inventory and handling cost o Sustainability: environmental, social and economic - Important to be clear about the business you are in o Be clear about type of products

! Not in business of very long-lasting products

! Not in business of very short-lasting products

o 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)

o 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 o 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)

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o 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

o 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 o Move to more local manufacturing (more plants) o Load trucks as fully as legally possible (weight " space) o 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)

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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 Chapter 9: Capacity planning and facility location

2.1 Sourcing

- Supply chain management (SCM) basics o Remote production > increased need for integration > supply chain management o SCM is born out of logistics management but has grown beyond logistics. o Competition between supply chain models: The activities along the supply chain form

together a system that is hard to duplicate.

o Source/Make/Deliver/(Return) = execution activities, next to planning (demand against supply) and enabling activities (compliance, KPIs, ...)

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- 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

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- 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)

o 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)

o 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 o Sales channels: how will customers order and receive your goods and services o Value system: which activities are executed by your own organization?, which by your

partner?

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

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

2.2 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)

o During the industrial age labour and capital were important competitive advantages o Now, in the smart economy, know how is the most valued advantage o Future: robot economy?

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- 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

o Close to the customer of it is customer driven ! Strong interaction with the market and low mobility

! E.g.: perishables

o 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

o 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

o On the other hand: communication/mobility ! Transport (in/out logistics)

! Co-ordination costs

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

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- Five steps when deciding where to build (in order of importance) o Market prospects o Capacity analysis o What to build? o When to build? o 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

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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

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

o Country model: production takes place locally: high transportation costs, perishable, import restrictions, - Composite strategies

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- 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.

o 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 o Rationalise o 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,

o 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

o Physical move cost of moveable assets o Communication costs

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

! Internal communication

o 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

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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 o Load-distance model: evaluate alternative locations based on distance o Centre of gravity approach: larger penalty on long distances o Break-even analysis: compute the break-even point for different locations o 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 o Capacity planning is the process of establishing the available capacity:

! Strategic issues: capital expenditures in facility & equipment

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

o Measuring capacity: e.g.: Car manufacturers: labour hours => cars per shift - Available capacity o Design capacity: maximum output rate under ideal/theoretic conditions o Effective capacity: maximum output rate under normal/realistic conditions o 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

o Diseconomies of Scale: ! Where the cost per unit rises as volume increases

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

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

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

o Subcontractor networks: outsource non-core items to free up capacity for core items o Capacity cushions: plan to underutilize capacity to provide flexibility

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- 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;

o Step 3: Evaluate capacity alternatives (for example with decision trees) - Decision trees: o A modelling tool for evaluating sequential decisions o Identify the alternatives at each point in time (decision points), estimate probable

consequences of each decision (chance events) & the ultimate outcomes (profit/loss)

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

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

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! 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 o Methods:

! Decision tree

! Factor rating method

! Load distance model

! Centre of Gravity model

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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 o Chapter 13: Aggregate planning o Supplement D: Master scheduling and rough-cut capacity planning o 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 o At the right time = not too late & not too early! o Founded on the concept of eliminating waste (=anything that doesnt add value) o 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) o 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)

o Simplicity: the simpler the solution, the better o Continuous improvement: a philosophy of never-ending improvement (" 1 time

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

o Flexibility: a company can quickly adapt to the changing needs of its customers o Visibility: problems must be visible to be identified and solved

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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

o 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

o 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 If products are not requested, they are not produced => no excess inventory - Kanban production o 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

o Very visual: kanban cards and containers are placed in clearly visible areas o 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 o 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 o Same mix of products is made every day in small quantities

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- Flexible resources o General purpose equipment capable of performing a number of different functions o 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 o Streamlined flow of material o 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 o Translate customer needs into measurable terms o Measure quality on an ongoing basis o Set improvement targets and deadlines o 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

o Preventive maintenance: avoid unexpected machine stoppages o Work environment

! Order and simplicity

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

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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 Participation by all employees is vital to the success of JIT: ! Use of bottom-round management: consensus management by teams

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

o Lifetime employment o Role of management: create the cultural change necessary for JIT to succeed o Supplier relationship: focus on building long-term supplier relationships

3.1.6 Benefits of JIT

- Benefits of JIT o Smaller inventories o Improved quality o Reduced space requirements Shorter lead times o Lower production costs o Increased productivity o Increased machine utilization o Greater flexibility

