The next step towards the realization of food distribution in the Physical Internet

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Food distribution in the Physical Internet

The next step towards the realization of food distribution in the Physical Internet

Dovile Zulanaite

A thesis presented for the degree of Master of Science:

Technology and Operations Management

Supervisor: Dr. N.B. (Nick) Szirbik

Co-supervisor: Dr. N.D. (Nicky) van Foreest Company representative: Sjoerd Melman Contact: s.melman@unilac-holland.com

Faculty of Economics and Business University of Groningen

The Netherlands

28-01-2019

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Abstract

The envisioned Physical Internet (PI) concept focuses on the development of sustainable, con- nected and collaborative transportation of goods. It seems that principles of the Physical Inter- net introduce improvements that could transform the current food supply chain. The aim of this research was to expand knowledge of food transportation in the PI, determine existing compo- nents of the Physical Internet in the current food distribution system and suggest the next fea- sible step towards the realization of the PI-system. This goal was performed by analyzing the current dairy products transportation example and literature which helped to identify the re- quirements for a design of the functional architecture. The results of a design validation work- shop created a novel idea that emphasizes the importance of a human factor in the envisioned Physical Internet system.

Keywords: Physical Internet, dairy products distribution, logistics system

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List of Figures Figure 1: Design research cycles ... 9

Figure 2: Regulative cycle of the DSR by Wieringa ... 9

Figure 3: Conceptual model of the design ... 10

Figure 4: Operational scenario of the current dairy products transportation system ... 17

Figure 5: Evaluation of requirements in the current dairy distribution system ... 20

Figure 6: Multi-functional container ... 23

Figure 7: Dash. 1 Supply of dairy products in the current context ... 24

Figure 8: Interaction diagram of function dash.1: Supply dairy products ... 25

Figure 9: Hierarchy of function 0: Transfer products ... 26

Figure 10: Interaction diagram of function 0: Transfer products ... 28

Figure 11: Hierarchical diagram of function 1: Manage regulations ... 29

Figure 12: Interaction diagram of function 1: Manage regulations ... 30

Figure 13: Hierarchical diagram of function 2: Order dairy products from a factory ... 30

Figure 14: Interaction diagram of function 2: Order dairy products from a factory ... 31

Figure 15: Hierarchical diagram of function 3: Transport from a factory to the warehouse ... 32

Figure 16: Interaction diagram of function 3: Transport from a factory to the warehouse ... 33

Figure 17: Hierarchical diagram of function 4: Re-match orders ... 34

Figure 18: Interaction diagram of function 4: Re-match orders ... 34

Figure 19: Interaction diagram of function 43: Consolidate orders ... 35

Figure 20: Hierarchical diagram of function 5: Perform additional functions ... 35

Figure 21: Interaction diagram of function 5: Perform additional functions ... 36

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1. Introduction

Long-distance transportation and distribution of fresh food is a rapidly growing market (Pal et al., 2018). Fresh food demand is based on the size of the world’s population. According to the United Nations organization, by 2050 the population is expected to reach 9.8 billion people (United Nations, 2015). However, even today the world is searching for new ways of feeding the population, the fresh food transportation and distribution sector suffers not only from high levels of spoilage and waste but also from inefficiency (Pal et al., 2018).

Fresh food distribution differs from other distributed kinds of goods for a number of reasons.

Continuous quality change over whole supply chain, requirements of safety and health, poten- tial contamination, limited shelf life, requirements for specific atmosphere, temperature and humidity, interactions with other products, strict time windows for delivery and high expecta- tions of quality from customers makes distribution management a challenging task (Akkerman et al., 2010).

Online statistical data from Agricultural & Processed Food Products Export Development Au- thority showed that imports of dairy products have significantly increased in the last 10 years (Appendix A). According to Vitaliano (2016), the increased demand for dairy products is due to the population income growth which may have led to the higher amount of animal products in diets. Also, the change of the demand possibly has been influenced by improved prices, trading policies and competition. According to Mckinnon et al. (2007) dairy is considered to be an essential part of a diet and a necessity on a daily purchase list. Anything essential must have sufficient stock on shelves however, transportation-related issues make availability a chal- lenging task and require improvement.

The Physical Internet (PI) is an emerging concept which focuses on the development of sus- tainable, connected and collaborative freight transport. An emerging concept aims to aid re- searchers and policymakers in their future efforts to develop an efficient system of logistics (Sternberg et. al., 2017). The envisaged PI system is supposed to achieve potentially positive effects of pooling logistics and transportation resources by creating “The Network of the Lo- gistics Networks” (Ballot et al., 2012). Zhong et al. (2017) suggested that using principles of the Physical Internet, food supply chain management for food handling, movement, storage and delivery could be transformed towards global logistics efficiency and sustainability. Ac- cordingly, that would lower costs and waste associated with food supply chains.

According to Treiblmaier et al. (2016), the Physical Internet is receiving more and more atten- tion from academics and practitioners. However, there is very limited literature concerning food delivery in the Physical Internet. Pal et. al. (2017), Kilinc (2018) and Keizer (2018) have examined factors that enabled food distribution in the Physical Internet. Specifically, re- searches focused on particular aspects such as freshness, food safety and efficiency increase.

Moreover, Kilinc (2018) and Keizer (2018) examined critical design requirements for the Phys-

ical Internet for long-range seafood and fresh bread deliveries. However, the authors focused

on the future PI-system which does not provide any immediate guidelines for further steps of

the implementation of the PI system in the current logistics system.

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2 The aim of this thesis is to expand knowledge of food transportation in the Physical Internet, determine existing components of the Physical Internet in the current logistics system, design and validate PI components that could be already implemented in the existing system. Based on this aim, the research question is formatted:

“What functionalities of a PI-system can be found in the current dairy transportation system and what are the next steps towards the PI-system’s realization?”

