F. Cloud Logistics Systems: Reference Architecture Design 257
III. Infrastructural and Functional Perspectives on Logistics Systems
2. Processes, Resource Design Parameters, and Influencing Factors
2.1. Storage
Storage occurs within the nodes of a logistics system. It transforms goods in time, and thus creates time utility (Coyle et al. 2003:285), which can manifest in different ways.
As Ballou (1999:246f.) describes, time utility can (a)coordinate supply and demand by being able to satisfy (seasonally) fluctuating demand from a (security) stockpile of goods produced earlier rather than from current production; (b)reduce transportation costsby storing and consolidating goods prior to transportation over a certain period of time, thus
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increasing the utilization of transportation resources; (c)assist in production processesby storing goods during aging periods (e.g. cheese); and (d)assist in marketing processesby storing goods close to customers, thus enabling quick order fulfillment.
Facilities that provide storage space are typically referred to aswarehouses. Warehouse design is a highly complex issue that takes various design parameters into account (see e.g.
Rouwenhorst et al. 2000; Rowley 2000; Nehm & Veres-Homm 2012), but for the purposes of this thesis, considering three basic design parameters is sufficient: (1) location, (2) storage system, and (3) handling system. The handling system is discussed together with handling activities in the following subsection (see Subsection B.III.2.2).
Locationrefers to both the geographical positioning as well as the relative positioning of warehouses in the process of manufacturing and distributing goods. Warehouses can be positioned as either (a)sourcing-, (b)production-, (c)distribution-, or (d)transportation- oriented (see e.g. Pfohl 2010:112ff.; Bowersox & Closs 1996: 499ff.). Depending on their positioning, the warehouses’ primary functions differ as does the importance of storage processes therein (see e.g. Coyle et al. 2003:285ff.; Pfohl 2010:112ff.). Production-oriented warehouses serve the primary purpose of providing long-term storage, either before or after production, and hence usually have a comparatively high storage capacity. Sourcing- and distribution-oriented warehouses primarily consolidate inbound flows from multiple
suppliers or break up flows towards customers. Storage capacity and duration are often lower than in production-oriented warehouses. Transportation-oriented warehouses serve the primary purpose of sorting and mixing different flows of goods between multiple origins and destinations and hence offer no storage capacity, or only very little for very short periods of time.
Various factors influence the location of warehouses. For instance, identifying a suitable location, among other things, depends on labor costs and availability, land costs, and local taxes (Ballou 1999:438; Bowersox & Closs 1996:407). A full review of factors is beyond the scope of this thesis. However, for our purposes, two factors are of particular importance: lead time for order fulfillment andaccess to macro-logistics transportation infrastructure(Ballou 1999:438; Bowersox & Closs 1996:407). It can be argued that the need to fulfill orders with short lead times typically results in warehouses being positioned closer to customers. It can also be argued that the less important the storage processes in a warehouse, the more important the access to macro-logistics infrastructure.
Thestorage system refers to the physical logistics resources installed in a warehouse to enable short- and long-term storage. The nature of a storage system critically depends on two design parameters: (1) physical storage equipment; and (2) building type. Two fun- damental categories ofphysical storage equipmentcan be distinguished: (a)floor storage and (b)racking storage(see e.g. Schulte 2005:225). While floor storage is self-explanatory, several types of racking systems are described in the literature, including pallet, high-bay, and gravity flow racking (first-in-first-out), shelving racks for boxes, drive-in racks (last- in-first-out), and special racks tailored to the unique requirements of a single good (see e.g. Schulte 2005:226ff.; Pfohl 2010:127ff.; see rack examples in Coyle et al. 2003:330).
The nature of the storage system further depends on thebuilding typein which the stor- age equipment is installed. This is because a building can protect storage equipment from environmental influences andvice versa, for example by actively controlling interior temperature or humidity or by providing additional security features against pilferage.
