Contemporary Operations and Logistics: Achieving Excellence in Turbulent Times [1st ed.] 978-3-030-14492-0;978-3-030-14493-7

This edited collection collates the most up-to-date and important research within the area of operations and logistics m

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Contemporary Operations and Logistics: Achieving Excellence in Turbulent Times [1st ed.]

Table of contents :
Front Matter ....Pages i-xxxiv
Introduction (Peter Wells)....Pages 1-10
Project Management for Effective Operations Management (Daniel Eyers, Mohamed Naim)....Pages 11-27
The Foundations of Sustainability and the Implications for Transport Modes (Paul Nieuwenhuis)....Pages 29-44
Business Model Innovation at the Interface Between Global Production Systems and Local Demand (Peter Wells)....Pages 45-60
3D Printing for Supply Chain Service Companies (Daniel Eyers, Andrew Lahy, Mike Wilson, Aris Syntetos)....Pages 61-79
Zero-Carbon Logistics (Peter Wells)....Pages 81-95
Vehicle Routing Problem: Past and Future (Emrah Demir, Katy Huckle, Aris Syntetos, Andrew Lahy, Mike Wilson)....Pages 97-117
Dynamical Modelling in Operations Management (Xun Wang)....Pages 119-136
Systems Thinking, Engineering and Dynamics in Modern Supply Chain Management (Mohamed Naim, Jonathan Gosling, Junyi Lin, Matthias Holweg)....Pages 137-160
Green Supply Chain Management in Asian Emerging Economies: A State-of-the-Art Review (Ruoqi Geng)....Pages 161-192
Effective Supply Chain Collaboration (Jane Lynch)....Pages 193-218
Strategic Choices in Creating Resilient Supply Networks (Laura Purvis)....Pages 219-232
Horizontal Logistics Collaboration—An International Retail Supply Chain Case Study (Vasco Sanchez Rodrigues)....Pages 233-258
Shipping Economics: Status and Future Prospects (Wessam Abouarghoub, Jane Haider)....Pages 259-279
A Contextual History of Port Research at Cardiff University (Anthony Beresford, Stephen Pettit)....Pages 281-300
Retail Clothing Returns: A Review of Key Issues (Sharon Cullinane, Michael Browne, Elisabeth Karlsson, Yingli Wang)....Pages 301-322
Lean Readiness Index: Assessing Organization Preparedness to Implement Lean (Maneesh Kumar, Vignesh Murugan)....Pages 323-339
Humanitarian Aid Supply Chain Management (Anthony Beresford, Stephen Pettit)....Pages 341-364
Developing a Profitable Online Grocery Logistics Business: Exploring Innovations in Ordering, Fulfilment, and Distribution at Ocado (Robert Mason)....Pages 365-383
Back Matter ....Pages 385-389

Citation preview

Edited by Peter Wells

Contemporary Operations and Logistics Achieving Excellence in Turbulent Times

Contemporary Operations and Logistics

Peter Wells Editor

Contemporary Operations and Logistics Achieving Excellence in Turbulent Times

Editor Peter Wells Cardiff Business School Cardiff University Cardiff, UK

ISBN 978-3-030-14492-0 ISBN 978-3-030-14493-7  (eBook) Library of Congress Control Number: 2019932948 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2019 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland


The editor and authors would like to acknowledge the assistance of Andrew Ivins without whom this book could not have been completed.



1 Introduction 1 Peter Wells 2

Project Management for Effective Operations Management 11 Daniel Eyers and Mohamed Naim


The Foundations of Sustainability and the Implications for Transport Modes 29 Paul Nieuwenhuis


Business Model Innovation at the Interface Between Global Production Systems and Local Demand 45 Peter Wells


3D Printing for Supply Chain Service Companies 61 Daniel Eyers, Andrew Lahy, Mike Wilson and Aris Syntetos


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Zero-Carbon Logistics 81 Peter Wells


Vehicle Routing Problem: Past and Future 97 Emrah Demir, Katy Huckle, Aris Syntetos, Andrew Lahy and Mike Wilson


Dynamical Modelling in Operations Management 119 Xun Wang


Systems Thinking, Engineering and Dynamics in Modern Supply Chain Management 137 Mohamed Naim, Jonathan Gosling, Junyi Lin and Matthias Holweg

10 Green Supply Chain Management in Asian Emerging Economies: A State-of-the-Art Review 161 Ruoqi Geng 11 Effective Supply Chain Collaboration 193 Jane Lynch 12 Strategic Choices in Creating Resilient Supply Networks 219 Laura Purvis 13 Horizontal Logistics Collaboration—An International Retail Supply Chain Case Study 233 Vasco Sanchez Rodrigues 14 Shipping Economics: Status and Future Prospects 259 Wessam Abouarghoub and Jane Haider 15 A Contextual History of Port Research at Cardiff University 281 Anthony Beresford and Stephen Pettit

Contents     ix

16 Retail Clothing Returns: A Review of Key Issues 301 Sharon Cullinane, Michael Browne, Elisabeth Karlsson and Yingli Wang 17 Lean Readiness Index: Assessing Organization Preparedness to Implement Lean 323 Maneesh Kumar and Vignesh Murugan 18 Humanitarian Aid Supply Chain Management 341 Anthony Beresford and Stephen Pettit 19 Developing a Profitable Online Grocery Logistics Business: Exploring Innovations in Ordering, Fulfilment, and Distribution at Ocado 365 Robert Mason Index 385

Notes on Contributors

Dr. Wessam Abouarghoub  holds a Ph.D. in maritime economics and a master’s degree in shipping trade and finance from CASS Business School. He started his carrier as a Merchant Navy Senior Officer serving on board different types of ships such as tanker, cargo and passenger ships, for 6 years. He is currently a Lecturer in Logistics and Operations Management at Cardiff Business School, Cardiff University, teaching subjects such as Maritime Economics, Shipping Finance and Management, Operations Management and Business Data Analytics. His research interests include maritime economics, shipping finance, risk management, shipping business analytics and the wellbeing of maritime personal. He has published in world leading journals including International Journal of Production Economics, Transportation Research Part D: Transport and Environment and Transportation Research Part E: Logistics and Transportation Review. His industry experience and academic research have provided him with specialised knowledge and unique set of skills that led to collaborations with world leading experts in the areas of Shipping Finance, Shipping Risk Management, Maritime Studies, Human Resources Management and Supply-Chain-Management, and outreach engagement with global international companies. xi

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Professor Anthony Beresford  is a Programme Director for the M.Sc. International Transport. He is also overall Director for the suite of Masters Programmes within the Logistics and Operations Management Section. Anthony has travelled widely in an advisory capacity within the ports and transport fields in Europe, Asia and North America. Early in his career he co-authored Lloyd’s Maritime Atlas of World’s Ports and Shipping Places, 15th and 16th Editions (1986 and 1989). The 1989 Edition formed the blueprint for all subsequent editions, and the Atlas is recognised as the Standard Work in its field. His work with the United Nations has been widely recognised and has led to a large number of academic publications as well as important outreach activities. Anthony has presented papers at the highest level including, for example, his contribution to The House of Commons Report on UK Ports produced through the Welsh Affairs Committee, 2009. In 2012 he was Keynote Speaker at the second African Logistics Conference in Dar Es Salaam, Tanzania. Michael Browne has been full-time Professor at the University of Gothenburg since 2015 having been part of the Visiting Professor Program for the previous three years. His main research focus is on urban goods transport and he provides academic leadership for the Urban Freight Platform a joint University of Gothenburg and Chalmers initiative supported by the Volvo Research and Educational Foundations (VREF). He is committed to engaging practitioners and policy-makers with the research community to focus on all aspects of logistics that impact on future patterns of urban goods transport and logistics. He also works on broader research topics concerned with many issues in sustainable logistics including: e-commerce and home delivery, energy use in the supply chain and the interaction of policy and business decisions. Sharon Cullinane gained her Ph.D. in logistics from Plymouth University in 1987. Since then she has lectured, researched and published in the field of transport policy and the environment around the world. Sharon’s main research interest is sustainable transport. She is

Notes on Contributors     xiii

interested in both freight and passenger transport and has carried out research, and has many publications in both. She is particularly interested in the cross-over between passenger and freight transport which underpins some of her work in the sustainability of e-commerce. She played a key role in the Green Logistics project at Heriot-Watt University. She is currently working on reverse logistics associated with online shopping. Emrah Demir  is a Senior Lecturer (Associate Professor) in the Logistics and Operations Management Section of the Cardiff Business School. He holds B.Sc. and M.Sc. degrees in Industrial Engineering from Baskent University (Turkey), and a Ph.D. in Management Science from University of Southampton. Dr. Demir’s main research interest is positioned within the field of green logistics with respect to negative externalities of freight transportation. He is author and co-author to numerous research papers, book chapters and technical reports. He also serves as a reviewer in several international journals of operational research, transportation and logistics. Dr. Daniel Eyers research explores the implications of advanced manufacturing and information technologies for modern Operations Management, particularly in terms of low volume and customised manufacturing. As a Chartered Engineer with commercial experience in a range of specialist manufacturing industries, Daniel is keen to integrate both research and practice into his teaching and supervision activities. He has lectured on a variety of Operations Management topics at undergraduate and postgraduate levels, and is a supervisor to M.Sc. and M.B.A. students on a range of Operations and Supply Chain Management themes. Daniel is a member of the Logistics and Operations Management Section, and the Logistics Systems Dynamic Group. He is a Committee Member of the South East Wales section of the Institute of Engineering and Technology, and is a frequent reviewer for journals and international conferences in the areas of manufacturing and operations management.

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Dr. Ruoqi Geng is a Lecturer in the Logistics and Operation Management section. Ruoqi joined the Cardiff Business School in September 2017 after attending Brunel University where she pursued her M.Sc. and Ph.D. Coming from Cangzhou, an industrial city in the Hebei province of China with major environmental problems including air pollution, Ruoqi investigated green manufacturing supply chain practices in China for her Ph.D. research. In her thesis entitled ‘An investigation of the adoption of green supply chain management practices in manufacturing sector in Asian emerging economies: Guanxi, antecedents and performance’, she examined the moderating role of Guanxi, a cultural norm in China, as an informal institutional force on the relationship between formal institutional forces and the adoption of green supply chain management practices. Ruoqi’s primary research focus lies on green supply chain management in emerging economies, particularly in China. Presently, China is home to seven of the 10 most polluted cities in the world. China is also the world’s largest producer of ozone-depleting substances and the second-largest producer of greenhouse gas emissions. Therefore, scholars have argued that China needs to lead the challenge of the world going green. Ruoqi is also engaged in cross-disciplinary research including sustainable operations, institutional environments and relational marketing. She is an expert in meta-analysis, clustering analysis, text mining and experiment vignette research methods. Dr. Jonathan Gosling is a Reader in Supply Chain Management at Cardiff Business School. He is also Deputy Head of the Logistics and Operations Management Section for Research, Innovation and Engagement (see a summary of the section’s engagement activities). Prior to becoming an academic, he worked in the automotive industry as a supply chain analyst. Jon’s research and teaching revolve around the themes within operations and supply chain management. In particular, he focuses on ‘engineer-to-order’ supply chain environments, where bespoke innovative engineering work is undertaken for an individual customer. This often leads him into the domain of large complex engineering projects, taking a systems approach to facilitate improvements and challenge current

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practice. This latter theme is consolidated by his long-term association with the Logistics Systems Dynamics Group (LSDG). To undertake research in this area, Jon has been involved in a number of funded projects. A few examples are listed below along with links the industry facing outputs: Working with specialist procurement consultancy Rowsellwright and David Orr (former president of the ICE), Jon worked on a procurement capability review for the Office for Road and Rail. The findings of which are being used to shape the investment strategy and delivery of efficiency targets for infrastructure procurement. ‘Principles of appropriate contracting’ was a £34,000 project undertaken with Highways England, Costain and the NEC group to review and develop models of good practice for major transport projects. A guide was developed from this project. ‘Accelerating BIM across the supply chain’ was a £62,000 project undertaken with Highways England and Costain to examines how new digital engineering technologies can be adopted with smaller ‘tier 2 and 3’ suppliers, leading to a report and a guide. ‘Engaged Manufacturing’ is a 2-year funded programme to better understand how additive manufacturing technologies can help to enable more intimate, customised manufacturing. We explore possible future scenarios and the uses of additive manufacturing by model makers. A 2-year (£127,000) Knowledge Transfer Partnership with Brickfab Ltd [JG6] (2015–2017). The project developed and implemented a new innovation system within the company, bringing together operations and marketing expertise from Cardiff Business School. He is currently engaged in a funded project exploring issues related to knowledge management and lessons learnt in major infrastructure schemes, and is also an active member of the Constructing Excellence Wales Club. Dr. Jane Haider is a Lecturer in Logistics and Operations Management at Cardiff Business School, Cardiff University. Prior to her current post, she was appointed as a visiting lecturer and a research assistant at the Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, where she was also awarded her

xvi     Notes on Contributors

Ph.D. in Business Administration in 2010. She holds a Foundation Diploma in Dry Cargo Chartering from the Institute of Chartered Shipbrokers. Jane has taught at both postgraduate and undergraduate levels on a range of maritime and operations management topics. She regularly supervises M.Sc. and Ph.D. students in the areas of shipping economics and transport logistics. She has achieved the status of Fellow of the Higher Education Academy. Jane’s main research interests are shipping economics and policy, port economics and transport logistics. She has published various peer-reviewed journal articles and regularly presents her work at international maritime, transport and logistics conferences. She is an active member of the International Association of Maritime Economists (IAME). She received the Eagle Prize for Outstanding Young Scholar in Maritime Research at the IAME 2012 conference. She has co-edited a Special Issue in Transportation Research Part D on ‘Sustainable Transport Logistics’. Professor Matthias Holweg  has areas of expertise that include process improvement, digital operations and the automotive industry. Matthias is interested in how organisations generate and sustain process improvement practices. His research focuses on the evolution and adaption of process improvement methodologies as they are being applied across manufacturing, service, office and public sector contexts. His award-winning papers on the genealogy of lean production and the evolution of lean thinking philosophy are among the most widely cited works in the field. Together with John Bicheno, he is also co-author of The Lean Toolbox, a practitioner guide to lean transformation that has sold more than 100,000 copies across five editions and is available in English, Danish, Swedish and Chinese. More recently, Matthias has started working on digital operations, and in particular the economics of additive manufacturing (3D printing), in order to determine how to use this set of new technologies to generate competitive advantage. He is particularly interested in identifying the role that digital manufacturing will play in supporting process improvement, reshaping product offerings and changing the nature

Notes on Contributors     xvii

of competition. He also leads the Digitally Empowered Enterprise Lab at Saïd Business School, which brings together the many strands of research within the School related to the digital transformation. Matthias is an industrial engineer by training and a Lean Six Sigma Black Belt. Prior to joining Oxford he was on the faculty of the University of Cambridge and a Sloan Industry Center Fellow at MIT’s Engineering Systems Division. Katy Huckle is a Corporate Development Manager at Panalpina and a major contributor to the Panalpina Research Centre at Cardiff University where she has been based since its establishment in 2016. She has a variety of experience in different manufacturing organisations across Europe, particularly in product management and quality. Katy holds a B.A. in Philosophy from the University of York and an M.B.A. from the University of St Gallen, where she specialised in models of distributed manufacturing and corporate strategy. Dr. Elisabeth Karlsson has developed, since gaining her Ph.D. in 2008, a portfolio of research interests in logistics and ecommerce with a particular focus on urban transport, last-mile distribution and the retail sector. This research has included themes such as inter-modality and, more recently, the issues arising out of reverse logistics associated with retail product returns and e-commerce. Professor Maneesh Kumar is a Professor of Service Operations and Program Director of Executive M.B.A. at Cardiff Business School, Cardiff University. He conducts cross-disciplinary applied research in the area of Operational Excellence including topics such as Quality Management, Lean Six Sigma (LSS), Lean, Green and Innovation (iLEGO), Healthcare Process/Service Innovation using Big Data Analytics, Knowledge Clusters for capability enhancement within SMEs. This has resulted in publications of over 120 journals and conferences papers, edited books and conference proceedings. His research participants encompass range of industry including Automotive Industry (India, UK, Japan), Service Industries and Public Sector organisations including NHS. His current research interests are integration of Operations

xviii     Notes on Contributors

Excellence with Industry 4.0 and Big data environment, Operational Capabilities development in micro and small companies through cluster formation, sustaining operations excellence, Innovative Circular Economy Business Models. He is an active member of ASQ and EUROMA. He is co-charing 21st Quality Management and Organisational Development Conference to be hosted in Cardiff University from 22nd–24th August, 2018. He has also initiated a first practice-based forum on Lean Green and Innovation (iLEGO) that brings practitioner community together to have engaged discussion on synergies and misalignments between the three topics and promote cross-learning between different industries. He has been involved in delivering LSS training up to Black Belt level and delivered several workshops on LSS application in different type and size of industries including Kwik-Fit Insurance Services, Standard Life, Admiral, Principality, Bakkavor Group, Norbert Dentressangle, Norgine Ltd., Celsa Steel, NHS Grampian, NHS Sheltand, Edinburgh City Council, Aberdeenshire Council, Automotive Component Manufacturers Association of India (ACMA) and Tata Motors. He is also a regular speaker at International Conferences and Seminars on LSS and Process Excellence. Andrew Lahy  is currently Global Head of Strategy and Innovation in Logistics at Panalpina, one of the world’s leading global supply chain companies. Andrew has worked in a number of operational and commercial roles across the world, and specializes in global supply chain management and logistics. Andrew has published a number of papers on lean, supply chain innovation and 3DP and was recently listed by the Lean Management Journal as one of the top 25 most influential people in Europe for his contributions. A guest lecturer on supply chain management at Buckingham University and Cardiff University, Andrew is also currently working on a Ph.D., looking at the development of PaaS (Product as a Service) and its impact on supply chains. Junyi Lin is a Research Associate in the EPSRC funded project on ‘Resilient Remanufacturing Networks: Forecasting, Informatics and Holons’ in Logistcis and Operations Management section, Cardiff Business School.

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Dr. Jane Lynch  is a Senior Lecturer for the Logistics and Operations Management (LOM) section, and Director of Student Experience for Cardiff Business School, Cardiff University. Jane regularly presents her research at international conferences on social public procurement, collaboration and supply chain management. Jane’s subject areas for teaching B.Sc. Business Management, M.Sc. and M.B.A. include purchasing/procurement, supply chain management and supplier management. Jane supervises Ph.D.s in public procurement, and is engaged in knowledge transfer partnerships (KTPs). With a Ph.D. in supply chain orientation and a facilitator for ISO 44001 Managing Collaborative Relationships, Jane has designed and delivers executive training programmes for collaborative working. Professor Robert Mason is a Chair in Logistics at Cardiff Business School. He has led/participated in a number of research programmes. He has published around 120 papers around two main themes, logistics and developing organisational process capability, in many leading journals and conferences. He has also co-authored, with Barry Evans, two books which bring much of this work together: The Lean Supply Chain (2015) and Marketing and Logistics Led Organisations (2017). His research interests centre on the optimisation of supply chain system processes which includes topics such as the integration of transport/logistics into national and international supply networks, the management of inter-organisational relationships (vertical and horizontal) and the organisation of enterprise to deliver customer value. He has a particular focus on the retail logistics sector. His Ph.D., entitled Collaborative Logistics Triads in Supply Chain Management, was awarded in 2009. Robert’s teaching profile focuses on logistics and supply chain management modules at both undergraduate and postgraduate levels and supervises a number of Ph.D. students. His former Ph.D. student, Dong-Wook Kwak, was awarded The James Cooper Cup from the Chartered Institute of Logistics and Transport for best Ph.D. in 2015. He has acted as both an Internal and External Ph.D. Examiner, as the External Examiner for Undergraduate and Postgraduate Logistics and Management Programmes and acts as a course validator and assessor

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for Universities in the UK and internationally, notably in Greece and Oman. Vignesh Murugan is an Alumni of Cardiff University, undertaking MSC Logistics & Operations Management Program in 2011/12. Vignesh currently works as Operational Process Manager at Decathlon Sports, India. He has over 6 years of work experience in several roles including supply chain, inventory management, supplier management and functional management initiatives across various vendors. Professor Mohamed Naim is the Deputy Dean at Cardiff Business School. He is also a co-director of the Logistics Systems Dynamics Group and the Centre for Advanced Manufacturing Systems at Cardiff (CAMSAC) formerly the EPSRC funded Cardiff University Innovative Manufacturing Research Centre (IMRC). He was the Cardiff lead on the Welsh European Funding Office (WEFO) sponsored project Advanced Sustainable Manufacturing Technologies (ASTUTE), and a co-director on the new ASTUTE2020. Mohamed’s current research interests may be summarised as the development of novel business systems engineering approaches to the establishment of resilient supply chains. This encompasses sustainable supply chains and the role of flexibility in lean, agile and leagile systems. Recent supply chain research in the construction sector has led to three best prizes at the Association of Researchers in Construction Management Conference and his membership of the Blue Innovation Trust, Costain’s supply chain think tank. In 1997 he was awarded the Institution of Electrical Engineers’ Manufacturing Division Premium for a paper on supply chain modelling and simulation. In 2003 he was granted a Royal Academy of Engineering Global Research Award at the Linköping Institute of Technology, Sweden. Paul Nieuwenhuis  is an independent automotive environmental analyst and commentator based in Wales, UK. He was formerly co-director of the Centre for Automotive Industry Research at Cardiff Business School and the Electric Vehicle Centre of Excellence, both at Cardiff

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University. He has a long track record of studying the impact of the car on our environment and has published a string of books and articles on this topic, from The Green Car Guide (1992) to the innovative Sustainable Automobility (2014). This work has always been placed in the context of a broad overview of the automotive industry and its history, as exemplified by his edited The Global Automotive Industry (2015, with P. Wells). In addition, he has engaged in advisory work for most vehicle manufacturers and many international institutions, as well as national and regional governments. Professor Stephen Pettit  is a Professor in the Logistics and Operations Management Section of Cardiff Business School. He graduated with a B.Sc. Honours degree in Maritime Geography from Cardiff University in 1989 and in 1993 was awarded a Ph.D. from the University of Wales. Subsequently he has been involved in a range of transport related research including a groundbreaking project for the Department of Transport, studying the UK economy’s requirements for people with seafaring experience, which highlighted important issues relating to the decline in the number of UK seafaring officers. He has also been involved in a number of research programmes for EU DGTREN including the ‘Economic Value of Shipping to the UK Economy’; an ‘Analysis of the Cost Structure of the main TEN Ports’; and ‘Work Organisation in Ports’. More recent work has focused on Humanitarian Aid logistics and Supply Chain Management. An initial project was funded by the Chartered Institute of Logistics and Transport through their Seedcorn Grant scheme and was co-researched with Dr. Anthony Beresford. This work has been extended through collaboration with Cranfield University in the Cardiff-Cranfield Humanitarian Logistics Initiative. Stephen has written a large number of journal papers, conference papers and reports primarily on port development, port policy and the logistics of humanitarian aid delivery. Dr. Laura Purvis is a Senior Lecturer in Logistics and Operations Management at Cardiff Business School, Cardiff University. Her main research interests are in the areas of supply chain management strategies,

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agile and resilient supply networks, flexible supply systems and supply networks design. She has been involved in projects in the fashion, textile and food sectors. Laura joined Cardiff University in September, 2007, having previously worked in Edinburgh Napier University, where she also completed her Ph.D., entitled ‘Agile Supply Chain Management in the Fashion Sector’. She holds a B.Eng. first class degree from Transilvania University, Brasov, Romania in Industrial Engineering. Laura is a Member of the Logistics and Operations Management Section, and the Logistics Systems Dynamic Group. She is also a Fellow of the Higher Education Academy. She has lectured on a variety of Operations and Supply Chain Management topics at undergraduate and postgraduate levels, and acted as supervisor to both M.Sc. and M.B.A. students on a range of Operations and Supply Chain Management projects. Dr. Vasco Sanchez Rodrigues is a Senior Lecturer in Logistics and Operations Management. He is an experienced supply chain and logistics professional contributing to senior practitioners from leading organisations within the UK retail, food/drinks and European logistics sectors through the wide range of knowledge transfer and applied-research activities Vasco leads. He also publishes actively in principal international academic journals, leads applied-research projects, rigorously generates funding proposals and secures funding with strong support from his industry collaborators. The bulk of his research is relevant to both domestic and international logistics and to the role of SCM in global operations. His research is published widely in prime international journals, such as IJOPM, TRA, TRD, TRE and SCM-IJ, among others. In respect of UK Research Effectiveness Framework 2021, Vasco has one ABS4* and six ABS3* publications. Currently, Vasco has leadership roles in several projects, which are outlined below: * CO-GROWTH (2015–Present): A £420K proposal is being developed at present, which aims at enable sustainable growth through effective coordination among SMEs.

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* iLEGO (2016–Present): Co-leading the annual iLEGO workshop and project, enabling knowledge transfer among supply chain practitioners of green-gold innovations adopted in a wide range of sectors. In his career, Vasco has consistently maintained teaching scores for UG and PG teaching between 8.0 and 9.0 out of 10.0. In the last two years, he arranged and led 15 live projects for dissertation students in companies such as P&G, Yusen Logistics and DHL. He is also the supervisor of four Ph.D. students, one of whom is about to submit her Ph.D. thesis. Vasco collaborates with external academics from UK Universities, such as Cranfield, Kingston, Heriot-Watt and Westminster, and most recently, he has started research collaborations with academics from the Worcester Polytechnic Institute and Arizona State University. Aris Syntetos is Professor of Operational Research and Operations Management at Cardiff Business School, Cardiff University, where he also holds the Panalpina Chair in Manufacturing and Logistics. His research looks primarily at supply chain forecasting and its interface with inventory management (and transportation optimisation) and has advised many organisations in this area. He is a Director of the International Institute of Forecasters and also serves at the executive committee of the International Society for Inventories Research (ISIR). Aris is Editor of the IMA Journal of Management Mathematics (OUP) and the Supply Chain Forecasting Editor of FORESIGHT. Xun Wang currently holds the position of Senior Lecturer of Operations Management and Management Science at Cardiff Business School, UK. His current research interest lies in solving inventory control problems commonly observed in supply chains and their systematic as well as behavioural causes. Specifically, Xun is interested in the bullwhip effect, demand forecasting, perishable products. He has published over a dozen papers on inventory control in top-level peer-reviewed academic journals. He has offered consultations to leading companies in the industries of logistics and retailing. Dr. Yingli Wang  is a Senior Lecturer at Cardiff University in logistics and operations management. She obtained her first degree in Food

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Manufacturing from China in 1995, an M.B.A. in IT with Distinction in 2003 from Coventry University and a Ph.D. in logistics from Cardiff University in 2008. She received the James Cooper Memorial Cup in 2009, awarded by CILT for her invention of the concept of Electronic Logistics Marketplaces (ELMs). She then developed a best practice guide on ELMs for the Department of Transport. Over the last decade, she has worked intensively with over 70 organisations including shippers, logistics service providers and IT service providers, in the field of e-logistics, such as Tesco, ASDA, BT, Costain, Panalpina, Tata Steel, Descartes, JDA Software Group, Infor, Road Tech Computer Systems, GT Nexus, Tandem Transport, CEVA Logistics, ABP Ports, Portbase, to name only a few. Her research on information and communication technology (ICT), digitalisation and e-logistics has attracted funding from various funding bodies such as Engineering and Physical Sciences Research Council (EPSRC), European Regional Development Funding (ERDF), Welsh Government, Highways England and Department for Transport (DfT). The book of E-Logistics: Managing Your Digital Supply Chains for Competitive Advantage that she co-edited with Dr. Steve Pettit is the first book in the marketplace that offers a comprehensive coverage of technological developments in e-logistics. Dr. Wang’s research started with examining technological innovation for organisations such as logistics service providers and manufacturers, and then recently extended to explore how technological innovations could benefit a wider society, in particular by addressing the ‘wicked’ problems and grand challenges such as food poverty and health inequality. Dr. Wang is a Chartered Member of the Chartered Institute of Logistics and Transport (CILT). Before embarking on her academic career, she worked for about 8.5 years at Nestlé China in various senior managerial roles. Professor Peter Wells is Director of the Centre for Automotive Industry Research at Cardiff Business School and Head of Logistics and Operations Management. His research and publishing interests are focused on the global automotive industry, mobility studies

Notes on Contributors     xxv

including electric bicycles and car-sharing, and on sustainable business models. His research and consulting on the global automotive industry has involved companies throughout the value chain, national and international government bodies, and NGOs. His latest books are: The Automotive Industry in an Era of Eco-austerity (Edward Elgar, 2010), Business Models for Sustainability (Edward Elgar, 2013) and The Global Automotive Industry (edited with Paul Nieuwenhuis; Wiley, 2015). Mike Wilson is Global Head of Logistics and Manufacturing for Panalpina, a Swiss-based Global Third Party Logistics provider. Under Mike’s leadership, Panalpina has turned around and developed its logistics business, expanded into manufacturing as well as adding other innovative services to its business portfolio. Mike started his career as an Industrial Engineer in traditional metal and plastic manufacturing before moving into the electronics industry. He became Director of UK Operations for Design to Distribution, the manufacturing subsidiary of Fujitsu/ICL, which subsequently became part of Celestica in the mid-1990s when Mike became the Head of the multi-billion dollar European Business. Mike found his way into Third Party Logistics with Excel as President of Technology, which subsequently became DHL. Following some time in Asia, working independently setting up manufacturing and supply chains, he joined Panalpina in 2011. He was instrumental in creating the Panalpina Research Centre at Cardiff University where he is a Centre Director. Mike holds a Bachelor of Science degree in Industrial Engineering and an M.B.A. from Cardiff University where he is also an Honorary Visiting Professor.


2L-CVRP Two-Dimensional Loading VRP 3DP 3D Printing 3L-VRP Three-Dimensional Loading VRP AEE Asian Emerging Economies AHP Analytic Hierarchy Process AM Additive Manufacturing APVIOBPCS Automatic Pipeline, Inventory and Order-Based Production Control System AWIP Assembly Work-in-Process BSE Bovine Spongiform Encephalopathy (disease) BSI British Standards Institution CA Contributing Authors CATWOE Customer, Actors, Transformation, Owner, Weltanschauung (worldview), and Environmental Constraints CD Customer-Driven CDSBSS Order-Driven Service-Based Supply System CE Circular Economy CFCs Central Fulfilment Centres CILT Chartered Institute of Logistics and Transport CNG Compressed Natural Gas CODP Customer Order Decoupling Point Inventory xxvii

xxviii     Abbreviations

CSCF Collaborative Supply Chain Framework CSFs Critical Success Factors CVRP Capacitated Vehicle Routing Problem DINV Desired Inventory DSM Digital Single Market DVRP Distance Constrained VRP DWIP Desired Work in Process EBITDA Earnings Before Interest, Taxes, Depreciation, and Amortization ECAs Emission Control Areas EEDI Energy Efficiency Design Index EEMP Ship Energy Efficiency Management Plan EGR Exhaust Gas Recirculation EHTS Expectations Hypothesis of the Term Structure FCEV Fuel Cell Electric Vehicle FD Forecast-Driven FDGBSS Forecast-Driven and Goods-Based Supply System FGI Finished Good Inventory FMCG Fast Moving Costumer Goods FTL Full Truckload FWs Freight Forwarders GHGs Greenhouse Gases GSCM Green Supply Chain Management GST General Systems Theory GVRP Green Vehicle Routing Problem GVWR Gross Vehicle Weight Rating HA Humanitarian Aid HALSCM Humanitarian Aid Logistics and Supply Chain Management HC Horizontal Collaboration HELP Humanitarian and Emergency Logistics Professionals HEV Hybrid Electric Vehicle Humlog Humanitarian Logistics ICCT International Council on Clean Transportation ICW The Institute for Collaborative Working IFRC International Federation of the Red Cross and Red Crescent Societies IJLM International Journal of Logistics Management ILO International Labour Organisation

Abbreviations     xxix

IMO International Maritime Organisation Intertanko International Association of Independent Tanker Owners IPCC Intergovernmental Panel on Climate Change IRP Inventory Routing Problem ISL International Symposium on Logistics KPI Key Performance Indicator Leagile Lean & Agile attributes LRI Lean Readiness Index LRP Location-Routing Problem LSP Logistics Service Provider LTL Less Than Truckload MARPOL Marine Pollution MAUT Multi-Attribute Utility Theory MCDM Multi-Criteria Decision Making MTS-MTO Make-to-Stock and Make-to-Order NAS National Adoption Service NATS National Air Traffic Services NGOs Non-Government Organisations NSR Northern Sea Route NWP Northwest Passage OBOR One Belt One Road PEV Pure Electric Vehicle PND Project Network Diagramming PPM Parts Per Million PRINCE2 Projects IN a Controlled Environment PSS Product Service Systems RLA Reverse Logistics Association SCC Supply Chain Collaboration SCO Supply Chain Orientation SCR Selective Catalytic Reduction SEAaT Chamber of Shipping, Shipping Emissions Abatement and Trading SER Senior Executive Responsible SKUs Stock Keeping Unit SSCM Sustainable Supply Chain Management SSM Soft Systems Methodology SSRI Six Sigma Readiness Index TDVRP Time Dependent VRP

xxx     Abbreviations

TSR Transpolar Sea Route TSRG Transport and Shipping Research Group UNCTAD United Nations Conference on Trade and Development UNESCAP UN Economic and Social Commission for Asia and the Pacific UWIST University of Wales Institute of Science and Technology VAA Voluntary Adopting Agencies VIOBPCS Variable Inventory and Order-Based Production Control System VRP Vehicle Routing Problem VRPB VRP with Backhauls VRPPD VRP with Pickup and Delivery VRPS/SDVRP Split Delivery VRPTW Vehicle Routing Problem with Time Windows WCED UN World Council for Environment and Development WIP Work-in-Process Inventory

List of Figures

Fig. 2.1 Fig. 2.2 Fig. 2.3 Fig. 5.1 Fig. 5.2 Fig. 5.3 Fig. 5.4 Fig. 7.1 Fig. 8.1 Fig. 8.2 Fig. 8.3 Fig. 8.4 Fig. 8.5 Fig. 9.1 Fig. 9.2 Fig. 9.3

The project lifecycle Extract from example RACI matrix Project Charter for IJLM special issue Productization vs. servitization (Adapted from Tukker 2004) Seven steps required to develop a PSS (Source Adapted from various) Positive re-enforcing circle of knowledge enabled by 3DP Dual axis PSS conceptual framework An example representation of the VRPTW A sketch of the diffusion dynamics in the Bass model Demand diffusion in a discrete network An inventory system model with independent forecast Bifurcation map of the logistics equation, x0 = 0.5 Bifurcation map of a constrained inventory system Spectrum of systems approaches Utilising systems theory during supply chain engineering lifecycle Rich picture of a shipbuilding supply chain (Adapted from Mello et al. 2017)

14 21 25 67 68 70 71 103 122 125 128 131 132 141 145 148 xxxi

xxxii     List of Figures

Fig. 9.4

Fig. 9.5 Fig. 10.1 Fig. 10.2 Fig. 10.3 Fig. 11.1 Fig. 11.2 Fig. 11.3 Fig. 11.4 Fig. 12.1 Fig. 12.2 Fig. 13.1 Fig. 17.1 Fig. 17.2 Fig. 17.3 Fig. 17.4 Fig. 17.5 Fig. 19.1

CODPBPCS with full demand transparency (Reprinted from International Journal of Production Economics, 194, Wikner, J., Naim, M.M., Spiegler, V.L., and Lin, J., ‘IOBPCS based models and decoupling thinking’, pp. 153–166, 2017, with permission from Elsevier) 150 Supply–demand feedback process for Intel’s hybrid MTS-MTO production system (Adapted from Gonçalves et al. 2005) 153 Distribution of reviewed papers across the period 2002–2014 183 Geographic distribution of the papers reviewed 184 Trend of publications on GSCM in three dimensions 185 Different forms of collaboration across the supply chain (Source Adapted from Mentzer et al. 2001) 194 Causal model for managing supply chains (Source Derived from Mollenkopf et al. 2007) 199 Supply chain orientation (SCO) (Source Adapted from Esper et al. 2010) 200 Eight principles for effective collaborative working (Source Adapted from BS 11000) 202 The antecedents of supply chain resilience (Source Adapted from Purvis et al. 2016) 222 Dynamic matching of vendor flexibility with sourcing flexibility for lean, agile and leagile supply network strategies (Purvis et al. 2014) 224 Holistic supply chain-based framework for horizontal logistics collaboration 254 Scores of three companies against leadership factor 329 Scores of three companies against organizational culture factor 330 Scores of three companies against process management factor 332 Scores of three companies against communication factor 333 Scores of three companies against employee involvement factor 335 A Framework showing how Ocado’s business model has differentiating concepts supported by the foundation of well-developed market and logistics process orientations 378

List of Tables

Table 5.1 Table 6.1 Table 7.1 Table 7.2 Table 10.1 Table 10.2 Table 11.1 Table 12.1 Table 13.1 Table 13.2 Table 13.3 Table 13.4

Principal 3DP processes 64 Summary of scope for innovation for carbon emissions reduction by transport mode 88 Various features of the VRP from the customer’s perspective 100 Various features of the VRP from the planner’s perspective 101 The key words used for searching the literature 164 Summary of the reviewed papers 166 Behavioural framework created for use within NATS and with business partners 207 Identifying RALF attributes to the four supply chains (extending Purvis et al. 2014) 227 Description of the participating companies and their contribution to the three stages of the research 239 Outset consideration factors that should be thought through before embarking on a horizontal collaboration project 241 Findings of the ideal required synergies to be found before a horizontal collaborative logistics is implemented 242 Actioning enablers that could be put in place to better facilitate a horizontal logistics collaboration project 243 xxxiii

xxxiv     List of Tables

Table 13.5 Identified output metrics that would be sought for from a horizontal logistics collaboration project Table 14.1 A comparison between the two main maritime literature schools of thoughts Table 14.2 The main factors influencing demand and supply for seaborne trade Table 14.3 MARPOL Annex VI—emission control areas Table 14.4 MARPOL Annex VI—NOx emission regulations Table 16.1 The online clothing market, 2016 and projected Table 16.2 Reasons for cross-border shopping in the Nordic countries (percentage) Table 16.3 Returns policies of the top ten clothing retailers in Europe (2015) Table 17.1 Demographic details of Indian manufacturing companies Table 17.2 Lean readiness scores of 3 companies under five factors Table 18.1 Comparison between volatile and standard supply chains Table 18.2 Critical success factors for logistics

244 264 265 272 273 304 307 310 327 328 352 354

1 Introduction Peter Wells

1.1 The Purposes of This Book This original purpose of this book was to produce a celebration of the multiplicity of talents held within the Logistics and Operations Management (LOM) Section of Cardiff Business School. The expertise within this group of 40 or so scholars ranges across logistics, operations management, supply chain management, procurement, transport, port management, and related disciplines. It is therefore testimony to individual and collective endeavour, to unity and diversity, and to the unending quest for insight and understanding. The book remains a celebration of teaching and research. In the period since 2010 the LOM Section has been able to secure significant research funding and partnership with a wide range of business and government organisations. Some research projects such as ASTUTE, funded via the European Union and running for ten years, have resulted P. Wells (*)  Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


2     P. Wells

in the engagement of LOM staff with multiple stakeholders. In this activity the LOM Section has participated in the creation or saving of hundreds of jobs across the ‘development’ regions of Wales. Some projects are centred on ‘keystone’ companies. Notable here is Panalpina, where the relationship has grown over the years to become vitally important for both parties. The resulting Panalpina Research Centre has provided the platform to attract further investment, notably in inventory forecasting for a wide range of applications. Others in the ‘roll call’ of significant support include Yeo Valley, WEFO, H2020, EPSRC, and a great many KTP fellowships. The book has other purposes. We hope that it serves as a useful, if eclectic, guide to the burgeoning world of LOM. It is a taster menu. We have not sought comprehensive coverage across all our disciplines any more than we have sought to plumb the depths of a specific subject. Rather, authors were given the opportunity to write about the subject or theme that interested them, to give a flavour of the research and teaching that we provide. We hope also that the book serves as foundation course text book. The book is here to show students the many doors into the subjects we cover, and perhaps also to open one or two of those doors enough for students to take a look inside. It is not a ponderous trudge through each and every part of a syllabus. Apart from the monotony of such an approach, our teaching thrives on contemporary research, and so the content of our degree courses and modules evolves in parallel with that research. A pure and traditional textbook would rapidly become out of date. The book is further intended as a marketing initiative. In an era when university finances have been under scrutiny as never before, and when students have a plethora of choices to make when considering courses and institutions, this book brings together in one place a statement of our activities. We do not regard students as customers or consumers. We do regard students as people eager to learn, willing to challenge, and keen to make their own mark in the world. This book therefore gives those students a sense of how we could assist in their pathway to making a difference.

1 Introduction     3

The result is a unique compilation. As far as we are aware, nobody has quite attempted such a project before. As editors of academic collections know all too well, the task of marshalling the contributions is immense. It is an indicator of the degree of mutual respect and sense of shared purpose that in this book there was an overwhelming level of support from staff in the LOM Section. That this support was forthcoming despite the lack of recognition or value accorded to book chapters in the UK Research Excellence Framework, or in academic recruitment and promotions, is a further indicator of the collective will.

1.2 Scope: Breadth, Depth, and Selectivity A little background is required here. Cardiff Business School emerged out of the ashes of a bankrupt university. Restructured and merged with a smaller but more vibrant technology-focussed institution, the organisation that became Cardiff University inevitably reflected the original constituent entities. Cardiff Business School was the largest single part of the new university, and in time grew further by, among other things, absorbing the Maritime Studies Department. Further transfers of staff followed from the School of Engineering. The LOM Section then came to be comprised of scholars with backgrounds in lean management, systems dynamics and modelling, logistics, transport, port policy, maritime law, shipping economics, supply chain management, and forecasting. This disparate grouping of disciplines and academic traditions could easily have become the foundation for conflict rather than creativity. In terms of breadth, the book reflects the wide range of staff interests and the constitution of the LOM Section as a whole. There is a core of quantitative management science and operations research, working with advanced mathematics and models, but largely doing so with an applied focus. The maritime and transport tradition has continued, though we no longer actually teach prospective captains on ship simulators! Meanwhile, as the student intake has expanded, so has the portfolio of activities. New specialisms have emerged, though not all can be encompassed within this one book. As a result, we now teach three core M.Sc. programmes: LOM; Marine Policy and Shipping Management;

4     P. Wells

and Sustainable Supply Chain Management. A feature of the staff in the Section is international diversity. We include academics from the UK, Ireland, China, Greece, Libya, Romania, and Turkey—to name but a few. Again, the book at times echoes this international diversity and outlook. Special mention must go to the applied character of much that is undertaken in the LOM Section of Cardiff Business School. In an era when universities are increasingly judged and rewarded on the basis of their measurable contribution to society, the book even includes authors or case studies from some of the companies with which we are engaged. Chapter 5 by Eyres and Syntetos on 3D Printing, and Chapter 7 by Demir et al. on vehicle routing are good examples. The co-production of knowledge to mutual benefit is often discussed in academic circles, but not so often made tangible. Our research and engagement therefore are more than a one-way flow of information and insight from ‘us’ to ‘them’. With authors given a free rein to interpret the brief of ‘provide a chapter on your subject that will illuminate that subject and engage a diverse range of readers’ it is inevitable that very different outcomes have emerged. Some of the authors look back on the historical development of their subject, and the role of the LOM Section (or its forebears) in developing the subject. Chapters 15 and 18 by Beresford and Pettit give an evolutionary account of research, teaching and engagement in Humanitarian Aid and Ports respectively. Some take a perspective of ‘past, present, and future’, as is shown in Chapter 7 by Demir et al. with respect to vehicle routing. Others have chosen to provide a narrow account of developments at the emerging research frontier for their subject, as is the case in Chapter 8 by Wang in relation to dynamical modelling. Some have attempted a broad sweep across their subject, by no means an easy task given the proliferation of scholarship and publication in recent years. In this vein, Geng in Chapter 10 provides a literature review of Green Supply Chain Management in Asia for example. Others have stepped back from the detail and the ‘noise’ of contemporary research to provide a more reflective philosophical account of their subject—as is the case with Nieuwenhuis in Chapter 3.

1 Introduction     5

For all the authors, a key challenge has been to select their subject, or to define the boundaries around their subject. For some, the boundary is defined by technological applications: in Chapter 5 Eyres and Syntetos focus their attention on the impact of 3D Printing (or additive manufacturing) on supply chain relationships for example, while Mason in Chapter 19 explores in detail how online shopping for groceries works in the case of Ocado in the UK. For others the boundaries have been defined by active or recent research projects. Wang et al. in Chapter 16 give a robust categorisation of retail clothing returns and reverse logistics that arose out of a project in Sweden for example. Emergent themes within a subject are also a means of selecting a focus for the chapters. In the case of Rodrigues et al. in Chapter 13 the theme of horizontal logistics collaboration is explored. This is becoming an important theme for many supply chains as a means to mitigate the environmental and economic costs of logistics. This concern with future supply structures also defines the contribution in Chapter 12 by Purvis et al. looking at resilient supply, as well as Wells in Chapter 6 in an examination of zero carbon logistics, while Chapter 4 (also by Wells) considers business model innovation in logistics and distribution. A consequence of the inter-penetration of spatially defined markets, the emergence of global supply chains, and the separation of the point of production from the point of consumption has been the growing significance of logistics and physical distribution. It is no accident then that, for example, the growth rate in the total tonnage of goods moved by sea has been greater than global GDP growth. In parallel, the emergence of Internet retailing and the associated rapid order fulfilment systems has greatly increased the importance of more local logistics and distribution. In both instances, operational excellence has become a key to corporate competitiveness. Yet, paradoxically, as the ‘world’ of LOM has expanded, so too have the pressures to identify, account for and ultimately remedy a growing range of environmental and social concerns. These themes are interwoven in many of the Chapters presented in this book, and nowadays form the cornerstone of the ‘Public Value’ institution that Cardiff Business School is seeking to become.

6     P. Wells

1.3 The Structure of the Book The book is divided into four substantive sections. The first section contains Chapters that are thematic in character. Chapters 2 through to 6 therefore have a focus on specific themes within LOM, in a manner that may cut across the discipline boundaries of the courses run in the School, or the typical journal outlets that the authors might use to publish research outcomes. Chapters 7–9 are concerned with modelling, an important area of research and teaching within the quantification tradition of LOM. Chapters 10–13 take the book into the territory of the emergent focus both of our teaching and our research in the field of supply chain management. Finally, Chapters 14 through to 19 are a celebration of the applied character of our research and engagement, both historically and into the future.

1.3.1 Thematic Research The thematic section of the book picks up on specific research interests that can have implications for one or more of the disciplines subsumed by LOM. They range from the very broad to the very specific. One of the broadest is Chapter 3 by Nieuwenhuis, in which the philosophical foundations of sustainability are the focus. Given the maelstrom of information and misinformation that swirls around any aspect of sustainability in the contemporary era, from climate change to species extinction, it is always useful to be reminded of some core principles. A rather narrower treatment of the theme of sustainability is offered by Wells in Chapter 6, where the focus is on the challenges and opportunities afforded by zero carbon logistics. Equally, project management as outlined in Chapter 2 by Eyres and Naim is an area of research that is expanding into many diverse applications. In Chapter 4, Wells brings together two emergent phenomena that have attracted both academic and practice attention: business model innovation and the necessity of global production systems to be linked to local demand. In contrast, the realm of additive manufacturing (or 3D printing) has yet to quite emerge into the everyday. Applications are growing, as the

1 Introduction     7

size, speed, and versatility of 3D printers improves and as the costs go down, but this has been a revolution a long time in the making. What is of interest, however, is that traditional logistics companies are paying attention to this technology, both because it could compete with some of their activities, and because it could offer new revenue streams as part of a service-based logic. For all these reasons, Chapter 5 by Eyres and Syntetos is of relevance as an emergent theme.

1.3.2 Modelling Research Modelling has been at the heart of logistics, operations, and supply chain management since the disciplines really started to become established from the 1950s onwards. The advent of low-cost computational resources has undoubtedly helped. Of equal significance, however, is that modelling of the problems confronted in these disciplines has proven to be academically interesting and practically important. That is to say, modelling approaches have enabled much greater efficiencies with attendant reductions in financial and environmental costs. Chapter 7 by Demir et al. neatly encapsulates the contribution of modelling to one of the classic problems in logistics, the routing of vehicles. Meanwhile, in Chapter 9 Naim et al. explore the foundations of systems thinking in operations and supply chain management, and the manner in which those foundations have resulted in contemporary analysis in this field. In some contrast, the contribution by Wang in Chapter 8 is firmly about the leading edge of research in dynamical modelling—an area which is expected to yield significant impacts in years to come.

1.3.3 Supply Chain Management Research Supply chain management is a ‘natural’ territory for academics working on operations, logistics, distribution, transport, purchasing, and business aspects of sustainability. The contributions in this section reflect the emergent direction of SCM as a discipline and as a management practice. In Chapter 10, Geng outlines the burgeoning interest in green supply chain management in China. Given the pivotal part played by

8     P. Wells

China as the workshop of the world, many companies in the country are enmeshed in global supply chains. China is not just a ‘recipient’ of green supply chain management practices enacted by companies located outside the country, it is increasingly driving a sustainability agenda as a long-term strategic imperative. The era of purely combative and adversarial supply chain relationships has gone, and in its place are many different forms of ‘shared destiny’ integration. As is evidenced by Lynch in Chapter 11, and by Sanchez-Rodrigues et al. in Chapter 13, one important development is the need for new and overt forms of collaboration among suppliers. For relatively small and isolated economies such as that in Wales, the quest for collaboration derives from a simple need to be able to compete. Collaboration can reduce costs, increase mutual synergies, and compensate for small scale. Moreover, in the period since the global financial crisis around 2009 there has been a growing awareness of the need to create more resilient supply chains, able to withstand financial and other shocks. Resilience can take many forms, and this area of research is likely to yield a great many new insights and impacts in the future, with interesting overlaps with themes such as localisation and accountability.

1.3.4 Applied Research It is increasingly incumbent on those working in university research to demonstrate the impact of that work upon society as a whole. In some regards this is an unfortunate direction of travel, in part because it pre-supposes and rather narrowly defines what constitutes useful or ‘impactful’ research. Nonetheless, academic careers in universities are nowadays likely to be judged as much by the application of the research as its theoretical or methodological novelty, or for the creation of knowledge for its own sake. For those working in logistics, operations management, and supply chain management the extension into application is frequently a feature of research that is grounded in the resolution of problems. Some more ‘critical’ voices are emerging to challenge the rationality of interventions

1 Introduction     9

and to expose the power relations that exist, but much of the work with an intended impact retains that sense of ‘efficiency’ being the paramount consideration. The final section of the book then brings together seven diverse chapters, all illustrating the overall theme of research applications, albeit in very different ways. Abouarghoub and Haider in Chapter 14 consider the world of shipping economics, and the way in which new regulatory and economic pressures are being brought to bear on this most enduring of activities. In a related contribution, Beresford and Pettit give an account of research into ports conducted in Cardiff Business School over the years with their Chapter 15, again with much of it having an applied focus. Wang et al. in Chapter 16 grapple with the classification of reverse logistics in clothing and fashion retail, an area of great concern amid efforts to create circular economies. Even further into the realm of applied techniques, Kumar and Murugan in Chapter 17 describe the ‘Lean Readiness Index’ as a practical tool to enable any business organisation to assess the extent to which it is prepared to enact lean production and management principles to reduce waste and enhance process excellence. Similarly, in Chapter 19 Mason unpacks the Ocado grocery retail system to explore the basis of its success and the scope for it to become a template for the future of other retail activities. Ocado combines pure online retailing with sophisticated logistics to deliver to customers. For logistics and transport there can be few activities that are more socially valuable than humanitarian aid. As Beresford and Pettit clearly show, there are a great many forms of humanitarian disaster, both ‘natural’ and man-made, and the nature of the response is highly conditional upon the specifics of the incident. It is pertinent to note that this application of research endeavour is hardly likely to diminish in the near future.

1.4 The Chapters Not Written It is inevitable that in a book of this type, despite many inputs from many authors, there is still the problem that some aspects of our work are not captured. As contributions to the book were entirely voluntary,

10     P. Wells

and as some feel the pressure to achieve different outputs or contribute to our work in different ways, the coverage is not entirely complete. Moreover, it is equally inevitable that the composition of the Section has changed over time, and with those changes in personnel come changes in the research and teaching base of the Section. Academics by their very nature like to search for the new and the interesting, and that means there is a continuous process of portfolio renewal at an individual and collective level. As a result, we are lacking representation of our research in key areas including modern slavery, operations research, judgemental forecasting, automobility, network business models, health service provision, rail and aircraft transport systems, corporate social responsibility, blockchain, co-growth strategies, ship chartering and shipping law, construction and infrastructure development, food poverty alleviation, and much more.

1.5 Conclusions Public value is the heart of the mission of Cardiff Business School, and within the School the LOM Section offers an insight into the translation of the values we espouse into the practice of research. In many cases Public Value involves working with communities, not simply studying them. It means seeking to solve social problems, to contribute in positive ways. Much of this work is locally orientated, but by no means all. This book provides a glimpse of a socially responsible business school in action, at least as far as our research goes. Of course, that research then has direct links to teaching on our undergraduate and post-graduate programmes. The research also nurtures cohorts of Ph.D. students, who in turn will carry the Public Value mission further into the future and beyond the confines of Cardiff Business School. As this book shows, the work is never done—but that should not stop us in trying to make the world a better place.

2 Project Management for Effective Operations Management Daniel Eyers and Mohamed Naim

2.1 Introduction The ability to effectively manage projects is becoming an increasingly important competence for operations managers to excel in. The wellreported challenges arising from heightened global competition, introduction of innovative technologies, and extensively changing business practices necessitates that Operations Managers can change and adapt to many new requirements. Often, this recognized change from ‘business as usual’ leads companies to instigate a new project initiative to transform their operations from perceived inadequacy in their current state to a much more successful future state. In this utopian vision the project yields amazing benefits and singlehandedly transforms operations to meet the new business requirements. Nothing goes wrong, D. Eyers (*) · M. Naim  Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] M. Naim e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


12     D. Eyers and M. Naim

everyone is happy, and the company is far more successful thanks to the outcome(s) of a highly successful project. Of course, this is seldom a true reflection of the real world, and by their very definition, projects place unique demands on operations and those who manage them. Projects are a deviation from normal business practice—something new, something probably quite unfamiliar, and something that will place different challenges on those involved. Unless the intended outcomes are quite trivial projects are often complex, bringing together a plethora of resources (human and otherwise) that would not normally be combined to achieve specific objectives. How well these objectives are defined, whether they change over the lifetime of the project, and how success is measured will vary between different projects, and even between individuals involved within the same project. The management of a project is seldom an easy task, and a whole industry has grown up around the provision of project management expertise. Methodologies such as PRINCE2 (Projects IN a Controlled Environment) and Agile Project Management have been developed as all-purpose solutions to project management problems, and project management consultants skilled in these approaches are readily available to help firms manage their projects. However, whilst such consultants are often specialists in the delivery of projects, they are seldom wellequipped to understand the complexities and challenges faced in contemporary operations management. Conversely, experienced Operations Managers are typically functional specialists for their own industries, but they are seldom project management experts. More likely they are busy individuals juggling a plethora of challenges arising from day-today operations, with the management of various projects being one of a multitude of activities that they need to perform. The aim of this chapter is therefore to provide a straightforward, accessible, and easy-to-implement set of project management tools that are suitable for contemporary operations management. We do not set out to provide a detailed and exhaustive account of the various project management methodologies, nor do we attempt to outline the totality of different methods. Other sources (e.g. Gido et al. [2017]; Larson and Gray [2017]; Maylor [2010]; Axelos [2017]) provide excellent coverage

2  Project Management for Effective Operations Management     13

of these topics for the generalist audience, and the interested reader is directed to these to complement their knowledge. Ours is a focused chapter providing ready-to-use project management techniques, specifically relevant to the requirements of the Operations Manager for general-purpose projects. For large scale or particularly complex projects our tools are unlikely to be sufficiently comprehensive but should prove useful in the communication of project concepts to relevant stakeholders. We start by providing a short overview of the fundamental project management principles that Operations Managers need to appreciate, including some of the key terminology typically employed within the project domain. Building on these foundations we introduce three techniques that require minimal management effort, but which can be effective in the definition and operation of projects. Finally, we contextualize these tools using a practical example, highlighting their effectiveness and important practical considerations.

2.2 Fundamental Principles of Project Management One of the fundamental characteristics of a project is its relationship with time. Unlike day-to-day operations experienced within a company, projects are unique in that they have a defined start-point and endpoint—and these are usually expressed in terms of dates, rather than project outcomes. There are also likely to be a series of important milestone dates within the definition of the project where major events or activities are to take place. Whether the project adheres to all its dates, or whether it over-runs, is often a consequence of the how realistic the initial targets were, and the effectiveness (and in some cases luck) of the project manager in driving the project to meet its targets. Regardless, unlike many day-to-day operations, the focus on time within projects is typically paramount, and by specifying dates up-front and recording adherence to the plan, the ability to monitor the project’s progress with respect to schedule adherence is made possible. For many projects delays incur a financial penalty, either directly as a consequence

14     D. Eyers and M. Naim

Fig. 2.1  The project lifecycle

of increased project costs or imposed fines, or indirectly through the delayed benefits that the project was supposed to deliver. In these circumstances ‘time is money’, and so careful monitoring and management is needed throughout the project lifecycle to minimize the likelihood of delay. All projects share a common lifecycle as shown in Fig. 2.1, which we outline in the remainder of this section.

2.2.1 Project Definition and Initiation Projects exist to enable the achievement of pre-defined project objectives or project requirements that fulfil the needs of relevant stakeholders. In the definition and initiation stages, the principal requirements of the project are elicited and formally recorded. Good project management

2  Project Management for Effective Operations Management     15

necessitates that these objectives are clearly defined, and this clarity of definition is often largely influenced by the clarity of the project scope. The project scope document succinctly explains what the objectives of the project are, the key milestones and deliverables, the overall timetable, and crucially, details of activities that are within the remit of the project, and those which are excluded from the project. Effectively, this provides a boundary to the requirements of the project, and helps managers clearly understand what is within its remit. It is within the defining stage that expectations are documented, and so it is critical that these are made explicit at this stage.

2.2.2 Project Planning All projects should deliver at least one outcome, and the planning stage considers how to best achieve the requirements identified in the previous stage, subject to the constraints on time and resources for the project. Operations Managers tend to be adept at the effective planning and management of resources, but projects bring about special challenges due to the uniqueness and unfamiliarity of the tasks involved. Whilst the repetitive activities undertaken in day-to-day activities can usually be defined in terms of time and resource requirements, project activities tend to lack such specificity, particularly where workers need to acquire skills and experience with which to conduct their work. These uncertainties typically mean project managers include additional ‘slack’ time to absorb delays arising from lost efficiency, and also have contingency arrangements for where larger problems arise. In many respects such approaches to the management of projects are the antithesis of those employed in contemporary operations management, where the emphasis is on time-based competition and elimination of delays and time wasting to promote efficient operations. Effective planning to minimize wastage requires the logical deconstruction of the project into a series of activities, from which schedules of work are developed in varying levels of detail and plans for resource allocation (financial and non-financial) are developed for use within the project. There are a multitude of approaches that can be taken to

16     D. Eyers and M. Naim

the planning of projects, though we suggest one of the most useful and accessible techniques is Project Network Diagramming (PND). Through this approach project managers can readily visualize the activities of the project as a series of nodes, each connected to one of more nodes using arcs. At its basic level this provides a visual tool for the analysis of the planned activities, helping the project manager understand whether all activities have been identified for the project, and the relationship between these. Next, the PND can be quantitatively evaluated to calculate the timing of activities and develop an effective schedule for the work. Drawing on the Critical Path Analysis technique, the PND can be extended to show both the earliest time activities can be started, and also the latest possible start time that will not disrupt the project. This allows managers to make important decisions about when to schedule activities in order to best utilize resources, but without negatively affecting the overall completion time.

2.2.3 Project Execution The execution stage is the principal value-adding part of the project, where all the plans are enacted to deliver the business requirements previously elicited in the project definition stage. Within this stage the project manager moves from being a visionary that looks to the future to consider expectations and problems, and instead moves to a controlling role, monitoring work undertaken, and ensuring that all activities are progressing as needed. Many factors will affect the best way to effectively execute the project (including project size, complexity, skills of labour resources, and project management style, etc.), but several key activities around communication will also take place. At the commencement of execution there will be communication of the project plan and restatement of objectives, which is particularly important when the team are established. As the project progresses, information will be generated on the status of activities, and reporting of problems that arise. Some project management techniques (e.g. PRINCE2) espouse a ‘management by exception’ approach, whereby only problems that are outside of ‘tolerance’ are reported to layers of management, whilst other techniques advocate full reporting to all relevant parties. As information

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is collected and the project progresses, the project manager needs to focus on whether the project is delivering according to plan, and if not, identifying opportunities for correction. This may lead to changes in way the project is executed, and so careful management of change is needed to ensure all relevant stakeholders are advised of any alterations.