The structure of the research is as follows:

1. Theoretical background of the Physical Internet, food distribution in the Physical Inter- net and dairy distribution.

2. Research methodology 3. Analysis

4. Solution design

5. Validation of the design 6. Discussion

7. Conclusion

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2. Theoretical background of the Physical Internet and the dairy products supply chain

In order to present the theoretical background of the Physical Internet and the supply chain of dairy products, available literature with respect to the topic has been reviewed. First, literature of the Physical Internet and its components are presented. Later, research on food distribution in the PI-system, followed by dairy products supply chain is discussed. The aim of this chapter is to provide all required knowledge for the previously stated research question.

2.1. The Physical Internet

As presented before, the Physical Internet is an emerging concept of a new logistics system. In literature, the PI has been defined as an open global logistics chain founded on physical, digital and operational interconnectivity through encapsulation, interfaces and protocols (Ballot et al., 2012). The urgency of a new logistics system appeared because of numerous existing symp- toms of societal, environmental, economic unsustainability in the logistics system. Those symptoms are stated by Montreuil (2011) and presented below;

1. Inefficient packing and use of space 2. Returns of empty containers

3. Low supply and high demand for truck drivers 4. The inefficient storage of products

5. Low efficiency of production and storage use

6. A significant part of products in storage is never utilized 7. Products do not reach users that need them most

8. Undeveloped inter-modal transportation 9. Inefficient inter-city logistics

10. The unproductive routing system of the products

11. Lack of safety and robustness in the network of logistics 12. Difficulties in justifying smart automation and technologies 13. Limited possibilities towards innovation

The vision of the emerging PI-system aims to address current issues mentioned above by fol- lowing principles of automation, decentralization, openness and modularity. The main ques- tion that emerges is how to face the grand challenge of reversing the pattern of unsustainability in the current way we transport, handle, store, realize, supply and use physical objects around the world and create a hyper-connected network (Montreuil, 2011).

2.1.1. Components of the Physical Internet

In order to achieve the vision of the PI system, there are several physical components that

have been researched: π-containers, π-nodes and π-movers. The π-container is the fundamen-

tal unit load that is moved, handled and stored in the Physical Internet. The π-nodes corre-

spond to the sites, facilities and physical systems of the Physical Internet. The π-movers

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4 transport, convey or handle containers within and between nodes of the Physical Internet (Montreuil, 2010).

The π-containers

It is important to realize that the PI does not manage physical goods directly, rather it operates containers that are specifically designed for the Physical Internet and encapsulate physical products in them. These specifically designed containers are called π-containers. The π-con- tainers are the goods containing cargo that actually is operated, stored and routed through the systems and infrastructures of the Physical Internet. It is essential that such a system contains standardized logistic loads that are accepted and implemented worldwide. Only in this way the facilitation of handling, storage, transportation of physical nodes can become reality and be protected (Montreuil, 2010).

There are many requirements concerning physical characteristics of containers too. In order to achieve previously stated goals, containers must meet the requirements of being easy to handle, store, transport, seal, interlock together, load, unload, assemble and taken apart. Sizes of the π -containers are flexible and can come in a variety of modular dimensions. As envisioned the PI system will also transport food and the π-containers can also have conditioning capabilities such as temperature, humidity and vibration control (Montreuil, 2010). Taking the informa- tional side of the π-container into consideration, it should contain the unique worldwide iden- tifier that is physically and digitally attached to the π-container in order to ensure π-container’s identification, integrity, routing, conditioning, monitoring, traceability and security through the Physical Internet. Current innovations such as RFID and/or GPS technologies are perceived as being suitable to equip the π-container (Montreuil, 2010).

Keizer (2018) introduced an idea of PI-modules as re-attachable devices which can be added to a π -container and provide it with additional functionalities such as climate control, advanced sensing and communication, additional security and provision of power.

In order to support the implementation of modular π-containers, Lin et al. (2014) proposed a mathematical model which allows a user to choose the appropriate size of containers in order to maximize the utilization of the space. Also, research indicated that the usage of modular containers increases the utilization of space.

The π-movers

In the envisioned Physical Internet system, π -movers are responsible for moving π -containers

around. Moving is an expression of activities such as transporting, conveying, handling, lifting

and operating. There are three main types of π -movers: π -transporters, π -conveyors, and π-

handlers. The set of π-transporters conceptually includes specifically designed π-vehicles (self-

carried such as π-trucks, π-locomotives, π-boats, π-planes, π-lifts, π-robots) and π-carriers

(which have to be moved by π-vehicles or by π -handlers as π-trailers, π-carts, π-barges, and

π-wagons). The π-conveyors could be perceived as an automated conveyor system (rollers or

belts to support the smooth movement of goods) and π-handlers as humans. All these movers

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5 must fulfil the condition of interconnection with all parties in order to enable movement of π- containers (Montreuil, 2010).

The π-nodes

The π-nodes are designed to perform operations such as receiving, moving, routing, sorting, handling, placing, storing, assembling and shipping π-containers. The role of π-nodes is to interconnect with logistic activities, consolidate and optimize the transportation of unit loads.

Diverse nodes are needed in different settings such as switches (i.e. switching from one trans- portation mode to another). The π-nodes contain a number of key attributes, such as speed, handled dimensions of π-containers, capacity, modal interface and accepted duration of stay.

Clients can use information provided by π-nodes to make a decision (e.g. making an order or not) as well as the Physical Internet that makes optimized decisions for routing purposes (Mon- treuil, 2010).

Fazili et al. (2017) compare results of the performance in the PI-system versus the traditional logistic system in order to compute pros and cons of the PI from the perspective of a truck driver and routing in Canada. Their research concluded that the PI reduces driving distance, driving time, greenhouse emission and social costs of the drivers and increases the number of containers transferred.

2.2. Food supply chain

In this section, the theoretical background of food distribution in the PI-system and dairy dis- tribution in the current logistic system is presented.

2.2.1. Food distribution in the Physical Internet

Research regarding fresh food distributions in the Physical Internet is very limited. Only Pal et al. (2017), Kilinc (2018) and Keizer (2018) analysed food distribution in the context of the Physical Internet.

Pal et. al. (2017) focused on presenting a designed architecture which combined fuel-efficient delivery of fresh food not only in different stages of the logistic pipeline but also in the com- bination of worker-friendly delivery scheduling for drivers. An important aspect of the research is that food freshness is combined with different kinds of food transportation. Outcomes of the research showed that simulated architecture reduced driver’s away-from-home time by 93%

and improved delivered food freshness by 5%.