The factors that primarily influence storage system design are thephysical properties of the goods to be stored (Bowersox & Closs 1996:433; Ballou 1999:438) in terms of size, weight, volume, value, fragility, and susceptibility to temperature and humidity changes.
These properties determine the requirements for the storage equipment. In addition, the variation in physical propertiesis critical, as a high variation makes it less likely that all goods can be stored efficiently using the same type of equipment.
2.2. Handling
Handling refers to all short-distance movement and short-term storage activities related to the transfer of goods between logistical resources, including transfers from transportation
to storage resources, from storage to transportation resources, and between transporta- tion resources (Stein 2012:600). These processes transform the flow of goods in terms of quantity and composition and thus provide a “sorting function” by separating, mixing, selecting, and grouping goods (Stein 2012:600; Ihde 2001:2). Handling thus creates value by structuring the flow of goods according to customer requirements (Stein 2012:601).
Handling processes can be broken down into four generic steps: (a) unloading received goods from incoming transportation resources, (b) deconsolidating goods (break-bulk), (c) sorting goods to create a new structure in terms of quantity and composition (consol- idation), and (d) loading goods onto outgoing transportation resources (Stein 2012:601).
Handling processes occur within the nodes of a logistics network and are therefore inter- twined with storage processes (see “warehouse operations” in Coyle et al. 2003:299ff.).
The relative importance of handling processes increases with a decreasing importance of storage processes and vice versa. Therefore, handling processes are most important in transportation-oriented warehouses and least important in production-oriented ware- houses. Nevertheless, despite these differences, both handling and storage processes al- ways take place in every logistics node.
Literature distinguishes between two sub-types of handling: (1) transshipment and (2) order picking (commissioning). The distinction hinges on whether received and deconsol- idated goods are stored for a longer period of time before being sorted and shipped again (Stein 2012:601).Transshipmentrefers to the case in which goods are sorted and grouped according to subsequent transportation destinations directly after their reception, with- out long-term storage. This primarily takes place in transportation-oriented warehouses, which is why they are often referred to astransshipment terminalsorhubs. Order picking refers to the case in which goods are stored after reception and picked later from the stor- age system in order to fulfill a specific (customer) order. Hence, order picking especially occurs in distribution-oriented warehouses.
Thehandling systemrefers to the physical resources necessary to facilitate short-distance movement and short-term storage. As handling processes take place in logistical nodes, the handling system becomes a design parameter of warehouses and transshipment ter- minals. The nature of such a system critically depends on two design parameters: (1) short-distance movement equipment and (2) short-term storage equipment.Short-distance movement equipment can be defined according to the characteristics of the goods flow:
(a) a discontinuous-flow flexible path uses hand trucks and forklifts; acontinuous-flow fixed pathuses equipment such as conveyers and draglines; and adiscontinuous-flow fixed pathuses equipment such as monorails, live-roller conveyer, and stacker cranes (see Coyle et al. 2003:333; Pfohl 2010:128f.). Factors that influence the design of the short-distance movement system include the physical properties of goods (Coyle et al. 2003:333) and
variation in physical properties and throughput of goods (Ballou 1999:457). The physical properties determine the requirements for designing the handling equipment in terms of size, volume, and, most importantly, weight. Regarding variation in physical properties and throughput of goods, one can argue that high variation leads to discontinuous-flow flexible path systems, as they are most flexible and can be economically adjusted to vary- ing goods requirements and to capacity fluctuations. More generally, it can be argued that “[m]aterials-handling equipment should be as standard as possible and as flexible as possible to lower costs” (Coyle et al. 2003:313).
Short-term storage equipmentcan be defined according to whether goods are stored dur- ing handling (a) on thefloor or (b) inspecial order picking racks. Floor storage is most common in transshipment terminals, and special order picking racks are most frequently used in distribution-oriented warehouses. Such racks enable an efficient picking process by holding items in smaller quantities and packing units in a very confined space compared to the main storage equipment of a warehouse (which reduces the need for short-distance movement, thus speeding up order fulfillment and reducing costs) (Coyle et al. 1988:259f.).