2.2.4 Project Closure The project closure stage carefully manages the process of bringing the project to a controlled and effective end. Often this stage may be overlooked; after all the main value has already been delivered through the execution stage—so why expend more effort on the project? However, this is a critical stage of the project, where the project team reflect on lessons learned that can benefit future projects, as well as the orderly transition and release of resources to other activities. Many project management approaches advocate the collection of data to support lessons-learned reporting well in advance of project closure, since once resources have left the project it may prove difficult to elicit their feedback. This may take the form of interviews or questionnaires as the project is in progress, or more terminal ‘exit interviews’ as staff leave the project to undertake roles elsewhere.

2.3 Three Tools to Support Effective Project Management for Operations Management Building on the Project Management principles outlines in the proceeding section, in this section we discuss three tools which may be employed in the effective management of operations management projects.

2.3.1 The Project Charter The Project Charter provides the central document that underpins the management of the project. Developed as part of the project definition, it provides a high-level overview of the critical components of the

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project and should be written using language accessible to all members of the project team. Through the Project Charter, all members of the project team should understand their individual responsibilities and have a clear idea of how their work contributes to the achievement of the various deliverables and overall objectives of the project. In many instances the Project Charter is employed as the legal agreement with the commissioner of the project, however in intra-organizational projects it is quite common to repurpose the document as an over-arching control resource. In terms of format, we strongly suggest that the Project Charter should never extend beyond a single page. The challenge for its authors is to carefully distill the nature of the project so that it can be clearly and succinctly communicated (though there is no size limit for the individual page!). Given the high-level nature of the document, and its ability to communicate the essence of the project to a range of stakeholders, it is usually appropriate to share it with all relevant stakeholders of the project. The contents of a Project Charter can be tailored to fit the specific requirements of an individual project, but at a minimum we suggest the following are included: Project Title: An informative yet concise title which explains the main purpose of the project. It is strongly recommended that this does not exceed a single sentence, and should not include acronyms (unless they are extremely obvious or widely used in the focal operations). Project Owner: Who is the ultimate owner of the project? Typically, the key stakeholder in the project, this is the individual who champions the entire project, and to whom success or failure is most likely to be attributed. Objectives and Scope: The statement of objectives explains the key accomplishments that are expected to be achieved by the project. In turn, this is contextualized by the scope of the project—highlighting what is within the remit of the project and (perhaps more importantly), what is outside of this remit. Enablers: A statement of the principal resources that have been ­committed to support its conduct.

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Project Team & Roles: The names (and perhaps photographs) of the principal contributors to the project, and a statement as to their primary role within the project. Importantly this is not their job title or other organizational identifier, it is essential that this role reflects what the individual is expected to contribute to the project. Key Deliverables: A numbered list of the main deliverables to be achieved in the project that will satisfy to the statement of objectives (above). Monitoring & Reporting Key Performance Indicators (KPIs): A list of measures (KPIs) derived from the key deliverables that demonstrate whether the project is progressing towards achieving its objectives. Note that temporal performance is measured by the supporting Gantt chart, and so may not need an explicit statement within this component. Summary Gantt Chart: A high-level overview of the principal activities to be undertaken over the duration of the project, with a clear statement of task ownership for overall accountability. Elicitation of the duration and ordering of events can be achieved through the application of Project Network Diagrams (See §2.2), though to promote simplicity in communication we do not suggest these are included within the Project Charter. In the execution of the project it is likely that Gantt charts with far more detail will be needed; hence this summary should ‘roll-up’ the detail into the main activities for a simplified and easy-toview overview of the project. Version Control Identifier: It is important that the initial Project Charter is retained as a baseline document for subsequent evaluation, but additional versions should be developed as the project progresses to maintain an up-to-date overview of the entire project. A plan for scheduled updates of the document should be decided at project initiation, and a sensible means of communicating the version should be employed.

2.3.2 The RACI Matrix Having defined the fundamental nature of the project through the Project Charter, attention is now needed in terms of how the project

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will be executed. Projects typically require the involvement of a multitude of people, each contributing different skills, and each with different responsibilities in terms of the successful outcome(s). Whilst the Project Owner might be the key stakeholder, and the Project Manager responsible for overseeing the successful coordination of work, with so many activities being undertaken in non-trivial projects it is unreasonable to expect either role to be held solely responsible for every activity. Likewise, as work is delegated to project members, it becomes essential for them to understand what their responsibilities are, and who can help them in their work. What is needed is a carefully developed allocation of responsibilities, and this is quite easily achieved by employing the RACI technique for every project activity. RACI is an acronym of four components: Responsible: Who is required to do the work that satisfies the activity? For larger tasks multiple people may be involved in the conduct of the work, but ultimately one individual name should be assigned as responsible for the work. If the work is not done, or it is done badly, this is the person who will be able to explain why this is the case. Accountable: Who is ultimately answerable for the achievement of the work? This is not the person who is responsible for doing the work but is the person who warrants the completed work as having been done to an acceptable standard. Consulted: Who should be consulted as work progresses, particularly in terms of decisions to be made or actions to be taken? There may be multiple individuals consulted for any given activity, and these are typically experts who understand the work being undertaken. Informed: Who should be kept informed of the progress of work? There may be multiple individuals who need to be apprised of the activity being undertaken, particularly where decisions have been taken which may affect other activities of the project. It is common practice to present the RACI analysis in the form of a matrix, and an example extract is shown in Fig. 2.2. This provides a useful overview that all project members can refer to and can also be used to help understand whether roles have been misaligned. For example, where an individual is ‘responsible’ for many activities, are they overloaded with work? Or if an individual is accountable for many

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Project Activities

Project Team Choi, C.

Jones, A.

Identify feasible technical solutions



Evaluate constraints


Identify solutions

budget top


Singh, I.

Chen, X.

Harris, S.











Prepare proposal for customer






Present proposal customer







Fig. 2.2  Extract from example RACI matrix

activities, but responsible for none, do they have the correct influence and involvement in the project? Carefully considering the overall matrix is therefore a useful activity for the project manager to ensure roles have been appropriately assigned. Effective monitoring and continual reviewing of the RACI allocation is essential over the duration of the project. Should individuals perform poorly or leave the project the management team will need to reassign their work to other named individuals, and carefully check the revised role allocations do not introduce new problems for the project.

2.3.3 The Black–Red–Amber–Green (BRAG) Approach to Project Monitoring & Control The third component of the toolkit provides a useful visual-management approach to the monitoring of project progress. During the execution of the project a multitude of different activities will be undertaken, with several possible relationships between activities. Some activities will be wholly independent, conducted in isolation of everything else happening in the project. More likely many activities will have a precedence relationship, with work only starting when prior activities have been

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completed. Finally, some activities will occur concurrently (sometimes termed ‘in parallel’), with work being undertaken on multiple activities at the same time. To effectively manage the project there is a need to know the state of all activities at any given time, for which we recommend the application of the BRAG technique. Using BRAG project managers report a single colour status for every activity in the project plan, including those which have yet to commence. This is typically done through annotation of the Project Charter’s Gantt chart, providing a visual overview of how each activity in the project is progressing. Black: The activity is not scheduled to start yet, and it has not started. Based on other activities in the project, there is currently no reason to expect any issues with this activity. Importantly this is not a positive status statement, simply an acknowledgement that nothing is foreseen for this yet-to-be commenced activity. Red: There are major problems with this activity, and serious remedial action is needed. This is the highest level of problem and is likely to need extensive consultation with principal stakeholders on an urgent basis. This may be because of one or more of the following: (i) major overspend relative to expected budget, (ii) significant quality defects in the likely deliverable, and (iii) major delays relative to expected plan. Amber: There are potentially problems looming, and there may be the need for corrective action to be taken to ensure these do not develop. Depending on the activity this may need consultation with principal stakeholders or may be correctable within the scope of the Project Manager’s authority. The amber rating may arise because of one or more of the following exceeding expected tolerances: (i) overspend relative to expected budget, (ii) quality defects in the final deliverable, and (iii) some minor delay relative to the expected plan. Green: The activity is progressing according to plan or is complete. There are currently no problems being experienced or foreseen for this activity. Whilst the BRAG approach will help managers quickly identify problem activities within the project, the interdependence between activities necessitates project managers also monitor the project ‘as a whole’ rather than a series of independent traffic lights. BRAG treats all

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activities equally; however should an important activity fail to deliver, or significant change be required to the project as a whole, the magnitude of the problem may not be readily evidence through this approach.

2.4 Practical Application In this section we provide a practical example of how the techniques prescribed in this chapter have been employed by the authors in the successful management of a practical operations management problem, and some practical insights that can be gained through this example.

2.4.1 Background Every year the organizers of the International Symposium on Logistics (ISL) hold a conference at which academics and practitioners meet to present and discuss their latest research. In July 2017 the conference was held in Ljubljana (Slovenia), attracting 95 delegates with 88 research papers presented over two days. It is a commonplace for academic conferences to partner with appropriate scholarly journals to disseminate some of the best studies beyond the conference delegates and to the wider research and practice community. ISL enjoys a partnership with the International Journal of Logistics Management (IJLM), and we were asked by ISL and IJLM management to deliver a Special Issue of the Journal, featuring extended versions of some of the best relevant papers at the conference. Although this project concerns the delivery of an ‘academic’ publication, the practical challenges are consistent with any other project in the production or service sectors. As editors, we needed to coordinate both our own work, but also that of the contributing authors (CA’s) to deliver a quality product the ISL and IJLM management. At the outset we needed to work with the uncertainties consistent with project management, particularly around people. We didn’t know who would be the CA’s, and so we had to carefully consider how to identify the best work to invite. Ideally once invited the CA would both

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accept the invitation and produce a high-quality submission, but neither was guaranteed. To compound the problem until we had manuscripts from CA’s we didn’t know which external academics might be called upon to provide rigorous individual peer-review of submissions (and, of course, whether they would accept the invitation and complete the work). What we did know for certain is that we had one year to deliver the project, and that no previous ISL Special Issue had achieved this timetable. We also knew that our financial budget was zero, meaning that we could not buy-in resources to contribute to the project. The only way to deliver this project would be through effective management that had a low administrative overhead, supporting the application of the three tools described in the previous section.

2.4.2 The Project Charter The overall aim of this project was to deliver a high-quality Special Issue for IJLM by 30 June 2018. Working backwards from this requirement the editorial team brainstormed all the likely activities that would need to be performed. Through this approach we identified gaps in our knowledge around some of the project requirements and the scope of our work, leading to follow-up discussions with IJLM management. Once this was complete we were able to construct a Project Charter for the work, and this was maintained through incremental versioning as the project progressed. Figure 2.3 shows an iteration of the project charter, which was stored online and shared between all relevant stakeholders for their consideration as the project progressed.

2.4.3 Defining a RACI Matrix On commencing the project, a RACI matrix was created to formalize responsibilities for each of the principal activities of the project. Whilst the allocation of work (i.e. the ‘responsible’ element) was relatively straightforward, in a project with stakeholders in various universities and publishing organizations it becomes more difficult to identify who should be ‘consulted’ and ‘informed’. Such problems are common for project managers; either they risk overloading their stakeholders with

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Fig. 2.3  Project Charter for IJLM special issue

reporting information that is unnecessary, or alternatively do not engage in adequate communication and so important notifications are missed. Within this project we struck a reasonable balance, but on reflection more clearly exploring the communication expectations for those in the ‘consulted’ and ‘informed’ categories in advance of the project would have been beneficial to ensure optimal reporting was achieved.

2.4.4 Applying BRAG The BRAG technique worked extremely well for this project, combining simplicity and effectiveness to communicate the status of each project activity. At regular project update meetings, we reviewed each of the project activities in terms of its completeness, any problems faced, and any potential for delay or defects in the quality of deliverable. Based on these evaluations we annotated the Project Charter activities with the appropriate colour classifications, and discussed remedial actions needed to

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overcome problems. Fortunately, very few activities were deemed particularly problematic over the lifetime of the project, however this approach was useful in highlighting those which were deviating from expectation and encouraging interventions from the project management team.

2.5 Conclusion This chapter has explored the fundamental principles and terminologies of project management that are relevant to contemporary operations management. Building on these foundations we have explored three useful project management tools that are conceptually simple, easily communicated, and enjoy a minimal administrative overhead. We suggest these characteristics make the tools ideal for application within general operations management projects, and through a real-world example highlight how these may be employed in practice.

2.6 Further Reading Within this Chapter we have focused on some key aspects of Project Management in an Operations Management context, however this is a large and complex topic. We recommend the following texts to compliment and extend our work: • Cagliano et al. (2015) explore risk management in a project management context and provide a useful overview of the principal approaches that can be taken. • Lewis (1998) provides an excellent emphasis on systems thinking to provide a holistic approach within the project management context. • Means and Adams (2005) provide a useful chapter on focusing on Project Charter Work Sessions, which can be valuable in eliciting the required information to complete this important document. • Ochieng et al. (2017) is a great example of applied project management, focusing on the practical challenges arising in large-scale projects.

2  Project Management for Effective Operations Management     27

References Axelos. (2017). Managing successful projects with PRINCE2 (2017 ed.). Norwich: TSO (The Stationery Office). Cagliano, A. C., Grimaldi, S., & Rafele, C. (2015). Choosing project risk techniques: A theoretical framework. Journal of Risk Research, 18(2), 232–248. Gido, J., Clements, J., & Baker, R. (2017). Successful project management (7th ed.). Boston: Cengage Learning. Larson, E. W., & Gray, C. F. (2017). Project management: The managerial process. New York: McGraw-Hill. Lewis, J. P. (1998). Mastering project management. New York: McGraw-Hill. Maylor, H. (2010). Project management (4th ed.). London: Financial Times Prentice Hall. Means, J., & Adams, T. 2005. Facilitating the project lifecycle: The skills and tools to accelerate progress for project managers, facilitators, and six sigma project teams. San Francisco: Jossey-Bass (See Chapter 10 for Project Charter Work Sessions). Ochieng, E., Price, A., & Moore, D. (2017). Major infrastructure projects: Planning for delivery. London: Palgrave Macmillan.

3 The Foundations of Sustainability and the Implications for Transport Modes Paul Nieuwenhuis

3.1 Background It could be argued that sustainable supply chain management (SSCM) has worked in splendid isolation; referencing more to the SCM literature than to sustainable business or sustainability in general. Yet, recently there have been signs of greater synergies between these fields and some publications now suggest that the SSCM literature is beginning to link with current thinking in sustainability and business (Matthews et al. 2016; Montabon et al. 2016). In this contribution, the topic is approached from a vision of sustainability that is very different from what may be prevalent in the mainstream SSCM literature. In addition, the focus here is on the transport aspects of supply chains, where a specific set of issues—notably vehicle emissions, both of toxins and of CO2—have long dominated any moves towards making supply chains more sustainable.

P. Nieuwenhuis (*)  Formerly at Cardiff Business School, Cardiff University, Cardiff, UK © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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In general, transport modes and their use are increasingly shaped by the need to meet criteria of sustainability. A focus is environmental concerns, notably but not exclusively air quality. While a regulatory trajectory to limit the impact of land-based road modes, notably cars and trucks, has been evident since the 1960s, in other transport sectors, such as shipping and air transport, such pressures are only just beginning. This chapter will provide an overview of how sustainability has come to be understood in road vehicle emissions, and how the regulation produced in response to this has changed transport modes and their use. In addition, an assessment will be made of how the sustainability agenda is likely to shape transport in future, with some suggestions as to the likely impact of such developments on the wider logistics field.

3.2 Sustainability—History of the Concept Our relationship with the other elements in our ‘natural’ environment has become framed in the context of the concept of ‘sustainability’, or ‘sustainable development’. This concept emerged in the 1960s and was brought into the mainstream by the Club of Rome report of the 1970s (Meadows et al. 1972). Sustainability was defined by the report of the UN World Council for Environment and Development, commonly known as the Brundtland report (WCED 1987). The WCED offered the following definition of sustainable development: …development that meets the needs of the present without compromising the ability of future generations to meet their own needs. (WCED 1987: 43)

The Rio Earth Summit organised under the aegis of the United Nations in 1992 ‘placed the issue of sustainable development at the heart of the international agenda’, as then General Secretary Boutros Boutros-Ghali put it. Sustainable development has come to be understood as aiming for a balance between the economic, the social and the environmental in all our activities; the so-called ‘triple bottom line’ (Elkington 1999). It could be argued that the ‘economic’ element was included to allow

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business and government to engage with the concept. However, in some respects this inclusion has also distorted understanding of the concept among many in business and government, most notably as the economic, unlike the environmental, has no scientific meaning as such. It is in this context that it is often argued that sustainability is a complex concept. A more recent attempt to represent this complexity in a simpler form is represented by the UN Sustainable Development Goals, which distill this complexity into 17, notionally more specific target areas, although these too imply equal status for this mixture of 17 statements that encompass social, economic and natural ideas. Sustainability at the simplest level is any activity that can be continued indefinitely. This definition is too open-ended and vague. Better then, to introduce an element of finiteness to it, which is what the reference to ‘future generations’ attempts to do. In fact, this is the most useful concept in understanding sustainability. In this context, American environmentalists often refer to the Great Law of the Iroquois Confederacy, which demands that legislators when framing new laws or when making key decisions, consider the implications for their descendants seven generations into the future. The Iroquois Great Law of Peace was operational for several centuries prior to the foundation of the United States (Parker 1916). It was the constitution of a confederacy of five Iroquois-speaking nations in the area now covered by northern New York State, parts of the Canadian Province of Ontario, and adjacent areas and probably originated around 1400 CE. The tribes involved were the Mohawk, Cayuga, Onondaga, Oneida and Seneca, later joined by the Tuscarora, who were displaced northwards from the Carolinas by European immigrants. The original principle was that of a comprehensive organising system for relations among them and other tribes. Some have argued that it influenced the United States Constitution itself (Johansen 1982; Hieronimus 1989), although others have challenged this view on the basis that sustainability as a concept could also have arisen out of enlightenment thinking, or its subsequent slide into romanticism with its new appreciation of the natural environment. Johansen (1998) provides a useful analysis of this debate. In the context of sustainability, the most important part of the Great Law is

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its Wampum 28,1 which defines the role of the chief, who among his responsibilities counts the following, to: Look and listen for the welfare of the whole people, and have always in view not only the present, but also the coming generations, even those whose faces are yet beneath the surface of the ground–the unborn of the future Nation. (Anon. 2018)

The notion of responsibility to future generations is key here. This is a useful working principle and the idea implied in the Brundtland definition. Perhaps surprising is that it is also an element that has been a consistent strand through American thinking. Thomas Jefferson, one of the Founding Fathers of the country, has been quoted as stating, for example, that: The Earth belongs to each…generation during its course, fully and in its own right, no generation can contract debts greater than may be paid during the course of its own existence. (

Almost a century later, US President Theodore (‘Teddy’) Roosevelt took this theme even further, by asserting in a speech to the Colorado Livestock Association in Denver, Colorado on 29 August 1910 that: The nation behaves well if it treats the natural resources as assets which is must turn over to the next generation increased, and not impaired in value. ( )

It is in this light also that we should see his support for early environmentalist John Muir, the foundation of national parks and the conservation movement more generally. The recent reappraisal of the role of Native Americans in shaping American culture, particularly the more modern understanding of the human relationship to the natural 1Information was disseminated and kept in the form of ‘wampum’: patterns of beads that, combined with oral records could be passed through the generations.

3  The Foundations of Sustainability and the Implications …     33

environment as expressed through environmentalism is a further indication of this persistent strand. For, while to many in the environmental movement the United States is one of the greatest violators of the environment, it is also undeniably the source of much western environmentalist thinking. This principle of responsibility to future generations has also come to be adopted by other, more recent legal systems, such as the amended Constitution of the State of Hawaii (2000), Article XI of which begins with the phrase: ‘For the benefit of present and future generations’. Similarly, the 3rd pillar of the French Constitution, the Charte de l’environnement, implemented in 2005 states as one of its principles: Qu’afin d’assurer un développement durable, les choix destinés à répondre aux besoins du présent ne doivent pas compromettre la capacité des générations futures et des autres peuples à satisfaire leurs propres besoins,… [That in order to ensure sustainable development, choices designed to meet the needs of the present generation should not jeopardise the ability of future generations and other peoples to meet their own needs.]

The extension to ‘other peoples’ is interesting here; it clearly refers to the north–south equity notions advanced by the Brundtland committee, but it also extends responsibility of the French state to non-French citizens living in other nations. In fact, the notion of responsibility to future generations is even more radical in legal terms, as it confers rights on people who do not (yet) exist. One could also place the Well-being of Future Generations (Wales) Act of 2015 in this context. Radical as these notions may be in the context of modern Western thinking, in fact the most radical departure from nineteenth- and ­twentieth-century thinking comes once again from the Americas, in the shape of the Ley de Derechos de la Madre Tierra (Law of the Rights of Mother Earth) in Bolivia. This law, passed on 21st of December 2010 and enacted on 15th of October 2012 as law nr 300 is based in the native concept of Pachamama, or Mother Earth. It was made possible by the radical president of Bolivia Evo Morales, himself a member of the Aymara nation, together with the Quechua traditionally a neglected group in this South American country, despite forming the majority

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of the population. Both were the dominant cultural groups that created the Inca Empire. The diverse nature of the country has now been enshrined in its rebirth as the República Plurinacional de Bolivia (the multi-national republic of Bolivia). Under the new legislation, Mother Earth is treated as a legal person in her own right, much as companies are treated as legal persons in many legal systems. However, she has quite specific rights, that include the right to life, diversity of life, access to water, clean air, the right to balance between her different elements, the right to having her systems restored in remediation of past, present and future damage—highly significant in this mining country. We should add, however, that this remains primarily an idealistic document whose implementation in Bolivia remains elusive (Solon 2018). Sustainability and sustainable development have, over the past two decades or so gradually, become mainstream terms. There is of course confusion as to its definition, which I have attempted to address. In most cases, organisations will address some environmental issue and believe that as a result they are sustainable or are ‘doing’ sustainable development. This is clearly not always the case, as sustainability is a ‘systems’ concept. It is important to acknowledge at least the progress that has been made as a result of this growing interest. There are not many signs, however, that either government or business is adopting the more scientific understanding of sustainability that places society and economy within environment, as a subset of it, rather than regarding those three traditional elements of sustainability as partially overlapping circles or sets of equal value. Societies and the economic activities they engage in are limited by the resources provided by their natural environment. In scientific terms, this understanding of the three elements of sustainability as a hierarchy is still not common. A wider adoption of this understanding in business and government would be a first step in the long overdue transition from an economic to an ecological worldview (Krebs 2008). The rather simplistic, but convenient, understanding of sustainability as three equal and balanced elements that has become embedded in much of society, The Triple Bottom Line, has now also become a barrier to further progress and to a more realistic understanding of sustainability. At the same time, on the environmentalist side, thinking often slips into a form of puritanism, which makes

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more sustainable living such as ‘de-growth’ appear unattractive to the majority. To move this majority, in a democratic or consensual environment, we need to entice people into a form of sustainable living that is more appealing than what they have now. This is a challenge that supply chains need to engage with.

3.3 Sustainability, Transport and Logistics The car was the first transport mode to be subjected to environmental legislation, followed soon thereafter by trucks and vans. Other modes followed much later. Among these, shipping was perhaps the first to follow in the form of early marine pollution (MARPOL) agreements, following some major oil leaks from tankers in the 1960s. Environmental legislation of the car originated in California and for decades focused on toxic emissions from internal combustion engine vehicles. This process started around 1960 and until the mid-1990s California remained the leader in this field. Initiatives and regulations started in this State usually formed the basis for Federal legislation and subsequently regulation in other countries (ICCT 2017). It should be noted that vehicle emissions legislation started more from a concern about human health than concern for ‘nature’ or survival of ‘the planet’. The concern about the impact of motorised vehicles on our environment centres around five general issues: emissions, energy consumption, noise, congestion and land use. All of these have been subject to regulatory and legislative control somewhere in the second half of the twentieth century, however most of the debate and regulation has focused on toxic emissions of carbon monoxide (CO), oxides of nitrogen (NOx), various hydrocarbons (HC) and particulates (PM), with the US, particularly the State of California and its Air Resources Board leading the way (Nieuwenhuis 1994). Over time, these US standards influenced standards in other countries. Some adopted them without modification, while others, such as Japan, developed their own standards and their own test cycle. Test cycles simulate a typical drive and differ in different parts of the world, though they rarely manage to come close to real driving conditions.

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Many manufacturers thus end up designing their cars to perform well on the test cycle, rather than in real use. Consumers often fail to match either the officially declared fuel consumption or emissions performance of the car they bought. Despite such differences it can be said that worldwide emissions standards are strongly influenced by the US, and particularly California. However, in recent years, the lead has shifted to Europe, as EU standards (Euro 1–6) are increasingly being adopted by other countries, whose cars are often more similar to European cars than American cars. This regulatory trajectory introduced new technologies such as the catalytic converter and engine management systems and has led to cars that emit much cleaner exhaust fumes such that the toxic emissions of a modern car are a fraction of what they were from cars before regulation; at least on the test cycle.

3.4 Climate Change Regulation of the car was prompted by air pollution resulting from its emissions of toxins as these were found to be injurious to human health. With climate change, however, the situation is different. This is far more controversial in that the scientific consensus is less obvious both in terms of the mechanisms by which CO2 emissions are linked to climate change and the relative importance of the automotive contribution to that process. Also, there is no clear and imminent danger to human life or health. Climate change processes are well beyond ‘human measure’, often playing out over long timescales (Kroonenberg 2006; Nieuwenhuis 2014). After experimenting with self-regulation, the EU took the lead in reducing CO2 emissions from cars. In April 2009, the EU adopted Regulation 443/2009, which established a CO2 emissions target of 130 g/km for the fleet weighted average of new cars sold by 2015, with a limit of 95 g/km for 2020. In the EU the early effects of the post2008 recession prompted a consumer shift towards lower carbon vehicles, either as a primary choice, or as an indirect result of the various scrappage schemes which enticed consumers who would normally favour used cars into buying lower priced new cars, which tend to be

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smaller and more fuel efficient (Wells et al. 2010). This trend helped to accelerate the carbon reduction process in the EU prior to the legislation, such that the industry was able to meet the legislative limits ahead of the due date. Other jurisdictions have also implemented CO2 reduction policies as well as fuel efficiency policies, notably Japan, South Korea, China and the USA as well as California.

3.5 China China has less of an established parc (=vehicles in use) and car buying habits can therefore still be changed through incentive schemes with less of a legacy problem. Decision making processes can be much quicker in China than in the EU with its 27 Member States and complex multiple interest and lobby groups. Chinese authorities are better able to act unilaterally on environmental criteria alone (Nieuwenhuis and Zapata 2005; Gallagher 2006). The option of promoting smaller, more fuel-efficient cars was among the first to be implemented (Zhengzheng 2006). The central government issued a notice to encourage the use of environmentally friendly, low-emission cars. The notice included small cars, diesel-powered vehicles and alternative fuel vehicles, known as ‘new energy vehicles’ (NEVs). To back up this policy several incentives were introduced (Nieuwenhuis 2012; Nieuwenhuis and Lin 2015). The government also suggested reduced parking charges for small cars, as in Japan, and announced that all restrictions on the use of small cars be lifted. Guangzhou, for example, banned cars of less than 1000 cc capacity in 2001. Since then more fuel economy targets have been introduced, as well as targets for electric vehicles. The fuel economy targets issued in December 2009 aimed to reduce fuel consumption of passenger vehicles to 7 l/100 km, or 167 g/km of CO2 by 2015 (ICCT 2017). The national policy on New Energy Vehicles started from 2001, when the ‘National High Technology Research and Development Program (863 Program)—electric vehicle major project’ was launched in the Tenth Five-Year Plan (Xu 2001). The 863 Program laid a foundation and specified the framework for NEV research. According to the Program, research should focus on three types of EVs: (1) pure electric

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vehicles (PEV), (2) hybrid electric vehicles (HEV), and (3) fuel cell electric vehicles (FCEV), and three types of key components: (1) multienergy powertrain controller, (2) drive motor, and (3) power battery, which are the critical technologies common to all three types of EVs. Under the Twelfth Five-Year Plan (2011–2015) the emphasis was put very strongly on the development of battery EVs (Nieuwenhuis and Lin 2015).

3.6 Japan and South Korea In 1976, in the wake of the energy crisis of 1973–1974, Japan introduced the Energy Conservation Law, under which various fuel economy standards have since been introduced. The Japanese market has long featured a minicar or ‘kei’ car segment. Vehicles in this segment have a maximum length of 3.4 m, a maximum width of 1.48 m and a maximum height of 2 m. Maximum engine capacity was 660 cc. In return they enjoy a favourable regulatory regime. Kei cars tend to be exempt from the expensive urban parking permit requirement, for example. Since 1998 Japanese fuel economy regulation has been using the ‘top runner’ principle, whereby current best practice informs future targets, something derived from earlier academic concepts such as the ‘Environmentally Optimised Vehicle’ (cf. Nieuwenhuis and Wells 1997). The targets introduced in 2007 were designed to lead to an average new car fuel economy of 16.8 km/L by 2015, equivalent to a CO2 figure of 125 g/km, giving Japan the lowest CO2 emitting new car fleet by 2015 (ICCT 2017). During the 1990s, the South Korean government also adopted a minicar policy. Here the principal reason was social equity and access to cars. The introduction of minicars was resisted by Korean manufacturers fearing small profits, but several have been successful with these products worldwide; e.g. Daewoo’s Matiz. Korean regulation differentiated their minicars from the Japanese Kei model to avoid imports from Japan and promote indigenous designs; this has also helped make them more appealing in export markets. Korean minicars have a maximum engine capacity of 800 cc and are slightly larger. However,

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South Koreans have increasingly favoured larger engine cars and SUVs, so in 2010 the government proposed a combined fuel economy and CO2 emissions target of 17 km/L and 140 g/km of CO2 on the Korean drive cycle for the 2015 model year. This equates to 150 g/km on the European NEDC drive cycle (ICCT 2017).

3.7 California and Australia As outlined earlier, California was the first to legislate to control vehicle emissions, pre-dating federal initiatives, and for this reason retains the right to set its own standards separate from Washington. However, on climate change it was long hampered by federal policy with some innovative initiatives being challenged. In 2002 it enacted the first restrictions on GHG emissions from vehicles, which were made more specific in 2004 creating two vehicle classes and setting targets for a year on year reduction in emissions from 2009 to 2016. From 2009 the California Air Resources Board was able to align its measures more closely with federal standards, something the Trump administration is keen to pursue further. California therefore aimed to achieve 172 g/km by 2016 but is aiming for tighter targets for model years 2017–2025. A target of 99 g/km is under study for 2025 (ICCT 2017). Friction with the Federal government has increased under President Trump, who has sought to reverse much environmental regulation. Australia, which sets its own standards, has been lagging somewhat behind in this area, due to various governments’ attitudes to climate change. Under PM Kevin Rudd’s administration, and to a lesser extent under Julia Gillard, the country was trying to catch up without unduly harming its indigenous car makers. In 2005, a voluntary target was set by the Federal Chamber for the Automotive Industries in Canberra for 222 g/km by 2010. Some real efforts were made under this initiative such as promotion of LPG and the tentative downsizing of engines for the traditional Australian cars. In addition, a greater diesel penetration was promoted (Nieuwenhuis 2012). However, decisions by Ford and GM in 2013 followed by Toyota in 2014, to stop production of these indigenous models from 2016 and 2017 eases this problem somewhat.

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3.8 Trucks and Buses Although vans and other light commercial vehicles can often mirror cars in terms of legislation, whose powertrains they often use, for trucks a separate trajectory has often been deemed more appropriate. Some clarification is required at this point, as light trucks in the United States include many vehicles classed as ‘cars’ in other markets and which are often bought by private users and used as cars. These include America’s best-selling vehicle for many years, the Ford F-Series pick-up truck, as well as SUVs and so-called minivans, known more often in the UK as people carriers and elsewhere as MPVs. For heavier commercial vehicles, there has long been pressure from operators to reduce fuel consumption to reduce operating costs and this also reduces CO2 emissions. Thus, from 1967 to 2004 fuel consumption from trucks improved by 33%. However, having long relied on market forces to therefore reduce CO2 from trucks, in early 2019, the EU introduced legislation to speed up and formalise this process ( Toxic emissions standards for trucks are linked with engines, rather than built-up vehicles and these were introduced in the United States in 1987 and in the EU from 1994. As with cars, several generations of Euro standards have followed, reaching Euro VIc in 2017. Meeting these standards for heavy diesel engines requires additional technologies such as selective catalytic reduction (SCR) and exhaust gas recirculation (EGR), whereby the former includes the addition of a ureic acid tank. Buses are increasingly run on alternative fuels such as compressed natural gas (CNG) or powertrains such as fuel cells or batteries. As these are mainly used in densely populated urban areas and rarely stray far from a depot where refuelling or charging can take place, they are ideally suited to the introduction of such new technologies.

3.9 Shipping Although shipping has been found to contribute some 4.5% of global CO2 (The Guardian 2008), a more immediate threat is represented by their emissions of sulphur oxides (SO2 and SO3, or SOx), where it

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represents around 7% of the total and much of the SOx in coastal areas, thus being implicated in various health problems. Shipping represents a very high proportion of global logistics and one would therefore expect it to make some impact and in terms of tonne/km, its impact is lower than road transport. However, this is counterbalanced by the fact that ship emissions are almost totally unregulated, while the fact that they are used for such long distances also adds to their impact (Nieuwenhuis et al. 2012). The primary focus of shipping regulation under MARPOL was for a long time on the impact of oil spills from tankers, to which other toxins from bulk carriers were added in 1987 under Annex II. Air pollution from ships was finally added in 2005 and building on this, reductions in greenhouse gas emissions are now being implemented, i.e. sometime after similar regulation in cars. Shipping, taking place to a large extent in international waters outside a specific jurisdiction, is subject to what amount to voluntary measures. It is clear then, that although later than cars in terms of emissions to air regulation, MARPOL has followed a broader agenda, although issues such as end-of-life processing of ships still need to be addressed.

3.10 Future Developments Few supply chains can become sustainable without addressing the environmental impacts from transport, whereby currently the need for the supply chain in question itself is rarely if ever questioned. However, attempts to reduce vehicle emissions can potentially cause problems elsewhere in the environment. Emissions reduction, particularly of CO2, is about energy efficiency—i.e. using less energy to do the same thing. Perhaps a greater constraint on such technological developments is the expected imminent peaking of various commodities and specialist materials we use for such technologies (Heinberg 2007). The notion of oil peaking is increasingly well known (Roberts 2004), but other commodities that cause concern include platinum, which is used for catalytic converters, as well as fuel cells (although their dependence on this

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metal is reducing as technology advances), and lithium, which is needed for most of current technology electric vehicle batteries, as well as those used in laptops, mobile phones, etc. Much of the world’s lithium is in Bolivia, for example, while the so-called ‘rare earths’—such as the materials used for touch-screens and many electric motors—are controlled by China; at least the processing facilities are, prompting the west to rediscover rare earth supplies in places like California and Finland and put processing plant in place near those locations. Such issues will force both industry and regulators to think beyond emissions and address a broader agenda, more in line with true sustainability thinking. For the question remains: have the achievements of the past 50 years made transport or supply chains more ‘sustainable’, or does this need a more holistic approach to supply chains by understanding them in the broader context of more sustainable consumption and production?

References Anon. (2018). Kayanerehkowa: The great law of peace. Accessed January 22, 2018. Elkington, J. (1999). Cannibals with forks: The triple bottom line of 21st century business. London: Capstan. Gallagher, K. S. (2006). China shifts gear: Automakers, oil, pollution and development. Cambridge, MA: MIT Press. Heinberg, R. (2007). Peak everything: Waking up to the century of declines. Gabriola Island, BC: New Society. Hieronimus, R. (1989). America’s secret destiny: Spiritual vision and the founding of a nation. Rochester, VT: Destiny Books. ICCT. (2017). 2017 global update: Light-duty vehicle greenhouse gas and fuel economy standards. Washington, DC: International Council on Clean Transportation. Accessed January 22, 2018. Johansen, B. (1982). Forgotten founders: How the American Indian helped shape democracy. Boston, MA: The Harvard Common Press. Johansen, B. (1998). Debating democracy: Native American legacy of freedom. Santa Fe, NM: Clear Light. Krebs, C. (2008). The ecological world view. Collingwood, VIC: CSIRO.

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Kroonenberg, S. (2006). De Menselijke Maat; De aarde over tienduizend jaar [The human measure: The earth in ten thousand years time]. Amsterdam and Antwerp: Atlas. Matthews, L., Power, D., Touboulic, A., & Marques, L. (2016). Building bridges: Towards alternative theory of sustainable supply chain management. Journal of Supply Chain Management, 52(1), 82–94. Meadows, D., Randers, J., & Behrens, W. (1972). The limits to growth. New York: New American Library. Montabon, F., Pagell, M., & Wu, Z. (2016). Making sustainability sustainable. Journal of Supply Chain Management, 52(2), 11–27. Nieuwenhuis, P. (1994). Emissions legislation and incentives in the USA and Europe. In P. Nieuwenhuis & P. Wells (Eds.), Motor vehicles in the environment. Chichester: Wiley. Nieuwenhuis, P. (2012). The challenge of decarbonising the car. In M. Nilsson, K. Hillman, A. Rickne, & T. Magnusson (Eds.), Paving the road to sustainable transport: Governance and innovation in low-carbon ­vehicles. London: Routledge. Nieuwenhuis, P. (2014). Sustainable automobility: Understanding the car as a natural system. Cheltenham: Edward Elgar. Nieuwenhuis, P., Beresford, A., & Choi, K.-Y. (2012). Shipping or local production? CO2 impact of a strategic decision: An automotive industry case study. International Journal of Production Economics, 140(1), 138–148. Nieuwenhuis, P., & Lin, X. (2015). China’s car industry. In P. Nieuwenhuis & P. Wells (Eds.), The global automotive industry. Chichester: Wiley. Nieuwenhuis, P., & Zapata, C. (2005). Can China reduce CO2 emissions from cars? Greener Management International, 50, 65–74. Nieuwenhuis, P., & Wells, P. (1997). The death of motoring? Car making and automobility in the 21st century. Chichester: Wiley. Parker, A. C. (1916). The constitution of the five nations or the Iroqois book of the great law. 2006 Reprint. Ohsweken, ON: Iroqrafts. Roberts, P. (2004). The end of oil: The decline of the petroleum economy and the rise of a new energy order. London: Bloomsbury. Solon, P. (2018, February). Vivir Bien: Old cosmovisions and new paradigms, great transition initiative. Accessed January 22, 2018. http://greattransition. org/publication/vivir-bien. The Guardian. (2008, February 13). True scale of CO2 emissions from shipping revealed. The Guardian, p. 1.

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WCED. (1987). Our Common Future, Report by the World Commission on Environment and Development. Oxford: University Press. Wells, P., Nieuwenhuis, P., Nash, H., & Frater, L. (2010). Lowering the bar: Options for the automotive industry to achieve 80 g/km CO2 by 2010 in Europe. Cardiff: CAIR/BRASS for Greenpeace International. Xu, L. (2001). 国家863计划电动汽车重大专项正式启动 (The initiation of 863 Program—electric vehicle project). Science & Technology Industry of China, 3, 49–50. Zhengzheng, G. (2006, January 5). Green light given to eco-friendly vehicles. China Daily. Accessed January 22, 2018. doc/2006-01/05/content_509279.htm.

4 Business Model Innovation at the Interface Between Global Production Systems and Local Demand Peter Wells

4.1 Introduction This chapter highlights two contradictory themes in contemporary logistics and operations management: the deeply embedded character of global production systems as spatially integrated value chains, and the emergent possibilities of the Internet-enabled, localised, on-demand economy expressed in the proliferation of business model innovations. Business model innovation has become an important area of academic study and business practice as attempts are made to reconcile rapid technology and market change with new forms of consumer and social practice. The realm of logistics and operations management has been a particularly fertile one for business model innovation, and is likely to become even more so in the future.

P. Wells (*)  Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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Logistics has always had a single, fundamental purpose: to link those that would supply with those that would consume.1 This is more than mere transport. As economic systems have become more complex, volatile and spatially extensive, the task of co-ordinating and synchronising the supply of materials, components, products and produce has resulted in (and of course been facilitated by) the science of logistics. However, spatial extension means the greater separation of the places of production from the places of consumption. Spatial extension means that national economies are more porous and less self-sufficient. It is a process known in populist, albeit imprecise, terms as globalisation. Inevitably, the spatial separation of production and consumption proceeds unevenly and may even be undergoing reversal as economic logic, resource dispositions, and geopolitical interventions result in tectonic shifts in the great economic landmasses of the world.2 As a result, generalisation about globalisation and the consequences engendered is at best a triumph of optimistic trend-mongering amidst the noise of partial and sporadic evidence. If the aspect of the spatial dispersal of production is somewhat opaque, then the consumption side of the ‘equation’ that logistics seeks to resolve is equally problematic. Changes in what people consume, how, when and through which channels or outlets are permeating contemporary life, again in ways that are often difficult to be precise about and with outcomes that are uncertain. The notion of the ‘on-demand economy’ is as populist, and as vague, as that of globalisation—but there is virtual unanimous agreement that hugely portentous changes are happening all around us. Moreover, recent years have been witness to the emergence of several counter-globalisation movements that speak to a resettlement of the production–consumption equation. Two are of particular note: the

1In this chapter, the term consumers is not confined to retail or final consumers, but embraces business to business transactions as well. Hence a business can be a consumer. 2An example that emerged in mid-2017 was the decision by China to refuse entry to waste materials from January 2018 onwards. While deferred to a later date, this single decision caused consternation in the waste exporting nations such as the USA, the UK and others. It also was disruptive to business in China, as alternative sources of materials suddenly had to be found.

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circular economy; and degrowth. If the aspirations of the protagonists of these movements are met, and the concrete conditions of production and consumption shift, then both the circular economy and the degrowth economy would have profound implications for logistics and operations management (Todeschini et al. 2017; Wells 2016a). In practice, degrowth may be the strategy by which the circular economy can be created. It is important to consider these are other structural shifts because they have the potential to result in rapid, substantial and enduring changes of profound significance. For those active in logistics systems as suppliers, recipient firms, consumers or indeed logistics providers, global structural shifts in production and consumption alongside burgeoning technological possibilities mean that the entire production– consumption nexus may morph in unpredictable yet important ways. So while logistics can be considered as a ‘derived demand’ or necessity that arises out of the separation of production and consumption, it is also deeply entwined in the processes of change. There is an argument to say that business model innovation is generically a sub-set of supply chain innovation and management. That is to say, business model innovation occurs to provide new ways of managing the relationship between producers and consumers. In practice and in academic literatures, however, the treatment of business model innovation has transcended the rather narrow realm of supply chain management to become an area of study in its own right. This chapter therefore has a focus on business model innovation that is attributable to the management of the tension between the globalisation of production and the instant gratification desired in the on-demand economy. The chapter first outlines important shifts in the production–consumption nexus in terms of first globalisation and then the need for rapid fulfilment of demand. After these two structural conditions are defined, the case is made for business model innovation acting at the interface between supply and demand, between production and consumption, and between the distant and the local. The chapter concludes with some observations on the dynamic nature of capitalist development and the scope for a reversal of globalisation if the ondemand economy becomes more deeply entrenched.

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4.2 Business Model Innovation It is pertinent to note that business model innovation as an aspect of modern life and of academic research really gained visibility in the midst of the so-called ‘dot com’ boom which included the emergence of novel business propositions to link production to consumption, or suppliers to consumers notably in the ‘clicks not bricks’ notion. This era in the early 2000 was crucially enabled by the proliferation of the Internet into everyday life, and by new businesses that provided the ‘lubrication’ to make the world of e-commerce possible. Hence, for example, the forerunner to PayPal was established in 1998 as Confinity, while eBay was founded in 1995, and Amazon in 1994. By the early 2000s these US companies were the fast-growing symbols of e-commerce. Crucially, while the dot com boom came and went, along with some high-profile and well-funded corporate casualties, the underlying interest in re-engineering the relationships both back down the supply chain and forward to consumers remained. Internet-enabled e-commerce allowed for direct contact to consumers on a massive and unprecedented scale, giving the providers of goods and services new channels to market but also new challenges in terms of marketing, retailing, distribution and after-sales support. Early business model pioneers such as Dell Computers and their ‘clicks not bricks’ philosophy provided some of the templates for success (Kraemer et al. 2000). From an academic perspective, there was then a growing interest in the ways in which the structure of a business model provided the foundations for competitiveness, and the ways in which business model innovation was achieved. The concept of the business model has since remained both simple and ambiguous, obvious and elusive. At its most basic the business model can be understood as an abstraction, a partial and idealised description of the ways in which a business is structured to create and capture (financial) value. The business model can thus be understood as an outline description for the purposes of communication to staff, potential new recruits, suppliers, customers and investors. The business model is distinct from strategy and indeed from operational execution, failures in which can result in failure of the business even where the

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business model itself appears appropriate. Moreover, academic research beyond the confines of mainstream business, into for example other organisational forms of commercial enterprise or into business models for sustainability, has increasingly sought to emphasise the significance of values beyond the financial. Business models are thus increasingly recognised as both an important aspect of academic management science research, and of business practice (Wirtz et al. 2016a, b). In part this increasing prominence arises out of the market success of clearly innovative business models as typified by companies such as Amazon, Uber, Tesla, Facebook, Airbnb and others—often in association with technological innovations (Bashir and Verma 2016; Bogers et al. 2015; Guttentag 2015; Jean and Lohmann 2016; Mikhalkina and Cabantous 2015; Pereira and Caetano 2015). As this field of research has consolidated, from a range of diverse literatures and disciplines (Zott et al. 2011), so the focus of business model definition in the mainstream management science journals has become narrower, reflecting a desire among the academic community to be more rigorous and to use a more standardised terminology (Wirtz et al. 2016a: 49). That is, the quest for generalisability is an attempt to elevate theoretical explanations for the emergence and consequence of business models beyond the contextual. However, the literature has been characterised largely by a focus on business organisation per se rather than other organisational forms such as those involving the state (Zott et al. 2011). Some interest in organisational innovation other than in mainstream business has been expressed, for example, in the identification of ‘hybrid’ business models such as ‘B-corps’ as a potentially significant category. Interestingly, some research in supply chain management has also indicated the significance of business model innovation (Panou 2015; Trkman et al. 2015). Alternatively, some scholars working in the field of sustainability have sought to find commonality in underlying values rather than the architectural form of business models (Breuer and Lüdeke-Freund 2016; Wells 2016a). Moreover, there is a contradictory recognition of the need to ‘locate’ business model innovation within a wider socio-economic context with, for example, a growing literature on the relationship between business model innovation and the circular economy (Bocken

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et al. 2016; Govindan et al. 2015; Kiørboe et al. 2015). Unsurprisingly, it is to be expected that global production systems that link to local consumption will therefore be a fulcrum for business model innovation. Business model innovation is generally held to be a dynamic process of experimentation and organisational design, particularly in the early phases of development (Bocken et al. 2018). Where attempts are being made to ‘fit’ an innovative business model to themes related to the circular economy there is likely to be an even greater degree of uncertainty and hence a proliferation of transient solutions (Long et al. 2018). It is to be expected there for that there will be a great diversity of business model solutions depending upon such factors as the product or service focus, the scale and scope of the business, and the geographic m ­ arket(s) served (Geissdoerfer et al. 2018). Hence there is also likely to be a plethora of emerging relationships between those very large businesses integrating global supply chains, and SMEs at either end of such chains providing either materials and inputs to the global chain or providing the final link to consumers. According to Geissdoerfer et al. (2018), the resulting circular business models are the fulcrum around which circular value loops can be created. Similar conclusions apply to serviceorientated business model innovation, although here research and practice is less well developed (Heyes et al. 2018). In terms of ­ ­product-service systems, emergent evidence to date suggests that again a range of formats is possible for business model innovation, with potential for significant sustainability performance improvement (Yang et al. 2018b). In all of these aspects of business model innovation for the circular economy there is a great deal of uncertainty over the appropriate structure and the longer-term outcomes (Linder and Williander 2017).

4.3 Production, Consumption and Global Value Chains The term ‘global value chain’ is used to describe the linkage of suppliers to product manufacturers across geographic boundaries. The terminology can also include global production chains or global networks (De Marchi et al. 2014).

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While there is some scope for innovations in additive manufacturing to ameliorate or reconcile the production–consumption dichotomy (Khajavi et al. 2014; Holmström et al. 2016), in principle there is no strong reason to suppose that global value chains will become localised in the near future. Certainly, there is a tension between the quest for a circular economy (espoused by among others, China) and that for economic comparative advantage achieved via global value chains. The potential of additive manufacturing for local value chains in a circular economy has been identified by Despeisse et al. (2017), but as yet this is an aspirational research agenda. In turn, this means that flows of food, materials, components and finished goods are likely to remain a feature of major economies for the foreseeable future, even if on aggregate the levels of growth in trade may fall compared with the historic trend. There is ample evidence for the continued growth of global trade and its significance for national economies as well as for supply chain management (Brennan et al. 2015). One of the most important developments in human history with respect to global trade is the ‘belt and road’ initiative launched by China in 2013. This is a huge undertaking in terms of the infrastructure investments in global production, trade and consumption in which China is partnering and co-investing in multiple projects and multiple countries (Yang et al. 2018). Such investments raise many questions about economic impact and the share of economic growth, the strategic power of China, the control over resources, the exploitation of previously underutilised supplies, and the environmental consequences of all of this (Cai et al. 2018; Liu and Hao 2018; Han et al. 2018). At the geopolitical strategic level, the initiative not only promises a radical re-organisation of trade flows, it also potentially opens up a more inclusive approach to globalisation that is distinctly different to that experienced under neo-liberal capitalism emanating from the global ‘north’ of the US, Europe and Japan (Liu et al. 2018). On the other hand, the focus on South East Asia raises concerns over the extension of political and economic influence by China over the whole region, and even beyond into Europe (Dave and Kobayashi 2018). Whatever the economic, political or sustainability outcomes it is evident that logistics systems linking geographically distributed production and consumption locations are fundamental to the belt and road initiative (Li et al. 2018).

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Keystone companies act as orchestrators of these global production networks, but often they do not act as the point of contact to final consumers; that role is taken by logistics businesses under contract to the orchestrator, and often via their own subcontractors or notionally self-employed suppliers of local delivery services. In principle, global supply chain systems enable the least-cost source location to become the point of production. For many of the mature industrial economies, this raises the spectre of capital flight, or what consultants term the ‘offshoring’ of production with the ‘hollowing out’ of those mature economies that are increasingly denuded of mass manufacturing jobs. Clearly, this is a concern that was captured by President Trump in his 2016 US election campaign, and perhaps also underpinned the vote to leave the EU by the UK. The flows of ores, feedstocks and base materials, into production materials (like steel or cotton), semi-manufactured goods and sub-assemblies, and then final assembled goods are not necessarily linear, and may involve products or parts thereof crossing national boundaries many times. The BMW production process for carbon fibre reinforced plastic is a good example. Crude oil is imported into Japan from the Middle East, where it is made into precursor carbon fibres by Mitsubishi Rayon (the production of such fibres is dominated by Japanese companies). These fibres are exported to North America, where SGL converts them into spools of carbon fibre, which are then shipped to Germany. In a separate plant, BMW uses the fibres in a plastic matrix to create sheets ready to be moulded, the manufacturing process itself being carried out in the Leipzig plant where the i3 and i8 are assembled. The cars of course are shipped to multiple markets around the world.

4.4 Local Consumption and the On-Demand Economy The practice of moving materials and products from the point of production to the point of consumption has been going on throughout known human history. What is different about the contemporary era is the scale, variety and speed of consumption that is encapsulated in

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the concept of the on-demand economy. There may be no precise agreement as to what constitutes the on-demand economy. A typical business press definition is: The On-Demand Economy is defined as the economic activity created by technology companies that fulfil consumer demand via the immediate provisioning of goods and services. ( the-on-demand-economy-2014-7?IR=T)

In essence, there is usually a combination of Internet presence and the physical logistics or mobility system that allows consumers of goods and services easily and quickly to identify what they want and arrange for the satisfaction of that want. The Internet platform is a key component, clearly, enabled by rapid connection speeds and the widespread penetration of computers, tablets, and smartphones. Coupled with the easy availability of credit and electronic payment systems, ­e-commerce ­platforms have proliferated to offer a growing range of products and ­services with rapid order fulfilment and precise delivery times to specific addresses or to pick-up points. As a consequence, urban freight flows are changing, with for example a significant growth in deliveries to households (Wang and Zhou 2015). Some on-demand services can be purely digital with providers such as Netflix allowing the streaming of films and other content direct to the consumer, while others such as Sky may offer a range of combinations (packages) of real-time, streamed or recorded programming. Such is the proliferation of retail channels and operators that there is an emergent market space for ‘trusted’ advisors and aggregators that utilise software systems to analyse, filter, categorise, and rank product and service offerings to consumers (see for example Hagel 2016). Moreover, the growth of so-called omnichannel retailing has blurred the distinctions between traditional retail and the on-demand Internet-enabled versions (Melacini et al. 2018; Murfield et al. 2017; Saghiri et al. 2017). There is, however, a ‘dark side’ to the on-demand economy in which business model innovation and logistics systems are key (Todolí-Signes 2017). That is to say, in parallel with the growth of e-commerce or the on-demand economy has been increased marginalisation, fragmentation

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and casualization of workforces in the form of so-called ‘zero hour’ contracts, self-employment contracts and other measures (Ross 2015; Wells 2016b). Often those workers occupy an ambiguous position: Portrayed as self-employed but in reality occupying a highly vulnerable position as marginal workers (Dubal 2017). The immediacy required by consumers means that somewhere in the production–consumption system there is stock, usually in physical proximity, and somewhere there is excess delivery capacity to cope with peaks and troughs in demand. In turn, this has resulted in a premium being placed on the ability to provide accurate forecasts for those producing or holding products (as evidenced elsewhere in this book), and to an array of technological developments in warehousing and delivery. The visible congregation of Deliveroo cyclists in urban centres, clustered as each rider awaits a delivery order of food from a restaurant to a household or office is one of the more obvious manifestations of the waste embodied in the on-demand economy. Another dimension of this ever-present need to reconcile available capacity with demand is the use of surge pricing by Uber, wherein ride prices escalate upwards in peak demand periods. Innovation in business models, such as the Uber model, the ‘everything store’ of Amazon (Stone 2013), or that of ‘next day’ delivery companies, represent attempts to find organisational solutions for the reconciliation of production at different spatial scales and consumption. That such solutions have generated immense social disquiet reveals cultural and political limits being stretched and breached in the name of operational efficiency and logistical precision. In this there is a permanent social discourse: are the benefits we derive as consumers in the on-demand economy sufficient to outweigh our concerns with the negative or dark side of the business models created to make it all possible?

4.5 Conclusions: The Implications for Logistics It has already been recognised in the literature that the combination of remote production locations, long logistics lines, and urban demand in which transport options are constrained by environmental considerations are leading to the need for developments such as consolidation

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centres at the urban periphery (Allen et al. 2012; Nordtømme et al. 2015a, b) along with myriad new forms of intra-urban delivery systems (Melo et al. 2014; Schliwa et al. 2015). None of this is reducible to the technologies of transport and logistics integration, because ultimately the fit with organisational form will also be crucial to the successful deployment of those technologies against the competition. Moreover, there is a rapid pace of change in the underlying technologies, from those involved in e-commerce (such as data mining and analytics) to those involved in physical logistics (such as electric and automated vehicles, real-time communications and tracking). In turn, this means continued innovation in business models. What is rather less certain is the longer-term future in a postresource society. Dispersed production and concentrated consumption in the form of rampant urbanisation is not sustainable in a fundamental sense. The current system is chronically energy and resource intensive, even while achieving remarkable cost reductions. It is likely, therefore, that the tools and techniques of logistics along with the associated business model innovations will undergo profound change to meet the new world order of the circular economy. At present, those technologies and business models have utterly refined the art of a unidirectional production and consumption system that must soon be consigned to history. Simultaneously, the circular economy cannot make sense in sustainability terms if it simply entails moving products and materials around in an increasing velocity of circulation. The implication in some considerations of the circular economy that ‘everything will be alright…’ if we can close those loops in a never-ending fashion is clearly erroneous. First, unless growth in consumption stops entirely it is self-evident that new raw materials will have to be introduced into the production– consumption system. So, a resource-neutral economy with no new net consumption of materials will necessarily have to have decoupled economic growth from material consumption growth. There is no evidence that such decoupling is possible. Second, generating income growth by increasing the velocity of materials circulation comes at a cost, both in economic and in energy terms. Hence a circular economy in which there is an emphasis on product durability and longevity will result in a significant slowing of the production and consumption system. Yes, this

56     P. Wells

will mean reductions in the economic benefits currently provided by the resource exploitation of the current non-circular system. It might also mean significant changes to the on-demand economy. However, there will be many new business opportunities emerging to service product longevity (Wells and Nieuwenhuis 2018). With those new business opportunities will emerge new demands in terms of logistics support within what is likely to be more distributed economic and business structures.

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Nordtømme, M. E., Bjerkan, K. Y., & Sund, A. B. (2015b). Barriers to urban freight policy implementation: The case of urban consolidation center in Oslo. Transport Policy, 44, 179–186. Panou, K. (2015). An innovative business model for marketing service value networks in the logistics and supply chain industry. International Journal of Integrated Supply Management, 94, 251–275. Pereira, B. A., & Caetano, M. (2015). A conceptual business model framework applied to air transport. Journal of Air Transport Management, 44–45, 70–76. Ross, H. (2015). Ridesharing’s house of cards: O’Connor v. Uber technologies, Inc. and the viability of Uber’s labor model in Washington. Washington Law Review, 90(3), 1431–1469. Saghiri, S., Wilding, R., Mena, C., & Bourlakis, M. (2017). Toward a three-dimensional framework for omni-channel. Journal of Business Research, 77, 53–67. Schliwa, G., Armitage, R., Aziz, S., Evans, J., & Rhoades, J. (2015). Sustainable city logistics—Making cargo cycles viable for urban freight transport. Research in Transportation Business and Management, 15, 50–57. Stone, B. (2013). The everything store: Jeff Bezos and the age of Amazon. New York: Random House. Todeschini, B. V., Cortimiglia, M. N., Callegaro-de-Menezes, D., & Ghezzi, A. (2017). Innovative and sustainable business models in the fashion industry: Entrepreneurial drivers, opportunities, and challenges. Business Horizons, 60(6), 759–770. Todolí-Signes, A. (2017). The end of the subordinate worker? The on-demand economy, the Gig Economy, and the need for protection for crowdworkers. International Journal of Comparative Labour Law and Industrial Relations, 33(2), 241–268. Trkman, P., Budler, M., & Groznik, A. (2015). A business model approach to supply chain management. Supply Chain Management, 206, 587–602. Wang, X. C., & Zhou, Y. (2015). Deliveries to residential units: A rising form of freight transportation in the U.S. Transportation Research Part C: Emerging Technologies, 58, 46–55. Wells, P. (2016a). Degrowth and techno-business model innovation: The case of Riversimple. Journal of Cleaner Production, 197(Part 2), 1704–1710. Wells, P. (2016b, June 15–17). Contestation over the on-demand distributed economy and the post-consumerist consumption of convenience. Paper presented at Sustainable Consumption Research and Action Initiative (SCORAI) conference, Orono MA, USA.