Kilinc (2018) analysed the requirements and needed functionalities of the PI system for per-

ishable food (sashimi) during long-distance deliveries. Findings concluded that the most im-

portant requirements are the consideration of container size, next shipment search, shipment

matching, failures of the system management, responsibility of container owner, sense, track-

ing, communication, sanitization of the containers. However, deliveries using sea transporta-

tion were ignored due to the high perishability of the product.

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6 Keizer (2018) conducted extensive research on critical aspects of food supply chain manage- ment in the contexts of the PI. The research documented a case study of a fresh bread company.

His findings present that proper climate control, advanced monitoring of products, cleaning and emergency handling are critical aspects for the safe transport of perishable food in the PI- system. Additionally, Keizer (2018) introduced a novel design of ad-hoc installations for each transport using PI-modules, which would allow the PI to handle cold storage and food products directly by the PI-system.

Both Kilinc (2018) and Keizer (2018) noticed that the current food transportation system al- ready contains some aspects of the envisioned PI system. However, in their research, these authors have focused on designing a system in the envisioned PI context. The current level of research is lacking knowledge of what components of the envisioned PI system can be found in the current food distribution system and what could be the next step towards the realization of the Physical Internet.

2.2.2. Dairy products supply chain

There are several authors that discuss the dairy products essentiality and issues related to on- shelf availability (OSA) (Mckinnon et al., 2007; Reiner et al., 2013). Both authors emphasize that dairy products are an essential part of customers’ diets. Dairy products comprise 10% of grocery sales in Western retail markets (Reiner et al., 2013) which makes OSA in the super- markets a significant aspect of retail sales. Both authors analysed ways to improve in-store logistics and consequently the OSA.

Cai et al. (2013), Ghadge et al. (2017) and Adenso-Diaz et al. (1998) emphasize issues that arise in dairy products transportation. Poor road infrastructure, legislation, special transport conditions, perishability of products, unexpected disruptions were main issues that are faced by transporting dairy products. Facing these issues dairy waste is inevitable. Göbel et al. (2015) found that dairy products are mostly wasted in production process due to technical issues, in later stages, a best-before date has significance due to the fact that customers wish to have fresh products with the longest shelf life. Additionally, the authors identified food waste to be caused due to lack of legal requirements, market demand, and hold-up logistics.

Pant et al. (2015) and Regattieri et al. (2007) focused on the importance of traceability of dairy

products. Due to liberalization of trades and globalization of food trades, there is a bigger in-

terest in the safety of food, consumers want to know what food supply chain their food has

followed (Pant et al., 2015). Additionally, in the current economic system with high competi-

tiveness between companies, an efficient system that would allow suppliers to transmit infor-

mation about products, the system would significantly reduce operational costs and increase

productivity. The traceability system could contain safety elements such as showing what was

the supply chain that food has followed (Regattieri et al., 2007). Regattieri et al. (2007) sug-

gested a traceability system for cheese with additional of 0.5% increased costs which allow

suppliers and customers to retrieve supply chain information at any time.

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7 Ackerley et al. (2010) presented safety hazards and preventive controls of food transportation.

The author detected that refrigerated and ready-to-eat foods (which include dairy) are 4

^th

most risky foods to transit and 2

^nd

most risky to educate employees regarding the correct behaviour for its handling. Additionally, ready-to-eat food category is ranked as the 3

^rd

riskiest category which includes all kinds of transportation. High risk is due to the fact that foods need proper refrigeration, are sensitive to the environment and are perishable.

In Appendix 2 a table presents a summarized list of authors, their field of interest and contribu- tions to the dairy products supply chain.

In the last decade, the importance of dairy product distribution has significantly increased. This

has led to higher standards of quality, safety and availability. However, dairy products are some

of the riskiest products to distribute due to factors as the perishable nature of the product, re-

quired stable temperature during the entire way of the supply chain. By using elements of the

PI, the dairy products supply chain could benefit significantly as for companies it would allow

to create a dairy supply chain which would be not only more traceable, safe and available for

a variety of populations, but also reduce operational costs.

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3. Methodology

In this chapter, steps and the method of the research execution is described. The chosen method is a design science research (DSR). The aim of this research strategy is to create knowledge that can be used to design and implement changes in the industry to achieve desired solutions (van Aken et al., 2016). DSR is motivated by the desire to improve the environment by imple- menting new innovative processes (Hevner, 2007).

The main purpose of this research is to create knowledge that can be used for food products transportation in the Physical Internet. This section will detail the research question, research design, data analysis, solution design and solution validation which is used to answer the re- search question.

3.1. Research question

In order to answer the research question related to dairy products transportation in the Physi- cal Internet, the question is divided into sub-questions.

The research question is as follows:

“What functionalities of a PI-system can be found in the current dairy transportation system and what are the steps towards the PI-system’s realization?”

Sub-questions:

1-What PI functionalities can be found in the current dairy product transportation sys- tem?

1.1. How the current supply chain manages dairy product transportation?

1.2. What are the critical aspects of the current dairy transportation system?

1.3. What is known about dairy product distribution in science?

1.4. What PI functionalities can be found in the current dairy distribution system?

2-What PI-system’s elements could be used in the current dairy product transportation system?

1.3. What is known about dairy product distribution in science?

2.1. Considering current technological and scientific developments, what PI components can be implemented in the current dairy transportation system today?

2.2. Is the proposed solution possible and necessary in the current transportation system?

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9 3.2. Research design

Hevner (2007) proposed three design research cycles that will be presented in a research paper.

As presented in Figure 1, the DSR cycle consists of three cycles which include the relevance cycle, design cycle and rigor cycle. The relevance cycle begins with the identification of prob- lems, opportunities and requirements in the existing environment. Data for this cycle will be retrieved from a case study at a dairy product company, Unilac Holland. The rigor cycle gives the foundation of a theoretical background combined with the knowledge gained from previous experiences and expertise to ensure the innovativeness of the design. Information for this cycle will be retrieved from a literature review of dairy product transportation. The design cycle generates designed alternatives and evaluates them until a satisfactory result is achieved. Inputs for this cycle come from rigor and relevance cycles (Hevner, 2007).

