New research was presented at the annual Council of Supply Chain Management Professionals (CSCMP) conference this year. The two-year study, led by Russ Meller, Ph.D. (University of Arkansas) and Kimberly Ellis, Ph.D. (Virginia Tech) from the Center of Excellence of Logistics and Distribution, focused on the sustainability of horizontal collaboration and examined its impact on the profits of all parties involved, including shippers, carriers, and logistics providers.
Dubbed the “Physical Internet” (PI) – borrowing from the term “digital Internet” in which users co-utilize computer servers – the study proposes a framework of logistics that share physical resources, which are enabled by an open, global intermodal logistics system.
Perhaps the most significant and surprising conclusion suggested that as shippers move toward shared systems, their optimal distribution center (DC) networks will change to include many more DCs located closer to customers. For example, in one model, the optimal single shipper dedicated network resulted in six DCs, compared to the optimal PI network with 17 DCs. Costs improved by 5 percent in the PI network and on-time delivery increased from 94 percent to 97 percent. Total highway miles traveled (from source plant to retail DC) in the PI were 29 percent less than the dedicated network.
Research further suggests that the PI network creates a completely different customer delivery scenario. The most notable is that minimum order quantities can be reduced to one pallet in a shared network, with delivery frequency no longer constrained to full truckloads as in many industries. Also, the shorter delivery distances change transportation from a long-haul model to a more predictable and reliable short-haul shuttle model, resembling retail DC-to-store delivery.
This strategic perspective on horizontal collaboration is particularly insightful because logisticians tend to view collaboration from a tactical perspective, with a focus on resource utilization and cost reduction. While few people disagree with the tactical conclusions, they have not been sufficiently compelling to create a scalable business model. If potential users need a more compelling, strategic business case, this study by Meller and Ellis begins to lay it out.
As supply chain partners become more easily connected with cloud computing and more versatile with their third-party logistics services, it seems more probable that horizontal solutions will someday become commonplace. Anyone searching for better service or a more sustainable supply chain can read the report mentioned above and consider taking steps in this direction.
Keywords: transportation management, supply chain management IT, supply chain systems, supply chain solutions, logistics management, logistics & supply chain