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5 3D Printing for Supply Chain Service Companies Daniel Eyers, Andrew Lahy, Mike Wilson and Aris Syntetos

5.1 Introduction 3D Printing (3DP) is quickly establishing itself as an important resource for the future of manufacturing. Sometimes termed ‘Additive Manufacturing’, ‘Rapid Manufacturing’, or ‘Direct Digital Manufacturing’, successful applications from medicine (Bibb et al. 2014), automotive (Eggenberger et al. 2018), and aerospace (Khajavi et al. 2014) all serve to highlight the major benefits that can be achieved using 3DP technologies. 3DP offers the potential to operationalize many of the current ‘big ideas’ of manufacturing, including Mass Customization (Eyers and Dotchev 2010), Distributed Manufacturing (Ryan et al. 2017), and Digital Manufacturing (Chryssolouris et al. D. Eyers (*) · A. Syntetos  Logistics and Operations Management, Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] A. Syntetos e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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2009). Sales of 3DP equipment are booming (Wohlers 2017), and researchers have widely speculated that 3DP is likely to transform the manufacturing industry (D’Aveni 2015). Whilst much engineering-focused research has espoused the technical benefits of 3DP for manufacturers, by contrast little attention has been extended to supply chain service companies. In post-industrial economies the service sector has long overtaken manufacturing in terms of its size and GDP contribution, yet it is unclear whether 3DP poses threats, opportunities, or a combination of the two for supply chain service companies. In this study we focus on a specific type of supply chain service company, Logistics Service Providers (LSPs), who coordinate and manage (to varying degrees) activities within the supply chain that support the fulfilment of manufacturing orders. Having developed in the late 1980s, the LSP industry is relatively new (Sheffi 1990) but has grown rapidly. Today many of the leading companies are household names (e.g. UPS, DHL, Panalpina, Kuehne Nagle, DB Schenker), and the top 50 global LSPs enjoy combined revenues of over 250bn USD (Armstrong and Associates Inc. 2017). This industry growth has been fuelled by two major trends: globalization and outsourcing. For globalization, there has been a continual shift of manufacturing activities to Asia, creating a billion-dollar market for the provision of air and ocean freight services to bring product supply close to where it is demanded. For outsourcing, there is a notable propensity for manufacturers to focus on A. Lahy  Buckingham Business School, The University of Buckingham, Buckingham, UK e-mail: [email protected] D. Eyers · A. Lahy · M. Wilson · A. Syntetos  Panalpina Centre for Manufacturing and Logistics Research, Cardiff University, Cardiff, UK M. Wilson  Logistics Manufacturing Services, Panalpina World Transport Ltd., Basel, Switzerland e-mail: [email protected]

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their core production activities, and so LSPs have increasingly taken over logistics service roles to manage the long, complex supply chains that are inherent in a globalized economy. The aim of this chapter is to examine how 3DP may affect supply chain service companies, focusing specifically on LSP firms. Some of the more utopian publications on 3DP imply that the two trends of globalization and outsourcing that currently sustain the LSP industry may cease to exist. For example, if customers simply manufacture at home (e.g. Potstada and Zybura 2014), then this extreme form of reshoring will eliminate the need for international freight movements that currently serve global manufacturing, and outsourcing by manufacturers will become insourcing to the consumer. In this scenario, it can be argued that 3DP will destroy the LSP current core business. But in another future world of 3DP the technologies become an integral part of manufacturing and global supply chains, and rather than serving as a threat, 3DP becomes a strategic opportunity for LSPs. With their large network of facilities located close to consumer demand and their ability to deliver products across the globe, an LSP could add 3DP production capabilities to their existing supply chain service offering, creating a new business model that blurs the lines of demarcation between traditional manufacturers and LSPs. To illustrate this idea, we propose a conceptual framework to explore and explain how the adoption of 3DP may challenge the status quo, and use an industry case study to highlight how a combination of production and service offerings can support the development of new product-service-system (PSS) business models.

5.2 3DP Overview The term ‘3DP’ refers to a range of advanced manufacturing technologies that can produce physical products directly from computer models, without many of the resources needed in ‘conventional’ manufacturing. There are many different 3DP technologies, and a summary of the principal approaches is shown in Table 5.1. The first 3DP technology (Stereolithography) was patented in the mid-1980s, and subsequently the industry has grown from $295m in 1995 to an estimated $6.06bn in 2016 (Wohlers 2017).

64     D. Eyers et al. Table 5.1  Principal 3DP processes Process type

Process description Focal AM (from ISO 17296-1) technologies

Binder jetting

Liquid bonding agent is selectively deposited to join powder materials Direct energy Focused thermal deposition energy is used to fuse materials by melting as they are being deposited Material extrusion Material is selectively dispensed through a nozzle or orifice Material jetting Droplets of build material are selectively deposited Powder bed fusion Thermal energy selectively fuses regions of a powder bed

Sheet lamination

Vat photopolymerization

Sheets of material are bonded to form an object Liquid photopolymer is selectively cured by light activated polymerization

3DP (3DP)

Principal manufacturers Z-CORP 3D systems ExONE

Trumpf Laser cladding Laser metal fusion Optomec Laser metal deposition

Fused deposition modelling


Multijet modelling Stratasys 3D systems

Selective laser sintering (plastics) Selective laser sintering (metals) Selective laser melting Electron beam melting LaserCUSING Laminated object manufacturing

EOS 3D systems EOS Renishaw ReaLizer

Digital light processing


ARCAM Concept laser MCOR EnvisionTEC

Stereolithography 3D systems

3DP uses computerized 3D model data to create physical artefacts from a range of materials, including plastics and metals. This is achieved by successive addition of layers of materials that are joined or

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fused together by the machine, which negates the requirement for tooling or moulds in the production process. Whilst subtractive approaches such as CNC machining typically remove materials from a larger billet, and formative approaches such as Injection Moulding mould materials to form geometries, by depositing material layers incrementally 3DP technologies can produce highly complex parts without many of the design-for-manufacturing constraints that are inherent in most ‘conventional’ subtractive or formative approaches to production (Hopkinson et al. 2006). Compared to other approaches to production, many advantages have been identified to arise from the application of 3DP technologies including waste reduction, tooling elimination, quicker design changes, optimization of products, economic unit-ofone production, improved responsiveness, and simplified supply chains (Holmström et al. 2010). Some authors (e.g. Economist 2011) have suggested that 3DP allows for ‘just-click-print’ production, enabling direct fabrication of products from product design, without any need for other resources (such as labour). In real-world industrial practice this is a somewhat oversimplification of 3DP, and instead of focusing on single machines it is perhaps more useful to think of the 3DP production system as defined by Eyers and Potter (2017) with four distinct components: • Design: 3DP requires that the design of the product being produced is stored within an electronic file for transfer to the 3DP machine, and these files can come from a variety of sources including self-design (using 3D CAD software), customized design (using 3D CAD software to edit existing designs), parametrised design (affecting a design by adjusting its input parameters), configured design (affecting an existing design by changing configuration options), reverse engineering (acquiring a design by digital scanning on an existing artefact), consultancy design (where a professional 3rd party produces a design to the customer specification), or purchased design (where an existing design file is purchased and used without modification). • Pre-processing: Once a design file has been achieved there is the need to perform preparatory activities such as error-checking, feasibility

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assessment, and parameter selection to ensure the product satisfies production requirements. Once these are achieved, production planning activities can be undertaken to schedule 3DP resources to fabricate the required product. • Manufacturing: The manufacturing component of a 3DP system is the most automated stage, with very little human involvement in the creation of the physical part. Different 3DP technologies employ different techniques to realize the production output (see Table 5.1), but effectively this stage is highly automated and leads to the physical manifestation of the contents of the 3D design file. • Post-processing: Very few products are ready for their intended application after the 3DP manufacturing process is complete, and there is usually the need for manual finishing of parts. This might include a range of activities such as the removal of excess material or support structures, cleaning, colouring, quality assessment, testing, assembly, and packing.

5.3 Product-Service Systems (PSS) A PSS is created by combing a tangible product and an intangible service into one integrated offering (Baines et al. 2007; Goedkoop 1999; Lahy et al. 2018; Mont 2002; Tukker 2004). First defined by Goedkoop (1999), the PSS concept has enjoyed a surge of popularity, however the notion of combining products and services is not new: Schmenner (2009) identify that this has been happening in practice for over 150 years. Whilst catching-up with industry, academics have focused and refined the definition and conceptualization of PSS (e.g. Baines et al. 2007; Manzini and Vezzoli 2003), however for the purposes of this study we adhere to the definition of a PSS provided by Mont (2002): ‘A system of products, services, supporting networks and infrastructure that is designed to be: competitive, satisfy customer needs and have a lower environmental impact then traditional business models’.

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Fig. 5.1  Productization vs. servitization (Adapted from Tukker 2004)

There are various ways to achieve a PSS; Tukker (2004) identify three in his framework (Fig. 5.1): 1. Firms can be created with combined production and service capabilities, creating a PSS firm from the outset. 2. Firms with existing strong production capabilities, represented on the left-hand side of the framework, can add service capabilities by means of a strategy of servitization (e.g. Vandermerwe and Rada 1988). Servitization has been widely explored, with various examples such as Rolls Royce’s ‘Power By The Hour’ (Baines et al. 2009) and Alstom’s ‘Transport Solutions’ (Davies 2004) highlighting the opportunities for manufacturers to extend their reach beyond the factory floor. 3. Firms with strong service capabilities, represented on the right-hand side of the framework, can add a tangible product offering, using a strategy of productization (e.g. Lahy et al. 2018). Notably productization strategies are far less common, and research in this area relatively underdeveloped (Chattopadhyay 2012; Lahy et al. 2018; Harkonen et al. 2015).

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5.4 PSS and 3DP: An Opportunity for Productization? 5.4.1 Understanding the Knowledge Requirements for PSS In the provision of a typical manufactured product, seven activities can normally be identified (Fig. 5.2), and for any service company with a productization agenda, there is a real need to understand how best to competitively achieve each activity. Traditional LSPs tend to be very good at fulfilment, but it is likely that the principal barriers for PSS will be in activities typically at the heart of a manufacturing company: product design and manufacturing. Whilst some activities may be outsourced to other providers—and

Fig. 5.2  Seven steps required to develop a PSS (Source Adapted from various)

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at the extreme achieved by manufacturing integrators (Purvis et al. 2016)—fundamentally traditional manufacturers have the experience and appropriate networks to enjoy a significant advantage through the design and manufacture of products. By extension the knowledge gained in these activities backs up support, repair, and end-of-life activities, all of which the LSP needs to perform to effectively offer a PSS. The adoption of 3DP may well serve to provide opportunities to reduce or even eliminate barriers in product design and manufacture, and so support the LSP in the achievement of a PSS. Compared to conventional manufacturing technologies, designing for 3DP is typically much simpler (Hague et al. 2003), with many of the traditional ‘design-for-manufacturing’ constraints lessened or eliminated (Eyers and Dotchev 2010). As noted in Sect. 5.2, original designs and design customizations can originate from a range of sources external to the manufacturer. Combined with increased availability of 3DP machines for home-use, this deskilling of design has enabled private individuals to create their own products, and has led to the growth in ‘makerspace communicates’ that allow individuals to tap into design expertise, 3DP knowledge and equipment, and further increases the knowledge about product design and manufacturing. We suggest this leads to the virtuous cycle shown in Fig. 5.3, where 3DP serves as a catalyst for increasing knowledge about product design and manufacturing for service firms.

5.4.2 Reconceptualizing PSS for 3DP The potential for 3DP to be adopted within service companies has received little research consideration, and in Fig. 5.4 we propose a conceptual framework with which to explore the impact of 3DP for both traditional manufacturing as well as service firms. On the vertical axis, we show the traditional product-service continuum, which is well-documented in the PSS literature (e.g. Tukker 2004). At one extreme (A) it can be seen that firms have a pure-product focus: their emphasis is solely on the provision of manufactured products, with no service provision post-production. Such operations represent ‘classic’ manufacturing,

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Fig. 5.3  Positive re-enforcing circle of knowledge enabled by 3DP

but as the importance of services has grown much research has since explored the ‘servitization’ phenomenon (Lightfoot et  al. 2013, Vandermerwe and Rada 1988), where manufacturers increase their service offerings as a means of effective competition by moving from (A) towards (B). A classic example of this servitization transition is IBM; who moved their business from the provision of IT hardware (A) to the provision of consulting services (B). From the framework, it can be readily appreciated that servitized companies with a technical or engineering experience (i.e. manufacturers) move up the vertical axis (moving from A to B), without fundamentally altering their core competencies in engineering activities.

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Fig. 5.4  Dual axis PSS conceptual framework

In a similar vein companies who engage in productization can also be represented by the framework as they transition down the vertical axis. At the extreme (C) firms focus purely on the delivery of services, and do not engage in any product-related activities. However, in-line with the PSS framework proposed by Tukker (Fig. 5.1), it is becoming possible for traditional service-based companies to productize, moving them towards the position of a productized service provider (D). This transition may not be as widely researched, but it is increasingly common. Lahy et al. (2018) provide several examples to illustrate this transition: Amazon’s success in developing a PSS by starting with a service offering (web shop) and then adding a physical product (Kindle), or Google’s attempt to develop a self-driving car and mobile phone to complement their information technology service capabilities. What differentiates this framework from that proposed by Tukker (2004) is the second dimension, represented on the horizontal axis to highlight the core competence of the focal organizations. PSS research typically explores how manufacturers move into services (or vice versa),

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but whilst this might be a major transition in the company’s offerings, fundamentally their core competence remains in either engineering or supply chain activities. Considering PSS through this horizontal lens allows reference to established manufacturing principles such as Skinner (1974), who promotes a focus on a company’s core competence. Typically, companies look to build on core competencies to achieve new growth (Penrose 1959), however from the earlier discussion we suggest 3DP may support new opportunities for firms outside their traditional competencies. The potential for firms to move both vertically (in terms of product/ service provision) as well as horizontally (in terms of engineering/supply chain competencies) raises questions about the boundaries of firms and where the line should be drawn between a ‘manufacturing’ firm and a ‘service firm’. In principle, the fundamental simplification of manufacturing that arises through 3DP will allow firms to explore opportunities to move both vertically and horizontally, which raises interesting opportunities and challenges for future manufacturing. For example, a traditional manufacturer in (A) would not generally perceive an LSP in (C) to be a competitor, nor vice versa. However, if the LSP now begins to produce 3DP parts for their customers and moves towards (D), at what point does the LSP become a value chain climber (Wan and Wu 2016) and thus a competitor to a traditional manufacturer? And if and LSP does move into manufacturing, at what point should the firm consider itself not as a service provider but as a manufacturing firm, or as a PSS provider? Through this framework some of these important issues can be explored.

5.5 Case Study To operationalize the dual axis PSS framework introduced in the previous section, we draw upon data collected from LSPComp,1 a well-established international freight and logistics service provider operating in 1For commercial sensitivity reasons we have anonymized the names of companies involved in this study.

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more than 200 countries with over 15,000 employees. We show how, through the acquisition of 3DP capabilities, the company has successfully increased production knowledge to productize, whilst still maintaining expertise in service provision—effectively enjoying the benefits of both product and service provision.

5.5.1 Starting Out: The Strategic Rationale to Productize At the start of this research in 2013 LSPComp was a pure service provider with no production capabilities and thus, referring to the dual axis PSS framework in Fig. 5.4, the firm was located in position (C). The initial rational for LSPComp to investigate 3DP technologies in 2013 was the potential threat it posed for the core logistics business. The company considered that if 3DP led to a decline in traditional manufacturing in large factories in Asia, and a transition to smaller, local factories using 3D printers to manufacture parts on-demand close to local markets, this would lead to a major decline in the need for international freight and warehousing services. However, as LSPComp became more familiar with 3DP, the idea of considering 3DP as a strategic opportunity emerged. If manufacturing was to move to smaller distributed manufacturing sites, then as an LSP with many small warehouse facilities strategically located around the world, they would be well placed to install 3DP within their logistics facilities and offer 3DP services to their customers.

5.5.2 Making the Change: Employing 3DP to Support PSS LSPComp explored the opportunities for adding 3DP capabilities to their existing logistics offering, electing to partner with an existing manufacturer, 3DPComp (see footnote 1). This firm had already established themselves as a major provider of 3DP services with two large production facilities that supplied a global market. The core competence of 3DPComp was the ability to manufacture parts, so whilst they used 3DP, in practice they operated very much as a traditional manufacturer.

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The strategic partnership between LSPComp and 3DPComp offered the potential for both firms to increase their offering to the market, and to remove from providing pure service (LSPComp)/pure manufacturing (3DComp) towards a mixed PSS model (point E in Fig. 5.4). • For 3DPComp, the partnership allowed the firm to utilize the logistics facilities of the LSPComp to expand and distribute their 3DP manufacturing capabilities and help the 3DPComp on the journey from positions (A) to (E). By locating 3DP capabilities within LSPComp’s warehouses, production is moved much closer to final demand, reducing lead-times, costs of transportation, and the risks associated with single production sites. 3DPComp therefore gains access to a global manufacturing and distribution platform, significantly improving responsiveness, but without making investment in their own dedicated facilities. • For LSPComp, the partnership provided access to manufacturing knowledge specific to 3DP, helping the company extend its logistics provision to incorporate manufacturing from position (C) to (E). Moreover, the partnership allowed the LSPComp to develop new techniques and tools to help their customers assess the potential to transition to new 3DP digital supply chains. For example, the LSPComp developed a new approach which looked at both supply chain and manufacturing criteria, to identify which of their customers’ parts had the potential to transition to 3DP.

5.5.3 Teething Troubles: Practical Challenges of 3DP Implementation Drawing on the manufacturing knowledge and experience of 3DComp, LSPComp purchased their first 3D printer in 2014. Given their lack of manufacturing experience, LSPComp initially located their machine in a Western-European facility neighbouring 3DPComp to afford easier support and knowledge transfer. LSPComp identified that the transition from pure services to a hybrid service-manufacturing operation was not without difficulties.

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Whilst the operation of the 3D printer was relatively straightforward, it was the activities related to production that caused the main business challenges. These challenges included obtaining the correct operating licenses, contracts, insurance, and legal cover to allow 3DP production in the logistics facility. Through the knowledge exchanged in the partnership, LSPComp quickly became confident and competent in the provision of manufactured products, and within ten months was quality certified by a major customer. However, whilst 3DComp had increased its service position (moving towards point B), and LSPComp its manufacturing position (moving towards point D), the geographic proximity of both firms meant that neither company had been able to exploit the change in core competence (moving towards point E).

5.5.4 Optimizing: Expanding the Firms’ Core Competence In early 2015 LSPComp relocated its production capabilities to a facility in the UK, which in turn brought about competitive and environmental advantages, and helped both firms expand their core competences. By increasing the geographic distribution of production, LSPComp enlarged the global scope of 3DPComp, and the envisaged benefits of shorter lead-times, reduced transportation, and improved environmental credentials were quickly realized. Simultaneously, by having their own manufacturing capabilities, LSPComp could provide the supply chain services of product delivery and a distributed manufacturing offering. Together, this constituted the LSPComp’s first PSS offering. In addition to creating a new PSS business model and expanding the capabilities of LSPComp, the knowledge gained in the first year of operations yielded many new strategic options that were previously unimagined: • Developing software tools to help the migration from conventional to 3DP production from both engineering and supply chain perspectives

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• Development of new repair and remanufacturing capability that made use of the 3DP knowledge to manufacture parts used in the repair process • Development of in-house evaluation capabilities to help design parts for 3DP • Involvement with makerspace companies to bring more design capabilities into the LSPComp. Hence the movement towards ‘Position E’ has helped the LSPComp to create a new PSS business model, but perhaps more importantly, by increasing their design and manufacturing competencies, LSPComp now has a wider range of strategic options and offerings. From the management perspective, the positive re-enforcing circle of knowledge enabled by 3DP (Fig. 5.3) has started and not yet ended.

5.6 Discussion In this chapter we have examined how 3DP may help firms increase their core competencies, focusing specifically on the ability for supply chain service companies to achieve competitive manufacturing operations. The last two decades have seen an increase in the number of manufacturing firms developing a PSS using a servitization strategy, but could 3DP lead to an increase in the number of service companies developing a PSS through a productization strategy? The case study provided here suggests so. Global logistics companies, who have traditionally stayed away from manufacturing and product design, could have a major opportunity through the adoption of 3DP. Livesey (2017) argues that in the next decade there will be a radical shift away from centralized manufacturing to distributed manufacturing. If this were to happen, we argue this is fundamentally a PSS approach that necessitates both production and supply chain competencies. The theoretical framework we provide allows researchers to understand how traditional manufacturers will respond to this trend. However, many research questions remain to be answered. Will the centralized manufacturing of today move towards distributed

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manufacturing in the future? If so, to what extent will this be achieved, and when? More interestingly, how will traditional manufacturing companies or service companies, particularly logistics companies, respond to this trend? Will either be able to combine the required production and supply chain capabilities to meet the market demands, or will new companies, neither manufacturers or service companies, but combined PSS businesses be created? Finally, what are the barriers to integrating 3DP into global supply chains? Some of these have been tentatively addressed in this case study, but the wider technical, financial, legal and knowledge barriers are yet to be fully explored and overcome.

References Armstrong & Associates Inc. (2017). Top 50 global third-party logistics providers. Available at Baines, T. S., Lightfoot, H. W., Benedittini, O., & Kay, J. M. (2009). The servitization of manufacturing: A review of literature and reflection on future challenges. Journal of Manufacturing Technology Management, 20, 547–567. Baines, T. S., Lightfoot, H. W., Evans, S., Neely, A., Greenough, R., Peppard, J., et al. (2007). State-of-the-art in product-service systems. Proceedings of the Institution of Mechanical Engineers, Part B: Journal of Engineering Manufacture, 221, 1543–1552. Bibb, R., Eggbeer, D., & Paterson, A. (2014). Medical modelling: The application of advanced design and rapid prototyping techniques in medicine. Cambridge, UK: Woodhead Publishing. Chattopadhyay, N. (2012). Productisation of service: A case study. International Journal of Advanced Computer Science and Applications, 3, 197–201. Chryssolouris, G., Mavrikios, D., Papakostas, N., Mourtzis, D., Michalos, G., & Georgoulias, K. (2009). Digital manufacturing: History, perspectives and outlook. Proceedings of the Institution of Mechanical Engineers Part B: Journal of Engineering Manufacture, 223, 451–462. D’Aveni, R. (2015). The 3-D printing revolution. Harvard Business Review, 93, 40–48.

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Davies, A. (2004). Moving base into high-value integrated solutions: A value stream approach. Industrial and Corporate Change, 13, 727–756. Economist. (2011). Print me a Stradivarius. The Economist, 398, p. 11. Eggenberger, T., Oettmeier, K., & Hofmann, E. (2018). Additive manufacturing in automotive spare parts supply chains—A conceptual scenario analysis of possible effects. In M. Meboldt & C. Klahn (Eds.), Industrializing additive manufacturing—Proceedings of additive manufacturing in products and applications—AMPA2017 (pp. 223–237). Cham: Springer. Eyers, D. R., & Dotchev, K. D. (2010). Technology review for mass customisation using rapid manufacturing. Assembly Automation, 30, 39–46. Eyers, D. R., & Potter, A. T. (2017). Industrial additive manufacturing: A manufacturing systems perspective. Computers in Industry, 92–93, 208–218. Goedkoop, M. (1999). Product service systems, ecological and economic basics. Hague, R., Campbell, I., & Dickens, P. (2003). Implications on design of rapid manufacturing. Proceedings of the Institution of Mechanical Engineers, Part C: Journal of Mechanical Engineering Science, 217, 25–30. Harkonen, J., Haapasalo, H., & Hanninen, K. (2015). Productisation: A review and research agenda. International Journal of Production Economics, 164, 65–82. Holmström, J., Partanen, J., Tuomi, J., & Walter, M. (2010). Rapid manufacturing in the spare parts supply chain: Alternative approaches to capacity deployment. Journal of Manufacturing Technology Management, 21, 687–697. Hopkinson, N., Hague, R. J. M., & Dickens, P. M. (2006). Rapid manufacturing: An industrial revolution for the digital age. Chichester: Wiley. Khajavi, S. H., Partanen, J., & Holmström, J. (2014). Additive manufacturing in the spare parts supply chain. Computers in Industry, 65, 50–63. Lahy, A., Li, A. Q., Found, P., Syntetos, A., Wilson, M., & Ayiomamitou, N. (2018). Developing a product–service system through a productisation strategy: A case from the 3PL industry. International Journal of Production Research, 56, 2233–2249. Lightfoot, H. W., Baines, T. S., & Smart, P. (2013). The servitization of manufacturing: A systematic literature review of interdependent trends. International Journal of Operations & Production Management, 33, 1408–1434. Livesey, F. (2017). From global to local: The making of things and the end of globalisation. London: Profile Books.

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Manzini, E., & Vezzoli, C. (2003). A strategic design approach to develop sustainable product service systems: Examples taken from the ‘environmentally friendly innovation’ Italian prize. Journal of Cleaner Production, 11, 851–857. Mont, O. K. (2002). Clarifying the concept of product–service system. Journal of Cleaner Production, 10, 237–245. Penrose, E. T. (1959). The theory and growth of the firm. Oxford: Oxford University Press. Potstada, M., & Zybura, J. (2014). The role of context in science fiction prototyping: The digital industrial revolution. Technological Forecasting and Social Change, 84, 101–114. Purvis, L., Spall, S., Naim, M., & Spiegler, V. (2016). Developing a resilient supply chain strategy during ‘boom’ and ‘bust’. Production Planning & Control, 27, 579–590. Ryan, M. J., Eyers, D. R., Potter, A. T., Purvis, L., & Gosling, J. (2017). 3D printing the future: Scenarios for supply chains reviewed. International Journal of Physical Distribution & Logistics Management, 47, 992–1014. Schmenner, R. W. (2009). Manufacturing, service, and their integration: Some history and theory. International Journal of Operations & Production Management, 29, 431–443. Sheffi, Y. (1990). Third party logistics: Present and future prospects. Journal of Business Logistics, 11, 27–39. Skinner, W. (1974). The focused factory. Harvard Business Review, 52, 113–121. Tukker, A. (2004). Eight types of product–service system: Eight ways to sustainability? Experiences from SusProNet. Business Strategy and the Environment, 13, 246–260. Vandermerwe, S., & Rada, J. (1988). Servitization of business: Adding value by adding services. European Management Journal, 6, 314–324. Wan, Z., & Wu, B. (2016). When suppliers climb the value chain: A theory of value distribution in vertical relationships. Management Science, 63, 477–496. Wohlers, T. T. (2017). Wohlers report 2017. Fort Collins, CO: Wohlers Associates.

6 Zero-Carbon Logistics Peter Wells

6.1 Introduction This chapter has a focus on the potential to achieve zero-carbon logistics, with consideration given to all elements of the logistics system and transport modes. Attention is given to the contrast between the carbon emissions associated with storage (particularly temperature control), against the carbon emissions of transport modes. Further, it is argued that the embedding of circular economy concepts will enhance the significance of zero-carbon logistics, as will national targets by e.g. France, India and others to define dates by which internal combustion engine vehicles will no longer be sold.1 Such policy initiatives, inspired by a 1In

most cases the stated position currently is that vehicles only powered by petrol and diesel will be banned, but hybrids that employ internal combustion engines will continue to be allowed. This policy stance may well change in the future, particularly if the alternative technologies are developed rapidly.

P. Wells (*)  Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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concern for directly toxic emissions rather than carbon per se, are likely to be augmented by city-level endeavours to create zero-emissions zones. In this, the logistics industry faces a dilemma: not only to achieve continued cost reductions in the service provided, but also to manage the (rapid) transition to zero-carbon logistics. The logistics industry will face many other challenges in the future, leading some to call for ‘adaptive’ logistics to cope with, for example, the impact of climate change and sea level changes on the operation of ports and other logistics facilities (McKinnon and Kreie 2010). Zero-carbon logistics is about much more than the various transport modes that might be used to deliver products to end-users or consumers. The majority of logistics systems involve periods of storage, often culminating in the display of products at the point of purchase or consumption, and these storage phases can be significant in the total carbon burden of a product. Indeed, there may be choices to be made between storage of locally produced items (especially foodstuffs) and the transport of such items freshly produced in more distant locations. Two thumbnail examples are illustrative: beer and apples. With beer the energy cost (and hence potential carbon emissions) of production from farm to brewery are relatively low, compared with the large cost of storage and display in refrigerated units on retail premises. This is evidenced by a study from Fat Tire, a ‘large’ micro-brewery in the US. Crucially, however, the US market is one where consumers prefer to buy their beer already-refrigerated. In the case of the UK in the days when beer was produced locally from proximate materials (water, barley, hops and yeast), delivered by horse-drawn cart, and stored in the cellar of a Public House to be hand-pumped into glasses for consumers, the carbon cost per volume would have been very low. Alternatively the very large brewers such as InBev operate on a global scale, bringing raw materials from diverse locations to huge capital-intensive (and very cost-efficient) breweries, and in turn dispatching via dedicated containers to spatially dispersed markets. In the case of apples things are a bit less obvious. In the debate over whether it is better to store UK-produced apples over winter, to release them onto the market in the following year, or to import refrigerated apples produced fresh in New Zealand the narrow ‘either—or’ binary

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choice ignores some of the wider issues (see Saunders et al. 2006). The UK used to produce a lot of apple varieties especially suited to over-wintering in store, but often these apples do not meet the criteria of the major retail outlets in terms of skin toughness say, or uniformity. So it may be that by changing consumer expectations and tastes it would be possible to cultivate demand for traditionally stored apples. As importantly, the zero-emissions perspective is not a comprehensive answer to the quest for the least ecological burden per unit, as other considerations may be important. Similarly, the reductionism in seeking to equate ecological burden with distance travelled is at best a simplification, and at worst misleading. When popularised as the ‘food miles’ concept, the approach had the advantage of highlighting the apparent absurdity of the many stages and great distances that has come to characterise some simple food products; a feature also revealed in food ‘crisis’ incidents such as BSE. On the other hand, the economic logic of the centralisation of selected food processing activities and the distributed nature of most food retailing, alongside the growth in the consumption of pre-prepared food, inevitably results in such complexities. In reality therefore diets and menus must co-evolve towards more sustainable production and consumption systems, with the implication that the sheer quantity of logistics will decline. This principle of c­o-evolution can apply beyond food to many products and services, and is in essence the basis of the circular economy concept as discussed later in this chapter. Notwithstanding these points, this chapter is about the scope and limits of zero-carbon logistics. It is recognised that there are other concerns, some of which may over-ride the quest for zero-carbon. It is also recognised that zero-carbon at the point of use is not the same as zero-carbon where the carbon costs of electricity generation and distribution are included. Neither is an account taken of the embedded carbon in the vehicles, packaging, etc. required in transportation. This is an important consideration because on an input-output basis the embedded carbon can be up to 30% of the entire carbon emissions burden of a car (Berners-Lee 2010). As Gilbert et al. (2017) argue, if vessels were designed on a life-cycle basis in order to reduce material intensity in original construction and reuse then substantial total carbon emissions

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reductions could be achieved. Specifically, Gilbert et al. (2017) estimate that with 100% hull reuse there could be carbon emissions reduction of 29% from 221,978 to 158,285 t CO2. As importantly, zero-carbon does not mean free in any sense. In other words, in a world that may be increasingly energy-constrained, there may be difficult choices to make between which activities ‘merit’ a share of the (smaller) quantity of renewable energy available.

6.2 Zero-Carbon Logistics: The Imperative of Change It is worth revisiting the science and the debate that underpins the growing acceptance of the need for reductions in carbon emissions from human activities, ideally to zero and as fast as possible. While there is much still to be learned about how to model the enormously complex interactions of the global climate, the mainstream scientific consensus has long been that anthropogenic carbon emissions have cumulatively resulted in measurable climate change already (for example in terms of average surface temperature) and in the impacts of such climate change (for example in reduced ice-cap coverage in the northern hemisphere and in sea level rises). There is further an agreement that the continuation of carbon emissions will with surprising rapidity overwhelm the capacity of the atmosphere and related natural systems to absorb carbon, with the result that a series of feedback loops are highly likely to generate non-linear climate change with devastating consequences (see IPCC 2014). Carbon can remain in the atmosphere for around one hundred years, so there is a considerable time lag between action to reduce emissions and the consequences of those actions in terms of climate. There are different ways to think about the carbon emissions issue (including of course other gases such as methane that might act to trap heat in the atmosphere), but all tend to come to the same conclusion. One symbolic threshold is the level of carbon in the atmosphere expressed in parts per million (ppm): with 450 ppm widely seen as a marker for non-linear climate change. A useful way of considering the issue is that of available carbon budgets: Emissions limits that would

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give a reasonable probability of remaining under a threshold level of global warming (typically taken to be less than 2C). The UK was one of the first to introduce binding legislation on carbon emissions reductions, with the Climate Change Act (2008) which committed the UK to reduce emissions of all six Kyoto greenhouse gases by 80% by 2050 compared with the 1990 baseline. More recently, with the so-called Paris Agreement at the Paris climate conference (COP21) in December 2015, 195 countries adopted the first-ever universal, legally binding global climate deal—though it is notable that President Trump of the US withdrew from the agreement. This agreement not only sets targets, but also defines an ethical dimension whereby those countries that have historically contributed a higher proportion of emissions (i.e. the advanced industrialised countries) have to reduce carbon emissions more quickly (see for example The European Union has committed to implement its target to reduce emissions by at least 40% by 2030. These political agreements, while worthy, are unlikely to be sufficient to contain emissions and hence avoid climate change. Nonetheless, the Paris Agreement has in turn stimulated (and indeed required) national level plans for emissions reductions. The agreement has also provided the backcloth against which initiatives by industries, companies, regulatory bodies and others are being constructed. International transport via aircraft or ship is problematic for carbon emissions reductions because of questions of ‘ownership’ (Gritsenko 2017). Who is responsible for such emissions? Who is responsible for reducing these emissions? Just as importantly, how can emissions reductions be enforced? It is indicative that shipping was not included in the Paris Agreement for example (Scott et al. 2017). Thus far the approach has largely been to ignore these emissions, perhaps on the basis that they are a relatively small proportion of the total. Estimates of the contribution of aircraft and shipping to carbon emissions vary, but typically each is in the range 3–5% of the global total. International shipping, which is almost entirely concerned with freight, is represented by the International Maritime Organisation (IMO). In their 2014 report the IMO calculated that:

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For the period 2007–2012, on average, shipping accounted for approximately 3.1% of annual global CO2 and approximately 2.8% of annual GHGs on a CO2e basis using 100-year global warming potential conversions from the IPCC Fifth Assessment Report (AR5). International shipping accounts for approximately 2.6% and 2.4% of CO2 and GHGs on a CO2e basis, respectively. A multi-year average estimate for international shipping using bottom-up totals for 2007–2012 is 846 million tonnes CO2 and 866 million tonnes CO2e for GHGs combining CO2, CH4 and N2O. (IMO 2015)

The problem for shipping, as with aircraft, is that under any reasonable ‘business as usual’ forecast of growth in trade, carbon emissions will also grow considerably (Lee et al. 2016; Walsh et al. 2017). The longrun average annual compound growth in container shipping in the period from 1985 to 2008 was of the order of 10% (McKinnon 2012). In turn, the share of shipping in global carbon emissions could reach 20% by 2050. That is to say, there are no readily available, low-cost, technological solutions to reduce carbon emissions and to offset the anticipated increase in trade (Pettit et al. 2017). While it is the case that prototype battery electric aircraft and ships have been tried, and in fact some zero-emissions ships have entered service, the applications so far are in specialised niches. As Chang (2016) concludes, there are no lowcost mitigation strategies available to reduce carbon emissions in shipping, and other techniques such as carbon finance and trading may be needed. Moreover, ships and aircraft tend to remain in service for long time periods, so the overall stock tends to change rather slowly. In global logistics systems as currently constituted, the prospects of end-to-end zero-carbon transport are slim. In 2018 the IMO finally agreed on a target that carbon emissions from shipping should be reduced by 50% by 2050. In reality, such a target means new ships entering service from around 2030 will have to have non-fossil fuel sources of power. It is also notable, however, that the IMO position is only a guideline for member states and a statement of ambition, with no regulatory or fiscal enforcement. Finally, with respect to logistics, consideration should also be given to the energy cost of the computer systems used to manage logistics

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services. Large data centres or server farms require substantial energy inputs, particularly in terms of air conditioning systems to maintain ambient working temperatures. While such activities are but a fraction of the total energy consumption of data centres around the world, with activities such as streaming of videos a far higher burden, it should still be noted that the ‘back office’ activities required to coordinate logistics are by no means carbon-free (Arroba et al. 2018). According to one source, on current performance the lifetime energy cost of a server will exceed the purchase cost of the hardware (Zakarya 2018).

6.3 Zero-Carbon Transport: The Options It is worth recalling that up until the recent past all logistics systems were zero-carbon or low-carbon in use. There was no refrigerated or de-humidified storage for example, while transport modes such as canal barges or horse-drawn carriages were essentially carbon-neutral in character. Sailing ships captured an available renewable energy in the form of wind. Unfortunately, many of these transport modes were slow, of limited range, unreliable and often outright dangerous. The movement of products was therefore fraught with hazard, expensive and of limited utility. Modern logistics systems only became possible because of the application of liquid petroleum fuels to provide motive power, and the application of computer systems to control inventory movements. It is also worth recalling that there are two broad strategies to achieve zero-carbon logistics. An option rarely considered is to eliminate the need for logistics. Elimination can be achieved either by ceasing to meet a demand for a product (or indeed eliminating the demand), or by collapsing the gap between production and consumption. The prevailing assumption tends to be that of ‘predict and provide’ in which the need for logistics is taken as given, and the task is to find the most efficient way to meet that need. Hence the second option, to reduce to zero the carbon emissions associated with logistics systems, is the one that is given attention. McKinnon (2012) provides an estimate of global greenhouse gas emissions from logistics as being in the region of 2500 Mt CO2e in which

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road is the largest source (about 1600 Mt CO2e) followed by shipping (500 Mt CO2e), air freight (300 Mt CO2e) and rail (100 Mt CO2e). Logistics systems can use a diverse array of transport options, often in multimodal networks. Some transport modes are more overtly susceptible to technological or organisational innovation than others to reduce carbon emissions, depending upon the context and the application. Part of the solution may reside with technological innovation in propulsion systems, though as Walsh et al. (2017) makes clear that any policy response must include consideration of the demand for shipping, operational practices and wider shifts in related technologies (Table 6.1). Table 6.1  Summary of scope for innovation for carbon emissions reduction by transport mode Mode

Current performance gCO2 per tonne/km

Scope for innovation discussion

Long-haul aircraft Container ship

1600 8

Bulker ship Reefer ship Barge

7 16 30

40 tonne truck


7.5 tonne truck


Rail Car-derived van

22 85



1. Electric power 1. Eco-ships 2. Zero-emissions ferries 3. Virtual port arrival 4. Cold ironing 1. Hybrid power e.g. sails Moving storage! Limited applications 1. Fuel cell barge 2. BEV barge 1. Fuel cell truck 2. Tesla BEV 3. Electric overhead charging 4. Opportunity charging 5. Inductive (in road) charging 1. Fuel cell LCV 2. BEV LCV 3. Opportunity charging 1. Maglev 1. BEV 2. Fuel cell car-derived van 1. BEV L Category 2. Pedelecs 3. Human-powered vehicles

(Source Derived from ECTA 2011)

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Much of the research into transport modes and carbon emissions are concerned with reductions in those emissions in the form of efficiency gains. Ideas such as ‘low carbon’ emissions, or those that seek to balance economic efficiency against carbon emissions, are probably less disruptive than solutions that seek zero-carbon emissions. Carbon reduction measures are often then associated with cost reduction efforts, with the risk that there will be rebound effects that stimulate (logistics) market expansion. Under the broad umbrella of eco-efficiency we may include, for example: Efforts to reduce empty-running of transport media such as containers; platooning of commercial vehicles; off-peak use of urban public transport systems; etc.

6.4 Zero-Carbon Storage: The Options Warehousing for most products requires at least a steady-state temperature, or one within a reasonable range, and lighting along with ancillary systems such as security. Therefore storage generally requires an energy input. Some products will require refrigerated storage or other specific conditions such as low humidity. So, the storage conditions arising from these requirements are likely to be significant in determining the carbon emissions overall. Then again, the operational practices adopted in storing and retrieving products will also make a difference, in the case for example of a diesel versus fuel cell electric forklift truck. Materials handling technologies are many and varied, and again other considerations may be significant. There may be a requirement for low noise, or the ability to operate at specific temperatures or speeds. Equally, the degree of automation in a facility can have a bearing, for example a fully automated facility may not require keeping at an ambient temperature suited to people. Evidentially much of the carbon cost of storage comes down to the design of warehouse and distribution facilities, and those adopted by retail outlets. Not all these parameters are within the control of logistics providers. Nonetheless the analysis of carbon emissions throughout the logistics system is an important activity to enable the identification of ‘hot spots’ that could be resolved by organisational (procedural) or technological innovations.

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It is of course established that storage is expensive, and may incur hidden costs such as obscuring the real nature of consumer demand from producers. The ‘lean production’ movement in general, deriving from the famous Toyota Production System, was premised on inventory reduction in order to reduce capital costs and expose immediately any quality concerns in the production system. The logistics industry has therefore long had a focus on reducing inventory costs in distribution and storage. Examples of solar panels on roof and storage facilities? Wind power and storage?

6.5 Logistics and the Circular Economy The circular economy (CE) can be understood as a short-hand expression underneath which is an emerging and contested discourse popularised by the Ellen McArthur Foundation. The CE expresses an aspirational notion that by recirculating products and materials, the net consumption of new materials and energy will decrease. Hence the capture of products and materials from waste streams can be met through a combination of product reuse (refurbishment, repair, remanufacturing) and material reuse (recycling, down-cycling, upcycling). Materials capable of multiple reuse may be considered in industrial ecology terms as ‘technical nutrients’ analogous to those nutrients found circulating in natural ecosystems. Most materials are readily contaminated by mixture with other materials, may be difficult to separate once mixed, or their mechanical properties may degrade with use. Hence the continuous and indefinite reuse of the same materials appears to be an unlikely possibility for the foreseeable future, even with more design that reduces material incompatibilities and with more efficient material separation. Despite these reservations there is also scope for significant reduction in the consumption of new virgin materials by the judicious re-use of those materials already in circulation. Transport and logistics are intimately involved in the contemporary (rather linear) economy, and can be expected to be integral to the circular economy however it is defined and put into practice. The study of logistics has primarily been concerned with the optimisation of

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the outbound flow of products and services towards end consumers. Theoretical and applied logistics has resulted in reductions in inventory, transit time, holding time and in more accurate forecasting and delivery patterns. All of these efforts have increased the speed and precision of logistics systems, and reduced per unit costs to the final consumer. The concern with reverse logistics and other elements that might constitute the circular economy is less well developed, but is certainly a burgeoning area of research and practice. Reversing product and material flows brings new and different challenges for logistics providers, alongside a much-reduced value per unit or per weight with the items handled compared with outbound flows to consumers. The tension between that which is economically feasible, and that which is ecologically necessary, is thus difficult to resolve. It is likely that in some future CE world the materials that are returned from consumers (including process material waste from businesses) will have a higher value than now; or at least the gap in market prices between virgin and used materials may be reduced. In so far as such price movements occur, they will help to underwrite investment and operational costs in reverse logistics systems. At present though, the adoption of additional reverse logistics operations (as opposed to simple landfill) may actually increase the logistics carbon burden per unit of consumption. The question of product durability in the form of extended product lifespans is less often considered with regard to the CE, despite the potential to slow down consumption patterns. The slow-down of consumption of items, say mobile telephones or socks, means ultimately that fewer need to be produced, shipped, stored, bought, consumed and consigned to waste. In turn this means that the net resource consumption associated with a particular product or service is reduced. There is a relationship in this sense with the de-growth agenda. De-growth can be applied as a planned transition strategy that ends in a circular (but smaller) material economy. Hence it seems logical that there must be a co-evolution of production and consumption, mediated by adaptive logistics systems that are progressively downsizing. It also seems probable that the ultimate ‘destination’ of the circular economy is one in which a greater proportion of that economic and material activity that remains will be conducted on a more local scale, again mediated by logistics systems.

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Logistics providers are not necessarily in control of much of the ­ robable transition in production and consumption patterns. Mobile p telephone manufacturers and service providers may adopt product design and service package strategies that privilege longevity. Governments may seek mechanisms to enforce product durability through enhanced standards, or a requirement to support products in use for a specified period (as already is the case with cars for example). Targets over the re-use of materials may be similarly imposed, with logistics providers having to arrive at solutions. Neither are logistics providers in control of major structural shifts in trade and the global economy, but these can be highly influential on the scale and character of demand for logistics services. Hence shifts towards new regional-scale integration in Asia (Lee et al. 2016), or the impact of the China ‘belt and road’ initiative (Lee et al. 2018) can be extremely important. If the US achieves energy independence with respect to petroleum from the Middle East then one major trade flow in shipping would be curtailed. If the European Union succeeded in enshrining the circular economy alongside rapid order fulfilment and the on-demand economy then there would be a very large drop in demand for container shipping services out of Asia.

6.6 Conclusions If the ability to achieve zero-carbon emissions is at best variable, then it might be more logical to prioritise those applications in transport or storage where ‘other’ motivations are particularly compelling. Hence the use of bicycles or electric vehicles in urban delivery has an additional benefit in terms of noise reduction and urban air quality for example. The real challenge for the logistics industry is two-fold. First, how to cope with the long-term anticipated decline in the demand in the ‘volume’ of logistics required? Second, how to achieve zero-carbon logistics when the financial costs may outweigh the financial benefits? To date the industry as a whole has benefitted from strong growth in demand, albeit tempered by a ferocious pressure on costs. Innovation in logistics systems has been stimulated by this demand, and of course then further

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demand has ensued. Individual logistics suppliers have utilised innovation as a differentiation means to avoid narrow commodity status, offering greater sophistication and diversity in the services offered to their clients. The emergent era may be rather less benign for logistics providers, and perhaps the age of low-cost logistics is coming to an end. For the academic and policy communities it is evident that the demands of the CE, the end of low-cost carbon-intensive fuels, and the relative paucity of technological alternatives in logistics systems, raises important new research and policy questions. To date most of the interest has been in the macro-economic or resource level, or at the very detailed level of individual cases and examples. The reality of transition, of fundamental change to production and consumption systems at an unprecedented pace, is that throughout the economy and society there will be many new challenges to be faced. The world of logistics is no exception, as this chapter has sought to outline. In practice it is likely that different sectors of the economy will undertake the transition towards the CE at different speeds. Discrete and unpredictable ‘black swan’ events are likely to occur, precipitating dramatic change. There are real concerns over societal collapse if we are unable to resolve the ecological and economic challenges we currently face. At the risk of seeming to be melodramatic, the achievement of zero-carbon logistics and the wider transition to sustainability in logistics systems is a critical part of the ability of our societies to cope with existing and future challenges. If these challenges are not met, a bleak future awaits.

References Arroba, P., Risco-Martín, J. L., Moya, J. M., & Ayala, J. L. (2018). Heuristics and metaheuristics for dynamic management of computing and cooling energy in cloud data centers. Software—Practice and Experience, 48(10), 1775–1804. Berners-Lee, M. (2010). How bad are bananas? The carbon footprint of everything. London: Profile Books. Chang, C.-C. (2016). Causal analysis of carbon emissions, deadweight tonnage of global shipping fleet, fuel oil consumption, and economic activities

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in marine transportation. Energy Sources, Part B: Economics, Planning and Policy, 11(4), 303–308. ECTA. (2011). Guidelines for measuring and managing CO2 emission from freight transport operations, European chemical transport association. Accessed November 28, 2018. Copy obtained from Documents/Best%20Practices%20Guidelines/guideline_for_measuring_ and_managing_co2.pdf. Gilbert, P., Wilson, P., Walsh, C., & Hodgson, P. (2017). The role of material efficiency to reduce CO2 emissions during ship manufacture: A life cycle approach. Marine Policy, 75, 227–237. Gritsenko, D. (2017). Regulating GHG emissions from shipping: Local, global, or polycentric approach? Marine Policy, 84, 130–133. IMO. (2015). Third IMO greenhouse gas study, 2014, International Maritime Organisation. Accessed May 22, 2018. Copy obtained from http://www. Documents/Third%20Greenhouse%20Gas%20Study/GHG3%20 Executive%20Summary%20and%20Report.pdf. IPCC. (2014). Climate change 2014: Synthesis report, Inter-Governmental Panel on Climate Change. Accessed May 24, 2018. Copy obtained from https:// Lee, T.-C., Lam, J. S. L., & Lee, P. T. W. (2016). Asian economic integration and maritime CO2 emissions. Transportation Research Part D: Transport and Environment, 43, 226–237. Lee, P. T.-W., Hu, Z.-H., Lee, S.-J., Choi, K.-S., & Shin, S.-H. (2018). Research trends and agenda on the Belt and Road (B&R) initiative with a focus on maritime transport. Maritime Policy and Management, 45(3), 282–300. McKinnon, A. (2012). Green logistics: Global trends and issues. Presentation to conference on Decoding Sustainable Logistics Trends World Bank Washington, DC. McKinnon, A., & Kreie, A. (2010, September 8–10). Adaptive logistics: Preparing logistical systems for climate change. Paper presented at the Logistics Research Network Conference in Harrogate. Pettit, S., Wells, P., Haider, J., & Abouarghoub, W. (2017). Repeating history? Can shipping achieve a second socio-technical transition for sustainability? Transportation Research Part D, 58, 292–307. Saunders, C. M., Barber, A., & Taylor, G. J. (2006). Food miles—Comparative energy/emissions performance of New Zealand agriculture industry, agribusiness and economics research unit (Number 295). Available at

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Scott, J., Smith, T., Rehmatulla, N., & Milligan, B. (2017). The promise and limits of private standards in reducing greenhouse gas emissions from shipping. Journal of Environmental Law, 29(2), 231–262. Walsh, C., Mander, S., & Larkin, A. (2017). Charting a low carbon future for shipping: A UK perspective. Marine Policy, 82, 32–40. Zakarya, M. (2018). Energy, performance and cost efficient datacenters: A survey. Renewable and Sustainable Energy Reviews, 94, 363–385.

7 Vehicle Routing Problem: Past and Future Emrah Demir, Katy Huckle, Aris Syntetos, Andrew Lahy and Mike Wilson

7.1 Introduction Logistics is the management of the flow of goods, information, and other resources between a point of origin and a point of consumption in order to meet the requirements of industry. Logistics activities comprise freight transportation, storage, inventory management, materials E. Demir (*) · K. Huckle · A. Syntetos · A. Lahy · M. Wilson  Panalpina Centre for Manufacturing and Logistics Research, Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] K. Huckle e-mail: [email protected] A. Syntetos e-mail: [email protected] A. Lahy e-mail: [email protected] M. Wilson e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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handling, and information processing (Lambert et al. 1998). More particularly, freight transportation is the planning, routing, scheduling, and movement of freight using one or multiple modes of transport (i.e., road, rail, maritime, air and pipeline) as well as associated activities such as warehousing and storage. Road transportation is by far the most popular mode of transportation in the European Union (EU). In particular, road haulage accounted for 74.9% of the total inland freight movements in the 28 EU member states in 2014 (Eurostat 2016). The share transported by rail was (18.4%), whilst the remainder (6.7%) of freight transported in the EU-28 was carried along inland waterways. Road transportation is generally done by specialized goods vehicles, which can be categorized based on the gross vehicle weight rating (GVWR) index. The transport services offered by vehicles in accordance with legal standards are generally distinguished between full truckloads (the customer reserves one truck and uses all of it—FTL) and less than truckload (the carrier combines multiple customer orders within a truck—LTL). In the case of FTL, a full truckload is directly moved from an origin to a destination (Ghiani et al. 2004). In the case of LTL, one shipment is much less than vehicle capacity. It is therefore more convenient for a carrier to combine its shipments into one vehicle and transport them to their various destinations. The routing and scheduling of vehicles for LTL transportation is quite popular in academia due to its practical relevance and high computational complexity. One of the first articles on the subject, namely “The Truck Dispatching Problem”, was by Dantzig and Ramser (1959). Several variants of the problem, each with special characteristics, have been considered in the literature for addressing the daily transportation challenges of logistics service providers (LSPs) and freight forwarders (FWs). Transportation planning at the operational level is known as the Vehicle Routing Problem (VRP). The VRP consists of designing optimal collection or delivery routes for a set of vehicles from a depot to a set of geographically scattered customers, subject to various constraints, such as vehicle capacity, route length, time windows, etc. (Tooth and Vigo 2014). Practically all variants of the problem are NP-hard and requires advanced solution

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methods. This also makes the VRP more popular for the research community. When dealing with the routing and scheduling of vehicles, a different set of side constraints might be required. For example, distance, vehicle capacity, driver working hours, time windows, precedence relations, and, etc. All of these constraints and more can arise in the real-life VRPs. The objective of the VRP can also be diversified due to different requirements of the stakeholders (i.e., LSPs, FWs, customers, local, and national governments). The traditional objective in the standard VRP is generally to minimize a cost function which is considered to be the total distance traveled by all vehicles. However, recent studies focus on various negative externalities of transportation such as emissions, congestion, and, etc. All new challenges (e.g., limited resources, environmental concerns) and technological developments (e.g., alternative fuel vehicles, new vehicles, information systems) in transportation have led to a great amount of literature focusing all types of VRP extensions and applications in the last few decades. This chapter is an overview of the recent research in vehicle routing, which provides basic knowledge on well-known operational-level transportation planning problems. The chapter will have a particular focus on recent challenges and newest technological developments appeared in the last decade. The overarching aim of the chapter is to present an overview of the vehicle routing and scheduling area, including the introduction of practical VRP extensions and also discussing several real-life applications. The remainder of the chapter is organized as follows. Section 7.2 introduces the VRP and its well-known extensions and provides a linear mixed-integer mathematical formulation. Section 7.3 presents the challenges and opportunities faced by the LSP. Conclusions and future research directions for the VRP are stated in Sect. 7.4.

7.2 Vehicle Routing Problems This section provides a brief introductory overview. The VRP consists of designing vehicle routes in such a way that each route starts and ends at the depot, each customer is visited exactly once by a vehicle, and

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the total goods transported on a route does not exceed truck capacity. These features are common for most of the VRPs. However, practical requirements and new challenges require richer (extensive) VRP definitions and formulations. Many extensions and interesting generalizations can enrich VRP definition and applications. Some features of the VRP are summarized in Tables 7.1 and 7.2. For more information on these extensions, interested readers are referred to (see, e.g., Eksioglu et al. 2009; Tooth and Vigo 2014; Caceres-Cruz et al. 2015). Tables 7.1 and 7.2 list various VRP extensions from different perspectives. Based on the requirements of the customer, and the capability of the LSP, each VRP with different characteristics can be formulated considering one or more of these possible features. We note that the list is not inclusive and may include new specific requirements of the stake holders and new technologies to appear in the near future.

7.2.1 Formal Description of the VRP This section defines the VRP in details. The most standard version of the VRP is the Capacitated Vehicle Routing Problem (CVRP), which can be described as follows. Let G = (N, A ) be a complete (un)-directed graph with node set N = {0, 1, 2,…, n }, where each node i ∈ N\{0} represents a customer having a non-negative demand qi, whilst node 0 corresponds to the depot. Each arc (i, j ) ∈ A = {i, j : i, j ∈ N, i = j } is associated with a distance dij. A fleet of m identical vehicles, each of capacity (denoted by Q ), is available at the single depot. In the rest of the chapter, the VRP will be considered as CVRP as all VRPs will require a limit on vehicle capacity. Table 7.1  Various features of the VRP from the customer’s perspective The customer Time-related Time windows Periodicity Multiple time windows



Deterministic Stochastic Dynamic Multi-products

Site-dependent Road-dependent

Single Multi Inter route Open end

The planner Depot-related

Homogeneous Heterogeneous Multi trips Unfixed fleet Fixed fleet


Simultaneous PD Split delivery VRP with backhauls Driving hour Working hour

Distance Duration Balanced routes Precedence relations Multiple visits Pickup and delivery

Operational-related Diesel Electric Autonomous Bike Drone


Table 7.2  Various features of the VRP from the planner’s perspective

Symmetric Asymmetric Congestion Dynamic


Single Multi Distance Time Emissions Customer satisfaction


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As discussed by Tooth and Vigo (2014), the VRP is to determine a set of m routes whose total distance is minimized and such that: (i) each customer belongs to exactly one route, (ii) each route starts and ends at the depot, and (iii) the total demand of the customers served in a route does not exceed the vehicle capacity (Q ). An important variant of the VRP is called as the Distance Constrained VRP (DVRP), where the capacity constraint for each route is replaced by a constraint such that (iv) the total length of any route cannot exceed a planned restriction. The second important VRP extension is called as the VRP with backhauls (VRPB), where the customer set is partitioned into two subsets. The first subset, A1, contains nb linehaul customers, each requiring a given quantity of product to be delivered. The second subset, A2, contains n−nb backhaul customers, where a given quantity of product must be picked up. Customers are numbered so that A 1= (1,…, nb ) and A 2 = (nb+1,…, n ). The VRPB includes constraints (i), (ii), and two extra constraints such that (v) the total demands of the linehaul and backhaul customers visited in each route do not exceed the vehicle capacity Q, and (vi) all linehaul customers must precede backhaul customers in every route, if any. One of the most studied extension of the VRPs is the VRP with Pickup and Delivery (VRPPD), where a number of goods need to move from certain pickup locations to certain delivery locations. In VRPPD, each customer i ∈ N\{0} is associated with two quantities qi and pi, representing the demand of a single commodity to deliver or to pick-up from a customer i. For each customer i ∈ N\{0}, Oi denotes to the origin of the delivery, and Di denotes to the destination of the associated demand. The objective of the VRPPD is to find optimal route(s) for a fleet of vehicles to visit the pickup and drop-off locations. The VRPPD includes constraints (i), (ii), (iii), and (vii) for each node i, the node Oi, if different from the depot, must be served in the same route and before node i, and also (viii) for each customer i, the customer Di, if different from the depot, must be served in the same route and after customer i. The most practical extension of the VRP is the Vehicle Routing Problem with Time Windows (VRPTW), where eachx customer must be served within predetermined time intervals. The VRPTW imply that the service the carrier gives to the customer (either a pickup or a

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delivery) will have to start within a given time window. An order may have to be picked up after a certain time, delivered in a specific period or after a certain period. In addition to the above-mentioned features of the CVRP, the VRPTW includes, for the depot and for each customer i (i ∈ N 0), a time window [a i, b i] during which this customer has to be served. Furthermore, a0 denotes the earliest start time and b0 denotes the latest return time to the depot for each vehicle. The additional constraints are that service should begin at node i (i ∈ N0) anytime after ai but not later than bi. If the arrival time at node i is earlier than ai, the vehicle can wait until time ai to start service. The VRPTW includes constraints (i), (ii), (iii), and (ix) for each customer i, the service starts within the time window, [a i, b i], and the vehicle stops for ti time units. A simple graphical representation of a feasible VRPTW solution is shown in Fig. 7.1. Figure 7.1 presents a VRP solution with two routes. These routes can be shown as R1 = {Depot, 1, 2, 3, 4} and R2 = {Depot, 5, 6, 7, 8, 9} Since this is a feasible solution, we know that each route starts and ends at the depot, each customer is visited exactly once, the total goods transported on a route does not exceed truck capacity and each customer is served within their time windows. The important feature of the VRPTW is to obey time windows of the customers and the depot.

Fig. 7.1  An example representation of the VRPTW

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Time windows can be defined as hard (each customer must be serviced within a specific time interval) and soft time windows (violation of the service is possible with a penalty).

7.2.2 An Integer Programming Formulation for the VRPTW We now present a mathematical programming formulation of the VRPTW. We first start defining the decision variables needed for the formulation. Binary variables xij are equal to 1 if and only if arc (i, j ) appears in solution. Continuous variables fij represent the total amount of flow on each arc (i, j ) ∈ A. Continuous variables yi represent the time at which service starts at node j ∈ N0. An integer linear programming formulation of the VRPTW is provided below: 


dij xij

i, j∈N


subject to 

x0j  m



xij = 1

∀i ∈ N0


xij = 1

∀j ∈ N0





fji −


fij = qi

∀i ∈ N0


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qj xij  (Q − qi )xij yi − yj + ti + tij  K(1 − xij ) ai  yi  bi xij ∈ {0, 1} fij  0 yi  0

∀(i, j) ∈ A


∀i ∈ N, j ∈ N0 , i �= j


∀i ∈ N0


∀(i, j) ∈ A


∀(i, j) ∈ A


∀i ∈ N0


The objective function (1) is the minimization of distance-based costs as is the case in the standard VRP. Constraints (2) state that there are maximum (m ) number of vehicles available at the depot. Constraints (3) and (4) are the degree constraints which ensure that each customer is visited exactly once. Constraints (5) and (6) define the arc flows. Constraints (7)–(8), where K is a large number, enforce the time window restrictions. Constraints (10)–(11) define non-negativity conditions.