Factors that influence the setup of dedicated picking racks include(variation in) physical properties of goods, the number of orders, andthe number of items per order (Schulte 2005:246ff.). A high variation in physical properties of goods makes the use of order picking racks less likely, as different goods may not be fitted in racks economically. Fur- thermore, it is reasonable to say that the use of an order picking rack is more likely, the smaller the individual goods, the larger the number of orders, and the more items per order, as these factors all increase the economic benefits gained from special racks.
2.3. Transportation
Transportation provides place utility (Bowersox et al. 1986:22) by moving goods from one place to another (Gudehus 2012:819) to connect dispersed production and consump- tion processes in the economy (Ihde 2001:1). Transportation refers to the movement of goods between the nodes of a logistics network and thus differs from short-distance movements associated with handling processes, which occur within the nodes. Two basic design parameters for transportation in logistics networks are commonly identified: (1) transportation links, and (2) transportation modes (see e.g. Pfohl 2010:150ff.).
Transportation linksbetween a pair of logistics nodes can be established either (a)directly or (b)indirectly(Pfohl 2010:5f.). Direct links do not include a transshipment point, while indirect links do. Thephysical and economic properties of goods in interaction withcon- solidation opportunitiesare important factors that determine the design of transportation links. Regarding economic properties, one can argue that the higher the economic value of goods and opportunity costs in the case of delayed delivery, the more likely the use
of direct links, as transshipment consumes additional time, thus increasing transit time (Coyle et al. 2003:352ff.). As for physical properties, Ballou (1999:45, italics removed) argues that “the smaller the shipment size [relative to the overall capacity of a single transportation resource], the disproportionately greater will be the benefits of consoli- dation.” The link structure furthermore depends on the availability of opportunities for consolidating multiple flows of goods, which is primarily a function of the geographic de- mand structure and the overall economic intensity between connected nodes. The more opportunities available, the higher the likelihood for indirect links. However, indirect links can only be established if the efficiency gains from consolidation exceed the costs and opportunity costs incurred by transshipment (Pfohl 2010:7).
Transportation modesare commonly divided into: air, water (maritime, inland waterway), and land (road, rail, pipeline) (see e.g. Pfohl 2010:154ff.; Coyle et al. 1988:330ff.). For the remainder of this thesis, we distinguish between (a)air, (b)water, (c)road, and (d) rail, thus consolidating “maritime” and “inland waterway” transport into the aggregate category “water” and neglecting pipeline transport. Important factors that influence mode choice include cost and performance properties in interaction with physical and economic properties of goods. Transportation modes can be evaluated with several cost and performance criteria (Schulte 2005:170 and sources therein), as depicted in Table 1.
The interactions between these modes and the properties of goods to be transported can be illustrated by few examples: oversized goods may require water transport as they cannot fit into airplanes; high value goods warrant fast transportation due to high capital costs; fast moving consumer goods require fast transportation due to high opportunity costs resulting from lost revenue in the event of stock outs; and air transport cannot enable door-to-door links and thus needs to be combined with road transportation (see e.g. Coyle et al. 2003:350ff.).
Criteria Definition Assessment (least is best) Rail Road Water Air
Costs line-haul rate, accessorial charges 3 4 2 5
Speed elapsed time of transportation link 3 2 4 1
Availability ability to directly connect any pair of nodes
2 1 4 3
Capability ability to transport any type of good 2 3 1 4
Frequency quantity of scheduled links 4 2 5 3
Table 1.:Comparative Costs and Performance Assessment of Transportation Modes (based on Bowersox & Closs 1996:325f., except for “costs” which is based on Coyle et al. 2003:342, 356)
2.4. Packaging, Load Unitization, and Labeling
Packaging refers to the detachable, partial or full wrapping of goods (Pfohl 2010:134).