Figure 1: Design research cycles

Additionally, Wieringa (2009) introduced four phases within the regulative cycle to solve the design science problem:

1. Problem identification 2. Solution design 3. Design validation

4. Solution implementation

Figure 2: Regulative cycle of the DSR by Wieringa

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10 Since the PI is an envisioned system and scope of the research ends with the validation phase, the solution implementation cannot and will not be analysed. Steps of the research are pre- sented in Figure 3. Steps are based on a combination of three relevant phases that are suggested by Wieringa (2009) and three design cycles suggested by Hevner (2007). Every phase contains specific steps, and they are presented more in detail below (Figure 3).

Figure 3: Conceptual model of the design

3.2.1. Problem identification and data analysis

Data and requirements for the design are needed in both processes mentioned previously. The

researcher used an explorative interview with an export manager from Unilac Holland to col-

lect data and insights about dairy transportation process in long-distance markets (relevance

cycle). A small number of case studies cannot provide knowledge for all scenarios, however,

Unilac Holland is focusing on very critical and complicated logistics, which provides research-

ers with beneficial information for designs. This information will be taken as a pilot and re-

engineered to estimate the current operational scenario, requirements and functionalities for

today’s dairy transportation system. Additionally, since design science requires an analysis of

an external knowledge base and a generic design that can be used to implement the design in

different contexts, external scientific knowledge will be researched, evaluated and considered

in the creation of a design (rigor cycle). Consequently, the collection of requirements for the

design will include an evaluation of the current literature of dairy transportation.

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11 The goal of this section is to research what PI-system components can be found in the current dairy product distribution system both from a case study and the theoretical background of dairy products. The final deliverable of this section will include the critical requirements for the solution design phase.

3.2.2. Solution design

As mentioned previously, existing literature cannot provide a design solution for dairy product transportation in the PI context and any further guidelines for the PI-system realization today.

Consequently, the solution design phase will start by transforming previous research require- ments and functionalities into a generic design. The basis of this system is obtained by the research and reverse engineering, which means that requirements and needed functionalities of the dairy product transportation were collected and are based on literature review and industrial insights provided by the dairy products transportation company. This will result in a designed system which provides novel design decisions and knowledge to design science. The goal of this phase is to discover the next possible steps toward the PI-system realization.

3.2.3. Solution validation

Wieringa (2009) describes design validation as a knowledge task in which it is asked whether the specified design if implemented correctly, would indeed bring stakeholders closer to their goals. Typically, in order to test design validity, an internal/external validity and trade-off would be examined (Wieringa, 2009). However, the Physical Internet system is an envisioned system, so any kind of technical implementation and validation is not possible. Another way to examine validity is through field study (Wieringa et al., 2007). In this kind of validation experts in a field can give valuable insights about the research. For this study, a validation workshop of design architectures is proposed.

This workshop will contain an expert in the dairy transportation system. One to two hours recorded session is planned in order to find out the feasibility and flaws of the designed system.

Results are presented and feedback implemented into research.

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4. Analysis

In this section, analysis of the current dairy products transportation system and existing theo- retical background will be presented. The goal of this section is to evaluate what PI-system’s components already exist in the current dairy distribution system and provide needed require- ments and functionalities for the design solution which will contain the next step towards the Physical Internet realization.

4.1. The Case study of the Unilac Holland company

Unillac Holland is working on a dairy product delivery to all continents outside of Europe. The key strength of the company is that they focus on complicated cases of dairy transportation as transportation between continents requires heavy work to ensure that products are fulfilling the requirements of the importing country. In case the order is not fulfilling the requirements of the customs, an order will be not allowed to reach its final destination to the end-customer. The staff that works on the regulations form about 70% of all employees of the company.

Dairy products are brought by vans from leading manufacturers throughout Europe, assembled in a company’s warehouse and sent to the end-customer. Due to increased road taxes, a com- pany is continuously searching for alternative kinds of transportation, which consequently might limit their flexibility.

The company focuses on diverse deliveries which contain different kinds of dairy in one pack- age-container however, a container always contains products that require the same temperature conditions. 80% of deliveries of Unillac Holland contain various kinds of cheese; however, the company is always open to diversify deliveries according to their customers’ needs.

About 90% of all deliveries are conducted by sea transportation. Since sea transportation takes longer time, the company focuses on products that have a shelf life up to 6 months. Shipments that require faster delivery are conducted by aircraft. However, air transportation brings a lot of issues concerning conditions of the delivery. The main issue concerning air transportation is that the moment a company gives the order for the carrier they cannot control the temperature of the order. Sometimes orders need to have a transfer which makes an order face unfavourable conditions (as unstable temperature control). There is no tracking system to know if the order is cooled enough at the needed temperature. Besides that, air transpiration in comparison to sea transportation costs 10 times more, which increases the price significantly. Consequently, sea transportation is the one that Unillac Holland company prefers.

When a company assembles the order, they use 3PL in a form of operators. Operators are re-

sponsible to deliver orders from the company to the end-customer. Responsibilities include

finding a needed container, ordering transportation from the company to the vessel and finding

a free spot on a vessel.

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13 The moment a container is loaded on a vessel, the carrier takes the responsibility. However, there is no tracking system for the container and the company can only know the location of the vessel. Also, there is no information about the conditions of products that are inside the container. In every shipment, a company has a temperature recording system, however, infor- mation can be retrieved only after it is sent back to the office from the final destination. Unilac Holland faced a situation when a container arrived fully frozen, which resulted in significant monetary expenditures.

Unilac Holland is willing to ship small amounts of products at the time and a company prefers to send as frequent shipments as possible resulting in often consolidation of the space in the container.