7.2.3 Other Well-Known Variants of the VRP This section discusses other important VRP extensions studied in the VRP literature. In the time Dependent VRP (TDVRP), it is assumed that the travel time between two customers or between a customer and the depot depends on the distance between the points and the time of day, as opposed to the VRPTW. The objective of the TDVRP is to minimize the total time spent on all routes, which also must ensure services to customers within prespecified time windows. The traveling time is calculated by using information on the departure time and the possible speeds profiles on each arc (i, j ), which is assumed to be known at the beginning of the optimization process. For more information on

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various time-dependent VRPs, see Malandraki and Daskin (1992) and Gendreau et al. (2015). Split delivery (VRPS or SDVRP) entails that a customer is happy to receive an order in several parts, that is, in more than one vehicle and at more than one time. Interested readers are referred to Archetti and Speranza (2008) and Chen et al. (2007). Location-routing problem (LRP) combines both the routing decisions usually handled in VRPs and location decisions. The objective at this problem becomes to determine a set of vehicle routes and the depots where each route should start and end. More information on LRPs can be found in Min et al. (1998) and Nagy and Salhi (2007). Inventory routing problem (IRP) considers consumption rates per customer. Customers provide initial goods and storage capacity, and minimum volume requirements, which translate into delivery deadlines. In a multiperiod planning horizon, the challenge then becomes for the depot to make sure customers never run out of goods, whilst planning minimal cost delivery routes. See Campbell et al. (1998) and Coelho et al. (2013) for the overview of the IRPs. Production routing problem includes both the lot-sizing and the routing problem. More specifically, it consolidates production, inventory, and delivery operations to meet customer demand with the objective of minimizing the total cost of production, inventory, and transportation. More discussion on production-routing problems can be found in Adulyasak et al. (2015). Dynamic VRP deals with dispatching of vehicles to serve multiple customer requests that evolve in a real-time fashion. This problem domain is becoming an important area in the domain of VRP since it considers more realistic approach than standard static case. Dynamic VRPs take into account the fact that planners need to make decisions (e.g., on a preliminary planning) before all orders are known. These preliminary plans need to be adjusted multiple times in such situations, changing the way such a problem needs to be addressed. Interested readers are referred to Psaraftis (1995) and Pillac et al. (2013). Stochastic VRPs assume that information on both occurrences (order intervals) and the volume of customer demand, or even travel times between customers, is given by probability distributions. This  domain

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of the VRPs is also becoming an important area for researchers. For more information on various stochastic VRPs, see Stewart Jr. and Golden (1983) and Gendreau et al. (1996). In the two-dimensional loading VRP (2L-CVRP), the loading of freight into vehicles and the following routing is combined with the aim of responding to all customer demands. In the three-dimensional loading VRP (3L-VRP) a three-dimensional loading problem is combined with a vehicle routing problem. In general, the same conditions apply as in the 2L-VRP. Interested readers are referred to Iori et al. (2007) and Bortfeldt (2012). There are also other types of VRPs in the literature. For more comprehensive reviews on VRPs, we refer to the survey of Eksioglu et al. (2009) and the book of Tooth and Vigo (2014). The next subsection will introduce one of the most recent extensions to the VRP.

7.2.4 Green Vehicle Routing Green logistics has emerged as a new point of focus in supply chain management. Traditional objectives in distribution management and other operations management practices have been to minimize the total costs. In the last decade, these objectives have been revised to ­system-wide costs, where economic as well as environmental issues are addressed. Environmental sustainability is becoming a much more critical measure for global supply chains due to increasing awareness of their impact. Current production and distribution logistics strategies are not sustainable in the long term, particularly regarding their environmental impact (e.g., carbon footprint, fossil fuels, and greenhouse gases). Social effects also need to be taken into account when designing sustainable policies. This newly emerging requirement has also changed the VRP and its formulation. In recent years, there has been an increasing interest in environmental VRPs. The Green Vehicle Routing Problem (GVRP), which considers fuel tank capacity limitation, is receiving increasing attention as an extension of the VRP. Erdoğan and Miller-Hooks (2012) were the first authors that introduced the GVRP, where refueling stops are

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incorporated. The incorporation of real fuel consumption and emissions in the context of the GVRP has been widely studied in the recent literature, where these factors play an important role in routing models, taking into account fuel costs and vehicles emissions (see, e.g., Bektas and Laporte 2011; Demir et al. 2012). For other studies on the energy consumption of CVs and related routing problems, interested readers are referred to the recent surveys of Demir et al. (2014). The use of electric vehicles (such as electrically powered, battery-powered, and plug-in hybrids) in the logistics operations were also studied in the literature. For interested readers, more details on several variants and new trends in electric vehicle routing problems can be found in recent surveys by Martínez-Lao et al. (2017), Pelletier et al. (2017).

7.2.5 Solving the VRP Optimal solutions to small VRP instances (in terms of locations) can be obtained in reasonable time by basic mathematical programming techniques (i.e., integer programming). However, since the VRP and all its extensions are known to have NP-hard complexity, it will be very time consuming to solve larger instances to optimality. There are many very good algorithms called heuristics/metaheuristic algorithms offering comparably fast running time and still yielding near-optimal solutions. Important metaheuristic algorithms proposed for VRPs include Tabu search (Glover 1986), Simulated annealing (Kirkpatrick et al. 1983), Deterministic annealing (Dueck and Scheuer 1990), Variable neighbourhood search (Mladenović and Hansen 1997), and Adaptive large neighbourhood search (Ropke and Pisinger 2006).

7.3 The Roles of LSPs in Vehicle Routing This section presents VRP from LSP’s perspective by focusing on reallife examples and solutions developed in the domain of vehicle routing. LSPs are organizations responsible for warehousing and transportation of a huge range of customer goods, from perishables, such as

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fresh fruit and vegetables, to electronics, such as smartphones, to raw materials, such as sand and cement. These products are moved all over the world at all times of day and night; global trade lanes (air, ocean, rail, and road) carry millions of products every minute of every hour of every day. Coordinating the routing of these products is one of the many challenges faced by LSPs around the world. As one of the world’s top Third Party Logistics Providers, Panalpina operates a global network of freight, logistics, and supply chain services (Panalpina 2018). With some 500 offices in more than 70 countries, Panalpina is a truly global organization, and the company has built an external network of partners in an additional 90 countries. Panalpina employs approximately 14,500 people worldwide who deliver a comprehensive service to the highest quality standards—wherever and whenever. As a global LSP, Panalpina has been exposed to the Vehicle Routing Problem in a huge range of guises, some of which are described below. Several “real-life examples” of the VRP in practice are outlined below, including proposed solutions, followed by two case studies that address some of the challenges in further detail.

7.3.1 Real-Life Examples Panalpina recently encountered a scenario that found two different customers in two different warehouses, located within a 20 km radius of one another. Each customer needed to make daily shipments to the same retailer, a well-known Dutch supermarket, which was equidistantly located from both customer warehouses. With both customers needing products delivered to the same place every single day, the logical approach (following a simple version of the VRP as we know it) would be to consolidate the daily shipments into one single transport unit. This would save time, resources, and obviously costs. But the proposed consolidation created additional VRP challenges. The second Panalpina example involved a customer in Germany that required small, highly frequent, irregular shipments to the UK. Each delivery was shipped as soon as production is finished; there is no

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consolidation at the customer. Panalpina’s solution would have been to consolidate items locally into bulk deliveries on the same pallets before shipping to the UK. However, rather than solving the issue, consolidation again created further challenges for the company. Challenges with Vehicle Routing For the above scenarios, Panalpina identified the following challenges when trying to optimize vehicle routing using consolidation: Demand fluctuation Problem: Despite relatively stable customer demand, one of Panalpina’s core service offerings is the ability to expand capacity at very short notice; this enables Panalpina to deliver higher volumes for customers to ensure that demand is always met. Consolidating shipments into one single unit automatically reduces the amount of available space and could lead to capacity shortages. Solution: Panalpina addressed this problem by improving demand forecasting capabilities. Through an innovative research project together with Cardiff University Business School and the Engineering and Physical Sciences Research Council, Panalpina developed a new tool for demand forecasting, which is much better able to predict levels of inventory demand over a continued period. Cross-contamination Problem: Many of the products shipped by Panalpina are perishables, or food products. This introduces a complexity when it comes to food safety standards and risk of contamination; certain products cannot be transported in the same container without strict control procedures. It may therefore not always be possible to consolidate shipments from different customers, depending on the shipment content or product type.

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Solution: Varying product requirements only pose a problem for shipment consolidation when they are not communicated to the LSP. Technical advancement in real-time information through improved data management systems allow issues of contamination to be easily avoided. When given adequate notice, Panalpina is well able to ensure correct product categorization and therefore containment. Narrow delivery windows Problem: Panalpina’s customers often need to adhere to a very strict delivery time-slot at their retailers, or they risk rejection of the shipment on arrival. This constraint means that Panalpina cannot afford any possible delays on shipment collection, which is more likely when consolidating shipments from more than one location. Solution: This is another issue that can be mostly solved through clever planning using real-time information and live data monitoring. Advancements in live traffic notifications and location tracking enable a highly accurate mapping and prediction of pickup and drop-off times along almost all routes. To facilitate faster collection of goods from the customer, Panalpina often operates cross-docking stations, where loads are consolidated at a central location. Shipments sit in the cross-dock only up to a few hours whilst awaiting consolidation. Strong market competition Problem: Many of Panalpina’s competitors operate fixed daily truck routings, which run regardless of demand, meaning that there is almost always a small amount of empty space in the truck. As this space is a sunk cost for the competitor, they are happy to sell it at extremely low rates to the customer, undercutting any possible price advantage Panalpina might have if they were to consolidate the shipments. Solution: Panalpina has identified new and innovative ways to compete in cases such as this one. Instead of competing to ship finished goods internationally, Panalpina has established distributed manufacturing centers, where the company is able to perform final stage assembly,

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configuration, and testing on a huge variety of different products. This allows customers to effectively manufacture very close to the end user demand, drastically increasing speed to market and enabling last-minute production and customization.

7.3.2 Case Studies This section provides two real-life studies faced by Panalpina. Distributed Manufacturing—VRP Challenge: Strong Market Competition Summary: In response to growing market competition, Panalpina developed a new strategy of distributed manufacturing, or near-shoring, which meant offering manufacturing services in local markets across the world. Distributed manufacturing offers a major value-add for customers as it enables on-demand production, very short lead times, and quick delivery times. Background: Panalpina identified numerous supply chain challenges when shipping goods for Customer XYZ from China to Brazil, such as very long lead times, quality issues on arrival, rapidly changing technologies, and customization requirements. Solution: Panalpina’s solution was to set up distributed manufacturing services in country for Customer XYZ. This meant that, instead of shipping finished goods from China to Brazil, Panalpina instead shipped the separate components and then assembled them in a facility in Brazil. The results are summarized as follows. On time delivery increased from 20 to 98.6%, Total inventory accuracy increased from 25 to 99.9%, Order lead time reduced from 120 to 15 days, Scrap was reduced by 30%.

7  Vehicle Routing Problem: Past and Future     113 Inventory Optimization—VRP Challenge: Stochastic Demand Summary: In a collaboration with Cardiff University and the Engineering and Physical Sciences Research Council (UK), Panalpina developed an innovative new inventory forecasting solution that combines a multitude of demand forecasting models into a single, simple solution to help our customers optimize inventory levels. Background: Through its logistics and warehousing business, Panalpina identified many cases of excessive inventory levels, as well as inventory stock-outs, both of which are costly to customers. High levels of inventory lead to high warehousing costs as well as product obsolescence; particularly in the technology industry, if product remains on the shelf for more than a month then it is already obsolete. Lost sales due to stock outs are also a major issue for any retailer, when customers will go elsewhere to make purchases. Solution: Demand-Driven Inventory Forecasting (D2ID) is a userfriendly tool that uses customer’s historical demand data (inventory levels) to make highly accurate sales predictions.

7.3.3 Future Perspectives Below follow some of the challenges that Panalpina anticipate when it comes to vehicle routing in future. Future Challenge One: Road to Automation As a leading freight and logistics services provider, Panalpina predicts that automation will create a significant challenge in the future of distribution. More specifically, it is the journey to automation that creates the biggest challenge. The technology already exists, but successfully implementing it into global supply chains will be the biggest transition in transportation since the invention of the combustion engine. Driverless vehicles, particularly trucks, will have a major impact on how

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the entire industry operates, but other types of automation (for example drones) will also contribute to a dramatic change in how products are supplied to the end customer. Future Challenge Two: A Rise in e-Commerce The growth of e-commerce has already had major effects on supply chains across the globe; instead of delivering to retailers, B2C manufacturers and retailers must now find fast, cost-effective ways in which to bring their products directly to the end customer at home. That consumers expect products ordered online to be cheaper than those purchased in a store only increases the pressure on supply chains. And these consumers then take their expectations for streamlined e-commerce services with them into the workplace, and therefore into the B2B market.

7.4 Conclusions and Future Research Directions Freight transportation involves in planning, implementing, and controlling efficient flow of goods from the supplier to the company and from the company to the point of consumption for the purpose of conforming to customer requirements. The core transportation problem is known as the Vehicle routing Problem, which is widely studied with many real-life applications. This book chapter introduced several variants of VRP and discussed real-life problems faced by the logistics sector. Four important conclusions are revealed as follows: • One can see that, for all VRP models and applications, it is crucial to consider customer requirements and LSP capabilities. Each application of VRP might require different set(s) of objectives and constraints. • Alternative technological vehicles are underutilized. More research on green logistics is needed for a successful and green transportation. • Demand fluctuation and narrow time windows increase both the complexity and the cost of the transportation and this will eventually affect the customer satisfaction.

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• Strong market competition pressures logistics companies and disturbs their transportation planning. Summarizing current studies on VRP, the following three areas are identified as further research directions. • It is important to find affordable, reliable, and environmentally friendly transportation. Logistics companies should be aware of green logistics solutions to reduce their transportation costs and negative externalities of their activities (see, e.g., Demir et al. 2014; Demir 2018). • There exist several ways of solving VRPs and there is no superiority amongst them. The right methodology should be chosen based on the characteristics of the customer and the company. • Vehicle routing can be enriched by considering other relevant problems, such as forecasting, inventory, and location and distributed manufacturing. All these problems should be combined for a better freight transportation. Acknowledgement(s)   The authors gratefully acknowledge funding provided by Cardiff University and by the SPARK Seedcorn/Panalpina Challenge Workshop.

References Adulyasak, Y., Cordeau, J.-F., & Jans, R. (2015). The production routing problem: A review of formulations and solution algorithms. Computers & Operations Research, 55, 141–152. Archetti, C., & Speranza, M. G. (2008). The split delivery vehicle routing problem: A survey. In The vehicle routing problem: Latest advances and new challenges (pp. 103–122). New York: Springer. Bektas, T., & Laporte, G. (2011). The pollution-routing problem. Transportation Research Part B: Methodological, 45(8), 1232–1250. Bortfeldt, A. (2012). A hybrid algorithm for the capacitated vehicle routing problem with three-dimensional loading constraints. Computers & Operations Research, 39(9), 2248–2257.

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Caceres-Cruz, J., Arias, P., Guimarans, D., Riera, D., & Juan, A. A. (2015). Rich vehicle routing problem: Survey. ACM Computing Surveys (CSUR), 47(2), 32. Campbell, A., Clarke, L., Kleywegt, A., & Savelsbergh, M. (1998). The inventory routing problem. In Fleet management and logistics (pp. 95–113). New York: Springer. Chen, S., Golden, B., & Wasil, E. (2007). The split delivery vehicle routing problem: Applications, algorithms, test problems, and computational results. Networks, 49(4), 318–329. Coelho, L. C., Cordeau, J.-F., & Laporte, G. (2013). Thirty years of inventory routing. Transportation Science, 48(1), 1–19. Dantzig, G. B., & Ramser, J. H. (1959). The truck dispatching problem. Management Science, 6(1), 80–91. Demir, E. (2018). Value creation through green vehicle routing. In Sustainable freight transportation. Cham: Springer. Demir, E., Bektas, T., & Laporte, G. (2012). An adaptive large neighborhood search heuristic for the pollution-routing problem. European Journal of Operational Research, 223(2), 346–359. Demir, E., Bektas, T., & Laporte, G. (2014). A review of recent research on green road freight transportation. European Journal of Operational Research, 237(3), 775–793. Dueck, G., & Scheuer, T. (1990). Threshold accepting: A general purpose optimization algorithm appearing superior to simulated annealing. Journal of Computational Physics, 90(1), 161–175. Eksioglu, B., Vural, A. V., & Reisman, A. (2009). The vehicle routing problem: A taxonomic review. Computers & Industrial Engineering, 57(4), 1472–1483. Erdoğan, S., & Miller-Hooks, E. (2012). A green vehicle routing problem. Transportation Research Part E: Logistics and Transportation Review, 48(1), 100–114. Eurostat, E. (2016). Energy, transport and environment indicators-2016 edition. Technical report. Gendreau, M., Ghiani, G., & Guerriero, E. (2015). Time-dependent routing problems: A review. Computers & Operations Research, 64, 189–197. Gendreau, M., Laporte, G., & Séguin, R. (1996). Stochastic vehicle routing. European Journal of Operational Research, 88(1), 3–12. Ghiani, G., Laporte, G., & Musmanno, R. (2004). Introduction to logistics ­systems planning and control. New York: Wiley. Glover, F. (1986). Future paths for integer programming and links to artificial intelligence. Computers & Operations Research, 13(5), 533–549.

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Iori, M., Salazar-González, J.-J., & Vigo, D. (2007). An exact approach for the vehicle routing problem with two-dimensional loading constraints. Transportation Science, 41(2), 253–264. Kirkpatrick, S., Gelatt, C. D., Vecchi, M. P., et al. (1983). Optimization by simulated annealing. Science, 220(4598), 671–680. Lambert, D. M., Stock, J. R., & Ellram, L. M. (1998). Fundamentals of logistics management. Singapore: McGraw-Hill. Malandraki, C., & Daskin, M. S. (1992). Time dependent vehicle routing problems: Formulations, properties and heuristic algorithms. Transportation Science, 26(3), 185–200. Martínez-Lao, J., Montoya, F. G., Montoya, M. G., & Manzano-Agugliaro, F. (2017). Electric vehicles in Spain: An overview of charging systems. Renewable and Sustainable Energy Reviews, 77, 970–983. Min, H., Jayaraman, V., & Srivastava, R. (1998). Combined location-routing problems: A synthesis and future research directions. European Journal of Operational Research, 108(1), 1–15. Mladenović, N., & Hansen, P. (1997). Variable neighborhood search. Computers & Operations Research, 24(11), 1097–1100. Nagy, G., & Salhi, S. (2007). Location-routing: Issues, models and methods. European Journal of Operational Research, 177(2), 649–672. Panalpina. (2018). About us. home.html. Pelletier, S., Jabali, O., Laporte, G., & Veneroni, M. (2017). Battery degradation and behaviour for electric vehicles: Review and numerical analyses of several models. Transportation Research Part B: Methodological, 103, 158–187. Pillac, V., Gendreau, M., Guéret, C., & Medaglia, A. L. (2013). A review of dynamic vehicle routing problems. European Journal of Operational Research, 225(1), 1–11. Psaraftis, H. N. (1995). Dynamic vehicle routing: Status and prospects. Annals of Operations Research, 61(1), 143–164. Ropke, S., & Pisinger, D. (2006). An adaptive large neighborhood search heuristic for the pickup and delivery problem with time windows. Transportation Science, 40(4), 455–472. Stewart, W. R., Jr., & Golden, B. L. (1983). Stochastic vehicle routing: A comprehensive approach. European Journal of Operational Research, 14(4), 371–385. Tooth, P., & Vigo, D. 2014. Vehicle routing: Problems, methods, and applications. Philadelphia: SIAM.

8 Dynamical Modelling in Operations Management Xun Wang

The theory of dynamical systems, with the establishment of calculus, has been applied originally to solve problems of the motion of celestial bodies. The theory has shown its immediate competence, as there are two important principles governing the motions. One is the interconnection of variables, dubbed by the term system, which means that there is a determined relationship between the values of variables, for instance, the vector of gravitational force and that of the acceleration. Secondly, the values of variables always change over time, as in dynamical. The example is that the acceleration of an object is always changing, depending on the relative position and distance between the objects. No matter whether the underlying physics law is Newtonian or relativistic, we see that these two principles remain. Dynamical view differs from that of static in that it acknowledges and even worships changing. In mathematical terms, this means that every variable is dependent on time or t. This variable can either be continuous, where the difference X. Wang (*)  Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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between times can be infinitesimally small, as in the case of celestial motions. It can also be discrete, where it can only take separate values such as number of hours, days, and weeks. We call them continuous and discrete dynamical systems respectively. The operations of differentiation and difference is needed to express how variables change over time, according to certain laws. If we strip the problem down to these essentials, dynamical systems are indeed omnipresent, and it has successfully found its way in operations management. The reasons are obvious. First, perhaps somewhat different from other areas of management studies, a large part in operations management is heavily quantitative and requires extensive modelling and calculation. Second, we can constantly find an evolving pattern in the operations problems, such as the level of inventory, size of demand, or customer satisfaction (although difficult to quantify). Indeed, the term operations denote a continual transformation state of the business, as opposed to project. Lastly, there are also well-established laws governing the changes of and interactions between the variables (see e.g., Hopp and Spearman 2011). These laws may be less famous than Newtonian laws, Maxwell equations and general relativity, and their applicability may be debatable; their very existence is nevertheless beyond doubt. In this chapter, we introduce some of the successful and significant applications of the dynamical systems theory on some of the important problems in operations management. Due to the page limit, we restrain our discussions in demand management, forecasting, and production and inventory control, which are arranged in the following sections. We propose future directions at the end of each section and conclude with an overall remark.

8.1 Demand Management Demand is surely dynamic—it changes over time and tends not to stay on the same level. Various models for changing demand exist in the inventory control literature, most treating it as exogenous and follows a certain distribution or a process. For instance, the i.i.d. assumption means that the demand is temporally independent and identically distributed; the ARMA assumption means the demand in the current

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period is dependent on past demand (Box et al. 2008). Few models have adopted the notion that the demand can indeed be affected by other factors, a belief held in the literature of marketing, and even fewer have incorporated the understanding of what demand really is. We deem demand to be the desire and capability of wanting something—either product or service. The desire can be triggered physically, e.g., the craving of salt for survival; or emotionally, e.g., the trend or fashion. The capability here acts as a constraint, which can be financial or legal. The desire is not only the driving force of supply chain operations, as every supply chain eventually serves the need of consumers, but also fundamentally motivates human action. To date, desire is predominantly emotional, although it can be explained in the physiological aspect. For instance, neurobiologists have found connections between the orbitofrontal cortex, which is activated when the subject has a desire, and the opioid and dopamine system, which is responsible for pleasure (Berridge 2009). In the marketing literature, the generation of desire is considered the information transfer process between the marketer and the consumer, and between consumers, whereas modelling the demand as independent stochastic processes omits these intricate interactions. This disadvantage can be avoided by applying the Bass model (Bass 1969), which is essentially a dynamic model to describe the demand propagation. For the population with an appropriate buying or adopting capacity, a dyadic categorization can be made between innovators and imitators. The former refers to the customers who make up their purchasing decision through marketing media, i.e., advertisements, whereas the latter refers to the customers who make such decision through the influence of their peers, i.e., word-of-mouth. This categorization also captures the two kinds of information flow in demand generation, the marketing communication, and the personal communication. Figure 8.1 shows the structure of demand diffusion in this model. The differential equation governing the propagation process is defined as follows: X˙ = p(1 − X) + qX(1 − X)


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Fig. 8.1  A sketch of the diffusion dynamics in the Bass model

where X is the proportion of adopters/buyers in the population, p is the coefficient measuring the intensity of marketing, and q that of wordof-mouth. Note that the new adopters (represented by the first-order derivative of time) from advertisement is only related to the proportion of non-adopters, while the new adopters from word-of-mouth is related to both the adopters and the non-adopters. The Bass model has sought its deep application in marketing and consumer behaviour research, where it is used to describe the spread of desire between people. However, in the field of operations management, relatively few attempts have been made to incorporate this demand propagation mechanism, partly due to its analytical complexity. Equation (8.1) is a nonlinear function with a second order term, which makes it unsuitable for linear inventory models, and have to be solved by advanced optimization techniques such as optimal control, where an explicit optimum may not be readily found. The Bass model focuses purely on the demand side, which means it does not take into account the physical and operational constraints. For instance, will there be enough capacity to satisfy customers’ demand? What happens if a customer’s demand is unfilled? A common argument made to justify this drawback is that it is developed to model the long-term penetration process of new products. Nonetheless, when operations related issues are under discussion, a modification to the original Bass model is required. Both Ho et al. (2002) and Kumar and Swaminathan (2003) have adjusted the Bass model to include some production and inventory

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perspectives. Specifically, the problem is formulated to optimize the sales and production plan, and the objective is to minimize the total cost related to sales, production, inventory holding, backlogging, and lost sales. The sales that are not made immediately due to insufficient supply are assumed either backlogged or lost. Intuitively, the strategy of avoiding initial sales is optimal. The optimality can be explained like this: if the supply is ample in the beginning, the future sales are going to grow rapidly, causing more backlog and lost sales. Limited initial supply on the other hand reduces the speed of demand propagation in the future, making it more controllable. When demand is exogenous as in most inventory control literature, it is normal to take the assumption of backlogging or lost sales. However, when the demand propagation process is involved, there is yet another assumption that we can make regarding the unsatisfied demand, in that there is now an explicit relation between unsatisfied customers and future demand. One possibility is negative word-of-mouth where the unsatisfied customer will pass his negative feelings to the population who have not yet made the purchasing decision, which makes them permanently excluded from the pool of potential buyers. This effect was (somewhat reluctantly) wrapped up in the unit backlog cost or lost sales cost in the cost function, but can be reflected more appropriately in the demand propagation model. Another possibility is that unmet demand can increase or accelerate the increase of future demand. This is due to the so-called scarcity effect or fad effect, where scarcity improves the subjective valuation of the customers, thus creating a fad. The psychological foundation of this effect is thought to be instinctive and can be observed even in human infancy. In one experiment (Brehm and Weintraub 1977), toddlers are asked to choose between two identical toys with the same distance away from them, and there is one barrier in front of one of the toys. It shows that toddlers on an average made contact with the toy with a barrier 3 times faster. Several similar experiments have implied that we tend to prefer what is hard to get (Driscoll et al. 1972; Worchel et al. 1975). Not surprisingly, the scarcity effect can also be revealed by the demand propagation model. To do this we have to extend the basic Bass model to the following form:

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X˙ =p(1 − X − F − R) + qF(1 − X − F − R) + rX(1 − X − F − R)


where X now becomes the proportion of population having a purchasing desire but is still waiting for the supply, F those who are already fulfilled, and R those who have reneged from the waiting. F , the number of fulfilled customers, is a function of the number of waiting customers and the supply strategy, namely, how much demand to fulfil at a given time period. On the other hand, R, the number of reneged customers, is determined by the number of waiting customers, the supply strategy and the assumption on consumer behaviour. The difference between (8.1) and (8.2) lies in two folds. First, the compartment of the population is enriched from a simple dyadic one. In (8.2), the population has further compartmentalized into those fulfilled, those waiting, those reneged, and those unexposed. The incremental waiting customers originates from three sources: the advertisement (characterized by p), the word-of-mouth effect (characterized by q), and the scarcity effect (characterized by r). When the scarcity effect no longer exists, demand is fulfilled completely and customers do not renege, (8.2) degenerates to (8.1). The advantage of modelling the demand diffusion as (8.2) are as follows. Firstly, the separation of adopters into fulfilled and waiting allows for implementation of the scarcity effect. Secondly, such separation also avails the selection of supply and production strategies, as both supply and production quantities can now be lower than the actual demand. Lastly, the existence of reneging prevents the triviality of the problem, which means the adoption would eventually be diffused to the entire population. Another extension is the structure of the social network. As a function defined on R, the real domain, the hidden assumption in Bass model is thus that the population can be divided infinitesimally, and that the group of adopters as a whole affects the group of non-adopters. This assumption can be relaxed by introducing a discrete network structure in the population. The infinitesimal assumption is replaced by indivisible vertices representing individual consumers. The links between vertices is simply defined as connections and communications between

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individuals. The rationale for this improvement is that the number of links of one individual should always be limited. The demand propagation process then becomes the dynamic diffusion process on a network. The mathematical tractability of such a problem is believed to be lower than the differential Bass model. A typical diffusion process in a network structure can be seen in Fig. 8.2, where the vertex in the top left corner is assumed the first adopter and the probability of diffusion is assumed one. In each period, only the vertices with a direct link with one of the adopters will turn into an adopter. In this example, it takes 8 periods for all vertices to adopt. There are three network models typically used to describe a social network (Barabási and Pósfai 2016). The random network is defined as a network where all links are created randomly, and can be generated as such. The small world network is defined as the average path length between two vertices proportional to the logarithm of the number of vertices in total. It can be generated by rewiring the links in a ring lattice with a uniform distribution. Lastly, the scale-free network is a network model such that the vertices with more connections have higher probabilities of making connections to new vertices.

Fig. 8.2  Demand diffusion in a discrete network

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8.2 Forecasting Forecasting is defined as the estimation of future events and probabilities based on acquired information and causal relationship. For instance, in time series forecasting (Hyndman and Athanasopoulos 2014), the event to be forecasted is the quantity that is related to a future time point or interval. The information is quantities observed in the previous epochs, e.g., the sales figures in previous months; and the causal relationship, defined in a general way, is between quantities in the past and future epochs. For instance, an increase in the sales last month leads to an increase in this month. From this definition, we can conclude that forecasting is also a dynamic process that involves constantly updating information, evolving knowledge, and refining predictions. Forecasting is essential in a number of aspects of operations management, e.g., production planning, capacity decision-making, and stock optimization. In a supply chain, at the upstream of the decoupling point, the production and replenishment is driven by forecasting. Therefore, the dynamic change in inventory can be seen as a direct result of the performance of forecasting. At the downstream of the decoupling point, production and service is triggered by orders only, but forecasting, especially long-term forecasting, still plays an important role in the decision-making of appropriate capacity level. The dynamic characteristics of forecasting is very well exploited in existing operations management literature, where the forecasting mechanism is represented by a signal filter that transfers the original data series into the forecast series. This filter is then implemented in other applications such as production and inventory control. The advantage is that it provides a baseline for the discussion and the forecasting methods can be successfully parametrized. One simple example is the “simple” exponential forecasting, where the new forecast is a weighted average of past original data and forecasted data. The weights, usually represented by α and 1 − α, can be seen as a tuning parameter, and discussions can be made on tuning α to improve accuracy and utility. Another example is the diffusion model introduced in §8.1. Although it is essentially a model for demand propagation, the equivalence can

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be easily seen between demand forecast and a corresponding estimation problem, i.e., how to infer the parameters p and q given observations of demand. Nevertheless, this forecasting method is more obviously complex than the simple exponential smoothing. Effectively, all forecasting methods that can be represented by a rigid algorithm can be treated this way. The bad news is that, most of us do not forecast like this. As perhaps one of the most advanced cognitive process, forecasting invokes multiple functional areas in the brain, which are wired by an astronomical number of neurons. Multiple brain functions are involved in finally producing a usable forecast: sensory, memory, synthetic, and judgemental. Even if our brains do work as a machine, they are ones so complex that it is impossible to characterize by several equations. Another, perhaps more practical reason is that when making actual forecasts, few decision makers would be satisfied with the algorithmic outputs without some subjective and judgemental adjustment. For demand forecast as an instance, multiple factors have an impact on future demand that need to be taken into consideration. Some of the factors are quantifiable while some others not, thus cannot be utilized by the computer. Therefore, decision makers have to use their inbuilt cognitive capabilities to process this information. Unquantifiable information and complexity of cognitive process means that judgemental forecasting, after all, is indispensable. Although we do acknowledge that algorithmic forecasting is essential in the automation of forecasting and decision-making, as no human intervention is required in producing forecast and order decisions, it simultaneously deprives our ability to investigate or to exploit the human’s part of forecasting. The traditional way to model forecasting in an inventory system has successfully implemented several commonly used forecasting methods, which can be mathematically formulated. Let x be the state variables of the inventory system, which can include order quantity, inventory level, etc. d is the demand. Let f (·) be the forecasting mechanism and g(·) the inventory system. The evolution of such system can then be represented by the following composite function: x = g(d, f (d))


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In other words, the states of the inventory system are determined by the forecast and the demand. However, as the forecast is affected only by the demand, there is only one input in the function. This can be amended by the more general system: x = g(d, p)


where p is the time series of forecast, or prediction. This model allows us to treat forecast as an explicit input. p and d can be either independent, by assuming two different sources for each signal; or dependent, by letting p = f (d). Figure 8.3 shows the structure of an inventory system with or without independent forecast input. Such an amendment does not only possess theoretical innovations. In operations management, forecasting is often viewed as essential information. It is essential because we need to make almost all kinds of decisions based on forecasts; and it is information because it is not yet the final decision and cannot be translated directly to the final operational or financial output. In the literature of forecasting, it is customary (and oftentimes understandable) to use accuracy as a measure of good or bad forecasts. However, when it comes to implementing forecasts to decision-making, the following question should be always asked first—does accuracy equal to welfare? To put it mathematically, suppose we have an accuracy measure ma (d; p) which increases with the forecast deviation |d − p|, and becomes zero when p = d. Then under the governance of

Fig. 8.3  An inventory system model with independent forecast

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the inventory system (8.4), does ma have a positive relationship with the utility measure mu (x)? There is ample evidence (Flores et al. 1993; Timmermann and Granger 2004; Syntetos et al. 2010) that suggests that such relationship may be absent in some settings. For instance, the variance of order quantity is an important performance measure of the inventory system, and is often used to measure the bullwhip effect in supply chains. The order variance is optimal when minimized, so that the order or production quantity can be smooth and levelled. The error of forecast contributes partially to this variance, which means that accurate forecast helps to reduce the order variance. On the other hand, we can see that the variance of forecast is another important factor. It often contradicts with accurate forecast; since in order to reduce the variance of forecast, one has to create a smooth, rather than accurate, forecast. Similar phenomena can be found in various scenarios, where accurate forecasts are not always preferred. However, to date we do not have a guideline or framework to investigate, categorize, or comprehend what kind of system structure and utility measure are responsible for such deviation. More research in this direction is definitely required.

8.3 Production and Inventory Control Production and inventory control refers to the decision-making process in production and order quantity to achieve a certain economic consequence in ordering, production and inventory holding activities. It is an interesting subfield in operation management where the dynamical modelling approach has been most maturely applied. There are good reasons for it, as this problem can be effectively modelled as a dynamical system, which is stimulated by the external demand, sales or consumption signal. The state variables, such as production rate and inventory level, are connected by a number of fundamental equations, and they change over time in the value. The core assumption here is that the variables do have a temporal relationship, such as the possibility to carry unused inventory to the next period. When such conditions are not met, i.e., when the inventory can be kept only for one period due to

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short shelf life or obsolescence, then such problem can be dealt with in a static manner, as in the Newsvendor model. In this section, I will briefly introduce the impact of two issues that have recently arisen in understanding the dynamic inventory system, namely, constraints and time-delay. They often have a negative impact on the tractability of the problem, however, they are able to offer deeper and more enriched insights in a more realistic setting.

8.3.1 Constraints in Inventory Systems It is somehow tricky yet reasonable that in any real system, the values of state variables have a limit. In a spring-block system, there is a minimal distance between the block and the wall, which equals to the minimum length of the spring. In the celestial system, the structural stability of celestial bodies needs to be considered, which poses a limit to the tidal forces they receive. In a production–inventory–transportation system, such limits appear almost everywhere. For the inventory level, it bears an upper limit, which is the maximum inventory that a warehouse can hold. In addition, the actual level of inventory holding cannot be negative. Further, when the inventory record cannot be negative (sometimes negative inventory is recorded as a backlog), it is sometimes referred to as lost sales (Bijvank and Vis 2011), which can be found in multiple contexts, especially in retail. For the production/order quantity, the upper limit can be understood as the capacity of the production or the availability of raw materials (Ponte et al. 2017), whereas the lower limit is the minimum batch size to produce or to order. Specifically, an order cannot be lower than zero because very few supply chains would allow a return, at least freely (Wang et al. 2014). Likewise, the transportation is constrained by the transportation capacity, e.g., the number of trailers and drivers. The mathematical difficulty that the constraints pose to the analysis is that it turns a linear system model to nonlinear, which is often more difficult and complex to analyse. A linear system model is one with only additive and scalar multiplicative operations. It possesses a number of desirable properties due to its simplicity. For instance, when the input

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is constant, there are only two components in the output—an exponential function and a sinusoidal function. When the input is stochastic, there is a linear relationship between the variance of the output and the input. Lastly, such model can always be represented by a matrix. It is elegant, concise, with perfect tractability and predictability. However, it might not be very realistic, as linearity or approximated linearity can only be found in a tiny proportion of instances. The governing force of celestial movement is not linear, as the gravity is linear only to the inverse of the distance squared; in economics, the cost function is often not linear either, due to the so-called marginalization effect. The damage that the analytical attempt suffers from nonlinearity is catastrophic. Firstly, the behaviour of the model is no longer predictable. Randomness arises from constant input, and an infinitesimally small change in one of the variables or parameter may turn into a drastic divergence sometime later. This is the so-called chaotic effect or butterfly effect that can be seen from Fig. 8.4, derived from a simple nonlinear model—the logistics equation, xt = µxt−1 (1 − xt−1 ). Unfortunately, constraints imply nonlinearity as a linear system requires that all the variables in the model are unbounded. A physical limit to a variable is not a linear operation, as it requires taking a

Fig. 8.4  Bifurcation map of the logistics equation, x0 = 0.5

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maximum or minimum between the variable and a constant, or two variables. Interestingly, similar to Fig. 8.4, a bifurcation pattern can be found in the constrained inventory system (Fig. 8.5, see Wang et al. 2012, for details). The changing parameter γ is the work-in-process feedback, and the order quantity cannot be less than zero. The implication brought about by nonlinearity is enormous. Theoretically, this puts an end to any attempt seeking for a universal solution to all nonlinear models. It is accepted that each type of nonlinearity is so different, that only an ad hoc analysis will be available. Managerially, people used to think, under the assumption of linearity, that all errors are containable and predictable. If the input data or the control parameter were only several decimals away from the real ones, the actual evolution of the variables would hardly make any difference from the theoretical prediction. However, the nonlinearity in inventory systems has led to this extreme sensitivity of variable and parameter values, such that even the slightest deviation will change the behaviour and the fundamental characteristics of the system, i.e., the butterfly effect. Therefore, we must ask ourselves, before applying the linear results, that whether it is safe to omit all the nonlinear factors.

Fig. 8.5  Bifurcation map of a constrained inventory system

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8.3.2 Random Lead-Time In an inventory system or a supply chain system with multiple echelons, the most prominent delay in time is that needed to move items from one location to another. Depending on the distance of the locations and the transportation mode used, the duration of such time often vary by hours, days, weeks, or even months, and only under very rare circumstances can such variation be safely omitted. Other delays that might be observed in the inventory system include the processes of order issuing and fulfilment. Mathematically, the delay is represented by an equation with a difference in the time point: yt = xt−τ


which means that the value of y at t equals to the value of x at t − τ . In other words, it takes a time span of τ periods to let the value of x be passed on to y. When x is the order quantity and y is the arrival quantity, τ is effectively the lead-time, i.e., the time difference between placing an order and receiving it. There are two fundamental assumptions in Eq. (8.5). Firstly, the quantities between the shipment and arrival are always equal, an assumption (rather than a law) that is sometimes referred to as the logistics conservation. One should be able to detect the falsehood of this assumption immediately, since losses and shrinkage are bound to occur during transportation. We mainly discuss the second assumption in this subsection that it always take τ periods for an order to arrive, a.k.a., constant lead-time. In reality, the lead-time is not a constant length in time due to the various factors that can affect the transportation process. Things could go wrong in the beginning—the supplier may not have sufficient stock to replenish the orders received; there may not be enough workforce or equipment for loading, unloading, or transport; congestion may occur on the road; and finally, when it comes to international logistics, the delay for custom inspection will be highly volatile. These are all contributors to random lead-time—a transportation delay that could take several possible values in the duration. The

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random delay poses great difficulty to the analytical investigation to the dynamical system. Most, if not all, of the above-mentioned factors are external to the focal business, thus the lead-time can be modelled as an exogenous random variable. A case even more intriguing is when the lead-time is dependent on some other system variables, e.g., the inventory level. This is quite analogous to expedition in logistics practice, where a swifter transportation mode is used when the inventory level is low, so that a quicker replenishment can be made, and when the stock is sufficient, a slower but cheaper transportation. In this case, the leadtime will still be random, but it is determined by another endogenous random variable. A phenomenon that naturally arises with stochastic lead-time is order crossover, which means that orders are not received in the same sequence as they are placed. Some models with stochastic lead-time do not consider order crossover, which makes sense only when the transportation capacity cannot be split for multiple orders. Meanwhile, it is generally believed that models with order crossover are more difficult to analyse than the ones without.

8.4 Conclusion In this chapter, a selected number of applications of the dynamically modelling approach in operations management are introduced. The intention is to show the suitability to model the problem as a dynamical system in certain cases. To summarize, dynamical modelling is a powerful analytical tool when certain conditions are met, including static system structure, heuristic decision-making, and iterative progression. Applications of the dynamical system approach can be expected to deepen our understanding and smooth the practice of operations management in these perspectives. Nevertheless, we do acknowledge that there are cases that are difficult for dynamic models to demonstrate competency. Examples include volatile supply chain structure, gaming behaviour, and optimization.

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References Barabási, A.-L., & Pósfai, M. (2016). Network science. Cambridge: Cambridge University Press. Bass, F. M. (1969). A new product growth for model consumer durables. Management Science, 15(5), 215–227. Berridge, K. C. (2009). Wanting and liking: Observations from the neuroscience and psychology laboratory. Inquiry, 52(4), 378–398. Bijvank, M., & Vis, I. F. (2011). Lost-sales inventory theory: A review. European Journal of Operational Research, 215(1), 1–13. Box, G. E. P., Jenkins, G. M., & Reinsel, G. C. (2008). Time series analysis: Forecasting and control (4th ed.). New Jersey: Wiley. Brehm, S. S., & Weintraub, M. (1977). Physical barriers and psychological reactance: Two-year-olds’ responses to threats to freedom. Journal of Personality and Social Psychology, 35, 830–836. Driscoll, R., Davis, K., & Lipetz, M. (1972). Parental interference and romantic love: The Romeo and Juliet effect. Journal of Personality and Social Psychology, 24(1), 1–10. Flores, B., Olson, D., & Pearce, S. (1993). Use of cost and accuracy measures in forecasting method selection: A physical distribution example. International Journal of Production Research, 31, 139–160. Ho, T.-H., Savin, S., & Terwiesch, C. (2002). Managing demand and sales dynamics in new product diffusion under supply constraint. Management Science, 48(2), 187–206. Hopp, W., & Spearman, M. (2011). Factory physics (3rd ed.). Long Grove: Waveland Press. Hyndman, R., & Athanasopoulos, G. (2014). Forecasting: Principles and ­practice. Melbourne: OTexts. Kumar, S., & Swaminathan, J. M. (2003). Diffusion of innovations under ­supply constraints. Operations Research, 51(6), 866–879. Ponte, B., Wang, X., de la Fuente, D., & Disney, S. M. (2017). Exploring nonlinear supply chains: The dynamics of capacity constraints. International Journal of Production Research, 55(14), 4053–4067. Syntetos, A. A., Nikolopoulos, K., & Boylan, J. E. (2010). Judging the judges through accuracy-implication metrics: The case of inventory forecasting. International Journal of Forecasting, 26, 134–143.

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Timmermann, A., & Granger, C. W. (2004). Efficient market hypothesis and forecasting. International Journal of Forecasting, 20(1), 15–27. Wang, X., Disney, S. M., & Wang, J. (2012). Stability analysis of constrained inventory systems with transportation delay. European Journal of Operational Research, 223(1), 86–95. Wang, X., Disney, S. M., & Wang, J. (2014). Exploring the oscillatory dynamics of a forbidden returns inventory system. International Journal of Production Economics, 147, 3–12. Worchel, S., Lee, J., & Adewole, A. (1975). Effects of supply and demand on ratings of object value. Journal of Personality and Social Psychology, 32(5), 906–914.

9 Systems Thinking, Engineering and Dynamics in Modern Supply Chain Management Mohamed Naim, Jonathan Gosling, Junyi Lin and Matthias Holweg

9.1 Introduction In this chapter, we specifically focus on the role of Systems Theory in the development of modern supply chains, and we argue that logistics owes much to this very school of thought. Systems thinking (by definition) requires a holistic approach to problem solving and thus brings together different disciplines such as engineering, management and social sciences—as commonly found in logistics systems. The holistic M. Naim (*) · J. Gosling · J. Lin  Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] J. Gosling e-mail: [email protected] J. Lin e-mail: [email protected] M. Holweg  Saïd Business School, University of Oxford, Oxford, UK e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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approach to problem solving has been summarised in various forms, most notably by van Bertalanffy (1956) as General System Theory, but more recently has also strongly influenced Business Systems Engineering (Watson 1994), Business Process Re-engineering (Johansson et al. 1993), and Supply Chain Management (Cooper et al. 1997). This chapter reviews the significant body of literature on the systems approach, and illustrates not only how deeply engrained systems theory has become in supply chain management, but also shows its potential application in different scenarios.

9.2 Systems Thinking in Management Research The German physicist Koehler gave first impulses towards a systems theory in his work on ‘Gestalten’ and on ‘Open Systems’ (Koehler 1924, 1938), yet the early ‘system thinkers’ met strong resistance from traditional sciences, as their central concept of the ‘whole being more than the sum of its parts’ was widely rejected by the scientific community. Thus, it was not until 1968 that ‘General Systems Theory’ (GST) was formally proposed by the biologist Ludwig von Bertalanffy. Bertalanffy’s argues for a ‘holistic’, whereby the whole cannot be disassembled and analysed in its component parts without the context of the entire ­system—contrary to the traditional ‘reductionist’ view of research. He refers to the term ‘system’ as an ‘arrangement of entities related in such a way as to form a unity or organic whole’ (Bertalanffy 1973). Parallel to these developments, research extended into other areas which became core to systemic thinking: cybernetics, which was originally derived from the control theory and led to the introduction of the concepts of ‘feedback’ and ‘homeostasis’ (Wiener 1948), and the concept of ‘information’ was formalised by Shannon and Weaver (1949), building on Szilard’s (1929) initial work on entropy. Ackoff expanded the systems approach beyond the natural sciences by stating that it not only applies to living or organic entities, but also to anything that may be conceptualised as a system (Ackoff 1961)—in particular, organisations. In 1971, Ackoff criticised the lack of organisation of systems concepts and

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proposed a 32-point ‘system of systems concepts’ (Ackoff 1971), which has become a major point of reference ever since. Systems theory since has migrated into many other disciplines, such as business, social sciences, mathematics and education, yet its application has not been without criticism and pitfalls, which are beyond the scope of this chapter. Instead, we will focus on the development of systems theory in organisation theory and management. Here, the systems approach can be the basis for integration by providing a view of the total organisation in interaction with its environment and for conceptualisation of relationships among internal components or subsystems (e.g. Selznik 1948). Systems concepts provide the basic frame of reference for the development of contingency views of organisations and their management (Kast and Rosenzweig 1981). Based on the ‘three pillars’—Scientific Management, Administrative and Bureaucratic models— they describe the development of organisation and management theory. The economic-technical systems approach is concerned with the establishment of normative models of managerial and organisational behaviour for maximising efficiency, whereas behavioural sciences focus on the human aspects in organisations (see for example the Hawthorne experiments (Mayo 1949; Roethlisberger and William 1939), the MIT Beer Game experiment (Sterman 1989, 2000) or Emery and Trist (1960) and van Bijsterveld and Huijgen (1995) on socio-technical systems). Within a management context, systems concepts have been applied as early as 1950. Ackoff (1961) for example experimented with an operations research point of view, Simon (1960) applied systems concepts to the managerial decision-making, and Beer (1972) transferred the cybernetics concepts to management. Since then, the term GST evolved into a range of similar and related concepts within the management context: ‘System(s) Theory or Thinking’ (Checkland 1999; Emery 1981), ‘System Analysis’ (Kramer and De Smit 1977), ‘System Dynamics’ (Forrester 1961; Legasto et al. 1980) and ‘Business Control Systems Engineering’ (Parnaby 1995; Towill 1997b).

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9.3 Spectrum of System Types Systems theory has taken a wide range of forms and concepts, developed because of applications in a range of different disciplines. But remembering that GST was originally developed to aid communication between disciplines, we draw analogues between different concepts towards a unified framework for logistics research. Supply Chains are potentially highly complex and, at the most fundamental level, consists of people (and their attitudes), a financial and contractual system, equipment and other technologies, as well as methods and the supporting organisational structures. By viewing supply chains as a system, which encapsulate flows and the associated organisational, attitudinal, technological and financial subsystems, there is a need to develop suitable measures of performance so that the ‘system’ acts as a whole. In recent years this has led to the concept of business processes (Hammer and Champy 1993; Johansson et al. 1993; Watson 1994) or, in Lean Thinking parlance, value streams (Womack et al. 1990; Womack and Jones 1996). In addition, the ability to survive in a constantly changing environment means by necessity the ability to change, which has led to an increased interest in change management and in learning organisations (Senge 1990; Senge et al. 1999). If the earlier concepts are using a system analytical approach and a ‘hard’ approach, the latter is agency oriented with a ‘soft’ approach. Activities, mechanisms and decision rules must take into account the broad spectrum of ‘soft–hard’ systems that characterises logistics (Towill 1988) as given in Fig. 9.1. Also in Fig. 9.1 we have added the relevant domains from the Cynefin framework (Kurtz and Snowden 2003; Snowden and Boone 2007). Cynefin, the Welsh word for habitat, is a phenomenological framework that allows managers to determine the type of environment they are in following which they may ascertain the appropriate tools and techniques to exploit to ensure adequate interventions. Cynefin has five different domains of which those pertinent for this chapter are ‘simple’ (where cause and effect is easily discernible and predictable), ‘complicated’ (where again it is easy to determine and forecast cause

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(Quantitative Approach)

(Qualitative Approach)

Research Methods -

Modelling, Control

Soft Systems Methodology,


Theory, and Simulation

Interviews and Observation

Systems Approach



Cynefin domain





Fig. 9.1  Spectrum of systems approaches

and effect but they are separated by time and space) and ‘complex’ (wherein cause and effect patterns are not apparent until after the event and hence it is not possible to predict them in advance). The Cynefin framework also presents the ‘chaos’ and ‘disorder’ domains but they are beyond the scope of this particular chapter. An example of a soft system could be a group of people who interact through communication and may (or may not) have a shared understanding of the group. To understand and document such a soft system requires social science methods to extract perceptual information (from internal group members as well as external observers) and to model the system through narratives, either verbally or visually. Such models are therefore bound by the subjective opinions of their members, and results may change as soon as a group member is replaced. Cause and effect relationships are discernible after an event but are difficult to predict (Kurtz and Snowden 2003). At the other extreme we have perfect ‘machines’ that obey Newtonian laws and are purely deterministic. Model building is based on theoretical assumptions and empirical quantifiable data, requiring techniques derived from traditional engineering discipline to analyse and synthesise such a system. Cause and effect is easily determined and predictable (Kurtz and Snowden 2003). Such models tend to have a high dependency on initial assumptions, thus any ‘hard fact’ solutions need to be analysed within these settings. Or as Fielding and Fielding (1986, p. 12) argue, ‘[..] ultimately all methods of data collection are analysed

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‘qualitatively’, in so far as the act of analysis is an interpretation, and therefore of necessity a selective rendering’. Supply Chains tend to span the entire hard–soft spectrum. Various methods and tools have been developed to cover this spectrum and may be applied to logistics management. The ‘soft’ end of the spectrum has seen the emergence of Systems Thinking. In Cynefin terms, this relates to the ‘complex’ domain. Narrative forms of sensemaking are best exploited here, hence systems thinking approaches may be used, most notably soft systems methodology (SSM) as proposed by Peter Checkland in the early 1970s to analyse and design information human activity systems, with ‘rich pictures’ tools and CATWOE analysis provide us with the means to manage our situation (e.g. Mello et al. 2017). Other tools available to systems thinking are influence diagrams, or causal loop diagrams. At the other end of the spectrum we have Systems Engineering. This relates to the ‘simple’ domain of the Cynefin framework. Classically this has been developed from continuous and discrete control theory commonly applied to the engineering of hardware artefacts (see e.g. Simon 1952). Axsäter (1985) concludes that control theory ‘illustrates extremely well dynamical effects and feedback’ but is limited when representing nonlinearities such as sequencing and lot-sizing issues. Discrete modelling can represent the structural nature of many logistics systems, yet it has disadvantages as the mathematics can be lengthy and tedious to manipulate, and the results are dependent on the quality of the initial assumptions about the system. Nevertheless, in an operations context classic industrial engineering tools and techniques come to the fore, with the use of such tools as Pareto or ABC analysis, fishbone diagrams and linear programming (e.g. Bicheno and Holweg 2016). Bridging the gap between soft and hard systems is System Dynamics, which Coyle (1977) defines as an extension to conventional management science and operational research. He points out that system dynamics is not an optimisation tool, nor does it deal with stochastic processes of queuing and decision theory, yet it addresses problems of controllability and integrated policy design within complex management systems. It provides, usually via the application of simulation studies, a platform by which the tools, techniques and methods from

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Systems Thinking and Systems Engineering may be combined. System Dynamics was originally proposed by Jay W. Forrester in the late 1950s (Forrester 1961) as ‘Industrial Dynamics’. Forrester studied the dynamic behaviour of information feedback systems and emphasised the multiloop, multi-state, nonlinear character of real-life feedback systems. System dynamics was developed as a way to analyse these complex systems, which could not be addressed using only deterministic tools (Forrester 1971) but at the same time providing quantifiable evidence of system performance usually missing from soft approaches. System dynamics has been applied to a great variety of management problems (Legasto et al. 1980) synonymous with the Cynefin framework’s ‘complicated’ domain. Most importantly for this however is the work on the dynamics in logistics and supply systems (e.g. Towill 1997a; Christopher 1992), which extends the work by Forrester (1961) and Burbidge (1984).

9.4 Logistics and Supply Chain Systems To aid our analysis and arguments in this chapter we shall focus on logistics systems. The UK Chartered Institute of Logistics and Transport actually defines logistics as ‘[..] the time-related positioning of resource, or the strategic management of the total supply chain’. In this sense, a logistics system is defined within its relevant environment: the wider supply chain system. While it would be beyond the scope of this chapter to undertake a full review of supply chain management, we shall concentrate on a particular issue of supply chain dynamics to show the extent to which the systems approach has contributed to supply chain management. As pointed out, much of the pioneering work into aspects of supply chain dynamics was undertaken by Forrester (1958, 1961). Forrester revealed a number of important behavioural features of the supply chain model that were concluded as having relevance to real-world supply chains:

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1. Demand in the marketplace becomes a delayed and distorted order pattern moving upstream through a supply chain. At any one point in time, processes in various companies in the chain may be moving in different directions to each other and to the market. Also, supply chain designs tend to ‘amplify’ marketplace variations. The magnitude of the variations in orders placed on the factory is greater than the variations in marketplace demand. Furthermore, supply chain designs can introduce ‘periodicity’, or rogue seasonality which can be misinterpreted as a consequence of seasonal variations in the marketplace, rather than a property of the supply chain design. 2. Attempts to reduce poor supply chain dynamic behaviour can exacerbate the problem. Counter-intuitive behaviour often occurs because the causes of the behaviour are obscured from the decision-makers in the chain. Consequently learning opportunities are restricted. Point 1 above has historically been termed ‘The Law of Industrial Dynamics’ (Burbidge 1984) but the same phenomenon has more recently been described as ‘bullwhip’ (Lee et al. 1997). Bullwhip is an important measure as it is symptomatic of a poorly performing supply chain (Jones and Simons 2000). Bullwhip is a surrogate measure of production adaptation costs (Stalk and Hout 1990) and implies the inclusion of ‘just-in-case’ stock holding to buffer against uncertainties. Evidence in many forms suggests that the ‘bullwhip’ effect and Forrester’s empirical conclusions are highly applicable to the vast majority of supply chains (see e.g. McCullen and Towill 2001; Holweg and Pil 2001). The ability to recognise the ‘bullwhip’ effect, its impact on business and supply chain performance and ways to eliminate or cope with it have been a key issue in a number of current management approaches including, Time Compression (Stalk and Hout 1990), Lean Thinking (Womack and Jones 1996), Mass Customisation (Pine 1993), Supply Chain Management (Houlihan 1987) and Agile Production (Kidd 1994). Naim and Towill (1994) have defined a supply chain engineering lifecycle framework by which supply chain dynamics may be detected, understood and documented, reasons for its causes identified, and solutions defined and implemented. This requires a holistic approach

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to supply chain engineering, bringing together the different strands of systems theory. The methodology, particularly the analysis phase, owes much to Parnaby (1979) who made a significant contribution to applying systems theory to the control of discrete manufacture viewing it as a problem of flow processes as normally associated with the chemical industry. Based on Parnaby’s approach it is pivotal to the methodology that the system is designed top-down but implemented bottom-up. Figure 9.2 shows the overlapping of systems thinking, system dynamics and systems engineering brought together in the lifecycle process from need identification and problem definition through to implementation. The first and final phases are qualitative in nature. The first phase is related to acquiring sufficient intuitive and conceptual knowledge to understand the structure and operation of a supply chain. The final phase relates to change management. The middle two phases are associated with the development and analysis of mathematical and

Fig. 9.2  Utilising systems theory during supply chain engineering lifecycle

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simulation models. The next section discussed this framework through a series of three vignettes, which illustrate the connections and theoretical approaches through the lifecycle.

9.5 Illustrative Examples Applying Systems Theory During the Engineering Lifecycle 9.5.1 Vignette 1—Systems Thinking in the Shipbuilding Sector Linking to the systems thinking aspects of the framework, a study in the shipbuilding sector has been undertaken to understand the problems associated with the coordination of supply chains and to reveal insights into opportunities for improvements based on the application of SSM (Mello et al. 2017). The motivation for carrying out the study was to tackle the coordination problems which cause project delays and longer delivery time in shipbuilding projects. Current project management techniques were felt not to be working in terms of effectively coordinating design and production activities across the supply chain, so a team was established to apply SSM tools and techniques. SSM helps to support the exploration and analysis of messy problem situations in the real world where there is a lack of problem definition (Checkland 1981). Such types of problems are common in ‘humanactivity systems’, where each person may pursue their own objectives instead of the objectives set by an organisation. The aim is to capture the real-life richness of details and impressions to build SSM models which are used for comparison and debate. SSM was initially proposed by Checkland (1981), and the approach was developed through a series of further texts (e.g. Checkland and Scholes 1990). Our study included two focal companies, a ship designer and a shipyard. These companies are jointly responsible for developing designs and producing sophisticated and customised vessels that operate in offshore oil and gas platforms. A key area of focus was the

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interdependences between activities carried by these companies in a shipbuilding project, and the departments inside each company. The SSM application incorporated extensive data from interviews, facilitated workshops and archival documentation, and the core modelling/stakeholder team guiding the SSM application were four academics and three practitioners. This included the Managing Director of the design company, the Supply Chain Manager and the Engineering Manager. Facilitated workshops helped to further discuss problems identified during interviews and to bring insights about possible changes. These facilitated workshops were structured as a debate in which participants were invited to contribute with their opinions about various alternatives to improve coordination, which also helped the team to model the situation (Franco and Montibeller 2010). All the data were collected and analysed by applying the soft systems methods proposed by Checkland and Scholes (1990), namely Customer, Actors, Transformation, Owner, Weltanschauung (worldview), and Environmental constraints (CATWOE), root definition, rich picture and soft systems model. An important part of the analysis was the rich picture, which helped to describe and explain the problem context to the different stakeholders. Figure 9.3 shows the perspectives of different actors, both in ship design processes and at the shipyard. It is possible to see from this representation the complex interplay between the actors, and potential tension points as the project progresses. Based on the different phases of the SSM, several alternatives were then proposed to improve coordination of the supply chain, and a list of potential changes was developed. This list was distributed among the participants, and it helped to trigger the debate so that different stakeholders would seek to ‘accommodate’ meaningful improvement actions where different people have different worldviews. Finally, the alternatives were summarised into seven general principles that can help define the role of individual companies’ in coordinating supply chains: 1. Systematise requirements and reuse solutions 2. Develop/maintain production capability 3. Collaborate with suppliers 4. Integrate engineering and production

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Fig. 9.3  Rich picture of a shipbuilding supply chain (Adapted from Mello et al. 2017)

5. Structure a lessons-learnt process 6. Enable joint project management 7. Extend the use of IT systems.

9.5.2 Vignette 2—System Dynamics for Conceptual Model Development To illustrate how systems dynamics may be used, we draw on a study by Wikner et al. (2017), which utilised system dynamics for modelling and analysing a hybrid Push-Pull production inventory system. Although

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such a hybrid system has been adopted in many industries, such as steel (Perona et al. 2009), chemical (Sharda and Akiya 2012) and agricultural machines manufacturer (Kober and Heinecke 2012), many of these case studies provide very little basis for scientific generalisation from the System Dynamics perspective, and decisions are often taken without the support of a rational model (Perona et al. 2009). A generic dynamic model of a production control system that combines forecast-driven (FD) and customer-driven (CD) systems to balance cost efficiency and customer responsiveness was developed, and this was benchmarked against well-established Inventory and Order-based Production Control System, i.e. IOBPCS family archetypes (Lin et al. 2017) and then verified via simulation. This well-established family of production control systems gives a general structure and form for analysis. System Dynamics has a great advantage of modelling and analysing the dynamic cause-and-effect relationship between decisive factors, such as the inventory level and the change of potential demand rate. Also, feedback loops that develop each variable individually can be established (Forrester 1958). The interactions, behaviour and interdependencies between different driving factors and subsystems in a bounded structure can be explored (Senge and Sterman 1992). Based on System Dynamics principles, control block diagrams, normally associated with mathematical control theory, can be used in which the principal parts or functions are represented by blocks connected by lines that show the relationships of the blocks. The block diagrams are useful to describe the overall concept of a complex system without concerning the details of implementation, which allow for both a visual and an analytical representation within a single entity. Two subsystems need to be modelled within a hybrid system: the forecast-driven and goods-based supply system (FDGBSS) and orderdriven service-based supply system (CDSBSS). Figure 9.4 reports the entire System Dynamics model in a block diagram form. Regarding the FDGBSS, it can be modelled by utilising the Automatic Pipeline, Inventory and Order-based Production Control System (APVIOBPCS) archetype, since it is a typical MTS system based on forecast to replenish the finished good inventory (FGI), i.e. the CODP inventory termed as AINV. For each replenishment period,

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Demand information Forecast Driven Goods Based Supply System AVCON




DINV + –

DWIP + –


1 TI

+ + +

1 TW


– +







AINV d dt


+ –



+ + + –




Delay COMRATEFD – + TPFD + –

+ +


– +





Forecast driven (FD)

Customer order driven (CD) CODP

Fig. 9.4  CODPBPCS with full demand transparency (Reprinted from International Journal of Production Economics, 194, Wikner, J., Naim, M.M., Spiegler, V.L., and Lin, J., ‘IOBPCS based models and decoupling thinking’, pp. 153–166, 2017, with permission from Elsevier)

the order rate (ORATEFD) can be calculated as the summation of forecasted consumption (AVCON) smoothed by TA, AINV discrepancies recovery adjusted by TI, and work-in-process inventory (WIP) error recovery adjusted by TW. In addition, the desired inventory (DINV) and desired work in process (DWIP) are estimated to be compared with AINV and AWIP in deciding on the ORATEFD released to production. Furthermore, A and B blocks are nonlinear minimum functions incorporated in the FDGBSS system to avoid negative AINV that usually represents the backlog level in the linear system. Linear setting: A = 0 and B = 0


Nonlinear setting: A = −Min{0, AINV} and B = 1


On the other hand, the CDSBSS system cans be modelled based on the capacity allocation (REORATE) and order book (BL) management policies to determine the customised production start rate (ORATECD). The linear REORATE and BL management policies, represented by Block C and D, can be modelled by a first order smoothing mechanism

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adjusted by TC and TBO (Wikner et al. 2007). Regarding the nonlinear representation, as shown in Eqs. (9.3) and (9.4), the capacity constraints including semi-finite capacity and finite capacity strategies can be incorporated to represent the resources constraints in real customised production scenario: Semifinite capacity strategy: C = Min{Smoothed REORATE, REORATE}, D = 1


Finite capacity strategy: (9.4) C = Min{CAPCON, Smoothed REORATE, REORATE}, D = 0

Where the CAPCON is the maximum capacity availability and ORATECD is determined by different capacity allocation and order book management strategies, although actual order book level (AOB) can be always cumulated as an important system measurement variable for further dynamic analysis. Furthermore, depending on the information transparency level, the AVCON can be determined by end customer consumption (DRATECD) or demand rate in the forecast-driven subsystem (DRATEFD), although Fig. 9.4 shows the case of full information transparency only. Based on system dynamic simulation analysis, we can derive the following insights: • Full demand transparency gives a better overall dynamic performance than limited information transparency strategy for the whole hybrid system in responding to a step demand increase. e.g. less bullwhip level, faster AINV and AOB recovery speed; • Capacity flexibility (e.g. the availability of temporary capacity) leads to the better dynamic performance in terms of less bullwhip and quicker inventory/order book recovery, comparing the corresponding limited capacity availability case; • A trade-off between responsiveness (recovery speed) and stability of the upstream FDGBSS system need to be justified as the change capacity and order book management policies.