Hellstr¨om & Saghir (2007:198f.) distinguish between three nested, hierarchical levels of packaging: primary, secondary, and tertiary. The first refers toconsumer packaging and the second and third toindustrial packaging (see e.g. Coyle et al. 2003:316f.; Bowersox
& Closs 1996:436f.). Consumer packaging comes in direct contact with the goods and serves the primary purposes of informing and appealing to customers (see e.g. Coyle et al.
1988:53f.). Industrial packaging, which we focus on, emphasizes logistical aspects.
Industrial packaging interacts with all other logistics processes and thus impacts the over- all efficiency and effectiveness of logistics systems (Hellstr¨om & Saghir 2007:198f.; Bow- ersox & Closs 1996:435). It specifically creates (or diminishes) value by transforming the transportation, storage, and handling properties of goods (Pfohl 2010:8f.), thereby serv- ing the following purposes (see e.g. Coyle et al. 2003:315f.; Bowersox & Closs 1996:436ff.;
also see Ballou 1999:66f.; Pfohl 2010:134ff.): (a) to protect goods from environmental influences (e.g. punctures, heat, humidity, pilferage) and protect the environment from the influences of goods (e.g. leakage) during storage, handling, and transportation; (b) to facilitate efficient storage, handling, and transportation by reducing or automating handling processes and by increasing utilization of storage and transportation capacities;
and (c) to transfer information about goods through labels. These logistical goals can be achieved using two levels of industrial packaging: (1) master cartons and (2) (standard- ized) unit loads (see e.g. Bowersox & Closs 1996:436f.) in combination with (3) labels.
Master cartons, unit loads, and labels thus become critical design parameters of logistics system design.
Master cartonsrepresent the basic handling unit in a logistics system and refer to any type of box, bin, bag, or barrel used to group several individual products (Bowersox & Closs 1996:436ff.). The specific design parameters of master cartons differ across types; for ex- ample, boxes need to be designed in terms of physical dimensions, material strength, and shape (Coyle et al. 2003:316). Considering these parameters in more detail is not required for the objectives pursued in this thesis. The design of master cartons depends primarily on thephysical and economic properties of goods; theexpected exposure to environmen- tal influences; and theproperties of the storage, handling, and transportation equipment already deployed in the logistics system(Pfohl 2010:137ff.). For example, physical prop- erties of goods determine the size and shape of cartons; the economic value, fragility, and intensity of exposure to natural forces determine the degree of required protection; and the properties of the existing resources determine the need and economic justifiability for reconfiguring those resources to make them compatible with cartons. Carton design needs to balance these factors to achieve an optimal tradeoff between, inter alia, the utiliza-
tion rate of storage and transportation capacity, packaging costs, the anticipated share of damaged goods, and ease of handling (Pfohl 2010:137f.).
Standardizing the design of master cartons (within a logistics system) is important to enable efficient storage, handling, and transportation (Bowersox & Closs 1996:437). Stan- dardization reduces the need for repacking and restacking goods during handling (see e.g.
Bowersox & Closs 1996:445) and for retrofitting a system’s storage, transportation, han- dling, and order picking resources as long as the same or compatible cartons are used for packaging different types of goods. However, standardized master cartons may not align with the physical and/or economic properties of all goods that are stored, handled, or transported by the logistics system. For example, cartons may be too large for cer- tain goods, thus wasting logistical capacity. Thus, thevariation in physical and economic properties of goodsis a critical factor that influences the (economic) ability to standardize.
Yet, as homogeneity of goods can often not be achieved, logisticians frequently suggest using modular master cartons of different sizes (see e.g. Bowersox & Closs 1996:438 USB;
Pfohl 2010:147ff.). Each size can be used to efficiently package a specific type or number of goods, and all boxes can be grouped efficiently to fit with larger standardized load units (Specter 2012:14).