The case study had concluded the following success factors in the current dairy product transportation system in long-distance transportation (sorted by importance):

1. Assure that products/orders meet the regulations of the importing country.

2. Keep the order of needed conditions during the process of transportation.

3. Assure efficient planning of the product ordering

Case study concluded that the following factors would facilitate improved company op- erations:

1. Smaller container sizes

2. A tracking system in the containers (food, container’s conditions, location) 3. Lower costs and more safe air transportation (or an alternative)

4.1.1. Importance of sea transportation

According to Ackerley et al. (2010), 60% of all transported food is transported by the sea. Even this kind of transportation faces risks such as contamination, temperature abuse, improper load- ing/unloading procedures it is still mostly used kind of transportation in the logistics sector. As mentioned before, according to a Unilac Holland representative sea transportation is usually chosen not only because of lower costs but also due to safety and transportation conditions control during the process. However, air cargo is used in case of unexpected extreme situations or for high perishability of their products. Because the company prioritize sea transportation, the researcher will perform an analysis based on this kind of transportation.

4.1.2. Stakeholders analysis of the dairy transportation process

Suppliers (Factories)

Suppliers provide a middle man with products that the end user ordered. They receive a re-

quired order and send an approval. Suppliers pack products which are unpacked only when

they reach end-customer. The supplier can send various products for different orders at once

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14 which later will be attributed to various orders. The main goal of the supplier is to provide high-quality products, ensure safe packaging, create long-term relationships with their custom- ers (a middle man) and earn a profit of the production.

The Middle Man

In this case, the middle man is both a customer and a supplier. There is a thin line between both functions as one action significantly influences sequential actions. As a customer, the middle man has to order needed products and deal with the transfer of products from the factory to their warehouse. The main goal of the middle man as a customer is to get requested transfers at the right time and in the most resource efficient way.

When a middle man is a supplier, he has to perform a number of tasks: ensure that products can be ordered, labelling is correct and that all products follow regulations of an importing country. The main objective of the middle man as a supplier is to provide his customers with all desired products, manage shipments that are on time and in required conditions and ensure needed documentation for imports.

Operators

Operators manage the containers’ route from the warehouse to the vessel. They are responsible for finding containers, ordering the transfer from a warehouse to the seaport and ordering the place in the vessel. The main goal of the operator is to ensure needed transportation and avail- ability of the required container and spot in the vessel at the most efficient costs.

Carriers (Vessel agents)

Carriers ship goods from the port to the final destination. They are responsible for ensuring safe and on-time delivery and maintenance of containers. Their goal is to deliver goods on- time and guaranty the safety of the containers on board.

End-customer

The main objective of the customer is to receive their order in the expected time frame and quality at the lowest cost.

Authorities (of the countries that goods are imported)

Documentation is one of the most critical part of dairy product transportation. Containers will not be allowed to pass through customs unless all documentation is according to regulations.

The main goal of the authorities is to ensure that imported goods are safe and follow local regulations of the import.

Transportation companies

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15 Transportation companies carry orders from suppliers to the warehouse of the middle man.

Transportation companies are hired by the middle man. They are responsible for on-time de- livery and to provide necessary conditions for products. The goal of each transportation com- pany is to deliver orders from factories to the warehouse on time, safely, according to ATP regulations and maintain the quality of orders.

A use-case scenario can be found in Appendix C.

4.2. The role of the PI in the current dairy product transportation system

One of the research sub-questions that needed to be answered was “What PI functionalities can be found in the current dairy product transportation system?”. The following section will ex- pand on similarities between the current distribution and the envisioned PI systems.

Findings

The case study of Unilac Holland concluded some unique aspects of the current dairy distribu- tion system. The analysis showed that the company is a middle man for many of processes within dairy product distribution. In this case, a middle man receives an order from a customer, orders various products from different factories, ensures regulation, unloads, rematches and loads orders, uses outsourced operator, transporter and carrier services and delivers the prod- ucts to the end-user. Theoretically, the moment orders leave the warehouse, it is not a respon- sibility of the middle man to track the route of the order; however, in case of failed operations, the middle man is the one that faces monetary loses. In Figure 4, an operational scenario is presented together with emphasised parts of the operations that have similarities with the PI concept.

Findings showed that the actions of a middle man are similar to PI-system’s hubs. In the PI system, hubs perform operations such as receiving, moving, routing, sorting, handling, placing, storing and assembling π-containers by using π-nodes and π-movers. Currently, products usu- ally arrive from various factories, they need to be unloaded, unmatched, matched and loaded.

However, currently, the middle man is a physical firm that manages the route of the container and not a technologically advanced, interconnected and facilitating system.

Another finding concerning similarities of the PI is decentralized part of operations. The com- pany outsources the logistical part from the supplier to the warehouse (a hub in the PI-system), from a warehouse to the port and from port to the end-customer. Main outsourcing partners are operators that are handling the container between the warehouse and a port. The company send a project with tasks such as a search of a needed container, a spot in a vessel, transportation between the warehouse and a port.

Even the container is managed by the outsourced companies and not managing itself, there are

elements of the decentralization involved, which is following the principle of the PI.

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16 The current dairy transportation system showed that there is a step made towards Physical

Internet development. The case study was executed in a company that had no previous

knowledge of the Physical Internet concept, however, operations inside the company partially

resemble the envisioned PI-system. However, in order to manage dairy transportation system

in the most efficient way, critical requirements should be taken into consideration. In the next

two sections, the critical requirement of dairy transportation system will be presented and eval-

uated.

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Figure 4: Operational scenario of the current dairy products transportation system

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18 4.3. A literature review of current requirements of dairy transportation

Transportation equipment

There are strict and special regulations established for perishable products transportation. An Agreement on the International Carriage of Perishable Foodstuffs and the Special Equipment to be used for such Carriage (ATP) is a standard for international transportation of perishable food which describes types of equipment and conditions that need to be used to transport per- ishable food in order to ensure the highest safety. Containers that are used to transport dairy products must meet ATP’s requirements must be able to carry on a temperature that in not lower than + 6 °C. (ATP, 2014)

Proper temperature control

Fresh dairy products are very sensitive to the external environment. Consequently, the process of warehousing, cold storage facility and distribution needs to be carefully designed to meet quality requirements (Ghadge et al., 2017). According to Ackerley et al. (2010), one of the biggest safety hazards that appear in food transportation is improper refrigeration or tempera- ture control. Additionally, dairy products were indicated to have a high process of warehous- ing/storage related risks due to improper packing, loading, refrigeration etc. To ensure proper temperature control during aircraft transportation, temperature-controlled envirotainers were introduced to the market. They allow safe transport of perishable products such as dairy (Baxter et al., 2014).