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9.5.3 Vignette 3—Systems Engineering in the Semiconductor Industry To demonstrate systems engineering, another study investigated the dynamic performance of the semiconductor supply chains by using continuous control theory (Lin et al. 2017). Utilising the Intel supply chain empirically reported by Gonçalves et al. (2005), as well as the IOBPCS family of models, the study analytically explored the dynamic property of the hybrid Make-to-Stock and Make-to-Order (i.e. MTS-MTO) supply chain structure. Control theory techniques, with sufficient analytical tools, are advantageous for analytically exploring the supply chain dynamics, especially the bullwhip effect (Lin et al. 2017). For the general reader we do not replicate the mathematical equations here but refer readers to Lin et al. (2017). Although Gonçalves et al. (2005)’s model provides insights into lean inventory and responsive utilisation policies, their simulation approach is not able to reveal the explicit relationship between the system’s outputs and the endogenous demand, therefore overlooking the real effects of control parameters. The main objective of the study was to analytically identify the root causes of the bullwhip effect and propose corresponding mitigation strategies. Semiconductor manufacturing is commonly divided into two major phases: fabrication and assembly. Wafers as inputs are taken into a wafer fabrication facility to produce fabricated wafers. Then the fabricated wafers are cut into dies and stored in the warehouse to wait for the assembly process. After passing assembly and test plants to ensure operability, the finished microprocessors are stored in the FGI for customer orders. A three-stage supply chain, including fabrication, assembly and distribution, is thereby created to represent the Intel production operations. Regarding the information flow, the hybrid MTS-MTO information control strategy is implemented in which the assembly work-in-process (AWIP) is the customer order decoupling point inventory (CODP). The downstream assembly and distribution systems are essentially the MTO production in which end customers’ orders pull the available microprocessors from FGI and AWIP inventory. The

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upstream wafer fabrication, however, is characterised by the MTS policy: long-term demand forecasting and the adjustment from downstream AWIP inventory and fabrication WIP (FWIP) inventory to determine the desired wafer production rate. Figure 9.5 reports the stock-flow diagram of the supply–demand feedback process for the Intel hybrid supply chain system. The stockflow diagram is a technique associated with System Dynamics that visualises the major elements and their relationship in a dynamic system, including stock, flow, delay, feedback and nonlinearities elements. A stock variable is measured at one specific time, and represents a quantity existing at that point in time in which may have accumulated in the past, e.g. inventory. A flow variable is measured over an interval of time. Therefore, a flow would be measured per unit of time, e.g. order rate per week. Furthermore, two types of feedback loops exist in the production-inventory system, i.e. reinforcing (R) and balancing (B) loops; the former generates behaviour which takes the variable further away from its initial position, while a balancing feedback loop keeps the variable close to its original position (Fowler 1999; Letmathe

Fig. 9.5  Supply–demand feedback process for Intel’s hybrid MTS-MTO production system (Adapted from Gonçalves et al. 2005)

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and Zielinski 2016). Any movement away from the balancing position is pushed back. The following engineering procedures were applied to gain deep insights into the Intel supply chains: Linearisation and simplification: Assume nonlinearities presented in the system are inactive and thus, the capacity and non-negative order constraints in the original Intel system dynamic model can be removed. Also, removing the system’s physical variables that do not influence the dynamic behaviour, such as die yield rate and line yield rate. Furthermore, as the distribution delay in the semiconductor industry is much shorter than upstream assembly and fabrication, the corresponding echelon can be temporarily ignored. Dynamic analysis: After simplifying and linearising the original nonlinear Intel model, the direct analogues with the IOBPCS family can be observed. That is, the simplified semiconductor supply chain consists of a Variable Inventory and Order-based Production Control System (the VIOBPCS, see Edghill and Towill 1990) without lead time, and a similar APVIOBPCS (Wang et al. 2014) archetypes. As a result, the corresponding recommended system settings can be utilised to benchmark the dynamic performance of the simplified semiconductor supply chain. Continuous control engineering techniques, including transfer function, stability analysis and characteristics equations analysis, can be implemented to explore the underlying mechanisms of bullwhip and inventory variance. Verification: Although analytical results are helpful for gaining insights of the dynamic property, the linear-based system without consideration of nonlinearities may be unrealistic in representing real-world supply chain systems, such as physical and resources constraints and nonlinear policies. Hence, simulation is utilised to verify the simplified semiconductor model by reinstating nonlinearities, which give more robust and traceable analytical results. The study revealed that feedforward forecasting compensation and the CODP inventory correction policy play a major role in the bullwhip effect in the semiconductor hybrid MTS-MTO system, instead of

9  Systems Thinking, Engineering and Dynamics …     155

the production delay/feedback loop usually claimed in practice. Also, semiconductor managers may need to cautiously consider the balance between the cost of keeping an adequate CODP inventory to maintain the mode of MTS-MTO and the cost of supply chain dynamics, due to the fact that the policies’ settings for the CODP are significantly sensitive to inventory variance and bullwhip level. This finding is helpful for practitioners to carefully consider relevant trade-offs when designing their hybrid MTS-MTO system in the semiconductor industry.

9.6 Conclusion We believe that Systems Theory is the core pillar of modern logistics and supply chain management, and it has widely influenced thinking over the last century from Taylorism to Lean Thinking in the present day. We proposed a system-based framework to show the lifecycle of systems-based approaches. This brings together the three main strands of systems theory, namely systems thinking, system dynamics and systems engineering. While the reductionist school of thought is not as prevalent as it used to be, the danger of creating localised optima within certain domains has not been averted. Domain stakeholders, inspired by various management concepts, may create minute systems and optimise them, yet only through realising that different domains offer the same holistic opportunities, the avoidance of suboptimal solutions may be realised. Systems Theory provides clear and structured principles by which to enable communication between these knowledge bases. Vignette 1 showed the value of systems thinking when addressing a messy and unstructured problem scenario—in this case a complex shipbuilding production system—and this was demonstrated through expressing the problem via a rich picture. Vignette 2 shows the potential of systems dynamics modelling and analysis, as well as the potential use of block diagrams. Finally, Vignette 3 shows how the Intel production system can be improved through systems dynamics analysis. We also showed how a stock-flow diagram supported the analysis.

156     M. Naim et al.

Despite its beauty though, using systems concepts in applied research, such as in logistics and manufacturing, demands careful definition of the system under investigation and its environment. The foremost danger is to create local solutions that are not in line with the overall objective of the system. Such localised solutions inevitably would result in suboptimal performance of the total system. The systems-based approaches we have outlined in this chapter help to guard against this danger, and encourage us to analyse problems by seeing the ‘whole’.

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10 Green Supply Chain Management in Asian Emerging Economies: A State-of-the-Art Review Ruoqi Geng

10.1 Introduction: The Growth of Research into Green Supply Chain Management in Asia Environmental issues have emerged as significant factors affecting businesses globally. The majority of products consumed in developed countries have their resources, part of the manufacturing processes and operations facilities in developing countries (Lai and Wong 2012; Tang and Zhou 2012). The process of manufacturing will lead to negative environmental impact including resource depletion and energy consumption (Chen and Zhang 2013). Meanwhile, the growing global awareness of environmental impact is placing an increasing pressure on manufacturers in those emerging economies in Asia, particularly China, Taiwan, India, Malaysia, Indonesia, Thailand and South Korea to comply with environmentally friendly production (Faber and Frenken 2009). R. Geng (*)  Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


162     R. Geng

As a result of rapid industrial modernization and economic growth, manufacturers in Asian emerging economies (AEE) are significantly contributing to their country’s economic growth and play a key role in the global market. However, rapid industrial growth has brought environmental burden for these countries. As the manufacturing sector in AEE is expected to continue its rapid growth in this and the next decade, managerial practices should balance the economic growth and the damage to the environment (Zhu et al. 2008; Lee and Klassen 2008). Therefore, manufacturers should adopt green strategies and environmental practices with their customers and suppliers to reduce the environmental impacts of their products and services (Zhu and Sarkis 2004; Zhu and Geng 2013). Over the past decade, green supply chain management (GSCM) has emerged as a significant environmental strategy within the domain of sustainability, which involves activities ranging from green purchasing to integrating supply chain flow of the whole supply chain with suppliers and customers (Walker and Jones 2012). In particular, according to Zhu and Sarkis (2004), GSCM refers to the comprehensive environmental consideration within the supply chain management, which incorporates the design of product, the selection and sourcing of material, the process of manufacturing, the final product delivery to customer and the recycling and disposal after the useful life of a product. That is why there is a transition from traditional supply chain management toward GSCM with a higher focus on the environmental impact of supply chain activities. This transition from traditional supply chain to GSCM has been influenced by many factors that motivate manufacturers to adopt GSCM practices. Meanwhile, there are barriers that hinder the implementation of the GSCM practices (Porter and Van der Linde 1995; González-Torre et al. 2010). Moreover, there are companies that implement GSCM practices to achieve better supply chain performance (Zhu et al. 2007). In the past few years, there has been a growing interest among researchers and practitioners in exploring the balance between environmental damage and economic growth by adopting the GSCM practices. A number of researchers have studied GSCM in AEE, including the influential factors and its relationship with supply chain performance.

10  Green Supply Chain Management in Asian Emerging Economies …     163

However, as many researchers argued, the GSCM in developing economies is still in the developmental stage. As such, there is a need for theoretical base models for conceptualizing, defining, modeling and testing of hypotheses to apply academic findings to industrial practices (Zhu et al. 2005; Linton et al. 2007; Mohanty and Prakash 2013). In particular, there is a clear academic recognition of the need to summarize and integrate different results from existing literature and to develop a conceptual framework that will help gain a deeper understanding of the influential factors pertaining to the adoption of GSCM and their relationship with supply chain performance (Mitra and Datta 2014; Lo 2014). Moreover, GSCM in AEE represents growing and highly important areas for research, but because it is a new field, there is a need to develop conceptual papers to examine the general phenomenon and the crucial relationships that are manifest in the transition from traditional supply chain management to GSCM. Therefore, this study aims to respond to this need by developing a conceptual framework and hypotheses that highlight and clarify the relationships between influential factors for adopting GSCM and supply chain performance. To achieve this objective, we integrate academic findings through a systematic literature review of GSCM practices with manufacturing sectors.

10.2 Research Methodology We adopted a systematic approach to reviewing the literature (Tranfield et al. 2003; Denyer and Tranfield 2009) for this study. We searched five well-known databases: ABI/INFORM, Scopus, Emerald, Business Source Premier and Science Direct. These five databases index the majority of academic literature in operations management. We had high hit rates for relevant literature of GSCM across multiple disciplines, which was our key consideration for this review. The search included articles with search terms appearing in the title, the abstract and the keywords. As shown in Table 10.1, to avoid artificial limitations and undesirable results, we kept search terms sufficiently broad. We divided the search terms into four groups by country/region and scope.

164     R. Geng Table 10.1  The key words used for searching the literature AND Region/Country GSCM practices AND China India Thailand Malaysia South Korea Indonesia Taiwan Asia Emerging economies

green sustainab* environment*

OR Influential factors practice* activities operation* logistic* production manufacturing adoption

driver enabler pressure influence barrier obstacle preventer

Outcomes performance outcome advantage

*Any string of characters

From this perspective, we categorized words with similar meanings related to influential factors into categories of drivers, enablers and pressures. For instance, to find articles that discuss influential factors, we use “AND” combined with the search terms under region/country and GSCM practices with any search term under the section of influential factors. Moreover, the “*” sign was used at the end of some search terms to expand the scope of the search because some studies used slightly different keywords for the same concept (e.g. operational instead of operation).

10.3 Key Trends in Green Supply Chain Management Research in Asia The search used all combinations of search terms in operations and supply chain management fields and found more than 1000 results from peer-reviewed journals. After crosschecking and removing duplicated results, we had 478 papers remaining. Then we read the title, the abstract and the keywords and applied the three inclusion/exclusion criteria. Following this procedure, we had 117 papers remaining. Finally,

10  Green Supply Chain Management in Asian Emerging Economies …     165

we read the full text of these 117 papers and examined whether their results and insights were relevant to our research questions. After this final screening, we had 59 papers to analyze. We show in Table 10.2, customized data extraction forms that we used on the 59 papers to collect information on author name, year of publication, scope, methodology, findings and the region. Figure 10.1 shows the distribution of papers across 2002 to July 2014. To the best of our knowledge, the first research into GSCM in AEE was reported by Rao (2002). He demonstrated that GSCM practices had been implemented in South East Asia among leading large companies that realized the importance of environmental sustainability by working in partnership with their customers and suppliers. As can be seen in Fig. 10.1, there has been a substantial growth in the literature since 2010. The reason might be due to the adoption of the Bali Road Map in December 2007 as a two-year process to finalizing a binding agreement in 2009 in Copenhagen. The Copenhagen Climate Change Conference took place in 2009 and 192 countries have signed the climate change convention including China, Taiwan, India, Malaysia, Indonesia, Thailand and South Korea. Moreover, half of the reviewed articles focused on Chinese manufacturing sector. This may be due to the Chinese government’s adoption of innovative industrial development approaches such and circular economy in 2008 to balance economic development and environmental burden caused by the manufacturing sector (Huang et al. 2012). As shown in Table 10.2, the dominant method (over 70%) on GSCM in AEE was the questionnaire survey. The majority of papers that used this method investigated the entire supply chain from different manufacturing industries with more than 100 companies (see Table 10.2). This dominance may reflect the fact that the questionnaire survey is an easily applied method to collect information on the application of GSCM in AEE. However, although the questionnaire survey is still the major method to explore GSCM, widespread use of other methods such as interview has started by 2010. For instance, seven papers used case study method on multiple suppliers of large firms to summarize their experiences



Zhu and Cote (2004)


Findings Region


15 South This study highlighted Survey with East that ISO 14001 certified Dillman Asian companies have started method (52 countries implementing GSCM, ISO certified for instance, 79% of the companies) companies were holding awareness seminars for their suppliers, 76% informing the suppliers about the benefits of cleaner production and technologies and 71% guiding suppliers to set up their own environmental programs After adopting GSCM prac- China Case study tices, Guitang Group are (One large maintaining close relationsugar ships with their suppliers; company) obtaining market share through competition by improving product quality and reducing costs

Influential The adoption of Performance Method factors GSCM practices

Rao (2002)


Table 10.2  Summary of the reviewed papers

166     R. Geng




Rao and Holt (2005)

Zhu et al. (2005) X

Zhu and Sarkis (2006)







GSCM practices have posiSurvey with tive influence on economic factor analysis (186 and environmental performance; the moderation companies) effect of quality management and just-in-time program with GSCM adoption caused better environmental performance Greening the inbound funcSurvey with tion and production have Dillman ultimately led to competmethod (52 itiveness and economic ISO certified performance companies) Regulation, export and supSurvey with pliers pressure (external) factor analysis (314 are positively related to GSCM practices companies) GSCM could improve enviSurvey with ronmental performance ANOVA analysis (118 for an individual company and also for the whole companies) supply chain through cooperation with upstream and downstream companies

Influential The adoption of Performance Method factors GSCM practices

Zhu and Sarkis (2004)


Table 10.2  (continued)




15 South East Asian countries



10  Green Supply Chain Management in Asian Emerging Economies …     167



Zhu et al. (2008)

Zhu et al. (2008)


Zhu, Sarkis, and X Lai (2007)






The result shows that the regulation pressure (external) has positively related to GSCM practices in the Chinese automobile industry The electrical/electronics Survey with industry has relatively factor analysis (171 higher levels of GSCM implementation and companies) achieves better performance outcomes than the power generating, chemical/petroleum and automobile industry There is a significant positive Survey with relationship between factor analysis (314 organizational support and the adoption of GSCM companies) practices Medium- and large-sized Survey with organizations are more factor analysis (209 advanced than smaller-sized counterparts on managecompanies) ment support for the adoption of GSCM practices and the requirement for suppliers having ISO certifications Survey with regression analysis (89 companies)

Influential The adoption of Performance Method factors GSCM practices

Zhu, Sarkis, and Lai (2007)


Table 10.2  (continued)







168     R. Geng





Zhu, Sarkis , and Lai (2008b)

Lee and Klassen X (2008)

Lee and Klassen X (2008)


Organizational learning and Survey with management support have factor analysis (213 significant positive relationships with the adopcompanies) tion of GSCM practices This study identified lagging Survey with eco-design practices was factor analysis (171 one of the big challenges to close the supply chains companies) in Chinese manufacturing industry Customer pressure was Survey with positively linked to their factor analysis (142 suppliers’ willingness to participate in GSCM and companies) the regulation plays an important role in motivating these suppliers The internal championing of Case study environmental concerns is with interthe major factors that that view (2 large buying initiated and improved the adoption of GSCM companies) practices

Influential The adoption of Performance Method factors GSCM practices

Zhu, Sarkis, and Lai (2008a)


Table 10.2  (continued)







10  Green Supply Chain Management in Asian Emerging Economies …     169





Zhu et al. (2010)

EITayeb et al. (2010)

EITayeb et al. (2010)





Companies which particiSurvey with pate in green interested factor analysis (132 associations have higher level of adoption of GSCM companies) practices. Moreover, GSCM can play significant role in achieving social, environmental and economic benefits GSCM practices have posSurvey with itive impact on environfactor analysis (334 mental and economic performance companies) Both domestic and internaSurvey with tional regulation, customer factor analysis (132 pressures, social responsibility and business benefit companies) have positively affected the green purchasing The adoption of green Survey with purchasing is positively factor analysis (569 affected by regulations, customer pressures and companies) expected business benefits

Influential The adoption of Performance Method factors GSCM practices

Eltayeb and Zailani (2009)


Table 10.2  (continued)







170     R. Geng




Park et al. (2010)

Chiou et al. (2011) X


This study found 20 drivers and classified them into four categories: supplier management, product recycling, organizational involvement and life cycle management Based on the “circular Case study economy” policy in China with microand ecological modernizalevel and tion theoretic approaches, meso-level analysis (3 IT GSCM practices are possible ways to add value to companies) organizations and supply chains by cost reduction, revenue generation, resiliency, legitimacy and image Through the internal pracSurvey with tices such as greening the Structural suppliers have positively Equation impact on environmental Modelling performance (124 companies) Survey with factor analysis (84 companies with)

Influential The adoption of Performance Method factors GSCM practices

Hu and Hsu (2010)


Table 10.2  (continued)






10  Green Supply Chain Management in Asian Emerging Economies …     171


Diabat and Govindan (2011)



Zhu, Geng, et al. (2011)

Zhu, Sarkis, et al. (2011)




Lin and Ho (2011)







The eco-design has significant Survey with positive effect on the four structured questionnaire types of outcomes (environmental outcomes, economic by factor outcomes, cost reductions analysis (569 and intangible outcomes) companies) Survey (332 The drivers from managecompanies) ment support and regulations have positive impact on the adoption of GSCM practices The domestic government Case study regulation has significant with interpositive impact on compretive panies’ adoption of GSCM structure practices modelling They highlight that GSCM Survey with practices have positive factor analysis (396 impact on economic and environmental companies) performance GSCM practices have posSurvey with itive influence on ecohierarchical nomic, environmental and and non-hioperational performance erarchical analysis (377 companies)

Influential The adoption of Performance Method factors GSCM practices

Eltayeb et al. (2011)


Table 10.2  (continued)








172     R. Geng



Zhu, Sarkis, et al. (2012)

Zhu, Tian, et al. (2012)







The results highlight the Survey with significance of regulatory factor analysis (379 pressure to diffuse the practices adoption by the companies) Chinese manufacturing industry This paper has empirically Survey with proven that the external factor analysis (109 GSCM practices have a positive effect on supply chain companies) performance particularly from the economic and social perspective Their empirical evidence Survey with found internal GSCM factor analysis (377 practices mediated the relationships of the two companies) external GSCM practices (green purchasing and investment recovery) with environmental performance The result shows that imiModelling tation plays a larger role with the than innovation for GSCM bass model practices diffusions

Influential The adoption of Performance Method factors GSCM practices

Zailani et al. (2012)

Zhu, Geng, Sarkis, et al. (2011)


Table 10.2  (continued)







10  Green Supply Chain Management in Asian Emerging Economies …     173





Hajikhani and Bin IDRIS (2012)

Lai and Wong (2012)

Lai et al. (2012)








Findings Region


Taiwan The environmental mission and customer pressure have a positive influence on the adoption of GSCM practices Malaysia All the four driving factors Survey with including environmental multivariate regulations, external stakeanalysis and holders’ pressures, environmultiple ment management system regression adoption and internal analysis (75 strategic motivations have companies) the positive impact on adopting GSCM practices China The customer pressures Survey with have a positive impact on Structural the adoption of GSCM Equation practices Modelling (134 companies) China The adoptions of GSCM Survey with practices have positive Structural impact on economic, enviEquation ronmental and operation Modelling performance (134 companies) Survey with path analysis (194 companies)

Influential The adoption of Performance Method factors GSCM practices

Chan et al. (2012)


Table 10.2  (continued)

174     R. Geng



Miao et al. (2012)

Zhu, Cordeiro, et al. (2012)

Huang et al. (2012)







The management supSurvey with port (an internal factor) factor analysis (165 and customer pressure (an external factor) are companies) positively related to the adoption of GSCM The external factors such Survey with as suppliers’ pressure and factor analysis (162 regulation pressure have significant positive impact companies) on the adoption of GSCM practices Institutional drivers that Survey with affected GSCM practices logistic including ISO 14001, TQEM regression (total quality environmenanalysis(377 tal management), and companies) eco-auditing SMEs from foods and drinks Survey with sector have different factor requirement on green puranalysis (33 chasing for their products companies) (for suppliers environmental certifications)

Influential The adoption of Performance Method factors GSCM practices

Liu et al. (2012)


Table 10.2  (continued)







10  Green Supply Chain Management in Asian Emerging Economies …     175




Kim and Rhee (2012)

Dou et al. (2013) X



Findings Region


Korea This study highlighted the necessity and importance of buying firms’ involvement to help enhance suppliers’ performance because such efforts have a positive influence on the business performance of the supplier firms Korea The critical success factors Survey with for GSCM implementation factor analysis (249 for large manufacturing sectors include (1) commucompanies) nication, (2) top management commitment, (3) data security, (4) training and education and (5) hardware and software reliability China The GSCM practices have Modelling positive impact on enviwith grey-analyti- ronmental and operational performance cal network Survey with Structural Equation Modelling (223 companies)

Influential The adoption of Performance Method factors GSCM practices

Lee et al. (2012)


Table 10.2  (continued)

176     R. Geng




Kuei et al. (2013)

Lee et al. (2013) X



Regulatory, customer and Survey with competitor pressures are factor analysis (132 positively related to the firm’s green purchasing, companies) design-for-environment and reverse logistics initiatives The adoption of self-regSurvey ulatory (e.g. adopting Structural environmentally conscious Equation operations) and voluntary Modelling environmental standard (113 (e.g. adopting ISO 14001 companies) guidelines) approaches positively related to the environmental, economic and operational performance Implementing GSCM pracSurvey tices have positive impact Structural on economic performance Equation Modelling (128 companies)

Influential The adoption of Performance Method factors GSCM practices

Hsu et al. (2013) X


Table 10.2  (continued)






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Xu et al. (2009)



Findings Region


India This study confirms that Survey with both internal (managefactor analysis (114 ment support) and external drivers (from customer) companies) positively affect the adoption of GSCM practices in Indian SMEs India This study analyzed the Survey with significant differences factor of various pressures for analysis (35 GSCM adoption in Indian companies) industries and found that the automobile industry face stiff competition from competitors; the Chemical industry face pressure from regulations; and the textile industry face pressure to create a product that meets strict international standards for export

Influential The adoption of Performance Method factors GSCM practices

Mohanty and X Prakash (2013)


Table 10.2  (continued)

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Wu (2013)

Zhu and Geng (2013)

Wu et al. (2012) X



GSCM have no positive impact on any performance. In particular, eco-design has a significant negative relationship with economic performance due to it requires significant start-up investment, while direct cost savings have yet to be achieved Supplier, customer and interSurvey with nal integration enhance factor analysis (211 both green product and process innovations companies) Export and customer drivers Survey with (external) are two key factor analysis (299 reasons that drive Chinese companies’ implementacompanies) tion of GSCM practices The internal drivers such as Survey with management support have factor analysis (104 positive impact on the GSCM practices companies) Survey with path analysis (396 companies)

Influential The adoption of Performance Method factors GSCM practices

Zhu et al. (2013)


Table 10.2  (continued)







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Mitra and Datta (2014)





Mathiyazhagan et al. (2014)

Survey with factor analysis (82 companies)

Survey with AHP method (53 companies)

Survey with factor analysis


Chang et al. (2013)


Influential The adoption of Performance Method factors GSCM practices


Table 10.2  (continued) Region


Korea Both external and internal pressures have no influence on implementing GSCM practices by SMEs in Korea due to that environmental regulations developed by government are more oriented to regulate large-sized companies Indian manufacturing indus- India tries are experiencing high regulatory and market pressures and have strong internal drivers for GSCM practice adoption India The state of adoption of GSCM practices by Indian firms was still in its infancy, the awareness of environmental sustainability was quite low among consumers and the regulatory framework was also lacking in terms of promoting environmental sustainability


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Lo (2014)

Sivaprakasam et al. (2014)





Findings Region


China The lack of financial Survey with resources, low commitfactor analysis (239 ment and lack of experts at business management companies) levels constitute major management barriers for the adoption of reverse logistics Case study (12 For firms located in the down- Taiwan companies) stream of supply chain, they emphasized more on the practices of green design, purchase and internal environmental management. For firms in the midstream of supply chain, they have more focused on the practice of green manufacturing and logistics India This study identified the Case study criteria involved in the with interadoption of GSCM pracpretive tices including service structure procurement management modelling and technology capability are driving company to adopt GSCM practices

Influential The adoption of Performance Method factors GSCM practices

Abdulrahman et al. (2014)


Table 10.2  (continued)

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Abdullah and X Yaakub (2014) X

Findings Region

Chinese manufacturing sec- China tor are unlikely to embark on end-of-life product reverse logistics practices without external factors such as strict government legislation The level of reverse logistics Malaysia Survey with adoption among Malaysian the Partial Least Square manufacturers is considerably low and only the regression analysis (201 regulatory pressure has a significantly strong influcompanies) ence on the level adoption

Case study with AHP method (5 companies)

Influential The adoption of Performance Method factors GSCM practices




Table 10.2  (continued)

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10  Green Supply Chain Management in Asian Emerging Economies …     183 14 Number of papers

12 10 8 6 4 2 0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014



Fig. 10.1  Distribution of reviewed papers across the period 2002–2014

and analyzed challenges in adopting GSCM. Six out of seven papers (Lee and Klassen 2008; Park et al. 2010; Diabat and Govindan 2011; Lo 2014; Sivaprakasam et al. 2014) reported research conducted on more than two companies. Moreover, there were two papers (Zhu et al. 2012; Dou et al. 2013) that used a modeling approach and focused on the concept of GSCM and decision making.

10.3.1 China as a Focus for Green Supply Chain Management Research This review also focused on five emerging economies (there were no papers focused on Thailand and Indonesia) in Asia including China, Taiwan, Malaysian, South Korea and India (Fig. 10.2) and two studies (Rao 2002; Rao and Holt 2005) took a cross-country focus. Serving as the world’s factory, China has received the highest attention (50%) and researchers mainly focused on the investigation of large, foreign or state-owned manufacturing firms. In this regard, the manufacturing sector in China is under pressure from both international and domestic sources to conserve resources and reduce their environmental impact (Zhu et al. 2010; Lai and Wong 2012).

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4% China 29 Malaysia 8

12% 50% 10%

Taiwan 6 India 7 Korea 6 Other 2


Fig. 10.2  Geographic distribution of the papers reviewed

The papers on Malaysia and Korea primarily focused on green innovation related practices in electrical/electronics SMEs. The reasons might be the country’s industrial base and that 99% of manufacturing companies in these two countries are SMEs (Lee and Klassen 2008; Chang et al. 2012). Although the increasing labor costs in China shifts production to lower cost countries such as Thailand and Indonesia (Devadason 2010; Lim and Ho 2013), we found no papers on Thailand and Indonesia.

10.3.2 Three Trends in Supply Chain Management Research in Asia Figure 10.3 illustrates the growing trend of papers that have focused on three areas including A: adoption of GSCM practices, B: influential factors and C: supply chain performance. The classification is not mutually exclusive; a paper can be in more than one category based on the content (this information can also be seen in Table 10.2). The adoption of GSCM practices (A) has the highest increase: a stable increasing trend from 2002 to 2005, 2006 to 2009 and a higher increase from 2010 to 2013. The literature on influential factors of adoption (B) has grown from 2010 to 2012 with increasing overlap

10  Green Supply Chain Management in Asian Emerging Economies …     185 14 12 10 8 6 4 2 0


2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

A: The adoption of GSCM practices


B: The influntial factors

C: Supply chain performance

Fig. 10.3  Trend of publications on GSCM in three dimensions

with the adoption of GSCM practices. Moreover, the literature on supply chain performance (C) has seen a rise from 2010 and continued to grow at a lower rate than the other two fields. The research on supply chain performance can be seen on the overlapping lines of A and C in all three periods which reflects the inclusion relationship of the study on the adoption of GSCM practices. The adoption of GSCM practices in relation to supply chain performance (A and C) has received higher attention in the early years. One reason might be that only a few manufacturing companies have implemented the GSCM practices in that period, so researchers wanted to identify which practices are worth adopting in order to achieve economic benefit and environmental advantage. However, the influential factors on the adoption of GSCM practices in relation to supply chain (A, B and C) have seen an increasing trend from 2010 onwards although it is still relatively young with the first publication in 2005. Therefore, based on the observation and previous discussion, there is a need to focus on the overlap of the lines A, B and C to explore the GSCM practices from the perspectives of drivers, barriers and the results of adoption on supply chain performance in AEE.

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10.4 Conclusion Remark In terms of further research, the limited empirical evidence on the relationship between GSCM and social performance indicate that more studies are needed in this domain. Although the manufacturing industry in the AEE beat their competitors through cheap labor and economies of scale, they are increasingly encountering the issues of product safety and labor working conditions. Although these practice–performance relationships seem linear, only one of the reviewed papers has observed that GSCM is a “win-win” strategy (Lai et al. 2014). The authors indicated that GSCM practices involve a collaboration that firms and their supply chain partners seek to create value for each other in adopting GSCM practices to entertain performance benefits. Therefore, it will be interesting to examine whether the adoption of GSCM practices only contribute to the focal company’s performance or also bring benefit to their supply chain partners. In addition, further studies can apply these results in less explored regions in the AEE and other emerging economies such as Brazil and Turkey.

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11 Effective Supply Chain Collaboration Jane Lynch

11.1 Introduction Knowledge that companies compete through their supply chains is not a new theory (Christopher 1992; Christopher and Towill 2001). Consequently, there has been a rise in the number of executive training and university degree programmes launched to prepare future managers and directors with the appropriate strategies and skills to address future supply chain challenges. Collaborative working is both a strategy and a skill, so much more than just a new buzzword or the latest management trend. As a strategy, ‘it is the driving force behind effective supply chain management’ (Min et al. 2005, p. 237). Collaboration as a term is widely referred to in business but very few managers, regardless of business size and experience fully understand the true value of collaborative working, and the effort required to get it right. Academics and practitioners have long focused on managing risk in product or service J. Lynch (*)  Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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delivery, but little research examines the risks with internal or external supplier relationships. Business collaboration is effective in multiple ways as featured in Fig. 11.1. For example, as demonstrated in Fig. 11.1, collaboration may be applied internally across departments, business functions or between organisational business units; this is usually referred to as the internal customer or internal supplier when goods and services are processed utilising different departments of the same organisation. Collaboration may also be applied externally, vertically or horizontally in the external supply chain. This is conceptualised as supply chain collaboration (SCC) (Min et al. 2005). This chapter explores some of the misconceptions about implementing collaboration internally and externally across the supply chain. A structured approach for managing collaboration is introduced drawing from the principles of an international standard (IS0 44001). In summary, the aims of this chapter include: (i) recognising best practices in collaborative working, (ii) proposing some of the frameworks that may be applied, and (iii) highlighting the important lessons learned from case studies. Suppliers


Distribution Centres

Internal (Dept.) Collaboration






Fig. 11.1  Different forms of collaboration across the supply chain (Source Adapted from Mentzer et al. 2001)

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11.2 Literature Review Collaboration is critical for innovation leading to business growth and has long been recognised as an important contributor for improving business performance (Flynn et al. 2010); both internally within the organisation (Stevens 1989) and externally across the supply chain (Hamel et al. 1989). In its development, when linked with supply chain management (SCM), business collaboration has been described as ‘embryonic ’ (Barratt 2004. p. 30), as only just beginning. Managers may not initially appreciate the potential that can be unlocked through effective SCC (Min et al. 2005). Therefore, whilst the term collaboration has been applied extensively for decades, SCC still represents a new evolution in SCM (Hugos 2018). Studies defining collaboration are extensive, however, there is less emphasis on understanding the behaviours and employee attitudes which underpin effective collaboration, and how these may hinder or enhance successful collaborative working. The antecedents of collaborative working need to be understood so that they may be applied appropriately (i.e. with the right partners) becoming critical elements which contribute to successful business management, thus leading to greater customer satisfaction. Prior to implementation of collaborative working, managers should consider three initial questions: • How may collaboration be applied within the business and across the supply chain? • Which skills are required to implement collaboration successfully? • Are we ready to collaborate? This section of the chapter explores key and influential studies examining the benefits and challenges of collaborative working and the scope of effective collaboration in the supply chain context.

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11.2.1 Why Is Collaboration Important? Collaboration is frequently linked with innovation, and as the proverb suggests, two heads are better than one. Collaboration and innovation are inextricably linked (collaboration leads to innovation, but innovation requires closer collaboration, etc.). More recently, collaboration has been acknowledged for supporting co-creation, co-production and value. Applying collaboration as a vehicle to deliver value often requires consideration beyond the contract terms and conditions. For example, a supplying company may hold new knowledge on software development or they may have access to new supply networks. Therefore, it is vital to recognise the wider, longer term benefits of investing the time and resource to working more closely with strategic partners. Due to the investment in time and resource, effective collaboration should be driven by management; senior management buy-in is critical. Greater levels of SCC are often sought by managers to leverage the resources and capabilities of suppliers and customers during times of political and economic uncertainty (Cao and Zhang 2011). Greater collaboration in the supply chain is firmly believed to help overcome issues resulting from the turbulent business environment (Zhang and Cao 2018).

11.2.2 Challenges with Collaboration There are many challenges associated with collaborative working including knowledge sharing, designing an exit strategy, continuity planning and managing trust. However, some of the greatest myths about collaborative working include: Everyone Is Collaborative—Biologists research how social interaction and collaboration are a normal part of daily life for most people; however, applying collaboration in the business context doesn’t always come quite so naturally, and it often requires a different skill set. Employees working in project team situations often realise there is no consideration given to individual member characteristics.

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Collaboration Is Easy—anyone who applies collaboration effectively will confirm that this is far from the case. Collaboration requires a significant investment in time and commitment and relies on cooperation from everyone involved. Building trust takes time. Collaboration Is Ongoing—managers often puzzle as to why they have failed to deliver the objectives set. Collaboration is a long-term strategy, but it is better managed as a project with clearly communicated and agreed timescales, agreed objectives, regular review meetings and an agreement on how to measure the objectives. Supply chain partners may work together for the foreseeable future, but as the business environment changes, this affects the organisation’s strategy. Collaboration Is Aggregation—when procurement centralises common spend items to achieve economies of scale, and to improve the quality of procurement this is often termed as aggregation of spend. Collaboration supports the aggregation process through activities such as information sharing. Collaboration Is Integration—authors and practitioners frequently use the terms interchangeably. The reality is that they are quite different as explained in the next section.

11.2.3 Distinguishing Between Terms • Collaboration—is an important prerequisite for supply chain integration (Wu and Chiu 2018). • Integration—Joining together to make one (i.e. whole) (Burbridge et al. 1987). Flynn et al. (2010, p. 59) define supply chain integration as the extent to which a firm strategically collaborates with its supply chain partners and collaboratively manages intra- and interorganizational processes. This is usually managed by sharing technological infrastructure. • Cooperation—parties must demonstrate a willingness to collaborate by cooperating. Cooperation applies to activities such as sharing data or sharing resources and is evidence of commitment in the relationship. • Communication—the formal and informal sharing of timely and accurate information (Parker 2000) is key to effective collaboration.

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11.2.4 Internal Collaboration In many organisations, it is easier to develop cooperative relationships with external supply chain members than it is to break down silos that exist around individual functions (Fawcett and Magnan 2002, p. 360). Internal collaboration refers to the coordination of business units or business functions (Jüttner and Christopher 2013) within the same organisation. Business functions which have traditionally supported SCM include purchasing, operations, logistics and marketing. These business functions or departments have collectively been explained as ‘the buying ’, ‘making ’, ‘moving ’ and ‘selling of stuff ’ (New 1997 cited in Sweeney 2011, p. 38). However, to prevent functional silos, collaboration and integration across these business functions become essential so that supply chains can be managed (Lambert and Cooper 2000; Sweeney 2011). Collaboration and integration between marketing and purchasing is argued as critical for ensuring that value is created for both the organisation and its customers (Lindgreen et al. 2009). Effective collaboration and coordination prevent functional conflict so that a more sustainable competitive advantage for the organisation can be realised. Concepts which support internal SCC include information sharing and trust (Jüttner and Christopher 2013). Esper et al. (2010) emphasise that companies should utilise technology for improving collaboration across the internal business functions. That said, technology alone is often confused with collaboration. Technology such as software and management information platforms are essential tools which enable and support effective collaboration. Technology does not however, substitute the benefits gained from face-to-face interaction.

11.3 Thee Frameworks for Managing Collaboration There are multiple academic frameworks proposed for managing collaboration, yet inconsistent messages remain. This chapter highlights three contrasting frameworks to support effective collaboration.

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Simatupang and Sridharan (2005) propose an integrated framework with five connecting features for managing SCC. The emphasis for the collaborative supply chain framework (CSCF) is for a reciprocal rather than a unilateral approach using pillars such as collaborative performance system, information sharing, decision synchronization, incentive alignment, and integrated supply chain processes. Simatupang and Sridharan note that failure to deliver on any one of these features will have a negative effect on the other four, hence the dependency between them. There is a less direct emphasis on behaviours with this framework. In contrast, Mollenkopf et al. (2007) propose a causal model to understand collaboration both internally and externally. This Italian study focuses on returns management, a niche supply chain activity which is applied to a single nation’s perspective on the benefits of collaborative working. This model in Fig. 11.2 is helpful in that it introduces the, then new. concept of supply chain orientation (SCO). Research examining SCO marks a new direction and focus area for SCM (Maloni and Benton 2000). SCO requires emphasis on stronger collaboration internally within the organisation thus creating a supply chain culture (Mello and Stank 2005). Several definitions for SCO exist; for example, Mentzer et al. (2001, p. 11) define SCO as a management philosophy and ‘the recognition by an organization of the systemic, strategic implications of the tactical

Fig. 11.2  Causal model for managing supply chains (Source Derived from Mollenkopf et al. 2007)

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activities involved in managing the various flows in a supply chain ’. This definition raises questions about the boundaries between SCO and SCM. However, Esper et al. (2010, p. 162) provide a clear distinction between SCM and SCO: ‘SCM focuses on the management of exchange flows within and across the members of the supply chain, SCO emphasises the strategic awareness and embracing of SCM within an individual supply chain firm ’. Reflecting on this definition, it can be concluded that full coordination across the business functions, this may be termed as SCO. This point leads to introducing the third framework for this chapter, as exhibited in Fig. 11.3. Esper et al.’s conceptualisation of SCO highlights the importance of three main pillars: • Strategy • Structure • Behaviour Each of these pillars is connected and supported by supply chain flows such as product, capital, information and service. Esper et al.’s framework in Fig. 11.3 focuses mainly on the internal supply chain PHILOSOPHY (TOP DOWN)



Fig. 11.3  Supply chain orientation (SCO) (Source Adapted from Esper et al. 2010)

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and in recognising that there must be a fit with the wider business environment. The framework directs us to understand the connection between the organisation’s strategy, structure, behaviour with the external supply chain. However, there is less emphasis here on strategy alignment and partner selection. The fourth framework featured in this chapter is an international standard, ISO 44001, a structured framework for managing collaborative business relationship management systems which emphasises the life cycle approach to collaboration. The Institute for Collaborative Working (ICW), formerly known as Partnership Sourcing Ltd, is the thought leader and technical force behind the development of CRAFT methodology in 2004, which led to the launch of PAS 11000 in 2006 and later BS 11000 (Collaborative Business Relationship Framework) in 2010. BS 11000 was the first British Standard in relationship management, published by British Standards Institution (BSI). The eight principles of the British Standard featured in Fig. 11.4 have been established as representing best practices in collaborative working since. Following growing interest by researchers and managers of firms globally, International Standards Organisation (ISO) developed and published ISO 44001 in March 2017 (ISO 44001: 2017— Collaborative business relationship management systems—requirements and framework). ICW disseminates knowledge and promotes best practices in collaborative working with offices and key contacts located globally across UK, Canada, New Zealand, Australia, Portugal and South Africa (ICW: About us). The framework adapted in Fig. 11.4 is flexible for all sectors, public, private and voluntary, and from small to large organisations. The standard highlights eight principles for managing collaboration: strategy awareness, knowledge, internal assessment, partner selection, working together, value creation, staying together and exit strategy activation. Key factors supporting the effective implementation of the international standard for managing collaboration, both internally within the organisation and externally in the supply chain, includes:

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Operational Awareness Knowledge Internal Assessment

• Vision, values, leadership and objectives • Strategy, outcomes and implementation plan • Policies, people skills and collaborative maturity


• Capabilities, roles and responsibilities

Working Together

• Joint governance, management, systems and processes

Value Creation Staying Together Exit Strategy

• Continual improvement processes • Team management, monitoring, measurement and behaviours • Disengagement, triggers and process

Fig. 11.4  Eight principles for effective collaborative working (Source Adapted from BS 11000)

• Strategic insight is key—not just for the organisation but with its partners too • Knowledge sharing—vital for the trust element, helps to design the exit strategy • Value—what is it, how do we create it, do our perceptions of value align • Reciprocity—you can’t collaborate alone. Top management must ensure that the other party is doing their part of the agreement • The emphasis is on joint working—the responsibility is shared. If one partner defaults, both parties are responsible • Leadership—the senior executive responsible (SER) is vital for enabling sufficient support to meet the high level of commitment required. Three of the four frameworks highlighted in this chapter emphasise the importance of focusing on strategy and structure, but the importance of behaviours is reinforced in ISO 44001. Individual employees engaged in collaborative working should be equipped with the right competence

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and behaviours to suit this approach. This applies to anyone likely to affect their organisation’s collaborative engagements and relationship performance. The standard sets out requirements that reinforce the need to consider the right capabilities for collaborative working in the recruitment, allocation of staff, development of skills and performance evaluations.

11.4 Managing Behaviours Behaviours such as cooperation, commitment, change management, coaching, conflict resolution, team-working and trust building constitute a set of skills which for many decision makers creates far too many obstacles, unless it is clear to see that the benefits outweigh the effort involved (Fawcett et al. 2015). The shaping of behaviours of employees inside the organisation will impact on the organisation’s reputation, and influence how external partners are managed. The importance of behaviours is further endorsed by companies in the construction, IT and rail sectors such as Network Rail Capita, NATS, Costain, Babcock, Emcor and Skanska. Three case studies exemplify different motivations for collaboration. The first of which, Case 1, NATS focuses on the importance of managing behaviours.

11.5 Case Study 1—NATS Adrian Miller, Head of SCCs for NATS (National Air Traffic Services), highlights five behavioural requirements to support effective collaboration: recruitment, top-level support, reciprocity and measurement for improvement. These requirements endorsed by NATS are now discussed. Recruitment—Employee behaviour and evidence of interpersonal skills should be considered as early as recruitment. A candidate’s success is normally based around the individual’s subject matter expertise, or technical knowledge and skills. Where selection is determined by factors relating only to technical capability, although important and

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well-intentioned, there are other dimensions that should contribute to making the right choice. What can be missed is the extent to which the candidate has sufficiently well-developed and appropriate interpersonal and relationship skills. As it is these factors that will almost certainly determine whether the individual will get the best out of situations where working with others is key, whether these people are internal or external to the organisation. When working in a collaborative environment or on a challenge where there is a reliance on personal interactions and strong relationship engagement for success, people need to be able to apply and demonstrate behaviours suited to this type of situation or challenge. Interpersonal skills and relationships are pivotal to successful collaboration, the right blend of self-awareness and emotional intelligence is vital to ensure the challenge is appropriately handled and the people connections are properly nurtured. That is because these behaviours are a strong contributing factor when seeking to build trust with others and getting the most out of relationships, developing good clear lines of communication and contributing to a heightened level of engagement. Although they are often referred to as ‘soft skills’ and dismissed as nice to have, in fact the reality is that when they are not present or applied, relationships will be less effective. Even when there are only isolated instances of poor behaviour this can contribute to damaging the overall relationship. Top Level Support—Another important ingredient for successful business collaboration is senior management commitment, which contributes strongly to driving the right level of engagement within and across organisational boundaries. This commitment should also convert into supporting the mentoring, coaching and training of individuals, as well as sometimes supporting joint skills development with partner’s personnel. This not only enhances competence but additionally raises the awareness of the importance of collaborative behaviours to achieve the desired outcomes. Furthermore, to be sustainable over time, leaders need to ensure that the trust in the personal relationships amongst the individuals working in the collaborative relationship enables them to overcome conflict and adversity. This should be allied to ensuring

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that there is a high level of confidence, promoted at top level that each organisation is looking out for the interests of their partner. Reciprocity—It is important to recognise that being collaborative means being weak and giving into the other party is a wholly inaccurate assessment of the true nature and genuine potential of a strong collaborative relationship. On the contrary, a collaborative approach seeks to gain the best possible solution for an organisation, albeit that it also acknowledges that if you wish to collaborate the other party must also benefit—there can be no serial ‘win-lose’ outcomes because that simply means that the relationship will not be sustained. If you want to maintain an enduring relationship you must treat it as an important and valuable business resource to be nurtured, developed and worth investing in through the time and effort of your people. Not only will leading collaborative behaviours contribute to this but they will also help to encourage active sharing and engagement, so that participants apply their imagination and interest in contributing to what organisations are trying to achieve when working together. In most instances, it requires a change of approach and recognition of the importance of the need to accommodate the other party’s needs. The whole premise of collaborative working is that when parties can harness shared objectives, it will be possible to achieve better outcomes together that bring value to both organisations. Measure and Improve—Measuring and improving behaviours and competency should be the aspiration of all participants in collaborative ventures, as it supports an ethos that working together can always be improved through constructive assessment and feedback from others. This can be done using the behavioural framework featured in Table 11.1 as a simple structure and guide to help measure and improve an individual’s approach to working together. This structured approach supports a number of key aims: • Ensures focus on developing the right behaviours, skills, and capabilities to enhance relationships between organisations. • Reinforces for individuals how to behave in a collaborative environment.

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• Supports an understanding by individuals with respect to ‘What to say’, or ‘What not to say’. • Highlights how individuals can help and hinder a collaborative relationship. • Identifies for the organisation where to focus areas for development of improvements and best practice to address awareness and training initiates. Guidance—To help people understand which behaviours are effective when working in a collaborative environment, the six-point framework in Table 11.1 can be utilised. It describes how behaviours grouped under a set of principles, can be either ‘damaging’, ‘contributing’ and ‘leading’. This raises awareness for people and explains what is expected, enabling them to assess the extent to which they are operating at the desired level of behavioural potential: Engagement; Information Sharing; Managing Conflict; Sensitivity to Others; Going the Extra Mile; and Providing Early Warning.

11.6 Case Study 2—Nature Fund In 2014, the then Minister for Natural Resources and Food, announced a £6 m Nature Fund to drive more joined-up and collaborative areabased action that will improve the resilience of nature, whilst continuing to support local community needs. The focus of the fund was to tackle the decline in biodiversity and move towards an approach that recognises the interdependency with social and economic factors. The fund supported the Welsh Government’s wider work, including establishment of a modern statutory framework through the now Environment (Wales) Act, to deliver the joined-up management of Wales’ natural resources in a way that improves our resilience, provides public benefits and drives green growth. The Nature Fund project supported 20 projects to tackle declining biodiversity and deliver benefits to communities. The investment focused on five key priorities in seven Nature Action Zones located across Wales.


Often difficult to make contact with—voicemail and/or no reply to e-mails No availability for meetings and no flexibility in managing calendar Late cancellation of meetings and/or just not turning up Disingenuous Mixed messages and different feedback/transparency depending on audience Information sharing Reluctance to share inforVolunteers and provides mation—fear loss of power information in a timely (knowledge is power) manner Drawing status lines, insular Maintains effective com- Overloads others with informunication to ensure mation without checking understanding of what need/value or understanding information should add Won’t share information with value people don’t know

Engagement Accessible, responsive, timely and easy to engage with Listens; offers and/or builds on ideas Honest feedback, openness and transparency Always supportive



Uses language that unites people to share information not only in one’s own team but across team (both internally and externally) Consistently checks back to ensure and support understanding

Reactively responds to requests for information (but in a positive way) Shares information within limited core team (tribe) Will sometimes check back to ensure that information provided was as needed

Leading Requests to engage are always met positively Makes availability visible Consistently responds to requests for open and honest feedback Promotes and champions the benefits of good engagement Builds links and connections Uses collaborative language

Attends meetings but maintains ‘weak links’ with others Engages to contribute knowledge and opinions Consistent in approach to feedback but feedback is limited Supportive when own interests align


Table 11.1  Behavioural framework created for use within NATS and with business partners

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Avoids discussions on conflict subject Unwillingness to listen to alternate views/blames others Silence Focused on defending own viewpoint Makes no attempt to resolve/ pre-empt as not seen as ‘my job’ Having to be seen as being right


Takes part in constructive discussions when asked Will sometimes look to ensure conversations are inclusive Will raise awareness of potential conflict/problems Makes attempts to bring people together to preempt problems Remains friendly in difficult situations and attempt not to attribute blame Sensitivity to others Makes an attempt sometimes No thought to cultural difShows respect and to recognise and underferences or allowance for sensitivity to others; stand cultural differences English being the second recognises and underAttempt to reframe conlanguage stands cultural diversity, Closed minded versations to ensure capability and perspec- Shows impatience and lack understanding tive; others help when Usually reacts constructively of tolerance for different appropriate to feedback/constructive perspectives criticism Own needs and priorities Has some awareness of need come first Dismissive language used when to develop/acknowledge shortcomings talking about other people Recognises own disruptive Showing lack of respect to attitudes and impulses and others—interrupting, not listakes ownership to manage tening, not letting others talk

Managing conflict Identifies conflict; pre-empts potential problems and conflict; resolves it in a sensitive, inclusive, constructive and mutually acceptable way


Table 11.1  (continued) Leading


Always respectful of others Actions and behaviours that go against the best interest of others are always called out Consistently reframes conversations to create climate for appropriate behaviours Find constructive feedback useful and always acts upon it Strong listening skills Acknowledges and actively recognises diversity Understanding emotional trends and shows empathy

Breaks down silos to ensure conflict is resolved Challenges poor behaviours Looks to build bridges and ties to aide constructive conversations Consistently lives and reminds others of Values and Behaviours Non-blaming—‘hard on the problem, soft on the people’

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Contributing Leading

Going the extra mile Uses collaborative language Sometimes recognises need Not invented here view Identifies challenges, and balancing team, joint to move out of comfort Uses negative language when opportunities, effigoals with individual goals zone and think differently discussing challenges ciencies, savings and and targets Attempt to use experience Unwilling to help/share as proactively engages and knowledge to identify Consistently recognises and too busy, narrow incentives, others with enthusiasm, competition (i.e. not my job opportunities (but backs off thinks about the overall flexibility and energy benefit to the team/project if meets resistance) to make others look good) and not own self-interest Self-serving/self-promoting Deals effectively with resistance Providing early warning Insular—fix own problems, do Provides early warning on Uses collaborative language Promptly and proactively and balancing team, joint issues but plays no part in not want to reveal problems raises potential issues goals with individual goals trying to resolve (fear of losing face) in an open way before Unwilling to help—not my job and targets becomes problems; Consistently recognises and to give others a ‘heads up’ suggests opportunities, thinks about the overall on potential issues solutions, innovation to benefit to the team/project resolve; ‘No surprises’ and not own self-interest Not only identifies potential problems but looks to promote solutions


Table 11.1  (continued)

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The fund required all projects to develop and deliver their activities collaboratively in the hope that this would encourage longer term ownership and stimulate innovation. Following the closure of the Fund, and a review of the completed projects, a number of benefits, challenges and key lessons about the collaboration were considered for the development of the next funding scheme—supporting landscape scale and sustainable land management.

11.6.1 Benefits of Collaboration One of the key benefits of collaboration was the number of new and innovative techniques and methodologies trialled by the projects brought about by the pooling of knowledge an experience of the varied collaborators. All of the projects were able to think about and articulate the wider benefits of their activities to the local communities in the area of their focus. This engagement and understanding of the benefits of the projects has led to further engagement and longer lasting impacts and in some cases can encourage actions to go beyond compliance with existing legislation achieving greater value. At the initial design stage of the fund reaching out to the communities in Wales to help inform the criteria for the fund resulted in 460 new ideas for improving biodiversity and providing benefits to people in Wales.

11.6.2 Challenges of Collaboration Through embedding this collaborative approach inevitably the fund came up against a number of challenges, these are mainly categorised as; • Nervousness to engage in a new approach • Suspicion of motives between potential collaborators • Developing trust—need to be open and transparent • Bringing people together was initially challenging • Encouraging people to attend workshops and start to engage in conversations

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• Breaking down barriers between different groups who wouldn’t ­normally work in the same space • Providing the right environment that people felt confident enough to be creative and to start working together • Ensuring open and frequent access to the funding team.

11.6.3 Lessons Learned • Creating a safe space for businesses and individuals to develop new ideas whilst being supported • Crowdsourcing techniques were effective to get the fund designed and up and running • Collaboration takes time • Building partnerships that last takes time—this is a key consideration when applying for funding/grants due to the reporting system that comes with these • Building relationships and trust is fundamental for effective collaboration • Flexibility and adaptability needs to be the accepted norm • Collaboration took different forms across the 20 projects A 15-minute Video Interview

11.7 Case Study 3—Adopting Together Adopting Together supported by the National Adoption Service (NAS), is a unique collaboration between the Voluntary Adopting Agencies (VAA) in Wales and the statutory sector in the provision of a targeted and innovative adoption service. The project represents transformational change in the procurement of social care that aligns with the Well-being of Future Generations (Wales) Act 2015. The project is led by St. David’s Children Society supported by a Knowledge Transfer Partnership between Cardiff University (Schools of Psychology and Business) funded by Innovate UK.

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11.7.1 What Is the Unique and Innovative Feature? Adopting Together is the first multidisciplinary collaboration between the third sector VAAs and the statutory sector Regional Adoption Services. Using a clearly defined and clinically led service, the VAAs have worked with the statutory sector to implement Service Level Agreements for Welsh regions. This transformative step emphasises needs-based procurement and moves away from spot purchasing to collaborative arrangements. This ground-breaking approach brings the respective skills, knowledge and abilities of each organisation to ensure that needs of the most vulnerable children are addressed.

11.7.2 What Was the Driver for This Innovation? The NAS for Wales evidenced a shortfall in the number of adopters needed for children identified as waiting 12 months or more for a family (31/3/18, 130 children waiting, 41 of which have waited 12 months or more. Adopting Together aims to place 50% of these children within the first 12 months). NAS requested the VAAs to develop and deliver a more targeted service, which coincided with Welsh Government’s new legislation, Well-being of Future Generations (Wales) Act 2015. There is a requirement for public sector organisations to collaborate with other bodies.

11.7.3 How Was the Approach Developed? The ‘Adopting Together’ project, underpinned by the principles of BSI ISO 44001 standard, led to an agreed Joint Relationship Management Plan, which clearly established the aligned goals, strengths and benefits of this collaborative delivery. Consultation and involvement have been key throughout, involving stakeholders such as the VAAs, NAS, therapeutic and statutory partners including social workers, procurement, commissioners and legal advisors. This clinically led service focuses on early intervention and crisis prevention as core principles.

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11.7.4 What Were the Objectives Identified? 1. The VAAs to increase capacity and resilience in prevention service delivery. 2. The VAAs to build capability that supports families effectively and shares this with the statutory sector. 3. The VAAs to work collaboratively to reform and build a partnership approach with the statutory sector creating a more secure and sustainable delivery platform. 4. To exchange knowledge within and across agencies resulting in the context of challenged local authority budgets and resource. 5. To provide lifelong placement with early intervention and prevention at its core.

11.7.5 What Were the Measurable Outcomes? Within the first year of the agreement, 50% of children waiting >12 months placed securely with a family, the remainder of ­ which placed within 24 months. The ‘Adopting Together’ model and Service Level Agreement approach aims to halve the current lifetime cost of supporting an ­adoptive child using a spot purchasing approach. A practice model implemented by clinical psychologists and therapeutic social workers. A thorough internal training package and awareness raising for external staff to increase knowledge. A psychology-led, longitudinal ­ evaluation of parent and child well-being.