3.1.7 Implementing JIT

- Steps in implementing JIT Manufacturing o Make quality improvements: identify and fix problems o Reorganize workplace

! Remove clutter and designate storage

o Reduce setup times o Reduce lot sizes and lead times o Implement layout changes

! Cellular manufacturing and close proximity

o Switch to pull production o Extend methods to suppliers and develop relationships - Almost the same for service companies

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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)

o 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

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

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3.2.1 Types of aggregate plans

- Level Aggregate Plans: o Maintains a constant workforce o Sets capacity to accommodate average demand o Often used for make-to-stock products like appliances o Disadvantage: builds inventory and/or uses back orders to absorb fluctuations - Chase Aggregate Plans o Produces exactly what is needed each period o Sets labour/equipment capacity to satisfy period demands o Disadvantage: constantly changing short term capacity - Hybrid Aggregate Plans o Uses a combination of options o Options should be limited to facilitate execution o May use a level workforce with overtime & temps o May allow inventory build-up and some backordering o May use short term sourcing

3.2.2 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

o 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

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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

o Magnitude of change: the relative size in the change needed ! Larger changes need more dramatic measures

o 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 o Possible approaches:

! Try to proactively shift demand away from peaks

! Use overtime or subcontracting to handle peaks

! Allow lost sales

3.2.4 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

o 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

o 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)

o Step 4: Test the aggregate plan as follows: ! Calculate Inventory, expected hiring/firing, overtime needs

! Calculate total cost of plan

o 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

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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

o 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

o 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

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

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- 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.

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

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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.

o Capacity requirements planning (CRP): Determines the labour and machine resources needed to fill the open and planned orders generated by the MRP.

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

o 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

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- 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

o 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)

o 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

! Often require planners to rush or expedite orders

o 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

o CRP uses planned orders

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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

o 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

o Corporate core values: quality, safety and environmental care - Volvo Group truck operations o 5 main brands within truck portfolio o 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)

o 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)

o 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

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- Not longer business as usual o The consolidation of the truck businesses and the changes will continue: bigger,

better, faster and more efficient

o Also in Europe less but bigger manufacturer o Worlds largest cities by 2025 will be situated in Asia and Africa (megacities: extra

need for transport)

o Innovation is key to become the world leader in sustainable transport solutions o Competition is tough o Cycle time for truck renewment ( cars): pace is speeding up due to customer

demand but also because of regulation

o Industry took a major hit in 2009 (see charts on slides for figures Volvo) - Strategic objectives Volvo Group Trucks (2013-2015) o 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

o To become the best in safety, delivery and cost o Strict time frame considering delivery: promise to deliver every order in 8-12 weeks - Volvo Assembly Concept: Volvo Production System (VPS)

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o 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 Order to delivery process

! Lead time: promise to deliver in 8-12 weeks

! Delivery precision

o Market demand ! Levelling

! Rebalancing

o Line flexibility: tractors vs. rigids - High volume o Increase capacity up to 200 HD

trucks/day (2 shifts): technical

o Optimize fishbone concept ! Modules

! Pre assembly

! Assembly line

! Logistics

o 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

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- 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.

o Continuous improvement ! Problem solving: plan-act-do-check model

! Three types of waste:

Muri: difficult/impossible operations (ergonomics/safety)

Mura: unforeseen operations

Muda: waste

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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

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

o 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)

o Started in 60s in US: standard box mainly shipped through transatlantic trade lanes o Now: much more trade lanes (highways) o Far east trade lane is the longest and uses the biggest ships (50 days) o 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)

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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

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

o Ocean freight rates depend on some factors:

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4.3 Terminals

- Deep Sea container terminals (like Antwerp for instance) o Example: Antwerp o 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. o Shipper pays THC to ocean carrier o Line negotiates LSP/terminal contract with terminal

! Lot of bargaining power: can easily choose another port

! LSP: logistic service provider

o 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

o Antwerp vs. Rotterdam: Rotterdam is slightly more expensive o 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 o Connection disappeared: start of worst period in history for Bruges o 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 o Theory: todays modern cities are not growing around ports but around airports o 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

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- Example: the economic and employment impact of aviation in Dubai (see slides) o Strategic choice of government in Dubai to invest in airport o Good location to become a hub in the world o 1/3 of the people in Dubai earn money directly and indirectly through the airport o 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 o 3% of all value traded worldwide