Unit loadsrepresent the second level of packaging as they combine several master cartons into a single logistical unit for storage, (long haul) transportation, and handling. This grouping process is calledunitization (Bowersox & Closs 1996:442) and primarily aims to increase operative logistical efficiency by increasing the number of goods that can be transformed at once (which reduces handling steps and time) (Ballou 1999:261), by enabling handling through mechanized or automated equipment (e.g. fork lifts) (Ballou 1999:261; Pfohl 2010:141f.), and by increasing the utilization of storage and transportation capacity. Unitization is commonly achieved by means of (a)containers and (b) pallets (Ballou 1999:261; Pfohl 2010:142ff.). Containers are large rigid metal boxes typically of cuboid shape that are stackable and can be loaded from one of their front sides. Pallets are portable platform devices on which goods can be loaded (Bowersox & Closs 1996) and secured using stretch/shrink wrapping, rope ties, and strapping. The design of unit loads essentially depends on the same factors as for master cartons, as containers and pallets simply represent another layer of industrial packaging. Hence, containers and pallets are available in different sizes and with different loading properties in order to match various physical and economic properties of goods and different types of transportation resources. For example, air transport uses special pallets and containers (referred to as unit load devices (ULDs)) tailored to different aircraft types. Hapag-Lloyd (2010), an ocean carrier, offers six basic container types (e.g. general purpose, ventilated, and temperature-controlled), thus providing suitable choices for goods with different physical and economic properties.
The specifications of containers and pallets have become highly standardized over the last decades, which is why unit loads are often referred to asstandardized unit loads.
For example, the ocean freight container was introduced in 1956 and standardized by the International Organization for Standardization (ISO) in 1968, the Euro-pallet was introduced in 1961. Standards regulate the specifications that determine the storage, transportation, handling, and stacking properties (such as length, width, height, maxi- mum weights, and stacking interfaces), thus enabling wide operative logistical efficiency by ensuring that logistics resources deployed at different locations are compatible with unit loads. In particular, standardization focuses on the potential to automate and use machines to handle unit loads (Schulte 2005:150) by reducing the variation in physical properties of grouped master cartons. Unit load standards are most often governed by international bodies, such as the ISO and the International Air Transport Association (IATA) (see “Unit-Load-Device Panel” IATA 2014), thus increasing efficiency in inter- national trade, especially in air and ocean transport. Hence, the latitude for designing unique unit loads for international trade is rather limited, as retrofitting transportation resources would be too costly. Therefore, design choices in logistics systems are usually limited to selecting the most suitable standardized unit load. Nevertheless, logistics man- agers occasionally developspecial standardized unit loads, which are standardized in terms of their external loading and stacking interfaces, but specialized internally to align with unique goods properties (e.g. special Euro-pallets for car parts). Such unit loads may only become a “standard” in a single logistics channel but, in some cases, can encompass an entire industry.
Labelsare attached to master cartons and unit loads. Labeling focuses on the transfer of information about goods (e.g. providing handling instructions, enabling tracking). Design parameters regarding labels include the location of the label, the amount of information it carries, and the label type (Hellstr¨om & Saghir 2007:203). Typical label types include European Article Number (EAN) codes, RFID tags, bar codes, and color codes. Factors that influence label design includegovernmental regulationregarding the identification of certain types of goods (Pfohl 2010:139) as well asreadability and traceability requirements of the logistics system (Hellstr¨om & Saghir 2007:203).
2.5. Order Processing
Order processing aims to enable firm-internal value creation processes in a market- conforming manner by transforming market-induced customer orders into firm-internal operative instructions (Straube 2004:154). Customer orders express a customer’s require- ments and thus represent the input for order processing. In meso-logistics systems, orders usually manifest in contracts that legally bind logistical actors. Logistical order processing serves the specific purpose of enabling the information flow that precedes, accompanies,