11.7.6 How Has This Innovative Approach Been Shared Externally? Extensive external engagement has taken place in a number of ways such as; 2 dissemination events held for sector professionals; 4 presentations at adoption sector specific UK conferences, e.g. Coram BAAF;

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2 presentations to a delegation of 120 Chinese business leader. In addition, St. David’s Children Society website holds specific information for adopters and professionals (

11.7.7 Impact on Supply Chain? Implementation of a tailored service to reduce the number of children waiting the longest for an adoptive family is challenged by cost and time implications. Collaboration between the VAAs to better recruit, train and assess potential adopters raises awareness and addresses the needs of these high priority children, who otherwise are likely to remain in care. This new collaborative model of delivery supports an ‘invest to save’ approach. Upfront investment saves money in the long-term, i.e. costs associated with long-term foster care and reducing the numbers who need high-level crisis intervention.

11.7.8 How Will the Innovation Help Industry Generally? ‘Adopting Together’ demonstrates how a collaboration of third sector organisations better meet service needs. The project demonstrates the potential for more socially sustainable procurement, the principles of which may be applied to other areas of service provision. The statutory sector spend is >£76,000 per child per year for adoptive families in crisis, these figures are projected to be halved. Cardiff University School of Psychology independent evidence will measure the impact of intervention. This evidence will confirm the effectiveness of the ‘Adopting Together’ model as legacy agent of change.

11.7.9 Is There a Social/Environmental Dimension to This Innovation? Significant social benefits of this innovative project include; improvements to the recruitment, training and assessing of adoptive families, providing a multidisciplinary approach to a permanent, secure and

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loving home reduces many of the risk factors associated with early adverse childhood experiences and the risk and cost of remaining in long-term foster care. These children perform less well academically to their peers and can have poorer long-term mental health outcomes. Timeliness and integrity of information systems ensures equal specialist knowledge where it is required for better outcomes.

11.7.10 How Has the Innovation Been Embedded in the Organisation? A Knowledge Transfer Associate works full time between Cardiff University and St David’s Children Society ensures the project aligns with best practices in meeting social challenges. The ‘Adopting Together’ model has been endorsed through discussions and debates held within a Stakeholder Steering Group. St. David’s Children Society Board of Trustees receive regular consultation on developments. St. David’s internal staff have received additional training and the opportunity for further professional development via therapeutic training. An ‘Adopting Together’ Project Manager has been appointed.

11.8 Conclusion The aims of this chapter included recognising best practices in collaborative working, and proposing some of the frameworks that may be applied. In addition, three contrasting case studies highlight the important lessons learned from collaborative working. There are various forms of collaboration but when utilising a structured approach, collaborative working has the potential to unlock an unrivalled source of competitive advantage and can positively impact business performance. Managers who invest time and resource in developing in-house capabilities in collaborative working recognise that to get it right, often requires a different way of working and cultural change.

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‘Which skills are required to implement collaboration successfully? ’ Being mindful of managing the appropriate behaviours such as cooperation, trust and commitment takes time, but will bring major benefits to the organisation whilst enhancing the organisation’s reputation to external stakeholders. Many different types of behaviours have been emphasised in this chapter, but the fundamentals of effective collaboration may be summarised as, leadership, goal setting, working jointly, sharing information, cooperation, being honest, open, clear, effort are all examples of exhibiting the right behaviours and attitudes. The chapter has highlighted the scope of collaborative working and the importance of recognising specific behaviours for delivering more effective, purposeful collaboration internally across business functions, departments and business units, and externally across the supply chain. Research in collaboration is already vast but further research may examine sector-specific approaches such as in health and social care. E.g. Interprofessional collaboration involves expertise from more than one discipline or industry sector utilising collaborative approaches for improving the end user experience and outcomes (D’Amour et al. 2005). The final note for readers is that regardless of sector, there are four initial key questions that all managers should consider before the collaboration journey may begin: • Why do we need to collaborate? • Who should we collaborate with? • How should the collaboration be managed (and measured)? • How do we ensure that the collaboration is delivering mutual benefits?

References Barratt, M. (2004). Understanding the meaning of collaboration in the supply chain. Supply Chain Management: An International Journal, 9(1), 30–42. Burbridge, J. L., Falster, P., Riis, J. O., & Svendsen, O. M. (1987). Integration in manufacturing. Computers in Industry, 9(4), 297–305.

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Cao, M., & Zhang, Q. (2011). Supply chain collaboration: Impact on collaborative advantage and firm performance. Journal of Operations Management, 29(3), 163–180. Christopher, M. (1992). Logistics and supply chain management: Strategies for reducing costs and improving services. Financial Times. Christopher, M., & Towill, D. (2001). An integrated model for the design of agile supply chains. International Journal of Physical Distribution and Logistics Management, 31(4), 235–246. D’Amour, D., Ferrada-Videla, M., San Martin Rodriguez, L., & Beaulieu, M. D. (2005). The conceptual basis for interprofessional collaboration: Core concepts and theoretical frameworks. Journal of Interprofessional Care, 19(sup1), 116–131. Esper, T. L., Clifford Defee, C., & Mentzer, J. T. (2010). A framework of supply chain orientation. The International Journal of Logistics Management, 21(2), 161–179. Fawcett, S. E., McCarter, M. W., Fawcett, A. M., Webb, G. S., & Magnan, G. M. (2015). Why supply chain collaboration fails: The socio-structural view of resistance to relational strategies. Supply Chain Management: An International Journal, 20(6), 648–663. Fawcett, S. E., & Magnan, G. M. (2002). The rhetoric and reality of supply chain integration. International Journal of Physical Distribution and Logistics Management, 32(5), 339–361. Flynn, B. B., Huo, B., & Zhao, X. (2010). The impact of supply chain integration on performance: A contingency and configuration approach. Journal of Operations Management, 28(1), 58–71. Hamel, G., Doz, Y. L., & Prahalad, C. K. (1989). Collaborate with your competitors and win. Harvard Business Review, 67(1), 133–139. Hugos, M. H. (2018). Essentials of supply chain management. Chichester: Wiley. ICW: About Us. Institute for Collaborative Working. Accessed May 21, 2018. Available at Jüttner, U., & Christopher, M. (2013). The role of marketing in creating a supply chain orientation within the firm. International Journal of Logistics Research and Applications, 16(2), 99–113. Lambert, D. M., & Cooper, M. C. (2000). Issues in supply chain management. Industrial Marketing Management, 29(1), 65–83. Lindgreen, A., Révész, B., & Glynn, M. (2009). Purchasing orientation. Journal of Business & Industrial Marketing, 24(3/4), 148–153.

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Maloni, M., & Benton, W. C. (2000). Power influences in the supply chain. Journal of Business Logistics, 21(1), 49–74. Mello, J. E., & Stank, T. P. (2005). Linking firm culture and orientation to supply chain success. International Journal of Physical Distribution and Logistics Management, 35(8), 542–554. Mentzer, J. T., DeWitt, W., Keebler, J. S., Min, S., Nix, N. W., Smith, C. D., et al. (2001). Defining supply chain management. Journal of Business Logistics, 22(2), 1–25. Min, S., Roath, A. S., Daugherty, P. J., Genchev, S. E., Chen, H., Arndt, A. D., & Richey, G. R. (2005). Supply chain collaboration: What’s happening? The International Journal of Logistics Management, 16(2), 237–256. Mollenkopf, D., Russo, I., & Frankel, R. (2007). The returns management process in supply chain strategy. International Journal of Physical Distribution & Logistics Management, 37(7), 568–592. New (1997) cited in Sweeney, E. (2011). Towards a unified definition of supply chain management: The four fundamentals. International Journal of Applied Logistics (IJAL), 2(3), 30–48. Parker, H. (2000). Interfirm collaboration and the new product development process. Industrial Management and Data Systems, 100(6), 255–260. Simatupang, T. M., & Sridharan, R. (2005). An integrative framework for supply chain collaboration. The International Journal of Logistics Management, 16(2), 257–274. Stevens, G. C. (1989). Integrating the supply chain. International Journal of Physical Distribution and Materials Management, 19(8), 3–8. Wu, L., & Chiu, M. L. (2018). Examining supply chain collaboration with determinants and performance impact: Social capital, justice, and technology use perspectives. International Journal of Information Management, 39, 5–19. Zhang, Q., & Cao, M. (2018). Exploring antecedents of supply chain collaboration: Effects of culture and interorganizational system appropriation. International Journal of Production Economics, 195, 146–157.

12 Strategic Choices in Creating Resilient Supply Networks Laura Purvis

12.1 An Introduction to Resilient Supply Chains Defining the right supply chain strategy for your product requires a contingency-based approach—i.e. one size does not fit all (Fisher 1997; Christopher and Towill 2001). Under ‘normal’ operating conditions supply chain management requires due consideration of the customer expectations with respect to responsiveness, total cycle time, total cost, degree of customisation and potential risks associated with product delivery. But what may work for ‘normal’ conditions may have different implications when it comes to how a supply chain performs when a disturbance occurs, e.g. when there is considerable volatility in the market place or there are abrupt drops in supply.

This chapter is an enhanced version of a paper that was presented at the LRN, UK conference 2017 in order to obtain feedback from peers.

L. Purvis (*)  Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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The concept of supply chain resilience has emerged to act against the potential catastrophic failures that may occur due to a disturbance. Resilience itself is the ‘ability to recover from or adjust easily to misfortune or change’ (Merriam-Webster Online Dictionary 2014) ­ and is usually associated with human psychology and the ability of an individual in dealing with hardship or misfortune (Stewart et al. 1997). From an organisational perspective, resilience has been described as a dynamic capacity of adaptability, which grows and develops over time (Wildavsky 1988). It reflects an organisation’s capacity to adjust and maintain desirable functions under challenging conditions (Weick et al. 1999). Thus, resilience within organisation studies recognises both the ability to absorb shocks in the form of extreme events and an adaptive capability to adjust to new circumstances (Johnson et al. 2013). In a supply chain context there has been a number of definitions of resilience, including ‘…the ability of a [supply chain] system to return to its original state or move to a new, more desirable state after being disturbed’ (Christopher and Peck 2004) or ‘…the adaptive capability of the supply chain to prepare for unexpected events, respond to disruptions and recover from them by maintaining continuity of operations at desired levels of connectedness and control over structure and function’ (Ponomarov and Holcomb 2009). In this context, resilient supply chains should be capable of sustaining competitive advantage following a disturbance (Christopher and Peck 2004), with cost and time being the critical performance indicators (Carvalho et al. 2011). Several other terms—such as agility, flexibility, risk, responsiveness, adaptability, alignment, robustness and redundancy—are also linked with resilience in the operations management literature (Goranson 1999; Lummus et al. 2003; Rice and Caniato 2003; Christopher and Peck 2004; Christopher and Rutherford 2004; Tang 2006; McManus et al. 2007; Asbjornslett 2008). Although various definitions exist, the requisite capabilities to achieve resilience are not well understood from a practical or theoretical basis. It is the aggregation of multiple resilience dimensions across multiple tiers that has greater capacity to holistically capture the performance response to supply chain disruptions (Munoz and Dunbar 2015). For example, although the literature acknowledges that there is a danger that supply chain resilience and flexibility are often only

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achieved with an increase in operational costs, there is a lack of understanding how companies develop capabilities to overcome these tradeoffs and the strategic decisions that result at supply chain level. Purvis et al. (2016) proposed a supply chain framework highlighting the necessary ‘strategic ingredients’ to achieve resilience. Specific management paradigms addressed include robustness, agility, leanness and flexibility (RALF) that, when exploited in different resilience phases through a ‘sense-respond-recover’ process following a disturbance, allow a ­supply chain to be resilient to both demand and supply side uncertainty. In their study, the authors illustrated the RALF model’s utility with examples of its successful application from a single case in the drinks sector both to surges in demand and downturns in the economic cycle. The latter included the case of a supplier going into receivership. Our aim in this chapter is to further explore the RALF model to ascertain its potential exploitation in assessing the likelihood of a suite of supply networks to be resilient in the clothing sector. We focus on capabilities required to deal with volatility in the marketplace and propose future research to enhance our understanding of supply chain resilience.

12.2 The RALF Model Purvis et al. (2016) proposed the model in Fig. 12.1 to explain the resilient behaviour of the Innocent Ltd. supply chain to external disturbances. The RALF model was originally intuitively developed in a practical setting but was developed and enhanced by building on the literature on supply chain resilience. Hence, the authors advanced the causal relationships between different existing operations management paradigms that underpin supply chain resilience: • Robustness: enables the supply chain to retain the same stable configuration it had before changes occurred (Asbjornslett 2008), it endures rather than responds (Husdal 2010), it helps to ‘withstand shocks’ rather than to ‘adjust to shocks’ (Wallace and Choi 2011), it can resist change without adapting its initial stable configuration (Wieland and Wallenburg 2013).

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Fig. 12.1  The antecedents of supply chain resilience (Source Adapted from Purvis et al. 2016)

• Agility: perceived as an organisation’s ability to focus on maintaining a good level of productivity under the pressure of uncertainty (Helo 2004), caused by increasing competition, more sophisticated customers, changing customer requirements and/or variable demand (Walters 2007). • Leanness: the essential aspect of leanness is the efficient use of resources and the minimization of waste (Narsimhan et al. 2006). A lean manufacturer uses less of everything, for example, ‘half the human effort in the factory’’, ‘half the manufacturing space’’, ‘half the inventory’, etc. (Womack et al. 1990). It has also been argued that leanness is a prerequisite to agility (Narasimhan et al. 2006). Leanness provides the platform for agility, by developing efficient processes that are focused on delivering customer value and eliminating waste in terms of effort, resources and time. • Flexibility: is the ability of a system to change or react with little penalty in time, effort, cost or performance (Crowe 1992; Upton 1994; Morlok and Chang 2004). Wadhwa and Rao (2003) argue that the major distinction between flexibility and agility is the character of the situation requiring change. Flexible changes are responses to known situations, where the procedures are already in place to manage the change, thus flexibility should be seen as the capability to mitigate against these changes. Flexibility tends to be used at a lower, more

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operational level, whereas agility tends to be used at a more encompassing, business-wide level (Baker 2006), with a focus on satisfying demand. The RALF model argues that supply chain resilience should be viewed as the sum of two parts. First is resilience to demand uncertainty, primarily achieved via agility (where agile firms are extremely market-oriented, continuously sensing and responding and recovering to opportunities afforded by changes in customer requirements (Sambamurthy et al. 2003) and redundancy. Second is resilience to supply-side uncertainty, again achieved through redundancy but also robustness (where a firm has ‘… the ability… to resist change without adapting its initial stable configuration’ (Wieland and Wallenburg 2013); that is, the firm is able to resist or adjust to shocks (Wallace and Choi 2011)). While resilience could easily be attained at considerable cost through redundancy, for example through the build-up of high levels of justin-case inventory, with all the prevailing obsolescence costs that would entail, building in a degree of leanness in the supply chain aims to the minimisation of waste, in terms of resources, efforts and time (Sheffi and Rice 2005). Nevertheless, a lean supply chain may still lead to a robust supply chain by building strategic ‘value added’ stock to maintain optimum service delivery, while at the same time ensuring efficient processes (Bhattacharya et al. 2013). Lean thinking is also a central tenet for robustness (Christopher and Rutherford 2004), as lean accommodates some variance in volume requirements within specified tolerances (Naylor et al. 1999). Leanness, in the form of developing efficient and effective processes, is also seen as an underpinning prerequisite for agility (Narasimhan et al. 2006). Similarly, so is flexibility, in the form of coping with changes in customer needs (Wadhwa and Rao 2003). While flexibility is a capability to mitigate against both supply and demand uncertainty, it is on the demand side that certain flexibility types, such as mix or volume flexibility (Naylor et al. 1999) enable agility to be attained. Other forms of flexibility, such as rigid flexibility, determine the scope and scale of events a supply chain can deal with (Stevenson and Spring 2007).

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Sheffi and Rice (2005) suggest that ‘cost-effective’ redundancy is hard to achieve, as redundancy in many ways contradicts the principles of lean, such as just-in-time systems and eliminating waste. However, flexibility in the form of rapid reconfiguration of resources is an enabler of redundancy. Purvis et al. (2014) highlight that redundancy may be achieved by flexibility in having available capacity in specific nodes within the supply network and/or a capability to switch between suppliers and/or service providers. Their study argues that the flexibility of a supply chain, and the resulting lean, agile and hybrid (leagile) attributes, may be attained through a combination of vendor and sourcing flexibility, as shown in Fig. 12.2. The framework in Fig. 12.2 highlights the fact that flexibility, when seen as a performance capability, can be used to distinguish between lean, agile and leagile supply systems. An organisation managing parallel value streams with different requirements for service levels will have different requirements for different types and levels of flexibility and, as a result, different supply network strategies will need to be employed, with different levels of customer sensitivity achieved. All of the preceding suggests that there are inherent ‘strategic ingredients’ that establish the resilience of a supply chain. What is less obvious is /HDJLOHZLWK










6RXUFLQJ)OH[LELOLW\ Fig. 12.2  Dynamic matching of vendor flexibility with sourcing flexibility for lean, agile and leagile supply network strategies (Purvis et al. 2014)

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the ‘recipe’, that is, the mix of the various capabilities that are required to achieve a level of resilience. There may also be a requirement to consider the trade-offs that exist within the ‘mix’: For example, the degree of efficiency required, achieved through leanness, versus the level of redundancy, agility or robustness. While Purvis et al. (2016) have presented a drinks sector case that demonstrates the interplay of the different capabilities, we here extend the exploitation of the RALF model via a qualitative study of two supply networks in the clothing retail sector.

12.3 Approach: RALF Applied to the Retail Clothing Sector We adopt a deductive approach to our chapter as we are further exploring an existing model of supply chain resilience, namely RALF, in the fashion industry. In line with Purvis et al. (2014), the UK retail clothing sector involves both local and global supply chains consisting of garment producers, textile manufacturers, textile finishers and printers, trim manufacturers, logistics providers and intermediaries. It is one of the most concentrated retail sectors in the world, with specialist clothing retailers accounting for 68% of the UK market share, with independent specialists only having a 14% share. Hence, the sector is heavily dominated by substantive clothing multiples. Data also suggest that the sector is relatively financially resilient to economic downturns in comparison to other sectors. While year-on-year sales volumes and values fell in the aftermath of the financial crises of 2008 for non-food retail, those for Textile, Clothing, Footwear and Leather retail grew during this period (Office for National Statistics 2013). The cases are based on a purposive sampling strategy. We approached the top 10 leading UK specialist clothing multiples in terms of market share. Of these, two agreed to participate. They offer a range of products, in line with Fisher’s (1997) supply chain categorisation—from functional, low-fashion content items with long life cycles and predictable demand to high-fashion items with a shelf life of up to 6 weeks and a very volatile demand.

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The research was designed primarily to understand the sourcing strategies of the retailers, but the data capture led us to reflect on the resilience capabilities of their supply networks consisting of different supply chain types. We undertook 12 semi-structured interviews yielding 200 pages and 30 hours’ worth of transcripts. We also interrogated existing public domain and archival data, as well as undertaking site visits and facilitating a workshop. We ultimately defined four different operating supply chains in their networks and determined their RALF characteristics.

12.4 What Do We Learn from the Cases? Table 12.1 provides a summary of four supply chain types identified from the cases. Supply Chain 1 is for long shelf life, low-fashion content items, Supply Chains 2 and 3 are for medium shelf life products and Supply Chain 4 supports short shelf life, high-fashion items. Based on the RALF model of Fig. 12.1, we specifically highlight the attributes that define the interplay between customer requirements in terms of supply chain responsiveness, vendor and sourcing flexibility underpinning agility, leanness and its foundational support for agility and robustness, and redundancy as typified by excess capacity, lead-time slack or stock within the network.

12.4.1 Supply Chain 1 The products in this supply chain, such as basic socks and vests, may be classified as ‘functional’ with long life cycles in the range from 12 to 18 months, high volumes and a low number of SKUs per range. Sourcing is global from low labour cost countries with long physical delivery lead-times using slow modes of transportation and cost-efficient suppliers with limited flexibility. But demand is relatively stable and easy to forecast due to small variations, hence the need for resilience to demand volatility is limited. Due to the relative stable environment the retailer has developed long-term partnerships with its suppliers.


Agile High High (–100%; +25%)

Lean High (5–30 SKUs/range)

Supply chain 4


Lean High

Low (±5%)

Agile High (5–30 SKUs/range)

Lean Low


Supply chain 3

High (–100%; +300%)

Low (±10%)

Lean High (5–30 SKUs/range)

Low (max 5 SKUs/range)

Volume flexibility

Low ability to deploy alternative suppliers

May be able to cope with small fluctuations in volume


Flexible supply base

Use of invenExploits inventory tory and for postponement flexible supply and use of intermediaries to source base to deal with change suppliers and book in market capacity requirements

Highly capital intensive capacity availability

High (3–6 weeks) Additional capacity available due to the ability to employ staff at short notice

Medium (6 months)

Medium (6 months)

Low Little available in (12–18 months) terms of vendor capacity nor sourcing options

Sourcing Customer sensiRedundancy flexibility tivity (responsive)

Supply chain 2

Supply chain 1

Mix flexibility

Vendor flexibility

Table 12.1  Identifying RALF attributes to the four supply chains (extending Purvis et al. 2014)

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12.4.2 Supply Chain 2 A local UK supply chain (UK-based apparel and textile suppliers) exists for a relatively complex, high-fashion knitwear product. The production line is capital intensive with a relatively high risk of obsolescence due to a typically 6-month life cycle after which lines are discontinued and prices are ‘marked down’. A long-term partnership exists between the retailer and knitwear supplier, with joint product development and high-frequency, low-volume orders and deliveries. The UK supplier has available capacity to ramp production up and down and accommodate a high number of SKUs per range. The retailer is highly sensitive to demand changes and readily avails such information to its supplier.

12.4.3 Supply Chain 3 A global supply network has been established for a range of relatively ‘low cost’ mid-fashion items. With the UK’s textile manufacturing base at an all-time low, the design and manufacture of intricate products is reliant upon sourcing from multiple suppliers, with low labour costs, with different technical capabilities from a large and complex global network. That said, the level of technology is very low and there is a high labour content in manufacturing. To mitigate against the retailer themselves having to manage the network there is a reliance on intermediaries to configure and manage the supply base. The retailer will pre-position raw materials inventory and book capacity to exploit once market design needs are determined. Lead-times are long, due to the use of surface land and sea transport to minimise costs.

12.4.4 Supply Chain 4 This supply chain caters for high-fashion garments, with life cycles of 3–6 weeks. Demand forecasting is extremely difficult to undertake and hence the supply chain must be extremely agile to changing market needs. While UK suppliers may have been ideal, due to the lack of a competency base in the UK, including low availability of fabrics, high

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labour costs and limited capacity, the retailer has created a supply base in Eastern Europe and North Africa, hence relatively ‘near-shoring’ in comparison to supply chains 1 and 3. Fabrics are bought-to-stock while design and manufacture are undertaken on a make-to-order basis. Small batch sizes and frequent deliveries aim to minimise obsolescence costs. Intermediaries are also used in this supply chain to allow suppliers, with high capacity availability due to relatively low labour costs, to bid for business at short notice.

12.5 Reflections Bearing in mind that the supply chains researched were not necessarily designed with resilience in mind, we have determined the extent to which the RALF capabilities are prevalent in each of the four. We must also recall that this chapter is predominantly interested in the demand side uncertainties that the four supply chains may be able to cope with but elements to the supply side are also evidenced. Hence, we can give a narrative of the resilience characteristics that are evident. We find that two extreme scenarios exist. Supply chain 1 is a lean supply chain with little if any of the other three RALF elements indicated. This supply chain may be extremely vulnerable to supply-side disturbances, with long lead-times and little spare capacity or inventory in the system. In contrast, the data available for supply chain 4 suggests that it is highly resilient to external demand shocks, exhibiting several RALF model traits with a strong emphasis on agility. Supply chains 2 and 3 may be classified as ‘intermediary’, showing potential resilience to disturbances. Our results suggest that elements of the RALF ingredients are definitely evident in the supply chains we have studied. The early indications are that, as with Purvis et al. (2016), a potential ‘recipe’ exists for each of the supply chains identified. The exact ‘mix’ remains unknown. Therefore, our research enhances the theoretical explanation of the role of various paradigms that yield resilience, by empirically exploring the RALF framework in a new sector with multiple supply chains within two case networks.

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The research suggests that the continuing successful operation of such supply chains is possible despite external and internal disturbances although one size does not fit all. In certain supply chains, although potentially vulnerable to supply-side disturbances, given the functionality of the product and the lack of sensitivity required for customisation, there is no need to develop resilience to demand volatility, with the associated costs that it entails. Our research does suggest that a high degree of resilience is attainable through RALF but a trade-off between them is apparent. Potential extensions of this work could explore the trade-off considerations via multi-criteria decision-making (MCDM). Candidate techniques include the analytic hierarchy process (AHP) and multi-attribute utility theory (MAUT) among others.

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Fisher, M. (1997). What is the right supply chain for your product? Harvard Business Review, 75(March–April), 105–116. Goranson, H. (1999). The agile virtual enterprise: Cases, metrics, tools. Westport, CT: Quorum Books. Helo, P. (2004). Manufacturing agility and productivity in the electronics industry. Industrial Management & Data Systems, 104(7), 567–577. Husdal, J. (2010). A conceptual framework for risk and vulnerability in virtual enterprise networks. In S. Ponis (Ed.), Managing risk in virtual enterprise networks: Implementing supply chain principles (pp. 1–26). Hershey, PA: IGI Global. Johnson, N., Elliott, D., & Drake, P. (2013). Exploring the role of social capital in facilitating supply chain resilience. Supply Chain Management: An International Journal, 18(3), 324–336. Lummus, R., Duclos, L., & Vokurka, R. (2003). Supply chain flexibility: Building a new model. Global Journal of Flexible Systems Management, 4(4), 1–13. McManus, S., Seville, E., Brunsdon, D., & Vargo, J. (2007). Resilience management: A framework for assessing and improving the resilience of organizations. Christchurch: University of Canterbury Research Repository. Merriam-Webster Online Dictionary. (2017). By Merriam Webster. Morlok, E., & Chang, D. (2004). Measuring capacity flexibility of a transportation system. Transportation Research Part A: Policy and Practice, 38(6), 405–420. Munoz, A., & Dunbar, M. (2015). On the quantification of operational supply chain resilience. International Journal of Production Research, 53(22), 6736–6751. Narasimhan, R., Swink, M., & Kim, S. W. (2006). Disentangling leanness and agility: An empirical investigation. Journal of Operations Management, 24(5), 440–457. Naylor, J. B., Naim, M. M., & Berry, B. (1999). Leagility: Integrating the lean and agile manufacturing paradigms in the total supply chain. International Journal of Production Economics, 62(1), 107–118. Office for National Statistics. (2013). Report—Retail sales. Last accessed June 21, 2017. Available at Ponomarov, S. Y., & Holcomb, M. C. (2009). Understanding the concept of supply chain resilience. International Journal of Logistics Management, 20(1), 124–143. Purvis, L., Gosling, J., & Naim, M. M. (2014). The development of a lean, agile and leagile supply network taxonomy based on differing types of flexibility. International Journal of Production Economics, 151, 100–111.

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13 Horizontal Logistics Collaboration—An International Retail Supply Chain Case Study Vasco Sanchez Rodrigues

13.1 Introduction Logistics is becoming a critical activity in modern supply chains due to growth in trade, more complex chains of supply, and a desire to reduce the unwanted externalities associated with freight storage and movement. Hence, the selection of an appropriate logistics network design represents a key decision. One answer is the deployment of more efficient and effective integrated vertical supply chains. By taking this ‘supply network’ approach (Harland et al. 2001), many organisational entities have enhanced the competitive performance of their supply chains. Beyond this approach of developing closer inter-organisational relationships in the vertical supply chain, several studies have investigated the opportunities for further performance improvements for logistics provision (Ford et al. 2003).

V. S. Rodrigues (*)  Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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Mason et al. (2007) highlighted how supply chains and logistics operations can improve their responsiveness and efficiency more fully by seeking opportunities for horizontal collaborative operations above and beyond their vertical supply chains. Today, horizontal collaboration is seen as a viable strategy for improving logistics performance and thus the performance of the associated supply chains that logistics serves (Hingley et al. 2011). Schmoltzi and Wallenburg (2011) found that horizontal cooperation among distant competitors at the same stage of a supply chain can be enabled by autonomous logistics service providers. This is a well-established working practice in air and sea-based logistics, but is not common in road freight logistics (Cruijssen et al. 2007a). However, the literature on horizontal collaboration in land-based logistics is still very much in its infancy (Pomponi et al. 2015). Much of the research in this area has either been conceptual or has had a narrow road freight transport focus (Mason et al. 2007; Lehoux et al. 2009; Daugherty 2011; Cruijssen et al. 2007a). This chapter aims to present a supply chain-based framework on horizontal logistics collaboration. Four phases of a potentially new logistics horizontal collaboration project being considered by supply chain champions across the UK Fast Moving Costumer Goods (FMCG) industry are discussed: Outset consideration factors, ideal synergies, assisting enablers and output metrics. Following this introduction, Sect. 13.2 discusses the literature in inter-company collaboration within and beyond the supply chain. The methodology is presented in Sect. 13.3. Sections 13.4 and 13.5 discuss the results and present a holistic supply chain-based framework for horizontal logistics collaboration. Finally, the paper is concluded with the implications of our work for the theory and practice of logistics.

13.2 Inter-company Collaboration Within and Beyond the Supply Chain Most of recent literature has been focused on vertical inter-company collaboration arrangements in the supply chain. Numerous authors have demonstrated the benefits of vertical integration within a supply

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chain (for example, Lee and Billington 1992; Cox 1999; Fawcett and Magnan 2002). The adoption of a collaborative supply chain strategy has many challenges. These include overcoming the classical, functionally divided organisation and working out ways to reduce the vulnerability of the whole supply chain, which can be affected by the opportunistic behaviour of individual participants (Simatupang and Sridharan 2002; Skjøtt-Larsen et al. 2003). Fawcett et al. (2008), Barratt (2004) also outline several potential barriers, which could generate uncertainty, and thus act as fundamental causes of failed collaborative initiatives. For collaboration to work, a collaborative culture needs to be established supported by trust, exchange of information, resources and on-going senior management support (Lindgreen et al. 2009). For horizontal logistics collaboration, Whipple and Frankel (2000) noted that the delivery process within supply chains had become a more integral part of the manufacturer’s product offering, and thus logistics activities within supply chains needed to be designed, run and planned by taking a partnering orientation. Ostrom et al. (2010) agreed with this stance, stating that service companies, e.g. logistics service providers, tend to seek and develop closer relationships with their customers. However, in logistics there is an almost equal split between transactional and more collaborative arrangements between shippers and providers (McIlraith 1998 cited in Hingley et al. 2011). Bask (2001) proposed that to resolve this issue the type of inter-organisational relationship involving logistics should be aligned to the complexity of service. Others emphasise that logistics providers are integral components in the supply chain and thus act as crucial supporters and even facilitators of modern SCM (Stefansson 2006). However, the providers of logistics and their customers are realising that there are still many wastes in their operations. This is leading to a renewed focus for them to consider what can be gained by coordinating logistics activities in support of one chain with other parallel chains of supply. This exploitation of coordination through horizontal collaboration, sometimes with competitors (Bengtsson and Kock 2000), where assets in logistics are positioned to serve numerous parallel supply chains is becoming an attractive area to explore and exploit. Simatupang and Sridharan (2002) suggested that vertical and horizontal collaboration could both be used by

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organisations simultaneously in what they termed as ‘lateral collaboration’. Some leading logistics providers are therefore juggling vertical and horizontal inter-organisational relations at the same time (Mason et al. 2007). There are many gains that can be realised by developing horizontal coordination in land-based freight logistics. Cruijssen et al. (2007a) suggested that these benefits can be generated through ‘relational rents’, citing Dyer and Singh (1998), who define this as a supernormal profit jointly generated in an a exchange relationship that cannot be generated by either firm in isolation and can only be created through the joint idiosyncratic contributions given by partners from a specific alliance. Fernie and McKinnon (2003) reported on efficiency improvements when manufacturers worked together on primary distribution, but Cruijssen et al. (2007a) proposed three categories for HC benefits: costs and productivity benefits, service benefits and market position benefits. Mason et al. (2007) largely concurred with this potential multi-benefit effect, categorising them as benefits of efficiency, asset utilisation and customer response. Cost reductions are a key benefit and can be developed usually from combining volumes from parallel supply chains, thereby gaining size economies (Cruijssen et al. 2007a; Mason et al. 2007). This allows for more intensive use of assets, such as trucks and warehouses. For instance, a better use of the trailer cube can be reached if greater volume, less dense shipments are combined with denser lower volume products rather than moving them separately. On the service side, horizontal coordination can facilitate more frequent deliveries and allow for wider geographic areas to be justifiably covered (Cruijssen et al. 2007a; Mason et al. 2007). More frequent deliveries can also be enabled by the higher volumes generated through linking parallel supply chains. From shippers’ perspectives this permits lower inventory levels to be maintained and speedier recovery from any stock shortages. Flexibility improvements can also be created (Vanovermeire et al. 2014). There are recognised impediments, or barriers, to horizontal collaboration. Again Cruijssen et al. (2007a) identified two main barriers of horizontal collaboration in logistics, namely unequal negotiating

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positions of partners and the uneven adoption of information communication technology solutions among logistics providers’. Krajewska et al. (2008) confirmed concerns with partner identification and selection, and how inputs and outputs can be divided up fairly under what has been termed as the gain-share problem. Wallenburg and Raue (2011) identified some of these barriers arguing that there are inherent governance issues surrounding horizontal collaboration which can lead to real problems and conflicts among partners. The real problems largely stem from the naturally high levels of complexity in horizontal collaboration (Schmoltzi and Wallenberg 2009). Thus, great effort needs to be directed towards making such arrangements functional and fit for purpose. Wallenburg and Raue (2011) emphasised that ‘…compared to vertical cooperation, higher potential for opportunism and dysfunctional conflicts emerges as partnering firms can be competing for the same customers’. Although there have been specific sectoral studies investigating horizontal collaboration in logistics (Hingley et al. 2011), the empirical research in this area is lacking. Several authors presented conceptual frameworks to guide future research in the topic of horizontal logistics collaboration. Mason et al. (2007) showed that innovative solutions based on enhanced inter-organisational collaboration had been developed for better transport optimisation and these solutions could improve the competitiveness and performance of logistics networks. Lehoux et al. (2009) stated that collaborative logistics could lead to improved cost and CO2 efficiency of freight transport networks and Pomponi et al. (2015) emphasised that mutual trust among partners can improve the effectiveness of their cooperation. Beyond the issues already identified for research, two significant structural concerns emerge for investigation: Is horizontal coordination in logistics solely a concern of the logistics providers—i.e. should suppliers and customers of products in the supply chain be involved with this practice as well? Secondly, how can the optimisation of both vertical and horizontal coordination be best managed together? Moreover, the literature on the impediments of horizontal logistics collaboration is largely considered from the perspective of the logistics service provider rather than the supplier. From the shipper’s point of view, little

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has been studied in research papers around the subject of the challenges faced by the shippers when horizontal collaboration is pursued. In addition, horizontal collaboration, as it is defined most simply as, ‘concerted practices among companies at the same level(s) in a supply chain’, presumably means that horizontal collaboration does not have to reside exclusively under the governance of logistics providers. In summary, there is significant interest in horizontal logistics ­collaboration, but while there are attractive benefits that can be gleaned, there are also substantial hurdles to be considered and overcome. As significant effort and time need to be placed at the outset of any new horizontal collaborative logistics scheme to ensure many of these issues have been properly thought through and acted upon, research on these issues is pertinent. This study intends to develop a systematic understanding of the issues that need to be considered by supply chain leaders contemplating embarking on horizontal logistics collaboration as a potential improvement initiative. The chapter has been written by interrogating experts from the UK grocery retail distribution on the internal and external consideration factors, synergies, enablers and metrics which should be considered when assessing the feasibility of horizontal logistics collaboration opportunities.

13.3 Case Study Description This study focuses only on international distribution of products ordered and purchased by retailers rather than the merging of UK domestic retail distribution, since retailers compete in the UK market, but international distribution is a standard process where they could collaborate. Table 13.1 shows a description of the companies which participated in the study. All contributing companies were represented by senior practitioners. One can argue that retailers, logistics service providers and suppliers might have several goals, and some could be either synergistic or conflicting thereby affecting the results of the research. However, the aim of including senior managers from retailers, suppliers and LSPs, from

13  Horizontal Logistics Collaboration …     239 Table 13.1  Description of the participating companies and their contribution to the three stages of the research Type of company

No. of participants

Description of the company







6 Major UK grocery retailers. All the product categories were considered 6 A mix of grocery retailers’ suppliers with strong supply chain presence in Europe. Product categories supplied to retailers include: food, drinks and general merchandise 7 Selected LSPs with strong expertise in retail logistics and participating retailers are among their customers. All LSPs offer 3PL and 4PL services. Four of the LSPs have strong global presence and the other three are very strong in Europe

Stages of data collection Stage 1: Semi- Stage 2: Focus structured group interview 6



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different supply chain nodes, was to examine the feasibility of the adoption of horizontal logistics collaboration, which includes the examination of synergistic and conflicting goals. Interviews were run with 19 experts which covered aspects relevant to horizontal logistics collaboration, in particular, considering factors, synergies, enablers and metrics which should be considered by UK grocery retailers when assessing the feasibility of horizontal collaboration opportunities.

13.4 Findings This section presents the findings from the study. A range of external and supply chain outset consideration factors were identified. Furthermore, the research identified several actioning enablers that could be taken forward for a horizontal collaboration partnership to achieve its full potential in the context of retail logistics, as metrics which could be used to assess horizontal collaboration models in international logistics networks. The following sections provide more detail of the findings. Tables 13.2, 13.3, 13.4 and 13.5 present the findings gathered from the study on the outset consideration factors, ideal synergies and actioning enablers of potential horizontal logistics collaboration initiatives. This is derived from an overall agreement reached among the interviewees. The majority of participants (all the participants from retailers and LSPs and five of the seven participating manufacturers), stated that the adoption of horizontal collaboration in logistics was much more feasible in international distribution compared to UK domestic distribution. Participants from retailers A, B, D and F explicitly mentioned that their companies do not compete in their international distribution operations, whereas they truly compete in secondary distribution and at the store shelves. Also, the participants from LSPs and manufacturers said that international distribution processes are mainly a standard supply chain stage that is not constrained by competition barriers. The most important outset consideration factors identified from the study were related to the categories of ‘horizontal partnership’ and

Internal company

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Suppliers G A B C D E F

✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ – ✓ –

✓ – – – – – – – – – ✓ – – –

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Outset consideraExternal tion factors when contemplating collaborative logistics project Horizontal partnership Supply chain Legislation Corporate image to end-consumers Trust among partners Competition issues LSP support Product characteristic Network complexity Level of supply chain control Access to inform/ data security Commercial approach to HC Procurement commerce functions Investment required (ICT or other assets) Volume scale CO2 agenda

Retailers LSPs A B C D E F A B C D E F


Table 13.2  Outset consideration factors that should be thought through before embarking on a horizontal collaboration project

13  Horizontal Logistics Collaboration …     241

Ideal required synergies


Strategy alignment Ethics and values of collaboration Similar service standards Common supplier and delivery bases Directional imbalances – –

✓ ✓

– –



Retailers A B C








Suppliers A B C




Table 13.3  Findings of the ideal required synergies to be found before a horizontal collaborative logistics is implemented

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– –

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Suppliers G A B C D E F

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Actioning External enablers

Developing government Legislative support Sectoral group support (e.g. IGD, RHA) Horizontal Effective commercial model partnership 4PL orchestrator Capable 3PLs Physical and ICT network infrastructure Internal Synergistic demand and flexicompany ble scheduling Standardised practices and supply chain strategies Internal champions

Retailers A B C D E


Table 13.4  Actioning enablers that could be put in place to better facilitate a horizontal logistics collaboration project

13  Horizontal Logistics Collaboration …     243

Output metrics Lead time Shipment frequency Cost CO2 Rail split Inventory Food waste


✓ – – ✓ –

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Retailers A B C

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Suppliers A B C

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Table 13.5  Identified output metrics that would be sought for from a horizontal logistics collaboration project

✓ ✓ ✓ ✓ –

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13  Horizontal Logistics Collaboration …     245

‘internal company’. Partnership consideration factors (‘trust among partners’ and ‘LSP support’) were the factors which the interviewees raised the most. In the case of ‘trust among partners’, all the retailers and LSPs B, C, D and F stated that trust among potential partners needed to be built based on a commercial model capable of building a fair and trusting relationship. They collectively emphasised that trust is a quality that requires building, due to differences in culture and values among potential partners. Smaller retailers and LSPs had concerns regarding potential competition issues which could hinder the future of horizontal collaboration among retailers. However, representatives from all retailers and LSPs agreed that UK retailers do not have a competitive advantage in international primary distribution, while all retailers have potentially substantial gains that could be earned from collaborating horizontally in international primary networks for sourcing from locations such as Spain, Italy, France and Czech Republic (food and drink) and China (general merchandise/clothing). Retailers A and D, LSP G and Suppliers B and F raised the importance that their company leaders attached supportive legislative framework, to have sufficient confidence in embarking on a horizontal collaborative logistics project. For retail logistics partnerships to work, several consideration factors should be taken into account at the outset of any project plan. For instance, factors related to the company’s internal environment including: ‘access to information and data security’; ‘company commercial approach to horizontal collaboration’ and ‘volume scale’. All suppliers, except supplier A, said that access to primary inbound data could be an issue for retailers. The participant from manufacturer B stated that retailers needed to involve their strategic suppliers to get visibility and access to international inbound data and negotiate with their strategic suppliers their potential involvement in the partnership. LSPs A and B agreed that the level of information sharing among retailers needed to be handled carefully to ensure data security and confidentiality. Interviewees from retailers D and E said that the commercial model needed to include semi-open to closed-book contracts to find the right balance between partners’ trust and data security and confidentiality. Another important internal consideration factor was ‘volume scale’, which surrounds the issue of whether there is sufficient volume to be

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able to operate effectively without considering horizontal collaboration. In the semi-structured interviews, ‘volume scale’ came up as a key factor, especially when volumes per retailer from a given sourcing location were low or when the demand trend for particular commodities was different among retailers. With regards to the ‘company commercial approach to horizontal collaboration’, the biggest retailers and globally based LSPs emphasised that for them to embark on potential horizontal logistics partnership, it was crucial to align their individual supply chain strategies with the partnership. The retailers mentioned that, across many product ranges, consolidating all their loads into strategic inventory locations could reduce product demand variability. According to the participant from retailers B and C, this was particularly true when multiple product ranges were consolidated. Significant investment levels were not raised as a major hurdle, other than by a few participants, namely retailers B and C and LSP E. In relation to ideal synergies which are required for the adoption of a horizontal, collaborative business model involving logistics, directional imbalance was the most frequently cited synergy. Other synergies also identified were ‘common supplier and delivery bases’, ‘strategy alignment’ and ‘similar service standards’. Having common supply and delivery bases was considered by all participants, except retailer B and LSP D, as being paramount for justifying the implementation of a potential horizontally collaborative network. According to retailers B, D and F, the sourcing strategies of retailers needed to be aligned with their potential horizontal logistics partnership to target suppliers in common sourcing regions. Retailers B, D and F emphasised the importance of ‘strategy alignment’ among retailers, in their international primary networks, because they expected a potential partnership to be long term. LSPs A, E and G believed that achieving a degree of supply chain strategy alignment among retailers’ international inbound networks was very important for their companies, since they wanted the partnership to be long term to justify the investment required in physical and information and communication technology (ICT) infrastructure. ‘Similar service standards’ requirements among retailers was another ideal synergy discussed by a number of participants, especially retailers A, C and E. LSPs A, E and G, who emphasised that having ‘similar service standards’

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among retailers was an extremely important synergy. In their experience during several initiatives at UK level, when partners had similar service standards in a horizontally collaborative network, the savings and durability of the partnership were maximised. In terms of the actioning enablers required for a horizontal partnership to be successful, the participating companies placed a stronger emphasis on horizontal partnership enablers rather than on external and internal company enablers. All participants from the 19 companies stated that it was extremely important to have an effective commercial model for a horizontal retail logistics partnership to achieve its full potential. In this sense, all the participants (except supplier A) advocated the role of a ‘4PL orchestrator’ as a crucial enabler for the success of a potential partnership. They envisaged that a 4PL could run the horizontal network neutrally and effectively, enabled by strong expertise and the possession of the capabilities required in international inbound distribution networks. This is challenging due to the complexity and time sensitivity of these networks. The participants from retailers A, C, D and F emphasised that the 4PL needed to be neutral and the only way of achieving neutrality was to add value to the network by bringing ICT and optimisation capabilities, but not having assets dedicated to the network. These participants said that 4PLs were expected to source assets (vehicles and warehouses) from capable 3PLs. All the retailers agreed that another important characteristic of the commercial model was that clear rules needed to be defined to establish which retailer had priority in the multi-drop UK-based operations. Additionally, risk assessment and contingency plans needed to be developed to ensure prompt responses in cases of any supply or delivery disruptions. The contracts between the 4PL and the retailers could be open, semi-open or closed-book contracts. The majority of retailers seemed to be more comfortable with having a closed-book contract with the 4PL, if any of their competitors were involved in collaboration, and an open book when non-competitor companies such as suppliers were included. The participants from retailers A, B, C and E emphasised that for a commercial model to be effective, the contract needed to be semi-open book, since a totally open book model would not work due to the sensitivity of the data; open book contracts are also often too complex in

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terms of the calculation of rates. From recent experiences in horizontal partnerships, the participants from LSPs D and F also advocated the adoption of semi-open book contracts among competitors, because this type of contracts enables transparency in the charging mechanism; and, at the same time, preserves the confidentiality of data. Furthermore, a significant number of participants mentioned that having an appropriate physical infrastructure and ICT platform was very important for the success of a horizontal collaborative partnership. Two enablers related to internal company influencing factors were frequently mentioned. According to successful experiences in the adoption of horizontal collaboration models, interviewees from retailer B and C, LSPs D and F and suppliers C, D and E stated that synergistic demand and flexible scheduling were crucial enablers for ensuring the service levels expected by each UK retailer. The interviewees from retailers D and F, LSP E and supplier A all argued that practices needed to be standardised across the network. This point was made especially in relation to pallet sizes where freight transport decisions such as the use of particular routes, combination of transport modes and intermodal terminal locations would require common standards across retailers to be in place. With regards to the output metrics discussed during the interviews, retailers B, C, D, E and F stated that although there must be a significant reduction in freight transport costs, the potential for supply chain-based improvements, such as lead time compression, increases in shipment frequency and reductions in inventory level (in particular, in inventory working capital), must be demonstrated before their companies consider embarking on a strategic and long-term logistics-based collaboration venture with their competitors. The retailers’ view that horizontal collaboration should bring improvements to their overall supply chains’ performance levels was confirmed by suppliers and LSPs; however, LSPs stated that reduction in freight transport costs was very important for them. The senior manager from retailer A stated that the main output metrics for the adoption of horizontal logistics collaboration were: cost decreases; CO2 reductions and/or lower inventory levels. They added that an increase in rail split in their freight transported from Europe was a secondary and desirable output metric for their company

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which was confirmed by suppliers D and E. A fall in food waste levels (out of life food) was another desirable key output metric for the senior managers from retailers E and F.

13.5 Supply Chain-Driven Model for Horizontal Logistics Collaboration Among Competitors Figure 13.1 depicts the model developed based on the findings from the research undertaken. The model has four elements reflecting the phases considered in this research that reflect a typical journey from initial outset considerations, the ideal required synergies for the project to work effectively, the assisting enablers that make the project more likely to improve performance and finally the output metrics that should be monitored. According to the results, the main outset consideration factors which need to be considered when assessing the initial feasibility of horizontal logistics collaboration are: Legislation (external factor), trust among partners and support from LSPs. Other considerations are: The level of supply chain control of the companies intending to join a partnership and several factors which relate to the internal processes within the lead company (access to information and data security, commercial approach to horizontal collaboration and level of volume scale). The supply chain and logistics collaboration literature concentrates on the internal network factors rather than on external ones. Although this paper found some evidence that ‘corporate image to customers’ is very important, our findings showed that the existence of supporting legislation is a significant consideration factor that could drive or, if absent, hinder horizontal partnership initiatives. This study found that trust among partners and LSPs support could affect the adoption of horizontal collaboration confirming Lindgreen et al.’s (2009) argument for all collaborative initiatives. Although the importance of 3PLs is widely discussed in the literature, the support of LSPs, as a factor, does not seem to be a theme in previous studies.

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On the other hand, several authors emphasised the importance of external or inter-organisational trust for the success of a collaborative partnership (Lee and Billington 1992; Simatupang and Sridharan 2002; Barratt 2004). Although our study identified mainly ‘external trust’ as a key element of collaboration, the interviews in Stage 1 revealed that the development of intra-company trust between core business functions, like buying and logistics departments, was an important factor. One significant theme related to the ‘internal company’ factors category was the level of supply chain control of the companies which were seeking to collaborate. This factor was particularly relevant in the case of retailers with a weak bargaining power position compared to their supply chain partners. This finding confirmed the importance of this factor, which was emphasised in previous research and suggests that the balance of power in the supply chain can hinder inter-company collaboration within and beyond supply chains (Cox 1999; Barratt 2004). Other factors were identified, namely: access to information and data security; commercial approach to horizontal collaboration and volume scale. In relation to access to information and data security, in the literature there was a strong emphasis on the availability and quality of information required to achieve a high degree of integration, in line with Frankel et al. (2002) who argued that there should be clear and broad lines of communication among collaborative supply chains. However, Frankel et al. (2002) did not clarify how the communication among partners could be clear and transparent. Our research found that an effective commercial model was required to make horizontal partnerships successful. The main elements of an effective commercial model were a 4PL orchestrator, a suitable ICT platform and links between players, physical infrastructure and a fair cost-risk sharing mechanism. Among the internal company factors, the scope for volume scale increases was confirmed as significant for demonstrating the business case of horizontal logistics collaboration, confirming the previous findings of Mason et al. (2007). Our study found that conglomeration of freight volume and assets among horizontally collaborative partners could significantly increase the economies of scale of a network. A new finding gathered in our study was that scope for volume scale increases tends to be a much more important influencing factor in international

13  Horizontal Logistics Collaboration …     251

distribution operations rather than in domestic distribution operations, since, sourcing geographical regions are much more concentrated in domestic networks compared with international networks. Another significant internal factor was the commercial approach to horizontal collaboration. Ideally, there should be recognition that collaboration is seen as a priority for the long-term success of the company. As Skjøtt-Larsen et al. (2003) emphasise, horizontal collaborative partnerships require a high degree of alignment between the supply chain strategy of the partnering companies and the commercial approach to horizontal collaboration of these companies, a view which the findings from this study fully endorse. However, for ideal required synergies, our study found that the degree of supply chain strategy alignment between partners was not as important as internal and external trust among the parties involved, as well as other more ideal required synergies, namely, having common supplier and delivery bases and directional imbalances. Our research found that in case of misalignment among the supply chain strategies of potential partners, the setting up of an effective commercial model by a capable 4PL orchestrator can provide a compromise solution between partners. Our study found that even though competitors were expected to have a unique selling point, in order for them to be able to horizontally collaborate in logistics, they should set common goals in their partnership. The 4PL orchestrator needed to develop a common set of goals which satisfy all the potential partners. This study establishes the main enablers required for the success of horizontal logistics collaboration partnerships in FMCG sectors. Most of the enablers were linked to the horizontal partnership. Nevertheless, external to the horizontal network, governing bodies can play vital roles in driving horizontal logistics partnerships. For example, Verstrepen (2013) states that the EU supports and drives horizontal logistics partnerships since freight transport is responsible for about 25% of the EU greenhouse gas emissions. Although reduction in CO2e emissions was found to be one of the metrics of horizontal collaboration in the context of international retail distribution, the study established that the benefits of horizontal collaboration needed to be wider and include outputs related to the responsiveness of the supply chain and reduction in stock levels. These findings meant that in horizontally collaborative networks

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a set of metrics needs to be developed that satisfies partners and strategic external stakeholders, like relevant government departments. At the horizontal partnership level, several important enablers were found, namely an effective commercial model, 4PL orchestrator, capable 3PLs, physical and ICT network infrastructure and suitable ICT platform. In relation to an effective commercial model, Barratt (2004) proposes inter-organisational mutuality as a crucial enabler of collaboration within and beyond networks, a view which is supported by McIvor and McHugh (2002) who suggest that collaborative organisations should seek mutual benefits as well as share the potential risks of their joint venture. Simatupang and Sridharan (2002) advocate the importance of aligning the incentives and rewards of a collaborative partnership, while Fawcett et al. (2008) and Daugherty (2011) state that partners should develop a common set of metrics to have transparency in terms of who is accountable for what. Cruijssen et al. (2007a) and Schmoltzi and Wallenburg (2011) found that for a horizontal collaborative partnership to be successful there should be a fair allocation of benefits among partners. However, these two studies focus on collaboration among LSPs, which could be complementing or competing LSPs, and the contexts of these two studies are mainly domestic logistics. Our study found that an effective commercial model which could enable horizontal collaboration among competitors needs to have a neutral company orchestrating the partnership and in the case of logistics collaboration a 4PL was suggested to have the role of designing and running the horizontally collaborative network. Also, our study was focused on international distribution where logistics processes are standard and participating retailers show willingness to seek a common ground/set of goals for the benefits of the performance of their supply chains. The findings also demonstrated that an effective commercial model can allow retailers, suppliers, the 4PL orchestrator and suppliers to share the benefits (cost savings and/or risk reductions) fairly. Other main enablers were related to network management aspects; in particular the role of third-party companies as members of a collaborative partnership where physical and ICT infrastructure was required.

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In relation to the type of company who should manage a horizontally collaborative network formed by retailers (or competitors), the research showed that a 4PL could play a useful central orchestrating role because leading 4PLs can ensure neutrality in terms of the apportionment of the benefits, costs and risks of a horizontal partnership as well as simplifying joint decision-making (which can be undertaken by a single company on behalf of partners). McCarthy and Golicic (2002) and Barratt (2004) suggest that joint decision-making in supply chain processes, such as demand forecasts and inventory management, is vital for improving supply chain performance. However, previous research on horizontal collaboration does not clarify when a 4PL orchestrator is required. According to the findings, a 4PL orchestrator is more applicable to horizontal partnerships which occur at the strategic level and are long term. In the case of an international distribution context where horizontal collaborative partnerships among retailers (competitors) can bring benefits and risks to the invidual partners involved, a 4PL is required since it brings neutrality to the partnership and it is able to improve visibility and control in international retail supply chains. Other roles that a 4PL may play are to set up effective physical networks and ICT platforms required in a multi-retailer share-user network. This confirmed the view that ICT can act as an enabler of collaboration among and beyond supply chains (Simatupang and Sridharan 2002; Barratt 2004; Cruijssen et al. 2007b). However, in our study, an ICT platform was driven by the need of retailers to improve visibility and control in their international inbound supply chains. This study also identified important output metrics that needed to be considered before adopting horizontal collaboration as an efficiency improvement strategy. The framework in Fig. 13.1 illustrates metrics linked to the overall economic performance of supply chains, lead time, shipment frequency, inventory cost and inventory levels, an environmental metric, namely CO2, emission rates and a ‘freight transport efficiency’ metric. One of the main contributions of this paper is that to date only traditional transport-based metrics have been proposed in the horizontal logistics collaboration literature, whereas this study revealed other wider supply chain metrics as well.

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Fig. 13.1  Holistic supply chain-based framework for horizontal logistics collaboration

13.6 Conclusion and Implications The study presented in this chapter includes two major aspects: (i) the identification of the critical success factors, considerations, synergies, enablers and wider supply chain metrics of a successful horizontal logistics partnership; and (ii) the development of a holistic supply chain-based framework for horizontal logistics collaboration. Several consideration factors, synergies and enablers that support the development of horizontal collaboration projects are identified, namely a robust legal framework, common suppliers, capable and neutral logistics service providers, supportive operating model, fair sharing of benefits and, supportive attitude of supply chain champions and the ability to demonstrate a strong business case. The participating practitioners emphasise that freight transport cost should not be taken as the main,

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or sole, metric to measure horizontal logistics collaboration and other, broader metrics related to availability and the overall supply chain cost need to be considered, namely shipment frequency, lead time, inventory cost (in working and fixed capital) and CO2 emissions. The study developed in this paper has the potential to have significant managerial implications. The research demonstrates the importance of taking a holistic supply chain approach when evaluating the feasibility of horizontal collaboration among logistics networks. In this regard, horizontal logistics collaboration arrangements among competing supply chains need to be designed and run by taking account of all supply chain partners, namely suppliers, 3PLs and customers (in this case retailers). One key issue that needs to be taken into account is that horizontal logistics collaborative arrangements between retailers have the potential to shift the bargaining power in the supply chains involved from the suppliers and 3PLs to the retailers and the 4PL. Hence, strong negotiations between retailers and their suppliers and 3PLs need to occur to make sure horizontal collaborative partnerships are successful. Furthermore, the main elements and generic themes found in the research can be applied to other supply chain and logistics functions such as warehousing, packaging and manufacturing. Moreover, the research demonstrates the crucial role a neutral third-party company can play in a horizontal collaborative venture. This principle can be further extended in its application in other sectors and supply chain functions. An implication of this research is that it will be beneficial to test the framework proposed in other settings to assess its applicability in wider contexts. By undertaking cross-case research from a wide range of geographies and sectors this research can be further validated. The research also may lead to several other directions for future research. An action research study could be run to get more depth in terms of enablers required in the implementation of a horizontally collaborative network and finally, modelling of horizontal logistics collaboration among competitors could be undertaken to establish the effects of different supply chain structures on the outcome metrics found during this research.

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Harland, C. M., Lamming, R. C., Zheng, J., & Johnsen, T. E. (2001). A taxonomy of supply networks. Journal of Supply Chain Management, 37(4), 21–28. Hingley, M., Lindgreen, A., Grant, D., & Kane, C. (2011). Using fourth-party logistics management to improve horizontal collaboration among grocery retailers. Supply Chain Management: An International Journal, 16(5), 316–327. Krajewska, M. A., Kopfer, H., Laporte, G., Ropke, S., & Zaccour, G. (2008). Horizontal cooperation among freight carriers: Request allocation and profit sharing. Journal of the Operational Research Society, 59, 1483–1491. Lee, H., & Billington, C. (1992). Managing supply chain inventory: Pitfalls and opportunities. Sloan Management Review, 33(3), 65–73. Lehoux, N., Audy, J.-F., D’Amours, S., & Rönnqvist, M. (2009). Issues and experiences in logistics collaboration. IFIP Advances in Information and Communication Technology, 307, 69–76. Lindgreen, A., Balazs, R., & Glynn, M. (2009). Purchasing orientation. Journal of Business and Industrial Marketing, 4(1/2), 148–153. Mason, R., Lalwani, C., & Boughton, R. (2007). Combining vertical and horizontal collaboration for transport optimisation. Supply Chain Management: An International Journal, 12(3), 187–199. McCarthy, S., & Golicic, S. (2002). Implementing collaborative planning to improve supply chain performance. International Journal of Physical Distribution and Logistics Management, 32(6), 431–454. McIlraith, G. (1998). Routes to best practice. Logistics Europe, 6(2), 36–41. McIvor, R., & McHugh, M. (2002). Partnership sourcing—An organisation change management perspective. Journal of Supply Chain Management, 36(3), 12–20. Ostrom, A. L., Bitner, M. J., Brown, S. W., Burkhard, K. A., Goul, M., Smith-Daniels, V., et al. (2010). Moving forward and making a difference: Research priorities for the science of service. Journal of Service Research, 13(1), 1–33. Pomponi, F., Fratocchi, L., & Rossi Tafuri, S. (2015). Trust development and horizontal collaboration in logistics: A theory based evolutionary framework. Supply Chain Management: An International Journal, 20(1), 83–97. Schmoltzi, C., & Wallenberg, C. M. (2009, June 11–12). Architecture of horizontal cooperation between logistics service providers: An empirical exploration of cooperation types, cooperation motives and governance patterns. 21st NORFOMA conference, Jonkoping.

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14 Shipping Economics: Status and Future Prospects Wessam Abouarghoub and Jane Haider

14.1 Introduction Shipping goods by sea is by far the cheapest and most cost-efficient mode of transportation, hence the shipping industry is at the centre of global trade development. The shipping industry is responsible for transporting over 80% of global trade volume, which accounts for more than 70% of global trade value. It is estimated by the United Nations Conference on Trade and Development (UNCTAD) that in 2016 countries consumed 15% of their GDP on international transport and insurance. This global industry is affected by political and economical forces that shape the landscape of the shipping business environment, therefore, better understanding of international business trade and global supply chain managements is synonymous with the study W. Abouarghoub (*) · J. Haider  Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] J. Haider e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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of shipping economics. The shipping industry is capital intensive, has a long lead time for newbuilds, freight rates are extremely volatile and seasonal, while prices and earnings exhibit clear structural breaks. All of which means that a complicated valuation tool is required to aid shipping practitioners in making strategic decisions. Stockholders include shipowners, cargo-owners, ship charterers, ship brokers, insurance companies, international banks, investors, shipyards and scrapyards. The interaction between these stockholders is better explained by a shipping market supply and demand model that is used as a tool to determine freight prices. The shipping market model documents the interaction between four shipping markets: the shipbuilding market, the sale and purchase market, the freight market and the scarping market (for detailed discussion see Stopford 2009). The aim of this chapter is to introduce the reader to classic and contemporary economic research in the shipping bulk industry by defining shipping economic theory and exploring the link to shipping economics fundamentals such as demand for seaborne trade and the importance of efficiency of shipping markets. The chapter ends with a discussion of contemporary topics relevant to shipping economics. Stopford (2009) provides discussion of the macroeconomics and microeconomics of the shipping industry. A more advanced macroeconomic approach in discussing maritime economics is provided by Karakitsos and Varnavides (2014). The remaining of the chapter is structured as follows. Section 14.2 explores maritime literature definition of economic theory. Section 14.3 discusses the link between shipping economic theory and shipping economic fundamentals. Section 14.4 presents an overview of contemporary topics relevant to shipping economics. Section 14.5 concludes the chapter.