Pre-shipment handling

Proper handling before shipment is very important for the sensitive product as dairy. According to Göobel et al. (2015), a lot of food waste of dairy products are linked to technical issues as defects in machinery, unclean machines. Additionally, according to Ackerley et al. (2010), chilled and ready to eat products (such as dairy) are fourth riskiest product group due to risks that are related to improper holding practices for products that are awaiting shipment.

Appropriate fulfilment of regulations

Due to recent disease outbreak, liberalization of the trade, globalization of food trade and tech- nological advancements, consumers highlighted greater standards and awareness of products’

safety concerns, risks, health and high and consistent quality. These demands are supported by

national and international regulations and legislation in the area of food quality and safety as

well as trade laws of the world trade organization (WTO) (Trienekens et. al, 2012; Pant et. al,

2015).

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Transportation disruption management

Export markets are much more profitable than home markets: however, it involves much higher risks of delivery disruptions. Export markets are mostly served by transportation services that are publicly available. Consequently, when the service is significantly disrupted due to causes such as weather, human-related disasters or machinery failures, the responsible party faces an issue of how to handle these situations (Cai et. al, 2014). According to Yliskyla-Peuralahti et al. (2011), in the case of disruption, exports such as cheese products were the first to suffer and expensive measures are needed to adjust exports. A proper management system of disruptions would help cope potential losses of unscheduled risks.

Traceability

In the current economic system with high competitiveness of companies, customer’s satisfac- tion is the instrument to lead. A traceability system which can produce accurate, timely, com- plete and consistent information about products could meaningfully reduce operational costs, ensure the safety of products and consequently increase the satisfaction of the customer. Addi- tionally, a traceability system could provide effective research in case of illness caused prob- lems. According to Pant et al. (2015), the quality and safety of dairy products depend on the whole supply chain which gives a traceability system even greater importance.

The literature review concluded the following to be success factors in the current dairy products transportation system:

1. The provision that transportation equipment satisfies ATP requirements 2. Stable and required temperature control throughout the entire supply chain 3. Minimization of production loss due to poor pre-transit conditions

4. Fulfilment of all needed legal requirements for transportation of dairy 5. Be able to manage unexpected disruptions of the order

6. Secure product safety and monitor the whole supply chain

4.4. Evaluation of requirements in the dairy transportation system

The analysis of the case study and the literature review provided critical requirements for dairy product distribution. Most of the critical aspects of the literature review agreed with the critical factors mentioned by the company. However, since the company works as a middle man and outsources some processes, criticality of requirements shifts to other parties and was not men- tioned by the company.

The evaluation scheme is presented in Figure 5. In the evaluation scheme, three parts are in-

cluded. On the left side is the basis of the PI-system, which was mentioned in section 2.1 by

reviewing the concept of the Physical Internet. The main purpose of including this part is to

evaluate what number of components are already indicated as existent or important by the dairy

product distribution example (Unilac Holland company) and the knowledge base. Factors that

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20 are outlined in purple colour signify that the existent system contains at least some character- istics from the envisioned PI-system. These aspects were mentioned in the section above. Char- acteristics that are outlined in red colour imply that they are not yet implemented in the current system but are needed and perceived as significantly helpful for operations.

On the right side, critical requirements from the analysis of the knowledge base are presented.

Requirements without outline have been mentioned as critical by the case study. Outlined re- quirement (in purple) is not mentioned by the case study as critical due to the fact that other parties are responsible for this function. Lastly, the requirements that are outlined by red colour are mentioned in the case study as not yet implemented in the current system but are needed and perceived as significantly helpful for operations.

Importance of the regulations

Neither Keizer (2018) nor Kilinc (2018) emphasized the criticality of regulations in the fresh food distribution in the PI-system. Only Keizer (2018) proposed general remarks towards leav- ing regulations out of scope as it could increase the complexity of the design. However, as mentioned before, during the interview with an export manager and analysis of dairy products distribution it was clear that fulfilment of regulation is critical to the success in the fresh food distribution and without this function, there will be no possibility to perform distribution. Con- sequently, it will be added as a critical requirement.

Figure 5: Evaluation of requirements in the current dairy distribution system

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Requirements for dairy products distribution for the design phase

After the evaluation of critical requirements from the case study and the knowledge base, this chapter will generalize critical requirements and combine them into functions that will be used in the design phase.

Disruption management

The importance of disruption management for dairy products has been emphasized by both a case study and the knowledge base. Since dairy product transportation requires cooling condi- tions and are time sensitive any disruption might end up by the loss of the order and massive waste. Disruption management is also a part of an envisioned system of the PI. In the PI system, orders will have a possibility to be re-routed in case of the possible spoilage, as well as, it will be possible to monitor conditions of food that is inside. However, in the current distribution system, disruption management is close to non- existent due to the fact that there is limited knowledge of the conditions of the food products in the container. Additionally, the system is not interconnected, and it is nearly impossible to re-route the container as a carrier would reject a request to unload a container earlier than projected (Export manager, 2019). Whereas the criticality of disruption management is clear, the disruption management functionality will be used in the combination of the novel design that will be presented in the next section.

Container traceability

Today, container traceability is still an existent issue as only very limited information is avail- able considering the location of the container during transportation between a sea-port and end- customer. Since the company (Unilac Holland) delivers products to all continents but Europe, the delivery time from the port to the end-customer can take weeks. Consequently, it limits the knowledge about the status and location of the order.

As expressed by an export manager, theoretically the carrier (the vessel agent) is responsible to ensure the safety and timely delivery of the order, yet in the end, the company is the one that is responsible for its clients, as a result, this requires the monitoring of the order all over the process.

