Category Archives: Service Management

Does Lean Leveling Reduce Shipment Variability? 

A nice piece of research on another approach to reducing the economic impact of imbalances between supply and demand in retail. The approach is a two-phase ordering policy. The ‘steady’ phase places EOQ-like regular orders to cover some base level of demand. The ‘balancing’ phase (my terms) orders extra in some periods, perhaps in a more expedited fashion, to handle the peaks and valleys of actual demand.  It amounts to decomposing the demand stream into a steady part and a peak-and valley part, and matching the supply technique to the portion of demand in each ‘frequency’.

The expectation is that problems of promotions, outlet overstocks and shortages, and massive inventory-building on the part of consumers will be addressed at lower cost.  The simulations seem to tell the students that the effect on cost will be positive!

It’s a unique approach, executed for a real business, and therefore rates a careful look. I hope it shows up in a published paper with a heuristic for deciding how to partition the demand forecast.

Article from Supply Chain Management Review

Here’s the article in SCMR where the news was posted.

  Supply chain professionals are often confronted with the challenge of managing highly volatile customer shipments resulting from the bullwhip effect. This volatility leads to supply chain-wide inefficiencies, high operational complexity, low service levels and substantial costs.

Source: Does Lean Leveling Reduce Shipment Variability? – Article from Supply Chain Management Review

Physical Internet Initiative

 

The Physical Internet initiative, started in 2013, is active in 5 European countries.  Here’s a note about who is involved.

  They have a conference in Austria on July 4-6 of this year. http://www.pi.events/

A standard like this could radically change the ocean container shipping business. It would affect landside operations as well.

Among other things it proposes a new form of smart shipping container called a pi-container, which would be able to interact with its contents  as well as with external systems to relay many facts about both the products states and the cargo position. The smart container would also be sized much smaller than a standard ocean shipping container, to support smaller package transport better, and to allow greater unitization and simpler and more automated transloading capability.

But ocean carriers have the largest upfront investment in their standardized container specs, since they must be designed into ships.  It would be very disruptive to have to replace all the current ships, so the path to adoption is clearly long, but the push is coming in some form. The same goes to some extent for air, rail  and truck, but since they often handle smaller product unit sizes anyway and the capital equipment is less costly (except in the case of air, which uses smaller custom containers anyway, and do not match the remaining standards). In the case of air, cargo is frequently carried in passenger planes so the cost is covered by the people not the cargo.  And a lot of air freight is package transport anyway since small size and high value are prerequisites for the much more costly air freight.

I think attention needs to be paid to the economics of migrating to the standard.  In the case of the shipping container the economics drove the transformation.  Economics must drive progress on a new model for transport as well.

Source: Physical Internet: simulation | TRACE

There are some real heavyweights involved in the initiative. Their website is below. It is intended as an open standard, that would encourage all carriers and shippers to use the ideas to simplify cooperation and handling of products during shipment, as well as increase visibility to the discrete product level and allow finer sensing of the many quality dimensions products of varying sorts need during shipment and delivery.

  physical internet initiative

Source: Physical Internet Initiative

Their publications are listed in a tab on their site.

Like most standards groups, we don’t know nor can we predict whether this standard will take hold. It has some big retail and grocery backers, but that is no guarantee.

There aren’t any after 2013, which raises the question whether this initiative is now defunct.

PODCAST: Behind the Flexport phenomenon; Ryan Petersen interviewed 

This interview with Ryan Peterson, CEO of Flexport, is fascinating.  It is well worth registering at the Loadstar in case you don’t already have access.

Ryan points out that only 75% of freight bookings are kept.  This may be a correlative of on time percentage of about the same amount for ocean carriers; but it is more symptomatic of a situation in which the uncertainty breeds more uncertainty.  It’s like new product introductions; no one knows if your new product (disk drive, for example, in the business I was in years ago) is going to sell; it has plenty of promise, but also lots of competition. As a result your distributors (NVOCCS and freight forwarders) over-order, trying to convince you they can peddle lots of them, for fear that they will be cut out of the allocation when you start to deliver but can’t give them their whole order.  In a sense, for an ocean alliance every voyage is like a new product launch. People over-order, they plan, but can’t full ships, so they cancel (or reroute, changing schedule).  It’s a no-win for everyone.

Ryan is right in my view; data and sharing it can help. The issue is whether companies can be talked into sharing data.  That’s what his firm is partially about– facilitating the exchange (for a price of course!). And for many firms, shippers and carriers, it should be worth it; a trusted intermediate can greatly reduce transaction costs.

Listen up– you’ll learn a lot!

Source: PODCAST: Behind the Flexport phenomenon; Ryan Petersen interviewed – The Loadstar