14.2 Shipping Economic Theory In general, there are two schools of thoughts in maritime economics that attempt to explain the determinants of shipping transport cost (freight rate), these are the classic shipping economic theory and the rational expectations of shipping freight markets. According to

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the classic maritime theory, shipping freight rates are determined by demand and supply forces, based on the assumptions that shipping practitioners are profit maximisers, providing a homogenous service in perfect market conditions. The shipping industry has no barriers to entry and exit, there are large number of shipowners (sellers) and charterers (buyers) and shipping brokers keep shipping practitioners well informed of market conditions and changes in prices. While the rational expectation theory of freight markets assumes that strategic decisions made by shipping practitioners are rational and based on available information at the time and their past experiences, meaning that shipping practitioners’ current expectations will shape the future direction of the shipping industry. In the following subsections we discuss the implications of both schools of thoughts.

14.2.1 Classic Shipping Economic Theory Beenstock and Vergottis (1993) developed a classic maritime demand and supply model that combines two fundamental assumptions, the rational expectations of freight rates and the efficiency of shipping markets. This is a shipping market model that explains freight rates expectations and according to Glen (2006) is the most recent work that uses a fully specified structural econometric approach to model shipping markets. Classic maritime economic theory suggests that bulk shipping freight rates are determined through forces of demand and supply, in perfect competitive conditions, where shipowners and charters are price takers. This approach categorises economic variables as exogenous demand variables and endogenous supply variables. Demand variables are the state of the world economy, seaborne trade, average haul, random shocks and bunker prices, port and transport costs. While supply variables are capacity and productivity of the world fleet, shipbuilding and scrapping activities and cash follow from operations. For detailed and lengthy discussion of demand and supply fundamentals see Stopford (2009). On the one hand, demand for freight services is an inelastic function that is derived by the underlying need to transport cargo and can be expressed as:

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  +/− + − − Dt = f GDP+ , ST , Ah , Tc , RS t t t t t


where demand for freight (Dt ) is a function (f ) of word economic activities represented by global gross domestic production (GDP), seaborne trade (ST ) activities, average haul (Ah), transport costs (Tc) and random shocks (Rs). On the other hand, supply of freight services is a non-linear function that is highly elastic/inelastic at lower/higher freight rate levels that can be expressed as:   + − + St = f DWTt+ , Fp+ , SB , Sc , Fr (14.2) t t t t where supply (St ) is a function (f) offleet cargo capacity in deadweight tonne (DWT), fleet productivity Fp , shipbuilding activity (SB), scrapping (Sc) activity and freight rate levels (Fr). The (+) or (−) sign refer to hypothesis of positive or negative correlation between the dependent variable and its explaining variable. The t refers to time series data and reads at time t. The maritime literature associates the elastic and inelastic parts of the supply curve with lower and higher freight volatility conditions, respectively, suggesting that freight rates switch between at least two regime states that are dynamically distinctive. For details see Abouarghoub et al. (2014), Alizadeh et al. (2015) and Abouarghoub and Alizadeh (2017). Under the assumption of perfect competitive condition, freight rates are determined simultaneously through continuous adjustment between supply and demand, thus, at equilibrium we have Dt = St


and by substituting Eqs. (14.1) and (14.2) in (14.3) and rearranging we have Frt = f (GDPt , STt , Aht , Tct , DWTt , Fpt , SBt , Sct , RSt ) (14.4)

where freight rate levels at any point of time can be determined as a function of world economic activities, demand for seaborne trade, average haul, transportation costs, fleet capacity and productivity, shipbuilding and scraping activity and adjustments for random shocks.

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In summary, maritime economic theory presupposes that freight rates are subject to forces of demand and supply in the short run and revert to a mean-level in the long run, the demand curve is inelastically illustrated by a negative function, the supply curve is elastic at lower freight levels and inelastic at higher freight levels illustrated by a positive function. Freight rate prices are highly volatile, seasonal and sensitive to energy prices and market sentiments, stationary in the short-run and mean reverting in the overall. For detailed discussion of these characteristics see Abouarghoub et al. (2018) and references within.

14.2.2 Rational Expectation Theory for Shipping Economics Glen (2006) argues that structural market approaches are lacking in recent literature due to the increased adoption of rational expectation theory and using dynamic approaches to model dynamic behaviour in shipping markets. The rational expectation theory suggests that shipping practitioners will make decisions based on currently available and past information. The theory also suggests that all information is contained in the past data and it can be extracted using vector autoregressive models and the like. In simple terms freight rates are determined by a function of historical values as follows:   Frt = f Frt−1 , Frt−2 , . . . . . . . . . , Frt−p (14.5) where Eq. (14.5) reads freight rates Frt at time t equals a function of historical values of freight rates at time t−1, t−2, …, t−p. In Table 14.1 we outline the main differences between the classic maritime theory and the rational expectation theory.

14.3 Shipping Economics in Maritime Literature The aim of this section is to explore the link between maritime t­heory and the main themes discussed in maritime literature. In simple terms, shipping economics is the study of the structure and interaction of

264     W. Abouarghoub and J. Haider Table 14.1  A comparison between the two main maritime literature schools of thoughts Category

Classic maritime theory

Rational expectation theory


Freight rates are mean reverting indicating stationarity and cyclicity of the data Large market structural models that consider exogenous and endogenous variables Integrating shipping markets model Theory suggests the stationarity of freight rates. In practice, freight rates are non-stationary at price level and are first-order integrated Nemours exogenous and endogenous variables

Freight rates follow random walk indicating non-stationarity and non-cyclicity

Method approach

Models Freight rates


Reduced form models that do not differentiate between exogenous and endogenous variables e.g. VAR and ARIMA The theory suggests the non-stationarity of freight rates

Limited number of variables and time series

shipping markets and the behaviour of shipping agents within these markets. The study of this discipline provides a better macroeconomic understanding of how commodities are transported by sea? How demand and supply forces influence freight prices? How shipping markets interact in different market conditions? And the dynamics of shipping business cycles. Furthermore, an important branch of economics is the study of the microeconomic impact of the above external factors on shipping companies cash-flows, costs, returns, financial performance, debt borrowing and risk management. This chapter is limited to brief discussions of the drivers of seaborne trade and the efficiency of shipping markets.

14.3.1 Demand for Seaborne Trade Demand for seaborne trade is a derived demand, meaning that the need for shipping transport is derived from the need to transport goods from

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origin to destination. This is a fundamental principle of shipping economics. To best understand the concept of derived demand, we single out the external drivers of the demand for seaborne trade and compare against the internal drivers of the supply for seaborne trade. These drivers are listed in Table 14.2 and are extensively discussed in Stopford (2009). Demand and supply for seaborne trade is expressed in tonnemiles, a measure of true demand for shipping services that accounts for ships’ productivity. On the one hand, “seaborne trade” refers to commodities transported by sea and quantified in tonnes, on the other hand, the “demand for seaborne trade” is measured in tonne-miles to account for the distance of one tone of cargo transported from origin to destination. Thus, the demand for sea-transport is expressed in tonnemiles to reflect the time a ship completes a round voyage and measured by multiplying the amount of transported cargo (in tonnes) by the average distance (in miles). This distance effect is known as average haul (Stopford 2009). Pettit et al. (2018) show that overall trend of seaborne trade continues to increase while the overall trend for average haul continues to decrease due to the impact of shipping innovations over time and that shipping innovation is reflected by the increase in vessel sizes (economics of scale) and the changes in steaming speeds (productivity). These economic drivers for seaborne trade shape the mechanisms through which demand and supply interact causing shipping dynamics. Thus, freight markets are characterised to be highly volatile, seasonal (Kavussanos and Alizadeh 2002), sensitive to energy prices and market sentiments and are mean-reverting in the long run and subject to demand and supply imbalances in the short-run (Adland and Cullinane 2006; Alizadeh and Nomikos 2009; Stopford 2009; Abouarghoub Table 14.2  The main factors influencing demand and supply for seaborne trade Demand for seaborne trade

Supply for seaborne trade

The world economy Seaborne commodity trades Average haul Random shocks Transport costs

World fleet development (cargo capacity) Fleet productivity Shipbuilding activities Scrapping activities Freight earnings

Source Stopford (2009)

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et al. 2018). Demand for shipping transport is a derived demand that depends on the state of the global economy and international seaborne trade. Supply for shipping transport is subject to tonnage capacity and productivity of the world fleet, for detailed discussion see Stopford (2009).

14.3.2 The Efficiency of Shipping Markets Investigating and studying the efficiency of shipping markets provides a framework for shipping practitioners to explore excess profits between alternative strategic decisions. Therefore, this topic is extensively researched in shipping economic literature due to its theoretical and practical application. The hire of cargo capacity on a ship and the hire of a ship per day reflects the two main approaches for quantifying the cost of freight transport in bulk shipping. These are expressed either in dollars per tonne ($/tonne) for transporting a specific amount of cargo on a round voyage or in dollars per day ($/day) for a daily hire of a ship. The former represents the practice of fixing a ship on a voyage charter contract and the latter the practice of fixing a ship on a time charter contract. Voyage charter markets and time charter markets are equivalent to spot and forward markets, respectively. Shipping economists investigate the relationship between these markets using the theory of the term structure of freight rates. The theoretical underpinning for the term structure of freight rates is based on the relationship between voyage (spot) charter rates and time (period) charter rates. While the consensus in the literature is that short-term freight rates (voyage charter) are determined through forces of demand and supply, long-term (time charter) freight rates are determined through the expectations of future discounted cash flows from consecutive voyage charter contracts in addition to a risk premia. A negative (positive) risk premia means that current forward freight rates are lower (higher) than expected future spot freight rates. An extension of the above theory is the Expectations Hypothesis of the Term Structure (EHTS) that advocate that returns from a time charter contract is equal to returns from consecutive trip charter contracts

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for the same period and risk premia, and according to Kavussanos and Alizadeh (2002) the risk premia is time-varying. Thus, the EHTS is expressed mathematically by an equality of discounted freight earnings for both a time charter contract for a specific period and future expected consecutive voyage charter contracts, for the same period, in addition to a time-varying term-risk premia. For detailed discussion of the term structure of freight rates, the EHTS and the time-varying term-risk premia see Kavussanos and Alizadeh (2002), Adland and Cullinane (2005) and Wright (2011). The practical implication of the above discussion is reflected in shipowners’ simple question “Do I employ my ship in the spot market or the time charter market?” On the one hand, if shipping markets are efficient there will be no excess profits for switching between the spot charter market and the time charter market, for the same employed period. On the other hand, if shipping markets are inefficient, the choice between the two strategies depends on shipowner’s assessment of risk versus return. In addition to the choice between fixing a ship on a voyage charter contract and a time charter contract, shipowners are continuously faced with strategic decisions such as when to place orders for new builds, when to buy and sell second-hand ships, when and where to buy bunkers and when to scrap their old vessels. The consequences of these decisions are of fortunes and bankruptcy. Therefore, the question of the efficiency of shipping markets has both theoretical and practical importance and the consensus in maritime literature is that shipping markets are inefficient and that the term structure relationship between spot freight rates and time charter rates is better explained by the existence of a time-varying risk premia.

14.4 Contemporary Topics in Sipping Economics International seaborne trade is evolving on a global scale. The “New Suez Canal” opened in 2015, the expanded Panama Canal began commercial operation in 2016, and the Nicaragua Canal is being seriously considered. Arctic shipping routes connect the Atlantic and the Pacific oceans through the Northwest Passage (NWP) and the Northern Sea

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Route (NSR) and the future of Arctic shipping along the Transpolar Sea Route (TSR) (Theocharis et al. 2018). With the establishment of the trans-arctic shipping routes, interoceanic trade will become very different. At the same time, large scale transcontinental road network is being developed. China’s One Belt One Road (OBOR) initiative, first announced in 2013 by President Xi Jinping, seeks to further integrate Asia, Europe and Africa through two interlinked components: the Silk Road Economic Belt—a land-based transport network connecting China to Europe and the Middle East through Central Asia and Russia, and the twenty-first-century Maritime Silk Road—a maritime route connecting ports in Asia, Africa and Europe. OBOR has been described as the biggest economic event of the twenty-first century. Development under this US$1.2 trillion project includes roads, rails, airports, seaports, energy pipelines and other core projects for economic development in the region. It claims to further the political, social and cultural linkages between over 60 countries that will be part of this initiative. Moreover, global liner shipping firms are working jointly to form a shipping network alliance. Low-cost airlines increasingly offer cargo services, while the establishment of low emission zones limits the connectivity of airlines. The global transportation landscape is changing beyond recognition. The importance of transportation relating to sustainable transportation logistics cannot be overstated. One of the key issues in present times is the societal expectation of balancing the need for natural resources and environmental protection. Hence a significant challenge of modern-day transportation logistics is its impact on the environment.

14.4.1 Climate Changes and Low—Carbon Shipping Concerns about the environment and the contribution of transport to global warming have been expressed for many years but shipping, a cornerstone of globalisation, has often been excluded from discussions and suggested measures. There is an increasing awareness of

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shipping’s contribution to global emissions of greenhouse gases, but no specific sectorial targets for emission reductions. Shipping provides low unit cost transport and is a relatively low emitter compared with other transport modes. It is a vital part of the supply chain and creates emissions in direct proportion to the fuel it burns. The industry is willing to embrace its responsibilities, but research is needed to look at the micro- and macro-environment in which it operates, to examine its role within future logistics networks, to consider future technology (ship hull design, design of power plants, types of fuel), to determine the future role of ports (their integration and efficiency), to model and then minimise different emissions, and to determine future methods of apportionment. Within the shipping industry there is an awareness of the corporate social responsibility with regard to the environment, while there is increasing pressure from shareholders for the industry to use its technical, administrative and financial resources to improve its performance. Governments are also closely involved, as are international bodies, such as the International Maritime Organisation (IMO) and industry/professional bodies, such as the Chamber of Shipping, Shipping Emissions Abatement and Trading (SEAaT) and the International Association of Independent Tanker Owners (Intertanko). It must be recognised that shipping is not a homogeneous industry and that a “one size fits all” solution might not be the most appropriate. Different sectors (containers, Ro-Ro and bulk) may pose different problems and require different approaches, as might domestic and international operations. It will not be sufficient to develop measures to reduce traffic through ports; cargo must flow if the logistics supply chains are to be efficient and ports are to have a commercial role to play. The shipping industry needs a positive reduction of harmful emissions and a realistic and sustainable solution, based on solid IMO standards, which will provide a level playing field for all operators in this global industry. In this sense, marine engineering to be contextualised within a logistics construct. A whole systems perspective needs to be taken to assess, select and optimise the use of appropriate ship hull designs and power plants as well as considering how to optimise both current and future ship operational environments. The role and impact of shipping in

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logistics networks need to be considered in a whole systems manner, considering cost, service and environmental criteria and the extent to which the environmental impact of shipping can be apportioned.

14.4.2 Sustainability Issues in Shipping Sustainable operations in transport logistics have emerged as an important topic for players in the industries to explore and adapt, and for policymakers to showcase their commitment to environmental protection with a balance on economic growth and societal impacts. Unfortunately, there is a view that the current set of transportation and logistics links in many sectors is “unsustainable” due to its energy consumption and emissions. In addition, geographic perspective is an important area of sustainable development, because a spatial understanding and societal-environment interactions are critical to achieving sustainability. The approach to sustainability development should be more radical and we may need a different way of transporting and delivering goods and services. New and innovative uses of transportation logistics will emerge. Technical and policy approaches will not be limited to changes in routes, fuels, vehicle size, operations, and so forth. Topics under this theme include (but not limited to) (Yip and Haider 2018): • Effective solutions of sustainable transport logistics • Transportation network analysis and location decisions of sustainable transportation logistics • Planning and zoning of transport logistics • Regional developments of transportation sustainability • Sustainable geographical developments of transportation logistics • Theories and models for sustainable transportation logistics • Government sustainability policies and infrastructure developments • Spatial planning and design of transportation logistics for sustainability • Transportation of reverse logistics • Regional and global sustainable management practices

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• Sustainable location decisions of transport logistics • Geographical models and issues of sustainable transportation logistics • Sustainability policy analysis and emission control • Sustainable mobility and fuel efficiency • Infrastructural developments of sustainable transportation logistics • Network geometry and rerouting of sustainable transportation logistics • Sustainability analysis of transportation logistics • Social interaction of transportation logistics • Uses of geographic information system and new technologies

14.4.3 Innovative Ship Designs and Eco-Ships Eco-ships are generally referred to as a new generation of vessels that are eco-friendly and at the same time fuel efficient, through the process of hull, engine design and new technologies. The claimed benefit of eco-ships is twofold: firstly, they are environmental friendly as reduced fuel consumption generates lower air emissions, including greenhouse gas (GHG) emissions and air pollutants. Secondly, through the process of hull, engine design and new technologies, they make significant savings on costs, with the main savings being on the engine fuel consumption. Eco-ships hence have emerged appearing to be the answer to these challenges, as a new generation of vessels that will be much more environment friendly and fuel efficient. Below we discuss the two aspects embedded in the calling for eco-ships: regulatory requirements and fuel prices.

14.4.4 Regulatory Requirements: Lower-Sulphur Fuels and Air Emissions More stringent regulations and emission limitations have been set forth for all vessels, particularly when operating in Emission Control Areas (ECAs). A new concept introduced in the new builds is the Energy Efficiency Design Index (EEDI), the purpose being to cut

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GHG emissions. Initially, reductions in GHG emissions were achieved through speed reduction, the eco-speed. The maritime industry, however, decided to face the problem more directly, by reducing emissions through cost-effective innovative technologies. The IMO has set the standards for EEDI. The International Convention of Maritime Pollution (MARPOL) Annex VI amendments, from January 2013, require all new ships of 400 gross-tonnes and above to be constructed to EEDI standards; and these new ships will constitute the first generation of eco-ships. Further, a Ship Energy Efficiency Management Plan (EEMP) will have to be implemented for all ships. The purpose of the EEMP, among others, is to assist operators of old/existing vessels to improve the energy efficiency of their ships (IMO 2011a). The main changes to MARPOL Annex VI are a set of limits on Sulphur Oxide (SOx) and Nitrogen Oxide (NOx) emissions on ship exhausts, with a global cap of 4.5% m/m on the sulphur content of fuel oil. Annex VI designated the “Emission Control Areas” (ECAs), with requirements for all GHG emissions, including SOx and NOx. ECAs have already been established in the Baltic Sea, the North Sea, the North American sea and the United States Caribbean Sea area. Regarding SOx, according to MARPOL Annex VI Regulation 14, the fuel sulphur content inside ECAs after 2015 cannot exceed 0.1% or the exhaust gas must be purified to an equivalent level (see Tables 14.3 and 14.4). As for NOx emissions, Regulation 13 of MARPOL Annex VI proposed a three-tier structure for new engines which would progressively reduce their emission standards, depending on the date of their installation. According to Regulation 13.

Table 14.3  MARPOL Annex VI—emission control areas SOx content outside ECA areas

SOx content inside ECA areas

4.50% m/m before 1 January 2012 3.50% m/m after 1 January 2012 0.50% m/m after 1 January 2020

1.50% m/m before 1 July 2010 1.00% m/m after 1 July 2010 0.10% m/m after 1 January 2015

Source IMO (2011b)

14  Shipping Economics: Status and Future Prospects     273 Table 14.4  MARPOL Annex VI—NOx emission regulations Tier

Ship construction date on or after

Tier I Tier II Tier III

1 January 2000 1 January 2011 1 January 2016

Total weighted cycle emission limit (g/kWh) n = engine’s rated speed (rpm) n < 130 130 ≤ n ≤ 2000 n ≥ 2000

17.0 14.4 3.4

45.n−0.2 44.n−0.23 9.n−0.2

9.8 7.7 2.0

Source IMO (2011c)

According to the regulations, new built eco-ships have to meet the stringent requirements with regards to GHG emissions. The new engines have to be designed to consume low-sulphur fuel oils to comply with the MARPOL Annex VI requirements as well. When the need to operate ships more efficiently is added on top of regulatory requirements such as switching to low-sulphur fuel or even liquefied natural gas (LNG) when entering ECAs, the situation becomes complicated.

14.4.5 Fuel Price The term “Eco-ship” has been a buzzword in the shipping industry over the past few years, particularly when bunker prices surged from $600 to $700 per tonne from early 2011 to mid-2014, accounting for almost half of carriers’ operating costs. Many carriers claimed back then the only thing that matters was the cost of fuel. Many factors operate to determine fuel price: crude oil price, refinery operation, fuel stock level, delivery practice and geopolitical issues. Among all factors, the most difficult developments to predict are geopolitical issues. When considering the marine sector, one of the most critical cost components for ship operators is the cost of fuel oil in terms of marine fuel and marine diesel oil. Fuel cost, on average, accounts for around 40–60% of the total voyage cost, which in turn represents approximately 40% of ship’s operating costs. As a result, sharp and unanticipated changes in fuel price have a major impact on the operating profitability of ship operators. This is because fuel price is related to world’s crude oil price, which has been shown to exhibit substantial variability in both the short and long terms.

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As for all players involved in the transportation sector, the priority for ship operators is to monitor and manage the risk exposure to fuel market fluctuations, to maintain their operating profit. Fuel price risk management is a continual cyclic process, which includes risk assessment, risk decision-making, and the implementation of risk control strategies and measures. Hedging is one of the most common risk management strategies using financial derivatives to hedge against the future movement of fuel price. Alternatively, risk control strategy is another possible and practical option, including ship and engine designs, operating speed, ship replacement policy, agreement with fuel suppliers, and logistical arrangement for fuel replenishment.

14.4.6 Eco-Ships The ship-owners are faced with several options to achieve eco-efficiency: slow steaming, weather routing, retrofitting older vessels and ordering new ships. Owners today are given the opportunity to invest in new vessels that will minimise their operating costs and at the same time comply with the upcoming stringent regulations with regards to environmental obligations. As for the existing fleet on the market, options have been given to the owners to optimise their ships to improve their efficiency and to comply with the new standards. To invest in new builds or retrofit existing vessels, ship-owners would normally decide based on the generated returns of different options. The shipping industry however has very divided opinions over this issue. On the one hand, eco-ships have received global recognition and support from stakeholders including ship-owners, port facilitators and financiers such as banks. The financial benefits of reduced bunker consumption were obvious. Despite of the drop in bunker price, savings on fuel consumption would still be significant, although not as significant as originally expected. Due to the unpredictability and high volatility of oil prices, bunker price may return to a high level, so the ship-owners with fuel-efficient vessels will then secure themselves an advantageous position. Moreover, with tightening environmental regulations, “greening” activities have become a trend, fostering shipping companies, shipyards, port

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operators and ship investors engaging in a “paradigm shift” in operating and thinking. Ship-owners favour eco-ships over ships with poorer energy efficiency in view of the beneficial risk profile and environmental b­ enefits. With eco-ships being the new ships in the future, there are doubts that any yard could sell non-eco-ships as no one would order a non-eco-ship. Port operators and ship investors have also been facilitating the transition. The Norwegian government recently launched a green shipping programme, which includes various green vessel and green port projects (The Maritime Executive 2015). Since 2014, several ports, including Port Metro Vancouver, began to use GHG emission rating to offer financial incentives to attract more efficient vessels to enter their ports. Leading banks in the shipping industry claim to use vessel efficiency rankings in making investment and financing decisions. In this sense, eco-ships are truly an industry game-changer. On the other hand, eco-ships have received much criticism. Many in the industry believe eco designs are “old technology dressed up as new”. It is also debatable whether eco is referred to as ecological or economical. Olsen (2014) examined the economic benefit of new eco-design vessels through comparing the net present value (NPV) of the eco and standard vessels. The results show that standard vessel’s speed flexibility outperforms eco’s lower fuel consumption, hence achieves higher NPV. On a technical level, some ship-owners also argue that the investment in new buildings makes little economic sense and retrofitting existing ships is better. There are also claims of an exaggerated benefit of eco-ships as eco-ship advocates only choose the worst-performing vessels in the world fleet as the benchmark for comparison with their new designs, which gives the impression that the differences are huge but actually good operations and retrofitting can easily replicate the eco-performance. There is speculation that the emergence of eco-ships can potentially trigger a two-tier shipping market, with fuel-efficient ships on the one hand and inefficient ones on the other (Haider et al. 2014). With the first generation of eco-ships entering service, the shipping world could change dramatically. Since eco-ships are expected to be almost 30% more fuel efficient, the result could be that vessels that used to be considered as efficient will then be, ceteris paribus, less efficient and thus on the weak side of a two-tier shipping market.

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14.4.7 Smart Shipping International transportation has evolved from its original relationships with ships, aircrafts and other transportation vehicles to physically moving cargoes between geographical points to match supply and demand requirements. Transportation logistics involves managing a vast logistical system of players consisting of consigners, shippers, logistics service providers, facility operators, carriers and traders to enable cargo movement between physical locations. Shipping serves as a vital cog in modern global commerce. Martin Stopford talked about the future of shipping and pointed out digital shipping is the only solution in sight. He mentioned three ways to change the current shipping business model: smart ships, smart fleets using the integrated management systems and smart global logistics where shipping has to integrate with other industries. Smart global logistics involves building a port community system where Information and Communications Technology (ICT) is greatly used. The port is an essential node in maritime shipping and multimodal transport. It has evolved from a simple transhipment point to a connecting hub supporting the wider supply chains; hence there are increasing needs to fulfil various supply chain partners’ requirements. Having an efficient information flow helps to support time sensitive activities and communication with various clients. Traditional information systems deployed by a port facilitate the exchange of information and port operation often in an application-specific manner, which create problems such as costly and time-consuming duplication of information, information transfer errors and delays, inefficient aggregation of information and lack of visibility and availability. This causes delays in the supply chains and hinders the competitiveness of a port. A port-centric ICT system serves as a central hub which integrates and streamlines the information flow by bringing together different parties involved in a single platform.

14.5 Conclusion Demand for seaborne trade is derived, a fundamental principle of shipping economics. This is a critical concept for shipping policy and strategy because it highlights the need to understand the dynamics of the

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external factors that influence the demand for seaborne trade, such as, the state of the world economy, oil prices, commodity prices, transportation costs, financial liquidity, political policy and random shocks. The efficiency of shipping markets is another important concept extensively researched in shipping economic literature due to its theoretical and practical application, which provides shipping practitioners with a framework to explore excess profits between different strategic decisions. Most of shipping economics research is empirical in nature and focused on investigating the dynamics of the freight price. Understanding shipping economic theory provides some theoretical guidance and empirical applications that can be used as tools for strategic decision-making. In practical terms for shipowners this translates to strategic questions such as when to buy/sell a vessel? What is the right size to buy/hire? What type of freight contract to fix? What are the future expectations for the shipping industry? Selected contemporary topics in shipping economics are discussed to reflect on the future of international seaborne trade. The importance of a low carbon emission shipping environment is discussed because of the increase awareness of shipping’s contribution to global emissions of greenhouse gases and the need for further research on the subject for better integration into supply chains. Hence, eco-ships have emerged appearing to be the answer to environmental challenges. Finally, the concept of smart shipping in relation to smart logistics is discussed as an alternative to the current shipping business model, replacing the four-market model with a model of smart ships, forming smart fleets, using integrated management systems and smart global logistics that better integrate with other industries.

References Abouarghoub, W., & Alizadeh, A. H. (2017, June 27–30). A Markov Regime switching approach for forecasting short and long term dry bulk freight rates. Presented at International Association of Maritime Economists Conference, Kyoto, Japan. Abouarghoub, W., Mariscal, I. B.-F., & Howells, P. (2014). A two-state Markov-switching distinctive conditional variance application for tanker

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freight returns. International Journal of Financial Engineering and Risk Management, 1(3), 239–263. Abouarghoub, W., Nomikos, N. K., & Petropoulos, F. (2018). On reconciling macro and micro energy transport forecasts for strategic decision making in the tanker industry. Transportation Research Part E: Logistics and Transportation Review, 113, 225–238. Adland, R., & Cullinane, K. (2005). A time-varying risk premium in the term structure of bulk shipping freight rates. Journal of Transport Economics and Policy, 39(2), 191–208. Adland, R., & Cullinane, K. (2006). The non-linear dynamics of spot freight rates in tanker markets. Transportation Research Part E: Logistics and Transportation Review, 42(3), 211–224. Alizadeh, A. H., Huang, C. Y., & van Dellen, S. (2015). A regime switching approach for hedging tanker shipping freight rates. Energy Economics, 49, 44–59. Alizadeh, A. H., & Nomikos, N. K. (2009). Shipping derivatives and risk management. New York, NY: Palgrave Macmillan. Beenstock, M., & Vergottis, A. (1993). Econometric modelling of world shipping. London: Chapman and Hall. Glen, D. R. (2006). The modelling of dry bulk and tanker markets: A survey. Maritime Policy and Management, 33(5), 431–445. Haider, J., Katsogiannis, G., Pettit, S., & Mitroussi, K. (2014). The emergence of eco-ships: Inevitable market segmentation? Transport Newsletter, 64, 11. IMO. (2011a). Mandatory energy efficiency measures for international shipping adopted at IMO environment meeting [online]. Available at http://www.imo. org/MediaCentre/PressBriefings/Pages/42-mepc-ghg.aspx. IMO. (2011b). Sulphur oxides (SOx)—Regulation 14 [online]. Available at http:// Pages/Sulphur-oxides-(SOx)-%E2%80%93-Regulation-14.aspx. IMO. (2011c). Nitrogen oxides (NOx)—Regulation 13 [online]. Available at http:// Pages/Nitrogen-oxides-(NOx)-%E2%80%93-Regulation-13.aspx. Karakitsos, E., & Varnavides, L. (2014). Maritime economics: A macroeconomic approach. Springer. Kavussanos, M., & Alizadeh, A. (2002). The expectations hypothesis of the term structure and risk premiums in dry bulk shipping freight markets. Journal of Transport Economics and Policy, 36, 267–304.

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Olsen, O. A. S. (2014). Eco-design ships: An industry game-changer or just hype? Master’s thesis, Universitet i Agder/University of Agder. Pettit, S., Wells, P., Haider, J., & Abouarghoub, W. (2018). Revisiting history: Can shipping achieve a second socio-technical transition for carbon emissions reduction? Transportation Research Part D: Transport and Environment, 58, 292–307. Stopford, M. (2009). Maritime economics (3rd ed.). Routledge. Theocharis, D., Pettit, S., Rodrigues, V. S., & Haider, J. (2018). Arctic shipping: A systematic literature review of comparative studies. Journal of Transport Geography, 69, 112–128. The Maritime Executive. (2015, October 20). Norway launches green shipping project. Wright, G. (2011). Quantifying time-varying term-risk premia in shipping markets a possible approach. Journal of Transport Economics and Policy (JTEP), 45(2), 329–340. Yip, T. L., & Haider, J. (2018). Special issue on sustainable transport logistics. Transportation Research Part D: Transport and Environment, 58, 259–260.

15 A Contextual History of Port Research at Cardiff University Anthony Beresford and Stephen Pettit

15.1 Introduction The operational and evolutionary aspects of ports have long been a focal point of research within the Transport and Shipping Research Group (TSRG) in the Logistics and Operations Management section of Cardiff Business School. This continued a long tradition of groundbreaking port research, initially developed in the Department of Maritime Studies in the University of Wales Institute of Science and Technology (UWIST), subsequently Cardiff University. The lineage dates to the establishment of UWIST in the mid-1960s when a group of former seafarers founded the Department of Maritime Studies as part of an innovative strategy to strengthen the teaching and research portfolio of what was then a first-wave new university. A. Beresford · S. Pettit (*)  Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] A. Beresford e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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The expertise offered by the group was broad, and by the 1970s, under the leadership of Professor Alastair Couper, the Department had become established as a global centre of excellence for research and teaching, as well as for international outreach and advisory services based on the width and depth of commercial experience of the staff, now operating in an academic environment. The TSRG thus emerged from this maritime foundation and, from the 1970s onwards, built its reputation on recognised disciplines, such as Engineering, Economics, and Geography, as well as on less mainstream specialist areas, such as naval architecture, computing, and navigation. The group quickly became recognised as a world-leading research and teaching unit in the fields of global shipping services, port development and planning, shipping and port policy and, from the 1980s onwards, multimodal transport and marine-focused logistics.

15.2 Publishing History: Ports, Shipping, and Logistics Published output from the group took the form of mainstream academic papers and books (see, e.g. Goss 1968; Couper 1972; Gardner and Richardson 1973; Marlow and Gardner 1980; Gardner and Marlow 1983; Gardner 1985) training packages, consultancy reports, and general readership productions. This work often supported high-profile international advisory activities in partnership with, for instance, the World Bank, the United Nations Conference on Trade and Development (UNCTAD), the International Labour Organisation (ILO), the International Maritime Organisation (IMO), and Lloyd’s of London. Additional important output from the TSRG included Advances in Maritime Economics (Goss 1977); the Times Atlas of the Oceans (Couper 1983); the Improving Port Performance Package (Thomas and Roach 1984) which was used worldwide as an industry standard training programme aimed at middle management in the general cargo port sector; New Cargo Handling Techniques (Couper 1986); Lloyd’s Maritime Atlas 15th Edition (Beresford et al. 1987); the

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Times Atlas and Encyclopaedia of the Sea (Couper 1989); and Lloyd’s Maritime Atlas 16th Edition (Beresford and Dobson 1989) which formed the blueprint for all subsequent editions, to the present day. A summary of the development of Lloyd’s Maritime Atlas is presented in Box 1.1. A prominent area of research was Maritime Economics linking practical aspects of shipping to macro-economic theory, an example of output in this field was the seminal work of Evans and Marlow (1990) entitled Quantitative Methods in Maritime Economics. Box 1.1—History of Lloyd’s Maritime Atlas • Origin: Lloyd’s List of Ship Departures and Arrivals • First Edition: 1951 followed by new editions approximately every two years. • 15th Edition (Beresford et al. 1987): Major reworking and extension to include Inland Container Depots and substantial text • 16th Edition (Beresford and Dobson 1989): First Full Colour Edition— differentiation between ports, anchorages and terminals, facilities— tied in with Lloyd’s Ports of the World (1988). Port Facilities code maintained through to current editions. • 19th Edition (Lloyd’s 1994): addition of inland transport including rail and road • 29th Edition (Lloyd’s 2016)—evolved into an encyclopaedia: now includes national economic data, trade statistics, and port profiles. Additionally, over time there has been development in the map coverage to show, for example, main canals, changes to international territorial boundaries (e.g. Central Europe and Africa) as well as improved coverage of some countries (e.g. China).

An important branch of the TSRG’s subsequent research has focused on shipping operations, shipping policy, and human resource provision. This formed the basis of a research thread followed not only by the TSRG, but also by leading thinkers in Human Resource Management in Cardiff Business School which had itself independently diversified into shipping and port management research by the 1980s (see, e.g., Turnbull and Weston 1992, 1993). The quality of Turnbull’s work was recognised when it formed part of Cardiff Business School’s 2013 Research Excellence Framework submission.

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The employment of ex-seafarers viewed from a government policy perspective was another key theme picked up by Gardner and Pettit (1996). This long and detailed study provided valuable insights both into the challenge of reemploying ex-seafarers in shore-based positions and into the changing sources of supply for seafarers over time. The value of this research was recognised at the highest level by, for example, the UK government and it was used to inform policy on merchant seafarer officer cadet training and shipping taxation. A follow-up study was published in 2004 (Gardner et al. 2004).

15.3 Sponsored Research The port research undertaken by the TSRG and adjunct groups has always had a very strong outreach dimension, with financial support provided in the form of European Commission Framework Grants (e.g. WORKPORT, ATENCO, NEPTUNE), United Nations Conference on Trade and Development/Swedish International Development Authority funding (Improving Port Performance Projects), and from the United Nations Development Programme (Port and Dry Port Management). Finance has also been obtained from within the United Kingdom via the Department for Transport (Merchant Seafarer Officer’s Shore-based Employment). During the early years of port-related research, the work was focused into three main, distinct areas: port management, port operations, and port policy. Examples of major works completed under these respective headings, include: Goss (1968, 1977) which focused predominantly on policy, Thomas et al. (1982) who carried out one of the earliest rigorous studies of the efficiency of port operations, and Thomas and Roach (1984) who examined the subject of port management from a human resource and training perspective. For several years, therefore, academic output closely followed clear practical issues mostly in the areas of ports operations and policy. From the late 1980s onwards, in response to steadily increasing commercial pressures, increasing sophistication in modelling, changes in patterns of port ownership and the integration of ports into international

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supply chains, academic output was refocused onto the wider debates and issues, which were inevitably emerging. Examples of these include diversification of sources of capital, international part or full ownership of ports, commercialisation and privatisation, and value maximisation within supply chains. The esteem in which port-related research was held at Cardiff was exemplified by the periodic updating of Lloyd’s Maritime Atlas by the TSRG and the regular running of internationally prestigious port management short courses (now termed Executive Education) from the mid-1980s to the mid-1990s, which served senior port managers from, for example, India, West Africa, and China. An offshoot of this was the innovative inclusion of Dry Ports (facilities for inland customs clearance of international freight) in the Atlas, the research for which the TSRG played a lead role. This led to several subsequent projects on the same theme for the UN (Garnwa et al. 2009), and in the academic sphere (Beresford et al. 2012). In the late 1990s, a ‘state-of-the-art’ project was conducted for Ugland Capital Ltd which assessed the structure of global new and used vehicle trades, the vehicle movements themselves, and the changing dynamics of the market over time. Shipping lines could potentially utilise used vehicle exports/imports to improve vessel fill and hence overall service viability. Key ports involved in the used vehicle trades were identified, but the study showed that the flows were largely incompatible with new vehicle movements which are tightly controlled, and the flows run in contrary directions (Wells et al. 1999). Meanwhile, a major European research grant was secured in 1998 enabling the TSRG to examine the changing face of the port industry in a European context. The outputs of this research took the form of a series of reports and then a groundbreaking paper considering how ports evolve and develop over time (Beresford et al. 2004). At its core, the research proposed an evolutionary model termed the ‘WORKPORT’ model which suggests that different aspects of a port’s operational and management activities develop at different speeds according to need and market requirements. The popular view, which was held at the time, was that ports followed the UNCTAD generational model for ships such that ports could be categorised into groups, or generations, depending on how modern their practices are.

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The Cardiff research showed that this was inaccurate and that port evolution should be viewed in a more expansive and inclusive way (Beresford et al. 2000, 2004). In particular, the research demonstrated that port development should be viewed as a continuum, not as a ‘discrete-step’ model.

15.4 Ports in Logistics Chains From the mid-2000s onwards, research was refocused to consider the emerging issues, especially concerning the role of ports in supply chains. A parallel stream of research, following the lead of Goss several years earlier, revisited the whole question of policy direction and the role of governance in steering the advancement of ports (Gardner et al. 2006; Pettit 2008). Especially notable has been the way in which the measurement of port performance has become more sophisticated, and how ports have increased their efforts to maximise value from their operations (Pettit and Beresford 2009; Woo et al. 2013). The quality of this research attracted the attention of a substantial number of postgraduates, especially from countries such as Korea and Taiwan where port operations form a very large and prominent part of their economies, and where optimising port performance is potentially critical to trade competitiveness. Against this background, a series of doctoral theses were successfully completed by, for example, Lee (2005), Roh (2012), Hong (2009), and Woo (2010). These studies also resulted in further published papers in areas, such as port evolution and performance (Woo et al. 2011); seaport research evolution (Woo et al. 2012; Brooks et al. 2015); and the integration of ports into supply chains (Woo et al. 2013). On a closely related theme, for several years, the role of ports in multimodal transport chains has been widely recognised (see, e.g. the early works of Hoyle and Hilling 1984 and Hall et al. 2011). This theme has long been followed by the TSRG with the publication of several operationsbased case studies (Beresford 1999; Choi et al. 2010; Woo et al. 2011; Beresford and Zheng 2011; Bimaganbetov et al. 2017), each advancing our understanding of multimodal transport involving ports in different

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ways. Finally, in the background, the environmental agenda has become considerably more prominent and the TSRG’s most recent port-related research captures this important dimension in the form of a further series of rigorous case-based studies oriented towards environmental footprinting of particular international trades (Sanchez-Rodrigues et al. 2014, 2015; Harris et al. 2018). The traditional view that ports are organised, first and foremost, to serve ships, was challenged initially by, for example, Notteboom (1997) and de Langen (2004) who proposed that supply-chain competition was a more valid concept than port competition. The argument hinged on the twin concepts of through-transport and value-addition. The first concept holds that ports operate as components within transport systems not as isolated entities in their own right. Cargo rarely starts its journey at a port so ‘hinterland’ performance is at least as important as ‘port’ performance in cost or service-reliability terms. Neither cargo-owners nor financial customers are particularly interested in disaggregated elements of the transport chain, per se, except where they provide a significant competitive advantage vis-a-vis alternative chains or routes. The second concept suggests that cargo value rises the nearer it gets to the customer or end-user. The work of the TSRG in advancing the understanding of chain competition has been pivotal in several specific areas. Woo et al. (2011), for instance, examined port performance taking a holistic approach, in order to capture both port performance and chain performance. The application of a Structural Equation Model to the data enabled the inclusion of both traditional ‘hard’ metrics such as output, productivity and asset utilisation, and of ‘soft’ measures such as satisfaction, service quality, and reliability. Although the research was focused on the Korean port environment, its blend of mechanical and behavioural metrics is robust and potentially universal in its applicability to port operational environments elsewhere. Harris et al. (2018) captured the concept of chain competition in the context of UK wine imports from alternative source regions. The research demonstrated that chain competition often involves complex inputs, such as value addition activities, plant location, bulk versus unitised transport, and regulatory constraints imposed at government or cross-government level. The interactions between standard competition

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metrics, such as speed, cost, and capacity were shown to be distorted by regulatory and operational constraints which lead to multichannel solutions which can adjust according to season, or in response to political or non-commercial drivers. This thread of the TSRG’s research is particularly promising as it includes inventory calculations and environmental auditing of the respective wine supply chains as well as the ‘cost-plus’ commercial approach widely observed in the literature. In a different context, the TSRG examined alternative locations for automotive manufacture and supply, contrasting a ‘least manufacturing cost’ with a ‘close-to-market’ assembly strategy (Nieuwenhuis et al. 2012). A holistic view was again taken such that the port-related logistics operation of ship-loading was placed into the context of full supply-chain cost and of the carbon footprint of the two options. Ports were again shown to operate as components of complex transport solutions which can be adjusted according to commercial or other requirements. This work has also been judged as making a significant advancement to the understanding of the operational setting of ports. Most recently, the ‘location dilemma’ was explored by Mason et al. (2017) in a re-examination of the contention that seaports often represent the ideal location for customer-tailoring both product and services, capitalising on economies of scale and scope at the same time Notteboom and Rodrigue (2005). However, the new work of the TSRG suggests that logistics activities, such as value-added services including consolidation and customer-tailoring of products, have become more footloose over time so that multiple ‘correct’ solutions have emerged depending on circumstances and customer preferences which can both vary of the short, medium, or long term (Mason et al. 2017). The comparative advantages of alternative strategies that lie behind adopting either a ‘port-centric’ approach or an inland ‘close-to-customer’ stance were identified as important influences on logistics effectiveness for many organisations. Such considerations are often influenced by a wider range of factors including customer value, safety maximisation, and emissions minimisation (e.g. Sanchez Rodrigues et al. 2015). Modern logistics operations thus now address issues other than cost minimisation; a broad spectrum of value criteria is now applied to a much bigger group of stakeholders.

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The same tendency has also been recognised in the manufacturing sector through the research of the TSRG (Lynch et al. 2012). This analysis improved the understanding of the reasoning behind adopting alternative port-centric or inland location decisions. The location decision is contingent on the circumstances faced, and there is no generic ‘right answer’ in determining the best location. The identification of the best solution should follow from a holistic appraisal of all factors including a choicecriteria base that is clearly wider than just cost, and not just from a supply chain perspective. The evaluation process itself also needs to include a time dimension as any investment decision must be relevant for the whole period of use, which could extend over many years. Thus, flexibility ­criteria are also important so that the degree of adaptability to changing circumstances can be addressed, and that an appropriate judgement can be made to select the best location decision for specific circumstances. The most recent substantive work on ‘Ports’ produced by the TSRG is Port Management—Cases in Port Geography, Operations, and Policy (Pettit and Beresford 2018). The book is structured around four sections which, together, capture the pertinent dimensions of the world’s port industry via 18 chapters of which 13 take the form of regional or national case studies; and the remaining five take an over-arching look at contemporary challenges facing the port industry in the twenty first century. The expertise of 40 established academics, advisers, and commentators has drawn upon to create this major work which contributes significantly to advancing the understanding of the intricacies of a complex and pivotal industry. The four main sections respectively cover: • Global challenges, port governance, values creation, and value capture • Port resilience, environmental dimensions of port operations, transport, and uncertainty • Port policy, competition strategies, and port pricing • Port choice, ports in shipping and trade systems, and port location. The publication of ‘Port Management’ was particularly timely in a world which is now facing an unprecedented range of challenges from

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environmental, commercial, social, and geo-political perspectives. Notable amongst these are operational issues, cyber-security threats, and the physical and practical challenges facing traders, transport operators, and ports in ‘keeping the show on the road’. In a rapidly changing, and increasingly uncertain world, these challenges are particularly pertinent.

15.5 Port Resilience Resistance to shock, ability to ‘bounce-back’, robustness, and future-proofing could be seen as forms of resilience in the business world are discussed in detail in Section Two of the book which captures this important aspect of port operational sustainability (Pettit and Beresford 2018). Specifically, in the context of port management, the contributing authors have taken a case-study approach to examining the wider question of port resilience, interpreting resilience in several different ways. It is widely recognised that ports play a critical role in transport chain operations, and as such, they require a certain level of resilience to adverse impacts, and there is an obvious need to ensure that ports are robust enough to recover from negative impacts. It is shown that resilience is difficult to achieve because many different types of organisations work together to provide efficient port operations (Grainger et al. 2018). The authors widely acknowledge that port resilience is difficult to analyse or quantify because overall control is subject to market forces and, as such, is less visible (Vonck and Notteboom 2018). A key issue is the extent to which stakeholders can work effectively together in order to ensure a port is as resilient as possible. It is now, therefore, contended that resilience requires greater attention from policymakers and practitioners than was previously the case (Cahoon et al. 2018). A port’s range of capabilities, and its ability to sustain or adjust those capabilities, largely determines its position in the marketplace and its propensity to sustain its position in that market. Building capacity and diversification are typical examples of how ports anticipate and prepare for unforeseen events, adverse or otherwise. Vonck and Notteboom (2018) also emphasise the fact that preparation for uncertainty and

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reaction to change normally depends on the nature of the cargo; ports in the Hamburg-Le Havre range are taken as live cases. They show that ports are commonly preparing for unexpected, low-probability/ high-consequence adverse events. Cahoon et al. (2018) also address this issue by identifying ‘criticalinfrastructure’ in the context of Australian port operations. Specifically, the authors highlight thresholds above which risk identification and assessment processes might be ineffective. Ports are shown to be an important component of the Australian national critical infrastructure system, and their structures need to reflect both internal business pressures and external government requirements to maximise organisational resilience (Pettit and Beresford 2018). This research parallels that of Kwak et al. (2018) which proposes a hierarchy in risk management applied to international shipping and maritime logistics. This important research, conducted within the TSRG, has wide-ranging implications for the understanding of approaches to risk identification and mitigation in a maritime context.

15.6 UK Port Policy A measure of the public value of the TSRG’s work in the areas of port development and port policy is the contribution the group makes to UK port policy both at national and regional levels. In 2000/2001, for example, the UK’s largest ever single port-expansion project was proposed at Dibden Bay, Southampton (800 hectares) in the form of an entirely new container terminal promoted jointly by P&O and Associated British Ports. The curious feature of the proposed terminal was that it was to be located on an area of set-aside land which was seen as ‘greenfield’ by the local residents (as it had been used for many years for recreation purposes) and ‘brownfield’ by the proposers as the plot had been earmarked specifically for possible future port expansion at some point in the 1970s. The expertise of the TSRG was called upon to provide significant input into the Public Enquiry under the heading of ‘The Need and Alternatives’ (Beresford 2001). The outcome of the enquiry, with the

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Inspector’s judgement partly hinging on the contribution of the TSRG, was that the environmental impact of the proposed development was simply too great and that the case for the new terminal was simply not persuasive enough in light of the alternatives highlighted by the TSRG. The final judgement was made in 2007 and the Public Enquiry had cost the promoters £40 million [around £60 million at current prices] for case compilation and submission alone, excluding additional hidden costs such as staff time-loss. The TSRG has similarly contributed regularly, and over a long period of time, to the policy debate concerning Welsh ports and their role in the economy (see, e.g., Beresford 1995). Especially significant here has been the contribution of the TSRG to this debate via participation in the House of Commons Welsh Affairs Committee (2009). This contribution highlighted the integrated nature of the Wales-England port system, with the big English ports (e.g. Dover, Felixstowe, Southampton, Immingham) handling Welsh cargo and the prominent Welsh ports such as Milford Haven and Holyhead handling substantial volumes of freight (in various forms) starting in, or destined for, England. Within the same document, the TSRG also highlighted at government level how the land bridge function of Wales [Ireland–England] may be impacted going forward. The British ports are thus shown to operate as a single interlocked system rather than as two separate subsystems, one in Wales and one in England, and the strength of the system is derived largely from its closely integrated structure. A contemporary example of business uncertainty is the possible impact of the UK’s departure from the European Union on the port industry and is particularly pertinent to the trajectory of the TSRG’s research in the sphere of port management and operations, as the group’s expertise has been called upon at governmental level. This key contribution is ongoing, and this relates to the Welsh Government’s deliberations on the possible impact of Brexit on Welsh ports (O’Carroll 2017; Devane 2018). The work suggests that the impact could be mainly in terms of the potential diversion or loss of cargo flows, or in terms of new or expanded business from certain markets

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(Lovering 2016; Beresford and Potter 2017a, b). Currently of ­particular interest to the port business community is the possibility of establishing new or re-invigorated Freeport operations at selected ports such as Milford Haven or Cardiff. The TSRG have again been prominent in this widely publicised, and potentially very important, debate (Potter 2018; BBC 2018). In this context, the expertise of the TSRG has also been regularly called upon by both the UK and Welsh governments to provide ‘strategic pointers’ or indeed opportunities for business growth in a postBrexit world (Beresford and Potter 2017a, b; Beresford and Jones 2017; Senedd Research 2017; Freight Transport Association 2017; Potter 2018). A further example highlighted by the TSRG has been the move towards ‘integrated partnering’ in trade flows and shipping through information platforms such as Portbase (originally Rotterdam— Amsterdam ports and logistics providers) and Blockchain which enables real-time interrogation of supply chains by operators and service providers at a super-granular level covering tracking, tracing, planning, and coordination.

15.7 Port Futures and Research Opportunities Increasingly complex and cross-national patterns of port and terminal ownership are now edging into ethical issues, for example, territoriality and data security, as well as extending the geographical and managerial separation between owners and the operation of the assets they own. This inevitably results in a meeting of contrasting business cultures which are required to blend around a common goal. Here, there is potentially high-value research to be carried out. Other emerging research areas are more operations-focused, such as crew-less ships, environmental foot-printing, and alternative marine power sources. The impact of possible ultra-large, ultra-wide container ships on terminal design, for instance, is important because it could trigger radical operational solutions such as both-sides loading/unloading necessitated by the beam of the ship exceeding the outreach limits of quay cranes. In

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turn, this could dramatically redraw the map of typical port calls as many (even most) ports may not be able to accommodate the ships or bear the investment burden. This would first represent a step-change in infrastructure design, and consequentially it would have major implications for port cost structures, investment sources, and maritime logistics. In that sense, operations would collide head-on with strategy. These areas represent rich pastures for future research which is well within the research capability of the TSRG, and which it is well-positioned to undertake. An example of contemporary research by the TSRG is the competitive position of the Arctic shipping routes via Canadian or Russian waters. (Theocharis et al. 2018). These have emerged as significant players in deep-sea trade especially since the reduction of ice cover stemming from global warming which is at its most evident in the Arctic (Kennedy et al. 2017). Other notable changes in port management and ownership have been the long-term shift towards foreign-ownership of ports or port-assets and, most recently, the move towards the ‘landlord’ model and away from ‘full ownership – full service-provision’ on the part of Associated British Ports (de Langen 2018). This is a potentially fertile research area for the TSRG going forward. The step-by-step evolution of ports and port services and, by extension, of port research will clearly remain important academic input into, for example, policy matters, port and shipping economics, and port management approaches. These areas of research, including related matters such as labour reskilling and the geography of sea transport, will likely prove to be at least as valuable in the future as they have been in the past. This trajectory would clearly build positively on the legacy of earlier key thinkers, such as Professors Alastair Couper, Bernard Gardner, and Richard Goss, of Cardiff University’s Department of Maritime Studies, whose work inspired so many port and shipping-related research threads in subsequent years. The TSRG, in conjunction with its network of international ­co-researchers, is well positioned to play a lead role in advancing our understanding in these important fields.

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16 Retail Clothing Returns: A Review of Key Issues Sharon Cullinane, Michael Browne, Elisabeth Karlsson and Yingli Wang

16.1 Introduction Over the past decade, there has been a huge global increase in online shopping. Although there have been some hints of stabilisation of this growth over the past few years, it has continued its upward trend. In 2016, global online shopping sales were estimated to be close to S. Cullinane · M. Browne · E. Karlsson  Department of Business Administration, School of Business, Economics and Law, University of Gothenburg, Gothenburg, Sweden e-mail: [email protected] M. Browne e-mail: [email protected] E. Karlsson e-mail: [email protected] Y. Wang (*)  Logistics and Operations Management Section, Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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US$1200b and are estimated to top US$2100bn by 2021 (Bohnhoff 2016). In the European Union (EU), sales are estimated to be €455bn in 2015, with a growth rate of around 13% on the previous year (Ecommerce Europe 2016a). The biggest single product sector in most countries for e-shopping (in terms of number of items bought) is clothing. Clothing, however, also accounts for by far the largest category in terms of returns, with, on average, 25% of all clothing items, increasing to 40–50% of high fashion items bought online. This paper analyses the reverse logistics operations associated with these returns and, using secondary data, highlights the environmental consequences. The topic is neglected yet very important (Mangiaracina et al. 2015), particularly in terms of the environment. The paper starts by with the clothing e-tail sector and then considers the growth in cross-border e-tailing. The returns associated with both international and domestic markets and the effects of these on the reverse logistics activities of e-tailers are then discussed. The paper highlights the environmental consequences of the reverse logistics of clothing returns and suggests some policy options in terms of both weak and strong sustainability perspectives.

16.2 Definitional Issues The clothing market retail landscape is very complicated and, with new retail formats appearing all the time, difficult to define (Deloittes 2017). Precisely what constitutes an e-tailer is even more complex and fluid. In a report for the EU, Okholm et al. (2013) define an e-retailer simply as ‘a firm selling online’. Conversely, an e-shopper is defined as a ‘consumer shopping online’. However, traditionally, a retailer owned the goods that it sold. An alternative definition of an e-tailer, therefore, could be that it is a business which sells products online, but crucially, which owns its own inventory (Deloitte 2017). Companies, such as Alibaba, Amazon Marketplace, Marktplaats and eBay, which own none of the goods that they sell are defined as ‘marketplaces’ as they earn most of their revenue from fees and commissions from buyers and sellers. Such marketplaces are treated differently in the two definitions

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above. In the Okholm et al. definition, they are treated as e-tailers, whereas in the Deloittes definition they are not. Amazon owns some of its inventory but also acts as a marketplace for other companies, further confusing the definitional problems. Such definitional problems must be borne in mind when analysing the statistics. However, irrespective of the definitional issues and the format of the company, all companies selling clothing have an impact on the overall clothing market and the logistics associated with it. The retail clothing sector can be roughly divided into the following broad categories; 1. the ‘pure’ (i.e. online only) e-tailer (such as Zalando, Asos and Boozt); 2. the so-called ‘bricks and mortar’ only ‘retailers’ (mainly small, single shop retailers); 3. the ‘mixed’ ‘(r)e-tailers’ (such as H&M, Next and C&A) which have both an online presence and physical stores and sell mainly clothing; 4. the generalist e-tailers (such as Amazon) which sell clothes online but do not specialise in clothing; 5. the (r)e-tailers of more ‘specialist’ clothing products, such as sportswear, infant clothes, workwear and outdoor clothing. 6. the discount clothing e-tailers (such as boohoo); 7. the generalist (r)e-tailers which also sell clothes (such as Tesco, Carrefour and Sainsbury); 8. the marketplaces (such as e-bay, Alibaba, Amazon Marketplace). The current and projected market for clothing e-shopping is shown in Table 16.1 which illustrates that although the market is projected to grow in all three major global regions, it is forecast to grow fastest in China. Okholm et al. (2013) show that if shopping online in all European countries was as common as it was in the United Kingdom (the country with the highest level of e-shopping), then e-shopping would increase by around 50% in Europe. The increase in online clothing shopping is a result of many factors, some are specific to the clothing sector, but some are applicable more generally:

6.3 9.6





CAGR 2016–2021(%)

82,130 199,075 18


annual growth rate/average growth rate per year Source Statista (2016) digital market outlook


Users 126 (e-shoppers) (millions) Revenue 44,897 (e-tailing) (million $US)

Table 16.1  The online clothing market, 2016 and projected United States China 2016 2021 CAGRa 2016 2021 2016–2021(%)



Europe 2016






CAGR 2016–2021(%)

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16  Retail Clothing Returns: A Review of Key Issues     305

(a)  History of consumer behaviour:

• Catalogue shopping for clothing has been long established, so both retailers and customers have had some history in buying ‘remotely’. • Internet shopping has become normalised.

(b)  Technology:

• The geographical spread and continuous upgrading of broadband have provided a reliable Internet connection; a pre-­requisite to e-shopping. • The popularisation and upgrading of mobile devices including tablets and smartphones have made ordering much easier. In the UK, so-called M-commerce orders overtook orders from desktop computers in 2014 (IMRG 2015). • The increasing penetration of smartphones (using 3G and 4G) and related apps has facilitated a large increase in orders from mobile phones. In the United Kingdom during the 3rd quarter of 2016, sales made on smartphones equalled those on tablets for the first time (IMRG 2016). •  Mass customisation through analysis of big data has facilitated iMarketing based on past purchases and services such as ‘curated shopping’ (where individual outfits are put together by personal style advisors). • Emerging technologies such as virtual fitting rooms using 3D avatars has made online shopping very exciting for shoppers. • The rise of comparison websites has established confidence in brands and companies. • The development of secure payment solutions has given customers the confidence to shop online.

(c)  Social Media: •  The influence of social media platforms, such as Facebook, Instagram, Snapchat, etc. has encouraged people to buy products used by key influencers and has also encouraged impulse buys.

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(d)  Product Nature: • Clothing is well adapted to online shopping and delivery, in that items generally have a high value to weight ratio, require no special handling or storage measures and are suitable for many different delivery options. (e)  Logistics: • The purchased products all need to be delivered to the customer. The development of sophisticated logistics systems and processes has enabled this and the provision of free delivery and returns has encouraged the growth of online shopping.

16.3 Cross-Border e-Shopping Although buying goods online was initially largely confined to the purchase of goods from domestic retailers, cross-border e-shopping is becoming more common. Okholm et al. (2013, p. 35) define domestic e-commerce as ‘shopping from the website of a domestic retailer or a foreign retailer with a local webshop in the e-shoppers’ country. In Europe in 2015, 16% of e-shopping purchases were cross-border, compared to 11% in 2011—an increase of 45% in four years (EcommerceEurope 2016a). According to eMarketer (2016) citing data from Paypal and Ipsos gathered in 2016, around 50% of e-shoppers worldwide made a cross-border purchase of clothing, apparel, footwear and accessories; more than for any other category of goods. Frederick (2016) in his report on worldwide cross-border sales, also notes that clothing is by far the most frequently purchased product category. According to Wright (2016), globally 67% of consumers who shop abroad buy because prices are lower outside of their country. According to DIBS (2015), a large online digital payment company, a survey of 5000 Internet found that 48% of Danish online shoppers, 40% of Swedish online shoppers and 54% of Norwegian online shoppers had purchased something from a foreign website in the previous 6 months.