In the knowledge base traceability is mentioned as a way to increase the competitive advantage

of the company. The ability to transmit timely information of the products could be seen as a

way to increase safety and transparency (Pant et. al, 2015). In addition, traceability in the en-

visioned PI-system is an important function as it would allow making an emergency decision

in case the order is not able to safely reach end-customer. Moreover, information that con-

tainer’s traceability system would provide, would allow determining the container’s delivery

time, re-routing options and etc. The depth of the container’s traceability function will be pre-

sented later on in the solution design section.

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Dairy products transportation regulations

As mentioned before, authors that analysed food distribution in the Physical Internet did not underline the importance of regulations for imports. This could be due to the fact that as men- tioned by Keizer (2018) this adds additional complexity to the design of the envisioned PI- system. However, dairy products are highly regulated and all products that are ready to be imported must come from certified and approved factories. Furthermore, in the knowledge base, the importance of regulations is increasing due to reasons as liberalization of trades, dis- ease outbreak, higher standards from end-customers and etc. (Trienekens et al., 2012; Pant et al., 2015). As a result, it is highly possible that the supervision of product regulations will be a critical aspect of the food distribution in the PI, especially to animal-based products. Conse- quently, this functionality will be presented in the solution design section.

Temperature control

Not only a case study and a knowledge base but also the envisioned PI system underline the criticality of the stable cooling temperature for successful dairy transportation. However, cur- rently, there is very limited control over the temperature in the container. According to the middle-man, today the company can only set a temperature at the specific degree and expect it to stay stable during the process of transportation in a vessel. In respect to the necessity and criticality of the temperature control, this function will be included and discussed in the solu- tion design section.

5. Design solution

The design phase of dairy product distribution is based on different domains. First, the design will reflect previously re-engineered operational scenario and critical requirements of dairy product transportation. This section starts by proposing novel design decisions and is followed by the presentation of functional architecture. Hierarchical diagrams and interaction diagrams in the IDEF0 modelling language are used to portray a system. The goal of this section is to answer the question “What PI-system elements could be used in the current dairy product transportation system?”.

5.1. Solution design

The main purpose of the solution is to propose a feasible idea, that could be implemented in

the near future and that would bring the concept of PI-system closer to the realization. The

proposed solution is created by incorporating three components; current problems that were

detected in the case study, problems that were researched in the knowledge base and elements

of the envisioned PI system.

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A multi-functional container

The novel idea for the current transportation system is a multi-functional smart container (Fig- ure 6). This container is the same size as current containers (20/40 ft.). The container contains three different storage rooms that are isolated one from each other. Every room contains dif- ferent temperatures which allow transfer more various products at one shipment. A container holds additional functionalities such as:

1- Immediate temperature monitoring 2- Container’s location monitoring

3- Parts are able to be separated, which would allow to use them as a portable container for a last-mile delivery to reach an end-customer.

The realization of the container would bring numerous benefits such as an allowance to avoid cross-contamination between products, shipment of a variety of products that require different temperature conditions, information for emergency management and the possibility to consol- idate space for other parties.

Nevertheless, main drawbacks opposing the idea is that a smart container will require addi- tional investments and might be rejected by carriers due to the possibility to monitor the quality of services that the carrier provides.

Figure 6: Multi-functional container

In the next section, the functional design using hierarchical and interaction diagrams will be presented. The functional design will contain the re-engineered system of the current dairy transportation system in combination of design decisions of the multi-functional container.

5.2. Functional design of the envisioned system

The first function (-1) is designed to show an external context of the central function (0). A

function (-1) is decomposed by several functions ((-11) supply products and (-12) receive prod-

ucts) with the aim to provide a broad view of how functions are dependent on each other. In Figure 7 a hierarchy of the function (-1) in addition to the interaction diagram (Figure 8) is

provided.

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Figure 7: Dash. 1 Supply of dairy products in the current context

(-11) Supply products

Products are supplied by factories from all over Europe. A middle man has to receive an order from the end-customer, process it (e.g. check if the end-customer can import ordered products), prepare labelling/translations and then send an order to the supplier (factory). Factories are responsible for preparing products to be transferred to the warehouse (e.g. pallets, packing).

(0) Transfer products

All functions that decompose this function will be discussed later on. Also, all functions are performed by a middle man and more detailed operational scenario can be found in Figure 4.

(-12) Receive products

A receiver of the products is an end-customer. Mostly the end-customer is either a retailer or a

distributor. The middle-man is using CIF (Cost, Insurance and Freight) incoterm which means

that when the end-customer receives a consolidated container with dairy products it has to be

unloaded from a vessel by the end-customer.

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Figure 8: Interaction diagram of function dash.1: Supply dairy products

5.3. 0: Main functionalities of the envisioned system

The hierarchy of the central functions is provided in Figure 9. It consists of five functions

which describe the flow of products from the point of time when the order is received from the

end-customer (by the middle man) till the moment a consolidated container (with dairy prod-

ucts) leaves a warehouse (functions 1-4) and reaches end-customer (function 5).

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Figure 9: Hierarchy of function 0: Transfer products (1) Manage regulations

Management of regulations is the most critical function in the dairy distribution system. In case the middle-man cannot provide the correct fulfilment of regulations, all related func- tions become irrelevant due to the fact that a container will not be allowed to pass importing country’s customs. Functions that decompose this function will be presented in section 5.4.

(2) Order dairy products from a factory

The lead time of the order can take up to 7 weeks, therefore the process of ordering dairy products is the second most critical activity. When an order is received by the middle man, he has to make sure that ordered products are from factories that are certified by the im- porting country, also that all products will arrive on time, at lowest costs and the warehouse will not require to store them for too long. Moreover, as all dairy products have various shipping requirements (such as temperature) a middle man has to assure that an order con- tains dairy products that demand comparable shipping settings. Functions that decompose function 2 will be presented in section 5.5.

(3) Transport from a factory to the warehouse

The company outsources physical transportation from a factory to the warehouse, however, the company is the one that is responsible for ordering these services. In order to minimize the impact of increasing road taxes, a middle man works on maximizing the consolidation of shipments from a factory. Consolidation is be expressed as order products from a factory that contains dairy products for many orders or sell free space for other companies. Fur- thermore, in addition to previously stated tasks, the middle man is responsible for assuring that all products arrive on time to be re-matched and send to the end-customer. Functions that decompose function 3 will be presented in section 5.6.