! Everything that needs to move fast

! Knowledge is carried by people: opt for a plane

o 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 o 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

o Integrators (e.g., DHL): door to door ! Integrators own the totally of the value chain

! More possibilities in terms of innovation

o 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

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- Future? 4 threats to the airfreight industry: o Ecological awareness o Cost of transport o Increasing labour cost in developing regions (companies are re-shoring their activities

closer to their markets)

o 3D printed planes? ! Already 3D printed components

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

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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

o 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 o 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

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

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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

o 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

o 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

o 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

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- 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

o Barge transport: ! 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

5.3 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

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

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- Modal choice criteria o Market price o Reliability o Time o Frequency o Safety/absence of losses o Flexibility o 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

o 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

o 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)

o Road still represents a big part of intermodal transport

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5.5 The future?

- Transport demand is expected to increase o But there is already enough congestion o 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 ! Challenging?

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

o Railway network: some bottlenecks need to be fixed of we want to expand their use o Capacity limitations with inland waterways: water level and the height of bridges

! Predictability of water levels decrease because of climate change - More opportunities too: o Road pricing: vignettes, tolls, are making the road less attractive o New propulsion systems of barges (also becoming greener) o 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

o 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

o 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

o Increased use of pallets o Port hinterland competition: ports try to extend their hinterland

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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.

o 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.

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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

o 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 o Develop an end-to-end process architecture o Design organization for performance o Build the right collaborative model o Use metrics to drive business success

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- 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 o Routes to market can depend on product and shipment characteristics

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- The role of a distribution centre (DC) o DC always means an interruption of the goods flow, which results in additional costs o 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

o EDC: European Distribution Centre servicing customers in Europe or RDCs and NDCs in Europe with replenishments

o RDC: Regional Distribution Centre servicing customers in a region (several countries) with fast and slow movers

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

o LDC: Local Distribution Centre servicing customers in a certain part of country o Satellite: RDC or NDC servicing customers in a region (several countries) with fast-

movers only

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

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- First step: distribution network design

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

55

- 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

o 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

o 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)

o If you centralize your inventory, you can reduce the amount of safety stock o Handling and replenishment: upwards sloping because of scale economies o Customer delivery transportation decreases with number of warehouses

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

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6.3 Warehousing

- Warehouse activities o Inbound cycle: unload from truck, receiving inspection, put away in storage o Outbound cycle: pick from storage, VAL, consolidate, load on truck - Components for warehousing o Infrastructure o Storage equipment o Handling equipment o Methodology o Processes o 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)

o Narrow aisles: condense storage for many SKUs, high throughput volumes o Medium aisles: many SKUs, medium throughput volumes o Wide aisles: many SKUs, large handling units (very rare, only when products are

very big, e.g., carpets)

o Drive-in racks: condense storage for few SKUs o Shuttle systems: very condense storage for many SKUs,medium throughput volumes o Gravity racks (least sophisticated): condense storage for few SKUs (FIFO) - Special picking concepts o Kardex (carrousel) o Pick to light: Light displays direct operators to specific stock locations o Sorter - Product identification o Pen and paper o Barcode o Voice technology o RFID taps (less popular for a while but popular again

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- Warehouse volume o Different potential setups for warehouses based on the volume per week o Capacity and cost calculations based on averages are often not relevant o 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 What Why

EDC + RDC/satellite Service lead-time Automotive spare parts Manual operations Service reliability and product diversity

EDC + satellite Working capital A FMCG company From highly automated to more

manual operations Changing demand profiles/agility implementation speed

EDC Working capital Medical device company Manual operations Scale of operations

EDC + RDC/satellite structure Service lead-time A food company Automated operations Replenishment of profiles, scale of

operations, condense storage Central warehouse Working capital, economies of scale A retailer Manual operations Diversity in product range

6.4 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

Reduce cost and efficiency at the core of every decision

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

o 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

o Mission statement: together, we create sustainable added value through value-driven craftsmanship in retail

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- 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

o 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)

o 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

o 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)

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o 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

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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 Introduction: the supply chain

- End of the supply chain o Bring goods the last mile to supply stores, horeca, e-commerce, construction... o 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 o Growing challenges of urban distribution: congestion and emissions

7.2 Stakeholders

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- 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 (

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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:

Time windows: only deliveries between those hours

Vehicle access: only cares lower th