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As shown in Table 16.2, ‘lower prices’ was quoted as the most important motivation, followed by product availability. A survey of online shoppers in the United Kingdom (eDigitalResearch and IMRG 2015) found that 69% of UK consumers engaged in cross-border shopping for better prices and 47% shopped crossborder for better product availability (quoted in IMRG 2016, p. 30). This increase in cross-border shopping derives partly from the growing dominance of large, practically (but no longer necessarily wholly) ‘pure’ e-tailers such as Amazon and marketplaces such as e-bay, which currently account for well over 50% of the market in countries where they are present (IPC 2016). In the EU, cross-border shopping benefitted from preferential EU legislation. The creation of a ‘Digital Single Market (DSM) for e-commerce and online services’ is one of the ten political priorities of the EC. According to the European Commission (2015), a DSM is defined as a market in which: …the free movement of persons, services and capital is ensured and where the individuals and businesses can seamlessly access and exercise online activities under conditions of fair competition and a high level of consumer and personal data protection, irrespective of their nationality or place of residence.

Contained within the DSM philosophy is proposed legislation on ‘geo-blocking’ or ‘geo gating’ which occurs when companies and online Table 16.2 Reasons (percentage)









Denmark Sweden Norway

Lower prices than in domestic online shops Product/service not available in domestic online shops Product/service not available in domestic physical shops Lower prices than in domestic physical shops Lower tax/VAT

59 55

61 61

65 61




31 8

29 7

36 10

Source DIBS (2015) Nordic e-commerce, DIBS payment services, Stockholm. http://

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retailers ‘…apply barriers and impose restrictions to consumers on the basis of their nationality or place of residence’ (European Commission 2016). Barriers to cross-border e-shopping currently still exist and will need to be broken down before cross-border e-shopping is fully accepted by consumers. In the UK, according to (2015), reasons why people do not buy from overseas sites are: • • • • • •

returns practicality (60%), delivery lead times/tracking (59%), shipping/returns costs (55%), payment security/convenience (53%), customer service challenges (48%), language (38%).

It can be seen from this that logistics has a large part to play in improving the willingness of consumers to buy from foreign sites.

16.4 Reverse Logistics and Returns Reverse logistics, however defined, has evolved as one of the fastest growing fields within business logistics (Nel and Badenhorst 2012). The Reverse Logistics Association defines reverse logistics as ‘…the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal’ (RLA 2016). As long ago as Terry (1869), the importance of dealing with returned products in retail activities was identified. With the advent of omnichannel retailing (involving the integration of physical and digital channels), the magnitude of returns has increased, particularly in the clothing sector. Despite this, there is very little academic literature on reverse logistics within the clothing sector; most of the evidence and information comes from commercial sources. It has long been known (Stock and Mulki 2009) that many customers make ‘intentional returns’, that is, they order several variations on one product (in several colours or sizes) and return the unwanted

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ones. However, there is evidence that this behaviour is becoming more extreme and widespread. Shoppers are beginning to treat their home as an online changing room (Fit for Commerce 2016), routinely ordering multiple items and sending back the majority (or sometimes all) of the order. There is also evidence that people are ‘hedge spending’, that is, buying items at full price knowing that they can return them if they are discounted later (Ram 2016). Approximately 60% of online shoppers in Sweden have returned at least one item of clothing in the previous year (Postnord 2014). In the UK, the long-term return rate for clothing purchased online is 23% (IMRG 2016), in the United States it is around 40% and in Germany (where until 2014 free returns were a legal right) it is 70% (Ram 2016). A survey of 1000 online shoppers in the United Kingdom commissioned for the BBC in 2016 found that women’s clothing had been returned by 63% of them and that 56% of all respondents who bought any type of clothing online in the six months to May 2016 had returned one or more items (Clancy 2016). On average in Europe, the return rate for online clothing shopping is around 25% (Ecommerce– Europe 2016b). As people’s experience of online shopping increases, so too do their expectations regarding delivery and returns. Same-day or ‘immediate’ delivery is becoming the norm in many cities. Some companies, for example Amazon, are aiming at delivery within 30 minutes of ordering. When customers have a bit of spare time, they may order a selection of clothes, try them on and send the unwanted items back within the day. This behaviour is being enabled by the ‘free’ returns policies of many (r)e-tailers. It is difficult to find comparable statistics which cover all categories of clothing (r)e-tailer, but Table 16.3 shows the returns policies of the ten largest (according to mixed clothing companies in the EU. In Table 16.3, most of the large companies offer free returns on goods bought online. The returns position is not always clear for goods bought online, cross-border. Most of the large companies have dedicated country-based websites offering free returns of goods bought within those countries. Others, notably Marks and Spencer, Next and

310     S. Cullinane et al. Table 16.3  Returns policies of the top ten clothing retailers in Europe (2015) Company

Turnover (€bn) Stores (2015) Headquarters Europe

Inditex (major 11.8 brand Zara, online through zara. com) H&M 12.1 Marks and 11.9 Spencer

Returns policy




2480 1055

Sweden UK

Free Free from the UK, customer pays from overseas Free




Primark Next

6.5 4.9

320 678

Belgium/ Germany UK UK

Arcadia 2.5e (includes Topshop, Miss Selfridge) Debenhams 1.9e











Hong Kong/ Germany Italy

Customer pays Charges £4 for some returns, but free for ‘members’ Free

Free from the UK, customer pays from overseas Free Free

Source plus individual company websites. Note that some retailers have different returns policies in different countries

Debenhams normally deliver free (over a certain nominal amount) internationally, but charge for international returns. Reliable information on ‘pure’ e-tailers is more difficult to find, partly because some of the companies trade under multiple names. The major clothing e-tailers include: • Asos, headquartered in the UK, which advertises ‘always free shipping and returns’

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• Zalando (the online shop of the Otto group), headquartered in Germany, which advertises ‘always free shipping and returns’ • Amazon, headquartered in the US, free returns on clothing • Net-A-Porter, headquartered in the UK, advertises free returns • Boozt, headquartered in Sweden, charges 6 euros for returns but has free returns if the consumer uses their pre-printed return label. ‘Free returns’ are not in reality ‘free’ as their cost will inevitably be covered somewhere in the process. It could be argued that pure e-tailers can shoulder the increased logistics and the cost of returns. However, research in the United Kingdom by Barclaycard suggested that 20% of e-tailers had increased their prices to cover the costs of managing customer returns (Clancy 2016). Products may be returned for a variety of reasons and in various states of condition. They may be returned unopened; opened but not worn; damaged or distressed in a way which can be repaired or damaged/ distressed in a way that cannot be repaired. Returns in all these categories must be managed effectively. Several authors including Rogers and Tibben-Lembke (1998), Schwartz (2000), Lambert et al. (2011), Daaboul et al. (2014) present a reverse logistics network that includes four essential activities; gatekeeping, collection, sorting and disposal. Gatekeeping refers to the point of entry into the reverse logistics system. This could be defined in terms of monetary value (e.g. only products worth over €5, or only products where the return value exceeds the postage, etc. are sent back up the supply chain), or some other criterion. The returned products are examined for defects and other problems. This step is critical since it determines whether a product can enter the returns process. The second activity is collecting the returned products from the end customer (Daaboul et al. 2014). According to Lambert et al. (2011) collection involves two stages; the pick-up of the returned product and its transportation. This can be done by the (r)e-tailer, a third-party logistics provider or the customer themselves (for instance, by returning products to stores), depending on several factors including complexity of product, reason for return and the territories involved, amongst others (Lambert et al. 2011).

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Sorting involves deciding the fate of the collected product. Sorting may not be done in the country where the goods are sold or even from where they are distributed. In one large clothing company studied by the author in Sweden, for instance, returns are sent to one of several returns sorting facilities in low-cost European countries. This same company used to send the products to be repackaged in a low-cost Asian country, but now also send them to low-cost European countries. Disposal entails exit from the reverse logistics system. A large proportion of the items will be distributed back to the stores or customers, as new. A further proportion will be sold through discount stores or outlet centres. Products which are difficult to place through these channels will be donated to charity and the final, usually very small proportion, maybe be sent to landfill or will be recycled by specialists in this field. Large companies, particularly those with a background in the catalogue business, have had to deal with large numbers of postal returns for many years and are likely to have reasonably sophisticated processes in place to deal with them. At the strategic level, to maximise the asset value of returns, companies can decide that the returns issue is outside of their core competence and can outsource the whole process (Bernon et al. 2011). This might be particularly pertinent in the case where the volume of returns is high and where the lifecycle of the product is short. Several companies have now established themselves in this specialist market. ReBound Logistics (part of the iForce group), for example, market themselves as experts in e-tail return logistics in the United Kingdom and Europe. Another such returns outsourcing company in the UK, Clipper Logistics, operates its ‘Boomerang returns management solution’, receiving as many as 80,000 items of returned clothing a day from several major (r)e-tailers in large consolidation centres ( Similar companies operate throughout Europe. Many companies, however, deal with the returns themselves. In a survey by Barclaycard of e-tailers in the United Kingdom (Barclaycard 2016), 57% admitted that dealing with returns was having an adverse effect on the day-to-day running of their business. According to

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Ecommerce-Europe (2015), the average returns cost per order including delivery and processing in the United Kingdom was £4.83.

16.5 Environmental Impacts 16.5.1 Domestic Returns There are several environmental benefits of reverse logistics. Implemented properly, reverse logistics policies can decrease the proportion of returns that end up in the ‘disposal’ stage of the process by, for instance, focusing more attention on the ‘sorting’ stage of the process. Additionally, instead of the customer or the e-tailer disposing of products in landfill sites which has a negative impact on the environment, the products can be reused or recycled in some way (Nel and Badenhorst 2012; Grabara et al. 2014). Many clothing retailers now have in-store recycling points where customers can deposit unwanted clothes purchased either from the same retailer or sometimes from any retailer. Some retailers give consumers a credit voucher for returning unwanted clothing. These unwanted clothes are usually passed on to charities, which in turn, sell them in their own shops, use them directly in their charity work or recycling them into, for instance, mattress stuffing. By extending the product life cycle, organisations can be more cost-effective and ‘ecologically friendly’ (Dowlatshahi 2000). Any goods returned will, however, inevitably incur environmental costs in the process and, in general terms, environmental sustainability will be greater the fewer the number of products returned. There are several major sources of environmental problems including the longhaul (trunking) element of any trip (Cullinane 2014; McKinnon and Edwards 2014; Piecyk et al. 2013), the short haul (distribution) element, the last mile trip to/from the customer (Mangiaracina et al. 2015) and the logistics storage and handling facilities in terms of warehouses/distribution centres (for a discussion of these effects, see for

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instance Cullinane 2009, 2016; Van Loon et al. 2015; Carrillo et al. 2014; Baker and Marchant 2015).

16.5.2 Cross-Border Returns The precise environmental consequences of the reverse logistics of cross-border e-shopping are not so much dependant on whether the products originate from domestic or cross-border markets per se; It is the level of organisation/coordination and composition of the trips (in terms of transport modes, routes, links and nodes and timings) that are important. It has been shown that when people buy cross-border they often buy from within groups of countries close by that they trust (e.g. another Nordic country in the case of Scandinavia) (OECD 2013). The existence of a border itself is not necessarily the issue—it may be physically closer for a customer from Sweden to buy from somewhere in Denmark, for instance, than from somewhere else in Sweden. The one caveat here is that the United Kingdom is often the major source of cross-border purchases in Europe (Ecommerce-Foundation 2016). This causes additional problems because its island location means that parcels must travel overseas. In terms of the warehousing/distribution facilities a similar argument can be made. The existence of country borders means that the number of warehouses is generally greater than if the borders did not exist. Again, however, it is not the borders themselves that cause the problems, it is the lack of coordination between individual country’s postal and other parcel delivery services that cause the problems. A substantial proportion of online orders originate from China. Currently (as of December 2016), within the EU, China has been designated the preferential status of ‘developing country’ as far as postal services are concerned and therefore receives preferential postal rates to Europe, leading to ‘floods of cheaper parcels via Chinese post …. to the detriment of online trade in Europe’ (Ecommerce Europe 2016a). This is likely to increase demand for purchases from China and is likely to be more detrimental to the environment, depending on the modes of transport used for transportation.

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16.6 Policies to Improve the Environmental Impacts of Returns What is needed to minimise the environmental impacts of reverse logistics in the clothing industry depends somewhat on whether we are interested in ‘weak’ or ‘strong’ sustainability. This distinction was originally discussed in relation to human and natural capital by environmental economists such as Solow (1973) and Hartwick (1978). Their discussion centred around whether human capital could substitute for natural capital as natural resources are depleted. It was later adapted to transport by Whitelegg (1994) who argued that the ‘weak’ approach involved situations where environmental objectives are traded-off against economic and social objectives. In the ‘strong’ approach in comparison, environmental considerations impose an absolute constraint on the achievement of economic and social objectives. To give an example, take the purchase of an item of clothing. In the ‘weak’ approach, issues such as the origin and production techniques involved in the manufacture and distribution of that item of clothing are important (e.g. is it made from sustainably produced wool produced from sheep bred locally). At the extreme of the ‘strong’ approach, whether that item of clothing is required at all is more of a consideration. On the ‘stronger’ end of the spectrum, the following aspects of reverse logistics could be deemed to be important: (a) Return mitigation strategies, to reduce the number of returns that customers make. In a survey of 2000 online shoppers in the United Kingdom carried out by the distribution company Hermes in 2014 for IMRG (2015), 44% of respondents blamed retailers for the high level of returns, stating that pre-purchase product information was not good enough. One return mitigation strategy might be to encourage customers to try on products in store before buying online. However, for most clothing companies, the range of products available online is greater than that available in store. Many companies have ‘exclusive online’ offers which cannot be tried on in-store. For pure e-tailers the ‘try before you buy’ option is simply

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not available (unless it is a branded item which can be tried in another company’s store). Likewise, for customers living outside of cities, where major retail stores do not exist, it is also impossible. Technology can also play a part in reducing returns. Vignali and Reid (2014) discuss several possibilities, including virtual fitting rooms that measure a customer’s size. Fit for Commerce (2016) discuss the use of avatars to illustrate what the clothes would look like on the customers and 3D profiles to measure customers’ sizes. One UK-based company, ReBound Logistics, operates by providing ‘predictive returns intelligence’ which it says can reduce returns substantially by analysing patterns of returns and highlighting to retailers which branches/channels and which products have the highest return rates. (b) Charging, or charging more for returns to deter customers from making returns. This may be difficult as returns policies are critical in a consumer’s purchase decision. A UPS/Comscore survey of online shoppers in 2013 (UPS 2014) found that 74% of purchase decisions were influenced by the returns policy of the online shop. When customers become confident of the returns process of a company, the loyalty to that company increases and they shop more with that company (IMRG 2015). In 2012, the CEO of online clothing retailer Zappos stated ‘our best customers have the highest return rates, but they are also the ones that spend the most money with us and are our most profitable customers’ (E-consultancy 2012). In the UPS/Comscore survey, 67% of customers said they would shop more with the retailer if they had a hassle-free returns policy. In Table 16.3, only one of the large clothing companies charged for returns. At this stage of the e-tailing market cycle, companies are concerned with building/growing their markets rather than focusing on profitability. Until this phase is complete, it is unlikely that charging for returns will become the norm. On the ‘Weaker’ end of the spectrum, policies might include: (a)  Sharing of returns consolidation centres between retailers and between ‘returns specialists’ who use consolidation centres to group

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together returns to a number of large (r)e-tailers. Smaller (r)e-tailers could adopt the same practice by combining to operate joint consolidation centres. (b) Sharing of delivery/returns services to/from customers. Many of the adverse environmental effects of e-tailing are caused by the large number of delivery vans to make the ‘last-mile’ deliveries. Sharing of delivery/returns services could reduce the number of vans, thereby reducing environmental damage per parcel returned. (c)  Better integration of international postal delivery services could reduce the number of warehouses used as well as streamlining deliveries/returns. (d) Greater use of unattended delivery options, such as locker banks, drop-off points in shops/offices, etc. (see, e.g., McLeod et al. 2006; Xu et al. 2008). Such options sometimes reduce the width of the delivery/pick-up windows as well as obviating the need to call at individual residences. Immediate deliveries/returns are, however, diluting the benefits of such alternatives. (e) Use of less environmentally damaging vehicles. Some parcel delivery companies are experimenting with electric delivery vehicles, pedal-powered vehicles and other options in cities. Non-fossil fuel using vehicles are not so prevalent in rural or even semi-rural areas, however, where the options are mostly confined to use of alternative fuels such as biogas. (f ) Combining freight and passenger trips through the use of spare capacity on passenger vehicles (e.g. trams, urban ferry services or underground services) (see, for instance, Trentini and Mahlene 2010). Another alternative in this category is to use elements of crowd-sourced logistics or crowd-shipping (McKinnon 2016). (g) Including returns policies in the CSR policies of retailers in the same way as the outward logistics is now considered

16.7 Conclusions Despite the very high returns rate in the online clothing sector, there is little academic literature on the implications of this for reverse logistics and the consequences for the environment. With the help of secondary

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data sources, this paper has sought to shed some light on the issue and its importance. Whilst acknowledging that there are certain environmental benefits associated with reverse logistics (e.g. waste prevention, reuse and recycling), this paper has highlighted the potential adverse environmental consequences of the increase in the reverse logistics activities associated with online clothing (r)e-tailing. In a context where cross-border e-tailing is gaining a greater market share at the expense of domestic online sales, these adverse environmental consequences are likely to increase with longer transportation distances, changes in warehousing configurations and the locations where cross-border reverse logistics activities are likely to take place. In terms of the reverse logistics function, it is the clear responsibility of (r)e-tailers themselves to ensure that this is undertaken as efficiently as possible. More efficient reverse logistics can help companies save money, reduce energy consumption, produce fewer emissions into the air and water, save natural resources, reduce waste and avoid waste storage capacity (Grabara et al. 2014). Under a ‘weak sustainability’ approach, key amongst these policy options is coordination and consolidation of returns. Under a ‘strong sustainability’ approach, charging an economic price to consumers for returns and providing customers with much-improved information about products are of major importance. Acknowledgements    Many thanks must go to Kevin Cullinane and Johan Hagberg for commenting on earlier drafts of the paper and to Energimyndighten, Sweden for funding the research.

References Baker, P., & Marchant, C. (2015). Reducing the environmental impact of warehousing. In A. McKinnon, A. Whiteing, & M. Browne and Piecyk (Eds.), Green logistics (Chapter 9, 3rd ed., pp. 194–223). London: Kogan Page. Barclaycard. (2016, May 18). The emergence of ‘serial returners’. Accessed August 15, 2018. Query=online%2520returns.

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17 Lean Readiness Index: Assessing Organization Preparedness to Implement Lean Maneesh Kumar and Vignesh Murugan

17.1 Introduction Since its evolution in the mid-1980s, Lean has become integral part of operations strategy for many MNCs globally (Staats et al. 2011; Shah and Ward 2007; Holweg 2007; Hines et al. 2004). The relationship of Lean with superior performance and its ability to provide competitive advantage is well accepted among academic and industrial community (Shah and Ward 2007). However, the research on the pre-requisites for Lean implementation (i.e. key ingredients for successful implementation) is still less evident. Many researchers have argued the importance of understanding the critical success factors (CSFs) and readiness of organizations before introducing any CI initiatives such as Six Sigma and TQM, in an organization (Kumar 2010; Jeyaraman and Teo 2010; Antony and Banuelas 2002; Bessant et al. 2001). In spite of a number of Lean M. Kumar (*) · V. Murugan  Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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success stories in large organizations, there is still very limited research that assesses organizational readiness before implementation of Lean (Achanga et al. 2006). This research proposes a Lean Readiness index (LRI) that will assess organizational readiness to Lean implementation—a prerequisite exercise for an organization to ensure successful and smooth implementation of Lean. It is imperative for organizations to understand their cultural readiness for Lean implementation so as to sustain the benefits from their successful implementation on a longterm basis. This paper focuses more on the strategic implementation perspective rather than using Lean as a problem-solving methodology on the shopfloor. The authors have developed LRI by reviewing secondary literature and tested it by conducting a pilot study with three large manufacturing firms in India. The development and testing of LRI was possible by addressing the following research questions: What are the determining factors that constitute and define the LRI? How to use LRI to ensure successful implementation of Lean?

17.2 Background Research The literature briefly includes review of CSFs of CI initiatives, selfassessment models, CI maturity model, and Six Sigma Readiness Index (SSRI) proposed by Kumar (2010). Many researchers (Kumar et al. 2011; Achanga et al. 2006; Jeyaraman and Teo 2010; Antony and Banuelas 2002) argued that the success and sustainability of CI initiatives, such as Lean, Six Sigma, TQM, etc. hinges on identification of CSFs of CI initiatives and its actual implementation across the business processes. The CI journey may not yield the desired benefits to an organization, if there is a significant gap in the implementation of identified CSFs across their business processes (Timans et al. 2011; Antony et al. 2008; Achanga et al. 2006). A critical review of literature on CSFs of CI initiatives, such as Lean, Six Sigma, and TQM were conducted, which led to the identification of most commonly cited factors across all studies (Antony and Banuelas 2002; Achanga et al. 2006; Womack et al. 1990; Shah and Ward

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2003, 2007; Holweg 2007; Hines et al. 2004; Aoki 2008; Jeyaraman and Teo 2010; Naslund 2008; Grover et al. 2010; Antony et al. 2008; Kumar 2010; Black and Porter 1996; Motwani 2001): Leadership, Organizational culture, employee involvement, customer focus, communication, and process management. The factors presented here were re-worded by combining the common themes when conducting critique of CSFs literature. Organizations have also used self-assessment models to measure their current performance against the set criteria of the model which represents a position of excellence (Kaye and Anderson 1999). The most popular self-assessment models, such as Malcolm Baldrige National Quality Award [MBNQA], European Quality Award [EQA], and Australian Quality Award [AQA] (Van der Wiele and Brown 1999; Ghobadian and Woo 1996) were developed based on the work of quality Gurus. The most common factors appearing in all the three awards were leadership, people management, process management, and customer focus/satisfaction. However, the drawback of self-assessment models is its inability to help those organizations that plan to embark CI initiative such as TQM or Lean (Kaye and Anderson 1999). Similarly, with the evolution of TQM, many researchers also proposed other CI maturity models for TQM implementation covering wider characteristics/behavior of organizations at different stages of TQM implementation (Kaye and Dyason 1995; Dale and Lascelles 1997; Dale and Smith 1997; Bessant et al. 2001). These CI maturity models provided a roadmap for organizations to assess their weaknesses, highlight the issues which need urgent attention, and aspire to advance to the next higher level in the CI maturity model through addressing the identified gaps in their current practices. The characteristics of organization implementing CI initiative at each stage of the maturity models (e.g. Level 1–5 in Bessant et al. (2001) model) coupled with factors included in the self-assessment model, SSRI, and CSFs of CI initiative facilitated in the identification of factors to be included in the LRI. The five most common factors identified through the critique of literature are Leadership, Organizational culture, employee involvement, communication, and process management. Customer focus was another commonly cited factor, the elements of

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which were incorporated in the aforementioned five factors of the LRI. Twenty-three variables were identified and included under the five factors of LRI through critique of literature. Organization may use the LRI score to identify areas of strengths, weaknesses, and opportunities for improvement in the organization’s Lean practices. The proposed LRI is aimed at identifying these CSFs, which helps to evaluate the preparedness of an organization for implementing Lean or identifying the maturity of an organization after Lean implementation.

17.3 Research Method Both primary and secondary data collection method were used in this research. Secondary data was collected through books and journals from various publications available in university databases, which informed the development of LRI questionnaire. The factors included within LRI allowed to measure and analyze the maturity of an organization and thus adds value to the organization when implementing Lean. The readiness and maturity to embark on Lean journey were evaluated and tested in three large manufacturing firms in India using survey questionnaire as a data collection method. Survey questionnaires are quick and an inexpensive technique, which can reach a large number of participants in a short span of time (Saunders et al. 2009; Bryman and Bell 2011; Collis and Hussey 2009). The questionnaire using 1–5 Likert scale (where 1 stands for variable not implemented at all to 5 variable fully implemented) was distributed through e-mail to 150 people at senior and middle management levels in the three firms. A total of 31 usable responses were received, thus achieving the response rate of 20.7%. The questionnaire consists of 23 questions in total, under 5 different factors as discussed above. All the questions are given equal weightage while calculating the mean LRI score or mean score across five factors of the LRI. A score of 3 or above for each factor indicates that the organization’s culture is ready to embrace Lean. This threshold value was influenced from the work of Kumar (2010) on SSRI, Bessant et al. (2001)

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maturity model, and seeking advice from three academics and fours practitioners in the field of Lean Six Sigma. A score of 3 is indicative of a ‘green signal’, i.e. go ahead with implementation; score between 2 and 3 is an ‘amber signal’, i.e. be cautious and carefully investigate the five factors before implementation; and a score of less than 2 is a ‘red signal’, i.e. organization not ready for Lean implementation. The LRI was tested for its robustness and validity in three large organizations in India, the results of which are presented in the next section.

17.4 Analysis and Discussion In this section, we will discuss the results of the survey conducted across three large manufacturing companies and assess their maturity toward lean implementation based on their scores across five factors of LRI. The demographic details of three companies are provided in Table 17.1. The top and middle-level managers in the three companies participated in the survey (number of response from each company indicated in column 4 of Table 17.1). Not all companies are implementing Lean and so it would be interesting to observe the scores across five factors to see their readiness for lean implementation or assess the maturity of organization already implementing Lean or Six Sigma. It would be interesting to see how the LRI score reflect on the maturity of Company X & Y in terms of implementing initiatives such as Lean and Six Sigma (X and Y have been implementing Six Sigma/TQM and Lean/Six Sigma for seven and six years, respectively). Given that Table 17.1  Demographic details of Indian manufacturing companies Company Manufacturing activity

Quality initiative(s)


Six Sigma, TQM 10


Lean, Six Sigma 11


ISO 9000



Electrical and electronics Valves and accessories Valves

Number of employees


No. of years implementing QI

328     M. Kumar and V. Murugan Table 17.2  Lean readiness scores of 3 companies under five factors LRI factors

Scores against the readiness index criteria X Y Z

Leadership skills (Q1–5) Organizational culture (Q6–9) Process management (Q10–14) Communication (Q15–18) Employee involvement (Q19–23)

3.0 2.7 2.9 2.4 2.7

4.1 3.8 4.1 3.9 4.0

1.5 1.9 1.9 1.5 1.6

company Z has no exposure to Lean or Six Sigma, does the LRI truly captures the CI culture in company Z? This will also test the robustness of the LRI to capture the CI culture in an organization. The detailed scores recorded by companies X, Y, and Z are listed in Table 17.2. As evidenced from the result of LRI, Y may be considered more mature in the CI journey compared to X and Z as the average score across five factors is close to 4. The scores for the three companies indicate that Y is on the path of excellence, X is pedaling hard with few hurdles, and Z is way too behind to achieve the CI maturity level. More detailed comparison of three companies across five factors is discussed in the following section.

17.4.1 Analysis of Leadership Score Literature reported Leadership as the key factor in the success of CI effort in any organization. Authors, such as Bessant et al. (2001), Antony and Banuelas (2002), Liker (2004), and Achanga et al. (2006) argued that a committed leader is the key to drive CI initiative in an organization and link it to strategic objectives of the business. There may be a causal link between the scores of Leadership and other four factors of the LRI as evidenced from the survey result for the three companies. Y has scored maximum against the leadership factor, which may have helped the other factors to score more. The clear visualization of the scores against leadership factor recorded by all 3 companies is shown in Fig. 17.1.

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y z 

Fig. 17.1  Scores of three companies against leadership factor

It is clearly detected that the company Z has scored less than 2.5 in all the 5 questions and was ranked below X and Y in this factor. The support from top management in implementing CI initiatives and providing required infrastructure is evident in companies X and Y compared to Z (see Q1 in Fig. 17.1). Leaders in Y more often involve shop-floor employees in project review meetings (Q3) compared to X and Z. The scores against Q4 is above the threshold value (3) for X and Y, which indicates that leadership has dedicated their time to ensure the CI adoption and employees do not revert back to the old habits. The leaders or the top-level employees for X and Y have emphasized a lot on team-working in project or management environment (Q5), which is clearly witnessed from the graph. Literature also indicates that it is vital to conduct group meetings to review the team’s progress and to motivate the team players, especially in the downfall situation. Score above 3 in Q2, Q4, and Q5 clearly explains the importance of teamwork and group meeting given by X and Y. On contrary, Z has scored really low in all the questions (Q1– Q5) under the most important factor, Leadership. This explains the immaturity of Z and also the lack of commitment from senior leaders in investing time and resource to implement and sustain the benefits from CI initiatives. While Z isn’t ready at the moment to implement

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Lean and requires significant commitment by the top-level management to improve on their score for all the five variables under leadership factor before embarking on the lean journey. Strong leadership is required to sustain the benefits of CI initiatives in any organization. To conclude, it can be said that Y has strong leadership to support and sustain CI initiatives compared to X and Z.

17.4.2 Analysis of Organizational Culture Score It is evidenced from the literature that organizational culture is also an important factor like leadership as it helps to balance a smooth implementation of CI initiative and promote blame-free culture inside an organization. The scores of X, Y, and Z against this factor clearly projects that Y has excelled across all four variables (Q6–9) compared to X and Z, see Fig. 17.2. But X seems better than Z with scores more than 2.5 in all variables, which is still possible to improve swiftly to sustain their lean success. Similar to scores in the leadership factor, Z has failed to demonstrate the maturity in this factor with scores close to 1.5. Organizational culture may help any firm to understand the link between corporate goals and CI initiative (Q6), level of cooperation between firm and its stakeholder including customer and suppliers

Organizational Culture

4.5 4 3.5 3 2.5






1 0.5 0





Fig. 17.2  Scores of three companies against organizational culture factor

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(Q7), its flexibility to adapt to changing market and customer demands (Q8), and presence of blame-free culture in the organization (Q9). Surprisingly, all the 3 companies have scored scores above 3 in Q6, though Y still leads in this variable with a score above 4. As the score indicate, Y also has better rapport and interaction with key stakeholders (Q7–8) and promotes the practice of no-blame culture throughout the organization (Q9). While X has managed to maintain a better rapport and an essential blame-free culture in an organization with scores close to 3 compared to Z with scores only around 1 and 1.5, it is observed that Z is struggling to maintain a better rapport with its stakeholders, which is witnessed from Q7. It is also believed from the score against Q8 that Z had failed to adapt to quick changes in the market, which is vital in the present scenario. To close, we can comment that the scores against culture ­factor demonstrate the commitment from top management in Y to sustain the benefits from Lean implementation. X will require improvement in the culture factor to sustain the benefit from Six Sigma implementation in the long-run. Z is much below the threshold level against organization culture factor, which requires improvement before thinking of Lean implementation.

17.4.3 Analysis of Process Management Score Process Management factor is more aligned toward the usage of tools and technique of CI to measure and manage performances of any business process and most importantly compares the best practices against the competitors. All the 3 companies have scored differently against this particular factor—refer to Fig. 17.3. Literature indicates the importance of benchmarking against competitors (Q10), which helps in identifying the gaps in their current practices, compared to the competitors and also better understands the market needs and requirements. It is observed that all the three companies have scored 3 or above indicating the use of benchmarking to evaluate the position of their business (Q10). Result for Q11 indicates that all 3 companies have taken initiatives to conduct advanced planning

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y z 






Fig. 17.3  Scores of three companies against process management factor

including the risk assessment, measuring and analyzing the cost of CI initiative, categorizing the critical processes, etc. Many quality experts such as Juran and Feigenbaum supported the use of performance measurement system (PMS) to understand the current state of the process and pathways for improvement (Q12). Basic CI tools, such as value stream mapping, process mapping, fine bone diagram, etc. are necessary to measure the sustainability of CI initiative across the entire business unit. It is clear from Fig. 17.3, that Z has failed again when compared with X and Y. Y quite often uses PMS results to evaluate their CI initiative success and actions required for further improvement. X’s score is fairly close to threshold and thus demands a little emphasis on the regular use of PMS for informed decision-making related to CI efforts. Similar to other factors, Z had failed to measure the success of CI initiative, i.e. ISO 9000. Apart from the above measure, it is also important to share the lessons learned from CI project across the company, standardize and document the changes in the company QMS (Q13), and have control systems in place to reduce variation and sustain improvement in the long-run (Q14). The CI maturity of Y is indicated by the result of Q13 and Q14 (score of 4.5), as shown in Fig. 17.3. Y’s performance may be linked to the company’s culture and strong leadership that made employees to understand the importance of process management.

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On contrary, X’s score is close to threshold value that indicates further improvement in this factor to sustain the benefits from Six Sigma.

17.4.4 Analysis of Communication Score Literature review identified communication as critical factors in the success of CI initiative as it helps to communicate almost all the details, such as improvements, customer expectations, change to the goals, lesson learned, etc. inside and outside an organization. Alike other factors, Y has excelled in this factor but other two companies have failed miserably with scores below threshold level. The scores of 3 companies are presented in Fig. 17.4. Q15 describes that senior management regularly communicates the vision of CI initiative across the entire organization; the noticeable score around 4.5 by Y explains that there exists a proper communication system inside the organization. Whereas, the poor score by X and Z indicates the lack of good communication system inside the organization. It is important to share the company’s mission, vision, strategy, and goals with all the employees in order to connect everyone toward a single path of CI (Q16). The score of 3.5 scored by Y reflects its maturity in involving and keeping informed its employees about the CI activities in the organization. Whereas, X and Z needs strong attention and improvement in this variable to ensure everybody is moving toward the

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Fig. 17.4  Scores of three companies against communication factor

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same direction. Again when it comes to horizontal and vertical information exchanges across the hierarchy (Q17), Y is ahead in establishing this communication network compared to X and Z. Leaders such as Managing director or CEO of an organization should make sure that all the informations are passed to the concerned employees at the right time. The brilliance of Y is clearly visible from its average score of 3.9 in this factor. Remarkably, the failures and the short-term wins (Q18) are effectively communicated in both X and Y (witnessed from the score above threshold). While Z has again failed dramatically (score of 1) to share the success and failure stories with its employees. From communication perspective, it is noticed that Y has a score above 3.5, i.e. above the threshold when compared with X and Z, which indicates that it has well-established communication system to manage and sustain the benefits from Lean. While X and Z need to invest more time and effort to get the communication right in the organization to sustain the benefits of Six Sigma (in case of X) or when thinking of Lean implementation (in case of Z).

17.4.5 Analysis of Employee Involvement Score From literature, it was observed that adequate training on CI practices is must to increase the potential of each employee in an organization. Leaders of all organizations believed that the success of any organization is possible only if the employees are completely involved in all the activities, given multifunctional training, and have required skill-set to implement problem-solving tools (Q19). The scores for 3 companies against the employee involvement factors are shown in Fig. 17.5. In this survey, Y had an average score of 4 for employee involvement factors that also reflects on their above threshold scores for other factors within LRI, e.g. Q3. This shows the maturity of Y in implementing and sustaining the benefits from Lean. While X and Z are also giving importance to employee training (Q19), but it still needs improvement to score higher than threshold value. Lean literature always emphasizes on employee empowerment and full ownership to improve their process

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Fig. 17.5  Scores of three companies against employee involvement factor

and take corrective actions (Q20). Y has empowered its employees for process improvement related activities but similar practice is not witnessed in X and Z, where command and control take the precedence. Similarly, when it comes to rewarding and recognizing employees for their efforts (Q21), Y leads the league followed by X. This practice is not common in Z as the score for this variable is much below the threshold. Self-initiative by employees to support CI activities (Q23) is more prominent practice in Y than X, which also links to their score received for empowerment variable (Q21). As discussed earlier, employee involvement is the backbone of any organization; the support and rewards offered enhances the self-motivation of employees to support CI. This could be inter-related between rewards and training. These activities will allow the employees to feel free to raise their voice against the failures and/or collapses. Thus, the probability of all the problems being reported and getting solved is high. X and Y have scored moderately and brilliantly on these factors respectively, while Z is struggling to implement such practices in the company. To conclude, Z requires strong attention even in employee involvement factor just like other factors. X is on the border-line

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and thus requires cautious changes in the organizational structure to enhance employee involvement to sustain the Six Sigma benefits in the long-run. Out of all, Y is way ahead in CI initiative even under employee involvement factor.

17.5 Conclusion The aim of this study was to develop an LRI, which could act as a guide for the top-level management to assess their organizational preparedness for Lean implementation or assess the maturity of an organization already implementing CI initiatives such as Lean and Six Sigma. This study is an attempt to develop a precise readiness index involving five factors, which may act as a guide and/or strategy that helps in identifying the maturity of an organization, which in turn helps to identify the areas that need attention or improvements. The robustness of LRI was tested by conducting a pilot survey study, involving 31 senior and middle managers from three large manufacturing organizations in India. As indicated in the literature and results of LRI, leadership is the key to the success of CI in any organization. If organizations score higher in this factor, there is a good chance that the organization may improve their performance across other four factors of the LRI. But, if organizations are performing better in other factors of LRI compared to Leadership factor, it may be difficult for them to sustain the CI initiative in the long-run. It is implied from the analysis that LRI has truly captured the maturity of each organization toward CI, as evidenced from their respective scores and current practice across five factors of the LRI. For instance, the scores of Z has shown the immaturity of the organization, which in turn reveals its poor organizational structure, such as weak leadership, weak organizational culture, lack of communication, minimal involvement of employees, and poor process management. On the other side, Y has excelled in all the factors, vice versa to Z, that reflect on its maturity toward continuous quality improvement. It is believed that an organization scoring close to the threshold value (3) is ready to embark on the Lean journey. The companies scoring

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close to 4 are way ahead in the CI journey and thus completely ready for Lean implementation. Any organization scoring below the threshold value need to improve their performance in those factors in order to successfully implement Lean in future or to sustain the benefits from implementation of CI initiatives. This practice may help organizations to achieve maximum benefits from implementing CI initiatives such as Lean. The LRI proposed here was designed specifically for the manufacturing sectors but may also act as a guide for other sectors with slight modification in the questionnaire. The reliability and validity of the LRI will be tested in future by applying it to different types and sizes of the organization. This pilot study was just the initial step in the planned longitudinal study in future. The variables included within LRI can be refined in future according to the responses from the organizations and academic community.

References Achanga, P., Shehab, E., Roy, R., & Nelder, G. (2006). Critical success factors for lean implementation within SMEs. Journal of Manufacturing Technology Management, 17(4), 460–471. Antony, J., & Banuelas, R. (2002). Key ingredients for the effective implementation of six sigma program. Measuring Business Excellence, 6(4), 20–27. Antony, J., Kumar, M., & Labib, A. (2008). Gearing six sigma into UK manufacturing SMEs: Results from a pilot study. Journal of the Operational Research Society, 59(4), 482–493. Aoki, K. (2008). Transferring Japanese kaizen activities to overseas plants in China. International Journal of Operations & Production Management, 28(6), 518–539. Bessant, J., Caffyn, S., & Gallagher, M. (2001). An evolutionary model of continuous improvement behaviour. Technovation, 21(2), 67–77. Black, S. A., & Porter, L. J. (1996). Identification of the critical factors of TQM. Decision Sciences, 27(1), 1–21. Bryman, A., & Bell, E. (2011). Business research methods. Oxford: Oxford University Press.

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Collis, J., & Hussey, R. (2009). Business research: A practical guide for undergraduate and postgraduate students. Basingstoke: Palgrave Macmillan. Dale, B. G., & Lascelles, D. M. (1997). Total quality management adoption: Revisiting the levels. The TQM Magazine, 9(6), 418–428. Dale, B. G., & Smith, M. (1997). Spectrum of quality management implementation grid: Development and use. Managing Service Quality, 7(6), 307–311. Ghobadian, A., & Woo, H. S. (1996). Characteristics, benefits and shortcomings of four major quality awards. International Journal of Quality and Reliability Management, 13(2), 10–44. Grover, A. L., Meredith, J. O., MacIntyre, M., Angelis, J., & Neailey, K. (2010). UK health visiting: Challenges faced during lean implementation. Leadership in Health Services, 23(3), 204–218. Hines, P., Holweg, M., & Rich, N. (2004). Learning to evolve: A review of contemporary lean thinking. International Journal of Operations & Production Management, 24(10), 994–1011. Holweg, M. (2007). The genealogy of lean production. Journal of Operations Management, 25(2), 420–437. Jeyaraman, K., & Teo, L. K. (2010). A conceptual framework for critical success factors of lean six sigma. International Journal of Lean Six Sigma, 1(3), 191–215. Kaye, M., & Anderson, R. (1999). Continuous improvement: The ten essential criteria. International Journal of Quality and Reliability Management, 16(5), 485–506. Kaye, M. M., & Dyason, M. D. (1995). The fifth era. The TQM Magazine, 7(1), 33–37. Kumar, M. (2010). Six sigma implementation in UK manufacturing SMEs: An exploratory research. Ph.D. thesis, University of Strathclyde, Glasgow, UK. Kumar, M., Antony, J., & Tiwari, M. K. (2011). Six sigma implementation framework for SMEs—A roadmap to manage and sustain the change. International Journal of Production Research, 49(18), 5449–5467. Liker, J. K. (2004). The Toyota way: 14 management principles from the world’s greatest manufacturer. Madison, USA: McGraw-Hill Professional. Motwani, J. (2001). Measuring critical factors of TQM. Measuring Business Excellence, 5(2), 27–30. Naslund, D. (2008). Lean, six sigma and lean sigma: Fads or real process improvement methods? Business and Economics Management, 14(3), 269–287.

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Saunders, M., Lewis, P., & Thornhill, A. (2009). Research methods for business students. London: FT/Prentice Hall. Shah, R., & Ward, P. (2003). Lean manufacturing: Context, practice bundles, and performance. Journal of Operations Management, 21, 129–149. Shah, R., & Ward, P. (2007). Defining and developing measures of lean production. Journal of Operations Management, 25(4), 785–805. Staats, B. R., Brunner, D. J., & Upton, D. M. (2011). Lean principles, learning, and knowledge work: Evidence from a software services provider. Journal of Operations Management, 29(5), 376–390. Timans, W., Antony, J., Ahaus, K., & Solingen, R. V. (2011). Implementation of lean six sigma in small- and- medium-sized manufacturing enterprises in the Netherlands. Journal of Operations Research Society, 63, 339–353. Van der Wiele, T., & Brown, A. (1999). Self-assessment practices in Europe and Australia. International Journal of Quality & Reliability Management, 16(3), 238–252. Womack, J. P., Jones, D. T., & Ross, D. (1990). The machine that changed the world. New York: Rawson Associates.

18 Humanitarian Aid Supply Chain Management Anthony Beresford and Stephen Pettit

18.1 Introduction and Scope The Transport and Shipping Research Group (TSRG) has been at the forefront of research into Humanitarian Aid Logistics and Supply Chain Management (HALSCM). The TSRG’s research into HALSCM began in the mid-1990s with work for the UN on transport rehabilitation, aid distribution, and trade facilitation, e.g. for UNCTAD and for the Rwandan government (1995–1998). The group’s wider work on cost structures of multimodal transport corridors in Southeast Asia and improvement of transit transport systems in Africa, Asia, and Latin America has mainly been oriented towards international trade promotion, but it has also focused on the delivery of aid cargo to stressed

A. Beresford (*) · S. Pettit  Cardiff Business School, Cardiff University, Cardiff, UK e-mail: [email protected] S. Pettit e-mail: [email protected] © The Author(s) 2019 P. Wells (ed.), Contemporary Operations and Logistics,


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regions which have been affected by either slow-onset disasters (e.g. drought), rapid-onset events (e.g. flooding, storm), or complex disasters (e.g. war). The group’s more recent research work has considered aspects of the logistics of humanitarian aid delivery, such as chain performance. The genesis for this was a groundbreaking project which was funded by the Chartered Institute of Logistics and Transport (CILT) scheme looking at the interplay between non-military and military organisations in responding to the types of disaster referred to above (Pettit and Beresford 2005). Outputs from the group have included a variety of journal papers considering, for example, warehouse pre-positioning for humanitarian relief (Roh et al. 2015), Humanitarian Logistics Supply Network Management (Tatham and Pettit 2010), Humanitarian Aid Distribution in East Africa (Choi et al. 2010), Critical Success Factors (CSFs) in Humanitarian Aid logistics (Pettit and Beresford 2009), and the relevance of LEAN supply chain concepts for humanitarian aid provision (Taylor and Pettit 2009). The most recent work has considered locational issues for relief positioning in relation to where earthquakes are most likely to occur (Nikolopoulos et al. 2016). Consistently, the biggest single part of the UN’s multibillion dollar annual spend on emergency and disaster relief is attributable to logistics (Beresford 2012). This is because, put simply, everything needs moving in an emergency and it often needs moving by unorthodox means, over difficult routes, into inaccessible areas, or in political circumstances which pose unique administrative or cultural challenges. HALSCM can, therefore, be a lesson in managing supply chains in unsustainable situations (Tatham and Christopher 2014). At the centre of humanitarian response is completion of delivery, rather than necessarily accuracy, cost, or speed. A further complication in HALSCM is that every crisis event is unique in its combination of circumstances, and operational environments. This chapter will, therefore, outline the key issues facing HALSCM and how research from the TSRG is contributing to the understanding of these issues, and of the wider dimensions of Humanitarian Aid delivery and management processes.

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18.2 What is a Humanitarian Supply Chain? Humanitarian aid generally refers to the provision of food, water, sanitation, and shelter in the period following some form of disaster (Kelly 1995). A ‘disaster’ covers disruptions to the ‘functioning of society, causing widespread human, material or environmental losses which affect the ability of the affected people to cope using its own resources’ (UNDHA 1992). Disasters may be classified into four types: sudden-onset, natural (e.g. flooding, storm, earthquake); humanderived or triggered (e.g. military attack, coup d’état); slow-onset, natural (e.g. drought, famine); or human-made (refugee crisis) (Van Wassenhove 2006). One type of destabilising action may lead to a second, for example, a military attack may lead to a refugee crisis or ‘complex emergency’ (Pettit and Beresford 2005). Supply chains which operate in the context of delivering humanitarian aid may be required across the spectrum of ‘disasters’ and as such, the control of these vital response elements has come to be categorised as HALSCM. Commercial supply chains are comparatively stable, operate over long time periods and once established may function without significant requirement for change (Christopher 2000) other than efficiency gains (see, e.g., Taylor and Pettit 2009). Humanitarian supply chains operate in unstable environments with no relationship between the producer and the end consumer. The principle players usually are governments on whose territory the disaster has occurred, the United Nations and Non-Governmental Organisations (NGOs). Also involved may be external governments, donors, and the military. There have been many examples where a government has either not permitted external humanitarian involvement, or restricted the operational capabilities of the agencies (Tatham and Christopher 2014). Coordination of a humanitarian supply chain in a stressed environment will, therefore, be challenging. However, a very basic humanitarian supply chain will be needed to deliver aid to populations which are often displaced and suffering acute shortages of fundamental materials and resources. McLachlin et al. (2009) identify that such supply chains tend to be unstable, prone to military influence and inefficient due to

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lack of planning and inter-organisational collaboration. Moreover, there has been limited knowledge transfer from organisations operating in uninterrupted for-profit contexts to interrupted not-for-profit contexts. HALSCM is nonetheless similar to that of the commercial sector in that the imperative is ‘getting the right material in the right place at the right time’ (Christopher 1992). This principle has been refined to suit the humanitarian context by, for example, the International Federation of the Red Cross and Red Crescent Societies (IFRC) which has stated (IFRC 2018): Acquiring and delivering requested supplies and services, at the places and times they are needed, whilst ensuring best value for money [is key]. In the immediate aftermath of any disaster, these supplies include items that are vital for survival, such as food, water, temporary shelter and medicine, among others.

Thomas and Mitzushima (2005, p. 60) defined this area more precisely as: …the process of planning, implementing and controlling the efficient, cost effective flow and storage of goods and materials, as well as related information, from point of origin to point of consumption for the purpose of meeting the end beneficiary’s requirements.

18.3 Humanitarian Aid Logistics and Supply Chain Management Any natural disaster or civil/military conflict may create a situation where both the short-term (immediate post-event) situation and longterm consequences, will be significant for the population (Jennings et al. 2000; Pettit and Beresford 2005; Choi et al. 2010). Post-event consequences may include loss of life, physical injury, damaged infrastructure, loss of housing or shelter, poor sanitation, and economic hardship. In the longer term, there may be social and economic changes, such as population displacement, demographic imbalance, and the need for significant infrastructural rebuilding requiring substantial funding.

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The need for humanitarian assistance is initially derived from the type, scale, and form of the specific emergency. Examples of ongoing man-made events have included the Syrian conflict and the regional destabilisation due to the ‘Islamic State’ insurgency in the Middle East, the Afghanistan conflict, and the Rohingya displacement from Myanmar to Bangladesh (see BBC 2018). In these and many other cases, there is often a large-scale displacement of people as refugees in a foreign country or as internally displaced refugees. The political situation in the neighbouring country may make access to refugees difficult, and responses may have to be adapted accordingly. In all cases, prevailing political sensitivities further complicate the face-value logistics challenge of getting ‘the right materials into the right place at the right time’ which was an operational interpretation of the 4 Rs: Responsiveness, Reliability, Resilience, and Relationships (Christopher 1992). Natural disasters bring their own range of associated difficulties and the provision of aid may still be extremely challenging. Examples include hurricanes Irma and Maria in September 2017, which created severe humanitarian problems across the Caribbean (BBC 2017). In contrast, the Ebola outbreak in West Africa in 2013/2016, which led to at least 11,310 deaths, arose from a naturally occurring disease, the spread of which was exacerbated by a shortage of medical resources, by the limited ability of local authorities and medical organisations to respond quickly, and by the unwillingness of the WHO to declare a global health emergency. Ultimately this necessitated large-scale human intervention to prevent the disease from extending beyond the region within which it was eventually contained (Cheng and Satter 2015). Whatever the type and form of crisis, the number of people being affected by disasters in aggregate is increasing. For example, Roh et al. (2008), highlighted that the number of both natural and man-made emergencies worldwide has risen steadily for several decades. Research by Tatham and Christopher (2014) and Haavisto et al. (2016) show that an upward trend in frequency of natural and/or man-made emergencies has continued well into the twenty first century. The very recent decline in the number of natural disasters may only be a statistical fluctuation (Tatham and Christopher 2018). By 2018, it was estimated that more than 135 million people were affected by crises requiring

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humanitarian intervention and around 105 million were receiving some form of aid (UNOCHA 2018). Historically, there was relatively little published work focused on improving the understanding of supply chain management (SCM) in crisis or emergency conditions. There has been increased focus placed on the requirement to improve Humanitarian Aid (HA) delivery, largely because of repeated failures in the delivery systems following disasters and emergencies (Fritz Institute 2005). In this context, Taylor and Pettit (2009) highlighted that there are often only weak connections between the respective stages of HA delivery systems of aid and that constructing robust supply chains has often not been a priority. The result has often been high materials wastage rates. In the case of aid delivery to refugee camps following the Rwanda civil war in 1994, for example, up to 30% of aid materials were lost because of theft, cargo spoiling, and accidents (Beresford and Rugamba 1996; Choi et al. 2010). A key aspect for logistics in humanitarian crises is to balance supply with unpredictable demand. Supply issues are generally difficult to resolve in the immediate post-disaster phase as the environment is frequently chaotic, and it is often unclear what assistance may be required. On the supply side, there will inevitably be the need for relief items (food, shelter, medical aid), human resources, construction materials, and transport. Aid agencies may have supplies of the right type of goods but in the wrong location or items in the right place but not in sufficient quantity. There may be in-kind donations which are of the wrong type of goods vis-a-vis the need. Many items may be shelf-life limited and if they are supplied too early they may have to be discarded. Thus, achieving a balance between delivery and time-of-use can be a complex issue to resolve. Demand issues are also complex in humanitarian crises. While in a standard commercial supply chain the supplier meets the specific requirements of a customer, in a humanitarian supply chain ultimately the ‘customers’ are people who are beneficiaries, and who are likely to be living in challenging circumstances. The population being served by the humanitarian supply chain may be spread over a wide geographical area,

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there may be specific cultural or religious needs these constraints may largely determine the type of aid which needs to be delivered (Ergun et al. 2015). The logistics of HA delivery is clearly a multidimensional problem inviting interdisciplinary research.

18.4 HALSCM Research by the Transport and Shipping Research Group 18.4.1 UN/Cardiff Collaboration Early collaborative work between the TSRG and the United Nations (UN) was on transport rehabilitation, aid distribution, and trade facilitation, e.g. for the UN Conference on Trade and Development (UNCTAD), and for the UN Economic and Social Commission for Asia and the Pacific (UNESCAP). A focus was transit systems and trade facilitation in Eastern and Southern Africa (Beresford 1990; Beresford and Rugamba 1996), and subsequently landlocked countries worldwide (Beresford 1999). In the early 2000s, UNESCAP decided to use the work of the TSRG as a standard methodology for measuring the effectiveness of multimodal transport solutions in long, international supply chains (see, e.g., UNESCAP 2003, 2006, 2012). The TSRG’s work on cost structures of multimodal transport corridors in Southeast Asia and improvement of transit transport systems in Africa, Asia, and Latin America has mainly been focused on the delivery of trade cargo or aid to stressed regions which have been affected by slow-onset disasters, rapid-onset disasters, or complex emergencies. A prominent example of the latter was the contribution of the TSRG to the delivery of aid to displaced communities by the most effective means immediately following the Rwanda genocide. The work was joint-sponsored by UN Development Programme (UNDP) and the Rwandan Government between 1995 and 1998 (Beresford and Rugamba 1996; Beresford 1998; Choi et al. 2010).

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18.4.2 The TSRG’s Academic, Governmental, and Practitioner Partnerships More recent research work has considered the respective roles of government agencies, non-government organisations (NGOs), and other participants such as transport service providers. The genesis for this was a groundbreaking project which was funded by the CILT looking at the interplay between non-military and military organisations in responding to the types of disaster referred to above (see Pettit and Beresford 2005). Outputs have included: CSFs in Humanitarian Aid logistics (Pettit and Beresford 2009); the relevance of LEAN supply chain concepts for humanitarian aid provision (Taylor and Pettit 2009); Humanitarian Logistics Supply Network Management (Tatham and Pettit 2010); warehouse pre-positioning for humanitarian relief (Roh et al. 2015); a public service research agenda for Humanitarian Aid (Pettit et al. 2016); and relief aid pre-positioning to earthquake-prone locations (Nikolopoulos et al. 2016). An additional dimension has been the engagement of PhD researchers working specifically on humanitarian aid or on related subjects such as trade facilitation and regional development. TSRG humanitarian researchers have also worked with academic or practitioner institutions to advance understanding in this important area. Notable amongst these are: the Stephenson Centre for Disaster Management in Baton Rouge, set up in 2007 in the wake of the flooding of New Orleans following Hurricane Katrina in 2005; the Humlog [Humanitarian Logistics] Institute in Helsinki; HELP [Humanitarian and Emergency Logistics Professionals’] within the CILT London; and INSEAD, Paris. Active co-research has also been carried out with Thammasat University, Thailand (Beresford and Pettit 2009; Banomyong et al. 2009) and Griffith University, Australia (e.g. Tatham and Pettit 2010; Christopher and Tatham 2011; Tatham and Christopher 2014). The group has also collaborated closely with Cranfield University and the UK Government’s Department for International Development (DfiD) through the Cardiff-Cranfield Humanitarian Logistics Initiative, itself established as a focal point for collaborative research in 2007.

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18.5 Key Areas of Research 18.5.1 Overview There is often a shortage of technical knowledge and experienced logisticians working in HA which has a direct impact on the effectiveness of relief efforts, including assessment, planning, and problem resolution (Fritz Institute 2005). In an academic context, Kovacs and Spens (2007) were amongst the first to observe that the rate of production of published work in this critical field was also beginning to accelerate. The understanding of commercial supply chains is partly transferable into the field of HA delivery, but specific conditions on the ground often limit commerce-based logistics models. A second research area has focused on the interrelationships between parties involved in the immediate aftermath of an emergency and the withdrawal of resources as conditions stabilise in the post-crisis period (Pettit and Beresford 2005; Beresford and Pettit 2012; Tatham and Christopher 2014). Typically, there is a rapid first-phase response when resources are assembled in, or close to, the crisis area. A period of resource allocation and stabilisation follows as resources are matched as closely as possible to need. Finally, there is a drawdown period after the immediate post-crisis issues have been addressed, as more stable supply chains to serve the longer recovery period are established, and as the replacement of military resources by commercial capability increases (Seipel and Heaslip 2014; Cross 2014). A third example of contemporary research is that of social duty where governments and private service providers are under increasing obligation to offer capability and capacity in situations other than their natural working area (Knight et al. 2012; Pettit et al. 2016): The application of the ‘public service’ concept to humanitarian logistics. Ultimately, research into operational best practice is perhaps the area of highest value to society. Examples of leading research in this area by the TSRG have been (i) the identification of CSFs in HA logistics (Pettit and Beresford 2009) and (ii) the review paper following two of the authors’ first-hand experience of a Tsunami warning in 2012 (Pettit et al. 2014).

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Fourth, the rate at which a crisis-hit region recovers to its pre-crisis condition is extremely important. Immediate crisis response consists of a relatively short-term range of activities, and the establishment of effective structures has been identified as a central component of this recovery path (see, e.g., Pettit and Beresford 2005; Banomyong et al. 2009; Haavisto et al. 2016). A rapidly growing body of research has emerged on this theme and much of it focuses on ‘resilience’ which takes two main forms, i.e. resistance to shock and rate of recovery post-shock (Tatham and Christopher 2018). For transport and logistics in stressed environments, a fifth focus of research is the shape of transport networks required for aid distribution and the respective roles of existing transport or logistics companies in the response effort vis-a-vis the need to create one-off solutions as the best compromise given the constraints which prevail. Two specific examples were: • The use of sea-basing in the case of the response to the Haiti earthquake in 2012. This was a maritime multimodal solution aimed at getting aid cargo to areas of need when the recognised seaport was unavailable due to large-scale quay and equipment damage (Beresford and Pettit 2012). • The 2008 Wenchuan earthquake in central China, when complex and imaginative transport combinations (involving military landing-craft, foot soldiers, helicopters, road, and rail) were deployed by the Chinese government. This enabled access to the remote and mountainous area which was badly affected by a series of severe earth tremors. It should be noted in this example that international help was summoned first from Russia and Pakistan, later from amongst others, Singapore and France, and then even from the United States (Beresford and Pettit 2012). From these broad themes, four areas of research have emerged to each of which the TSRG have contributed substantially, as elaborated below.

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18.5.2 Volatility and Fragility Humanitarian supply chains operate under conditions of unpredictability of demand which is affected by the timing of an event, the location, the size both in terms of geographic spread and people affected, and the type of event. Often this involves sudden occurrence and the need to respond with very short lead times with rapid delivery of aid in sufficient quantities, alongside inadequate levels of resource across the areas of finance, people, transport resources, and technological requirements (Balcik and Beamon 2008; Haavisto et al. 2016). Supply chain vulnerability, fragility, and volatility have been extensively reviewed, with reviews generally divided between commercial and non-commercial situations (Waters 2007). In the former, uncertainty may affect demand which might fluctuate according to confidence or other influences. Similarly, supply may be vulnerable to individual events such as traffic congestion. In the latter case, vulnerability may come from an external shock, such as terrorism or war or from severe weather, earthquakes, or other natural phenomena. Following a crisis event, supply chains are often long, suboptimal in structure, immature in form, and exposed to a wider range of risks and a greater likelihood of failure (Kovacs and Spens 2007). In such cases it is difficult to create an effective supply chain framework and, during the initial period after such an event, there will be a need for institutional learning as agencies adapt their logistics systems to the prevailing circumstances (Pettit and Beresford 2005). A specific example was the first-hand field research carried out by the TSRG during the mid-1990s under the auspices of the United Nations (Choi et al. 2010). The field research enabled a clear understanding of conditions on the ground in a post-emergency environment to be developed. This was an extremely complex emergency (involving military bodies, commercial organisations, NGOs, at least 4 governments and the international community), thus enabling several insights to be gained, which potentially could be transferred into less complex environments where, nonetheless, supply chains are similarly vulnerable. Table 18.1 highlights the key differences between standard commercial supply chains and supply chains operating in volatile conditions.

352     A. Beresford and S. Pettit Table 18.1  Comparison between volatile and standard supply chains Volatile and fragile supply chains

Standard supply chains

Surplus inventory Unreliable schedules

Inventory minimisation Reliable schedules: tuned to hours/ minutes Use of sub optimum modes/modal mix Optimum/close-to-optimum modal choice Bad-fit/inappropriate vehicles Correct vehicles Routes in poor condition Infrastructure in good condition Immature operating framework Mature operating framework Complex/fragile agreements cross-bor- Robust agreements der/cross company Political vulnerability Political stability Insecure: high wastage/loss/damage Secure: low wastage/damage (