(4) Re-match orders

This function is responsible to manage the route of dairy products from the moment an

order reaches the warehouse till the moment it leaves it in the consolidated container. This

function is decomposed by two levels that require detailed explanation and will be pre-

sented in section 5.7.

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(5) Perform additional functions

An additional function was made in order to cover design decisions that were presented in section 5.1. The goal of providing additional functionality to the existent dairy product distribution system is to expand a knowledge base of possible ways to come closer towards the realization of the envisioned Physical Internet system. Functions that decompose func- tion 5 will be presented in section 5.8.

In Figure 10 an interaction diagram of function 0 is presented.

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Figure 10: Interaction diagram of function 0: Transfer products

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29 5.4. 1: Manage regulations

Management of regulations is a complex process that requires a great amount of work and collaboration between parties. This function is decomposed by other three functions that are presented below and supplemented by the hierarchical (Figure 11) and interaction (Figure 12) diagrams.

Figure 11: Hierarchical diagram of function 1: Manage regulations

(11) Certify needed factories

One of the requirements that a middle man must fulfil is the certification of factories that prod- ucts are produced. Every importing country require documentation proving that products in the container are from factories that are allowed to produce and import in their country. However, sometimes when an order is received from the end-customer, it requires products that are from factories that are not certified. In this situation, a middle man has several options such as: cer- tify a factory, find a product in a factory that is approved by importing country or reject it.

(12) Manage needed documentation for the order

As mentioned in the analysis phase a company is working with many different suppliers from Europe and one order from the end-customer mostly contains products from different European countries. As every country has its own regulations which are very dynamic the middle man is responsible for not only continuously observe required documentation but also contact the end- customer and assure that there are no additional changes.

(13) Manage labelling and translation

Labelling and translation management is another function that is required in order to deliver an

order to the end-customer. As mentioned before, the end-customer can be a retailer or a dis-

tributor. The difference between these customers is that a retailer usually requires smaller

amounts, specially packed and labelled products. In contrast, a distributor is focusing on bigger

sizes (e.g. bigger loads of cheese), different labelling and translation. All these factors must

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30 take into account a successful provision of correct labelling and translation which is required to be able to not only ensure the quality of the order but also to be accepted by customs.

Figure 12: Interaction diagram of function 1: Manage regulations

5.5. 2: Order dairy products from a factory

In order to order products from factories, a middle man has to consider and evaluate different aspects such as delivery time, shelf-life of products and possibility to order the required prod- ucts. As a result, the function of ordering dairy products is decomposed in three other functions that are presented below in both the hierarchical (Figure 13) and interaction (Figure 14) dia- grams.

Figure 13: Hierarchical diagram of function 2: Order dairy products from a factory

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31 (21) Collect orders from a customer

Orders can be collected by a couple of ways such as the middle-man is searching for new customers by themselves or customers are contacting a middle-man with a request.

(22) Check the availability of dairy products

When a request of the order reaches a middle-man, he needs to be check and assure that an entire order comes from certified factories and that all of them are feasible to be made by factories on requested time.

(23) Order available products

When the availability of products is checked and labelling with translations is finalized, the order is sent to the factory.

Figure 14: Interaction diagram of function 2: Order dairy products from a factory

5.6. 3: Transportation from a factory to the warehouse

As noted in the analysis phase the middle-man outsources transportation services and orders

are bought by trucks from various European countries. A lower level of three functions that

decomposes function 3 is presented below in both the hierarchical (Figure 15) and interaction

(Figure 16) diagrams.

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Figure 15: Hierarchical diagram of function 3: Transport from a factory to the warehouse

(31) Prepare an order to be transferred

As a middle man outsources transportation services, he has to assure to provide all needed guidelines for factories concerning needed packing and preparation for transportation.

(32) Arrange transportation from factories to a warehouse

As noted previously, due to increasing road transportation taxes, a middle man tries to mini- mize costs and maximize the amount of consolidation of transportation between the factory and a warehouse. Consequently, the middle man arranges the transportation between factories in the most efficient way.

(33) Transport to the warehouse

When transportation is arranged, and products are ready to be transferred transportation be-

tween factories and the warehouse takes a place.

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Figure 16: Interaction diagram of function 3: Transport from a factory to the warehouse

5.7. 4: Re-match orders

Re-match function is very similar to the “hub” function of the envisioned Physical Internet

system. This function is responsible for the path orders follow between entering and leaving a

warehouse. The more detailed explanation is presented below and followed by the hierarchical

and interaction diagrams (Figures 17-19).

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Figure 17: Hierarchical diagram of function 4: Re-match orders

(41) Receive orders from factories

The middle-man receives orders from different factories by numerous transportation providers.

(42) Arrange operator services

The middle-man is responsible for ordering operator services which involve an arrangement of booking an available container, a spot on a vessel, transportation between the warehouse and the seaport. A middle-man must assure that the operator is able to manage these operations in a determined time frame.

(43) Consolidate orders

Consolidation function is presented below.

Figure 18: Interaction diagram of function 4: Re-match orders

(431) Unload

When orders arrive from a factory they are unloaded, split and assigned to the specific place in the warehouse where they stay until the order is ready to be re-arranged and loaded.

(432) Re-arrange

When all products arrive (orders that later are split) from various factories to a warehouse, they are ready to be re-arranged to one order that will be sent for an end-customer.

(433) Load

When orders are re-arranged, they are loaded to the empty container that is provided by an

operator and a middle-man presents all documentation that will be required for customs.

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Figure 19: Interaction diagram of function 43: Consolidate orders

5.8. 5: Performance of the additional functions

Last, an additional function (5) is made for design decisions that were presented in section 5.1.

An additional decomposition of the function is depicted in Figure 20 together with an interac- tion diagram in Figure 21.

Figure 20: Hierarchical diagram of function 5: Perform additional functions

The next step towards the realization of food distribution in the Physical Internet

I